Out-Law News | 04 May 2006 | 1:55 pm | 4 min. read
The changes address directors' duties, reporting requirements and derivative claims. They also clarify the position on liability for disclosures under the Companies Act and for implementation of the EU Transparency Obligations Directive. Draft clauses on a proposed regime for liability have been issued today for a short period of public consultation.
Alun Michael, Minister for Industry and the Regions said: "Our aim has always been to encourage meaningful strategic, forward-looking information to assist shareholder engagement while avoiding disproportionate burdens on business, in line with our better regulation agenda."
On directors' duties, yesterday's amendments seek to put beyond doubt that the need to have regard to certain factors (including the interest of the employees and impact on the environment) is subject to the overriding duty to act in the way the director considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole.
The Government also proposed new powers relating to derivative claims including a requirement for the courts to dismiss non-meritorious applications at an early stage.
On directors' duties, amendments have been introduced to put beyond doubt that the need to have regard to certain factors (including the interest of the employees and impact on the environment) is subject to the overriding duty to act in the way he considers, in good faith would be most likely to promote the success of the company for the benefit of its members as a whole. The list of factors is not an exhaustive list of the matters that may be considered by directors. The phrase "so far as reasonably practicable" in the clause has been deleted in the light of concerns as to what it implied.
The requirements have been streamlined with the requirements for quoted companies being more closely aligned to those for unquoted companies. All companies (other than small) will need to produce a Business Review.
Quoted companies will need to ensure that, to the extent necessary for an understanding of the development, performance or position of the company's business, their Business Review includes:
(a) the main trends and factors likely to affect the future development, performance and position of the company's business; and
(b) information about
(i) environmental matters (including the impact of the company's business on the environment),
(ii) the company's employees, and
(iii) social and community issues,
including information about any policies of the company in relation to those matters and the effectiveness of those policies.
If the Review does not contain information on (i) (ii) or (iii) above, it must state so.
Compared to the earlier Operating and Financial Review (OFR) provisions, the new arrangements are that:
The Government proposes amendments to the clauses relating to derivative claims (under which a shareholder, acting as the company, may bring an action against a director for breach of duty), in particular, to require the courts to dismiss non-meritorious applications at an early stage.
The new clauses seek to:
The new draft clauses on liability will leave in common law that directors remain liable only to the company for statements contained in the annual accounts under the principles laid down in the Caparo case.
For narrative reporting under company law, the clauses specify that:
For disclosures under Takeover Directive (TOD) implementation, the new clauses specify that:
Liability for directors' report statements in non-Company Law Reform Bill contexts, e.g. in prospectuses would not be affected.