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Company Law

Analysis - guidance - compliance

03 APR 2014

Did you know

Did you know

... that special filing requirements apply in relation to certain amendments to a company's articles?

Many of the transparency provisions in the Companies Act 2006 are familiar to those who work with companies. The obligation to file accounts, the obligation to file details of board members, the trading disclosure rules and the requirement for the company's name to end with a reference to its shareholders' limited liability are all cases in point.

The scope of the filing obligations when a company amends its articles is, however, less well known.

The obligations

The basic transparency requirement in relation to amendments to the articles is that the company must file both the special resolution which effects the amendment (sections 29 and 30) and the amended articles (section 26).

This requirement is, however, supplemented by an additional notification obligation if the amendments concern either provision for entrenchment or the company's objects.

  • Under section 23, when a company's articles are amended either to insert provision for entrenchment or to remove such provision, the company must notify the registrar. The relevant forms for these purposes are Companies House Form CC01 (Notice of restriction on the company's articles) and Companies House Form CC02 (Notice of removal of restriction on the company's articles).

(In this connection, note also section 24, which provides that where a company whose articles contain provision for entrenchment amends its articles, it must file a statement of compliance. The statement of compliance confirms that the amendment has been made in accordance with the articles, and takes the form of Companies House Form CC03 (Statement of compliance where amendment of articles restricted).)

  • Under section 31, when a company amends its articles so as to add, remove or alter a statement of its objects, it must notify the registrar. The relevant form for these purposes is Companies House Form CC04 (Statement of company's objects).

A potential problem

Most company secretaries and corporate lawyers will be aware of the supplementary notification requirements, but companies which do not have regular access to advice on company law matters may not be familiar with them.

In relation to amendments concerning provision for entrenchment, this is unlikely to cause serious problems. A failure to comply with section 23 does not carry criminal or civil sanctions (although the registrar has the means to enforce the notification obligation under its general enforcement power (see section 1113)). Of at least equal importance, a failure to file a notification does not affect the validity of the amendment.

The position is very different in relation to an amendment to the objects clause. Although, again, a breach does not give rise to specific sanctions, the amendment does not take effect until Form CC04 has been entered on the register (section 31(2)(c)), and this is potentially a serious matter.

  • Take the case of a lender who advances money to the company on the strength of a newly-inserted objects clause which restricts its activities to the domestic market. If the company fails to file Form CC04, the lender, who takes comfort from his belief that the company is unable to venture into risky overseas jurisdictions, is labouring under a grave misapprehension.
  • Consider, too, the case of shareholders who are unhappy with their directors' tendency to take the company into new areas of business. If the shareholders insert an objects clause which restricts the company's activities to a particular line of business, but are not aware of the obligation to file Form CC04, the alteration will have no effect. A director who subsequently ignores the restriction will not be in breach of his duty under section 171(a) to comply with the articles, and the shareholders' ability to hold him to account will thus have been compromised.

A final thought

Assuming one is aware of their existence, the supplementary notification obligations pose no difficulties from a compliance perspective, for the Companies House forms are short and raise no difficult questions. Given that the obligations simply require the company to report matters which anyone who takes the trouble to inspect the articles can find out for himself, however, it is not clear what purpose they serve.

On the whole, the Act's transparency measures are sensible and proportionate, but provisions which do not meet this high standard should be weeded out. This is all the more important where the provision in question does not merely constitute an unnecessary administrative burden, but can also create real problems for those working in or with companies

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