Further company law changes ahead?

BIS has published a memorandum to Parliament on the post-legislative evaluation of Companies Act (CA) 2006,  The purpose of the evaluation was to assess the main outcomes of the Act and the consequences of the regulatory changes for companies, shareholders and other stakeholders.  Due to the scale of the Act, only certain provisions were selected for evaluation including the business review required in the directors’ reports of large and medium-sized companies, electronic communications, directors’ duties, AGMs and directors’ addresses.  The memorandum summarises the findings of the report which include:

» the overall conclusion that it is still too soon to say categorically that the Act's objectives have been met, but positive progress is noted in terms of the objectives evaluated;

» positive levels of awareness and adoption levels for a number of measures within the Act.  85% of companies surveyed were aware of changes brought in by the Act (even amongst small companies, 40% knew that changes have been made).  It is reported that these levels are likely to rise over time as familiarisation with the Act increases and the flow of new companies formed under the Act grows;

» on the whole the changes are not seen as overly burdensome by companies;

» particular positives resulting from the Act (noted by stakeholders) include a reduction in bureaucracy, greater privacy for directors and shareholders, greater clarity on directors' duties and greater engagement with shareholders; and

» the importance of advisers and sources of information in influencing companies' behaviour.

The report also suggests that the nature of guidance on changes in the Act is an area for improvement, but BIS does not consider this to be a current priority.  The full report and memorandum can be found on the BIS website:  here .

In the memorandum to Parliament BIS also confirms that:

» it intends to consider and consult further on the implementation of section 22(2) of the Act, which limits when a company’s articles may be entrenched (only on incorporation or by a unanimous shareholder decision later on).  This section was not brought into force, as was expected, on 1 October 2009 );

» it is in the process of determining if any action is necessary in relation to a number of technical amendments to the Act recommended by the Law Society (no detail has been given as to what these suggested amendments are);

» company law is one of the themes under the Government’s “Red Tape Challenge” and may be amended further to reduce administrative burdens on business; and

» company law and governance is expected to be reviewed by the European Commission in the coming year, with a view to simplifying the framework and leading to growth for companies.

The Government’s “Red Tape Challenge” website was launched in April 2011.  It is a process under which the general public is asked to comment on current regulations and make suggestions for improvements and amendments .  The aim is to reduce the overall burden of regulation.  Company law is one of six themes selected which are open for comment throughout the Red Tape Challenge process (April 2011 to April 2013). It is also currently in the spotlight for a period of 3 weeks, from 26 January 2012 to 16 February 2012.  The results of the Red Tape Challenge for company law are expected to be published later this year.  Further details can be found at: http://www.redtapechallenge.cabinetoffice.gov.uk/home/index/