We understand that entrepreneurs are busy people, often with multiple business interests. We are here to help entrepreneurs not only understand how to manage those competing interests without facing unnecessary liability and risk, but also take advantage of new opportunities to make business simpler.

As the three year modernisation of company law became fully implemented on 1 October 2009, Mishcon de Reya is offering a consultation, free of charge, with a Partner from its Corporate Group, to advise on how these changes could affect clients and their businesses.

The Companies Act 2006 has introduced new flexibility in the law and can simplify not only day-to-day decision making and communications by companies but also corporate reorganisation procedures, whether it be changing the company's name or reorganising its share capital. A new style of company constitution has been introduced for new companies, which is designed to be closer to modern business practice.

A word of warning, however, as enhanced directors' duties have also been introduced, particularly a new duty to avoid conflicting interests, which directors should not ignore.

The Mishcon Change Review is an opportunity for clients (and prospective clients) to find out how we can help make their business life simpler, but also to alert them to the enhanced directors' duties and potential conflicts regime. Clients must be aware of the potential pitfalls and risks in ignoring the changes and the steps that a director can take to protect himself.

If you would like to take up this offer of a Mishcon Change Review, please contact Faye Gardiner on 0207 440 7222 or by email on changereview@mishcon.com.

The Change Review is offered at the discretion of Mishcon de Reya and we reserve the right not to conduct the review in any particular case.

Managing competing business interests

The reality of entrepreneurial business is that directors often have multiple business interests, directorships and shareholdings. A director may be a shareholder or an officer of other companies either in or outside a group. He may be interested in or an officer of a shareholder who has appointed him. He may be involved in industry bodies or an adviser to other businesses in the same sector or have a role as pension trustee. However, under the Companies Act 2006, a director could be in breach of his duties unless he has such potentially competing interests and duties authorised by the relevant companies and takes certain other steps to protect his position.

The act now contains a code of duties to which a director must adhere in relation to each separate company of which he is a director. For each company, he must balance the need to promote the company's success (taking into account the interests of various stakeholders (for example, the shareholders and the employees)), exercise independent judgement and comply with the company's constitution. He must not take benefits from third parties conferred by reason of his position as a director. He must also avoid certain situations in which his various interests and duties come into conflict and disclose the existence of any interest that he has or may have in transactions with the company. A director may feel that to juggle these different hats is no easy task.

However, modern company law does recognise that directors have multiple and often competing interests and allows for a director to take measures to make his task easier. The law attempts to balance the risk for the company of a director abusing his position, whilst allowing the company to protect those directors who disclose their other duties and interests and (the company's articles permitting) have them approved by either independent directors or the shareholders.

The general principles are that:

• the director should be able to disclose valid situations of potential conflict, such as other positions and interests that he has and ask the company to authorise them in advance. This increases transparency and gives the director comfort that he is not automatically breaching the legislation simply by virtue of the positions that he holds;
• the company's constitution may set out who can authorise such conflicts, whether it be the shareholders, other directors independent of the conflict or both;
• the company's constitution can also enable the director to take steps to manage his competing interests when they arise, so as to avoid breaching his other duties - for example, he will not want to be accused of failing to promote the success of a company simply because he does not disclose information that he holds as a result of one of his other positions. He will also not want to be liable because he excludes himself from discussions which could give him information which could bring his integrity of action as regards another company into question. It may also authorise him to pass information about a company of which he is a director to the shareholder who appointed him.

Now, while companies are modernising their constitution for new law generally, is a good time to review the company's articles of association to afford directors the appropriate authorisation route and protection. There are advantages then in conducting a disclosure and authorisation or ratification exercise of each of the directors' potentially competing interests and duties. This has benefits not only for the directors concerned but is also a useful corporate governance tool for the company.

The Change Review is offered at the discretion of Mishcon de Reya and we reserve the right not to conduct the review in any particular case.

Time for a company to modernise its articles?

The constitution of a company incorporated after 1 October 2009 is likely to look very different to that of a company incorporated before that date. To the extent that they are not excluded, modified or replaced, new model articles apply as the default constitution to new companies instead of the now quite out-dated "Table A". These articles provide for far more flexibility for companies (for example, in decision-making by directors), embrace more modern communication styles, are written to be compliant with the new law and are in easy to understand plain English. The company's memorandum of association is no longer part of its constitution. Most of the matters previously dealt with in the memorandum will either now appear in the articles or no longer be required.

