UK Company Law

Reform

 UK Company Law was updated and reformed by the Companies Act, 2006. The Act was the most extensive revision of Company Law ever undertaken. It was the result of the Company Law Review set up by the Department of Trade and Industry in 1998.   The terms of reference of the Review were to consider how company law could be modernised so as to be simple, efficient and cost effective and allow business activity with maximum freedom and flexibility, while protecting the interests of those involved with the business. A further objective was to restate company law in clear, concise and unambiguous language, easily understood by those involved.

The Review Group produced a number of reports culminating with its final report in two volumes in July 2001. The UK Government published a White Paper “Modernising Company Law” after two further years of work. The second White Paper “Company Law Reform” was published in 2005 with a new draft bill. The Bill was passed in November 2006.  The Companies Act, 2006 has been progressively commenced into law since 2006. It is now almost entirely in force.

The Companies Act, 2006 is unusual in that it applies throughout the whole of the United Kingdom. Prior to this, there was separate company legalisation in Northern Ireland, Scotland and England and Wales.  The Companies Act, 2006 replaces England and Wales Companies Acts, 1981 and 1989 and the Northern Ireland Companies Order 1986.

The Companies Act 2006 abolishes the limitation on a company’s powers, except for certain limited classes of companies. The Companies Act, 2006 provides that unless a company specifically elects to restrict its objects, it can do any act which an individual can undertake.

Directors and Secretary

The Companies Act, 2006 has introduced a more straight forward model articles of association for private companies. A director may, but need not, be involved in the company’s day to day affairs.  A non executive director will have the same legal responsibility as other directors.

The Companies Act, 2006 requires every private company to have least one director.  The Companies Act, 2006 does not prescribe who is responsible for appointing directors.  The first directors are appointed by the subscribers to the Memorandum of Association.  Provision for appointment of the directors is normally made in the Articles of Association of the Company.

Since April 2008, private limited companies are not obliged to have a company secretary unless the company rules so provide. If there is no secretary, the responsibilities remain with the directors. This is different to the position in Ireland where two directors and a company secretary are always required.

The Companies Act, 2006 sets out directors’ duties for the first time. Directors under Companies legislation, include persons appointed as directors and also persons who fulfil the role of directors i.e. shadow or de facto directors.   The statutory statement of company directors’ duties largely follows existing common law and equitable rules on the subject. The new statutory duties are subject to such other rules of laws as exists

The Companies Act 2006 introduces a new procedure enabling a shareholder to bring a claim against the directors of the company for negligence, default, breach of duty or breach of trust. There is a two stage test requiring the shareholder to obtain the court’s permission to commence and continue a claim. The court must bring proceedings to a end if there is no prima facie case; and the court has a discretion to refuse or grant leave to continue a claim, taking account of specified matters.

Shareholders

Since October 2007, private companies are not required to hold Annual General Meetings at all.  Public companies are required to hold Annual General Meetings.  However, shareholders can demand an AGM. Companies can choose to hold AGMs.  These new provisions only apply if the Memorandum & Articles do not say otherwise (which will often be the case).    If a company does hold an AGM, it must send written notice to the directors and shareholders 14 days in advance.