New Act Brings in New Company Law Regime

There are approximately 14 million registered companies in the UK.  Some companies have, at some point, struggled to fulfil the administrative requirements set out in a myriad of different legislative acts.

Prior to 1 October 2007 the principal piece of legislation governing the incorporation and legal administration of limited companies was the Companies Act 1985, now over 20 years old.  After a succession of White Papers the Government decided to overhaul completely the current legislative regime for companies and, in doing so, attempt to achieve four ‘key’ objectives;

1                    Enhance shareholder involvement in a company and promote a long term investment culture

2                    Ensure better regulation of companies and adopt rules more suitable for small as well as for

large limited companies

3                    Make it easier to set up and run a company

4                    Provide flexibility for the future.

Some of the provisions in the new Companies Act 2006 came into force on 1^st October 2007.  Further provisions will come into force during 2008.  This Act replaces the Companies Act 1985 and is intended to simplify and modernise existing rules relating to companies rather than make a dramatic shift in company law.   Nevertheless, practitioners, directors and shareholders must ensure that they understand and act in accordance with the many significant changes made by the new Act.

The Act will introduce new rules relating to the formation of new companies and there will be a new ‘elective’ regime governing the holding of Annual General Meetings and the passing of certain types of company resolution.  The duties of directors to a company and to its shareholders, previously defined largely by reference to case law, have been rewritten, codified and set out in the new Act.  These duties include:

1                    The duty to promote the success of a company for the benefit of its shareholders as a whole

2                    The duty to exercise independent judgment

3                    The duty to exercise reasonable care skill and diligence in the performance of their duties

4                    The duty to avoid conflicts of interest

5                    The duty not to accept benefits from third parties

6                    The duty to declare to other directors any interest in a proposed transaction or arrangement

Space does not permit this Article to do anything other than highlight that the new law is with us and that directors and shareholders should take specialist advice upon it.

Elaine Carson, Head of Company and Commercial Law at Sandersons Solicitors commented that ‘the new Act has far reaching consequences for those involved in company formation and company administration.  The Act is very long (it runs to 1,300 sections and has 16 schedules!) and it introduces significant changes, most notably perhaps in setting out the duties of directors of companies.  For example, in relation to the duty to promote the success of a company, it will be necessary, as a legal requirement, for directors to have regard to certain factors, including the impact of the company’s operations on the community and the environment.  This is something new.  Only time and cases in the courts may enable practitioners and directors to interpret what this actually means but it is clear that company directors will have to review the way in which they make decisions and be careful to record what factors influenced them in making a particular decision.  Those factors extend beyond the narrower interests of their company”.

For further advice contact Elaine Carson.

Sandersons, Solicitors

17-19 Parliament Street

Hull

HU1 2BH

Tel:       01482 324662

Fax:      01482 223110

e-mail:  enquiries@sandersonssolicitors.co.uk

 Source: Commerce & Industry, October 2007