Companies Act 2006 - Article 03

Links
Companies Act 2006, article 01, Parts 1-7
Companies Act 2006, article 02, Parts 8-11
Text of the Act on IPSO website
Provisions already implemented at April 2007
Provisions implemented in October 2007
Proposed timetable for implementation
A list of all parts and chapters
Company Law Club new legislation section (for commencement orders, etc)
DTI website

Introduction
This is the third of a series of articles about the new Act, giving an account of Parts 12 (company secretaries) and 13 resolutions and meetings). Note that while Chapter 12 does not come into effect until 1st. April 2008, Chapter 13 came into effect on 1st. October 2007.
This article does not claim to be a comprehensive account of all the legislative provisions, but highlights those areas where the law has changed. It also emphasises the areas that are of practical concern to those who run owner-managed companies, and their advisors. Some areas, judged to be primarily of academic interest or concerning only public, and especially listed, companies will not receive detailed treatment.
At the beginning of each main topic the main changes from the old law are summarised.
In this article, the terms 'old' and 'new' are used to denote the law under the 1985 Act (and related statutory instruments, etc.) and the 2006 Act, etc. respectively.

The areas covered are:
Part 12 Company secretaries (sec270 - sec280)
Part 13 Resolutions and meetings sec281 - sec360
Ch. 1 General provisions about resolutions
Ch. 2 Written resolutions
Ch. 3 Resolutions at meetings
Ch. 4 Public companies: additional requirements for AGMs
Ch. 5 Additional requirements for quoted companies
Ch. 6 records of resolutions and meetings
Ch. 7 Supplementary

Part 12 Company secretaries (sec270 - sec280)
Into effect: 1st. April 2008

Main changes
A private company no longer required to have a secretary, though it may do so. As with directors, the secretary's address required to registered at Companies House and in the statutory registers is a service address, which may be stated as the company's registered office (sec277). In the case of a corporate secretary the registration details and company number must be given (sec278).

Private company not required to have a secretary (sec270)
As from 1st. April 2008 (when this section comes into effect) a private company is not required to have a secretary (though it may do so). If there is no secretary, anything authorised or required to be given or sent to, or served on the company by being sent to its secretary may be sent to (etc) the company itself, and if addressed to the secretary is treated as addressed to the company. Anything required or authorised to be done by or to the secretary may be done by or to any director or a person authorised generally or specifically by the directors.

A public company must have a secretary (sec271)
And if it appears that a PLC does not have a secretary the Secretary of State may order it to appoint one. (sec272).

Qualifications of PLC secretaries (sec273)
The directors of a PLC must take all reasonable steps to ensure that the secretary
(a) appears to have the requisite knowledge and experience to discharge the functions of a PLC company secretary, and
(b) has one or more of the following qualifications:
(i) has been the secretary of a PLC for at least 3 of the 5 years preceding his appointment
(ii) is a qualified accountant, chartered secretary, barrister, advocate or solicitor
(iii) is someone who, by virtue of holding any other position, or being a member of any other body, appears to the directors to be capable of discharging the functions of secretary of the company.

Where no secretary or secretary is unable to act (sec274)
The functions may be carried out by an assistant or deputy secretary (if any) or by someone authorised by the directors.

Registration of secretaries' details
As under the old law, the company must keep a register of secretaries, which must be available for inspection at the registered office or some other place notified to Companies House (sec275). There is also a requirement to notify Companies House of the details of the secretary and any change therein (sec276). There are two changes, however. As with directors, the address required to registered is a service address, which may be stated as the company's registered office (sec277). In the case of a corporate secretary the registration details and company number must be given (sec278).

Acts done by director and secretary (sec280)
Where something is required or authorised to be done by a director and the secretary of a company, one person acting in both capacities is not sufficient.

Part 13 Resolutions and meetings
Into effect 1st. October 2007
Main changes: There are many changes of detail in this chapter. They will be summarised at the beginning of each Chapter.

