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Get in on the Act
The Companies Act 2006 is the longest piece of legislation in British history. However, while isn't easy to imagine that such a tome will feature heavily in conversation among busy restaurateurs, hoteliers and publicans, there are some important changes to the law which were rolled out on 1st October.
Richard Findlay outlines how the 700-odd pages of legalese will affect the hospitality industry…
Anyone who owns or runs a company has an obligation to do so diligently, and the new laws will affect more than half of all businesses in the hospitality industry which are owner-operated.
First, the good news; In spite of its 1,300 sections, the new Companies Act was actually designed to make it easier to run a smaller company, and in some ways the administrative burden has been lightened. One headline change is that private companies no longer need to hold an Annual General Meeting. That said, before you rejoice, you should check your company's articles first, as these may contain an obligation to hold an AGM and which will need to be removed by resolution.
Further good news for the bureaucratically challenged is that all company resolutions may now be passed by a written resolution of the shareholders, removing the requirement to call an Extraordinary General Meeting. A simple majority of shareholders must approve an ordinary resolution and a 75% majority is required for a special resolution.
Unfortunately, what the Act gives with one hand it takes away with the other. Fewer meetings are now required, but a large part of the Act places further obligations on company directors by codifying common law. Directors should be wary of risky ventures, spending sprees and questionable business partnerships, and should have the commercial interests of shareholders at heart at all times. Before choosing a certain course of action, Directors should give thought to long-term consequences, the impact on the community and the environment, and employees' interests. The expert director with years of industry experience should also beware; he or she must perform their duties with the degree of skill which may reasonably be expected of a person of their knowledge or experience. Mediocrity is not permissible!
Unsurprisingly, "Del Boy" business practices are also frowned upon, and directors are duty-bound to avoid conflicts of interest, and are forbidden from making a "secret profit" from dubious personal dealings that take advantage of their position.
Of course, in the end, a director is only answerable to the shareholders. For companies owned and managed by the same person, a director will find it easy to convince a shareholder of the merits of a particular course of action, and in such a case need only worry about the dangers of talking to that particular person. Bear in mind, however, that few shareholders can placate an angry supplier, and directors should balance the interests of creditors, too!
The parts of the Act rolled out on 1st October also lay down rules on political donations, fraudulent trading and protection of shareholders against unfair prejudice.
The Act has 50 pages of index before you even get to the law. If you can get through that perhaps you're missing out on a career as a corporate lawyer. Visit www.opsi.gov.uk/acts/acts2006/pdf/ukpga_20060046_en.pdf for the full text of the Act, or contact Tods Murray for advice and guidance on how the Act affects your business.
This article has been edited from its original version. For the complete feature, please see Catering in Scotland magazine November/December 2007.
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