Companies Act 2006: in force from 1 October 2009
The final segment of the CA 2006 comes into operation on Thursday 1 October 2009. Earlier bulletins have covered blocks already brought into operation leaving what's summarised below and in part 2 of this bulletin.
Shareholder rights/ director powers
The company's memorandum and articles of association contain the rights of shareholders, the powers of directors and the procedures for financing and running the company. The CA seeks to modernise all this.
For "new" companies (ie incorporated on or after 1 October 2009) the position is easy. The default constitution, ie the new Table A, is what the new company gets unless the parties devise their own. While longer than previous versions, the new Table A is a considerably more useful tool of reference.
For "existing" companies incorporated prior to 1 October 2009 and those in the middle of corporate change on that date ascertaining applicable law is more difficult because of the transitional provisions.
Exiting companies ask: how does the CA 2006 affect our rights in the articles? Do we need to make any changes to our constitution?
Change to articles - not needed
A specific power to allow the company to reduce its share capital, issue redeemable shares or to buy back its own shares no longer needs to be contained within the articles - so change to the articles is not needed here (ss 641, 690 and 684). (However the directors still need authority from shareholders as to the terms of the reduction, the redemption (unless in the articles) or the buy back.)
Change to articles - might be needed
For single share class companies the directors may now allot shares unless the articles prohibit. So change to the articles might (or might not) be needed here (ss 549 (1) and 550). (However, the CA 2006 law still requires new shares to be offered first to existing shareholders unless pre-emption rights are disapplied in the articles or by shareholders.)
Change to articles - needed
Directors may now change the company name without a shareholder resolution if the articles permit, so a change to the articles is needed here if desired to ease name changing (ss 77(1)(b) and 79).
Also, the company may delete its objects clause (now forming part of the articles), so removing all limitation on what the company can do. Clearly change is needed here too, in order to take advantage.
What shall we do/ what do you advise?
Option1: do nothing. This will be fine for many thousands of companies with the pre CA 2006 Table A or something similar. The downside is some lack of clarity as to what powers the company and its directors actually have.
Option 2: adopt the new Table A in place of the old. This is easy to do and will be sufficient for many thousands of existing owner managed companies that want more clarity/ facility in the constitution at little or no legal cost.
Option 3: review current articles and amend/ adopt new ones. This is especially appropriate for companies with shareholders not involved in the day to day business and for minority shareholders.
The CA is useful here because ss 22, 23, and 24 (in force October 2008) allow minority shareholder's rights to be embedded more deeply (ie less amenable to change) in the articles. (Protections available pre CA 2006, such as the device of weighted voting, also remain available.)
Option 4: follow option 3 plus shareholders' or joint venture agreement. This is especially important where the outside investment is significant. The documents will set out clearly what directors and individuals can and can't do without the participation or permission of others, and will set out extra procedures for good governance.
Option 5: follow option 3 but look to reforms taking place with plc listed companies. This will be appropriate for companies with very large shareholder bases including co-operatives and friendly societies registered outside CA 2006: for example inclusion of provisions for electronic communications and latest best practice for directors' duties/ conflicts and board procedures.
The purpose of CA 2006 is to render company law more accessible to domestic business and inward investors.
For pre CA 2006 incorporated companies (the vast majority for years to come) the transitional provisions arguably render the law considerably more opaque.
For new companies (and for existing companies adopting), the new Table A is a good step forward.
The final segment of the CA 2006 comes into operation on Thursday 1 October 2009. Earlier bulletins have covered segments already brought into operation leaving, in the main, what's summarised below and in part 1 of this bulletin.
The types of charge required to be filed and the 21 days allowed to file remains the same. Section 870 is new: it states how to count 21 days in this context.
Scottish floating charges are now covered by Scottish legislation.
The Slavenburg system for overseas incorporated companies that have granted a charge over assets located in the UK has been dropped. Instead, regulations made under s1052 provide a regime similar to that for GB incorporated companies.
The company may keep its mortgages and charges register available for public inspection at a place other than its registered office. (see also below)
Security given by a company over land, planes, ships and other miscellaneous types of property require registration at Companies House and in other public registers, each with their own rules on priorities and late filing. The CA allows for the making of regulations to harmonise some or all of this - but none will be made in the near future.
Part 34 of CA 2006 sees the introduction of two sets of regulations for overseas companies that establish a place of business, including a branch, or carry on business in the UK.
One set covers the registration of charges as mentioned above. The other covers the following:
- particulars and documents to be registered within one month of opening a UK establishment and again when particulars alter
- delivery of accounts and reports to the registrar by overseas companies that have a UK establishment
- trading disclosures (see below)
- protecting information as to a director's usual residential address.
Names and other trading disclosures
The CA 2006 replaces the Business Names Act 1985. It regulates the provision of identifying information when carrying on business by individuals, partnerships and companies at premises and in correspondence, e-mails, invoices and other trade documents. Part 5 (s 53 onwards) covers companies and part 41 (s 1192 onwards) covers individuals and partnerships.
Key changes include extending existing restrictions on the use of business names to cover all overseas companies carrying on business in the UK (not just those with a place of business in the UK), and any partnership whose members include a company.
As before there are rules on objecting to names, for example if sensitive, although slightly different for companies.
Directors' home addresses
Section 240 defines the director's usual residential address if received by the registrar of companies on or after 1 October as "protected information". This information must not be disclosed by the registrar except as permitted by s 243 (eg credit reference agencies).
If your address was placed on the public register before 1 October 2009 it seems that there are two ways only to protect yourself. The first is to move house. The second is to seek a confidentiality order under s723B CA 1985 because this (and any application pending on 1 October which is subsequently granted) is preserved by transitional provisions.
Location of statutory records
Regulations made under CA s 1136 contain new features of company law. First, a company must retain its statutory records and documents for 10 years (previously no time limit) and allow inspection by members and or public during this time. The relevant records are listed in s 1136.
Second, the records may be located at a place other than the registered office. The location must be in the same area of Great Britain as in which the company was incorporated (ie England, Scotland and Wales). The records and documents must all be kept together. The registrar of companies must be informed of the alternative location.