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 private 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.
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 articles, for example, where the articles only cover certain documents, then the company should seek shareholder approval via an authorising resolution or change of articles.
Key changes in force as of 1 October 2007
Resolutions and meetings
Abolition of the requirement to hold AGMs. Sections 366 and 366A of the 1985 Act will be repealed and replaced by section 336 of the 2006 Act. Private companies will have the option, but will no longer be obligated to, hold annual general meetings, lay accounts and reports before general meetings and appoint auditors annually (see below).
Notice of general meetings. The notice period for all general meetings will be 14 days regardless of the nature of the general meeting or the type of resolution proposed to be passed at the meeting (rather than currently 21 days where a special resolution is proposed) (see section 307(1) of the 2006 Act which replaces sections 369(1) and 378(2) of the 1985 Act)). Shorter notice. Sections 369(4) and 378(3) of the 1985 Act will be repealed and replaced by section 307(5) and (6) of the 2006 Act which provides that the holders of 90% of the voting shares (or such higher percentage not exceeding 95% as may be specified in the company’s articles) will be able to agree to hold general meetings on short notice. Thus the current elective regime which allows for a reduction of the required majority from 95% to 90% will become the default position for private companies.
Shareholder requisition. Under the 2006 Act the percentage of share capital required for the purpose of shareholders requisitioning a general meeting of a private company will be reduced from currently 10% to 5% where more than 12 months have elapsed since the end of the last general meeting called at the request of shareholders.
Written resolutions. Rather than the currently required unanimity, written ordinary resolutions will require a simple majority, written special resolutions a 75% majority (section 381A(1) of the 1985 Act is replaced by sections 282(2) and 283(2) of the 2006 Act). The 2006 Act also contains detailed procedural provisions for the circulation and timing of written resolutions.
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).
Appointment of auditors
Section 386 of the 1985 Act will be repealed and replaced by section 487 of the 2006 Act. Under the new provision, auditors in office will be deemed reappointed (except in certain cases) and thus, the current elective regime will become the default position.