Companies Act 2006 - New Provisions from 1 October 2008
From 1 October 2008 a new tribunal will be established to hear complaints where a company name has been registered with the intention of extracting money from the complainant or to prevent the complainant from registering a name in which he has goodwill. Such registrations are referred to as "opportunistic registrations" and are the company name equivalent to cyber-squatting.
At the Company Names Tribunal, which will be based at the UK Intellectual Property Office, adjudicators who are experienced in trade mark and trade name tribunal work will have the power to force companies to change their name if complaints are upheld. The Company Names Tribunal's website is at www.ipo.gov.uk/cna.
A company is required to display its company name:
- at its registered office;
- at any other place where its records are held and available for inspection under the Act (an inspection place);
- at any other location where the company carries on business;
- in its business correspondence and other specified documents (whether in hard copy, electronic or another form); and
- on its websites
But from 1 October 2008 -
- Companies which have been dormant since incorporation will not need to display their names at their registered offices or inspection places
- If a business location is primarily used as living accommodation (eg. a director's home) companies will not have to display their names there
- The name must be capable of being easily seen by any visitor but if six or more companies share the office, inspection place or business location the name will not need to be displayed continuously and will only need to be displayed for fifteen seconds every three minutes (electronic displays can therefore be used)
- Minor variations in the form of the name displayed will be allowed. These will include changes to the case, format and style of the lettering and the use of punctuation, provided that there is no real likelihood of confusion
- A person who deals with a company in the course of business will be able to make a written request to the company asking for the address of its registered office, any inspection places and details of the type of company records kept there. The company will then have five working days to send a written response to such a request
If companies fail, without reasonable excuse, to comply with these trading disclosure requirements, the company and every officer in default commit an offence and may be liable to fines.
From 1 October 2008 a company must have at least one director who is a "natural person" (an individual), but there will be a grace period lasting until 1 October 2010 for any company that only had corporate directors on 8 November 2006.
New appointments may be required.
From 1 October 2008 directors must be at least 16 years old.
On 1 October 2008 under-age directorships will automatically end and although no Form 288b will need to be filed at Companies House, affected companies will need to amend their Registers of Directors to record that the relevant appointments have terminated.
Companies which are left without a director, without any required minimum number of directors or without the number of directors necessary to hold a quorate board meeting, will also need to appoint one or more additional directors (or in the last case change their quorum requirements).
In October 2007 four of the seven statutory directors' duties set out in the Companies Act 2006 were introduced. On 1 October 2008, the remaining three duties will be implemented.
The three duties are -
- The duty to avoid conflicts of interest
- The duty not to accept benefits from third parties
- The duty to declare interests in proposed transactions or arrangements
Direct and indirect interests are covered by the duties so interests of family members and others connected with the director concerned need to be considered.
Duty to avoid conflicts of interest
From 1 October 2008, a director must:
"avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company."
This duty will be capable of applying to a wide range of situations as only the possibility of a conflict is required. It applies, in particular, to the exploitation of any property, information or opportunity and whether the company could take advantage of the property, information or opportunity is irrelevant. It doesn't apply to a conflict of interest arising in relation to a transaction or arrangement with the company.
Examples of situations which may be caught by the new duty include directorships, offices, appointments and interests in other companies and business which are linked to the company by virtue of being a shareholder, another investor or stakeholder, a customer, a supplier, a pension trust company or a competitor.
The Act provides that the duty will not be breached if:
- the situation cannot reasonably be regarded as likely to give rise to a conflict of interest; or
- the matter has been authorised by the board.
Authorisation by the board will therefore become the prescribed way for potential conflict situations to be sanctioned.
The Act goes on to provide that -
- Public companies need an express provision in their articles of association to enable board authorisation. Plcs should therefore amend their articles to include such a provision.
- Although private companies do not need an express provision in their articles of association to enable board authorisation; their constitutional documents must not contain any provision invalidating such authorisation – this should therefore be checked.
Companies incorporated before 1 October 2008 will also need to pass a resolution that board authorisation may be given in accordance with the relevant provisions of the Act.
Board authorisation should be obtained before the conflict or possible conflict situation arises, it cannot be retrospective. Any directors who have an interest cannot be counted in the quorum and must be excluded from voting.
Duty not to accept benefits from third parties
"A director must not accept a benefit from a third party conferred by reason of
(a) his being a director, or
(b) his doing (or not doing) anything as a director."
No breach of this duty will occur where the acceptance of the benefit cannot reasonably be regarded as likely to give rise to a conflict of interest, but there is no alternative provision which allows for the board to authorise the receipt of benefits.
Company policies relating to gifts and corporate hospitality should be reviewed alongside this new duty.
Duty to declare interest in proposed transaction or arrangement
"If a director of a company is in any way, directly or indirectly interested in a proposed transaction or arrangement with the company, he must declare the nature and extent of that interest to the other directors."
From 1 October 2008, the extent of the interest must be declared as well as the nature of the interest.
The declaration must be made before a proposed transaction or arrangement is entered into. For existing transactions, the declaration must be made as soon as reasonably practicable after the interest comes into existence.
The duty doesn't apply to -
- Interests which cannot reasonably be regarded as likely to give rise to a conflict
- Interests in transactions or arrangements with the company that the other directors are already aware of (or ought reasonably to be aware of)
- Interests that concern a director's service contract
Directors will still be able to declare their interests in a written notice sent to all the other directors.
Declarations (including those made before 1 October 2008) will need to be updated.
From 1 October 2008, private companies will have a simpler and cheaper way to reduce their share capital which doesn't require court approval. They will be able to reduce their share capital by special resolution supported by a solvency statement made by the directors.
The Act requires a company to have authority from its members before it makes a political donation of more than £5000 in one year to a political party, political organisation or an independent candidate (who is not a member of a political party but standing for election to public office).
A company must also be authorised by its members before it incurs expenditure in respect of political activities such as advertising, promotion or otherwise supporting a political party, political organisation or an independent candidate in an election.
These provisions were implemented in relation to political parties and other political organisations in 2007. From 1 October 2008 they will be extended to independent candidates.
The Act will not prohibit a private company from giving financial assistance for the acquisition of its own shares or those of another private company. The current prohibition in the Companies Act 1985 and related whitewash procedure will be repealed for private companies from 1 October 2008.
The prohibition remains for public companies.
Although this relaxation will be welcomed by private companies as it should simplify acquisitions and reduce related professional fees, as lenders have historically relied on the prohibition and whitewash procedure to focus directors' minds on the financial effect of transactions, they may now be considering imposing alternative requirements.
The requirements for information about shareholders to be included in annual returns will change for returns made up to a date on or after 1st October 2008. The information required will depend on whether or not the company has any of its shares admitted to trading on a regulated market (a traded company). AIM is not a regulated market.
- Private and non-traded public companies will only be required to provide names of shareholders, not addresses
- Traded public companies will be required to provide names and addresses for those shareholders holding at least 5% or more of any share class
The new Annual Return form is available on the Companies House website.
The headline change for October 2008 is undoubtedly the new directors' duty to avoid situations that could give rise to conflicts of interest. This is because companies should be actively taking steps to ensure compliance with this duty. Articles may need to be amended or resolutions passed. Directors should be briefed. Relevant situations should be identified. Board authorisations should be obtained and recorded. Systems should to be put in place to ensure that directors notify future situations for authorisation and for a regular compliance review (at least annually).
Help is available, so please contact us for advice.
We will update you on the final raft of changes, due in October 2009.