PRINT THIS PAGE British Company Law03/10/2007. Source: SJ Berwin. Simon Witney 
After nearly 10 years of deliberation, notes SJ Berwin, next week will see many of the changes to British company law that were so hotly debated last year come into force. On 1 October, UK companies will see the biggest change to the rules that apply to their governance in a generation, and many of them will affect portfolio companies of private equity firms. The government began to review company law in 1998, shortly after it came to power, and one of the review's core objectives was to deregulate the regime for private companies and sweep away unnecessary burdens. The process was convoluted, and it is not clear to what extent that objective has actually been achieved, but it is true that many of the archaic and artificial procedural rules will disappear. For instance, from Monday it will be much easier for private companies to make decisions by written resolution, and they will only need to hold an annual shareholders meeting if they want to do so. Notice periods for any meetings that are held will be rationalised, and it will be possible to lend money to directors (if shareholders agree). Private companies still need a company secretary - but only until next April, when that requirement will also disappear.
But the burdens may also rise. Directors' duties have been codified, and in the process altered in a number of important respects. The concept of "enlightened shareholder value" is now enshrined in law, meaning that directors must have regard to the interests of wider stakeholders in reaching their decisions. And it might be easier to sue them if they get it wrong: the procedure for shareholders to bring claims against directors (including non-executives) in the name of the company has been simplified, and the grounds on which they can be brought extended. The new law on conflicts of interest could also be a worry for directors nominated by private equity funds, although that rule change has been delayed until October 2008 to give firms a chance to prepare for it.
On disclosure requirements, the new law is broadly neutral: for the most part, it does not require private companies to publish any more details about their performance and business operation than before. But it is a sign of how quickly things have changed that, since the legislation was passed last year, pressure on large private companies to be more open and transparent has increased to the point where Sir David Walker has published proposals that are likely to see large private equity backed companies go further than the law requires.
Politicians will follow the reaction of the private equity industry with much interest. The government has undertaken to review - in two years' time - the extended disclosure requirements that will apply to quoted companies from next week, and is likely to come under pressure to extend them to larger private companies if Sir David Walker's recommendations are not seen to have made a significant difference. That could increase the burdens on companies further, without the flexibility of the "comply or explain" code that is now being suggested.
Simon Witney
SJ Berwin is a pan-European law firm with a particular focus on private equity. It has offices in London, Frankfurt, Munich, Berlin, Madrid, Paris and Brussels. If you would like further information on its services to the private equity industry please contact Jonathan Blake or Simon Witney in its London office +44 (0)20 7533 2222 or visit our website at www.sjberwin.com
|
