As of 1 October 2009, the Companies Act 2006 (‘CA 2006’) is finally in force, subject to various transitional arrangements in the eighth commencement order. A large number of the new provisions relate to administrative matters, and company secretaries will be taking note that they now need to refer to CA 2006 on matters relating to a company’s capacity, company names, registered office, registers of directors and shareholders, annual return, company charges, and, of course, the use of the new Companies House forms. Don’t assume that this aspect is problem-free - the humble return of allotments (on which, there is more below) is a good example of the unintended consequence at play.
Matters of interest to public companies include:
Authorities to allot shares
Sections 551 and 571 CA 2006 replace sections 80 and 95 of the 1985 Act. Resolutions passed before 1 October under the 1985 Act remain effective, but if your general meeting to renew these authorities takes place on or after 1 October, make sure the resolutions refer to CA 2006, or they will not be effective. It should also be noted that the technical wording of the general authority to allot shares may need to be changed, as the concept of ‘relevant securities’ is removed.
On each issue of shares, the return of allotments must be accompanied by a statement of capital (section 555 CA 2006). The statement has to cover the entire share capital and includes a summary of shares rights for all classes of shares, and the amount paid up (including premium) for each share. This would appear to require analysis of the history of all share issues, which could be a real headache for companies of long standing. It may also become further complicated if a company has purchased its own shares, where there may be no way of knowing whether the shares it purchased were issued two years ago at 60p or three years ago at 45p. This topic is under debate, so keep a watching brief.
Authority to purchase own shares
Section 694 CA 2006 (as just amended) allows authority to be taken for up to five years, rather than 18 months, though companies which renew this authority each year will probably find it more convenient to keep doing so.
Authorised share capital
There is no requirement for an authorised share capital under CA 2006, and any limit in a Memorandum of Association will now be treated purely as a restriction in the Articles of Association on the amount of shares that can be issued. The concept of an ‘authorised’ share capital goes, leaving only ‘issued’ share capital - an increase in share capital now only requires the allotment of new shares.
A variation of class rights previously required a special resolution at a class meeting with a one-third attendance quorum. Section 630 CA 2006 still sets that out as a default, but a company can now also vary class rights in accordance with provisions in the Articles, which allows a less demanding procedure to be adopted. One might well see smaller quorum requirements and an ordinary resolution at the class meeting. In the right circumstances, it would be possible to allow variation without a class meeting.
Articles of Association
In addition to share capital, a company’s objects (hitherto in the Memorandum of Association) become part of its Articles on 1 October. There is no longer a need for Articles to provide expressly for the purchase of own shares or to authorise a reduction of capital. Provisions for the variation of class rights could be relaxed, particularly where new classes of shares have not yet been created. The Articles can provide for a change of company name other than by a special resolution. A question to consider is whether the Articles are consistent with the Shareholder Rights Directive changes recently made? Next year’s AGM would be a good time to review changes already made to Articles in the light of experience, and make any further adjustments.
Home addresses will no longer appear as the services address on the public record. And finally, for anyone restructuring with a new UK holding company, the ‘Model Articles’ apply by default on all incorporations from 1 October 2009.
Nicholas Narraway is Chairman of the QCA Legal Committee and is a consultant at Moorhead James LLP.