The Companies Act 2006 - Fair Dealing By Directors

Introduction

The Companies Act 2006 (the "CA 2006") contains new provisions governing the enforcement of fair dealing by directors (including, for this purpose, shadow directors). These provisions are to be found in Chapter 4 of Part 10 CA 2006, with the corresponding provisions in Part X of the Companies Act 1985 (the "CA 1985") being repealed in their entirety, subject to transitional arrangements. The new provisions (which for the most part apply to all companies, public and private) cover four specific situations in which directors face a potential conflict of interest:

long-term service contracts;

substantial property transactions;

loans, quasi-loans and credit transactions; and

payments for loss of office.

Generally speaking, the new provisions apply to agreements or transactions entered into on or after 1 October 2007. However, where there is a requirement for the relevant agreement or transaction to be approved by members, a resolution passed before that date will be effective for the purposes of CA 2006 if it complies with the relevant section(s).

In addition, Chapter 5 of Part 10 CA 2006 restates, with some amendments, the provisions relating to the inspection of directors' service contracts.

This client alert focuses primarily on the main differences between the CA 1985 and CA 2006 regimes and assumes a broad understanding of the pre-existing law in this area.

Background and Overview

The Government has stated that the aim of the changes made by CA 2006 to the previous regime in CA 1985 is to "improve accessibility and consistency" and to implement a number of recommendations for reform in this area made by the Law Commission and taken up by the Company Law Review.

Particular efforts have been made to achieve a greater consistency of approach in the drafting and application of the provisions in Chapter 4, including:

the imposition of a general requirement for members' approval (in place of outright prohibition), subject to specified exceptions. Where the director is also a director of the company's holding company, approval by the members of that holding company is also generally required. Approval is by ordinary resolution (unless the company's articles specify a higher majority). Members' approval is not required in any case where the company from whose members approval would otherwise have been sought is not UK-registered or is a wholly-owned subsidiary of another company;

the removal of criminal penalties for failure to comply with the statutory...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT