Directors are warned to make sure that they are ready for changes to the Companies Act, which come in on 1 October, says, Ray Crudgington who is the head of the firms commercial department.

New provisions under the Companies Act 2006 relating to transactions involving directors and their associates (the definition of which has been expanded) require the approval of shareholders in the areas of:

• Contracts of service;
• Loans, ‘quasi-loans’ and credit agreements;
• Payments for loss of office; and
• Substantial property transactions.

There are some exceptions to the requirements. For example, a director’s contractual entitlement to compensation under his or her contract of service need not be approved by shareholders. Most transactions involving a director and a non-UK subsidiary also do not require shareholder approval. Shareholders will, however, have the right to request a copy of a director’s service contract on payment of an appropriate fee. Ray Crudgington, points out, that this could be very embarrassing for companies who have neglected to formalise their directors’ service contracts or whose directors’ service contracts have not been brought up to date recently.

There are also substantial changes to the rules governing proxy rights (the rights of proxies are increased substantially) and amendments to rules dealing with the calling of general meetings, which have been relaxed.

The changes are part of a process intended to make the governance of companies both more responsible and more transparent to the shareholders. Company directors should be prepared for their activities to be subject to increased scrutiny.

Directors who fail to ensure that their companies adhere to the law may be subject to a fine or an order banning them from acting as a company director. Serious offences can lead to an unlimited fine or even imprisonment. The penalties apply to ‘non-executive’ as well as full-time working directors.

For more information on this topic please contact Ray Crudgington who will be pleased to discuss matters further with you.
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