Food industry companies act bulletin - September 2007
The Companies Act is changing…
The Companies Act 2006 has been law since 8 November 2006 but it is not yet all in force - it is coming into force in stages. In this review we highlight the key changes and answer some of the questions that you may have in preparation for 1st October, when the next part of the Act becomes law.
1. Is it all law now?
2. What changes has it meant already?
3. What changes will come in on 1 October 2007?
4. As a Director, how will it affect me?
5. What do these new Rules on Directors Duties mean for my day to day working?
6. What if I do not act in accordance with these Duties?
7. Do I need to keep a record of the Duties which I have considered?
8. Apart from Directors Duties, what else will affect me as Director?
9. I am a Shareholder in a Private Company. How will I be affected by the changes brought in this year?
Sub article 10
No, as the Act is so large and brings in so manychanges, it is coming into force in stages. Some of it applied from January and April 2007 and other parts will apply from 1 October 2007, 6 April 2008 and 1 October 2008.
2. What changes has it meant already?
These are some of the changes:
• Documents can be filed electronically with the Registrar of Companies;
• The information on your Company notepaper (company name, company number, registered office, where your company was registered) must now appear on all electronic communications and websites;
• Your Company can communicate with its shareholders by electronic means or via a website (if its articles of association - its “rules”, allow);
• You no longer need to keep a register of “Director’s Interests in your Company’s Shares”.
3. What changes will come in on 1 October 2007?
There will be new rules on Director’s duties, shareholder meetings and resolutions, and shareholder rights, and companies will need to include a “business review” in their accounts (unless they claim the small companies exemption).
4. As a Director, how will it affect me?
You will have to have a working knowledge of the Act as it may change some of your Company’s day to day working practices. The main area that will concern you is that of “Directors Duties”. The Act puts into statute seven duties that directors owe to their companies.
4.1. act within their powers;
4.2. promote the success of the company;
4.3. exercise independent judgment;
4.4. exercise reasonable care, skill and diligence;
4.5. avoid conflicts of interest;
4.6. not to accept related benefits from third parties; and
4.7. declare an interest in proposed transactions or arrangements.
Although the last three duties apply now under “common law”, they will not come into force under the Act until 1 October 2008. The other duties will apply from 1 October 2007. These duties have existed in law in a similar form up to now, but now they are written down in a statute. They are a code of conduct which set out how directors are expected to behave.
5. What do these new Rules on Directors Duties mean for my day to day working?
You owe these duties to the Company and you must consider them when making your decisions about how you run the
Company. If you need to decide about a new contract, for example, you should bear in mind the duties. Some of them may not apply but some will. When considering the duty to promote the success of the Company the Act says that you should have regard (amongst other matters) to:
• The likely consequences of any decision in the long term;
• The interests of the Company’s employees;
• The need to foster the Company’s business relationships with suppliers, customers and others;
• The impact of the Company’s operations on the community and the environment;
• The desirability of the Company maintaining a reputation for high standards of business conduct; and
• The need to act fairly as between members of the Company.
6. What if I do not act in accordance with these Duties?
The Act does not set out what will happen to a director who does not follow these duties. Instead, it tells us that we must rely on rules already established in law. These can give rise to a number of remedies, including the director paying damages/compensation to the Company or the director having to pay the Company for any profit made by him as a result of a breach of one of the duties. A director could even be removed from his position as director.
7. Do I need to keep a record of the Duties which I have considered?
There is nothing in the Act which requires companies to have a “paper trail” for decisions made. However, you should be aware of the duties and record where one of them has been considered in particular circumstances. If the decision that you as directors are making is an important one for the Company it will probably be supported by paperwork. In that case, the paperwork should record, or minute, that each of the relevant duties has been properly considered.
8. Apart from Directors Duties, what else will affect me as Director?
• If, after 1 October 2007, you agree a service contract (a contract of employment) with your Company which is for a term of longer than two years, the shareholders must first approve the contract;
• If when you stop being a director you receive a compensation payment for your “loss of office” or in connection with your retirement, any payment you receive must also be approved first by the shareholders;
• Your Company can now make a loan to you but again it must be approved by the shareholders first (unless it is under £10,000);
• There is no longer a maximum age limit for directors;
• Any minutes that are taken at your Director’s meetings must be kept for at least 10 years rather than indefinitely; and
• The categories of people who are deemed to be “connected” with you for certain purposes will be widened. They will now include a person (of whatever sex) with whom you live in an “enduring family relationship”, children of that person who are under 18 and your children of whatever age.
• You need to be aware of the changes to shareholders rights below.
9. I am a Shareholder in a Private Company. How will I be affected by the changes brought in this year?
There are a lot of changes being brought in on 1 October 2007 which affect shareholders (and also “members” of companies Limited by Guarantee - non profit making companies which do not have a share capital). These are split into the different areas below:
Decisions
The Act has made it easier for you to make decisions (pass resolutions) without having to attend any meetings. You can make decisions by passing a “Written Resolution”. You could do this before 1 October 2007 but all of you would have had to agree to it for it to be passed. From 1 October, depending on the type of Resolution (there can be an “Ordinary” or “Special” Resolution), resolutions can be passed by a “Simple Majority” (ie shareholders holding over 50% of the voting rights) or a majority of not less than 75% of the total voting rights of those shareholders who are eligible to vote.
You can agree to a Resolution by signing the piece of paper on which it is written and posting it back to the Company OR if the Company is allowed to (see below) you can agree to it by sending an e-mail or fax to the Company.
For more information on how the new law will affect your business, or to speak to one of our food specialists, please contact:
Philippa Dempster, Cumberland Court, 80 Mount Street, Nottingham NG1 6HH
Direct line: 0115 936 9334
philippa.dempster@freethcartwright.co.uk
Karl Jansen, Cumberland Court, 80 Mount Street, Nottingham NG1 6HH
Direct line: 0845 634 9780
karl.jansen@freethcartwright.co.uk