The question for existing companies is whether or not they should do anything to update their constitutions to bring them into line with the new act. The answer is likely to depend on a number of factors, but there will be advantages to you in discussing the best approach with us. For more information on the free consultation that we are offering please see About Change Review. In some cases it will be appropriate to make some small basic changes and, in others, adopting new articles modelled on those of new companies would be far more advantageous than doing nothing at all.

Advantages of amending your articles may (depending on the circumstances) include the following:

• To minimise exposure of the directors arising from increased regulation - For example, certain protections can be included for directors relating to the new statutory duty on directors to avoid a conflict of interest. Without such provisions a director may either not be able to have his positions of potential conflict authorised so easily or may find it difficult to manage his conflicts without breaching other duties he owes either to the company or third parties - see Managing competing business interests.
   
• To take advantage of new flexibility - For example:

• Directors may be given the power in the articles to change the company name (without passing a shareholder resolution).
• Lengthy objects clauses which limit the company's capacity and the powers of directors may be removed, again, protecting the directors from potential liability (such objects clauses are deemed to be part of the articles now and no longer in the company's memorandum).
• Directors' indemnity provisions could be reviewed to take advantage of new flexibility under the law.
• The articles could allow shareholder meetings (other than AGMs) to be convened on 14 clear days' notice in all cases rather than on the 21 clear days required for some meetings in the old Table A.
• Flexibility in the act allowing electronic communications with shareholders could be enabled, saving the company costs, particularly where it has a large number of shareholders e.g. allowing larger documents such as accounts to be made available to shareholders on a website.
• If a private company has express articles requiring an AGM, they could be removed, relieving the company from the obligation to hold an AGM.
• The shareholder authorisations associated with issuing shares could be reduced - see further modernisation of share capital requirements.

• To allow directors' decisions to be taken using more modern methods - Many companies are likely (for now) to still require regular board meetings to be held in line with good management practice. However, it may be appropriate in some cases to allow board decisions to be taken by majority (rather than unanimity) by way of a directors' written resolution. It is also possible to write more informal decision-making into the articles in line with that allowed in the new model articles for private companies, so that directors' decisions can be taken orally if all directors agree. However, this does carry evidential risk and will not be appropriate in all cases.
   
• To ensure the articles comply with new law - Existing companies' articles are likely to be misleading. Many provisions of the new legislation override provisions of articles written before the new law came into effect and should not, for example, be relied on for the correct procedure for convening a shareholder meeting or passing a shareholder resolution in writing. Shareholder protections may also have been drafted assuming meetings had to be held. These may not protect you as fully as they previously did now that decisions can be taken using the new statutory procedure to allow shareholders' resolutions to be passed in writing by majority.

The Change Review is offered at the discretion of Mishcon de Reya and we reserve the right not to conduct the review in any particular case.

Privacy for directors' home addresses

One welcome change resulting from the reform of company law is that companies are no longer required to make a director's and secretary's home address public.

Until 1 October 2009, companies were required to include directors’ and secretaries' home addresses not only in the company's register of directors and secretaries (which is open to public inspection) but also in records filed publicly at Companies House. It was possible to obtain a confidentiality order under which a director's address was not available for public inspection, but only in very limited circumstances.

Now, however, the company is instead required to record and give to Companies House an address (known as a service address) on which documents may be served on that director or secretary. This may be the company's registered office but need not be the home address. For directors, the company must still also record each director's home addresses (as well as the service address), but it should do so in a separate "register of directors' home addresses" which is not open to public inspection. The company will then not generally be permitted to use or disclose the directors' home address, except to contact him or otherwise with the director's consent. The company will still be required to file a director's home address (as well as his service address) with Companies House, but home addresses filed after the change to the law will be kept off the public register at Companies House. The home address will then usually only be capable of being disclosed to certain public authorities and credit reference agencies, unless the individual director’s particular circumstances allow him to obtain a confidentiality order to prevent disclosure to credit reference agencies. The secretary no longer needs to provide a home address.

All of the above is good news for company directors, particularly where they move house or are newly appointed as directors after the new rules come into effect. Unfortunately for directors whose details are already registered at Companies House, the Registrar will not in most cases remove details already filed. The Registrar will do so only where the director obtains a confidentiality order. To do so he would have to prove, for example, that there is a serious risk of violence or intimidation and even then the Registrar will only remove the address in respect of information filed after 1 January 2003.

