The obligation of public companies in this regard remain unchanged. With private companies different considerations apply, dependant on whether the company has the 1985 Table A as its default articles or whether it has an earlier Table A.
Companies having the 1985 Table A
Section 366(1) of the 1985 Act provided that “every company shall in each year hold a general meeting as its annual general meeting in addition to any other meetings in that year, and shall specify the meeting as such in the notices calling it”. Sometimes this requirement is found to be repeated in a special article. But there is no such provision in the 1985 Table A, probably because such an article was unnecessary presumably because of the express statutory provision.
Section 366(1) was repealed on 1 October 2007. The Table of Origins and Destinations issued by HMSO at the time of publication of CA 2006 suggests that the replacement provisions in the 2006 Act are sections 336(1) and 337(1). Section 336(1) states that “every public company must hold a general meeting as its AGM in each period of 6 months beginning with the day following its accounting reference date”, and section 337(1) states that “a notice calling an AGM of a public company must state that the meeting is an annual general meeting”.
It is to be noted that neither provision makes any reference to private companies. They deal exclusively with AGMs of public companies. Therefore the logical inference must be that private companies are no longer required to hold AGMs regardless of any provision to the contrary in its articles.
This is confirmed by the explanatory notes which accompany the Act. Paragraph 582 states that one of the main substantive changes is that “private companies will no longer be required to hold an AGM”. Accordingly “the provisions of this Chapter [Part 13, Chapter 4: Public Companies: Additional requirements for AGMs] therefore do not apply to private companies”. Paragraph 583, referring to s.336 specifically states: “This section replaces section 366 of the 1985 Act but will apply only to public companies since private companies are no longer required to hold an AGM”. Therefore, it would appear beyond question that the AGM has ceased to be a legal requirement for any private company whether such company was incorporated either before or after 1 October 2007.
Having said this, directors of all companies, both public and private, have the power, under the 2006 Act, to call a general meeting of the company and the requisite amount of members (usually the holders of 10% of the share capital) can require the directors to call a meeting under section 303. There can be no illegality if one such meeting each year within a private company were to be called its AGM. But calling it such can have no impact on the abolition of the legal requirement for private companies to hold AGMs.
However, it should be noted that the abolition of the private company AGM is not retrospective. There is no amnesty in regard to meetings which should have been held prior to 1 October 2007. Any AGM which should have been held under the former rules should technically still be held even though by now it would be significantly overdue.
Companies adopting an earlier Table A
While the 1985 Table A contains no express requirement that companies adopting it have an AGM, this is not the case with its earlier incarnations. The 1985 Table A only became the default articles for companies incorporated on or after 1 July 1985. The 1948 Table A states, in regulation 50, that: “The company shall in each year hold a general meeting as its annual general meeting”. Similarly, the 1929 Table A states, in regulation 39, that: “A general meeting shall be held once in every calendar year”. In the case of such companies there would appear to be a requirement to hold an AGM unless it has either amended its articles so as to remove the requirement for an AGM or it has passed an elective resolution under s.366A of the Companies Act 1985 to dispense with its AGM.
Appointment of Private Company Auditors
With the abolition of the requirement that private companies should hold AGMs it follows that the rules governing the appointment of auditors needed revising. Section 485(1) of the 2006 Act requires that an auditor must be appointed for every private company unless the directors have reasonably taken the view that audited accounts are unlikely to be required.
A new expression has been devised in section 485(2) of the Act: “the period for appointing auditors”. This means 28 days after either the date for sending out the annual accounts for the previous financial year or the date on which the annual accounts actually were sent out, whichever is the earlier.
In regard to the appointment of auditors, private companies can be divided into two categories; first, existing companies with auditors already appointed and which have elected to dispense with the annual re-appointment of auditors pursuant to section 386of the 1985 Act and secondly, all other companies.
In the case of the former, section 487(2) of the 2006 Act provides that the auditor is deemed automatically to be re-appointed from the end of the period for appointing auditors, and this is so even where he was appointed by the directors. The authority for this is the Companies Act 2006 (Commencement No 3, Consequential Amendments, Transitional Provisions and Savings) Order 2007, SI 2194/2007 Schedule 3, paragraph 44).
In the case of all other companies appointment may be by the directors, by the members or by the Secretary of State.
The directors may appoint an auditor:
- at any time before the company’s first period for appointing auditors
- following a period during which the company was exempt from audit and did not have an auditor, at any time before the company’s next period for appointing auditors; or
- to fill a casual vacancy in the office of auditor.
The members may appoint an auditor by ordinary resolution:
- during a period for appointing auditors
- if the company should have appointed an auditor during a period for appointing auditors but failed to do so;
- where the directors had a power to appoint but failed to do so.
Finally the Secretary of State has a default power to appoint an auditor. If a private company fails to appoint an auditor as required by the Act it must give notice to the Secretary of State within one week of the end of the period for appointing auditors. The Secretary of State may thereupon appoint an auditor.
Private Company Accounts and the Board
It is only public companies which are required to have general meetings under the Companies Act 2006. Therefore, the requirement for private companies to lay their accounts before the general meeting is abolished.
However, section 463 provides for the personal liability of directors for false or misleading statements in the directors’ report, the directors’ remuneration report and the summary financial statement so far as it is derived from either of those reports. It is clear that liability under this provision is only for loss caused to the company. There is no statutory entitlement for a third party to recover for any loss suffered as a result of their relying on information contained in the relevant reports.
The liability of the director arises in three circumstances:
- where he knew of the untrue or misleading statement
- where he was reckless as to whether the statement was untrue or misleading; or
- there was an omission from the report of anything required to be contained in it.
Although there is no statutory requirement that the statements be placed before a board meeting, it is suggested that there should be a board meeting held for this purpose, at least in circumstances where the company has more than one director. This will at least give any director who has misgivings as to the contents of the reports formally to minute those misgivings. While there is no express statutory defence for a director in such circumstances, the minuting of misgivings would surely act as a partial, if not a complete, defence to any claim made against him.
The Members and the Accounts
Section 423 of the Companies Act 2006 provides that every company must send a copy of its annual accounts and reports for each financial year to every member, every debenture holder and every person entitled to receive notice of general meeting such as the auditor and non-shareholder directors. There is a slight change in the new provision in that notice need only be given to persons for whom the company has a current address. This avoids companies having to send copies to members’ addresses from which previous correspondence has been returned “gone away” etc. A private company must do this either before the end of the period for the filing of accounts and reports or before the filing of accounts and reports if this was earlier. In appropriate circumstances the company may provide a summary financial statement instead of copies of the accounts and reports.
It is worth remembering that under CA 2006 a company may communicate with its members electronically or via its website. While members can opt to receive hard copy communications, the savings for companies if a substantial proportion of members agree to receive electronic communications are potentially enormous. In the case of one quoted company, letters were sent to its members just before Christmas 2006 asking them to receive notices, reports etc. electronically. A few weeks ago, that same company wrote electronically to those members who had acceded to this request, thanking each for being one of over 500,000 members of the company who had done so. The postal and printing savings for this company must run into millions of pounds.
It is suggested that every company, both public and private, quoted and unquoted, should give serious consideration to getting its members to receive electronic communications. The potential savings are always going to be a consideration, particularly as the economic climate deteriorates and the postal service becomes more expensive.
Michael Griffiths LlM - co-editor of Loose on Liquidators and Loose on the Company Director and a member of ACCA's Business Law Committee