-
Section 324 CA 85 was repealed in April 2007 which means that directors are no longer required to disclose their interests in shares to the company and companies no longer have to keep registers of directors interests?
Remember that any reference in board minutes to directors declaring their interests in accordance with s324 is now obsolete.
-
The new directors' duty to promote the success of the company, contained in Section 172 CA 06, will replace the existing common law duty to act in the best interests of the Company with effect from 1 October.
Board minutes will require to be amended to reflect this.
-
From October, there will no longer be a prohibition on companies giving loans to directors but members' approval will be required. This can be done by ordinary resolution, subject to any higher percentage required by the articles.
-
From October 2007 a company will be permitted to enter into an agreement relating to a substantial property transaction which is conditional on shareholder approval. The substantial non-cash asset value will increase from £2000 to £5000.
-
In considering whether their action will "promote the success of the Company", directors will require to take into account 6 (non exhaustive) factors set out in Section 172.
-
The six factors which the directors require to have regard to, when considering their duty to promote the success of the company are:
-
the likely consequences of any decision in the long term
-
the interests of the company's employees
-
the need to foster the company's business relationships with suppliers, customers and others
-
the impact of the company's operations on the community and the environment
-
the desirability of the company maintaining a reputation for high standards of business conduct and
-
the need to act fairly as between members of the company.
(s172 CA 06)
The CA06 codified statement of directors' duties does not cover all duties that a director may owe – there are additional duties in CA06 (e.g. duty to file accounts), additional statutory duties (e.g. under health and safety legislation) and possibly common law duties which are not covered by the codified duties.
-
The government has published a ministerial statement relating to the duties of company directors, collecting together useful comments and responses made by Ministers during the new Companies Act's process through parliament. This can be read at: http://www.berr.gov.uk/files/file40139.pdf.
-
Shareholder approval is required for directors' service contracts in excess of 2 years which are entered into on or after 1 October 2007, rather than only those in excess of 5 years which is the current requirement.
Meetings and Resolutions
-
From October, private companies will no longer be required to hold an AGM unless there is a specific provision in the company's articles.
Clients may therefore wish to amend their articles accordingly to ensure they take advantage of this deregulatory measure.
-
Section 281 CA 06 requires that, for public companies, a resolution of the members (or a class of members) must be passed at a meeting of the members. The prescriptive nature of this section means that a public company cannot pass a resolution by any written resolution procedure that may be set out in its articles.
-
Section 281 of the Act requires that, for private companies, a written resolution of members must be passed either at a meeting of the members in accordance with Chapter 3 of Part 13 of the Act or as a written resolution in accordance with Chapter 2 of Part 13.
-
Section 281 of the CA 06 requires that, for private companies, a written resolution of members must be passed either at a meeting of the members in accordance with Chapter 3 of Part 13 of the Act or as a written resolution in accordance with Chapter 2 of Part 13.
The prescriptive nature of this section means that different procedures set out in a private company's articles cannot be used after 1 October and that the statutory procedure must be used.
-
S360 CA 06 gives statutory effect to the clear day rule contained in Table A that in calculating periods of notice for the purposes of notices of general meetings and other purposes specified in that section, no account is to be taken of the day of the meeting or the day on which notice is given.
Care should therefore be taken when sending out notices that these provisions are complied with as they will apply notwithstanding any contrary provision in the articles.
-
A new provision effective from 1 October 2007 requires that, in order to be validly passed, a resolution must not only obtain the right majority but must also be passed using the correct procedures. The procedures to be complied with are those relating to notice of the meeting and the holding and conduct of the meeting which are set out in the new Act and in the company's articles. (Section 301 CA06).
-
CA 06 introduces the concept of eligible members into the new written resolution procedure set out in the Act which means that the written resolution must be sent to eligible members i.e. those entitled to vote on the resolution on the circulation date of the resolution.
Only eligible members can vote on the resolution, even if they have ceased to be members after the circulation date.
-
From October, a written resolution will no longer require unanimity. 75% of members will be able to pass a written special resolution and 50% of members will be able to pass a written ordinary resolution.
-
From October, written resolutions will need to make clear the date on which they are circulated – this is because if the resolution is not passed within 28 days of the circulation date (or a different period specified in the articles), it will lapse.
-
Under the new CA06 written resolution procedure, once a member has signified his agreement to a written resolution, that agreement cannot be revoked.
-
As currently, the written resolution procedure under CA06 cannot be used to remove either a director or the auditors from office before the expiration of their term in office (under section 168 CA06 and section 391 CA85 respectively). In addition, as a transitional arrangement, a resolution under section 80A CA85 to make an election as to the duration of authority to allot shares may not be passed as a written resolution.
-
From 1 October, there will be no such thing as an extraordinary resolution. Any reference in existing documents however will continue to have effect and be construed in accordance with section 378 CA 85 as if the section had not been repealed.
