Existing companies

How the Act is to be implemented in respect of existing companies is not yet clear, but as a general principle it is understood that when any part of the Act does come in, so will any corresponding transitional provisions(s) for existing companies.
So, for example, when the e-comms provisions come into effect in January 2007 (see p.10), if there is any transitional provisions for existing companies in this area, this is the time that these will come in. It is clear that some sections of the Act will be able to be applied to existing companies without modification; whereas in other areas there will have to be transitional arrangements. What is not totally clear yet is precisely where there will be transitionals and what they will say. Until we know this, it is premature to assess exactly what an existing company has to do.
The Department of Trade and Industry undertook an initial consultation exercise back in late summer 2006, when it asked for views on the application of various aspects of the Companies Bill (as it then was) to existing companies.
In the consultation paper, the DTI explained that its general approach was guided by three objectives: first, that the Act should apply ‘to existing companies as well as to new ones’ (an objective made clear even in the very first section of the Act); second, recognising ‘the importance of decisions taken by the members and directors, and agreements entered into by the company (existing bargains)’; and third, to make it ‘as easy as possible for existing companies to comply with the new requirements’ and ‘to take advantage of the new freedoms’.
The consultation picked out the areas where the application to existing companies was not straightforward so this serves as a useful guide as to areas where, going forward, we need to keep a watching brief to see how existing companies are affected. Areas covered included the following:

• Company constitutions
• Objects
• Company’s registered name
• Entrenched provisions
• Conflicts between the Memorandum and Articles
• Abolition of authorised share capital
• Restrictions in the articles as to alterations to share capital
• Subsisting Section 80 and the Section80A authorities
• AGMs
• Company secretaries in private companies
• Directors’ conflicts of interest, in particular:
  • Duty to avoid conflicts of interest
  • Personal exploitation of opportunities
  • Directors’ transactions with the company

Clearly the Government’s thinking, and this list, may have moved on as the Bill moved through Parliament and onto the statute books. Even so, the original DTI paper is still available online at www.dti.gov.uk/bbf/co-act-2006/index.html and it remains a useful source of reference for the detail of some of the transitional issues with which the DTI is grappling. ICSA’s own response to the paper is available on at www.icsa.org.uk/index.php?option=com_content&task=view&id=63
All should be clearer next spring, when we expect to see a consultation on the proposals for the transitional arrangements.

Bridget Salaman, Head of Policy, Corporate, ICSA

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