September 30, 2009
The recent upheaval in English company law is almost over. The provisions of the Companies Act 2006 (the "2006 Act") have been coming into force in stages. Not all the changes have set the pulses racing, though highlights have included the abolition of the prohibition of financial assistance for the acquisition of shares in private companies.
On 1 October 2009 – with only a handful of exceptions – all the provisions of the 2006 Act that have not yet been commenced, come into force. These include:
- Parts 1-4 – Formation and constitution
- Part 5 – Names
- Part 6 – Registered office
- Part 7 – Re-registration as a means of altering a company’s status
- Part 8 – Registers of members
- Parts 10 and 12 – Residential addresses
- Part 17 – A company’s share capital
- Part 18 – Acquisition by a limited company of its own shares
- Part 24 – Annual return
- Part 25 – Company charges
- Part 31 – Dissolution and restoration to the register
- Part 35 – Registrar
- Part 41 – Business names
Many of these provisions are simple re-enactments of the prior Companies Act 1985 (the "1985 Act"). However, in some cases there are important changes being made. We highlight the most noteworthy below.
Allotment of shares
Chapter 2 of Part 17 (Allotment of shares) of the 2006 Act sets out the law on allotment of shares. Part 17 will come into force on 1 October 2009. In essence, the current law is restated in the 2006 Act. However, the substantive change is that private companies with only one class of share capital will not need authority to allot unless their articles of association require it (section 550). This is a useful administrative relaxation.
Part 24 (A company’s annual return) of the 2006 Act will come into force on 1 October 2009 and, in large part, restates the provisions of sections 363 to 365 of the 1985 Act. Accordingly, the sections of the 1985 Act on annual returns are repealed on 1 October 2009.
Part 24 is supplemented by The Companies Act 2006 (Annual Return and Service Address) Regulations 2008 (draft) ("Annual Return Regulations") which amend certain sections of Part 24 and prescribe the information to be provided in a company’s annual return pursuant to the 2006 Act. Part 24, as supplemented by the Annual Return Regulations, draws a distinction between non-traded and traded companies for the purposes of determining the information about shareholders, in particular their addresses, to be disclosed in annual returns filed after 1 October 2009. Only traded companies will be required to include shareholders’ addresses in the annual return and then only in respect of shareholders holding more than 5%.
The 2006 Act abolishes the requirement for a company to have an authorised share capital through the repeal of section 2(5)(a) of the 1985 Act with effect from 1 October 2009.
From 1 October 2009, any provision in a company’s memorandum of association in force immediately before 1 October 2009 relating to the amount of the company’s authorised share capital will be treated as a provision in the company’s articles of association setting the maximum amount of shares that the company may allot. The company may amend or revoke such "provision" by ordinary resolution. A resolution passed for this purpose before 1 October 2009 will be treated as if it were passed on that date.
An amendment of a company’s articles of association on or after 1 October 2009 to authorise the directors to allot shares in excess of the maximum amount of shares set out in such "provision" will have effect although not expressed as amending or revoking the provision.
This does not affect the power of a company by special resolution to adopt new articles, with effect from 1 October 2009 or any later date, that make no provision as to the maximum number of shares that may be allotted by the company.
Part 41 (Business names) of the 2006 Act will come into force on 1 October 2009, largely restating the Business Names Act 1985, which will be repealed on that date. Part 41 makes the rules on business names more consistent with the rules on company names, and will remove elements of duplication relating to the information companies are required to disclose at places of business and in correspondence.
Chapter 9 of Part 17 (Classes of shares and class rights) of the 2006 Act sets out the new law on class rights and will come into force on 1 October 2009. Chapter 9 largely restates the provisions of the 1985 Act relating to class rights but key substantive changes under the 2006 Act include:
- Extending the 1985 Act provisions on variation of class rights to members of companies without a share capital (for example, companies limited by guarantee). Previously the issue of how the rights of such members could be varied were dealt with in the memorandum or articles of the company in question, if at all.
- Introducing the ability for a company to specify less demanding procedures for varying class rights in its articles than are provided under the 1985 Act.
