Mark Adams, a Partner in the Company Commercial team at Hay & Kilner, looks at the impact of the Companies Act on Directors

The new Companies Act represents the most significant change in UK company law for many years. Whilst some provisions have already come into force, the Act will take effect in stages between now and October 2009. Directors should be prepared for the changes now, as they will have greater responsibilities.

The Act is aimed at simplifying the current legal regime for private companies, making UK company law less bureaucratic and less costly. It consolidates and amends the old Companies Acts and introduces many changes to areas such as directors' duties, share capital and accounts. The new legislation particularly affects directors in a number of ways.

There is now a statutory list of directors' duties, including duties to "promote the success of the company for the benefit of its shareholders" and to exercise independent judgement. There will also be a duty to avoid conflicts of interest. To comply with these duties, directors will need to consider a range of factors including business relationships with suppliers and customers, employees' interests and what are being termed "community and environmental matters".

Other ways in which directors are affected by the Act, include:-

• A reduction in the period for filing accounts at Companies House for private companies from 10 months to 9 months.

Unless a company is subject to the small companies' regime, the directors' report to the accounts will now need to contain a "business review". This must contain a fair review of the company's business, together with a description of the main risks and uncertainties facing the company, the purpose being to inform shareholders of these risks and to enable shareholders to assess the directors' performance of their duty to promote the success of the company.

• A company's authorised share capital will be abolished with directors being given increased freedom to issue new shares.
• In place of the current prohibition on loans by companies to their directors, provided that prior authority is obtained from the shareholders, such loans will now be permitted.
• Private companies are no longer required to hold annual general meetings.

There is also a new criminal offence of knowingly or recklessly delivering information to Companies House which is materially misleading, false or deceptive. Despite the fact that, with effect from 6 April 2008, the new Act dispenses with the need for a company to appoint a company secretary, someone must still be responsible for ensuring that all submissions to Companies House are correct.

Whilst in general the provisions of the Companies Act have been, and should be, welcomed by industry, greater responsibility and accountability is being placed on directors. Given that the new Act now gives shareholders extended rights to sue directors on behalf of the company for breach of their duties, negligence and other defaults, directors would be well advised to keep detailed minutes of board meetings, recording their reasons for taking particular decisions. A set of accurate minutes may also be invaluable in helping demonstrate that directors have complied with their new duties to promote the interests of the company.

Further details can be obtained from Mark Adams on 0191 232 8345 or email: mark.adams@hay-kilner.co.uk

Please note:
This article is not legal advice; it is intended to provide information of general interest about current legal issues. Please contact us to discuss how the contents of the article may affect you.