In late 2012 or early 2013 a new Companies Act will come into force as a result of significant work undertaken by the Company Law Review Group over the past 10 years. It is over 950 sections long and the first half alone weighs 4.8kg. This Act will dispense with the Companies Acts and Statutory Instruments which make up the current combined Companies Acts and will consolidate company law into one Companies Act. This should provide a more user-friendly and accessible legislation.
The Companies Bill provides for 2 separate groups of provisions, known as Pillars, to apply depending on the type of company involved. Pillar A will apply to private companies limited by shares which will become known as Company Limited by Shares (CLS). All existing private companies limited by shares will have to become a CLS at the end of a transition period following the enactment of the Bill unless they elect to become an alternative form of company known as a Designated Activity Company (DAC).
Pillar A has been published and contains many desired changes to Company Law. A CLS will need only one director and a company secretary. It will have a single document constitution to replace the current Memorandum and Articles of Association. A CLS will not be required to have an object’s clause and hence the long established concept of ultra vires will no longer be valid. This allows companies to have many different trading activities.
A CLS need not hold an Annual General Meeting where the members unanimously agree not to hold one. Members written resolutions will be allowed where the majority of members approve whereas at present only unanimous written resolutions are allowed.
A CLS will be allowed under a summary approval procedure to undertake certain transactions which were previously either prohibited or required Court approval. Such transactions include providing financial assistance in connection with the acquisition of the company’s own shares and reduction of company capital. The shareholders will be required to pass a special resolution(s) while the Directors will be required to swear a statutory declaration of solvency. If a CLS is to be put into a voluntary winding up the report of an independent person will be required.
The Bill has codified director’s duties and provides a list of fiduciary duties, based on common law generally, owed to the company. These duties include the duty to act in good faith and in the best interests of the company, to act honestly and responsibly, to avoid conflicts of interest and to have regard to the interest of members.
Pillar B will relate to public limited companies, companies limited by guarantee, unlimited companies and external companies. This Pillar is currently being finalised and is expected to be published in 2012.