Vertex Law

What is the Companies Act 2006?

by Nick Austen and Andrew Hawkins

Nick Austen and Andrew Hawkins, solicitors at Vertex Law specialising in the buying and selling of pharmacies, highlight some of the effects that the Companies Act 2006 will have on your business and how it is run

The Companies Act 2006 (the 2006 Act) is a consolidation of current company law, including the majority of the Companies Act 1985 and the modifications made to it since it came into force.  It contains a number of changes that shareholders and directors of all companies, including pharmacy operators, should be aware of.  

The 2006 Act is massive, comprising 1,300 sections (contained in 47 parts) and 16 Schedules.  However, the position is even more complicated than that because some provisions of the Companies Acts 1985 and 1989 will remain in force (for the time being at least). 

When will it come into force? 

The 2006 Act was first introduced into the House of Lords in November 2005 under the name of the Company Law Reform Bill and received Royal Assent on 8 November 2006.  Apart from a few provisions that came into force on Royal Assent, the provisions of the 2006 Act are to come into force gradually over the next two years by order of the Treasury or the Secretary of State. The four key dates in this process to bear in mind are 6 April 2007, 1 October 2007, 6 April 2008 and 1 October 2008, by which date the whole of the 2006 Act will be in force. 

For further details of the expected timetable visit: www.jordans.co.uk/jordans3.nsf/Main/Commencement%2Btimetable 

How will company law change?
●          The streamlining of the regulatory and administrative regime for private
            companies

●          The codification of directors’ duties  

●          The introduction of a general scheme of electronic and web-based company
            communications

How will the Companies Act 2006 affect the administration of my company? 

It already has. 

One of the stated key objectives of the 2006 Act is to make for easier company administration; “think small first”, as the DTI puts it. 

E-communications 

As from 20 January 2007, a board of directors can use email and the company’s website to: 

●          Communicate with its shareholders (although this will need shareholder
            approval); and 

●          File most basic documents relating to the company’s constitution and share
           capital at Companies House 

Shareholders’ resolutions and meetings 

It has been widely accepted for some time that directors of many private companies resent the time it takes to call and hold shareholders’ general meetings, or to achieve unanimous consent to pass a shareholder resolution using the written resolution procedure. 

The 2006 Act will abolish the requirement for private companies to hold an AGM and by changing the requirement for written resolutions to be passed unanimously (as from 1 October 2007).

Shareholder resolutions will require the same number of votes, regardless of whether a resolution is passed in a meeting, or by written resolution. The procedural requirements for approving written resolutions otherwise remain the same except that directors must circulate a written resolution by sending it to all shareholders at the same time, or by submitting the same copy to each shareholder in turn.  

Company secretaries 

The 2006 Act will abolish (as from 6 April 2008) the requirement for a private company to have a company secretary, although it can still have one if it wishes.  If your company chooses not to have a company secretary, anything that is authorised to have been done by a company secretary will be considered to have been done by a director. If your company does appoint a company secretary, they can continue to be a co-signatory for the execution of documents by the company. 

Will the 2006 Act affect pharmacy company sales? 

Yes – it should reduce advisers’ fees.  If you have bought a pharmacy company you are likely to have experience of the time and advisers’ fees involved in complying with the prohibition contained in the Companies Act 1985 on companies giving financial assistance for the acquisition of their own, or their holding company’s, shares and the process private companies must go through to sidestep this prohibition and permit them to give financial assistance, known as the ‘whitewash procedure’.  For example, this is triggered when a funding bank requires security for its loan to be in the form of a guarantee and debenture from the pharmacy company being purchased. 

Any breach of the current prohibition on financial assistance is a civil and criminal offence. 

The 2006 Act will abolish this prohibition for private companies (as from 1 October 2008) and following on from that, the whitewash procedure. And now the bad news. 

What has the 2006 Act to say about directors’ duties? 

A lot.  The 2006 Act will codify directors’ duties for the first time (as from 1 October 2007), listing seven general duties for directors to comply with, adding more detail to an already complicated and difficult area of law. 

Perhaps the most significant change in the 2006 Act is that directors will have to have regard to (among other things) a list of statutory factors in exercising their duty of good faith in promoting the success of the company. 

In doing this, every director must have regard to: 

(a) the likely long-term consequences of the decision; 

(b)  the interests of the company's employees; 

(c)  the need to foster business relationships with the company's suppliers, customers
      and others;  

(d)  the impact of the company's operations on the community and the environment; 

(e)  the desirability of maintaining a reputation for high standards of business   
      conduct; and 

(f)  the need to act fairly as between shareholders of the company. 

For a copy of the Act visit: www.opsi.gov.uk/acts/acts2006/ukpga_20060046_en.pdf