Date 20 June 2008
The one-year delay of full implementation of the Companies Act 2006 has been greeted with mixed reactions. Whilst some see this as a blessing that allows extra time for businesses to prepare, many have condemned the postponement for the way it could detrimentally affect SMEs – the key group that the act was primarily meant to benefit.
The Negatives
The Companies Act 2006 is the largest piece of legislation ever to be passed in the UK, seeking to unite and update the majority of company law in existence. Companies House not yet being ready to manage this new regime is cited as the reason for pushing back the full implementation date from 1 October 2008 to 1 October 2009.
The main disadvantage of this delay will be experienced by businesses that have already begun timetabling events around the new legislation. They will be forced to rearrange their plans, with particular disruption to transactions that were to make the most of the new regime. This replanning certainly has the potential to increase transactional costs for SMEs.
However, a delay also extends the period of time during which companies are governed by more than one piece of legislation. Whilst some provisions of the Companies Act 2006 are already in play, the Companies Act 1985 is still relevant for many areas of company law. There is a fear that SMEs will need to pay greater legal costs to unravel the confusion of complying with two bodies of legislation.
The Positives
The news isn’t all bad though. The Department for Business Enterprise and Regulatory Reform (BERR) has announced that some fairly significant provisions could still be introduced around the original target date. One of these is likely to be the rule allowing private companies to finance the purchase of their own shares. With many businesses already set to undertake this type of transaction in October 2008, introduction of the rule would allow them to proceed without delay.
Rules concerning directors’ conflict of interest duties are another aspect that is currently being considered for early implementation. This affects businesses where directors of SMEs are also shareholders, as well as transactions between companies that have common shareholders and directors.
What to do Now
The remaining legislative points are unlikely to be introduced before the new 1 October 2009 target date. These include changes to the rules on company formation and the constitution of companies. The abolition of an authorised share capital ceiling is probably the most anticipated new provision, and companies that were aiming to take advantage of that will certainly have to wait another year.
Essentially, any business that has timetabled work in advance of the changes will need to revisit their plans based on the new implementation schedule released in December 2007. Many are already delaying transactions that were set to make the most of the new legislation. Others with more time-sensitive events are reconfiguring deals to make the most of the current regime.
The best advice for SMEs is to talk to an experienced commercial solicitor, who will advise you on the most cost effective way to proceed. This will not only ensure you remain compliant over the next two years whilst the acts cross over, but ensure that your business takes maximum advantage of the new legislative provisions as they occur.
Not all of the benefits of the new act are immediately apparent. Qualified advice will help you identify those that apply to your particular business and how you can achieve maximum profitability from them.
If you require any further information or assistance with any of the issues featured in this article, please contact Chris Wilks on 01727 798093 or at chris.wilks@salaw.com.
© SA LAW 2008
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