By 1 October 2008 all sections of the Companies 2006 Act will be in force. But to give companies time to prepare, and to make appropriate changes to their articles, most parts will not be brought in until then. However, a small number of parts, including most of the provisions relating to directors’ duties, will be commenced on 1 October this year, and another handful on 6 April 2008.

This note summarises the expected timetable for Parts of the new Act to be brought into force, and sections of the 1985 Act to be repealed. Details are given of the main provisions of each Part of the new Act, and of the key differences from the 1985 Act, but not every aspect of the Act is covered and some aspects have been simplified. More information can be found in our note ‘Companies Act 2006: Overview’, which can be found here.

This note was originally published in April 2007. We have updated it to take account of changes to the timetable that have been announced by the Government since then.

Changes on 8 November 2006
The following provisions of the new Act were brought into force on Royal Assent:
• Most of Part 43, which:
- gave the FSA power to make rules to implement the Transparency Directive by its deadline of 20 January 2007. Using its new powers, the FSA amended the Listing and Disclosure Rules with effect from 20 January 2007, in particular to introduce new chapters 4, 5 and 6 of the re-named Disclosure and Transparency Rules (DTRs). Broadly, these cover periodic financial reporting by listed issuers; the disclosure of major shareholdings in listed and AIM companies; and communications between listed companies and their shareholders, including by electronic means;
- inserted section 90A into the Financial Services and Markets Act 2000 (FSMA), which broadly makes a listed company, but not its directors personally, liable to compensate investors who suffer loss in acquiring securities where they have reasonably relied on annual, half-yearly or quarterly results published in respect of financial years commencing on or after 20 January 2007 that are misleading or untrue as a result of dishonesty or recklessness by any director.
• Power for the Secretary of State to make Regulations under the Act.

Changes on 1 January 2007
The new Companies (Registrar, Languages and Trading Disclosures) Regulations 2006 extended to websites and various electronic communications the longstanding statutory requirement for companies to state certain particulars on their stationery and other hardcopy documents. The Regulations amended the relevant provisions of the Companies Act 1985, making it an offence, among other things, for a company incorporated under the Companies Acts (or the equivalent Northern Ireland legislation) not to state:
• the company’s name
• its place of registration and the number with which it is registered, and
• the address of its registered office, on all the company’s websites and all its business letters and order forms that are in electronic form.

Changes on 20 January 2007
• Repeal of sections 198-211 of the 1985 Act (which required a person with an interest of 3% or more in the shares in a public company, whether or not listed, to notify the company when reaching that threshold and on any change taking that interest through a whole percentage point). For companies listed on the Official List, AIM or PLUS Markets, these provisions were replaced by similar rules in chapter 5 of the DTRs.
• Repeal of sections 212-220 of the 1985 Act (company’s right to investigate its share register). These sections were restated without significant amendment in sections 791-810, 811(1) to (3), 813 and 815-828 of the 2006 Act, which came into force on 20 January. A section 212 notice (requiring a person to disclose who is interested in his shares) is now a section 793 notice.
• Repeal of various provisions of the 1985 Act relating to electronic communications between companies and their shareholders. These were replaced with various new sections, and Schedules 4 and 5, of the 2006 Act which allow companies to use the internet as the default means of communicating with shareholders. Existing agreements to receive documents electronically continue to be valid. For further information see the May 2007 edition of our newsletter, ‘Clearly Corporate’.
• Commencement of section 463 of the 2006 Act, which specifies the circumstances in which directors may be liable to their company in relation to a directors’ report (including the business review) or a directors’ remuneration report published after 20 January 2007. Broadly, a director will only be liable to compensate the company for any loss it suffers as a result of any untrue or misleading statement in, or omission from, such a report if the director knew or was reckless as to whether the statement was untrue or misleading or knew the omission to be a dishonest concealment of a material fact.


