The longest statute ever passed by the UK parliament is the Companies Act 2006. There is some irony in this because one of the reasons for the new law, according to the government, was that they wanted to simplify company law, in particular for smaller companies.
Because of its length and complexity, the Act is being introduced in stages, commencing in January 2007, and going through to October 2008. We will provide updates on the blog as the stages unfold.
Among the sections which came into effect on 1 October, are the following changes:
- New duties for Directors. As well as having to act in good faith to promote the company, directors now have to exercise care, skill and diligence; independent judgement; and have regard to not only the interests of the company but also the interests of its employees and the impact of the company’s operations on the community and the environment. There is more detail in the Act itself.
- Shareholders approval is now required for any service contract for a director which lasts more than two years.
- Shareholder approval is also required for any payoff to a director which exceeds the amount to which he or she is entitled under their employment contract. (Presumably Mr O’Neal, until recently the Chairman of Merrill Lynch, may not have seen so much of his £80 million had his contract fallen under the new jurisdiction)
- Shareholders also have to approve a loan to a director of more than £10,000.
- There is no need for a company to hold an Annual General Meeting any more.
- Notice periods for meetings of shareholders are reduced to 14 days. Until now the notice period has generally been 21 days.
I forced myself to look at this “document” for the first time this evening. I have read so much about it that I feel that I know it well already. But 760 pages!!! Thanks for the digest of what’s come into force this time around.