Legal Eyes: What should I know about the key provisions for my organisation (a company limited by guarantee) in the Companies Act 2006 which came into force on 1 October 2007?

The Companies Act 2006 (the Act) was intended to simplify, modernise and deregulate company law in order to bring all company law provisions under one Act.

With 1300 sections and 16 schedules it is said to be the longest Act ever passed by Parliament and interpretation of the Act has proved to be rather complicated. The Act introduces some new provisions and either rewrites or lifts, without amendment, provisions of previous company law legislation.

There are a number of provisions that came into force on 1st October 2007, however the key ones relate to the duties of directors and to the resolutions and meetings of a company.

Directors’ Duties
Some of the most significant (and controversial) provisions relate to the codification of directors’ duties. A statutory statement of duties replaces many existing common law and equitable rules. In reality, however, the statutory duties do not impose a higher standard than common law fiduciary duties.

The duties are in the form of a checklist and are set out in sections 177 to 177 of the Act.

They are:

(i) the duty to act within the company’s powers,

(ii) the duty to promote the success of the company for the benefit of the members as a whole,

(iii) the duty to exercise independent judgement,

(iv) the duty to exercise reasonable care, skill and diligence,

(v) the duty to avoid conflicts of interest,

(vi) the duty not to accept benefits from third parties and

(vi) the duty to declare an interest in proposed transactions or arrangements.

It should be noted that the duties apply equally to shadow directors (e.g. non-executive directors) and that a breach of duty is enforceable in the same way as a breach of a director’s fiduciary duties. (That is, damages for any loss, removal from office by the members of the company and if the breach is fraudulent, criminal sanctions may apply.)

The Act also allows for companies to purchase insurance for directors against liability arising from negligence, default, breach of duty or breach of trust.

Resolutions and Meetings
From 1st October the main provisions relating to resolutions and meetings are as follows, unless the organisation’s Articles of Association state otherwise:

(i)The notice period for all general meetings of a company is 14 days regardless of the type of resolution proposed to be passed at the general meeting. Previous legislation required 21 days notice for special resolutions.

(ii) It is no longer necessary to have the signatures of all the members for a written resolution. Written resolutions and resolutions at meetings may be passed by a simple majority for ordinary resolutions and by not less than a seventy-five percent majority for special resolutions. As was the case with the previous legislation, directors or auditors may not be removed by written resolution.

(iii)Members have a new statutory right to appoint a proxy to act on their behalf at meetings, irrespective of a contrary provision in the organisation’s Articles of Association.

(iv)Private companies are no longer required to hold annual general meetings and there is no longer a requirement for a company to lay its accounts before a general meeting. However a company is still required to send a copy of the accounts to its members.

If an organisation decides to amend its Articles of Association in order to incorporate the change in company law, it is advisable to seek professional legal advice.

Soiya Gecaga
Solicitor, Charities & Social Enterprise Department

Bates Wells & Braithwaite
www.bateswells.co.uk