Part 25 (Company charges) of the 2006 Act sets out the new law on the registration of company charges in England and Wales and will come into force on 1 October 2009. Accordingly, sections 395 to 409 of the 1985 Act will be repealed on that date. Part 25 has not made any radical amendments to the existing law under the 1985 Act. Most fundamentally for practitioners, the categories of charge requiring registration and the 21 day registration period following creation of the charge have not been changed.
The current requirement in section 409 of the 1985 Act for a company incorporated outside Great Britain (but with an established place of business in England and Wales) to register charges over property in England and Wales (a Slavenberg filing) has not been included in the 2006 Act. Instead, the Secretary of State has been given powers to make regulations requiring overseas companies that have a business presence in the UK, to register specific charges over property in the UK (section 1052, 2006 Act).
Part 2 (Company formation) of the 2006 Act will come into force on 1 October 2009. The key substantive change under the 2006 Act is the new ability for public companies to be formed by a single shareholder in addition to private companies (section 7). Companies House will publish new forms to be submitted when applying to form a company.
The bulk of Part 5 (A company’s name) of the 2006 Act will come into force on 1 October 2009, although sections 69-74 of the 2006 Act, which set out a new procedure for objecting to registered name, came into force on 1 October 2008. This new procedure is the most significant change made by the 2006 Act in the area of company names.
Constitution: articles and memorandum
The bulk of Part 3 (A company’s constitution) of the 2006 Act will come into force on 1 October 2009, although sections 29-30, which cover filing of resolutions and agreements affecting a company’s constitution, came into force on 1 October 2007.
Key changes relating to companies’ constitutions:
- The reduced role of the memorandum of association which, under the 2006 Act, becomes a simple document expressing the intention of each subscriber to form a company and take at least one share in it (section 8).
- Objects in the memorandum of an existing company will automatically become part of its articles (section 28). Such a company is free to delete these objects from its articles (or to adopt new articles without objects after the commencement of Part 3).
- A company’s objects will be unrestricted unless any restrictions on a company’s objects are specifically set out in its articles (section 31). Where a company changes its articles so as to add, remove or alter a statement of its objects, it must give notice to the registrar (section 31).
- The provisions relating to entrenching provisions in a company’s constitution are also modified (sections 22-24).
Part 38 (Companies: interpretation) of the 2006 Act contains a number of important definitions, including the definitions of "subsidiary", "holding company" (section 1159) and "undertaking" (section 1161). Many of the Part 38 sections have been brought into force already in relation to other provisions of the 2006 Act but from 1 October 2009 these definitions will be in force for all purposes.
The Eighth Commencement Order provides for the following provisions of Part 10 (A company’s directors) and 12 (Company secretaries) of the 2006 Act to come into force on 1 October 2009:
- Sections 162 to 167 (register of directors).
- Sections 240 to 246 (directors’ residential addresses: protection from disclosure).
- Section 247 (power to make provision for employees on cessation or transfer of business).
- Sections 275 to 279 (register of secretaries).
Key changes include:
- Every director will file two addresses: a service address for the public record and the home address which will be disclosed only to specified public authorities and, in most cases, to credit reference agencies. Directors whose association with particular companies puts them at risk of violence or intimidation will be able to apply for higher protection so that their home addresses will not be disclosed to credit reference agencies.
- Companies will have to keep a register of directors’ residential addresses. The information in this register must be kept confidential.
Dissolution and restoration of companies
Part 31 (Dissolution and restoration of companies) of the 2006 Act contains the provisions on the dissolution and restoration to the register of a company. Part 31, which will come into force on 1 October 2009, includes a number of sections that are restated provisions of the 1985 Act. Accordingly, sections 651 to 653 of the 1985 Act will be repealed on 1 October 2009.
Key substantive changes under the 2006 Act include:
- An extension of the procedure for a voluntary application to strike a company off the register to public companies (only private companies may make such an application under the 1985 Act).
- The introduction of a new administrative restoration procedure whereby companies may, in certain limited circumstances, be restored to the register by the registrar without an application to court.
- An extension of the time limit from two years to six years from the date of dissolution of the company in which to make an application to court for restoration to the register (in non-personal injury related cases).
