Companies Act 2006 - Part 1


Nearly all of the act's 1,300 sections remain to be implemented. This will occur in three stages on 1st October 2007, 1st April 2008 and 1st October 2008.

What follows is a round up of provisions applicable to private companies that operate from 1st October 2007.

Directors duties, part 10

The intent of the legislation is to codify directors' duties and to make them more accessible. Currently the duties are scattered in judge made law that's evolved over many decades.

The directors must:

  • Act within their powers - s. 171
  • Promote the success of the company - s. 172
  • Exercise independent judgement - s. 173
  • Exercise reasonable care and skill - s. 174
  • Avoid conflicts of interest - s. 175
  • Not accept benefits from third parties - s. 176

The associated provisions for directors to disclose to the board any personal interest in a transaction or arrangement involving his or her company (ss. 177 and 182 - 187) come into operation on 1st October next year.

The duty to promote the company's success operates from this October. The problem for directors is not knowing the meaning of "promote success". This will emerge only through judicial decisions. There is particular concern about this given the new action against directors. (See below).

The statutory requirements (s. 190) for prior shareholder approval of a substantial non cash transaction involving a director remain much the same. New, however, is section 196. This allows for ratification after the event within a reasonable period.

Service contracts for in excess of two years (currently 5) and loans to directors are permissible if approved by shareholders - ss. 188 and 197.

Derivative action - part 11, sections 260 - 264

This is when action is taken against a director for breach of duty. Two conditions for taking action under current law are:

(a) the wrongdoers must be in control (b) the errant director(s) must have personally benefited. The new provisions omit these requirements and facilitate legitimate claims against directors. Sections 261, 262 and 263 set out whether court permission to proceed with a claim may be given or must be refused.

Fraudulent trading, part 29; unfair prejudice, part 30

The provisions for taking action against directors for trading with intent to defraud creditors or in a way that is unfairly prejudicial to shareholders remain substantially unaltered (see ss. 993 and 994).

Resolutions and meetings, part 13

Notice of meetings for private companies whether passing ordinary or special resolutions is 14 days. The exception to this is the removal of a director or the auditors which, as under CA 1985, require 28 days special notice and the passing of an ordinary resolution to succeed.

Companies will no longer use extraordinary resolutions. An ordinary resolution is passed by 51% and a special resolution by not less than 75% of all the hands voting (or of shares held if on a poll).

A useful change for private companies is the passing of written resolutions which will be effective if passed by 51% or not less than 75% of the entire membership. Currently written resolutions require all members to vote in favor.

The requirement for an AGM is repealed for private companies. Any requirement in the articles to hold an AGM will survive until amended.

Part 8, ss. 116-9: New provisions for the public inspection of the company's register of members.

Part 9, ss. 145-153: Allows the introduction of provisions in the articles allowing the company and an indirect investor, e.g. a beneficial owner whose shares are registered in the name of someone else, to communicate with each other directly.

Part 14, political donations: ss. 362-379: A single resolution from the UK parent is now sufficient irrespective of the number of UK subsidiaries or an overseas parent.

Part 15, s. 417: For accounting periods ending after 1 October 2007 the directors' report must contain a business review unless a small company. See s. 382 for the small company criteria.

Part 16, audit, ss. 485-488: These provisions cover the appointment etc of auditors of a private company. They apply unless the company is able and takes advantage of the small company exemption. The period for appointment is now 28 days from the last date permitted for dispatch of annual accounts or, if earlier, 28 days from actual dispatch.

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