The Companies Act 2006 (the “2006 Act”) received Royal Assent on 8 November 2006. The first and second commencement orders were published on 20 December 2006 and 29 March 2007, respectively. The 2006 Act is implemented in stages with the entire Act being in force by 1 October 2008.
This update gives a brief overview of the key changes to the current company law regime affecting public companies that come into effect in 2007.
Key changes in force as of 1 January 2007
The requirement to disclose the company name, place of registration, registered office and registered number has been extended to cover business letters and order forms (whether in electronic form (for example as part of email template signatures), hard copy or any other form) and the company’s websites.
Key changes in force as of 20 January 2007
The provisions in the 2006 Act on electronic communication with and by shareholders (sections 308, 309, 333, 1143-1148, 1168 and 1173, Schedules 4 and 5) replace the existing provisions in the 1985 Companies Act and apply to both private and public companies. In addition, listed companies (but not AIM companies) need to comply with the requirements in the Disclosure and Transparency Rules sourcebook of the Financial Services Authority (see DTR 6).
The new regime allows shareholders to communicate with the company by electronic means provided the company has given an electronic address in a notice calling a meeting or in an instrument of proxy or proxy invitation. It also allows companies (subject to shareholder approval) to send or supply documents and information to shareholders in electronic form or by posting them on a website.
Each company will need to consider whether it is necessary or desirable to obtain authority from its shareholders or amend its articles to allow for the use of electronic communication. If a company already has an individual shareholder’s agreement to circulate the annual report and accounts, summary financial statement or AGM notice to the shareholder in electronic form or by website, the company will be able to continue to do this. Where the articles already contain provisions to the effect that the company may send or supply documents or information to its shareholders in electronic form or by website, no additional resolution is required. However, where a company does not already have arrangements in place or wishes to go further than the terms of the existing arrangement, for example, where the articles only cover certain documents, then the company should seek shareholder approval via an authorising resolution or change of articles. Companies whose securities are admitted to trading on a regulated market need to obtain shareholder approval or approval of its debtholders in a general meeting.
Disclosure of major shareholdings
Sections 198 to 211 of the 1985 Act which deal with the notification of major shareholdings have been repealed and replaced by provisions in chapter 5 of the Disclosure and Transparency Rules sourcebook (DTR 5). In principle, with regard to UK issuers, the new rules replicate the existing regime in requiring that shareholdings of 3% and every whole percentage figure above 3% be disclosed to the company and subsequently announced to the market by the company (different disclosure thresholds apply to non- UK issuers). The main differences to the regime under the 1985 Act are as follows:
- Rather than applying to all public companies, the new rules only apply to companies whose shares are traded on a regulated market (such as the Official List) or a UK prescribed market (such as AIM);
- The disclosure obligation is triggered where a person acquires or disposes of shares carrying voting rights rather than where a person acquires or disposes of an interest in shares.
- Issuers must keep the market informed of changes in their share capital in order to enable shareholders to calculate their percentage interest. Interests in shares
Sections 212 to 220 of the 1985 were repealed and replaced by Part 22 of the 2006 Act. The section 212 notice (now section 793 notice) enables public companies to investigate the ultimate beneficial ownership of their shares and can now be served in electronic form (subject to shareholder approval). In contrast to the provisions requiring disclosure of major shareholdings (see above), the definition of “interest in shares” remains unchanged in the 2006 Act (see section 820). Thus, shareholders will have to comply with different disclosure regimes, depending on whether the disclosure is made in compliance with the new transparency rules (DTR 5) or in response to a section 793 notice.
A new section 90A of the Financial Services and Markets Act 2000 (FSMA 2000) imposes liability on any issuer with securities traded on a UK regulated market (i.e., Official List but not AIM)1 to pay compensation to a person who has acquired its securities and suffered a loss as a result of any untrue or misleading statement in, or omission from, annual reports and accounts and interim statements required by chapter 4 of the Disclosure and Transparency Rules sourcebook. An issuer will be liable if a person discharging managerial responsibilities for publication knew that the statement was wrong or misleading, was reckless as to whether it was or knew any omission was a dishonest concealment of a material fact.
Although section 90A of FSMA was introduced with effect from 8 November 2006 it will only apply to financial statements published in accordance with the new Disclosure and Transparency Rules, i.e., in respect of financial years commencing on or after 20 January 2007.
Key changes in force as of 6 April 2007
Part 28 of the 2006 Act repeals and replaces the provisions of the Takeovers Directive (Interim Implementation) Regulations 2006 that took effect in May 2006. The only substantive changes were made to the procedural rules governing compulsory acquisitions (to be referred to as “squeeze-out” and “sell-out”). The Act will replace the current two track system (where different procedures apply to takeover offers for companies whose shares are admitted to a regulated market and all other offers) with a single compulsory acquisition procedure applicable to all takeover offers.
Key changes in force as of 1 October 2007
Resolutions and meetings
Notice of general meetings. Section 307(2) of the 2006 Act retains the currently required notice period of 21 days for AGMs of public companies and 14 days for EGMs. However, in contrast to the current regime, the 14 day notice period will apply regardless of whether the resolution to be passed is an ordinary or a special resolution.
Shareholder requisition. Sections 376 and 377 of the 1985 Act will be replaced by sections 338 to 340 of the 2006 Act. The new provisions retain the existing thresholds that shareholders of a public company holding at least 5% voting rights or at least 100 shareholders holding on average £100 paid-up capital have the right to propose a resolution for the AGM agenda. What is new is that where the shareholders’ request is received before the company’s financial year-end, the shareholders are not required to cover the costs of circulation of the resolution, and that the requests are permitted in electronic form.
Results of a poll. Chapter 5 of Part 13 of the 2006 Act introduces new requirements on quoted companies2 where a poll is taken at a general meeting to disclose on a website (1) the results of the poll and (2) if a sufficient number of shareholders demand one, an independent report on the poll.
The 2006 Act provides for enhanced rights for shareholders of both private and public companies to appoint a proxy to attend, speak and vote at meetings on their behalf (section 324 of the 2006 Act). The default rule will be that where a shareholder appoints more than one proxy, each proxy will have a vote (currently, shareholders are not entitled to appoint more than one proxy to attend on the same occasion unless otherwise stated in the company’s articles).
Exercise of shareholders’ rights
While under the 1985 Act generally only registered shareholders have the right to exercise their rights in the company, the 2006 Act introduces two new provisions that are aimed at fostering communication between companies whose securities are traded on a regulated market and their indirect investors. Under section 145 of the 2006 Act, companies may include a provision in their articles enabling shareholders to nominate another person/s to enjoy or exercise their shareholder rights. Section 146 of the 2006 Act allows shareholders of companies whose securities are traded on a regulated market to nominate the beneficial holder of the shares to enjoy information rights, i.e., the right to receive company documents and information.
Directors’ report – Enhanced business review Although the 2006 Act does not reinstate the requirement to produce an Operating and Financial Review (OFR), the requirements for a business review in the directors’ report were revised and – for quoted companies only – the content requirements will be extended significantly to include, for example, information on environmental impacts and the main trends and factors likely to affect the future development, performance and position of the company’s business (see section 417(5) of the 2006 Act).
Single member company
The 2006 Act will allow any type of company to be formed by a single person. However, public companies will still be required to have at least two directors.