Act will simplify our daily lives

Feb 21, 2007

The Companies Act 2006 is a truly enormous piece of legislation. The much trumpeted “simple first” approach is eyebrow-raising given the complexity and size of this statute – my first reaction was that someone was pulling my leg. In time, however, the benefits should feed through to business.

The Act is mainly about codification and simplification. Among its 1,300 sections there are some nuggets:

Simplification of company administration: These are hard to pick out and will take time to be absorbed by companies – for example, simplified and plain English formation documents such as model articles, less formality to meetings and communication by email. The further relaxation in passing written resolutions will also be welcomed.

Codification of directors duties: Instead of lists of fascinating cases, we will be able to look at the statute. The duty to act with reasonable care, skill and diligence is perhaps nothing new but the law will allow courts to take into account the general knowledge, skill and experience of the particular director. This should recognise that directors come from varying backgrounds and work in different sizes of business.

Derivative actions: There are sweeping new provisions allowing shareholders to bring an action on behalf of the company against a director.
The old law was complicated, even arcane, and enabled directors who had been guilty of wrong-doing to frustrate attempts to call them to account. The new procedure is still subject to approval by the court but should prove in the long run to be a valuable tool for shareholders.

Abolition of financial assistance prohibition procedure for private companies: There may be some tears among some lawyers and accountants but the charade of the financial assistance whitewash is to be replaced by a simple declaration of solvency. Business owners will be happy but it will be interesting to see how the rules impact on banks’ requirements.

Some less good bits
Abolition of the company secretary: A private company will no longer need to appoint a company secretary. I just wonder how this is supposed to help.
The company will still have to make sure its statutory returns are kept up to date, that company procedures are followed (even if you can use email now) and that board minutes are kept. Who is going to do it? Your company secretary of course.

There is a new duty on directors to promote the success of the company: This sounds a bit paternalistic – how many directors intend not to do this?

The new law also creates a degree of uncertainty. There is both a new list of factors to consider and a rule that states that we are to have regard to the old common law principles. It is not clear where this will take us.

Much of this will not be in force until later in 2007 and in 2008. Don’t hold your breath…

To discuss any legal issue arising from this article or about your company, call David Dees on 01908 66227 or email david.dees@healdlaw.com.

For more information, visit www.healdlaw.com

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