Companies Act 2006 – Briefing Note

Changes to Articles of Association

As of 1 October 2007, a number of the provisions of the Companies Act 2006 (the Act) have been introduced with more to follow principally in April ’08 and October ‘08 with all remaining sections of the Act to be in force by October 2009.

The reason for the delay, is to give Companies House sufficient time to update its systems. However, a certain amount of confusion is caused for companies who are looking to amend their Articles of association (Articles) during their 2008 AGM to ensure compliance with the new legislation.

This Briefing Note looks at the recent changes made by the Act, the possible changes a company could make, and future changes.

Recent changes:

Part 13 of the Act has made considerable changes to in the following areas:

• Written shareholder resolutions (a 75% majority is required to pass a special resolution; whilst a simple majority (51%) is required to pass an ordinary resolution) ; (1)



• Increased rights for proxies;



1. Shareholders of both private and public companies will have the right to appoint a proxy to attend, speak and vote at meetings on their behalf.



2. The company must receive notice of the appointment of a proxy no later than 48 hours before the time of the meeting excluding weekends and bank holidays.



3. Proxy documents can be sent by email if an electronic address is used either in a proxy instrument or in an invitation to appoint a proxy.



4. For public companies, the chairman will have an obligation under the Disclosure and Transparency rules to notify where the chairman of a meeting, holds discretionary proxies representing more than 3% of the voting rights of the company.


• Notice periods for meetings (14 days notice must now be given for a shareholders’ meeting; whilst, for public companies only, 21 days notice must be given for an AGM);



• Voting rights;



1. Public company members who hold a minimum of 5% of the voting rights, or where 100 members of a public company who hold on average £100 of paid-up capital, have rights to propose resolutions at an AGM and can require the company to circulate details of resolutions to all members.



2. Private companies are able to pass ordinary resolutions by a simple majority of eligible voters, whilst special resolutions can be passed by a 75% majority instead of requiring unanimous agreement for all types of written resolutions.



3. Written ordinary resolutions can now be made by a simple majority of members representing at least 50% of the total voting rights.

and;

• Dispensing with AGMs - these are no longer a statutory requirement for private companies though they can still choose to hold an AGM, whilst, public companies must still hold an AGM (2) . If the current Artlcles require an AGM to be held, then a private company must comply with the reqirement or otherwise take the oppourtunity of altering the Articles to dispense with the need to do so.

Possible Areas for Change

There are certain overriding provisions within the Act which mean that the Articles will reflect some of the changes, (i.e. proxy rights will automatically override what the Articles currently say) however, in certain situations this will be the other way around (i.e. where the Articles state a notice period that is longer that the period set out in Part 13 – the longer notice period will over-ride whatever Part 13 says).

However a company may want to think about the following amendments prior to its AGM:

• Amending provisions to allow for electronic and website based communications between the company and its shareholders;



• Reducing notice periods in line with the Act;



• Altering the regime for written resolutions;



• Including or widening indemnities for directors;



• Removal of the requirments for a Company Secretary (after April 2008 – for private companies only); and



• Removal of the need for compulsory AGMs (private companies only).

Future changes:

October 2008 will see the introduction of the remaining provisions in relation to duties of directors (duty to avoid conflicts of interest; duty not to accept benefits from third parties; and duty to declare interests in proposed transactions with the company.)

Under the Act a company may wish to make the following alterations to its Articles:

• To allow new board approval processes in cases of conflict of interests; and



• Removal of the requirments for a Company Secretary (after April 2008 – for private companies only).

Advice

For companies who are considering the amendment to its Articles at the next AGM, the advice is to make any necessary changes this year. Compliance with the new Act is vital, and the sooner the Articles are changed, the sooner the changes can be incorporated to govern the company.

Turbervilles will be happy to look through your Articles and advise on what needs to be altered in order to comply with the Act, and can either update your Articles. For further information and advice, please contact:

1. Public companies are still not allowed to use any form of shareholder written resolution.

2. As of 6 April 2008, the period of time within which a public company is required to hold its AGM will be reduced from seven months to six months beginning with the day following the company's accounting reference date.