Jordans

COMPANIES ACT STILL CAUSING CONFUSION, SAYS JORDANS SURVEY

New research carried out by Jordans, the UK‘s largest provider of business services, reveals that most professional advisers think the Companies Act 2006 has led to administrative upheaval and 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 accountants and solicitors 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 helping businesses at the sharp end of the changes.

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

The Outcome

Almost two-thirds of professional advisers (64 per cent) said that to date, the Companies Act had caused considerable confusion and in their view, had failed to reduce the administrative workload for most companies.

Almost a third (32 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 before benefits could be achieved. Only 4 per cent said the measures implemented so far had cut red tape and simplified company administration.

Awareness

According to the Jordans survey, only 18 per cent of professional advisers have detected a marked increase in interest and action from company directors about the Act and its significance for their business.

Slightly less than a third (29 per cent) thought that few directors are aware of the legislation and may already be breaking the law.

Meanwhile more than half the advisers surveyed say they think that directors may be more aware of the Act, but have seen little evidence of this in their dealings with clients.

Directors‘ Duties

More than four-fifths (81 per cent) said most directors were unaware of the changes to their duties to promote the success of their company for the benefit of members as a whole and have regard to staff interests, the environment and the community, which were introduced in October 2007. Significantly, more than three-quarters (76 per cent) of directors surveyed said they knew about the new rules governing directors‘ duties.

“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.

Almost 60 per cent of advisers said that in their experience the changes in directors‘ duties and the new provisions enabling members to sue directors had not made boards more cautious or risk averse when taking decisions – but this was because the directors were not fully aware of these new provisions.

Only 7 per cent said they had found that board members were aware of the changes and affected by them when making major decisions.

Key Changes – Reaction

According to the Jordans research, professional advisers also believe that there has been a poor take-up of new rules allowing email, fax or websites to be used by companies to contact shareholders. More than a half said they had seen very few examples of e-communication while less than a third said they had noticed businesses beginning to increase their use of the technology.

Almost 40 per cent said most companies seemed happy to continue to hold shareholder meetings instead of using the new written resolution procedure, but exactly one third said most companies were using the new approach.

The one-month reduction in the time allowed for filing accounts at Companies House was among the most unpopular change with 68 per cent seeing it as a problem. Almost the same percentage took a similar view on the increase in penalties for late filing of accounts.

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

Company Secretaries

More than 40 per cent of professionals said they suspected that directors would overlook the compliance responsibilities that were formerly delegated to their company secretaries but the majority said most directors knew that they were responsible to ensure continued compliance if the post was abolished in their organisation.

What Next?

Most advisers seem to be waiting for the implementation of each tranche of new measures before taking a detailed interest but almost one third (32 per cent) say they are keeping a close watch on the Act and the staged implementation of its changes.

The most popular measure yet to be introduced is the ability of directors to provide a service address for the public record, which was supported by 61 per cent of professionals. More than half also saw the benefit of private companies with one class of shares being able to allot shares without prior shareholder approval.

The bulk of the professional community (64 per cent) are critical of delaying the full implementation of the Act until October next year. They say it has caused confusion about which sections are in force and claim it would have been better to stay with the original timetable. The remaining 36 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 advisers, to examine the legislation more closely in order to derive the maximum benefit.

“It is particularly worrying that professional advisers think some directors may already be in breach of some of the new rules simply through lack of awareness of the changes.”

ENDS 22nd August 2008

For further information please contact Neil Fraser, Sturgess Van Damme, on 01275 349011 or email neil@sturgessvandamme.co.uk