Changes on 6 April 2007
• Commencement of Part 28 of the 2006 Act (Takeovers), which:
- extended the Takeover Panel’s statutory powers to cover all takeovers, rather than only those within the scope of the Takeovers Directive;
- implemented permanently various other provisions of the Directive (such as the ability to opt in and out of the rules on frustrating action) - replacing the Interim Regulations that were put in place on 20 May
last year to meet the Directive’s deadline;
- repealed and replaced the compulsory acquisition procedure previously in sections 428-430F of the 1985 Act and the Interim Regulations with provisions that are similar but designed to avoid some of the
technical difficulties with the old sections.
- requires every GB-incorporated company whose shares are admitted to trading on the Official List or another EU regulated market to include in its directors’ report for financial years starting on or after 20 May 206 certain information that could be relevant to a potential bidder, such as any restrictions on transferring shares; any concert party agreements between shareholders; and any contracts containing a change of control clause.
• Repeal of the following sections of the 1985 Act, which have not been replaced by anything equivalent in the 2006 Act:
- Section 41, which provided that where a document needed to be authenticated by a company, the signature of a director, secretary or other authorised officer sufficed;
- Sections 293 and 294, which stipulated that (unless the company’s articles provided otherwise) a person who reached the age of 70 could only be a director of a public company or a private company subsidiary of a public company with the approval of shareholders, and that a director had to disclose his age to the company;
- Section 311, which prohibited a company from paying a director remuneration free of income tax;
- Section 323, which prohibited directors (including shadow directors), and their spouses and children, from buying “put” and “call” options over listed shares or debentures in the company or another in the same group;
- Sections 324-326 and 328-329, and Parts 2 to 4 of Schedule 13, which required directors and certain other persons to disclose to the company their interests in shares in and debentures of the company or any holding company or non-wholly-owned subsidiary company within the group. Directors of companies listed on the Official List, AIM or PLUS Markets (and certain persons connected to them) continue to be required under the DTRs, AIM or PLUS Markets Rules to notify their company of any dealings, but directors of other companies no longer have to notify the company of their interests in the company’s shares.

