A Guide To The Companies Act 2006 - Part 2

ELECTRONIC COMMUNICATIONS

As the intentions of the Act include modernising company law and saving businesses money the provisions relating to the use of electronic communications were among the first parts of the Act to come into force in January 2007.

Business Stationery

Since 1 January 2007, the requirement for a company to clearly state its name on all its business paper has been extended to include documents in electronic as well as hard copy form. On their websites companies must show their place of registration, registered office and registered number. All business letters, order forms or invoices, whether in hard copy or electronic form, and all websites of companies in liquidation must contain a statement that the company is being wound up. Further requirements relating to trading disclosures, including lettering to be legible, where and how the company name is to be displayed, particulars required in business letters (including particulars of directors) and availability of company records, are contained in the (currently draft) Companies (Trading Disclosures) Regulations 2008 coming into force in 2008.

Electronic Filing

Also from 1 January 2007, companies are now able to file electronically all the basic company documents that they are required to file with Companies House and the Registrar must keep all documents submitted in electronic form. Any person wishing to inspect the register may make a request to Companies House electronically and the Registrar must offer electronic copies of the requested documents.

Electronic Communication

The Act extends the use of electronic and website communications to all provisions requiring documents or information to be sent or supplied to or by a company [s 1143 - 1148]. These provisions came into force on 20 January 2007. Detailed rules are set out which must be carefully followed depending on whether the documents and information are being sent or supplied:

To a company [schedule 4]

A document may be sent: (a) in hard copy by hand or post, using a prepaid envelope containing the document and sent to an address specified by the recipient company or (b) in electronic form if the recipient company has agreed generally (in respect of all documents) or specifically (in respect of certain documents) and not revoked the agreement, but only to an address supplied for the purpose.

By a company [schedule 5]

A document may be sent: (a) by hand or by post in a prepaid envelope containing the document to the address supplied, or a company's registered office, the address in the register of members or directors or the last known address or (b) in electronic form if the recipient has agreed generally (in respect of all documents) or specifically (in respect of certain documents) and not revoked the agreement, but only to the address supplied for the purpose.

Electronic communications are not compulsory and even where a company has decided to use them, a member (and a beneficial investor with information rights) may still request that documents are sent to him in hard copy [s 1145]. Hard copies must be supplied free of charge within 21 days of the request.

Website

Companies may also communicate via their website [schedule 5], but only if the recipient has agreed, generally or specifically, and not revoked his consent. Where the intended recipient is a member of the company his consent will be deemed if the members have resolved that the company may make information available via the website or if the articles provide for this. However it will still be necessary to ask each person individually if he agrees and for that person not to have replied within 28 days, provided that the request to use the website clearly states that failure to reply to the request will be deemed consent. A request for consent cannot be sent more than once in any 12 months.

Quoted Companies

The Disclosure and Transparency Rules (DTR), which are part of the FSA Handbook and apply to quoted companies, contain some additional rules for the use of electronic communications by quoted companies. A resolution must be passed in general meeting to use electronic communications and all persons entitled to exercise the rights of members must be contacted for their consent; under DTR 6 consent is deemed to have been given if there is no response within a "reasonable time". Quoted companies have to be able to identify all those persons with information rights.

Notice Of Meetings

The new provisions for giving notice of a general meeting came into force on 20 January 2007. A company may give notice of a meeting in hard copy, electronic form or via its website [s 308]. The notice must contain details of the date, time and place of the meeting, the general business and contain any other information required by the company's articles [s 311]. Where notice is being given via the website the member must be separately notified by another means of the presence of the notice of the meeting on the website, and that notification must state that it concerns a notice of a meeting of the company and specify the date, time and place of the meeting. If it is a public company the notification must also indicate whether the meeting is an AGM. The notice of the meeting must be available on the website for the period beginning with the date of notification until the conclusion of the meeting [s 309].

AUDITORS AND ACCOUNTS

Part 15 of the Act which deals with accounts, and Part 16 dealing with auditors, substantially come into force on 6 April 2008. There are only a few substantive changes to the provisions from Companies Act 1985 they replace; the main feature of these parts of the Act is the reordering and redrafting to make it easier for companies to find the rules relevant to them. Instead of the "one size fits all" style under the old legislation, with exceptions and modifications for small companies, in the Act where provisions do not apply to all companies, the requirements for small companies are set out before those relating to other companies.

Whilst the qualification thresholds for "small companies" are not changed in the Act [s 382] there is provision in some of the related secondary legislation (currently draft) Companies Act 2006 (Accounts and Reports) (Amendment) Regulations 2008 to implement changes from EU accounting and auditing directives including increases in the turnover threshold for small companies (to 6.5m) and balance sheet threshold (to 3.26m) from April 2008.

Business Review

The requirement for all companies to produce a directors' report is not new. For all companies other than "small companies" this report must contain a business review [s 417]; failure to do so is an offence committed by all persons who were a director at the end of the relevant filing period. The existing requirements as to the content of the business review are substantially restated by the Act, with two additional provisions that come into force on 1 October 2007 and apply to directors' reports prepared after that date:

The statutory purpose: the purpose of the business review in the Act is to provide information to the members of the company to help them assess how the directors have performed their duty under s 172 of the Act [duty to promote the success of the company].

Quoted companies: additional content must be provided by quoted companies relating to the future development, performance and position of the company, information about environmental matters, employees, social and community issues and information about persons with whom the company has contractual arrangements that are essential to the company. The only exceptions to the disclosure of this information are where in the directors' opinion it would be seriously prejudicial to the interests of the company or the person concerned or contrary to public interests.

Director Liability For Financial Statements

A new liability for directors for the statements made in a directors' report (including the business review), directors' remuneration report or any summary financial report derived from them [s 463] came into force on 20 January 2007. This liability is only owed to the company and is limited to the loss suffered by the company as a result of any untrue or misleading statement in a report or an omission from a report of anything that should be...