ISSUES ARISING

1.  Companies Act 2006

For general information on the impact of the 1 October 2009 changes on the constitution of companies please see the slides from the workshop. This paper relates solely to issues arising from the discussion. The discussion was restricted to private companies limited by shares and standard articles for such companies as the number of thought provoking and instructing contributions made meant time ran out.

2. Form of Model Articles

The new model articles are much shorter than the previous Table A but this has not necessarily meant that they make life simpler. The new model articles assume knowledge of many sections of the Companies Act, for example, there is no longer reference to the number of persons required for a quorum at members’ meetings. 

Those in attendance were of the opinion that the directors would be using the articles to assist them in their role running the company. Information on those provisions which they commonly use could be placed in the articles to make them more useful and user-friendly.

It was generally agreed that reliance solely on the Model Articles would rarely be sufficient for a company. Most companies would seek to tailor their articles to their own needs.

3.  Referencing

There has not been any guidance on how the Model Articles should be referred to and what practitioners should call each individual one. It was agreed that regulation (the term used for those individual provisions of Table A) would not be a suitable term. It was generally agreed that they should be referred to as, e.g. “Model Article 7” or “MA7” for ease of reference. Where creating articles for a company those provisions will be referred to as articles and those of the Model Articles as Model Article or MA. It was noted that this did leave some potential for confusion. However, this seemed the best solution in the circumstances.

4.  Tailoring Articles

Most companies tailor articles to their own needs. Many provisions that the attendees would wish to add to the Model Articles were contained in the model articles for public companies. It was queried whether it was possible to refer to provisions of both sets of model articles in the one document. Section 26 was discussed as this may provide some support for this position. This is not an approach that Jordans will be adopting as it may also involve considerable expense. When tailoring articles it will be best to refer to the provisions of the default set that is being amended and then reproduce from the public company set those additional provisions required.

5.  Provisions to include:

It was agreed that the following would be useful to include for Jordans clients:

Alternate directors – whilst this may not be a problem for companies on a regular basis (especially given the ability to use electronic communications) it would be useful to provide for this option.

Nil and partly paid shares - in particular, consequential provisions in relation to liens and forfeiture. It was agreed that lien provisions are useful even where there are no partly paid or nil paid shares as they can be used where funds are owed from the shareholder in question for other reasons e.g. repayment of director loan.

Methods of appointment and removal of company secretary - this can be included as a standard provision making it clear that appointment is not mandatory. A number of those attending said that their clients still appoint a company secretary. The new signature provisions under the new Act mean that a single director can execute a document provided he has a witness. However, many clients wish to see two signatures on documents in order to execute. This is especially popular with overseas clients. Such clients may also appreciate the guidance that such a person may give.

Procedure at meetings – poll voting and use of proxies – it was generally considered that more information could be included here to assist those running companies, e.g. MA37 does not refer to the number necessary for a quorum at members’ meeting. Those running companies will not wish to consult the Act where this can be avoided. They also will not necessarily know where in the over 1300 sections of the Act the relevant provisions that they need can be found. Good to include explanation of the impact of a single member and make the relationship between MA7 and MA11 more clear.

Procedures in relation to written resolutions. Useful to include for those running companies.

Removal of director if absent from meetings of the Board for 6 months or more where resolved accordingly (as set out in Table A currently).

Power of members to appoint directors (addresses where there are no directors to effect an appointment).

Amendment in relation to removal of director on grounds of ill health – to bring more in line with current position under Table A. It was considered that the MA18 was too vague and open to abuse on this point.

Permitting communication by a company via a website (relevant consents must be obtained to implement this).

Removal of director or auditor by meeting only – include even though in the Act. Useful to highlight. Consider option for subsidiary to remove special notice requirements.

Jordans’ standard articles currently address borrowing powers as well as gratuities and pensions. Attendees were asked to consider whether these are still required post 1 October 2009.

Directors’ discretion to refuse to register transfer – retain indicating that reasons must now be given.

6.  Optional Articles

Due to some of the changes there were certain articles that may prove very popular with clients:

Restriction on power of directors to issue shares where there is only one class of share in issue  

Chairman where shareholder to have casting vote at general meetings.

Enhanced voting rights of shareholders.

Ability to have AGMs and retirement by rotation for certain companies.

Prevent proxy acting as chair of meetings.

Change of name- may now be effected by method set out in articles, e.g. by resolution of directors.

Indemnity provisions for directors and auditors.

There are numerous other optional articles that may be available, e.g., in relation to transfer of shares, appointment of associate directors etc.   Those present do not tend to require articles allowing for associate directors although more enquiries needed here.

7.  Other isues/areas of concern

Virtual meetings – this is envisaged under MA10. Care needs to be taken when drafting minutes. In addition, it was generally thought that message boards/ texting were not suitable methods of communication for meetings.

Conflicts of interests and directors – s175 of the Act and its implications were generally discussed as this has been of concern for some time. A cautious approach in relation to articles may be best here as this area has yet to be tested by the courts. Sections 184 and 232 were also considered here.

Shareholder Rights Directive should be kept under review for potential impact.

Share warrants to bearer. It was generally felt that the changes here (to allow for issue without conversion from a registered share first) would not have a significant impact.

8.  Conclusion

The workshop appeared to be a very useful forum to discuss and exchange ideas concerning the Model Articles and changes to constitutions envisaged under the New Act. There was insufficient time to cover private companies limited by guarantee, public companies, specialist companies and optional articles in more detail. It was thought that this might prove a useful basis for further discussions. 

We will contact attendees when our standard articles are available and will be interested in thoughts on them. If there are any questions arising from the workshop please feel free to contact Kathleen O'Reilly on 0117 918 1455 to discuss them in more detail.

Any further feedback from attendees will be gratefully received.