The Companies Act 2006

The Companies Act 2006 (the ‘Act’) received Royal Assent on 8 November 2006 after nearly ten years of reviews, recommendations and consultation. The Act has 1,300 clauses and is believed to be the largest act ever passed by Parliament, consisting of new legislation together with some retained aspects of the Companies Acts 1985 and 1989, re-stated in simplified terms.

An Implementation Timetable was announced by the Department of Trade and Industry (DTI) on 28 February 2007. The timetable confirms that the entire Act will be in force by October 2008, although many elements of the Act will be in place sooner and some parts are already in force.

Some of the key changes in the Act that will affect company secretarial duties, and the implications of these changes for private companies, are summarised below. Please note that although the Act has been passed, the majority of these changes are not yet in force.

Directors and company secretaries

Directors will be given the option of providing a service address to be listed on the public record, while their home address will be held on a separate restricted access record. However, as this will not be retrospective, current residential addresses on the register will not be removed.
It will no longer be a requirement for private companies to appoint a company secretary.
It will not be possible for a company to have a sole corporate director. This means at least one director must be an individual.
A new minimum age of sixteen will be introduced for those wishing to be appointed as a director. The maximum age of seventy for a PLC director was removed with effect from 6 April 2007.
There will be no requirement to list other directorships on appointment forms for directors.
A statement of seven directors’ statutory duties will be introduced to replace the existing common law rules, although such case law will still be used in interpreting the new provisions.
With the consent of its shareholders, a company’s directors will be able to receive loans from the company.

Shareholders

Private companies will no longer be required to hold an AGM.
It will be possible to pass a written resolution with the agreement of the requisite majority of those eligible to vote, i.e. greater than 50% for an Ordinary Resolution and 75% or more for a Special Resolution. The Resolution must be passed within 28 days or it will lapse.
The minimum notice period for all company meetings will be 14 days, although it will be possible to set a longer notice period if necessary. The majority of 95% required to consent to short notice of a meeting will be reduced to 90%.
The concept of authorised share capital will be removed.
Issue of Redeemable Shares and of Bearer Share Warrants will be simplified.
Subject to shareholder approval, all companies are permitted to use electronic communications with shareholders as the default position for communication. This came into force with effect from 20 January 2007.
There will be a procedure to enable companies to convert their share capital from one currency to another.
The requirement for shareholder approval of allotment of shares where the company has only one class of shares will be removed.
A new mechanism for capital reductions for private companies will be introduced as an alternative to the court approval procedure.

Company formation and dissolution

The Memorandum will be a historic document detailing the members who wish to be formed into a company. All regulations of the company will be contained in the Articles of Association.
There will be new, simplified model Articles of Association for a private limited company to replace the current outdated model, ‘Table A’.
There will be no objects clause or restrictions on a company’s powers or capacity to act.
There will be no authorised capital.
It will not be possible to register names that are ‘too similar’ to those on the register, for example, it is currently possible to differentiate a company name by adding (UK) or (GB). This will no longer be acceptable.
A company registered in Great Britain will be able to transfer its registered office between England and Wales to Scotland and vice versa.
A single regime will apply to all overseas companies, to replace the ‘Branch’ and ‘Place of Business’ regimes.
Voluntary strike off from the register will be extended to public companies

Accounts and Auditors

Private companies will be required to file their accounts within nine months of the year end and public companies within six months of the year end.
A company will be permitted to enter into a liability limitation agreement with its auditor, with authorisation from its shareholders.
The auditors’ report must be signed by the senior statutory auditor in their own name, unless there are exceptional reasons why they should not do so.
It will be a criminal offence for a company’s auditor to knowingly or recklessly give an incorrect audit opinion.

For the majority of the provisions not yet in force, we await specific detail on how they will apply to existing companies. Until then, it will be difficult to plan how to deal with them, although some preparation can be made, such as: -

Review Articles to assess whether amendment is required to take advantage of new provisions on the company secretary and annual general meetings;
If corporate directors are used, consider who can replace them; and
Consider whether a ‘one person’ company will be suitable.

If you would like more information on the Companies Act 2006, or would like to explore the implications of the Act on your company, please contact Scott Linsley, Company Secretarial Manager at our London office on 020 7216 4600. Alternatively, please speak to the company secretarial adviser at your local office.

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