Is your company in the best possible shape?
Updated February 2009
Introduction
Following on from our previous notes on the implementation of the Companies Act 2006 (the "New Act"), this is the first in a series of updates highlighting the most important aspects of the New Act, the steps that prudent companies should be taking and the areas where TLT can assist.
The provisions of the New Act have been phased in gradually, with the final main tranche due to be implemented on 1 October 2009. It is important that companies are not only taking best advantage of the regime already introduced by the New Act but also that adequate procedures and processes are in place to deal with the final, significant implementation on 1 October 2009.
The matters set out below are some of the important aspects which need to be considered:
General changes affecting a company's Articles of Association and operation
Electronic Communications (in force)
All companies may now use electronic communications with members as long as the members have resolved that the company may do so in a general meeting or a power to do so is contained in the articles of association. This may ensure easier and quicker administration and it is a useful exercise to obtain such consent as soon as possible so as to save management time and cost of posting future shareholder communications.
Notice Periods for General Meetings (in force)
Under the New Act the notice period for all general meetings of private companies, including those at which a special resolution is proposed (75% majority), is 14 days unless otherwise stated in the company's articles of association.
As the articles of association of many private companies historically state that 21 clear days are required for a general meeting, this means that companies are not taking best advantage of the relaxed regime introduced by the New Act if they have not updated their articles of association.
Authorised share capital (in force October 2009)
The requirement for companies to have an authorised share capital will be abolished, however an existing company’s authorised share capital is likely to be treated as a restriction in its articles of association which can be removed by ordinary resolution. As a result, unless otherwise restricted the directors of the company will be able to create and allot shares which may be a concern depending upon the shareholding arrangements of the company.
How can TLT help?
TLT can undertake a fixed cost review of your company's articles of association and discuss with you and produce an updated set of articles of association so as to ensure that the company's constitution is compliant with the New Act and suitable for the ongoing purposes of its business. We can also discuss issues that could be dealt with in updated articles of association or a shareholders agreement in the light of the deregulation and simplification of the New Act.
TLT also offers a corporate assistance service providing fixed cost bespoke incorporations for companies of all types (including property management companies), limited liability partnerships, community interest companies as well as assisting companies to meet the Companies House filing requirements imposed by statute. In addition, we provide a registered office service to ease the administrative burden of the continued operation of the company.
Directors' conflicts of interests (in force)
What is the duty?
The New Act imposes a duty on directors to 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.
When does this apply?
Whilst this duty does not apply in situations where there is a transaction or arrangement in place between the company and a director or person connected to such director (as this is dealt with under separate provisions), it is widely drafted and there are a large number of situations where an actual or potential conflict may arise. Failure by a director to comply with this section will constitute a breach of the New Act and the duties owed to his or her company.
Such circumstances include (i) a director of a company also being a director or significant shareholder in a supplier, customer or competitor - this is of particular relevance to non-executive directors who act for several companies in the same sector and (ii) a director who is also trustee of the company's pension fund or a director of the company's pension trustee company.
What steps can be taken by a director to ensure compliance?
It is important that directors identify any situations in which an actual conflict exists or a potential conflict may arise. This consideration will also be relevant when appointing additional directors to the board who should declare any conflicts or potential conflicts from the outset.
Whilst the duty imposes an obligation for directors to avoid conflict and potential conflict situations, there are certain authorisation procedures that can be followed which will allow the director in question to continue to act.
These steps include, in the case of a public company, amending its articles of association to allow such a conflict or, in the case of a private company, either amending its articles of association or obtaining shareholder consent to the directors authorising conflicts. Once such steps have been taken, the conflict of interest may be authorised by the directors of the company.
How can TLT help?
TLT offers a fixed price service which includes discussing with directors their activities and advising upon whether, in such circumstances, a conflict situation exists which will require approval. The necessary resolutions and (as applicable) changes to the company's articles of association can then be prepared together with board minutes and other necessary documents required to authorise conflicts.
Directors' details recorded on the public register (in force October 2009)
It will no longer be necessary to provide the Registrar of Companies with an individual director's residential address and, instead, a service address may be provided (which may, for example, be the company's registered office). However, the company will be required to maintain a register of the directors' usual residential addresses which is not open to general public inspection.
How can TLT help?
TLT can assist by preparing the necessary paperwork to confirm the change in address to the Registrar of Companies and also to prepare the newly required register of usual residential addresses. This change should result in less personal information being easily accessible to the public and reduce the vulnerability of directors to identity theft.
Written Resolutions (in force)
Written resolutions no longer require the unanimous consent of the shareholders eligible to vote. Instead each shareholder receives one vote for each voting share that he or she holds and, in the case of a written ordinary resolution, the written resolution will require a simple majority of all those eligible to vote. A written special resolution will require a majority of 75% of all those shareholders eligible to vote. Should a written resolution not receive the necessary votes within 28 days of its circulation then the proposed written resolution will lapse.
How can TLT help?
This updated procedure means that it is much easier and quicker to pass a written resolution and may avoid the need to hold a formal general meeting. However, specific procedural steps are required and TLT can prepare the resolution and circulate this to the members of the company in order that the resolution may be passed quickly and correctly.
We will circulate further updates during 2009 with practical advice on prudent steps that a company should be taking pending the implementation of the next tranche of provisions of the New Act in October. In the meantime we are regularly meeting with companies to provide specific training for directors, company secretaries and investors. Typical subjects include directors' duties, shareholders rights and communications and share capital changes in October 2009.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at February 2009. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.
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