Chapter 1 General provisions about resolutions
Main changes: Sec282 (below) has caused considerable difficulty since the Friday before it came into effect. As reported in Company Law Club Newsletter 2007 - 06, on that day Companies House put out a statement saying that this section precludes the passing of an ordinary resolution by use of the chair's casting vote. As a result Table A was amended to remove article 50, which gave the chair a casting vote.
It is very unlikely that this was what the Parliamentary draftsman intended. If sec282 really has that implication, it means that the vast majority of existing companies, whose articles give the chair a casting vote, cannot now operate as intended. This is a significant effect probably done by accident. Many companies will have this rule from Table A by default and may rarely use it. Some, however, will have had their articles drafted particularly with the provision in mind. Note, too, that, as it results from the Act itself, and not just the amendment to Table A, this rule will apply to all companies, and not just those incorporated from 1st. October 2007.
Note, too, that provisions in a company's articles that limit the votes of a proxy (or proxies) on a show of hands are void, and the proxy has the same number of votes as the member would have if he were present, as are provisions which provide that a member has a different number of votes on a poll than he has on a written resolution.
Another change is the long overdue abolition of the extraordinary resolution. There are also new definitions of various terms and clarification that 'resolution' means 'ordinary resolution' unless the contrary id stated. Notice to the emphasis for private companies on written resolutions, suggesting that these are really the standard way for a company to make decisions.

Resolutions
In a private company a resolution of the members (or a class of members) must be passed either as written resolution (in accordance with Chapter 2) or at a meeting of the members (to which the provisions of Chapter 3 apply).
In a public company the resolution must be passed at a meeting of members (in accordance with the provisions of Chapter 3 and, where relevant, Chapter 4).

'Resolution' means ordinary resolution (sec281(3))
Where a provision of the Companies Acts requires a resolution to be passed, without specifying what kind of resolution, then it should be an ordinary resolution unless the company's articles require a higher majority (or unanimity).

Ordinary resolutions (sec282)
See above for comments on this section.
An ordinary resolution means one passed by a simple majority. A written resolution is passed by a simple majority if it is passed by members representing a simple majority of the total voting rights of eligible members. (See chapter 2, below)
An ordinary resolution is passed at a meeting on a show of hands if it is passed by a simple majority of the members who, being entitled to do so, vote in person and the duly appointed proxies of such members. (Note that proxies can vote on a show of hands: sec284.) When a poll is taken, the resolution is passed by a simple majority if passed by members representing a simple majority of the total voting rights of members who (being entitled to do so) vote in person or by proxy on the resolution. Anything that can be done by an ordinary resolution can be done by a special resolution.

Special resolutions (sec283)
A special resolution is one passed by a majority of not less than 75%, either as a written resolution or at a meeting of the members. Note, however, that a resolution is not a special resolution unless it is stated to be a special resolution, and if it is so described, it can only be passed as a special resolution.

Votes: general rules (sec284)
Subject to any provision in the company's articles:
on a written resolution, or a vote on a poll, if the company has a share capital, every member has one vote for each share or each £10 of stock held by him;
if the company does not have a share capital (because limited by guarantee or an unlimited company without a share capital) every member has one vote;
on a vote on a show of hands at a meeting every member and every proxy present has one vote

Votes: specific requirements (sec285)
Provisions in a company's articles that limit the votes of a proxy (or proxies) on a show of hands are void, and the proxy has the same number of votes as the member would have if he were present, as are provisions which provide that a member has a different number of votes on a poll than he has on a written resolution.

Chapter 2. Written resolutions (sec288 - sec300)

Notes: Written resolutions are not new. The procedure has been commonplace for years, even before there was any statutory basis. The new Act gives greater prominence to the written resolution and creates some more detailed procedural rules. Note that the term 'written resolution' when used in the Companies Acts is limited to written resolutions of a private company proposed and passed in accordance with this Chapter. In other words, any other definition under the articles of a private company will not qualify. Note, too, that a provision in the articles of a private company that a resolution cannot be passed as a written resolution is void (sec300), but this applies only to resolutions 'required or provided for in an enactment'. As under the old law, there are two types of resolutions that cannot be passed as written resolutions: to remove a director under sec268 or an auditor under sec510.

