At least one share
At least one shareholder
At least one director
A registered office, and
An
address for service
THE COMPANIES ACT 1993- A SUMMARY
This
article details many significant items contained within the Companies Act 1993.
It does not detail all clauses of the Companies Act 1993 and professional
advice should be obtained for full
clarification of all clauses and explanations of clauses.
THE
ESSENTIAL REQUIREMENTS OF A COMPANY
In order to be incorporated under the Companies Act 1993, a company must have:
|
|
|
At least one share |
|
At least one shareholder |
|
At least one director |
|
A registered office, and |
|
An
address for service |
The
registered office and the address for service need not be at the company
business, nor in the same place. The
address for service must not be a Post Office box or Document Exchange.
REGISTERED
OFFICE
All
companies must have a Registered Office located in
BOOKS
AND REGISTERS
Companies
are required to maintain the following books and registers.
| A
Share Register |
| Company
records |
| Accounting records |
SHARE
REGISTER
Companies
must maintain a Share register that records the shares issued by the company and
states:
| Whether
, under the constitution of the company or the terms of issue of the shares,
there are any restrictions or limitations on their transfer, and |
| Where any document that contains the restrictions may be inspected |
The Share Register must state the following with respect to each class of share:
|
|
|
Number of shares held by each shareholder (within the last 10 years) |
|
Dates of any issue of shares |
|
Dates of any repurchase or redemption of shares from, or transfer of shares by each shareholder (within the last 10 years) and record the name of who they were transferred to. |
|
An
agent may maintain the Share Register |
COMPANY
RECORDS
The
following documents must be kept at the company’s Registered Office:
| The
constitution of the company |
| Minutes
of all meetings and resolutions of shareholders within the last seven years. |
| An
Interests register (of director’s interests) |
| Minutes
of all meetings and resolutions of directors and director’s committees
within the last seven years |
| The
full names and addresses of the current directors |
| Copies
of all written communications to all shareholders or all holders of the same
class of shares during the last seven years |
| Copies
of all financial statements and group financial statements (if any) required
to be completed under the Act or the Financial Reporting Act 1993 for the
last seven completed accounting periods of the company |
| The
accounting records required by the Act for the current period and for the
last seven completed accounting periods of the company |
| The
Share Register |
PARTICULARS
OF DIRECTORS
The
Companies Office should be notified of:
| Initial
appointment of directors at registration of the company |
| Changes
to a Director’s name or residential address |
| Removal
from office |
| Disqualification
from holding office as a director |
| Appointments
|
| Resignations |
| Deaths |
New
appointments or resignations must be notified to the Companies Office within 20
working days of an appointment or resignation taking place.
The
following circumstances disqualify a person to act as a director:
| Under
18 years of age |
| An
undischarged bankrupt |
| A
person prohibited from directing, promoting , or participating in the
management of a company under statutory
provisions |
| A
person subject to a property order made under the Protection of Personal and
Property Rights Act 1988 |
| A
person not qualified pursuant to the company constitution |
APPOINTMENT
OF AUDITORS
A
company must appoint an auditor, but a
The
following companies must appoint an auditor:
| A
|
| A
company in which 25% or more of the voting power in controlled by overseas
interests |
| A company that is an issuer of securities as defined by the Financial Reporting Act 1993 |
FILING
OF ANNUAL COMPANY RETURNS
The
Registrar sends a reminder in the month before the return is due to be filed.
All annual returns are required to be filed in the designated month.
The prescribed fee must be paid at the time of filing
CONSTITUTION
ISSUING
SHARES
Once
the company is registered , the shares are issued forthwith
to the named shareholders as per the application declarations to the
Companies Office when applying for registration. The Act provides the Board of
Directors with authority to issue further shares at any time to any person and
in any number it thinks fit. The
restricting element is the company constitution and other provisions of the Act
DISTRIBUTIONS
The
board may authorize a distribution to shareholders at any time, and of any
amount, and to any shareholders it sees fit.
But before doing so, it must:
| Be
satisfied, on reasonable grounds, that the company will be able to satisfy
the solvency test immediately after the distribution |
| Ensure that any distribution meets the requirements of the constitution and that a dividend is not authorized for only some of the classes in a share in a class, or for different amounts per share in a class, unless the difference is to repay a liability from the shareholder of the company |
Directors
who vote in favour of the distribution must sign a certificate and pass the
appropriate resolutions that the company can satisfy the solvency test.
