BIS publishes post-implementation evaluation report on the Companies Act 2006

On 22 December 2010, the Department for Business Innovation and Skills (BIS) published the results of a post-implementation evaluation of the main provisions of the Companies Act 2006. The overarching aim of this study was to assess the impact of the 2006 Act on UK businesses and to determine whether it was meeting its key policy objectives.

The evaluation results show a broad welcome for the reforms introduced by the Act, including those which are enabling a reduction in the regulatory burdens for companies. Particular findings include:

  •     Measures introduced to enhance stakeholder engagement have been partially successful. The additional information required in a business review has not been arduous to provide and could be beneficial to shareholders. Changes to directors’ duties have the potential to bring about a cultural shift in how decisions are made for the benefit of shareholders.
  •     The key aim of ensuring better regulation and a “think small first” approach has, again, been partially successful. The removal of the requirement to hold an AGM and procedures allowing written resolutions have been positively received. However, few companies have to date abolished the company secretary role.
  •     The reduction of capital by way of solvency statement, aimed at large private companies, also appears to have been better received than stakeholders anticipated with costs savings being referenced as the key driver here.
  •     As to making it easier to set up and run a company, it is still early days to assess performance with this objective. On the whole, areas covered within this objective received more neutral responses, with changes being acknowledged to be of less significance than other changes introduced.
  •     In terms of flexibility, changes for private companies on resolutions and meetings were most beneficial. Regarding costs savings, changes to e-communications and resolutions and meetings were most beneficial.


Identified areas for improvement include:

  •     Directors’ duties– in order to increase behavioural change, there should be added clarity and guidance to boost awareness and understanding of the section 172 duty (duty to promote the success of the company).
  •     Business review– added clarity on the process is still required to improve the quality of information provided, to ensure that the review is not seen as “boiler plate”.
  •     Directors’ addresses– criticisms that previous addresses are not blocked out, that credit reference agencies can still access directors’ details and that one is no longer able to differentiate directors with the same name on the register are to be taken on board.
  •     Auditor liability limitation agreements – companies appear to be entering into these agreements whilst openly acknowledging that they do not know of any benefits to their company, so added clarity to section 172 (director’s duty to promote the success of the company) is required.


Further details and a copy of BIS’s evaluation report can be found at: http://www.bis.gov.uk/policies/business-law/company-and-partnership-law/evalution%20of%20companies%20act%202006
 

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