The main changes are:
1. A written resolution may be passed by the requisite majority for that type of resolution (a simple majority for an ordinary resolution and 75% for a special resolution). Under the old law a written resolution had to be signed by all the members eligible to attend and vote. While perhaps more efficient, this may lead to poorer decision making in some circumstances, and weakens the position of minority shareholders. They lose the right to argue against a controversial proposal at a general meeting, where they might, perhaps, have persuaded other members to vote against it. It is easier to push measures through, or treat people unreasonably, by signing a paper than at meeting where you have to look them in the eye and argue a case to less committed members.
2. The new procedures also make the written resolution rather more cumbersome than under the old law. Such a resolution must now be accompanies by a notice stating certain statutory information, such as how the members should signify their consent, and specifying a date when the resolution will lapse unless sufficient members have consented. That date will be 28 days after the resolution is circulated unless the company's articles specify something different, which currently they will not (sec297). Note also the new rules as to 'sending' and submitting' resolutions in sec292 below.

Note that the directors (see sec291) or the members (sec292 to sec295) may propose a resolution

Eligible members (sec289)
In relation to a written resolution, the eligible members are those members who would have been entitled to vote on the resolution on the circulation date (see sec290) of the resolution. If those who are eligible change during the course of that day, it is those who are entitled to vote at the time that the first copy is sent or submitted to a member for his agreement.

Circulation date (sec290)
The circulation date is the date (or, if more than one, the first date) on which copies are sent or submitted to any members in accordance with this Chapter. However, for the deemed delivery date see sec1147.

Circulation of written resolutions proposed by the directors (sec292)
The statutory provisions on the means of circulating written resolutions are more detailed than might have been expected, given the practice is already commonplace. Notice the difference between 'sending' the resolution (each member gets a separate copy) and 'submitting' it, where the members get the same copy in turn. The provisions are:

The company must either send or submit a copy of the resolution to every eligible member. (For eligible members see sec289, above.) The company must do so by either
(a) sending copies at the same time (so far as reasonably practicable) to all eligible members in hard copy form, in electronic form or by means of a website, or
(b) if it is possible to do so without undue delay, by submitting the same copy to each eligible member in turn (or different copies to each of a number of eligible members in turn),
or by sending copies to some members in accordance with (a) and submitting a copy or copies to other members in accordance with (b).
The resolution must be accompanies by a statement saying how the member should signify agreement to the resolution (see sec296) and the date by which the resolution must be passed if it is not to lapse (see sec297).
Failure to comply with these provisions is an offence, but does not affect the validity of the resolution.

Circulation of members' written resolutions (sec292)
Members representing not less than 5% (or such lower percentage as is specified in the company's articles) can require a written resolution to be circulated unless it would be ineffective (because inconsistent with an enactment or the company's constitution, etc.) or defamatory, frivolous or vexatious. They may also require a statement of up to 1,000 words to be circulated with it.
The company must within 21 days send or submit the resolution and its accompanying statement to the members (as it would one circulated by the directors, above). Note, however, that the members requesting the statement to be circulated must pay the company's expenses in doing so unless the company resolves otherwise, and the company need not circulate the resolution and statement unless the members deposit or tender a sum reasonably sufficient to meet these expenses (sec294).
The company, or a person aggrieved, may apply to the to the court for an order not to circulate the statement requested by the members if the court is satisfied that sec292 and sec293 are being abused (sec295).

Agreeing to written resolutions

Procedure for signifying agreement (sec296 - sec297)
Agreement is signified by the company receiving an authenticated document (hard copy or electronic) identifying the resolution to which it relates and indicating his agreement to it. Once signified, agreement cannot be revoked.
The big change is that the resolution is passed when the required majority of eligible members have signified their agreement to it. Under the old procedure, every member was required to consent.
The resolution lapses if it is not passed within the specified period, which is the period specified in the company's articles or, if none is specified, 28 days from the circulation date, after which a member's agreement to it is ineffective: sec297.

Publication on website (sec299)
Note also the rules in Schedule 5.

Chapter 3. Resolutions at general meetings (sec301 - sec 335)
Main changes
There are minor changes in wording and detail in several areas. The most notable change, however, is in sec307 to sec310, which provide that the minimum full period of notice for all meetings is 14 days, even if a special resolution is to be proposed, except for the AGM of a PLC, which is 21 days. The company's articles may require a longer period. The standard shareholding for a majority to agree to short notice is reduced from 95% to 90%. A more detailed statement as to proxies must also be included: sec325.
By sec319, subject to the articles, a member may be elected to be the chairman by resolution at the meeting. (Note that this differs from the Table A provision, which authorises the director to appoint a chairman of the directors, who will then also chair board meetings. Such a person need not necessarily be a member of the company.
Note also that, under the current interpretation by the government of sec282 (above), the chairman cannot have a casting vote.
There are provisions for sending documents relating to meetings in electronic form in sec333.

