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Benefits for businesses large and small Companies Act 2006 commencement

DEPARTMENT FOR BUSINESS, ENTERPRISE AND REGULATORY REFORM News Release (Reference 2007/065) issued by The Government News Network on 28 September 2007

Businesses will begin to see the benefits of the Companies Act from Monday, as the first major provisions of the Act are implemented.

The Companies Act, which received Royal Assent in November 2006, introduces sweeping changes to simplify and improve company law, making it easier to understand and more flexible - especially for small businesses.

The Act, which followed extensive consultation with the business community, is expected to save business up to £250 million a year and bring greater shareholder engagement and transparency.

Minister for Competitiveness, Stephen Timms, said:

"We have listened to the business community, hearing from the horse's mouth what needs to be done to ensure the Government provides modern, flexible and user friendly company law, which reduces costs and unnecessary burdens. The Companies Act is the culmination of that work.

"With this major implementation taking place on 1 October 2007, businesses can quickly begin to reap the rewards of this simpler, clearer and more cost effective legislation, designed with ALL entrepreneurs, not just large businesses, in mind. Awareness of the needs of small companies forms the very essence of the Act, whilst all types of businesses should benefit from projected savings of around £250 million a year.

"Many of the provisions included in this stage of implementation clarify the responsibilities of directors and strengthen the rights of shareholders and investors, helping to ensure effective shareholder involvement and promoting a long term investment culture. It is good news for the future of business in the UK."

Provisions which commence on Monday 1 October include:

* The statutory statement of Directors' Duties (other than those on conflicts of interest). This will make the law in this important area clearer and more accessible, and reflects the modern view that that it is good business sense for companies to embrace wider social responsibilities .

* An enhanced business review, which for quoted companies must now include information on environmental, employee, social and community issues.

* Increased Rights for Indirect Investors (e.g. individuals investing in a personal investment portfolio where the shares are held for the investor in the name of the investment manager). These provisions will help such investors to be better informed about the performance of companies and allow them to participate more fully in company decision-making.

* A new approach to Company Decision Making, which recognises that many private companies wish to take corporate decisions by written resolution rather than by calling meetings of shareholders.

* New, clearer procedures for bringing Derivative Claims (claims brought by a shareholder against a director on behalf of the company, usually against a director).

Notes to editors

1. The following provisions in the Companies Act 2006 will be commenced with effect from 1 October 2007:

Sections 116 to 119 (Inspection of register of members) These sections provide for the inspection of the company's register of members by shareholders and the public. They maintain the principle that the public have the right to know who benefits from the incorporation of a company. In view of recent abuses of this right, they also provide for safeguards. They introduce provisions whereby a court may relieve a company from the obligation to allow access if the court is satisfied that this is not sought for a proper purpose.

Part 9 (Exercise of members' rights)

This part facilitates the enfranchisement of indirect or beneficial investors in a company (e.g. individuals investing in a personal investment portfolio where the shares are held for the investor in the name of the investment manager).

Part 10 (A company's directors)

Chapter 2 of Part 10 introduces a statutory statement of directors' general duties to the company.

The other provisions of this part both replace and substantively amend the provisions relating to directors in Part 9 and Part 10 of the Companies Act 1985, e.g. by permitting companies to make loans to directors with prior shareholder authorisation. Provisions relating to directors' conflict of interest duties (sections 175 to 177 and 182 to 187), directors' residential addresses (sections 240 to 246) and underage and natural directors (sections 155 to 159 and 162 to 167) will be commenced with effect from 1 October 2008.

Part 11 (Derivative claims and proceedings by members)

This part introduces a statutory procedure in respect of the existing right for a shareholder to bring, in certain circumstances, a claim against a director on behalf of the company.

Part 13 (Resolutions and meetings)

This part replaces some and substantively amends other provisions relating to resolutions and meetings in the Companies Act 1985. The provisions in the 2006 Act, unlike the corresponding provisions in the 1985 Act, are written from the perspective of private companies except where they apply only to public companies, e.g.

* private companies will not need to hold an annual general meeting (although they may positively opt to do so);

* it will be easier for private companies to take decisions by written resolutions.

Part 14 (Control of political donations and expenditure)

This part largely restates Part 10A of the Companies Act 1985 - which requires prior shareholder authorisation of political donations or expenditure by companies - but introduces some deregulatory changes e.g. by allowing companies greater procedural freedom in obtaining shareholder authorisation.

Section 417 of Part 15 (Contents of directors' report: business review)

This section replaces the requirement in the Companies Act 1985 for all companies other than small companies to produce a business review as part of the directors' report, with additional provisions for quoted companies.

Part 29 (Fraudulent trading)

This section restates section 458 of the Companies Act 1985, reflecting the increase in the maximum sentence for the offence of fraudulent trading from seven years' imprisonment to ten years made by the Fraud Act 2006.

Part 30 (Protection of members against unfair prejudice)

This part restates sections 459, 460 and 461 of the Companies Act 1985, which provide a remedy where a company's affairs are being conducted in a manner which is unfairly prejudicial to the interests of its members.

Part 32 (Company investigations: amendments)

The 2006 Act confers new powers on the Secretary of State to bring to an end an investigation when it is no longer in the public interest to continue with it, to revoke the appointment of an inspector and to issue directions about the scope of an investigation, its duration and certain other matters.

2. Further provisions in the Act will be implemented with effect from April 2008 and October 2008. The full commencement time table can be found at: http://www.gnn.gov.uk/Content/Detail.asp?ReleaseID=267665&NewsAreaID=2

3. The Companies Act explanatory notes can be found at: http://www.opsi.gov.uk/acts/en2006/ukpgaen_20060046_en.pdf

4. Common commencement dates are the time when pieces of legislation take effect. They are currently the 6 April and 1 October. Common commencement dates (CCDs) have been introduced to raise awareness for business and stakeholders on changes to regulations. We hope that knowing these dates will help them to plan and budget for the new measures. Go to http://www.businesslink.gov.uk for latest information.

Department for Business, Enterprise & Regulatory Reform

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