Among the wealth of legislation and regulation currently assaulting independent schools, those which are incorporated and/or which have trading subsidiary companies should follow the ongoing implementation of the Companies Act 2006 (the Act). The Act encompasses a major overhaul of company law and, at 1300 sections and 16 schedules, is the biggest Act ever passed by the UK Parliament. This may sound disheartening but the Act contains provisions which can help schools in their administration.
The Act applies to existing, as well as new, companies and is being implemented in stages until 1 October 2009 (recently put back from October 2008).
Schools will have different structures; for example, the governors may be directors (and, in some cases, the members too) and the bursar or clerk may be the company secretary. For clarity, this article uses the company terms of directors, members and company secretary.
Communication with members
From January 2007, the use of electronic communications by companies is encouraged by permitting, subject to the requisite consent, documentation or information to be sent in electronic form (such as by email or fax) or to be supplied via a website. In most cases, a change to the company’s articles would be required to put this into effect. Procedures then need to be followed to ensure that members are happy to receive communications in this way. This could help to cut paper usage and postage, particularly where all the members agree to electronic communication.
Meetings and resolutions
The Act assumes that most private companies will want to conduct business without formal meetings, so the former statutory requirement to hold AGMs was removed from 1 October 2007. This means that companies now opt-in to hold AGMs by a requirement in their articles.
The written resolution procedure has been relaxed so that every private company can now pass resolutions by written resolution (save for a resolution to remove a director or an auditor before the end of their term of office). The required majority to pass a written resolution is relaxed so that, instead of unanimity, it will follow the form of resolution: simple majority for ordinary resolutions and a 75 per cent majority for special resolutions. This overrides the company’s articles (although a requirement for unanimity in the articles will still prevail for a resolution where no particular majority is specified in the Act). The Act contains detailed provisions for circulation of written resolutions. Subject to alternative provision in the articles, a written resolution will lapse if not passed within 28 days after circulation.
Where general meetings are held, the notice required by statute will be 14 clear days. However, a longer period in the articles will prevail, so would need changing to take advantage of the new shorter period for certain meetings.
From 1 October 2007, all members of private companies now have the right, whatever the articles say, to appoint a proxy to attend, speak and vote in their place at general meeting. This encourages greater engagement by members in running the company, but means that directors should be aware that they may face a more active membership, particularly if the membership includes parents and the directors are putting forward a resolution which may be controversial, such as a proposal that a single sex school become co-educational.
Directors’ duties
The Act attempts to codify some (but not all) of the duties owed by directors to their company. Four of these are in force:
· to act in accordance with the company’s constitution and only exercise powers for the purposes for which they are conferred;
· (subject to directors’ duties under insolvency provisions) to promote the success of the company;
· to exercise independent judgment; and
· to exercise reasonable care, skill and diligence, including such as would be exercised by a reasonably diligent person with the general knowledge, skill and experience of the particular director.
Three more relate to benefits and conflicts of interests and are due to be commenced on 1 October 2008, although this may be delayed. Directors who are charity trustees are likely to find these duties fairly familiar. They should, however, ensure that they are aware of their duties in regular trustee training. Helpfully for charity trustees, the Act provides that the Charity Commission can authorise an act under its Charities Act powers, notwithstanding that it involves a breach of these statutory duties.
Derivative claims
A new statutory regime has been introduced for members to bring claims on behalf of the company. Such claims can relate to an actual or proposed act or omission involving negligence, default, breach of trust or duty owed to the company. This can relate to an act or omission before the claimant became a member of the company, and can be brought against a director or other persons, but can only seek relief on behalf of the company, not for the claimant personally. As a safeguard against frivolous claims, the claimant must show a prima facie case and then obtain court approval to be allowed to continue the claim.
This could give disgruntled members a new means of challenging directors’ decisions. For example, if the directors took a decision to close a school, members could seek to challenge this by alleging that the directors were failing in their duty to promote the success of the company.
Coming soon…
Some points to look out for in the implementation over coming months are:
· from April 2008, private companies will no longer be required to have a company secretary. However, the secretarial duties will remain, so most private companies are likely to retain the position;
· in time (the implementation date is currently under review), all companies must have at least one natural person as a director, so that there is at least one real person who can be held accountable. Companies with only corporate directors will need to appoint an additional ‘real’ one;
· from 1 October 2009, directors will be able to give the company’s registered office, rather than their residential address, as an address for service at Companies House; and
· from 1 October 2008 (but this is under review), a new statutory minimum age of 16 for directors will apply.
In transition
There are adjustments to be made in this transitional phase, but the Act can help companies ease their administration. Directors may wish to take this opportunity to review their constitutions to check for articles inconsistent with the Act and those which could be changed to take advantage of new provisions. Directors should continue to ensure they are aware of their duties to the company and should review their procedures and insurance arrangements to minimise the risk of claims and to ensure they have adequate protection should a claim arise.
Nicola Evans is a senior associate and professional support lawyer in the Charities Group for Bircham Dyson Bell LLP. She can be contacted on NicolaEVANS@bdb-law.co.uk
Return to Legal
