The government consulted in August on the application of the (then) Companies Bill to existing companies. This focussed on a number of potentially difficult transitional issues for existing companies once the Companies Act 2006 ("the Act") comes into force. The results of the consultation have now been published and the draft transitional provisions are awaited.
The prevailing view of the responses to the consultation was that a company’s existing arrangements (usually found in the memorandum or articles of association) should be respected where there is any conflict between existing arrangements and companies moving to adoption of the new freedoms under the Act. This means that, in general, members of companies will need to be involved in making a positive choice to amend articles where existing companies have any provisions requiring something which the Act no longer requires (for example, holding an annual general meeting).
Following the results of the consultation process, the government has indicated that transitional provisions will be made dealing with, amongst others, the following points:
- The Act contains a deeming provision which states that provisions in current memoranda of association of a type not included in the new style memorandum will be deemed to form part of the articles of existing companies. One effect of this would be that an existing company which changed its name would also have to change its articles – following responses received to the consultation, any resolution to change a company’s name will automatically have the effect of removing references to the company’s name from its articles.
- It is currently possible for a company to entrench arrangements in its constitution on an absolute basis. The Act allows for provisions for entrenchment to be enshrined in a company’s constitution subject to the possibility of alteration by a specified majority. The government has concluded that given that some existing companies with absolute entrenchment (and third parties dealing with them) rely on it very much, transitional provisions will be made to preserve any such absolute provisions.
- Even though the Act abolishes the concept of authorised share capital, the authorised share capital of an existing company should continue to operate as a deemed restriction in a company’s articles. Some respondents thought that this was an important protection for members, particularly minority shareholders, and for third parties with contractual rights relating to a company’s share capital.
- Existing section 80 and 80A authorities to allot shares will continue to have legal effect.
- Any express provisions for AGMs (not required under the Act) will continue to have effect. Indirect references to AGMs in articles (for example in relation to notice periods or retirement of directors by rotation) will be disregarded.
- Existing companies should seek the approval of their members if they wish to permit independent director authorisation of conflicts of interest relating to personal exploitation by a director of any property, information or opportunity of the company. Whatever arrangements existing companies have with regard to conflicts of interest arising from directors’ transactions with the company should be preserved.
A consultation on detailed implementation plans is scheduled to take place this month.
Disclaimer
The material contained in this e-update is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.
© MacRoberts 2007
