A large part of the Companies Act 2006 went live on 1 October and all UK companies will be affected by the changes it introduces. "Some of the provisions that are now in force are the more controversial changes whilst others are the much anticipated streamlining ones, it's quite a mixed bag," comments Mills & Reeve corporate finance partner James Hunter. Two of the most discussed parts of the Act, namely the new regime for codification of directors' duties and the new procedure enabling disgruntled shareholders to bring an action against directors for breach of duty, the derivative claim, have now been introduced. But it is not all bad news. Some of the deregulatory changes that will benefit private companies apply from today also.
"If directors are not already aware of the new statutory code of duties and the impact on their board procedures and decision recording, then it would be prudent to get up to speed as quickly as possible," says Mr Hunter. "Mills & Reeve has been holding training sessions for clients and key contacts on the new duties and the major changes made by the Act and more presentations are scheduled over the next couple of months. We've also produced short briefings on the key points that are available on the dedicated Companies Act page on our website.
"Though the new duties broadly repeat the previous common law ones, there are important changes that directors will need to factor into their thought processes when taking business decisions. Although best practice will develop over time, I suspect it will be a quite a while, at least a couple of years, before the first cases on the new statutory duties start to appear before the courts," says Mr Hunter. "But I think we might see actions under new derivative claims procedure a lot sooner than that. In the context of a dispute between the members of a small family owned company, the procedure could be used as a bargaining tool (albeit an expensive one) to get the opposing parties round the table."
"What is clear is that there is a genuine concern about the so-called "double whammy" of directors' increased exposure to claims under the statutory duties and from derivative claims. Until these provisions are better understood, companies should protect their directors by checking and updating (or putting in place for the first time) liability indemnity arrangements and D&O cover," advised Mr Hunter.
On the brighter side, companies will now find entering into substantial property transactions with a director and making loans to directors a simpler process. And the good news does not end there. The new streamlined regime for passing shareholder resolutions and holding company meetings is now in force. On this note Mr Hunter says: "The fact that private companies can now conduct nearly all shareholder business without having to hold meetings will be a great benefit to them. Even public companies can take advantage of some reduced notice periods."