Prepare for looming changes to company law

Mace and Jones is urging businesses to start preparing for the looming changes to company law due to come into force in 2007.

A leading law firm is urging businesses to start preparing for the looming changes to company law due to come into force in 2007.

Mace and Jones corporate lawyer Ian Hodgkinson advised business owners and directors to pay close attention to the Companies Bill (formerly known as the Company Law Reform Bill) as it passes through parliament this autumn.

"The bill involves the most substantial overhaul of company law for decades,' he said.

"It introduces wide-ranging reforms in a number of areas which will have an impact on directors, auditors and shareholders of private, public and quoted companies.

Given the breadth and scope of the changes we would strongly advise business owners and directors to prepare for the changes as a matter of importance." Mr Hodgkinson said the key proposals included:.

* a statutory statement of directors' general duties, which means there is now a statutory requirement for directors to have regard to a specified list of factors in exercising their duty of good faith.

* extended rights for shareholders to sue directors for negligence and other defaults.

* the ability for auditors to agree with companies to limit their liability in respect of their audit.

* a new criminal offence of recklessly or knowingly causing audit reports to include any matter which is misleading, false or deceptive.

* a simpler, more accessible regime for running private companies.

* enhanced rights for indirect investors.

* greater use of e-communications.

* a power for the Government to require institutional investors to disclose how they exercise their votes.

* a new power to allow company law to be more easily and quickly amended in the future.

The original Company Law Reform Bill was published in November 2005 following the DTI White Paper setting out the Government's proposals for company law reform in March 2005.

The lengthy Bill (it is over 500 pages long and runs to almost 900 clauses) introduces wide-ranging reforms in a number of areas which will have an impact on directors, auditors and shareholders of private, public and quoted companies.

In a number of areas the Bill merely empowers the Government to make regulations, the detailed drafting of which will need to be consulted on in due course.

The clauses will be debated during the Parliamentary approval process and the detailed wording of the Bill is likely to change.

The Bill is available at http://www.publications.parliament.uk.

The DTI's guidance on key clauses is at http://www.dti.gov.uk/cld/clauses.htm and the explanatory notes to the clauses in the Bill are at http://www.publications.parliament.uk/pa/ld200506.

The DTI expects the Bill to receive Royal Assent by "late 2006", with the Bill coming into force "not earlier than" April 2007.

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