A national survey of company directors, commissioned by Leeds Legal, found that one third (31%) didn’t know anything about the Companies Act 2006, which is set to regulate the formation, dissolution and management of companies.
Furthermore, a cause for even greater concern for Britain’s businesses, 42% of directors haven’t sought professional advice about the implications of the Act, and don’t intend to do so.
The research reveals that many directors of both large companies and SMEs, are putting themselves – and their businesses – at risk by not understanding and not addressing the legislation’s key elements.
Although the Act was passed in November 2006, companies have until October 2008 to comply with all of the new regulations, however some crucial elements - including the increase of directors duties, shareholders involvement in the business, and use of electronic communications - have individual deadlines which must be met in advance of 2008.
The first phased deadline for the Companies Act is October 2007, so with less than six months to go, company directors need to ensure they have plans in place to deal with the required elements of the Act.
Giles Clegg, director in the corporate team at Leeds-based Lupton Fawcett explains, “The Companies Act 2006 is the largest piece of legislation ever to be enacted and has made some fundamental changes to corporate governance. The research highlights the extent of the lack of awareness and confusion amongst company directors over what is in the Act and the timetable for its implementation.There is clearly a lot of work yet to be done to explain what practical impact the legislation will have and the penalties for not being aware of the changes being implemented.”
Alan M. Baker, chairman of Leeds Legal agrees, “These research findings are very concerning, when we commissioned the research, we thought that there would be a significant number of directors who weren’t aware of the detail of the Act, but we didn’t expect so many directors not even to have an awareness of the Act, and its consequences.”
Directors do have many new regulations to comply with under the Companies Act, but there is no excuse for complacency. Business leaders need to know that although not all the new legislation applies to them, the majority of it applies across the board, I’m concerned that such a large amount of directors won’t be seeking legal advice about the implications on their businesses.”
According to the research, only 4% of directors had a ‘detailed understanding’ of the Companies Act, and felt they were prepared for the Act coming into force over the next eighteen months.
Looking in-depth at some of the most well known elements of the Act, just under half (46%) of all directors didn’t know that there was now a greater emphasis on the responsibilities of all board directors, with respondents being even less aware of the key elements of the Act that could have most impact on their businesses.
Rachel Neems corporate partner at Keeble Hawson, Leeds, comments, “Company directors are running the risk of seemingly neglecting their duties towards their businesses, shareholders, employees and ultimately their customers, by not taking advice about the largest piece of corporate legislation ever published. My advice would be to talk to your lawyer, or other business advisor to see how the Companies Act will affect your business.”
