Companies Act 2006 – Update On Implementation

On 1 October 2007 a number of substantive changes were made to company law by the implementation of provisions contained in the Companies Act 2006. The parts of the Act that came into force relate to: the partial codification of directors' duties; transactions involving directors; the holding and calling of general meetings; a new procedure for written resolutions for private companies; a new procedure for requesting access to the register of members; new information rights for beneficial shareholders and an expanded business review. Some of the changes introduced will affect all companies from now on, others are discretionary or only apply to particular types of companies, but in almost every case there are actions (summarised on pages 8 & 9) that should or could be taken to ensure compliance or to take advantage of the de-regulation introduced by these parts of the Act coming into force.Delayed Implementation - 1 October 2009At the beginning of November 2007, the Government announced that it had postponed the final implementation stage of the Companies Act 2006 originally scheduled for 1 October 2008 until 1 October 2009. The main reason given for the postponement was to give Companies House more time to complete the changes to its systems and processes necessary for the new legislation, as most of the parts due for implementation at that stage relate to company formation and filing obligations.

The parts of the Act definitely postponed until 1 October 2009 are: company formation, company constitution, company capacity, company name, registered office, re-registration to alter status, company members, business names, register of directors and residential addresses, company share capital and acquisition by limited company of its own shares, annual return, company charges, overseas companies, dissolution and restoration to the register and the registrar of companies.

On 13 December the Government confirmed that there is also to be a limited implementation phase in October 2008. The provisions which it has now been confirmed are to come into force on 1 October 2008 are:

The remaining provisions relating to directors namely, the 'conflict of interest duties' [s 175 to 177], declaration of interest in existing transactions [s 182 to 187], corporate and under age directors [s 155 to 159].

The repeal of the prohibition on private companies giving financial assistance in connection with the acquisition of their shares and the 'whitewash procedure' contained in Companies Act 1985.

The provisions relating to objecting to company names and trading disclosures [s 69 to 74 and s 82 -85].

In addition, the new procedure for private companies to make capital reductions supported by a solvency statement without the need for a court order [s 642 to 644] is also to come into force on 1 October 2008.

At the same time it was confirmed that the implementation phase scheduled for 6 April 2008 is still to take place. This will bring into force the parts of the Act relating to: company secretaries, accounts, audit, debentures, public and private companies, certification and transfer of securities, distributions, arrangements and reconstruction and mergers and divisions of public companies. Brought forward into the April 2008 implementation are the provisions relating to the removal of entries relating to former members [s 121 and 128] and the new rules relating to requests to inspect the register of interests in shares, which bring in similar requirements for information supporting a request and the right of the company to obtain an order from the court not to make a disclosure as now apply to requests to inspect the register of members [s 811(4), 812 and 814].

One significant other change now proposed for April 2008 is the alteration to the rules relating to the execution of documents by companies to be consistent with the removal of the requirement for private companies to appoint a company secretary. Section 44 of the Act will provide that a company may validly execute a document if it is executed on its behalf by two 'authorised signatories' (authorised signatories being every director of the company and any company secretary appointed) or by a director in the presence of a witness who attests the signature.Money Laundering Regulations 2007Anti money laundering legislation aimed at preventing the use of the financial system for the laundering of the proceeds of drug and other serious crime or the funding of terrorism has been in place for over ten years. The original requirements were for financial institutions to set up procedures to verify the identity of clients and keep records of the evidence supplied, have internal reporting procedures for suspicions of money laundering and to train employees to recognise money laundering and in the use of the institutions' internal procedures. This is a constantly evolving area being twice extended and amended since the first legislation came into force.

The latest set of regulations is the Money Laundering Regulations 2007 (2007 Regulations). These Regulations come into force on 15 December 2007 replacing the current Money Laundering Regulations 2003 and implementing the EU's Third Money Laundering Directive. This Directive is wider in scope than its predecessors as it extends the category of businesses that will fall within the regulated sector to include trust and company service providers, 'high value dealers' (being a person or firm trading in goods for which he receives payment in respect of a transaction or series of linked transactions exceeding Euros 15,000) and life insurance intermediaries. A new category of person, a 'politically exposed person', is also introduced as a client in respect of whom, along with any of his close family members or known associates, the regulated business must conduct enhanced due diligence before accepting as a client.Risk based complianceOne of the main features of the Third Money Laundering Directive is the introduction of risk-based due diligence requirements for regulated businesses, much of which is consistent with the current practices introduced in the UK by the 2003 regulations and the Joint Money Laundering Steering Group Guidance published in 2006 (Guidance). Under the 2007 Regulations, regulated businesses (which, in addition to the new businesses added, include credit and other financial institutions, auditors, insolvency practitioners, accountants, money service businesses and estate agents) must "establish and maintain appropriate and risk-sensitive policies and procedures" relating to:

Customer due diligence measures and on-going monitoring including how to identify whether a person is a politically exposed person (being a person entrusted with a prominent public function by another state, EC institution or international body), in which case increased diligence will be required. On-going monitoring of relationships will involve scrutinising the transactions undertaken in the course of the business relationship, in particular to identify the source of funds and whether the types of transactions are consistent with the regulated business's knowledge of the customer, its business and risk profile as well as keeping documents obtained for the purposes of due diligence up to date.

Reporting

Record keeping. Records should include all evidence and supporting documents obtained to verify the identity of the customer at the commencement of the business relationship and during any on-going due diligence. Records should be kept for at least 5 years after the completion of the last activity arising from a transaction or the end of the business relationship. All records should be kept up to date.

Internal control, such as additional measures to prevent the use of products or transactions favouring anonymity that may attract money laundering or terrorist funding.

Risk assessment and management. This will need to include how to identify complex or unusual transactions or patterns of transactions and which, by reason of a lack of economic or lawful purpose, may be likely to be related to money laundering or terrorist funding. It will be important to keep the risk assessment policies up to date.

The monitoring and management of compliance with, and the internal communication of, such policies and procedures. It will be necessary for regulated businesses to show the FSA (if they are a credit or financial institution), the OFT (if they are a consumer credit financial institution or estate agent) or HMRC (if not otherwise regulated) that their customer due diligence measures are appropriate.

The emphasis on risk-based policies and practices is new and is a recurring feature of the 2007 Regulations. It will be the responsibility of the regulated business to evaluate the risk of money laundering or terrorist funding in the context of each customer and to vary accordingly the extent of the customer due diligence and monitoring exercised. More stringent "know your customer" procedures are to be followed where the perceived risk is higher. The type of customer, business relationship and the transaction will all be relevant factors in determining the risk.

The 2007 Regulations specifically set out those situations where "enhanced" or "simplified" customer due diligence will be appropriate. Enhanced due diligence is to be applied, on a risk sensitive basis, in situations where the customer is not physically present, the customer is a politically exposed person or if the situation by its nature carries a high risk of money laundering or terrorist financing. In such situations further verification of the customer or beneficial owner, more details of the ownership or control of the client, more information on the purpose of the business relationship or the source of the funds and enhanced monitoring will be necessary.

In contrast, simplified due diligence will be acceptable if the customer is a credit or financial institution itself subject to the...