Companies Act 2006 - Update

I promised a little while back that I would put come detail on the Blog about changes in the Companies Act 2006 that came into force on 1st October 2006 so here it is:-

 

Company Names -  Keeping with an earlier theme, 1st October 2006 saw the introduction of the Companies Names Adjudicator and The Company Names Tribunal, a parrt of The UK Patent Office. See www.ipo.gov.uk/cna for full details. The service is intended to provide an option for those people or organisations who have a reputation or goodwill in a name to take action against a third party who opportunistically registers a company name to take advantage of that goodwill and/or reputation.

Annual Returns - Those readers getting Annual Returns to be made up to a date or, or after, 1st October 2008 will put in practice provisions of the Act allowing companies to restrict access to their Register of Members. You will see a reduced requirement for information than you will by now be used to. Don't forget to make sure that your Annual Returns are filed in time! 

Company Directors - A couple of key changes here. Firstly, there is now a minimum age of 16 for company directors. If you have a director under the age of 16 on 1st October 2008, his, or her, appointment will automatically terminate. If this leaves your company without a director, this needs to be remedied by making another appointment. 

Secondly, from 1st October 2008, all companies must have at least one natural person as a director. There is a grace period under the transitional provisions until October 2010 allowing those companies that only had a corporate director on the date the Act received Royal Assent (8th November 2006 for quiz fans).

Abolishing the prohibition on Financial Assistance - Those of you that have been through an acquisition or disposal of a company may be familiar with the previous prohibition on a Company giving "financial assistance" for the acquisition in shares in itself. Financial assistance covers a wide range of things but as an example, would include the company in which a purchaser is acquiring the entire/part of the issued share capital using funding from the Bank, then granting the Bank a guarantee backed by a Debenture to secure the lending by the Purchaser of the shares. There was a relatively complex procedure known as the "whitewash procedure" which could be used to permit the giving of financial assistance but this inevitably added to the costs of a transaction and, in some cases, the time taken to complete. From 1st October 2008, the prohibition was lifted for private companies. I have already seen how this can help in a transaction and whilst Banks, in particular, may still require some form of protections in scenarios similar to that above, I think that it should make transactions run more smoothly.  

Directors Duties - You will no doubt be aware that the Act codified and placed on the statute book what were common law duties on persons holding the office of director. On 1st October 2008, the provisions relating predominantly to conflicts of interest came into force. This should not cause a problem for those with strong corporate governance procedures in place. I will post a more detailed blog on this topic in due course.  

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Posted by Andrew Sutton on Monday, October 20, 2008 3:54 PM

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What's in a name?

We are rapidly approaching another milestone in the life of the Companies Act 2006 as 1st October brings into force additional sections. Over the coming days and weeks I will post some information relating to those that I think are likely to have an impact on day to day operations of a company.

There has been a slight change in the rules governing how and where a company must display it's name. From 1st October 2006, a company will have to display their name anywhere they do business but will no longer have to put it on the outside of the premises. The regulations are such that the Company name must be able to be read with the naked eye and it must be positioned in a way that it is easily seen by any visitor to the premises. This is a departure from the position under the 1985 Act which specifically stated that names had to be on the outside of such premises.

A company is required to have its registered name displayed at its registered office and also at the place where its company records are stored.

 

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Posted by Andrew Sutton on Monday, September 15, 2008 10:34 AM

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Are you a Freelancer in danger?

 

A recent High Court ruling has provided a precedent that individuals who offer their services to third parties as freelancers may be pursued by HMRC to recover tax as if the freelancer was an employee of the organisation that they were/are providing work for. 

In short, an IT freelancer was providing services to a well known motoring organisation through his company - a common mechanism for the IT industry and most are aware of the IR35 rules introduced some time ago by the Revenue. He had little other income and was held by the Special Commissioner of HMRC to have been integrated into the company's business and had a role similar to a professional employee. On that basis he had to account for tax and National Insurance as an employee, amounting to some £99,000.

On appeal, the High Court affirmed this view based on the facts of the relationship, seemingly ignoring the parties intentions and the contract agreed between them. 

As a result, the individual was liable to pay £99,000 tax and national insurance that he would have had to pay as an employee.

We have yet to see the full judgment on this case but the effect of the judgment is likely to worry a number of freelance IT,and other, consultants.

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Posted by Andrew Sutton on Wednesday, September 10, 2008 4:08 PM

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"WHERE IS OUR MONEY?"

 

In an increasingly difficult financial climate the temptation to delay paying suppliers of goods or services as long as possible and waiting for the letter demanding payment can be fairly strong and tempting.

A recent Court of Appeal case has held that persistent late payments under an agreement for services can amount to a repudiatory breach of contract in certain circumstances allowing the innocent party to terminate the contract.

In general, unless the contract specifically refers to the importance as to the timing of payments, i.e. the timing of payment being of the essence, or it can be implied from surrounding circumstances, it has been established for some time that late payments are unlikely to constitute a repudiatory breach.

