Member Article

Companies Act 2006 ? Finally a Reality

With Watson Burton LLP Law Firm

After much anticipation, the Companies Act 2006 (“the Act”) finally received Royal Assent in November 2006 and promises a complete overhaul of the law: Directors’ duties are now codified and include the duty to act with reasonable care, skill and diligence, as well as a new duty to promote the success of a company. The previous equitable duty of avoiding conflicts of their own interests with that of the company will also be established in statutory form.

The procedure for derivative actions has been amended so that mere negligence by a director can form a cause of action, without the shareholder having to prove any gain or bad faith on the part of that director. In contrast, the Act also provides for companies to enter into liability limitation agreements with their auditors to restrict an auditor’s liability to that which is fair and reasonable.

Rules on proxies have been relaxed so that at members’ meetings shareholders can now vote on a show of hands, be counted in a quorum and be appointed to chair a meeting. The Act also recognises the fact that in quoted companies a large proportion of shares are held by intermediaries (such as brokers) and allows shareholders to convey various rights on such intermediaries. The Act also instigates changes aimed at simplifying the law relating to private companies, in the hope of promoting the UK as one of the more attractive places in the world to set up and run a business. Private companies are no longer required to have a company secretary; they are relieved of the requirement to hold an AGM; and written resolutions need not be unanimous, instead requiring 75% of shareholders. Electronic communication by companies with shareholders is to be the default method of communication (subject to individual shareholder consent). Significantly, the rules against giving financial assistance in relation to the acquisition of a company’s shares have been repealed. The rules on reducing share capital have also been relaxed removing the requirement for court approval.

Containing 1,300 sections and 16 schedules, the Act is one of the largest in English legal history, and although the majority of it will not be in force until October 2008, companies will undoubtedly need this time to familiarise themselves with its content.

If you have any questions on the above article or any other company law matter, please contact Lucy Bond or Lester Wilson at Watson Burton LLP (email – lucy.bond@watsonburton.com or lester.wilson@watsonburton.com).

This was posted in Bdaily's Members' News section by Ruth Mitchell .