Companies Act still leaves Red Tape

Companies Act (2006) PDF

Three quarters of directors said the Companies Act (2006) (2.7Mb PDF) reforms introduced last year have failed to simplify company systems and reduce red tape as the Government pledged, according to business services provider Jordans.

Companies Act (2006) PDF

Their research found that just 6% of company directors said the new measures had reduced administration. In addition, more than 18 months after the first phase of reforms was introduced, 18% of directors said they were unaware of the changes.

The Companies Act reforms have been introduced in phases, with the first group of reforms taking effect in January 2007, while some amendments will not become law until October this year. For example, since January 2007, companies have been able to communicate with shareholders using electronic communications (Internet, email) rather than on paper. Jordans group chief solicitor Janis Law said;

“Unfortunately, the concerns that many business leaders had this time last year have proved to be correct and is seen by the vast majority of the key people involved as a far from satisfactory piece of legislation. They certainly do not think it has lived up to its promise.”

The survey also revealed that there has been poor take-up of the Act’s new provisions. For example, the research highlighted that less than a third of directors are taking advantage of new rules which allow companies to use electronic communications to contact shareholders.

Institute of Directors (IoD) head of corporate governance, Dr Roger Barker, said it was unsurprising that the reforms had received a lukewarm response so far.

“The whole process of drafting the Act took a very long time and expectations of deregulation were extremely high,” he said. “While it did introduce a few useful deregulatory items, it has also introduced a number of potentially onerous liabilities on directors, such as broadening the scope for derivative claims, where shareholders can take directors to court for not acting in their best interests.

“A year on, there is clearly still an amount of uncertainty about the reforms and many directors are now in a ‘wait and see’ mode,” added Barker. “Most want to see a period of stability to see how these changes bed down over the long term before attempting to mess further with the existing set-up.”

Responding to the criticism, a Department for Business, Enterprise & Regulatory Reform (BERR) spokesman said the changes to company law were making the UK a better place to do business.

“By updating and simplifying existing rules, the Companies Act made sure that the law kept pace with a changing business world,” he said.

“We want individual companies to be run in the way that suits them best, and we have removed unnecessary requirements,”

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