Companies Act still causing confusion among company directors and secretaries, says Jordans

New research carried out by Jordans, the UK’s largest provider of business services, reveals that company officers think the Companies Act 2006 has led to administrative upheaval and that government has failed to deliver what was promised.

The Companies Act 2006, introduced last year to make life easier for British business, was also criticised in the Jordans survey for creating confusion and failing to reduce red tape.

The judgement on the first phases of the Act to be introduced, highlights the fact that the vast majority of company officers believe that, although there are some benefits, the legislation has increased the administrative burden and caused disruption.

The criticism of the Act, which is the first overhaul of company law for two decades, comes from those it was designed to help – the company directors and secretaries at the sharp end of the changes.

Janis Law, Group Chief Solicitor at Jordans, said today: “Unfortunately, the concerns that many business leaders had this time last year have proved to be correct and it is seen by the vast majority of the key people involved as a far from satisfactory piece of legislation. They certainly do not think it has lived up to its promise.”

The outcome

Almost three-quarters of directors and company secretaries who took part in the Jordans survey said that to date, the Companies Act had caused considerable confusion and had failed to reduce their administrative workload.

About a quarter (24 per cent) said it was partially achieving its declared aim to make the system simpler but there would have to be some pain and cost to change before benefits could be achieved. Only 6 per cent said the measures implemented so far had cut red tape and simplified company administration.

Awareness

There is evidence that many directors are still unsure about how some of changes impact on their businesses.

A total of 65 per cent said they were aware of some elements but unsure of others and their potential effect on their operations. The remainder were confident that they realised the significance and were tackling the changes.

Directors’ duties

More than three-quarters  (76 per cent) said they knew about the new rules governing directors’ duties to promote the success of their company for the benefit of the members as whole, have regard for staff interests, the environment and the community, which were introduced in October 2007. Almost a quarter were aware of some, but not all of the new obligations. Significantly, 81 per cent of professional advisers said they thought directors were unaware of these changes.

Almost half of those surveyed by Jordans admitted they were more cautious when they were making big decisions following the change in directors’ duties and the provisions allowing members to sue.

But just over one third (35 per cent) said the changes did not influence how they made business decisions with 18 per cent saying that they were unaware of the changes.

“Even given that these new rules are relatively recent it seems that a lot more needs to be done to make sure that all the people directly involved know how they and their businesses are affected,” said Janis Law.

Key changes – reaction

According to the Jordans research, there has also been a poor take-up of the new provisions allowing email, fax or websites to be used to contact shareholders.

Fewer than 30 per cent are taking advantage of the alternatives to paper and post, although a similar number said they would in the future. Meanwhile more than 40 per cent are not using the e-communication option and have no plans to do so.

Meetings to arrive at shareholder decisions remain the preferred option for about half of those questioned (47 per cent), 29 per cent are using new procedures and the remaining 24 per cent are public companies which must still take decisions in meetings.

The one-month reduction in the time allowed for filing accounts at Companies House was among the most unpopular of the changes, with more than 40 per cent seeing it as a problem. A similar number had the same view about the increase in penalties for late filing.

“It may well be worth a lot of directors taking a closer look at the new rules because some of them could have a real benefit to the running of their enterprises,” according to Janis Law.

Company secretaries

Although a private company is no longer required to have a company secretary, four out of five (82 per cent) said they intended to retain the position because it played a vital role in ensuring they keep up to date with legal obligations.

Only 6 per cent were going to take advantage of the change and give the responsibility to directors and the rest were required to maintain the status quo because they were PLCs.


What next?

Most businesses – 71 per cent – seem to be waiting for the implementation of each tranche of new measures before taking a detailed interest. Almost 20 per cent said they or their advisers seem to be fully aware of the Act’s significance while 12 per cent said they are keeping a close watch on the situation.

The most popular measure yet to be introduced is the ability of company directors and secretaries to provide a service address for the public record, which was supported by 76 per cent. There was also strong support in the survey for directors of a private company with one class of shares being able to allot shares without prior shareholder approval.

The majority say delaying the full implementation of the legislation until October next year has caused confusion about which sections are in force and claim it would have been better to stay with the original timetable. The remaining 35 per cent see the delay as a good thing that gives everyone more time to prepare.

“It seems that a two-way effort is needed if real benefit is to be gained from the Companies Act 2006,” said Janis Law.

“The business community needs to be better informed but could also find it worthwhile for them, or their professional advisers, to examine the legislation more closely in order to derive the maximum benefit.”


ENDS