Directors should also note that from 1 October 2009, their home address already registered in the register of directors will be deemed to be the service address, unless the company changes it. Even though past records at Companies House will, in most cases not be removed, the director may still wish to ask the company to amend the register and file the new "service address" at Companies House. This would then mean that the home address may not be seen by a member of the public only searching recently filed information.

There are also other changes to the details that the company is required to record in its register of directors and secretaries (and file at Companies House). For example, a company must now state the country or state in which each director normally lives and may be required to give details of any former names (including maiden names) that directors have used for business purposes in the past. In addition, a company is no longer required to provide details of its directors' other directorships. These changes could be made at the same time as updating the addresses.

The Change Review is offered at the discretion of Mishcon de Reya and we reserve the right not to conduct the review in any particular case.

Modernisation of share capital requirements

Companies incorporated after 1 October 2009 now operate under new rules relating to share capital, share issues and share capital reorganisations which have been brought into effect by the Companies Act 2006. Many of the changes are designed to be deregulatory and make life easier, particularly for companies with simple capital structures. For existing companies (those incorporated before 1 October 2009) some of the changes, particularly those relating to the authorities required for share issues, will not apply unless the company resolves that they should do so (depending on the circumstances, by passing a shareholder resolution and/or amending their articles). Other changes, however, such as those relating to new share capital alteration procedures and new filing requirements apply automatically to existing companies, as well as to companies incorporated under the act. Companies therefore need to be aware of them.

For more information on the free consultation we are offering, please see About Change Review.

The changes include the following:

Authorised share capital

The concept that companies must have "authorised share capital" is abolished by the act. This means that, for newly incorporated companies, there is no automatic cap on the number of shares that the company can allot unless a shareholder resolution is passed to increase the amount of the company's authorised share capital. However, the authorised share capital of an existing company (previously found in its memorandum) continues to act as a cap on the number of shares that it can allot and is now deemed to be in the company's articles. The cap can, however, in most cases be removed by passing an ordinary resolution or amending the company's articles.

Other share issue authorities

For private companies with only one class of shares, the directors will now have automatic authority to allot shares of the same class, but they will still need shareholder authority to allow them to allot shares of a different class. However, this only applies as the default for private companies incorporated after 1 October 2009 and the company may reverse the position in its articles (so that shareholder authority is still required). This change does not apply to existing companies or to public companies. Directors of those companies still, therefore, need shareholder authority to allot shares. However, note that for both existing and new companies, rules on statutory pre-emption still apply to require shares (to be allotted for cash) to be offered first to existing shareholders, unless this requirement is disapplied by a special resolution or in the articles.

Redeemable shares

Provided that the articles do not restrict their issue, a new or existing company planning on issuing redeemable shares, need no longer set out in full the terms, conditions and manner of redemption of the redeemable shares in its articles. The company may include a power in its articles (or may give authority by ordinary resolution) to allow the directors to set the terms, conditions and manner of redemption of the shares before they are allotted. The terms of redemption of the shares may also, by agreement between the company and the holder of the shares, allow for the redemption money to be paid on a date later than the redemption date. Existing companies would need to amend the terms and conditions of redemption of redeemable shares to take advantage of this.

New procedures to alter the company's share capital

The act has introduced two new procedures giving greater flexibility to companies in altering their share capital. The first, became available in October 2008 and means that a company can now reduce its share capital without going to court if it obtains the authority of a special resolution supported by a solvency statement. This new procedure can be advantageous in creating distributable reserves. The second, available from 1 October 2009, allows a company to redenominate its shares into another currency with the authority of an ordinary resolution. A company which has redenominated its share capital may also, by passing a special resolution, reduce its capital by up to 10% of the allotted nominal share capital after the reduction to allow the nominal value to be rounded to a more suitable amount. The redenomination procedure is likely to be useful to manage distortion of a company's results as a result of exchange rate fluctuations where its accounts are prepared in another currency.

Statement of capital

The introduction of the act has brought new forms and filing requirements for companies. One new feature of the act is that when various events take place affecting the company's shares capital, a "statement of share capital" must be filed at Companies House. For example, a statement of capital must be filed as part of the form of incorporation, as part of the annual return and following various alterations of capital including to accompany a return of allotment, on a sub-division or consolidation and reduction of capital etc. It must also be sent to a shareholder on request. The statement of capital must set out detailed information in relation to the company's share capital including particulars of the rights attached to the shares.

The Change Review is offered at the discretion of Mishcon de Reya and we reserve the right not to conduct the review in any particular case.