Companies Act's final flourish

Having been shelved for a year, the last phase of the Companies Act 2006 will finally come into force in October, setting a framework within which public companies must operate. The 2006 Act aims to foster an investment-based culture, allow more flexibility and make it easier for people to set up their own business. It is a massive piece of legislation, containing a whopping 1,300 sections and bringing in sweeping changes in a number of areas such as company formation, directors’ duties and liabilities, shareholders’ rights, share capital maintenance, age of director and registrar powers.

The boxes show the timeline for the gradual implementation of the Act, and the changes that come into force in October.

The big issues

According to information providers, a vital change introduced in October is in the service addresses area. From then, only the service addresses of UK directors will be held on the public record as general information; the residential address will be protected information, available only to regulatory authorities such as the police and HMRC. And should a director choose to use a residential address as his/her service address, the fact that the two addresses are the same will not be apparent from the public record.

Data from Companies House – the main information source for credit and risk management services – will therefore become a great deal more limited. Information providers say they will only be able to display what is on the public record at UK Companies House.

Paul Westcott, head of products and services at credit and risk information company ICC, believes this change is a major setback. “While the aim is to ensure privacy, public information about residential and service addresses were used to trace money-laundering and for credit-check purposes.”

Registrar’s powers

Separately, the implementation of part 35 of the Act gives the registrar of companies a range of powers, such as deciding the form and manner in which companies must deliver documents, what is needed for a document to be properly delivered, provision of electronic delivery for certain documents and amendments to the register.

Experts say companies will need to make absolutely sure that they understand the registrar’s expectations and requirements for how information must be submitted. The registrar will have the right to exclude improperly submitted information, so a lack of preparation and understanding from information professionals won’t be tolerated.

But the very breadth of the registrar’s new powers causes the greatest potential concern.

Craig Carpenter, vice president and general counsel of enterprise search firm Recommind, says: “The company registrar can reject information that is submitted incorrectly, and can even reject forms containing too much information. The new powers appear to be both broad and defined however the registrar sees fit. The challenge is that the Act does not provide detail as to where the line between correct and incorrect lies.”

Additionally, there is little information on what technologies and formats may or may not be required, which could make the whole process of compliance with the Act expensive and burdensome for companies.

Other provisions, such as changes in the paper document retention area, invoke mixed reaction from the information community.

For example, Adam Joseph, global client services manager at business data company OneSource Information Services, downplays the effects of the October changes for information suppliers: “For a premium information provider, the upcoming UK Companies Act will not bring wholesale change to the way we would gather, add value to and disseminate UK company information to our large user base.”

As regards the shrinking of the retention period for company documents from the 10 years to just three, Joseph says: “Even though the period of retention of company documents by the registrar will be brought down, there will be no effect on information providers because we continue to archive scanned Companies House documents, such as annual returns and annual reports and accounts, for all UK companies and have up to a 10-year archive of the annual glossy reports by quoted UK companies.”

Genuine benefit

But Carpenter argues: “This is the exact benefit I would focus on. This change means companies will no longer be forced to keep loose files for a decade so long as there is a copy – and by that I mean a digital version of the document. This should make it far easier for information professionals to manage their file systems, as their preservation requirement has been cut by 70%. It should also make it easier for some information professionals to justify any digitisation projects they may have wanted to complete, as the Act is now requiring such capabilities.”

Westcott points to another conflict: “For personal privacy, the residential address is not shared, but that information is accessible through other means. However, the Act rules out the easiest means of obtaining that information.”

Info pros must take the required steps to comply with the Companies Act. Carpenter says: “For information professionals, becoming educated about the various technologies and options in this area, such as digital rights management and digital signatures, will become critical.”

Understanding the technology, workflow needs and other requirements is essential. Info pros should also garner the necessary internal support and budget to underpin compliance and bridge the gap between where the organisation is and where it needs to get. Experts warn that companies will need to make absolutely sure they understand the registrar’s expectations and requirements about how information must be submitted.

Carpenter sees the Act influencing info pros in several ways: “In the short term, the Companies Act will force info pros to get up to speed on the technologies and methodology in this area. It will also force them to get a better handle on loose files or paper documents, and will most likely put pressure on many of them to get rid of these paper documents as much as possible.

“In the mid to long term, it should make their lives easier as information submission and tracking should become more streamlined and automated.”

He adds: “From October, information delivery will modernise. This should make all such data simpler to submit, easier to search and locate, and more cost-effective to manage for the registrar, the companies and the public at large.”

But it’s not all good news. Some information businesses have reservations about how the provisions could affect the role of information companies and their business.

Other things on their mind

Although they have had a year to prepare for the arrival of the final phase of the Companies Act 2006, information businesses have been busy resolving another major concern: their survival in the economic downturn and cost-cutting. Only recently have they begun to closely inspect the legislation and its implications.

Westcott says: “From now on, ICC’s focus is to minimise the cost and ensure there is enough communication, discussion and understanding among professionals to ensure that end-users are confident about the flow of information and documents.”

Other businesses are sprucing up their technology to remain compliant with the Act. ICC, for instance, is adapting to prospective changes, such as a limited flow of information from Companies House. In May, it implemented the Informatica Data Quality solution to ensure its business information services remain comprehensive.

Sharon Lankester, head of content management at ICC, says: “Clients come to us to build a picture of a business. Our core values centre around data quality, and we wanted to ensure that when the provisions to the Companies Act go live, information accuracy isn’t compromised.”

ICC provides digital business-to-business data to help companies manage their risk. In light of the imminent provisions, ICC decided to automate its data validation process to ensure data integrity.

Charles Race, vice president for Northern Europe at data integration business Informatica, says: “Companies operate in an information economy, where data quality has never been more important than it is today. They increasingly rely on data to make decisions that benefit their operations at two levels: growth and efficiency.

“By taking a proactive approach to mitigate the impact that regulation will have on its business model, ICC is ensuring that clients can depend on its services to work smarter and make solid business decisions.”

Final Act: the changes

The final implementation of the Companies Act 2006 will bring changes in 13 areas, including registrar powers, form changes, incorporation, changes of constitution, changes and treatment of company name, directors’ service addresses, Northern Ireland, administrative restoration, voluntary dissolution, statement of capital, single alternative inspection location and Slavenburg charges.

Timeline: the progressive implementation of the Companies Act 2006

8 November 2006
Act passed but only some provisions relating to transparency obligations come into immediate force.

1 January 2007
Sections relating to public notification by Companies House of registration of documents and other requirements of an EU directive.

20 January 2007
New company communications provisions enabling companies to make greater use of electronic communications, and changes in liability for false or misleading statements in reports.

6 April 2007
Removal of the maximum age limit for directors of plcs. More implementations, such as directors not requiring to provide details of their interests in shares or debentures of the company or its group. New takeover forms to align with the clauses of the new Act.

1 October 2007
New implementation covers directors’ duties, business review and directors’ report, and restriction of access to the register of members.

6 April 2008
Amendments to accounts changes, secretary changes, capital changes and auditors.

29 June 2008
The duties of third-country auditors.

1 October 2008
Important provisions relating to company name, trading disclosures, corporate directors and under-age directors, power of court to grant relief, and objection to company names. Changes also made to the requirements of annual returns, and repeal of restrictions on financial assistance for acquisition of shares in private companies.

1 February 2009
Late filing penalties increased to take account of inflation, also a faster rate of increase in penalties for late filings and doubling of the penalty for companies that repeat a late filing the following year.

1 October 2009
Final tranche of Companies Act 2006 implemented.

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