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What do you need to do?Familiarise yourself with the changes and assess the impact on your company. Consider whether to take any action (for example, if your company is a private company, consider whether to retain a company secretary).
Rowan Russell
Partner
T +44 20 7778 7180
Melbourne
Hal Bolitho
The UK Companies Act 2006 is being implemented in stages. In our last Alert on the Act we outlined some of the provisions that came into force on 1 October 2007.
This Alert briefly describes some changes to the implementation timetable and the more significant provisions coming into force on 6 April 2008.
Changes to implementation timetable
On 7 November 2007, the Government announced that most of the provisions of the Act originally due to come into force on 1 October 2008, would not come into force until 1 October 2009. The Government explained that the delay was required to ensure that Companies House has sufficient time to update its systems and processes to deal with changes under the Act.
On 13 December 2007, the Government announced that provisions that do not require changes to Companies House systems and processes, will still come into force on 1 October 2008. These provisions include:
- statutory directors’ duties to avoid conflicts of interest
- a new capital reduction procedure for private companies, and
- abolition of the prohibition on private companies giving financial assistance for the acquisition of shares.
As a result of the changes to the implementation timetable, the principal remaining implementation dates are:
- 6 April 2008
- 1 October 2008, and
- 1 October 2009.
The remainder of this Alert describes some of the more significant provisions coming into force on 6 April 2008.
New method for executing documents
A company will be able to execute a document (including a deed) by a single director signing on the company’s behalf in the presence of a witness who attests the director’s signature. This change will make it easier for a company to execute a deed.
This new method of execution does not affect existing methods available to a company, for example, execution by affixing the company’s common seal or by two directors or a director and the company secretary signing on the company’s behalf.
Private companies no longer required to have company secretary
A private company will no longer be required to have a company secretary although it can choose to do so. A public company will still be required to have a company secretary.
If a private company wants to take advantage of this change, it may need to amend its articles of association. If a private company’s articles expressly require it to have a company secretary, it will need to amend its articles to remove the requirement. A provision in a company’s articles requiring or authorising things to be done by a company secretary, or relating to the appointment or removal of a company secretary, is not a provision which expressly requires the company to have a company secretary. A private company which has articles based on Table A should not need to amend its articles because Table A does not include a requirement to have a company secretary.
If a private company does not have a company secretary, the work usually done by the company secretary will still need to be done and, until October 2009, will need to be done by a director. As a result, it seems likely that many private companies will continue to have a company secretary despite this change in the law.
Companies can enter into auditor liability limitation agreements
A company will be able to enter into an agreement with its auditor limiting the auditor’s liability for negligence, default, breach or duty or breach of trust in connection with auditing the company’s accounts.
An auditor liability limitation agreement must be approved by a company’s shareholders. In addition, an agreement must apply to the accounts of a single, specified financial year only and must be disclosed in the company’s accounts.
An auditor liability limitation agreement can only limit an auditor’s liability to an amount that is “fair and reasonable in all the circumstances”. If an agreement purports to limit an auditor’s liability to an amount which is less than fair and reasonable, the agreement is valid but it takes effect as if it limited the auditor’s liability to the amount that is fair and reasonable.
Subject to these general requirements, the Act does not specify how an auditor liability limitation agreement should be drafted. This means that the limit on liability can be drafted as a sum of money, a formula or in some other way. However, listed companies may need to take into account the views of institutional shareholder bodies. For example, both the Association of British Insurers and the National Association of Pension Funds oppose fixed limits.
The Financial Reporting Council is preparing some guidance on auditor liability limitation agreements. This guidance is expected to be published in mid-2008. Companies may be reluctant to negotiate auditor liability limitation agreements until the FRC publishes its guidance.
Other changes and further information
This Alert is only a brief summary of some of the provisions coming into force on 6 April 2008. There are a number of other provisions coming into force. These include provisions relating to:
- accounts and audits
- arrangements and reconstructions
- debentures
- distributions
- mergers and divisions, and
- public offers of shares by private companies.
Whilst there are some substantive changes to the law in these provisions, many of the provisions simply restate the position under the Companies Act 1985.
For further information and advice, please contact our London office.