“Apprentice” Task Company Law Compliance

A key moment in this year’s series of “The Apprentice” highlights the extent to which many business people are unaware of company law requirements, according to a leading Midlands corporate lawyer.

“Many fans of the BBC series cringed when, during her semi-final interview, the eventual winner Yasmina Siadatan seemed unaware that her company’s accounts are a public document”, says Philip Round, an associate solicitor in the Black Country law firm George Green LLP.

On being grilled by “international troubleshooter” Claude Littner about the financial performance of her restaurant business, Ms Siadatan seemed to be momentarily surprised that such information is publicly available.  “Of course, interview pressure and skilful editing might have been contributory factors”, continues Mr Round, who is based in George Green LLP’s Cradley Heath office.  “This is, however, symptomatic of a wider confusion amongst directors about their compliance obligations, particularly at a time when company law is undergoing wide ranging reforms.”

According to Mr Round, the Companies Act 2006 – the final key provisions of which came into force on 1 October 2009 – was intended to make company law more accessible, but has in fact created potential pitfalls for unwary directors.

“Many directors who are unsure about a procedural issue will consult their company’s articles of association,” continues Mr Round.  “This is the main constitutional document which sets out the procedure for board and shareholder meetings, and rules relating to the issue and transfer of shares.

Existing companies may well find, however, that many provisions of their articles of association are no longer correct.”

“For example, the 2006 Act has introduced a more detailed procedure for the passing of written shareholder resolutions, which must be followed by all companies regardless of what their articles say.  Also, proxies have been given enhanced rights which must be recognised.  Directors are likely to follow procedures stipulated in their existing articles for the passing of written resolutions or the convening of general meetings.  If these are based on the old law, they are likely to be misleading or even unlawful and may result in the decisions of shareholders and directors being vulnerable to challenge.”

Mr Round recommends that companies review their articles to ensure that they are up to date.  “If companies do not bring their constitutional documents into line with the current law, the ensuing procedural errors will no doubt come to light on a subsequent sale of the company.  The reaction from potential purchasers is likely to be frostier than that of Nick and Margaret in Sir Alan’s boardroom.”

According to Mr Round, new companies incorporated on or after 1 October 2009 will face a slightly different problem.  “Many existing companies’ articles are based on a statutory default form, called Table A, which companies usually tailor to suit their needs.  A new default set of Model Articles replaces Table A in relation to companies formed on or after 1 October.  The Model Articles are much shorter than Table A, and omit some key provisions which many companies would find useful, such as the power to appoint alternate directors, and detailed procedures for addressing directors’ conflicts of interest.  It is therefore more important than ever for new companies to adopt a bespoke constitution rather than relying on the default Model Articles.”

Mr Round highlights another change which will have a significant impact on all companies.  “From 1 October, Companies House have introduced a whole new suite of company forms, which will replace the existing forms – such as forms 288 and 88(2) – in their entirety.  Any old style forms filed after that date will be rejected.  A company will also be required to file a statement of capital each time that it alters its existing issued share capital.”

Mr Round recommends that all company officers familiarise themselves with these changes.  “Companies have understandably neglected housekeeping issues because of the current economic situation.  Keeping up to date with changes in the law should, however, be an integral part of any company’s strategy for surviving the downturn.”

Established in 1897, George Green has 11 partners and 75 staff, and is headquartered in Cradley Heath with a satellite office in Birmingham.

 

For further information, contact Beverley Weston, Marketing and PR Manager for George Green LLP, Tel: 01384 340585.  Email: [email protected]