Chapter 3 of Part 17 (Allotment of equity securities: existing shareholders’ right of pre-emption) of the 2006 Act contains the provisions on statutory pre-emption rights. Part 17 comes into force on 1 October 2009. The basic principle (which is unchanged by the 2006 Act) is that a shareholder should be able to protect his proportion of the total equity of a company by having the opportunity to subscribe for any new issue of equity securities. The 2006 Act restates much of the 1985 Act in relation to statutory pre-emption rights.
Public companies – share capital
Sections 578 and 579, which provide that a public company must not allot shares following an offer to subscribe for shares, unless the issue is subscribed for in full or the offer is made on the basis that it will go ahead even if it is not subscribed for in full or if other conditions specified in the offer are met, will come into force on 1 October 2009.
Sections 584 to 587, which set out additional rules on payment for shares which relate to public companies only, will come into force on 1 October 2009.
Sections 593 to 609, which set out the requirements relating to the independent valuation of non-cash consideration for shares in a public company and the transfer to a public company of a non-cash asset in initial period, will come into force on 1 October 2009.
Part 18 (Acquisition by a limited company of its own shares) will come into force on 1 October 2009. The main substantive changes in the 2006 Act on share buybacks are:
- A company will no longer need a specific authorisation in its articles for it to purchase its own shares.
- A private company will no longer need a specific authorisation in its articles to be able to redeem or purchase its shares out of capital.
- The requirement for the directors of a private company to make a statutory declaration about the company’s financial position for a purchase of own shares out of capital will be replaced with a requirement for a directors’ statement.
Chapter 3 of Part 18 (Redeemable shares) of the 2006 Act sets out the new law on redeemable shares and will come into force on 1 October 2009. Chapter 3 largely restates the provisions of the 1985 Act dealing with redeemable shares but makes some substantive changes to the ways in which companies may issue redeemable shares and redeem them:
- The need for prior authorisation in its articles before a private company may allot redeemable shares is removed (section 684).
- The terms of redemption can provide for a shareholder to agree with the company to be paid the redemption amount after the redemption date (section 686).
Part 6 (A company’s registered office) of the 2006 Act contains the law relating to a company’s registered office. Part 6 will come into force on 1 October 2009 and section 287 of the 1985 Act will be repealed on that date. There have been no substantive changes under the 2006 Act to the requirement for a company to have a registered office at all times or the procedure for changing a company’s registered office. The only substantive change to the registered office regime is in relation to Welsh companies.
Chapter 2 of Part 8 (register of members) of the 2006 Act will come into force on 1 October 2009, with the exception of sections 116-119, which were brought into force in a tapered fashion on 1 October 2007, and sections 121 and 128, which came into force on 6 April 2008. Chapter 2 introduces a number of new obligations in relation to requests to inspect (or to obtain a copy of) a company’s register of members.
Part 35 (The registrar of companies) of the 2006 Act sets out the core functions of the Registrar and largely replaces Part 24 of the 1985 Act, with various changes. Some provisions under Part 35 have already come into effect, either for certain purposes or generally. The remainder of Part 35 comes into force on 1 October 2009.
Re-registration as a means of altering status
Part 7 (Re-registration as a means of altering status) of the 2006 Act, which will come into force on 1 October 2009, contains the relevant provisions on re-registration as a means of altering a company’s status. Part 7 replaces the equivalent provisions in sections 43 to 55 of the 1985 Act. The methods of re-registration under the 2006 Act are largely the same as those under the 1985 Act with one addition; a public company will be able to re-register as an unlimited private company without first having to re-register as a private limited company.
The Eighth Commencement Order will bring Part 17 (Share capital) of the 2006 Act into force on 1 October 2009, with the exception of section 544 (transferability of shares), which was brought into force on 6 April 2008, and sections 641(1)(a) and (2)-(6), 642-644, (and sections 652(1) and (3) so far as relating to sections 641(1)(a) and (2)-(6) and 642 to 644) and 654 (private companies: reduction of share capital supported by solvency statement), which were brought into force on 1 October 2008.
Part 17 broadly restates the share capital provisions of the 1985 Act, although some important substantive changes are made, such as the abolition of authorised share capital and the introduction of a new procedure for private companies to make capital reductions supported by solvency statements.
Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues. For further details please contact the Gibson Dunn attorney with whom you work or James Barabas (+44 (0)20 7071 4253, [email protected]) in the firm’s London office.
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