The case in question involved a relatively common arrangement. A contracted with B for services and in turn B entered into an agreement with C to perform advisory work to B in order for B to fulfil its obligations to A. A paid B promptly; B fell into substantial arrears with C. Eventually C stopped providing Services to B who sued C for breach of contract. C argued that B had no grounds to bring the case as the agreement was terminated due to the breach by B, being a breach capable of repudiating the contract.

There were no express terms regarding payment but the judge found an implied term that B would pay C immediately upon receipt of payment by A. A factor in this was the reliance by C on the payments being made by B. The judge implied a "time of the essence" term on the obligation to pay. The Court of Appeal rejected the appeal by B and upheld the decision of the judge.

It is clear that context is important in determining the applicability of this case to other cases of late payment and it is also clear that late payment generally will not allow a party to "rip up" a binding agreement. However, it is worth considering what you would do, and how it would affect your business, if suppliers stopped supplying goods and/or services relying on this case as a precedent for terminating the agreement. It is always better to be clear up front as to the contractual importance of payment being made on time and in many contracts there are a number of clauses dealing with rights and remedies in relation to the timings of payments and this can be a tricky area of negotiation.  

   

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Posted by Andrew Sutton on Friday, July 04, 2008 1:43 PM

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Cross Border Contracts - Which law applies?

UK law relating to contractual choice of law between EU member states is found in the Contracts (Applicable Law) Act 1990, which is based on the 1980 Rome Convention.  The Rome Convention sets out the rules, as between all EU member states, for determining which national law should be applied by Courts when resolving contractual disputes having an cross border element to them, i.e. an English buyer buys products from a French supplier. 

 In 2005 the European Commission proposed fundamental changes to the Rome Convention, in the form of the Rome I Regulations.  After consultation, the UK decided to ‘opt out’ of the proposed Regulations, and instead, to participate in negotiations with an aim to achieving amendments beneficial to UK business interests.  

The final draft of the Rome I Regulations has been approved and agreed.  The government has issued a consultation paper recommending that the UK ‘opt in’ on the Regulations when they are adopted later this year. The revised Rome I Regulations seek to enhance certainty as to the legal status of cross-border contracts, on the basis that certainty of law leads to confidence in international contracting.  Amongst other items and clarifications in drafting they also look to provide protection to weaker contracting parties, namely consumers.  

The format of Rome I closely follows that of the 1980 Rome Convention and builds upon it; the basic rule being that, in the absence of party choice (either express or implied by the circumstances of the case), the applicable law is that of the country with which the contract is most closely connected.  This means the place where the party performing the service characterising the contract has his habitual residence (for individuals) or central administration (for companies).  

Any improvement in clarity, and certainty for contracts is to be welcomed. However, I think that it remains advisable for parties to agree to, and explicitly state the law (and jurisdiction) to which a contract is to be subject.  This will avoid any uncertainty in the case of a contractual dispute and hopefully circumvent the need to revert to the Regulations at all.

 

To see the consultation document (consultation closes on 25th June 2008) visit www.justice.gov.uk/docs/cp0508.pdf  

 

 

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Posted by Andrew Sutton on Wednesday, June 18, 2008 12:08 PM

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Exclusion clauses

 A recent case heard by the Court of Appeal considered the enforceability of an exclusion clause which excluded liability for losses such as loss of business, loss of profits and consequential loss. I am sure that these terms are common to most of you dealing in commercial contracts. 

The law underpinning such exclusions derives from the Unfair Contract Terms Act which broadly states that when dealing on standard terms of business, an exclusion or limitation of liability clause will only be upheld if it satisfies a test of reasonableness. The case considered involved the letting of serviced office space on standard terms and conditions of business containing exclusions similar to those set out above and also capping liability. 

There was an alleged breach of contract by the "landlord" (I use the term loosely and for simplicity!) and as a result of the dispute the "landlord" suspended services to the occupier of the offices and claimed the balance of unpaid fees to the end of the term. The occupier counterclaimed, claiming (amongst other things) breach of contract by the "landlord" . The "landlord" sought to rely on its t's and c's. The High Court held the exclusion was unreasonable and therefore of no effect. 

The Court of Appeal overturned this decision on the basis of a number of factors, including, no evidence of inequality of bargaining position; it was reasonable to restrict damages for those liabilities that it sought to restrict; the "landlord" advised its customers to insure against business losses, and the limitation itself was reasonable and could be read independently of the exclusions.

The case highlights the importance of considering a number of factors when entering into contractual negotiations incorporating limitations and exclusions on liability.  

 

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Posted by Andrew Sutton on Tuesday, June 10, 2008 11:29 AM

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Ssssh! It's a Secret

The Information Commissioner's Office (www.ico.gov.uk) has recently published its notice regarding a complaint lodged as a result of a Freedom of Information Act 2000 (FoIA) request of Plymouth Primary Care Trust (case ref FS50084359).

