Companies Act 2006: provisions in force on 1 October 2007

United Kingdom

Monday, 1 October 2007 is one of the key implementation dates for the new Companies Act. Among other things, important changes relating to directors’ duties, derivative actions and the rules on meetings and shareholder resolutions are coming into effect.

The most important of the other Companies Act provisions coming into force on 1 October are highlighted below.

Directors’ duties and derivative actions

For the first time, the principal duties owed by directors to their company have been set out in statute. The statutory duties replace the common law duties of directors on which they are based. The statutory duties do not include all the duties and rules to which directors are subject. Other duties, such as the duty to creditors on insolvency and the various specific duties contained in companies legislation (like the duty to prepare accounts) and under health and safety legislation, will continue to apply alongside the new statutory duties. New rules relating to conflicts of interest will come into force on 1 October 2008.

The new Act also modernises and changes the rules by which shareholders can bring actions in the name of the company, known as derivative actions, and this may make it easier for shareholders to sue directors.

For a brief summary of the new statutory duties and rules on derivative actions, and some practical steps that directors can take, please click here.

Shareholder decision-making

AGMs: Private companies do not have to hold an AGM unless their articles require it. Companies with articles that incorporate the 1985 Table A can take advantage of the change without amending their articles, but those whose articles incorporate regulation 47 of the 1948 Table A cannot.

A public company must hold its AGM within six months of the financial year-end.

In a change of terminology, the new Act and the 1985 Table A, which has been amended with effect from 1 October 2007 (see our earlier LawNow), refer to other general meetings as “general meetings” rather than “extraordinary general meetings”.

Written resolutions: Except for resolutions to remove an auditor, or to remove a director under the statutory procedure (rather than under a provision in the company’s articles), all resolutions of private companies can be passed in writing. Instead of needing unanimity, an ordinary resolution can be passed in writing by a simple majority of the total voting rights of eligible members; and a special resolution in writing by 75%.

Written resolutions may only be passed under the Act, not under a company’s articles. As the new Act allows only private companies to pass written resolutions, public companies cannot pass resolutions in writing at all, even if their articles purport to allow it.

The company’s auditors must be sent a copy of a proposed written resolution, and the notice of any general meeting, together with any documents relating to the resolution or meeting.

Notice periods: A public company must continue to give at least 21 days’ notice of an AGM, but otherwise - unless the articles specify a longer period - general meetings of both private and public companies require 14 days’ notice only, even if a special resolution is proposed. If the articles incorporated regulation 38 of the 1985 Table A before 1 October 2007, they will stipulate 21 clear days’ notice for AGMs, special resolutions and resolutions to appoint a director. Regulation 38 has been amended to remove this with effect from 1 October, but the amendment does not operate retrospectively.

The concept of the extraordinary resolution (requiring a three-quarters majority but only 14 days’ notice) has become redundant with the reduced notice period for special resolutions, and is not recognised in the Act. References to extraordinary resolutions in contracts and in companies’ constitutions will remain meaningful, however, and the resolutions will continue to be registrable at Companies House.

The percentage of shares or voting rights necessary to hold a meeting in a private company at short notice is reduced from 95% to 90%, unless the articles specify a higher percentage not exceeding 95%. If the articles incorporated regulation 38 of the 1985 Table A before 1 October 2007, the 95% threshold will apply. Regulation 38 has been amended to apply the 90% threshold with effect from 1 October, but the amendment does not operate retrospectively. It appears that, if the company had passed an elective resolution reducing the threshold to 90%, this will have ceased to have effect on 1 October 2007.

Proxies: The default position is now that proxies have the same rights as members to ask questions, demand a poll and vote on a show of hands.

The Act provides that companies’ articles cannot require proxies to be delivered earlier than 48 hours before a general meeting, ignoring any part of a day that is not a working day. In other words, if the meeting is at noon on a Monday, the cut-off must be no earlier than noon on the previous Thursday. The articles can, of course, allow proxies to be delivered later than this – for example, 48 hours before the meeting including any part of day that is a non-working day (so that, in the example, the cut-off would be noon on Saturday). That is what Table A provides.

Quoted companies must publish the results of any poll on their website.

Corporate representatives: The Act permits shareholders that are bodies corporate to appoint more than one representative to attend and vote on the shareholder’s behalf. If there are multiple representatives in respect of a single holding and they are inconsistent with each other in the way they purport to exercise the shareholder’s rights, the rights are treated as not having been exercised.

Nominated persons’ rights: New provisions allow a registered shareholder in an Official List company to nominate a person or persons on whose behalf he holds shares (i.e. indirect investors) to receive copies of accounts, circulars, notices of meetings etc, whether or not the company’s articles provide for this. Companies are not obliged to give effect to any such rights before 1 January 2008.

All companies are now able to provide in their articles that shareholders may nominate one or more other persons to enjoy any of the shareholder’s rights (other than the right to dispose of the shares or enforce rights against the company). This may involve considerable practical difficulty.

Transactions with Directors

Connected persons: The complex rules determining which persons are connected to a director for Companies Act purposes now catch a director’s civil partner and adult children and step-children, the director’s parents, a person who lives with the director “as partner in an enduring family relationship”, and any children or step-children under 18 of such a person who are not also the director’s children or step-children. The extended definition flows into the provisions that determine whether a director is connected with, or controls, a body corporate.

Substantial property transactions: dealings involving non-cash assets between companies and their directors (including their connected persons) can now be entered into conditionally on shareholder approval being obtained.

Loans: Rather than most loans to directors being prohibited as a criminal offence, it will be possible for any company to make a loan to its directors with shareholder approval. Certain types of loan will continue to be exempted.

Payments for loss of office: Various changes have been made, including in relation to payments made on a transfer of the company’s shares or assets that go beyond an existing contractual entitlement. In particular, the rules now require shareholder approval where payment is made in connection with loss of employment, as well as loss of office as a director.

Service contracts: Shareholder approval is required for a director’s service contract with a guaranteed term of more than two years.

Ratification of acts of directors: The existing common law has been codified, but the Act stipulates that any votes exercised by the director in question (if he is a member), and any person connected with him, are to be disregarded.

Directors’ indemnities: The only significant changes are that a corporate trustee of an occupational pension scheme can now indemnify its directors against certain liabilities incurred in connection with the company’s activities as a trustee of the scheme; and the exception that allows a company to lend money to a director to fund his defence costs now expressly covers actions and investigations by regulatory authorities and has been extended to cover proceedings that relate to an associated company as well as to the company itself.


Inspection of register of members: Once a company has filed an annual return made up to a date after 30 September 2007, a person seeking access to the register of members will have to state his name, address and the purpose for which access is sought. If the company can persuade a court that the purpose is not a proper one, it can refuse access.

Directors’ reports: directors’ reports published by quoted companies for financial years starting on or after 1 October 2007 will have to contain additional forward-looking information and information about the company’s key customers and suppliers.

Further details on all these changes can be found in our Overview and Implementation Timetable, which have both been updated.