Companies Act 2006

January 2007

1. BACKGROUND

   The Companies Act 2006 restates almost all of the provisions of the 1985 Act, the company law provisions of the Companies Act 1989 (the 1989 Act) and the Companies (Audit, Investigations and Community Enterprise) Act 2004 (C(AICE) Act 2004). It also implements the recommendations of a report originally commissioned in 1998 by the DTI to consider how core company law could be modernised in order to provide a simple, efficient and cost effective framework for British business in the twenty-first century.

2. WHO DOES THE ACT AFFECT?

   All companies will be affected by at least some of the changes made by the new Act. The directors and management of all limited companies therefore need to be aware of the legislation, the proposed timescales for implementation of the legislation and the actions that they will therefore need to take to ensure that they remain compliant with the revised law in all areas of operation, management and administration.

   The new law will introduce, on the whole, a much simpler, less regulated, regime for private companies.

   For quoted and public companies the changes will enhance the timeliness and transparency of company information and proceedings. In addition, there will be increased accountability, and shareholders will have more opportunity to participate in company business.

3. WHEN WILL THE ACT COME INTO FORCE?

   For the vast majority of provisions, the Act will come into force by October 2008. This is to give companies an extra year to prepare for its implementation but it also means that private companies will be unable to take immediate advantage of the de-regulatory provisions of the Act.

   A few provisions will however come into force sooner to satisfy the requirements of the EU Directives.

4. WHAT PROVISIONS ARE BEING IMPLEMENTED AHEAD OF OCTOBER 2008?

   The parts of the Act which are being introduced ahead of the main implementation, currently planned for October 2008, include those which relate to public company takeovers, transparency provisions, including the disclosure of major shareholdings and periodic financial reporting and the provisions allowing companies to communicate electronically with shareholders and others. A brief summary of these provisions is set out below.

   4.1 Electronic filing and disclosure - amendments to the first Company Law Directive

   4.1.1 Disclosure
   With effect from 1st January 2007 companies are required to disclose certain minimum information on their company websites and order forms. The information required includes the company name, the company's place of registration and the number with which it is registered, the registered office address and in the case of an investment company, the fact that it is such a company.

   4.1.2 Electronic filing
   Whilst the Companies Act 1985 already allows the Registrar of Companies to accept electronic filing of documents, key changes made by the Act mean that company registries are now required, amongst other things, to:

   • Allow companies to file all the basic documents electronically;
   • Allow requests for inspection of these documents to be made electronically;
   • Offer electronic copies of these documents to those inspecting the register;
   • Keep all documents in electronic form.

   4.2 Electronic communications

   This change, which applies to both private and public companies, has been implemented ahead of the main parts of the Act to coincide with the implementation of the Transparency Directive and to allow companies to reap the benefits of the amended legislation at the earliest opportunity. The key change permits companies to use websites to communicate with their members. Provided that shareholders consent then the use of a website will be the default position. Individual shareholders will, however, still be able to request continued communication on paper, if they wish.

   Shareholders will also be able to communicate with the company electronically where the company has agreed to this and provided an email address for communication.

   4.3 Disclosure of major shareholdings

   The EU Transparency Obligations Directive, which must be implemented by 20th January 2007, changes the current regime applying to the disclosure of major shareholdings by shareholders. The new rules will only apply to publicly traded companies. The requirements will be regulated by the Financial Services Authority and as such will be included in the FSA's Disclosure and Transparency Rules.

   4.4 Quoted companies to be subject to a statutory damages regime

   The Act makes issuers liable to compensate anyone who acquires securities and suffers loss as a result of an untrue or misleading statement (or omission of anything required to be included) in an annual, half-yearly or interim management report or a preliminary announcement of annual results.

5. CHANGES EFFECTIVE BY OCTOBER 2008

   The bulk of the remaining changes made by the 2006 Act will not be implemented until October 2008. Whilst no immediate action is therefore required, firms need to ensure that they are aware of what changes are going to take place so that preparations can be made for the implementation of any new requirements in advance, and so that benefits of deregulation, and revised regulation, can be reaped at the earliest opportunity.

   Some of the changes that will become effective from October 2008 include the:

   • Codification of directors duties and implementation of a duty to promote the company's success;
   • Implementation of improved rights for shareholders;
   • Simplification of the regulations currently in place for private companies. This de-regulation includes:
     • The removal of the requirement to have a company secretary;
     • The removal of the prohibition on giving financial assistance for the acquisition of their own shares;
     • The removal of the requirement to obtain court approval for any reduction in their share capital;
     • Changes to make it easier to conduct most business by written resolution, and the removal of the requirement to hold AGMs;
   • Replacement of the Operating and Financial Review with a new requirement for an expanded business review.

6. ACTIONS

   This paper sets out a brief overview of the changes made by the 2006 Act that have been implemented, or are about to be implemented, ahead of the main parts of the Act. Firms are urged to seek legal advice to ensure that they are fully aware of any new requirements or obligations that may apply to their business and to ensure that all guidelines and requirements are heeded when taking advantage of the new legislation. Firms within the regulated sector of the financial services industry are reminded not to lose sight of the need to ensure compliance with relevant Companies Act requirements to ensure that they continue to satisfy the "Fit and Proper" requirements of the Financial Services Authority.