A number of commercial organisations ask us to consider requests that they have received from public sector clients/customers to release contractual details to third parties who have requested information of that public authority under the FoIA. Sometimes, these requests appear to be from commercial competitors. Understandably, where possible, organisations would prefer that their commercial competitors were not able to see details of contracts entered into and we are asked to consider whether this can be prevented. Commonly, the big area of concern is price sensitivity. 

Amongst much wider findings, the above notice partly upheld the position adopted by the primary care trust ("PCT") that certain financial information set out in the contract relating to potential income, expenditure, anticipated profits and tax liability provided to the PCT by the service provider could be considered to be having a significant degree of commercial sensitvity. Having considered all the relevant factors, including the public interest test, the Commissioner concluded that the PCT was right, in this instance, to withhold some of the information that it did. 

Some interesting points come out of the notice. It is always worth considering what you consider to be confidential information; what don't you want getting out into the public domain if you can help it. Once considered, express confidentiality clauses that relate to that information can help demonstrate commercial sensitivity to that information. However, where prices are negotiated and/or are simply prices, and by that I mean not a very detailed breakdown of assumptions and costs, it may well be that despite arguments put forward there may be no actionable breach of confidence that may result from disclosure, necessary to prevent the disclosure to the person requesting the information despite your best efforts.  

 

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Posted by Andrew Sutton on Tuesday, June 10, 2008 11:02 AM

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TUPE and Overseas transfers

For the first time an Employment Appeal Tribunal ("EAT") has considered what happens when a business is acquired by someone outside the UK. 

As a quick reminder, the Transfer of Undertakings (Protection of Employment) Regulations 2006  ("TUPE" for those that find the full title a bit of a mouthful!)  applies on the transfer of a business to another legal entity or when there is a change in a service provider. The aim is to provide certain protections to employees.TUPE itself does not address the question as to whether the business being acquired has to remain in the UK post transfer, even though TUPE does set pre-transfer conditions. 

The EAT was asked to consider a case where an Israeli- based entity acquired a UK based manfucaturer and relocated the business to Israel, making employees redundant in the process. Whilst on the facts the EAT did not have to directly decide on the question appealed to it, it's view, given at the request of the parties, was that TUPE can apply to transfers of a business outside the UK, irrespective of whether that transfer is within or outside the EU. This has been thought to be the case, but we now have some guidance on the issue albeit that the law in this area may be developed further. 

 
Those that have been through a TUPE process on sale or acquisition of a business or during service provision change will know that employee matters need to be considered carefully. In the case of service provisions it is always advisable to consider the end of the contract at the beginning and to put in place appropriate contractual procedures and indemnities to supplement the regulations. In the case of a business acquisition it is key to identify those employees who may transfer and consider the implications to the business if they do indeed transfer.    

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Posted by Andrew Sutton on Tuesday, June 10, 2008 10:36 AM

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Information Commissioner - New powers

On 8th May 2008 the Criminal Justice and Immigration Act 2008 received Royal Assent. When enacted by secondary legislation the Information Commissioner will be able to issue fines for the most serious breaches of the Data Protection Act 1998. In addition custodial sentences will be introduced for unlawfully obtaining or disclosing personal data in certain circumstances. 

There are procedures in place that must be followed before a fine is issued and there are conditions that need to be satisfied for the Commissioner to consider the imposition of a fine.

There are some observations to make about this. Firstly, if you have good governance and procedures in place for monitoring and complying with data protection laws if you are a data controller, then the new legislation, when in force, shouldn't cause too many headaches. However, recent high profile losses of data by government departments as well as private companies suggest that these new powers should help keep people on their toes when protecting data they hold on other people. If this new legislation means that organisations pay more than attention to protecting data they hold on you and I, the new legislation should be welcomed and gives the Commissioner (who has welcomed the legislation) a much greater armoury than he (or she) has had in the past.  

 

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Posted by Andrew Sutton on Monday, June 09, 2008 12:47 PM

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To negotiate or not to negotiate? That is the question

Those familiar with dealing with commercial agents are (or should be!) aware of the possible impact of the Commercial Agents (Council Directive) Regulations 1993. The basic effect (ok, very basic effect) of the Regulations is to give greater protection to agents in their dealings with their principal. The Regulations have been in force for some time now but a recent case in the High Court has considered the extent of the meaning of "negotiate" in the context of determining whether the Regulations apply to an agent.

 The Court held that an agent whose role was limited to introducing customers to the goods and suggesting a price for the goods, but always subject to confirmation by the principal was still authorised to "negotiate" for the purposes of the Regulations. On the facts, the agent was not entitled to compensation on termination (on either a compensatory or indemnity basis).

The case highlights the importance of determining the scope of an agent's authority, or lack of it, fully and expressing these clearly as the Courts are willing to define an a commercial agent widely. Full consideration should be given as to whether the Regulations may apply such that the parties can negotiate the appropriate method of compensating the agent on termination of the agency.

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Posted by Andrew Sutton on Friday, May 09, 2008 12:54 PM

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