Resolutions at general meetings (sec301)
This section provides that a resolution of the members of a company is validly passed at a general meeting if-
(a) notice of the meeting and of the resolution is given, and
(b) the meeting is held and conducted,
in accordance with this Chapter and, where relevant, Chapter 4 (PLCs only) and the company's articles.
It is not entirely clear that the resolution will be void if not in accordance with these provisions, nor the effect of a conflict between the Act and the articles.

Directors' power to call general meetings (sec302)
This simply says the directors of a company may call a general meeting. Strangely, this was not a provision of the old Act, but has been in standard articles since 1856 (Art. 25, Table B, Joint Stock Companies Act 1856).

Members' power to require directors to call general meetings (sec303 - sec304)
The directors must call a general meeting if so requested by the holders of 10% of the voting shares (or 10% of the voting rights if no shares). If at least 12 months have elapsed since the last general meeting called under this section, the request may be made by 5%.
The request for the meeting must state the general nature of the business to be dealt with and may include the text of a resolution to be moved at the meeting (provided the resolution would not be ineffective (e.g. under the Act or because contrary to the company's articles, etc., and provided it is not defamatory, frivolous or vexatious).
If the request is properly made, the directors must within 21 days call the meeting for a date not more than 28 days after the date of the notice calling the meeting. If the request included a proposed resolution, that must be included in the notice, which will then be part of the business that can be conducted at the meeting. (If it is a special resolution, the notice of the meeting must say so, in accordance with sec283, above.)

Members may call meeting at company's expense (sec305)
If the directors do not call a meeting as properly requested under the above sections, the members who requested it (or half of them, by voting rights) may call the meeting themselves, for a date not more than three months after the date when the directors were required to call it (i.e. 21 days after the request was made - see above).
The meeting must be called in the same manner, as nearly as possible, as meetings called by the directors.
The members calling the meeting can claim any reasonable expenses they have incurred, which the company must deduct from any remuneration that would have been paid to the directors. (Under the old law, the company had a power to do this, but was not required to do so.)

The court may order meeting (sec306)
If for any reason it is impracticable to call a meeting or to conduct it as prescribed by the articles or the Act, then the court may call one, to called, held and conducted in any manner the court thinks fit.. When doing so, the court may give such ancillary or consequential directions as it thinks expedient, including that one member may constitute a quorum.

Notice of general meeting (sec307 - sec310)
The minimum full period of notice for all meetings is 14 days, even if a special resolution is to be proposed, except for the AGM of a PLC, which is 21 days. The company's articles may require a longer period. Note that the 'clear day rule' is found in sec360.
A meeting can, however, be held on short notice, if so agreed by a majority of the members who hold at least 90% of the voting rights in a private company (or 95% in a PLC). The articles of a private company may specify any percentage between 90% and 95%.
Notice must be sent to every member, every director and anyone notified to the company as being entitled to a share on the death or bankruptcy of a member (subject to the articles).

Contents of notice (sec311, sec283(6) and sec325)
The notice must state the time, date and place of the meeting and the general nature of the business to be conducted. By sec283(6), the wording of any special resolution must also be included and the intention to move it as a special resolution. The members' rights to appoint proxies must also be stated (sec325, below).

Special notice (sec312)
Where a resolution requires special notice (on removal of a director (or removal of an auditor), 28 days' special notice must be given by the person proposing the resolution to the company. These provisions are almost identical to those under the old law. The company must notify the director or auditor concerned, and must give the members notice of such resolution in the same manner and at the same time as giving notice of the meeting. If that is not practicable, it must give at least 14 days' notice in a newspaper or in such other manner as is specified in the articles.
These provisions work well enough in the context of members giving notice of a proposal to remove a director at the forthcoming AGM of a public company, where the actual or approximate date of the meeting is known well in advance. To cover the more typical situation of a private company where there is a sudden and urgent proposal to remove a director (perhaps by the majority directors or shareholders), sec312(4) will be used. This provides:
If, after notice of the intention to move such a resolution has been given to the company, a meeting is called for a date 28 days or less after the notice been given, the notice is deemed to have been properly given, though not given within the time required. This obscurely worded sub-section, which ahs been carried over from the old Act, means that if, say, the majority director/shareholders want to remove a director from office, they can serve the special notice on the company, and then call the meeting on whatever period of notice is needed. (Full notice would be 14 days, but it could be held on short notice with the required majority consent, above.) The notice of the meeting will contain notice of the proposed resolution to remove the director, and then the 28 days' special notice is 'deemed' to have been given under this sub-section.