Changes on 1 October 2007
The following Parts will be introduced on 1 October 2007:
• Sections 116-119 of Part 8 (Inspection of a company’s register of members). Once a company has filed an annual return made up to a date after 30 September 2007, a shareholder or member of the public who wishes to inspect the company’s register of members will have to give his name, address and the purpose for which access is sought and, if a court accepts that the purpose is not a proper one, it will order the company to refuse access.
• Part 9 (Exercise of members’ rights). These sections, which have no counterpart in the 1985 Act, are designed to make it easier for indirect investors who hold quoted shares through nominees or other intermediaries to exercise voting and other rights attaching to their shares, principally by allowing a registered member to nominate one or more indirect investors to receive a copy of all notices and circulars the company sends to its members, and copies of all reports and accounts (so-called “information rights”). In addition, section 145 will make clear that all companies can provide in their articles for one or more indirect investors to exercise some or all of a member’s rights, including the right to vote and to appoint proxies. From 1 October 2007 nominee investment operators will be able to nominate a person to enjoy
information rights, but companies have until 31 December 2007 to act on a nomination.
• Most of Part 10 (Directors), including:
- The new sections 170-174, codifying the principal duties of directors (duty to act within powers; duty to promote the success of the company; duty to exercise independent judgement; and duty to exercise reasonable skill, care and diligence). However, the sections codifying the duties to avoid conflicts of interest, not to accept benefits from third parties, and to declare any interest in a proposed transaction will not be brought in until 1 October 2008, to give companies time to make any appropriate changes to their articles – for example, to allow independent
directors to authorise a director to continue acting notwithstanding a potential conflict. All of these sections, and the sections relating to derivative claims, are discussed in more detail in our note ‘Companies Act 2006: Overview’ which is available here;
- Requirement for shareholders to approve (i) transactions between a company and one of its directors that involve assets of a substantial value; (ii) loans and similar arrangements with directors; (iii)
certain payments to directors for loss of office. These provisions are based on sections 320, 330 and 312 of the 1985 Act, but various changes have been made;
- Right for members to inspect directors’ service contracts, which is similar to the existing right in the 1985 Act;
- Provisions allowing companies to indemnify their directors against certain liabilities, and to advance funds to them to meet defence costs. These essentially restate sections 309A-C of the 1985 Act, but the rules will be extended to allow a corporate trustee of an occupational pension scheme (or a member of its group) to indemnify its directors against liability incurred in connection with the company’s activities as trustee of the scheme, other than fines, penalties or the costs of defending criminal proceedings in which the director is convicted;
- Definitions of “director” and “shadow director” which are unchanged. The definition of persons connected to a director will be extended slightly.
• Part 11 (Derivative claims and proceedings by members), which sets out the circumstances in which a member can bring a claim on behalf of the company against a director in respect of his negligence,
default, breach of duty or breach of trust. These provisions are likely to make it slightly easier for shareholders to bring proceedings.
• Part 13 (Resolutions and meetings), which will replace most of sections 366-383 of the 1985 Act. As well as various technical changes, Part 13:
- gives shareholders in “quoted” companies (those listed on the UK or another EU member state’s official list, or on the NYSE or NASDAQ) who hold at least 5% of the voting rights, or who number at least 100 (with an average of at least £100 of share capital each) the right to require an independent report on any polled vote;
- entitles shareholders in public companies (whether quoted or not) to require the company to circulate resolutions and statements at the company’s expense (rather than their own) if the materials are provided to the company before the end of the financial year;
- makes the current “elective” regime the default for private companies, which will no longer be required to hold an AGM unless their articles require it. Related provisions in Part 16 will deal with the automatic re-appointment of auditors.
- proceeds on the basis that in future most private companies will take decisions by written resolution of shareholders. The rules on private company meetings and written resolutions will therefore be relaxed so that, for example, other than resolutions to remove a director or auditor, all resolutions of private companies will be capable of being passed in writing and, instead of needing unanimity, an ordinary resolution will be capable of being passed in writing by a simple majority of the total voting rights of eligible members; and a special resolution in writing by 75%.
- relaxes the rules on shareholder meetings, so that the percentage of shares or voting rights necessary to hold a meeting in a private company at short notice will be reduced from 95% to 90%,
and EGMs of both private and public companies will only require 14 days’ notice, even if a special resolution is proposed (although the company’s articles of association may override this).
• To reflect the new provisions on directors’ duties and on resolutions and meetings, and the provisions relating to electronic communications that were commenced on 20 January, Table A to the 1985 Act will be amended. Two updated versions of Table A – one for private and one for public companies - will apply by default to companies formed between 1 October 2007 and 1 October 2008 (when the new model articles will come into force).
• Part 14 (Control of political donations and expenditure). This broadly replicates the existing provisions in the 1985 Act, but:
- private companies will be able to authorise donations and/or expenditure by written resolution;
- a holding company will be able to seek authorisation of donations and expenditure in respect of both the holding company itself and one or more subsidiaries (including wholly-owned subsidiaries) through a single approval resolution;
- a specific exemption will be introduced for donations to non-political funds of a trade union.
• Section 417 of Part 15 (Contents of directors’ report: business review). This will introduce a new requirement for quoted companies to include in their business review, “to the extent necessary for an understanding of the development, performance or position of the company’s business”, information about:
- the main trends and factors likely to affect the future development, performance and position of the company’s business (forward-looking information);
- information about the company’s impact on the environment, its employees, and social and community issues; and
- (except where the directors believe that disclosure would be seriously prejudicial to the person concerned and contrary to the public interest) key suppliers, customers and other persons with whom the company has an important contractual or similar arrangement. The new business review requirements will apply to financial years starting on or after 1 October 2007.
• Part 29 (Fraudulent trading). The elements of the offence are identical to section 458 of the 1985 Act.
• Part 30 (Protection of members against unfair prejudice), which is essentially identical to section 459 of the 1985 Act.
• Part 32 (Power of Secretary of State to appoint inspectors to investigate a company or its shareholders), which will change some of the rules currently set out in sections 431-453 of the 1985 Act.