A guide to directors’ responsibilities under the Companies ...
[Pages:134]A guide to directors' responsibilities under the Companies Act 2006
A guide to directors' responsibilities under the Companies Act 2006
John Davies Head of Business Law, ACCA
Certified Accountants Educational Trust, July 2007
PAGE 3
About ACCA ACCA (the Association of Chartered Certified Accountants) is the largest and fastest-growing global professional accountancy body with 296,000 students and 115,000 members in 170 countries. We aim to offer first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management. We deliver our qualifications in partnership with many organisations. We operate 18 joint examination schemes with national bodies around the world and work closely with 470 registered tuition providers and nearly 8,500 employers of accountants and finance professionals. We aim to support our students and members throughout their careers, delivering services through a network of nearly 80 offices and centres. We use our expertise and experience to work with governments, donor agencies and professional bodies to develop the accounting profession. We aim to achieve and promote the highest professional, ethical and governance standards and advance the public interest. ACCA's reputation is grounded in over 100 years of providing accounting and financial qualifications. Our long traditions are complemented by modern thinking, backed by a young, dynamic membership.
No responsibility for loss occasioned to any person acting or refraining from acting as a result of any material in this publication can be accepted by ACCA. ? The Association of Chartered Certified Accountants, 2007
PAGE 4
Contents
Abbreviations used in the text
6
1. Introduction
7
2. What is a `director'?
10
3. Eligibility to act as a director
16
4. Appointment and vacation of office
18
5. Powers of directors
25
6. Directors' `general duties' under the Companies Act 2006
28
7. Directors' responsibilities concerning accounting and reporting
47
8. Directors' other statutory responsibilities
61
9. Directors' transactions with their company
71
10. Consequences of breaches of directors' responsibilities
82
11. Ratification of breaches and relief from liability
100
12. Special cases
102
Appendix 1
107
Appendix 2
130
PAGE 5
Abbreviations used in the text
`CA 2006' or `the Act' Companies Act 2006
`CDDA 86'
Company Directors Disqualification Act 1986
CLR
Company Law Review Steering Group
`IA 86'
Insolvency Act 1986
`the Code'
the Combined Code on Corporate Governance
PAGE 6
1. Introduction
1.1
The enactment of the Companies Act 2006 in November of that year was the culmination of a nine-year
project which amounted to the biggest official review of UK company law for over 40 years. The project
comprised a three-year in-depth investigation by a Government-appointed expert group ? the Company Law
Review Steering Group (CLR) ? detailed research on specific issues by the Law Commissions of England
and Wales and Scotland, and extensive public consultations on a wide range of technical matters by the
Government itself. The new Act which has emerged from this exercise consolidates the great bulk of the
pre-existing companies legislation, in the process creating the biggest single statute in UK legal history: the
Act contains 1,300 sections and 16 schedules, with much more material to be issued separately in the
form of regulations to be made under the Act.
1.2
The aim behind the reform process was not, however, just to consolidate the fragmented state of UK
companies legislation but to modernise it where appropriate and thus make it more relevant to the business
conditions of the 21st century. In keeping with this aim, the Act makes changes in the following areas
(among others):
? It streamlines the legal rules for the administration of private companies so as to recognise the fact that, in most such companies, ownership and management is in the hands of the same individuals. Private companies, which form the vast majority of the companies on the register at Companies House, will no longer need to appoint a company secretary, hold an Annual General Meeting or lay accounts before their members in general meeting. The Act also makes it easier for such companies to pass resolutions in writing.
? It brings company law up to date by giving new recognition to electronic forms of communication for the purposes of conveying statutory information. Public companies are required to have web sites and to post specified corporate information on them.
? New measures are introduced to try to improve the accuracy and integrity of company information on the public record at Companies House. The Act also gives the Registrar of Companies the power to insist that any statutory document, including companies' annual accounts, be filed electronically.
? Company auditors will be able to negotiate liability limitation agreements with their clients.
? Shareholders have new powers to intervene in the governance of their companies.
A significant constitutional reform made by the Act is that the separate company law status of Northern Ireland is ended, meaning that the new Act and all the regulations to be made under it will apply for the first time to the whole of the UK.
PAGE 7
Introduction (continued)
1.3
Two fundamental issues were considered during the review process in the context of the need to modernise
UK company law. First, should the law expect from limited companies any wider social responsibilities or
should they simply be left alone to make profits? Secondly, should any new legislation be more specific
about what the responsibilities of company directors should be? The outcome of the lengthy consideration
of these two related issues is that not only have the legal responsibilities of directors been for the first time
`codified' ? in other words set out in statute, rather than left to be addressed by common law principles ?
but they have been in some respects expanded with the aim of ensuring that, in running their companies,
directors take into account a range of wider `environmental' factors that are considered to characterise
responsible corporate behaviour in the 21st century. As well as this important reform to the structure
of the decision-making process, the Act recognises the trend of the courts in recent years by expecting
higher standards of skill and care from company directors. Between them the changes made in these two
areas now form the basis for how directors are expected to operate and account for their actions to their
companies and the outside world.
1.4
The greatest potential impact of these new statutory responsibilities for directors will be felt in large and
listed companies which have complex business activities and large numbers of shareholders and other
stakeholders. In fact, however, the changes apply to all companies, large and small, so it is essential that
all directors familiarise themselves with what is expected of them under the Act.
1.5
The new Act is carefully worded to make clear that, as has always been the case, directors owe their legal
responsibilities to the company alone, and not to outside parties (except in certain exceptional cases).
Thus, there is no question that in carrying out their functions directors will be accountable routinely
to individual shareholders or to third parties. But the rules on directors' accountability to their own
members are reinforced ? shareholders are given new legal rights to initiate company proceedings against
directors for breach of their responsibilities. Thus, the revised rules on directors' duties are backed up by
strengthened provisions for the enforcement of those duties.
1.6
The Act makes a number of other, technical reforms to the rules on eligibility to act as a company director
and to the information that individual directors must provide to their company and place on the public
record. In addition, directors need to be aware of the changes which are made to the legal rules on the
administration of company affairs, since they will be responsible for ensuring compliance with these rules.
1.7
This guide looks at what the Companies Act 2006 means for company directors, with special emphasis on
the reforms to the rules on directors' duties. It is not a comprehensive guide to the Act but to those aspects
of the Act which impact squarely on directors. Much of the content may be familiar in that it refers to legal
requirements which have been carried over from the Companies Act 1985 and other legislation (though the
statutory references have changed), but the new measures introduced by the Act are looked at separately.
Where appropriate, relevant company law principles laid down by the courts are referred to in the text.
The guide also contains a comprehensive table, at Appendix 1, of the statutory duties for breach of which
directors may be criminally liable under the Act, together with a summary of relevant offences under other
legislation.
PAGE 8
................
................
In order to avoid copyright disputes, this page is only a partial summary.
To fulfill the demand for quickly locating and searching documents.
It is intelligent file search solution for home and business.
Related download
- the strategic role of finance ri blumshapiro
- shared services transformation the importance of role
- company vehicle policy middleton company
- a cfo s key competencies for the future
- leading financial company fills critical business roles in
- identify strategic positions
- mit business analyst job description v5
- business consultant general responsibilities
- roles of management consultants in business
- a guide to directors responsibilities under the companies
Related searches
- workers responsibilities under osha
- beginners guide to the stock market
- guide to choosing a major
- guide to being a man s man
- employee responsibilities under osha
- directors responsibilities and duties
- the complete guide to act grammar rules
- how to do area under the curve
- board of directors responsibilities pdf
- the water cycle a guide for students
- guide to the constitution
- guide to the stock market