Companies Act 2006 - an update

A new Companies Act received Royal Assent in November 2006 and earlier this year the government outlined a timetable for its implementation. Some sections are already effective and the government has indicated that the whole Act will be in force by October 2008. Certain sections of the Act will become effective earlier in October 2007 and in April 2008 and a far clearer picture has now emerged in respect of when the different parts of the Act will be implemented.

BERR (the Department of Business, Enterprise and Regulatory Reform, previously the DTI) has published a number of draft regulations that indicate future implementation dates in addition to the first three Commencement Orders under the new Act. Here we focus on the Third Commencement Order which brings certain provisions into force from 1 October 2007.

Provisions which may affect private companies

• Normally there will be no requirement for an annual general meeting (AGM) or members’ meetings, although private companies may continue to hold these if they wish. This means that private companies will generally be able to handle most of their business without holding a formal meeting.
• In the absence of such formal meetings, the default decision-making process for members will now be by written resolution. A simple majority of members will be required for ordinary resolutions and a 75% majority for special resolutions
• Also as a result of the absence of meetings, in most cases any existing auditor will be re-appointed automatically.
• For the first time the general duties owed by the directors to the company are set out in the Act, although the law is largely unchanged. From 1 October 2007 these duties include: promoting the success of the company, exercising independent judgment, exercising reasonable care, skill and diligence, not accepting benefits from third parties and declaring interests in proposed transactions.
• Also new in statute is a formalised legal procedure which will allow the members of a company to bring an action against directors for a breach of their duty to the company (known as a derivative action).
• As at present non-small companies must continue to produce a ‘business review’ as part of their directors’ report.

BERR has also confirmed that the changes that affect accounts, reports, audits and auditors will apply for accounting periods beginning on or after 6 April 2008.

We will continue to keep you informed about the implementation of the new Act. If you would like to discuss how the Act will affect you and your company in more detail please contact us.