Companies Act 2006 – PART 39

COMPANIES: MINOR AMENDMENTS

Section 1175 and Schedule 9: Removal of special provisions about accounts and audit of
charitable companies

1492. This section and Schedule remove from company law special rules about the audit of
companies that are charities. Under section 249A of the 1985 Act, certain companies are
subject to audit, or to an accountant’s report, because they are charities, when they would be
exempt as small companies if they were not charities.

1493. This section is part of achieving the objective of changing the treatment of small
charitable companies so that, as far as their accounts scrutiny is concerned, they will be
required to comply with the requirements of charity law rather than those of company law.
The Charities Act 2006 introduced a power (section 77 of that Act) to enable the Office of the
Third Sector to bring forward regulations, subject to the affirmative resolution procedure,
applying charity law rules about scrutiny of financial records to charitable companies.

Section 1176: Power of Secretary of State to bring civil proceedings on company’s
behalf

1494. This section repeals the power of the Secretary of State, under section 438 of the 1985
Act, to bring civil proceedings on behalf of a company. Subsections (2) and (3) are
consequential amendments to sections 439 and 453 of the 1985 Act respectively. This repeal
does not affect any proceedings begun before this section comes into force.

Section 1177: Repeal of certain provisions about company directors

1495. This section repeals various provisions of Part 10 of the 1985 Act.

1496. Section 311 of the 1985 Act prohibits a company from paying director remuneration
free of income tax. The Law Commissions recommended its repeal as the tax which the
company agreed to pay is itself taxed as part of the emoluments of a director, and as the
company is required to disclose in its annual accounts an estimate of the tax which it has
undertaken to pay.

1497. Section 323 of the 1985 Act prohibits directors (including shadow directors) from
buying “put” and “call” options in listed shares or debentures in the company or another in
the same group. This prohibition is extended to spouses and minor children of directors by
section 327 of the 1985 Act. The Law Commissions recommended its repeal.

1498. Sections 324 to 326 and 328 to 329 of, and Parts 2 to 4 of Schedule 13 to, the 1985
Act deal with the duty of a director to notify interests in shareholdings to his company and
impose an obligation on the company to record those interests in a register and to disclose
them to the relevant exchanges. They are repealed.

1499. Sections 343 and 344 of the 1985 Act make special provision for banking companies
and the holding companies of credit institutions, allowing them to disclose in their annual
accounts abbreviated particulars of loans, quasi-loans and credit transactions with directors or
their connected persons. Section 413 of the Act, which replaces the annual accounts
disclosure requirements of the 1985 Act in respect of loans, quasi-loans and credit
transactions, makes its own special provision in subsection (8) of that section for banking
companies and the holding companies of credit institutions.

Section 1178: Repeal of requirement that certain companies publish periodical
statement

1500. This section repeals section 720 of, and the related Schedule 23 to, the 1985 Act.
Section 720 requires certain insurers and deposit, provident or benefit societies to publish a
periodical statement in the form set out in the Schedule. The statement contains basic
information about certain liabilities and assets and, in the case of a company with shares,
basic information about its share capital and issued shares. This general disclosure
requirement has been superseded by specialised regulatory developments in particular fields
of financial services. The application of the section is now very limited as it does not apply to
any UK insurance company which is regulated by the FSA under FSMA and which complies
with its rules as to the publication of annual accounts and balance sheet. Nor does it apply to
any insurer authorised in any other EEA State carrying on business in the UK if it complies
with equivalent rules of its home State.

Section 1179: Repeal of requirement that Secretary of State prepare annual report

1501. This section repeals the requirement, under section 729 of the 1985 Act, for the
Secretary of State to cause a “general annual report on matters within the Companies Acts” to
be prepared and laid before both Houses of Parliament.

Section 1180: Repeal of certain provisions about company charges

1502. This section repeals the provisions in Part 4 of the 1989 Act relating to company
charges. These provisions have not been brought into force.

Section 1181: Access to constitutional documents of RTE and RTM companies

1503. This section enables the Secretary of State to make an order amending certain
provisions of the Commonhold and Leasehold Reform Act 2002 and the Leasehold Reform,
Housing and Urban Development Act 1993 so as to make it easier to ascertain the contents of
the articles and other constitutional documents of Right To Manage (“RTM”) and Right to
Enfranchise (“RTE”) companies (two new types of company provided for in the 2002 Act –
in the case of RTE companies, by amendment to the 1993 Act).

1504. Under the Commonhold and Leasehold Reform Act 2002 and the Leasehold Reform,
Housing and Urban Development Act 1993 as amended by it, the Secretary of State may
make regulations prescribing model memoranda and articles of association for RTM and RTE
companies, and the provisions of the model memoranda and articles so prescribed may have
effect notwithstanding contrary provision in the memoranda and articles of such companies
as registered at Companies House. As the legislation stands currently, a person consulting the
Companies House record of an RTM or RTE company’s memorandum or articles may not be
aware of the company’s RTM or RTE status, and therefore may also be unaware that its
registered memorandum and articles have to be read in the light of any relevant regulations
prescribing model memoranda and articles for RTM or RTE companies. Since the prescribed
memoranda and articles may invalidate provisions of the registered documents and apply in
place of them, this may cause problems.

1505. The RTM and RTE legislation is likely to be adjusted to reflect the new status of the
memorandum under sections 8 and 28 in particular. Reference is made to “other
constitutional documents” because it is possible that under the new constitutional
arrangements, the RTM and RTE legislation should make provision about the contents of
constitutional documents other than articles.

PART 40: COMPANY DIRECTORS: FOREIGN DISQUALIFICATION ETC

1506. Part 40 addresses a gap in the present law. Persons who have been disqualified from
being a director, or from holding an equivalent position, or engaging in the management of a
company in another State, are currently able to form a company in the UK, to appoint
themselves a director of that company and then operate that company either in the UK or in
the State where they have been disqualified. The provisions in this Part give the Secretary of
State a power to close the gap by making regulations to disqualify from being a director of a
UK company, persons who have been disqualified in another State.

1507. Part 40 is the first Part which is outside the company law provisions of the Act. It
does not, therefore, form part of the Companies Acts. This is due to the fact that the
provisions in this Part are linked with those of the Company Directors’ Disqualification Act
1986. That Act is not part of the Companies Acts because it has implications beyond
companies to other bodies (such as NHS foundation trusts) and extends beyond persons
covered by the Companies Acts to persons such as insolvency practitioners. The fact that Part
40 is not part of the Companies Acts has the consequence that the definitions in the earlier
Parts of the Act do not apply – hence the need to define the term “the court” in section 1183.
Similarly, the definitions for Part 40 are not listed in Schedule 8 to the Act.

Section 1182: Persons subject to foreign restrictions

1508. Section 1182 defines what is meant by “a person being subject to foreign restrictions.”
Only persons falling into this category may be disqualified by regulations made under this
Part. This category is intended to include those who have been disqualified under (or
otherwise fallen foul of) a foreign law equivalent to that in the Company Directors’
Disqualification Act 1986.