COMPANY LAW

Company Law



Company Law

Introduction

Most provisions of the Companies Act 2006 (the Act) are expected to come into force by October 2008, but some parts will be effective sooner. Some sections, including those connected with the implementation of the EU Transparency and Takeover Directives and company communications, are likely to come into force in January 2007. The government is expected to start a formal consultation on its implementation plans in February 2007. In a number of areas, the Act gives the government power to make regulations, with further consultations expected on the detail.

We will be commenting on the Financial Services Authority's latest plans for implementation of the Transparency Directive when it publishes the special Directive edition of its newsletter List, scheduled for November 2006.

Director's duties under companies act 2006

One of the most significant and controversial areas of the Companies Act 2006 (the '2006 Act') is the introduction of a codified statutory statement of duties for directors, replacing the previous mixture of common law and equitable rules. The majority of these duties came into force in October 2007, with the provisions in relation to directors' conflicts of interest coming into force in October 2008.

There has been a significant volume of discussion on the new codified duties, and the extent to which the position has changed with the implementation of the 2006 Act. This has led to confusion on the part of directors as to the extent to which they need to arrange their procedures and considerations when making decisions on behalf of the Company. There has also been concern that the new provisions could lead to greater shareholder action against directors. It should be noted that there are additional statutory duties on directors, such as the preparation of accounts, which are outside the scope of this article.Position prior to the 2006 Act

Prior to October 2007, a director's duties to the company were set in case law, and comprised of a duty to exercise due skill and care; a duty to act in good faith in the best interests of the company; a duty to act within his powers and to exercise those powers for a proper purpose; a duty not to fetter his discretion; a duty to avoid conflicts of interest; and a duty not to make a secret profit. All of the duties other than the duty of due skill and care (which is a common law duty based in the law of agency) were fiduciary in nature and a breach could be ratified by the shareholders in general meeting provided that this would not amount to a fraud on any minority shareholders.Statutory duties under the 2006 Act

There are seven codified duties of directors set out in the 2006 Act as follows: (a) duty to act within the powers conferred by the Company's constitution and only to exercise powers for the purposes for which they are conferred (section 171); (b) duty to act in a way which is most likely to promote the success of the company ...