The phased implementation of the Companies Act 2006 (CA06) continues. The notable provisions that came into force on 6 April 2008 include:
Company secretary: it is optional for a private company to have a company secretary. It remains mandatory for a public company to appoint a company secretary. The powers and functions of a company secretary are unchanged where one is appointed but, in the case of a private company without a secretary, anything authorised to be given or sent to or served upon a company by being sent to its secretary may be given or sent or served upon the company and if addressed to the secretary shall be treated as addressed to the company. Anything else required or authorised to be done by the secretary may be done by a director.
Unless the company’s articles of association expressly provide for the appointment of a company secretary there is no need for companies to take any explicit action to take advantage of this de-regulation.
Accounts and Auditors: the detailed substantive provisions on the form and content of company accounts are contained in several statutory instruments which also came into force on 6 April 2008. There are separate regulations for small companies. Equivalent provisions for limited liability partnerships are to come into force on 1 October 2008.
The headline changes are:
- Presentation and filing: the requirement for all companies to maintain financial records and produce annual accounts continues, but it is no longer necessary for private companies to lay their accounts in the general meeting. Private companies must still deliver their accounts to members, which they can do using the electronic communication rules.All companies must file their accounts at Companies House a month earlier under CA06. Private companies must file their accounts within 9 months of the financial year-end while public companies now have 6 months to file their accounts. Quoted companies must also publish their annual reports and accounts on their website. These accounts must remain freely and continuously available to the public until the following year’s accounts are published. Financiers may want to consider shortening the periods for delivery of financial information by their customers to reflect the tighter filing requirements of CA06.
- Late filing penalties: the penalties for late filing of accounts have been increased and for repeat offenders they are doubled.
- Limitation of auditors’ liability: whilst the prohibition against a company indemnifying its auditor for negligence or breach of duty continues, CA06 does allow a company to purchase liability insurance for its auditor. Alternatively the company and its auditor may enter into a liability limitation agreement in respect of negligence or breach of duty relating to the company’s accounts. The agreement may only be for one year and the limitation must be reasonable in the circumstances. The agreement must be approved, either before or after it is signed, by an ordinary resolution of the members.
Execution of documents: the removal of the requirement for private companies to have a company secretary meant that consideration had to be given to the way that companies execute documents. Whilst it remains the case that any company may execute a document using its seal (if it has one) or by the signature by two directors or a director and the company secretary, s 44 CA06 has introduced a third option. A document, including a deed, will also be validly executed on behalf the company if it is signed by a single director in the presence of a witness who also signs the document. Any person may act as a witness, not just an officer of the company.
There is no need for companies to change their articles of association to provide for this additional form of execution but, on the other hand, companies concerned about the new ease by which a company may be committed to major obligations may want to consider an amendment to the articles that prohibits a single director executing documents and return to the pre-CA06 execution by two officers.
Nor is there any need for financiers to amend the execution blocks in their standard form documentation.
Liquidators’ costs: s 1282 CA06 reverses the House of Lords’ decision in Re Leyland Daf (2004) inserting a new section 176ZA to the Insolvency Act 1986. This provides that, where the uncharged assets of a company in liquidation are insufficient to meet the expenses of the liquidation, the expenses (being all expenses properly incurred in the winding up of the company and including the remuneration of the liquidator) shall be paid from the proceeds of the floating charge assets in priority to the claims of the holders of the floating charge. S 176ZA Insolvency Act 1986 is supplemented by The Insolvency (Amendment) Rules 2008 which amend rule 4.218 Insolvency Rules 1986 and provide that payment of the litigation expenses of the liquidator (being the costs and expenses properly incurred in relation to the preparation and conduct of legal proceedings the liquidator has power to bring) is subject to the approval of the floating charge creditor or the court. The new rules set out the procedure to be followed by the liquidator in submitting a request for payment.
Whilst this change in the law governing the payment of liquidators’ costs is undoubtedly welcomed by insolvency practitioners it does mean there is a reduction in the value of realisations for the holders of floating charges from companies in liquidation.
The next implementation date is 1 October 2008. The key provisions coming into force on that date include:
- The directors’ ‘conflict of interests’ duties: a duty to avoid conflicts, a duty not to accept benefits from third parties and a duty to notify interests in anticipated and existing transactions. Companies will need to consider any amendments they want to make to their articles of association to identify what conduct will amount to a prohibited conflict of interest and whether the remaining directors will have the power to authorise any breach of duty.
- The relaxation of the prohibition against the giving of financial assistance by private companies. Directors will still need to have regard to their duty to promote the success of their company, the impact of the transaction on the future solvency of the company and identify the commercial benefit in providing financial assistance in future. Board minutes will need to be carefully drafted to fully reflect these considerations.
- The extension of the CA 06 report and accounting provisions to LLPs.
- New trading disclosure requirements, specifying the information about the company to be displayed on which documents and at which locations.