Confirmation of provisions going live next Autumn
The Government announced on 13 December 2007 that a number of key Companies Act 2006 provisions will go live on 1 October 2008, as planned originally. This announcement follows the unforeseen decision taken in early November to delay full implementation of the Act by one year, with the result that the final commencement date is now expected to be 1 October 2009 rather than 1 October 2008. October 2008 changes
The latest announcement confirms that a number of changes will still be implemented on 1 October 2008, including:
- provisions relating to corporate directors and under-age directors;
- general duties of directors in respect of conflicts of interest;
- provisions requiring specified trading disclosures by companies;
- a new procedure for objecting to company names (which should help prevent the practice of “cyber-squatting”); and
- repeal of the current restrictions on financial assistance for the acquisition of shares in private companies, including the "whitewash" procedure.
In addition, it has been decided to bring forward the introduction of a new procedure for private companies to effect capital reductions supported by a solvency statement made by their directors. Currently capital reductions must be sanctioned by court order and the court’s involvement results in longer timetables and greater costs for companies, so the early introduction of the new procedure on 1 October 2008 will be of major benefit to businesses.
Changes happening on 6 April 2008
In its November announcement, the Government indicated that changes scheduled to be introduced on 6 April 2008 would continue as planned, including provisions relating to:
- accounting and reporting requirements for companies;
- audit and auditors; and
- the abolition of the requirement for private companies to have a company secretary.
In the latest announcement, the Government states that it has decided to implement, from the same date, provisions relating to:
- removal of entries relating to former members in a company’s register of members; and
- inspection of register of interests in a company’s shares.
Next commencement order
A commencement order (setting out 1985 Act repeals, transitional provisions that will affect existing companies and the majority of the 2006 Act provisions that are coming into force in 2008) is expected to be available before Christmas. Next year will see further commencement orders covering the new procedure for share capital reductions and dealing with the audit of small charitable companies. The early publication of this secondary legislation should enable companies and their advisers to plan more effectively.
Impact on your company
The latest implementation timetable announcement is to be welcomed, at least for the certainty that it should bring.
Good sense has prevailed in a number of areas such as the lifting of the restriction on the giving of financial assistance by private companies, as currently this restriction has significant cost implications and can be a real hindrance in deal structuring. The early introduction of the new procedure for certain private company share capital reductions, dispensing with the involvement of the courts, will be advantageous for many businesses too.
Nevertheless, confirmation of next Autumn’s introduction of the directors’ duties on avoiding conflicts of interest with their companies and on declaring interests in existing transactions or arrangements may not be met with much enthusiasm in some quarters. It had been mooted that these provisions should be held back until 2009 – for public companies, at least – in order to reduce the number of article changes necessary.
Indeed, this will be the main issue arising from all of the Government’s chopping and changing of the timetable. Should companies update their articles of association now, to take advantage of the streamlining provisions introduced this October and in anticipation of next October’s changes, and then again in 2009? Or should they opt for the (potentially) cheaper option and make all the amendments in one go, in 2009, but not enjoy the benefit of the 2007 and 2008 changes for two more years?
What is clear is that the Government has set itself and UK companies a daunting task in opting for a staggered timetable for the Act’s introduction. It will be a challenging exercise for all concerned to negotiate their way around the maze of provisions in the 1985 and 2006 Acts (as well as the commencement orders, transitional provisions and adaptations). Correcting commencement orders have appeared already – hopefully there will be no further mistakes.
Is it in force?
The Companies Act 2006 received Royal Assent on 8 November 2006 and is being introduced via a staggered timetable. Some provisions were introduced in January and April 2007. A substantial part, including some of the more controversial provisions relating to directors’ duties and the new shareholders’ derivative action, went live on 1 October 2007. The remainder was expected to be phased in on 6 April and 1 October 2008. Whilst some provisions will still come into force on those dates, full implementation will not now occur until 1 October 2009. BERR (formerly DTI) has published a revised table of commencement dates taking into account the delays.
Link to more briefings on the Act