Accidental failure to give notice of resolution or meeting (sec313)
Where a company gives notice of a general meeting, or of a resolution intended to be moved at a general meeting, any accidental failure to give notice to one or more persons shall be disregarded when deciding whether the notice of the meeting has been duly given.
Note that this will not cover the complete omission of a resolution that should have been included in the notice of a meeting and, except for the provisions relating to notices required to be circulated by members, operates subject to any provision in the articles.
This was not previously statutory, but a provision in Table A (art. 39) covered the non-receipt of notice as well as the accidental failure to send notice of a meeting.

Circulation of members' statements (sec314 to sec317)
As under the old law, the holders of 5% of the voting rights, or any 100 members who have paid up at least £100 on their shares, can require the company to circulate a statement not exceeding 1,000 related to the proposed business of a meeting. The statement should circulated in the same manner and at the same time, or as soon as practicable after, the notice of the meeting. Those requesting the statement to be circulated must meet the company's expenses incurred in doing so, and they must deposit or tender sufficient to cover these costs: sec316. (there is an exception for a notice at the AGM of a public company requested before the end of the financial preceding the meeting.)
The company, or a person aggrieved may apply to the court for an order not to circulate the statement on the ground that these provisions are being abused.

Quorum (sec318)
If the company has only one member, one 'qualifying person' (member, corporate representative or proxy) constitutes a quorum
In any other case, and subject to the company's articles, two qualifying persons constitute a quorum, unless they are both either corporate representatives or proxies for the same member.

Chairman (sec319)
Subject to the articles, a member may be elected to be the chairman by resolution at the meeting.
(Note that this differs from the Table A provision, which authorises the director to appoint a chairman of the directors, who will then also chair board meetings. Such a person need not necessarily be a member of the company.
Note also that, under the current interpretation by the government of sec282 (above), the chairman cannot have a casting vote.

Declaration by chairman on a show of hands (sec320)
On a vote on a show of hands, a declaration by the chairman that a resolution has, or has not, been passed, or passed with a particular majority is conclusive evidence of that fact, without proof of the number or proportion of votes recorded for or against the resolution, as is a statement in the minutes to that effect (unless, in either case, there is subsequently a poll).

Right to demand a poll (sec321)
The provisions of sec373 of the old Act are re-enacted with slightly different wording. Provisions in a company's articles are void if they exclude the right to demand a poll by any 5 or more voting members, or the holders of 10% of the voting rights or 10% of the voting capital. A proxy is entitled to demand a poll under sec329.

Voting on a poll (sec322)
On a poll, a member entitled to more than one vote need not use all his votes or cast all the votes he uses in the same way. This is a new provision.

Representation of corporations at meetings (sec323)
This largely re-enacts the old sec375, allowing corporations to be represented at meetings. There is an addition, however, that specifically allows the appointment of two or more corporate representative but, if they purport to exercise the corporation's powers in different ways, the power is treated as not exercised.

Proxies (sec324 - sec331)
These provisions largely re-enact sec372 of the 1985 Act, but there are some significant changes of detail.
Sec324 states the statutory right of a member to appoint a proxy, but note sec324(2), which allows more than one proxy to be appointed provided this is in respect of different shares. By sec325 the notice calling a meeting must state the member's rights under sec324 (which will include the right to appoint more than one proxy). Failure to comply does not invalidate the meeting, but will be an offence.

Company sponsored invitations to appoint proxies (sec326)
This is a re-wording of the old sec372(6). If invitations are sent to members at the company's expense to appoint a particular person (or persons) as proxy, such invitations must be sent to all the members. The exception is where the member requests such a service, provided the service is available to all.

