Before the 2006 Act became law, the working assumption had been that the 2006 Act would largely come into force by October 2008 (save where early implementation of certain parts of the 2006 Act was required in order to comply with relevant provisions of binding EU Directives).
In fact, now the 2006 Act is in force, the Government has embarked on a complex implementation process to bring a large number of the provisions not already in operation into effect on 1 October 2007 with the remainder to come into force on 6 April and 1 October 2008. Details of the implementation timetable are set out in Annex A of the Government's February 2007 consultation document which can be accessed from this link: http://www.dti.gov.uk/consultations/page37980.html
Companies should in particular note that the majority of the new law on directors' duties (and shareholder derivative claims), the provisions relating to the exercise of members' rights and some of the private company administrative relaxations relating to meetings and resolutions are all set to come into force this October. The main points to note in relation to these matters are as follows:
We described in the January 2007 edition of this Bulletin how the new law on directors' duties has been couched in broad conceptual terms. In practice, this seems likely to result in an equally broad range of interpretations of the new law, as companies, large and small, begin to feel their way with the legislation.
Large public companies may seek to address their compliance with the underlying requirements of the 2006 Act by making clear reference to such requirements in their board papers, rather than by recording an artificially legalistic interpretation of the board's commercial decisions in the board minutes.
Smaller public and private companies on the other hand, which do not rely on an extensive administrative structure reporting to the board, may feel the need to record rather more justification in their board minutes about their decision making processes than they have been used to doing up to now.
Clearly the Government is keen that the new law should not be reduced to a crude box-ticking exercise, but we suspect that the comfort of a paper trail to demonstrate that a board has acted in a proportionate way will be a compelling form of risk management for most companies.
The 2006 Act contains certain provisions intended to facilitate the ability of an indirect investor to exercise its rights more fully and responsibly. For companies traded on a regulated market (which includes the Official List but not AIM), the 2006 Act introduces a significant new provision allowing a member who holds shares on behalf of another person to nominate that other person to receive shareholder information. These nominations can be made from 1 October 2007 but apply to information sent from 31 December 2007. In addition, subject to the company's articles, any company may allow a member to nominate another person to exercise its rights as a member e.g. the right to require the directors to call a general meeting. This will not be an automatic default though and whether an existing company will want to amend its articles to provide for this remains to be seen. Some may see it as an unnecessary administrative burden and cost.
Meetings and resolutions
For private companies the 2006 Act ameliorates many of the regulatory burdens which they have been subject to under the Companies Act 1985 – all part of the Government's ‘think small first’ policy which has led to the default provisions in the 2006 Act being aimed at the private company regime. For example, a private company formed after 1 October 2007 will no longer be required to hold an AGM (and this provision will apply to any existing private company provided it does not have an express requirement in its own articles to hold such a meeting).
Having dispensed with the need for an AGM, the 2006 Act then makes it easier for a private company to pass written resolutions by removing the need for unanimous consent. If it does wish to hold a general meeting, a private company need only give 14 days’ notice whatever the business to be transacted at the meeting. However, for a public company, an AGM remains a necessity and in fact the timing requirement has been tightened so the AGM must be held within six months of the company's financial year end. 21 days' notice must still be given for an AGM (though any other public company general meeting may be held on 14 days' notice even if a special resolution is proposed). No written resolution process is available to a public company and it will still be required to have a company secretary.
It is still unclear the extent to which these constitutional changes introduced for the benefit of private companies will apply to existing companies (as opposed to ones created after October 2007). Details of secondary legislation and/or guidance to deal with these points are still awaited and time is short if changes of practice are to be required.
This is not an exhaustive list of all the changes coming into effect in October 2007. Quoted companies in particular should seek further specific advice. For private companies the DTI's Guide, Companies Act 2006 – Private Company Information, which compares the current law with the provisions of the 2006 Act, may prove useful. If you have any specific concerns or queries please let us know.