Company Law Updates October 2008

October 2008

The following provisions of the Companies Act 2006 come into force on 1st October 2008:
- Objection to Company Names
- Trading Disclosures
- Corporate directors and under-age directors
- Share capital reduction through the solvency statement route
- Repeal of the restrictions on financial assistance for acquisition of shares in private companies
- Changes to the requirements of annual returns
- Provisions relating to the directors' 'conflicts of interest duties'

Objection to Company Names & Trading Disclosures

On 1 October 2008 new rules apply under sections 69 to 74 of the Companies Act 2006. These allow complaints to be made where a company has been registered with the intention of extracting money from the complainant or to prevent him from registering a name in which he has goodwill ("opportunistic registration"). From October 2008 a person may request in writing information from the company it deals with and the company must send a written response to that person within five working days of the receipt of that request.

New Company Director Rules

From 1st October 2008 every company will have to have at least one director who is a natural person and all appointed directors must have a minimum age of 16 years old by1st October 2008.

Share Capital Reduction & Solvency Statement

The 2006 Act has introduced a new way for private companies to reduce the amount of their share capital. From 1 October 2008 private companies, as an alternative to passing a special resolution and obtaining court approval, have the option of reducing share capital by special resolution supported by a solvency statement made by the directors. The solvency statement route provides a simpler and cheaper means for a company to reduce its share capital. Please note that the solvency statement is only available to private companies, however, both private and public companies will continue to be able to reduce their share capital by special resolution confirmed by court order.

Financial Assistance

From 1st October 2008 the rules on financial assistance are no more applicable to private companies, so a private company is not longer prohibited from giving financial assistance for the acquisition of its own shares. However, if a private company has a subsidiary which is a public company, the public company cannot assist the acquisition of shares in the private holding company. It should be noted that the rules on financial assistance continue to apply for public companies.

Changes to the requirements of Annual Returns

From 1st October 2008 Annual Returns made up to a date on or after 1st October 2008 contain reduced information on the company's shareholders. The information provided on the annual return will depend on whether or not the company has any of its shares admitted to trading on a regulated market (traded company). Private and non-traded public companies are only required to provide names of shareholders, not addresses. Traded public companies are required to provide names and addresses for those shareholders holding at least 5% or more of any share class.
Template notices, minutes and resolutions for general meetings are all available within the Simply-docs Corporate Document Folder.

Directors' 'Conflicts of Interest Duties'

 On 1 October 2008 the three remaining statutory duties of directors come into force, these are:
- to avoid conflicts of interest (section 175),
- not to accept benefits from third parties (section 176), and
- to declare any interest in proposed transactions or arrangements (section 177).

Under section 175 a director must avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company. However, there are some exceptions in that if a conflict arises, it can be authorised in advance by the shareholders or by the directors. Shareholders can authorise an actual or potential conflict by an ordinary resolution (more than 50% support from those shareholders voting). A director who is also a shareholder can participate in the vote, even if he is one of the directors interested in the matter being authorised. Directors can also authorise conflicts by a majority vote, provided there is nothing in the articles of association that prevents them from doing so and provided the matter is agreed to without the conflicted director voting or counting in the quorum.

Under section 176, a director must not accept any benefit from a third party conferred by reason of his directorship unless acceptance of the benefit cannot 'reasonably be regarded as likely to give rise to a conflict of interest'. Unlike section 175, there is no statutory provision giving boards the power to authorise directors to accept benefits from third parties.

Under section 177, a director must declare to the other directors the nature and extent of any interest, direct or indirect, which he has or will have in a proposed transaction or arrangement with the company. tors' Residential Addresses, available in the Corporate Document Folder.

The contents of this Newsletter are for reference purposes only and do not constitute legal advice. Independent legal advice should be sought in relation to any specific legal matter.

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