November 2009

CHANGES IN COMPANY LAW

 News update re amendment of Memorandum and Articles of Association under Companies Act 2006.

The Companies Act 2006 (‘CA 06’) has now taken full effect, with the final phase of implementation taking place on 1 October 2009. The legislative changes replace and update existing company legislation and will affect every company operating in the UK.

CA 06 aims to reflect the needs of modern day corporations, and one of the key benefits to extract from this Act, is that new companies will automatically adopt the new Model Articles of Association which are drafted in such a manner to provide companies with greater flexibility in terms of day to day operation.

We are able to advise corporate clients about reducing prohibitive measures which may have been previously incorporated through the adoption of the standard form Table A Articles of Association specified within the Companies Act 1985 (‘CA 85’).

We have briefly reviewed and summarised some of the changes and options available to private companies below.

Memorandum
Under CA 06, the role of the Memorandum has changed from a statement of the company’s objects to more of an historical record of company details. The Memorandum now only needs to state that the subscribers wish to form a company, that they wish to become members of the company, and if the company will have a share capital, that they agree to take at least one share in the company.

Any existing provisions of the Memorandum which are now superfluous to requirements will automatically become provisions of the Articles of Association (‘Articles’). It may therefore be sensible for a company to update its constitution by amending its and updating its Memorandum and Articles of Association in line with the legislative changes.

Articles
Model articles apply to a company’s constitution in instances where its own articles are silent. The model articles prior to CA 06 were ‘Table A’. There is now a new set of model articles which are more concise and effective for private companies, as they are designed to operate specifically for private companies, and contain less complex regulations than Table A.

However the model articles that will apply to companies incorporated prior to CA 06 will be those that were in place at the time of its incorporation or subsequently adopted by special resolution. To allow for greater flexibility, it may be in the interests of private companies to review their constitution and possible adopt the new model articles. Any amendments of this nature must be notified to Companies House within 15 days and can only be made with special resolution shareholder approval (i.e. 75% of shareholders entitled to vote in general meeting).

Shares
A private limited company is no longer required to obtain a Court Order to make capital reductions other than by way of buyback of shares pursuant to legislation and can instead make a statement of authorised share capital.

Shareholder meetings
Private companies no longer have to hold annual general meetings, and shareholder meetings will now be called upon 14 days notice in the case of special resolutions unless the Articles state otherwise. The need for unanimous votes for resolutions has now been abolished, and members are able to agree in writing to resolutions. Many existing Articles may still provide for a 21 day notice period in the case of special resolutions, which could now be amended.

Company Secretary
It is no longer obligatory for private companies to appoint a company secretary, unless they chose to do so.

Accounts
It is important to note that the account filing deadline has been reduced by 1 month. A private company with an accounting period commencing after 6th April 2008 must now submit its accounts to Companies House no later than 9 months from its Accounting Reference Date. If this deadline is not met, your company could face a significant financial penalty of up to £1,500.

Directors Duties
Whilst CA 06 has lifted certain obligations on directors, for example the duty to disclose other directorships, it has at the same time codified many directors’ responsibilities.

Directors must now be at least 16 years of age, and are under a duty to act in a way which they consider most likely to promote the success of the company for the benefit of shareholders as a whole and in doing so, to have regard where appropriate to long term factors, the interests of other stakeholders, the community, and the company’s reputation.

It is important that a private company pays careful attention to the legislative amendments under CA 06, and fully briefs its directors of their obligations, duties and liabilities.

In addition, it is important that company managers and directors are informed of the implications and responsibilities to which they are now exposed under other legislation. For example the law regarding corporate manslaughter has recently been clarified in the Corporate Manslaughter and Corporate Homicide Act 2007. Company directors can now be held liable if the way in which the company’s activities are managed or organised causes a person’s death and amounts to a gross breach of the relevant duty of care owed by the company to the deceased.

The above overview is very brief in nature. The new Companies Act presents many more implications, options and most importantly opportunities from which our corporate clients can now benefit.

Swinburne Maddison is able to provide tailored advice and assistance regarding the new legislation. For further information about how the needs of your company could be accommodated, please contact John Davison, the senior partner in the Corporate department at Swinburne Maddison.