This briefing note summarizes key changes to UK company law taking effect on October 1, 2008. It outlines new duties for company directors to avoid conflicts of interest and not accept third party benefits. Minimum age requirements for directors are increased to 16. Trading disclosures must include a company's full registered name. Out-of-court procedures are introduced for reducing share capital of private companies. Financial assistance prohibitions are removed for private companies.

1. Briefing Note : Company Law
Sept 08 A practical guide to the 1 October changes

2. Briefing Note : Company Law
A practical guide to the 1 October changes
On 1 October 2008 a further series of changes to company law will take effect by virtue of the
commencement of a number of sections of the Companies Act 2006. A number of these are of direct
relevance to your business and are therefore important issues for any company director to consider
carefully.
DIRECTORS’ DUTIES
Duty to avoid conflicts
All company directors will be under a new statutory duty:
• to avoid any direct or indirect conflict with the interests of the company, or
any potential conflict;
• to declare an interest in a proposed transaction or arrangement with the
company; and
• to declare an interest in an existing transaction or arrangement with the
company, either at a board meeting or by general notice to the
shareholders.
These new duties apply to all transactions made on or after 1 October 2008
Whilst it is no longer sufficient for a director simply to abstain from board decisions in respect of which he
has an interest, the board (excluding the director concerned) can authorise such conflicts in advance if, in its
discretion, they do not harm the best interests of the company and they benefit and promote the success of
the company. Before the board can give authorisation, the board must be expressly permitted to do so by a
shareholder resolution. In the case of private companies, the board also needs to check that the company’s
articles do not prohibit any such authorisation, and in the case of public companies, the company needs to
amend its articles to give an express power for the board to give such authorisation.
It is therefore advisable that you consider any actual or potential conflicts which may arise from the
way in which your company operates. Particular situations which are likely to cause problems and
in respect of which we suggest you contact us for further advice, include:
where a director also sits as a trustee of a connected pension scheme; and
where a director sits on the boards of two companies and his duties to the two companies cannot be
reconciled.

3. Briefing Note : Company Law
A practical guide to the 1 October changes
Duty not to accept third party benefits
The current common law duty on a director not to accept benefits which are conferred by reason of his being
a director (e.g. gifts and corporate hospitality) has been codified under the Companies Act 2006. No breach
will arise if the acceptance cannot reasonably be regarded as giving rise to a conflict of interest but, where a
breach does arise, it cannot be authorised by the board.
Directors in default
Any director of a company will be in default, and therefore liable for committing an offence, if they either
authorise or permit, participate in, or fail to take all reasonable steps to prevent, any contravention of the Act.
It is for this reason that it is important for all directors to be aware of the issues raised in this note.
Appointments of Directors
All companies must now have at least one director who is a natural
person (although there will be a grace period until 1 October 2010
for any company which did not have a natural person as a director on
8 November 2006). Therefore any company which has a subsidiary
with only corporate directors should make arrangements to appoint a
natural person as a director.
Minimum age for Directors
There is now a minimum age requirement of 16 years for all directors.
TRADING DISCLOSURES
The company's full registered name must, with effect from 1 October 2008, be included on all business
correspondence and other documentation. This is in addition to current requirements, which are that the
company's full registered name is displayed at its registered office, any place where it keeps its company
records, any other business premises and on the company’s website and that the company's registered
number, registered office address and place of registration must appear on all business letters, order forms
and websites.

4. Briefing Note : Company Law
A practical guide to the 1 October changes
COMPANY NAMES OBJECTION PROCEDURE
New provisions are being introduced to prevent people from registering company names with a view to
benefiting from other people's established goodwill. The newly appointed Company Names Adjudicator will
have the authority to require a company to change its name upon receipt of an objection, where:
the company name is the same as a name in which the objector has goodwill; or
it is sufficiently similar to a name in which the objector has goodwill, or that its use in the UK may give
a misleading suggestion of a connection between the company and the objector.
OUT OF COURT PROCEDURE FOR REDUCTIONS OF SHARE CAPITAL FOR PRIVATE COMPANIES
In certain circumstances a company may wish to reduce its capital. Examples include where the company
wishes to return surplus and unneeded capital to its shareholders or where the company wishes to eliminate
accumulated losses which would otherwise prevent the payment of dividends.
The current procedure (which will remain) involves obtaining the consent of creditors and a court order. This
can be time consuming and costly. Under the new procedure, the key requirements are:
a special resolution of the shareholders approving the reduction; and
a sworn statement of solvency made by all the directors that, after taking into account all liabilities
(including those that are contingent or prospective), the company is solvent and is expected to remain
so for the next 12 months.
The making of a solvency statement without ‘reasonable grounds’ will be an imprisonable offence, and
therefore, if there are doubts about the solvency of the company or if any directors (perhaps because they
are not shareholders) are otherwise not willing to swear the solvency statement, the court based procedure
may remain preferable. Alternatively, whilst no auditors’ opinion supporting the solvency statement is
required, directors may nonetheless consider it prudent and seek some comfort by obtaining one. Any
reserves created by this new procedure will be treated as realised profit.

