A Quick Guide For Directors On New Company Law

A whole raft of legal changes for companies comes into force from 1 October 2008. Some are aimed at reducing red tape and below is a quick run down of the most important ones.

Financial Assistance

Previously private and public companies were prohibited from giving financial assistance to purchase their own shares. This meant, for example, that a bank-funded buyer of a company would need to go through a special ‘whitewash’ procedure involving significant additional professional costs to ensure any new bank security over the target company, as part of the funding arrangements, would be permitted.

From 1 October this prohibition is lifted for private companies and therefore eliminates the need on many deals for the ‘whitewash’ procedure. This simplifies some deals and will also reduce the associated transaction costs, making it of particular relevance to accountants, bankers, lawyers and other professionals involved in raising company finance.

Directors

From 1 October 2008 directors will have a duty to avoid direct or indirect interests that conflict with the interests of the company. The Act places this duty, and similarly the duty not to accept benefits from third parties and declare an interest in proposed transactions or arrangements, on a statutory footing.

Authorisation of conflicts can be made by independent directors, subject to the company’s articles of association. So companies should check their articles of association as changes may need to be made to take advantage of this authorisation.

Further, most companies will be required to have at least one director who is a natural person, as opposed to a company or an organisation. It is currently quite common, for example, for the only director or a subsidiary company to be the parent company itself. Directors, especially those of group companies, should be reviewing company appointments and ensuring there is compliance with the new legal position. Some companies are exempt from this requirement until 1 October 2010.

The minimum age of directors will change so that company directors must be aged 16 by 1 October, if they are not 16 they will cease to be a director.

Trading Disclosures

Currently, all companies must display the company name at its registered office and at any place where the company carries on its business. After 1 October these rules are relaxed for dormant companies and for companies who operate from home. There are also provisions for companies which share offices.

Company Names

A new Company Names Tribunal will be formed to order companies to change their names where necessary.
The grounds for objecting to the use of a company name by another organisation will include the registering of a company name with the intention of extracting money from the complainant person or organisation, and also where a name is registered to prevent others from using a name which may harm or infringe on a company’s goodwill. 

Contact James Evans for further information and advice.  

Published 25/09/2008. The author of this article is James Evans