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Companies Act 2006

The Companies Act 2006 (the “2006 Act”) which received Royal Assent on 8 November 2006 was the culmination of a review process which began in March 1998.  The United Kingdom was one of the first states to establish a coherent set of rules for the operation of companies which had developed into a comprehensive, but fragmented, framework based on a combination of statute and common law. The last major overhaul of UK company law was the consolidation in the Companies Act 1985 of a number of Acts commencing with the Companies Act 1948. The 2006 Act is intended to benefit business by “modernising and simplifying company law”.

The 2006 Act is a formidable piece of legislation and the statute itself contains 1,300 sections and 16 schedules. Moreover, it will be supported by a large number of statutory instruments containing detailed regulations implementing the various sections of the primary statute. While many of the provisions have already come into force, the rest of the 2006 Act will be implemented at different stages, with the final provisions coming into effect on 1 October 2009. Much will remain uncertain until the regulations are finalised which, in many cases, will only be after the publication of draft regulations and a subsequent consultation process.

The 2006 Act sets out, first, to revisit and revise (and, in particular, to de-regulate) a number of areas of the existing regime with a view to making UK company law and administration more appropriate for modern circumstances. It will also implement a number of EU directives to bring UK legislation into line with European law.

Second, it will codify a number of areas that have previously been determined by common law principles; that is to say, those areas that have ultimately been determined by the courts as being “the law” rather than being set out in statute.

Finally, the 2006 Act will restate those provisions of existing company legislation that remain unchanged so that it together with its derivative legislation will be almost, but not quite (as some provisions in the Companies Act 1985 relating to investigations and community interest companies will remain in force), the single statutory regime for UK company law.

It is probably fair to say that it is the codification of common law rules, in particular in relation to directors’ duties, which have raised the greatest concerns and potential uncertainties. While the original aim was to create a coherent and clearly articulated statutory expression of directors’ duties and responsibilities, the actual drafting has, in certain respects, resulted in additions to the existing law.  In addition the very process of setting out in statutory language rules that previously were expressed through judicial decisions may result in changes as the words in the statutes, rather than the principles behind the judgments, will become paramount (even though it is intended that the existing body of case law will continue to be relevant).

However, for most companies and most directors the changes arising from the codification will be of little or no consequence for most of the time.  The overhaul of the administrative procedures are designed to, and will, streamline and simplify day to day administration for companies and a number of technical changes, such as the revision of the rules relating to financial assistance, will simplify and reduce the costs on the relatively infrequent occasions when these impact on a company’s operations.

This Focus article, which is addressed primarily to our unquoted clients and their directors, is intended to provide a brief overview of the sorts of changes that have already arisen and are going to arise (and, in the latter case, when they are expected to be implemented).  It is intended then to follow this with a series of focussed notes to provide further information and practical guidance as the implementation process proceeds.

Significant areas of change and codification

Company administration

            • Private companies no longer need to hold annual general meetings

            • Written resolutions are passed, if an ordinary resolution, by a simple majority of the voting rights and, a special resolution, by 75% of the voting rights (instead of the previous unanimous requirement in both cases).

            • The notice period for all EGMs is now 14 days even where a special resolution is to be proposed.  

            • The 48 hour notice period for appointment of proxies will exclude weekends and bank holidays from the time counting towards the minimum notice period.

            • Private companies are now able to choose not to appoint a company secretary.

            • Documents to be executed by companies as deeds are now able to be executed by the signature of one director in the presence of a witness.

            • Proxies have been given the same rights at meetings as the registered holder appointing them including the right to ask questions and to vote on a show of hands and not only on a poll.

            • Extension of the present arrangements for the distribution by companies of electronic communications.

Company Directors

            • Codification of the duties and governance of directors including the expression of directors’ fiduciary duties and changes on the rules on conflicts of interest. Some of these statutory duties have already come into force but others will not come into force until 1 October 2008.

            • Relaxation of the regulation of transactions between directors and companies including the ability to make loans to directors if approved by shareholders.

            • All directors will be able to provide to Companies House a service address available for public disclosure with their home address being filed but kept from public inspection.

            • Every company will have to have at least one director who is a natural person.

            • New provisions provide rights for direct actions by shareholders for derivative claims which at present can only be brought with the prior permission of the court.

Maintenance of Capital

            • The restrictions on private companies giving financial assistance for the purchase of their own shares will be repealed for private companies.

            • Private companies will be able to reduce their share capital subject to shareholder approval and a declaration of solvency from all the company’s directors.

            • The principle of “authorised share capital” will be abolished.  

            • The requirement (currently under section 80 of the Companies Act 1985) for express authority for a company’s directors to allot shares will be abolished for private companies having a single class of shares (unless its articles of association requires it).

            • The 2006 Act now provides a statutory basis for the rule in Aveling Barford which relates to the transfer of assets at book value between members of a group of companies.


The following are the areas that have been and are still to be implemented (in the planned stages) which we consider are likely to be of the greatest concern to our clients.  

1 October 2007 

            • The codification of directors’ duties (but not those sections relating to, amongst other matters, conflicts of interest).

            • The introduction of the provisions relating to derivative claims and proceedings by members.

            • The changes in relation to shareholders’ meetings and written resolutions.

All of the above have now been implemented.

6 April 2008 

            • The removal of the obligation for private companies to have a company secretary.

            • The execution of documents in England and Wales.

            • The removal of former members from the register.

            • The changes to the requirements for audit and auditors other than appointment of auditors for private companies (which is already in force), including transfer of audit of small charitable companies to charity law.

            • The changes in accounts and reports (other than the business review which is already in force).

All of the above have now been implemented.

1 October 2008

The following provisions are likely to come into force on the date above.

            • The remaining director’s duties relating to, amongst other matters, conflicts of interest.

            • The provisions relating to corporate directors and under-age directors.

            • The financial assistance for private companies to acquire their own shares.

1 October 2009 

The remaining provisions are likely to come into force on the date above, including:

            • Company formation and a company's constitution.

            • Protection of directors' residential addresses.

            • Company and business names.

            • A company's share capital.

If you require further information on any of the above issues, we are more than happy to come and speak to you. Please contact Deborah Caldwell ( to arrange a meeting with one of our Corporate Partners.

For PDF version of this focus sheet click here