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Shake-up to company law delayed

Small companies are already feeling the benefits of the new Companies Act but it won’t save them the hoped-for £250million a year until much later than planned.

Admitting the delay last week, competitiveness minister Stephen Timms said the Act’s final implementation will be October 1, 2009, rather than October 1, 2008.

Mr Timms explained that Companies House’s IT system needs to catch up with the Companies Act 2006, the biggest piece of legislation parliament has ever passed.

“We need to make sure the necessary changes to the Companies House systems and processes are in place before we bring the final provisions of the Act into force,” he said in a statement to parliament.

“We are giving business early warning of this change in the implementation timetable so they do not incur unnecessary costs.”

Since January, the mass overhaul to company law dictates directors can now communicate more easily with shareholders by using internet and e-mail systems.

Also in January, the onus was put on directors to be more transparent, by requiring those running listed companies to disclose periodic financial details.

Later in April, directors and their families no longer had to disclose their dealings in the company’s shares if the company is publicly or privately owned.

The government has said such reform to directors’ duties, which does not apply to those running listed companies, paves the way for easier and cheaper forms of decision-making.

But elsewhere the Act, which the state estimates will save companies about £250m a year through simplification, appears to increase directors’ duties not reduce them.

For the first time, there is a statutory statement of directors’ general duties, and although most of these took effect last month, a few will be deferred until October next year.

The seven core duties of company directors are:

* promote the success of the company
* exercise independent judgement
* declare interest in proposed transactions or arrangements
* do not accept benefits from third parties
* avoid conflicts of interest
* exercise standard of care, using knowledge, skill and experience
* act within their powers

Speaking as Minister of state for industry and the regions, Margaret Hodge said enshrining the duties of a company director in law will mean ‘business as usual’ for the majority.

“For most directors, who are working hard and put the interests of their company before their own, there will be no need to change their behaviour,” she said.

In fact, Lord Goldsmith has said that the “main purpose in codifying the general duties of directors is to make what is expected of directors clearer and to make the law more accessible to them and to others”.

What is new, however, is the duty to promote the “success” of the company.’

Explaining, Lord Goldsmith clarified: “For a commercial company, success will usually mean long-term increase in value. For certain companies, such as charities and community interest companies, it will mean the attainment of the objectives for which the company has been established”.

The only other major exception to ‘business as usual’ for directors is the new procedures for dealing with conflicts of interest.

Elsewhere, provisions in the Act due to come into force by April 2008 scrap the requirement for private companies to appoint a company secretary.

Ministers have hailed the move as a “key deregulatory change.” It will mean sole directors can act as company secretary or outsource the secretary’s duties to a third party.

Reflecting on the delay to the full implementation of the Companies Act, the Department for Business, Enterprise and Regulatory Reform said: “Given that there is a risk that Companies House systems may not be 100% effective by October 2008 it is only right to be honest with business now, to ensure that appropriate measures can be taken.”

Nov 15, 2007
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