5. Briefing Note : Company Law
A practical guide to the 1 October changes
REMOVAL OF FINANCIAL ASSISTANCE PROHIBITION FOR PRIVATE COMPANIES
As of 1 October 2008, a private company will no longer be prohibited from giving financial assistance for the
purpose of the acquisition of its own shares or of the shares of its private holding company. The prohibition
in relation to public companies will remain. The most common examples of financial assistance are where
a company gives a loan to a potential purchaser of its shares or gives security (commonly by way of a
secured guarantee) to a lender for a loan which the purchaser of shares has taken from the lender.
As a consequence of these changes, the whitewash
procedure will be abolished and it will no longer be necessary
to obtain statutory declarations of solvency from all the
directors, an auditors’ report, special resolutions of
shareholders and (as a standard requirement of the lenders)
net asset statements.
However, other legal requirements that remain in force mean that it will be more important than ever for a
board to record officially its due consideration and approval of any transaction which would have previously
been prohibited without the whitewash procedure. A Board should satisfy itself, and keep full and accurate
minutes of its considerations, conclusions and resolutions, in respect of:
the solvency of the company and the anticipated effect of the transaction on its solvency. The board
should satisfy itself that on a reasonable basis, the company is, and will remain, solvent and consider
whether the transaction could be challenged as a transaction at an undervalue or a preference, under
the insolvency legislation;
the impact that the transaction will have on the net assets of the company, and, if net assets will be
reduced, the extent of the reduction and whether it will be covered by the company's distributable
reserves. The board must be able to confirm its view that the transaction does not constitute an
unlawful distribution or reduction in capital;
the approval of the transaction not being a breach by the board of its directors' duties - ie that the
conflict of interest rules have not been breached, and that the transaction benefits and promotes the
success of the company. In order to avoid any subsequent claims by the company or its shareholders
to the contrary, the board may want to obtain shareholder approval of the transaction.

6. Briefing Note : Company Law
A practical guide to the 1 October changes
It is anticipated that lenders will wish to ensure that the directors have satisfied themselves as to the
matters set out above, and have formally minuted that process. Where there is any doubt as to the
solvency of the company, or the net asset position, lenders may also seek comfort on those aspects from
the auditors of the company.
This will be of significant advantage both in respect of timing and fees to a company not only in terms of
funding purchases of shares, but also in terms of reorganisations, when a company wishes to refinance a
loan that related to an earlier share purchase transaction. In addition, a company will now (subject to the
requirements above) be able to pay the legal and other fees associated with an actual or aborted purchase
of its own shares (or that of its holding company) without having to follow the whitewash procedure.
This briefing note has been prepared in order to provide an overview of the key changes that
come into effect on 1 October 2008. It should be noted that other changes in the law which
are not covered in this note, will come into effect on this date and on other dates. Legal
advice should be sought before taking action on any matter or transaction to which the above
changes may apply.

7. Briefing Note : Company Law
A practical guide to the 1 October changes
For further information please contact any partner in the
Wollastons’ corporate team set out below:
Rafael Ruiz: telephone: 01245 211288
email: rafael.ruiz@wollastons.co.uk
Richard Payne: telephone: 01245 211296
email: richard.payne@wollastons.co.uk
Nicholas Burnett: telephone: 01245 211279
email: nicholas.burnett@wollastons.co.uk
Nigel Thompson: telephone: 01245 211280
email: nigel.thompson@wollastons.co.uk
Richard Wollaston: telephone 01245 211251
email: richard.wollaston@wollastons.co.uk