The Companies Act 2006 is legislation that governs companies in the UK in just about every way a company is managed, run and financed. It took over from the Companies Act 1985 and was implemented in stages, the last starting in 2009, and provided public and privately run companies in the UK with common corporate laws.

There is an expectation that directors of companies heed the minimum standards set out in the Act and abide by their legal obligations. Although temporary changes were introduced in 2020 due to the impact of the coronavirus pandemic on businesses, these have largely been dropped. That said, there are amendments to the Companies Act 2006, predominantly to Section 172 (S172) that have now been implemented.

The Companies Act 2006 statutory statement

The Companies Act became law in 2006 and was established for a variety of reasons:

  • To simplify the administration of companies.
  • To improve the rights of company shareholders.
  • To update and simplify corporate law.
  • To join the systems of Great Britain and Northern Ireland together.

Originally, there was a further mandate – to transpose EU directives into UK law – but since the UK has left the EU, amendments to the Act have changed this.

The expected duties of company directors’ is laid out in a statutory statement as part of the Act detailing seven general aspects. They are:

  • To act within their powers as a company director (s171).
  • To promote the success of the company for the benefit of its members as a whole (s172).
  • To exercise independent judgement (s173).
  • To exercise reasonable care, skill and diligence (s174).
  • To avoid conflicts of interest (s175).
  • To not accept benefits from third parties (s176).
  • To declare interesting proposed arrangements or transactions with the company (s177).

To simplify this, the aim of the Companies Act 2006 and its later 2009 amendments is to make running a business easier for business owners. To this end, there are several aspects of the Act to help this including:

  • A simple, easier to understand company incorporation process.
  • Updates to a company’s Articles of Association.
  • The codification of directors’ duties.
  • Encourage companies to adopt electronic/digital-based communication.
  • Removing the necessity for private companies to employ a company secretary.
  • Indirect investors now have new rights.
  • New rules regarding the naming of companies.
  • Company directors are now allowed to use a service address rather than their residential address.
  • Private companies no longer need to hold an AGM (Annual General Meeting).

The importance of Section 172 of the Companies Act 2006

The of the most important sections of the Companies Act 2006 is Section 172 which covers how a company acts when promoting its success, i.e. in a way that benefits its shareholders. Section 172 has caused some controversy since its addition to the Act in that it required consideration from directors of the following when promoting their company:

  • The long-term consequences of their decisions.
  • The fostering of relationships with their suppliers, customers, vendors and other stakeholders.
  • Their impact on the environment and community.
  • Their desire to maintain high standards as well as a good reputation with regard to their business conduct.
  • The need to act fairly to all company members.
  • The interests of their employees.

Section 172 also brought in a requirement for company directors to submit a S172 statement that reflects the way their business is meeting the criteria. This is submitted annually as part of the company’s yearly accounts and report.

New features in the Companies Act 2006

The Companies Act 2006 is constantly reviewed and amended by the government. Some of the amendments apply to private and public companies, whilst others apply to only public companies. Some of the new features that particularly impact private companies are:

  • Shareholder written resolutions now only need a majority, rather than unanimity.
  • Company directors’ now have unlimited authority to allocate shares, as long as they are only one class of shares.
  • Financial assistance can be provided by the company to buyers of their own shares.
  • The company is now entitled to reduce its share capital without applying for a court order.

Features that pertain specifically to public companies include:

  • Additional requirements in respect of annual accounts and reports, such as environmental matters, social issues and any future development, if the company is listed on the London Stock Exchange.
  • Companies on the main board of the London Stock Exchange must hold a yearly meeting as well as file their accounts within six months of the financial year-end.
  • Companies are now compelled to produce greater transparency within their financial reports, like disclosing any major acquisitions.
  • In the future, institutions may have to disclose how they have voted.

As well as the Companies Act 2006, which has over 1,300 sections, businesses also have to abide by other company and corporate laws contained within The Insolvency Act 1986 if a business becomes insolvent and enters a liquidation or administration process, or a solvent company is closed down. Company directors’ also have to consider The UK Corporate Governance Code and European Union directives.

The rules and regulations of the Companies Act 2006 are governed by the UK Parliament. Any changes are detailed on their website in the Parliamentary Business, Bills & Legislation section, once the amendment has been given Royal Assent. Schedule 5 of the Companies Act 2006 refers to the UK’s withdrawal from the EU, according to the European Union (Withdrawal) Act 2018.

If you are struggling with corporate or personal debt and unsure what the right route is to deal with your creditors, the first step is to seek professional advice.  Our highly experienced professionals at Leading are on hand to help with advice on managing personal and professional insolvency matters. Contact us today and discover how we can help you.