The ongoing saga of the Company Law Reform Bill continues….
As we outlined in our last edition of the E-bulletin, the latest version of the Bill following its return to the Commons from the House of Lords, was to be printed in July 2006. The Bill was in fact published on 28 July 2006 considerably amended by Committee in the Commons in order to ensure that this latest reform is as comprehensive as possible. Indeed following one particular amendment agreed in the Commons, the Bill is now to be known as the Companies Bill (and in due course the Companies Act 2006). The Bill completed the Committee stage in the House of Commons on 20 July 2006 and is currently at the Report stage. Upon publication of the Report, our E-bulletin will be examining in more detail the final provisions of the Bill which is due to receive Royal Assent in Autumn of this year.
These latest amendments underline the Government's commitment to ensuring that this latest reform of UK Company Law does not simply introduce another layer of regulation alongside the existing regime but consolidates as much as possible, the existing law. With this view in mind, much consideration is being given to the position of existing companies and how the new regime will sit alongside the current law which will continue to apply to e.g. Articles of Association of existing companies, which were put in place prior to the new law coming into force. On the 14 August 2006 the DTI published a paper seeking preliminary views on the application of certain provision of the Companies Bill to existing companies. Areas covered include (i) company constitutions; (ii) share capital; (iii) annual general meetings; (iv) company secretaries; and (v) directors' conflicts of interest. Responses are to be received by 22 September 2006 and these will then be collated and implemented alongside the new law when the time comes.
Key points on which the DTI are seeking views include:-
- Commencement Date – the DTI queries whether it would be helpful to have a longer period than one year after Royal Assent before the majority of the Bill's provisions are brought into effect-which is estimated to now be in October 2007, albeit that some provisions shall come into effect earlier than this.
- Company's registered name – by virtue of Clause 28, an existing company's name (stated in its memorandum) will become part of its articles, although there will be no requirement on companies to include a statement of name in the Articles. The DTI propose (so that existing companies do not have to change the imported provision about the company's name in their articles when they change name), to provide that any resolution to change a company's name will automatically have the effect of removing (and replacing) references to the company's name from the articles. The practical effect would be to avoid the need for companies to also go through the process of changing their articles when they change name.
- Abolition of authorised share capital – Companies formed under the Bill will not be required to restrict the total number and nominal value of the shares that the directors are authorised to allot but may do so if they wish in the company's articles. The DTI believes that existing companies are likely to want to make their own decisions as to the nominal value and amount of shares that they can allot. They do seek views on whether the authorised share capital of an existing company should continue to operate as a restriction in the company's articles as to the number and nominal vale of shares that the company can allot, and secondly whether the concept of authorised share capital should cease to have any effect for existing companies. If so, given that the articles can only be amended by a special resolution, it asks whether any protection should be provided for minority shareholders (for example in cases where existing pre-emption rights would be disapplied or whether the company's authorised and issued share capital were identical).
- Subsisting section 80 authorities to allot shares – Sections 80 and 80 A will be repealed and replaced by clauses 565 to 565 of the Bill. The DTI proposes that where a company has a subsisting section 80 authority at the time that the Bill comes into force, that authority should continue to have legal effect in accordance with the terms on which it is given. Such an authority (for directors to allot equity securities) would not, however, be able to be renewed and when it expired the directors would need to be authorised in accordance with the Bill's provisions before they could allot new shares or grant rights to subscribe for shares or to convert any security into shares. The alternative to this would of course be to provide that any subsisting authorities cease to be valid on commencement and that the provisions of Clauses 565 to 565 would continue to apply. For private companies with only one class of share, given that clause 564 confers authority on the directors to allot shares without prior authority from shareholders, there would be no need for the directors to obtain a new authority from the members before they could allot shares after the Commencement Date. Directors of public companies with more than one class of share will of course have to continue to obtain the relevant authority under s 565 before they could allot further shares.
In addition to these the DTI proposes a number of further "transitional provisions" with regard to existing companies, as well as including within the Consultation Paper a general invitation for businesses to highlight any other areas of the Bill where there is a need to make transitional arrangements. The DTI expects to conduct a formal consultation in order to make transitional arrangements after the final form of the Bill receives Royal Assent.
Further updates on developments will be covered in future E-bulletins.