-
From October the notice period required to be given for meetings held for the purposes of passing special resolutions will be the same as that for passing ordinary resolutions - only 14 days' notice (rather than 21 at present), although a public company AGM will require at least 21 days' notice.
-
From October, a private company will only need 90% of its shareholders to consent to a meeting being held on short notice (or a higher percentage specified in the articles, which must not be greater than 95%).
-
The AGM of a public company can be called on shorter notice than 21 days provided that all the members entitled to attend and vote at it so agree (Section 337(2) CA06).
-
Notice of a general meeting may be given in hard copy form, electronic form, or by means of a website, or by a combination of any of these means.
If published on a website, the notice must meet the requirements set out in section 309 CA06 which, amongst other things, require the company to notify a member of the presence of the notice on the website and require that the notice be available on the website from the date of notification until the conclusion of the meeting.
-
Although under the new Companies Act 2006 the notice periods for calling meetings are shorter, for companies subject to the combined code, D.2.4 requires notice of an AGM to be sent to shareholders at least 20 working days before the meeting.
-
If a company has included an electronic address in a notice of meeting, it is deemed to have agreed that any document or information relating to proceedings at the meeting may be sent by electronic means to that address (subject to any conditions or limitations specified in the notice) (Section 333 CA06).
-
Section 313(1) CA 06 provides that accidental failure to give notice of either a general meeting or a resolution to be moved at a general meeting to one or more persons does not render the meeting/resolution invalid. This can be overridden by a provision in the articles (except in relation to certain situations set out in section 313 (2) CA 06.)
-
In a change to the current law, on a vote on a resolution by a show of hands, a proxy will have one vote and anything in a company’s articles which provides that a proxy has fewer votes on a show of hands than the member would have were he present in person will be void.
-
The current "elective" regime will be the default for private companies with effect from October 2007. This means, for example, that private companies will no longer need to "elect" to dispense with holding AGMs– holding AGMs will no longer be required in the first place. Elective Resolutions generally will be a thing of the past.
-
Did you know that the only circumstances in which a company can pass an elective resolution post 1 October 2007 will be in relation to authority to allot shares under section 80A of the 1985 Act- this is being retained until 1 October 2008 as the provisions of CA 06 regarding authority to allot shares do not take effect until that date.
-
Under CA 06, when calculating periods for giving notice, the "clear day rule" applies which means the day of the meeting and the day on which the notice is given should be excluded when calculating the specified length of time (S360 CA06).
-
Effective from October 2007, CA 06 gives members the right to appoint more than one proxy in relation to a meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares.
-
CA 06 provides that the cut off point by which a member must have lodged his proxy in order for it to be valid must be no more than 48 hours before the time of the meeting. In a change to the existing law, weekends, Christmas day, Good Friday and any bank holiday must be excluded when calculating this 48 hour period.
-
From October 2007, a company will be required to keep minutes of general meetings and class meetings, resolutions passed other than at general/class meetings and decisions of a sole member for at least 10 years.
Members' Rights
-
From October, companies will be able to allow members, via a provision in their articles, to nominate a third person to enjoy certain rights in relation to their shares e.g. right to be sent a proposed written resolution or notice of general meetings.
-
From 1 October 2007, a member who holds shares on behalf of others in a company whose shares are admitted to trading on a regulated market may nominate the beneficial owner to enjoy certain "information rights" (S146 CA06), although companies have a grace period until 1 January 2008 to act on a nomination.
Statutory Derivative Actions
-
From October 2007, a derivative action may be brought by a shareholder for a wider range of circumstances than is currently permitted – the claim will be available for breach of the duty to exercise reasonable care, skill and diligence, even if the director has not benefited personally, and it will not be necessary for the applicant to show that the wrongdoing directors control the majority of the company's shares.
Miscellaneous
-
From From October, there is going to be a new "interim" Table A which will have effect until October 2008 when the new model articles are introduced.
-
CA 06 is being implemented in Northern Ireland simultaneously with the rest of the UK and the current Northern Irish company law provisions contained in the Companies (Northern Ireland) Order 1986 are being repealed contemporaneously.
-
Additional obligations are placed on Quoted Companies under CA 06 (i.e. official list companies, not AIM) to publish the results of a poll taken at a general meeting on a website and to obtain an independent report on a poll so taken from an independent assessor when asked to do so by members holding 5% of total voting rights or at least 100 members holding shares on which there has been paid up an average sum, per member of not less than £100. The results of the independent assessor's report must also be made available on a website.
-
For directors' reports for financial years beginning on or after 1 October 2007, all companies (other than small companies) will have to produce a business review containing a fair review of the company's business and a description of the principal risks and uncertainties facing the company.