Notice of appointment of proxy (sec327)
As under the old Act (sec372(5), a provision in a company's articles requiring the notice appointing a proxy to be lodged with the company more than 48 hours before the meeting is void. There are two additions, however. If a poll is taken more than 48 hours after it was demanded, the notice of appointment of a proxy cannot be required more than 24 hours before the time for taking the poll. If the poll is taken less than 48 after it was demanded, the notice cannot be required earlier than the time at which it was demanded.
Notice, too, the new provision that for these purposes, the 48 or 24 hours must be hours in the working day. (So the proxy notice for a meeting on Monday can be required as early as the equivalent time on the previous Thursday.)

Proxy may be elected to chair meeting (sec328) and may demand a poll (sec329)
Sec328 is subject to the company's articles.

Notice of termination of proxy's authority (sec330)
The termination of a proxy's authority by the member appointing him does not invalidate his acts unless the company receives notice of the termination before the start of the meeting (or such other time specified in the articles, not exceeding the maximum period for appointment of a proxy under sec327, i.e. 48 or 24 hours).

Saving for more extensive rights conferred by the articles (sec331)
Nothing in sec324 to sec330 prevents a company's articles from conferring more extensive rights on members or proxies than are conferred by these articles.

Resolution passed at adjourned meeting (sec332)
When a resolution is passed at an adjourned meeting it is treated as having been passed on the date on which it was in fact passed, and is not to be deemed to have been passed on any earlier date.

Sending documents relating to meetings in electronic form (sec333)
Where a company has given an electronic address in a notice of a meeting, proxy form, etc., it is deemed to have agreed that notices to it in connection with that meeting may be sent in electronic form to that address

Application to class meetings (sec334 - sec335)
In general, the provisions of Chapter 13 apply also to class meetings, but this is subject to the following exceptions:
1. The members of a class cannot require directors to call a class meeting (sec303 - sec305 do not apply)
2. Somewhat strangely, the court has no power under sec306 to call a class meeting.
3. The quorum provisions in sec318 apply to class meetings generally, but not to a variation of class rights meeting. Instead, the quorum for such a meeting is two persons holding at least one-third of the shares of that class (excluding any treasury shares). At an adjourned meeting the quorum is one person holding any shares of that class. Note that this is not expressed as applying subject to any provision in the articles (unlike sec318 itself).
4. Sec321 (members' right to call for a poll) does not apply to a variation of class rights meeting. Instead, any holder of shares may demand a poll.
Sec335 applies these rules with minor modifications to companies that do not have a share capital (primarily companies limited by guarantee, but also any unlimited company that does not have a share capital).

Chapter 4. Public companies: additional requirements for AGMs (sec336 - sec340)
Note that private companies are no longer required to hold AGMs, but the requirement remains for PLCs. The new rule for public companies is that the AGM must be held within six months after the company's accounting reference date. This is the first time the legislation has linked the timing of the AGM to the accounting reference period. The notice must specify that it is an AGM and the meeting can be called on short notice (i.e. less than the 21 days required by sec307(2) if all the members entitled to attend and vote so agree. (Notice that it does not specify that the agreement must be in writing.). The holders of not less than 5% of the voting rights, or any 100 members who have paid up at least £100 on their shares can require the company to circulate a proposed resolution (sec338) or a statement (sec339).

Chapter 5. Additional requirements for quoted companies (sec341 - sec 354)
These sections require quoted companies to make the results of a poll available on a website (sec341 and sec353) and the members may require an independent report on any poll by an assessor (sec342 - sec351)

Chapter 6. Records of resolutions and meetings (sec355 - sec359)
Change. The main change is that companies must keep minutes, etc. for 10 years.
Companies must keep records of all written resolutions, minutes of general meetings, class meetings and decisions of sole members. They must be kept for 10 years. A record of a resolution or minutes of a meeting purportedly signed by a director or secretary is evidence that the resolution was signed, the statutory requirements are deemed to have been complied with and the meeting properly called and held, etc., unless the contrary is proved.

Chapter 7. Supplemental
Computation of periods of notice, etc. (clear day rule) (sec360)
In the following sections:
notices of general meetings (sec307(1) and (2))
resolutions requiring special notice (sec312(1) and (3))
request to circulate members' statement (sec314(4)(d))
expenses of circulating statement (sec316(2)(b))
request to circulate members' resolution at PLC AGM (sec338(4)(d)(i))
expenses of circulating statement (sec340(2)(b)(i))
a period of notice or time expressed in days refers to clear days, i.e. not counting the date the notice is given (etc.) or the date of the meeting.