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Reflecting and Discussing on 'Companies Act 2006'

by Nick Gould

Earlier this year I wrote a short paper with particular reference to the Companies Act 2006 called “Problems with the law”. It made four key comments summarised as follows: -

Too much law;

Too much bad law;

Laws which are unenforceable; and

Laws which are unenforced.

Reflecting on this and discussing it with owner/managers, academics and professionals over several months what do I think now ?

After about 13 years of lobbying, debate and implementation what arrived when the Act became fully effective, on 1st October, were 1,300 sections of detailed technical legislation. I know many applaud the Act's modernisation of numerous areas of company law - there is some truth in their view.  Those areas range from the simplification of rules relating to share capital, to numerous ways in which pure administration (holding meetings, passing resolutions and so on) of private companies, in particular, are dealt with.  However, it seems to me the difficulties involved in understanding much of the legislation may well not be of overall benefit to small (and not so small) businesses.  Do they have the time, the skill sets, or the resources to deal with the mass of complexities of the Act and the dozens of accompanying statutory instruments. Most are still not aware of the benefits, such as they are, which the Act attempts to introduce:  many are simply too busy trying to survive, particularly at the moment.

Trying to follow the legislation with its opaque language and processes does not necessarily benefit businesses - big or small.  There is certainly a large knowledge gap to be filled for most affected by these rules.

As my first example, consider Section 443 which attempts to deal with the calculation of a period for the filing of a company’s accounts.

However, paragraph 689 of the Explanatory Notes to the Act, states

Section 443 is a new provision defining how to calculate the periods allowed for filing accounts and reports. In general this is the same date the relevant number of months later.  So, for example, if the end of the accounting reference period is 5th June, 6 months from then is 5th December.  However, as months are of unequal length, there can be confusion as to whether 6 months from say 30th June is 30th December (exactly 6 months later) or 31st December (the end of the sixth month). Under the rule laid down in this section, 6 months from 30th June will be 31st December.  This reverses the “corresponding date rule” laid down by the House of Lords in Dodds v Walker <1981> 1 WLR 1027.

Of real concern is that the section, if breached, requires a company to pay penalties for non-filing of accounts by the due date.  The Act, in this case, appears to consist of unclear wording which, if not complied with, leads to a penalty.  How can this benefit the business community?

My second example. Section 175 of the Act deals with directors' conflicts of interests and how these can be properly authorised by a resolution at a duly quorate board meeting.  All very well.  Except that according to Schedule 4, part 3-paragraph 47 of SI. No. 3495--2007, this way of authorising a conflict does not apply in the first instance to any company not incorporated under the 2006 Act.  Who - other than those who retain expert company counsel, or employ professional support lawyers to advise on these matters - could ever know of this distinction. The matter can be solved by passing a resolution pursuant to paragraph 47(3)b, but again, this is not easy for most people to work out.

The BIS, website itself states:-

“Directors’ conflicts of interest:

Directors have always had a duty to avoid a situation in which they have an interest which conflicts or may conflict with the company’s interests, unless the matter has been duly authorised.  At the moment, only the shareholders can authorise such a conflict of interest. In future, in the case of existing companies, it will be possible for those directors who do not have an interest in the matter to authorise it if this is specifically permitted by the company’s Articles.”

Is this accurate advice, in the light of the above?  It may be, but does it make directors aware of all the issues involved?

This is not a matter of semantics, nit-picking or similar.  Some of the key objectives of the legislation will not, I suggest, be achieved by this sort of over complex drafting.

I am sure, that neither the business community, nor parliament, nor indeed the legal community wants to see another major overhaul of company law any time soon.  I believe, however, that many organisations may ignore much of the legislation, for the reasons I have outlined briefly above.  That cannot be good for anyone.  Perhaps I am wrong and in a couple of years all will be resolved - only time will tell.

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