Company Commercial Law - Major Changes Required in Company Decision Making

The Companies Act 2006 is believed to be the largest piece of legislation ever to hit the statute book. Its implementation is, fortunately, being phased in over the next year.

The 2006 Act replaces the Companies Acts of 1985 and 1989 and imposes new duties on officers and members of companies.

The focus of the Act is a “think small first” approach - the 1985 Act was often criticised for focusing on large, often public companies and thereby placing excessive regulatory burden on smaller companies.

A company makes decisions by the passing of resolutions, either of the board of directors or of the shareholders. With effect from October 2007, written resolution is to be the primary method by which shareholders act, replacing to a large extent the need for them to vote personally or by proxy at general meetings of the company.

While the use of a written resolution was always available to a company in the past, its unanimous approval was required. If a single dissenting shareholder refused to endorse such a resolution, a general meeting would be required, often on several weeks notice, for the resolution to be tabled and a physical vote to be taken.

The resolution in question would normally be passed in any event because, unlike a written resolution requiring unanimity, a physical vote would require no more than 75% approval.

The new Act goes some way towards streamlining this procedure. No longer will a written resolution require unanimity. Instead, it will require the same level of support as that required at a physical meeting – 50% plus one for an ordinary resolution or 75% for a special resolution.

While this change may not seem to be great, it simplifies and streamlines the process of small company decision making. Single shareholders can no longer block or delay decisions favoured by the majority.

Administrative work should also be reduced – for a company to call a general meeting of shareholders:

• notice must be given to all those entitled to vote

• a resolution must also be tabled in writing and presented to the meeting for discussion

• the meeting must be minuted

A single document - a written resolution - is all that is now required.

Directors and practitioners will need time to embrace these and other concepts in the new legislation; there will inevitably be occasions in the future where the Court will be asked to rule upon implementation issues.

Sound, professional legal advice is (as ever) essential from the outset.