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New Companies Act
Published August 2007
1,300 sections and 16 Schedules set to become law
The Companies Act was passed on 8 November 2006, with some sections in force now, and the rest becoming law in stages in October this year and April and October of 2008, the intention being that every part of the Act will be in force by October 2008.
The Act comprises 1,300 sections and 16 Schedules and while it is impossible to do the whole Act justice, a focus on some key points that will affect corporate transactions may be helpful.
After October 2008 it will no longer be illegal, in most circumstances, for a private company to give financial assistance in connection with the purchase of its own shares.
Currently private companies can give financial assistance, subject to certain “whitewash” procedures. In the new Act, the prohibition on financial assistance only applies to a public company, although it is important to note that a subsidiary of a public company cannot give assistance for the purchase of shares in the public company; nor is it lawful for a subsidiary public company to give financial assistance for the purchase of shares in its private parent.
There will be new rules about Directors and Secretaries, with which everyone will need to become familiar. For the first time, companies will have to have at least one Director who is a natural person (i.e. not a company). Directors must now meet the minimum age requirement of 16 years.
There will be a new requirement to provide a service address for a Director. A residential address will have to be given but will be protected with rules restricting its availability. This is a reversal of the current position, where a Director has to apply to the Registrar for his or her address to be withheld.
While public companies will still need to have a company secretary (who will still have to meet certain qualification requirements) private companies will no longer need one.
There is no doubt that some aspects of corporate life will be made simpler by the Act, for example, reductions of capital. Today, it is necessary to go to Court to have a reduction approved, which is costly and time consuming. Under the Act, private companies will be able to reduce share capital by members’ resolution supported by a solvency statement. This will be a quicker and cheaper process.
Written Resolutions of shareholders have also been adjusted. Currently, all shareholders have to sign Resolutions. This can cause problems if there are large numbers of shareholders or some are missing. Under the Act, Written Resolutions will only have to be agreed by the necessary majority – a simple majority for an Ordinary Resolution, or not less than 75 per cent for a Special Resolution.
Under the current regime all but the smallest loans to directors are prohibited and breach of this is a criminal offence. Under the new Act, loans to directors will be permitted if the members approve. Small loans will be permitted up to £10,000 (double the current limit) without members’ approval.
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