To satisfy the solvency test, the company must:
| Be
able to pay its debts as they become due in the normal course of business,
and |
| The value of the company’s assets are greater than the value of its liabilities including contingent liabilities |
Share
repurchases are regarded as distributions for the purposes of the solvency test.
SHAREHOLDERS POWERS
The overriding document is the company constitution. If the constitution has more stringent rules than the Act, this is the overriding authority to govern shareholder power. The powers reserved to shareholders by the act are to:
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|
|
Alter shareholder rights |
|
Approve a major transaction |
|
Appoint and remove directors |
|
Approve an amalgamation |
|
Place
the company into liquidation |
The above generally must be exercised by resolution and require approval by 75 per cent in number and voting power (or higher if required by the constitution)
|
Where all shareholders unanimously agree in writing and the company satisfies the solvency test a company may: |
1.
Authorise a dividend,
2.
Approve a discount
scheme,
3.
Acquire its own
shares,
4.
Redeem its own shares,
5.
Provide assistance for
the purchase of shares
6.
Authorise
remuneration, benefits, compensation for loss of office, loans and guarantees
relating to company directors
Shareholders
must be given a reasonable opportunity at meetings to question, discuss or
comment on the management of the company. Shareholders may pass resolutions at
meetings relating to the management of the company.
ANNUAL
GENERAL MEETING
Each company must hold an annual meeting of shareholders once every calendar year. The meeting cannot be later than six months after balance date and no longer than 15 months after the previous annual meeting. For new companies, the first meeting can be within 18 months of its registration. Traditionally, annual meetings consider the following types of ordinary business:
|
|
|
Election of directors |
|
Appointment ( or decision not to appoint) auditors- this is the only mandatory requirement of an Annual General Meeting |
|
Appointment ( or decision not to appoint) auditors- this is the only mandatory requirement of an Annual General Meeting |
|
Any other business that may require a special resolution (e.g. amend company constitution) |
|
General
business |
SPECIAL MEETING
The Act allows for special meetings of shareholders to be held. These are called by either the Board or a person authorised by the constitution to do so. If more than five percent of the voting shareholders request a special meeting, the Board must call a meeting. Generally , special meetings may be called to deal with extraordinary events that require a special resolution to be passed.
DIRECTORS DUTIES
OF CARE
The
Act confers responsibilities on directors and the Board to manage the company.
Directors are responsible for making key decisions as to the operation of
a company.
The
duties of care for directors can be summarised as follows:
| To act in
good faith and in the interests of the company |
| To exercise
powers for a proper purpose |
| Not to act
in a manner which contravenes the Act or the Constitution |
| Not to
agree to or cause or allow the company’s business to be carried on in a
manner which is likely to create a substantial risk of serious loss to the
company’s creditors (reckless trading) |
| Not to
agree to incurring an obligation unless the company can perform the
obligation when required |
| To exercise
care, diligence and skill, taking into account nature of the company, nature
of the decision, position of the director and responsibilities undertaken |
| When exercising powers or performing duties may rely on professional and expert advice. This may be from an employee, professional adviser or expert, or other director |
The
Act provides the following duties for directors in relation to transactions
involving self-interest:
| To disclose
transactions in which directors are interested |
| Not to
disclose information that is not in the public domain that is known to them
in their capacity as director or employee without prior Board approval |
| To disclose relevant interests in the company’s shares and any acquisition or disposal of the company’s shares |
THE SOLVENCY TEST
AND DIRECTORS LIABILITY
To
satisfy the solvency test, the company must:
| Be
able to pay its debts as they become due in the normal course of business,
and |
| The value of the company’s assets are greater than the value of its liabilities including contingent liabilities |
The
Act provides clear guidance as to the responsibility of directors making
distributions to shareholders and the completion of a solvency certificate by
the directors when doing so. Directors
can be held personally liable if:
| They
fail to complete a solvency certificate |
| The
procedure for authorizing distributions has not been followed |
| Reasonable
grounds for believing that the company would satisfy the solvency did not
exist at the time the solvency certificate was signed |
| Between the date of approving the distribution and its date of execution, there has been a change in circumstances in relation to the company’s ability to meet the solvency test |
If
a distribution is made to shareholders at any time after a date that a company
is unable to meet the solvency test ,the liability of directors amounts to the
amount paid to shareholders since the date the company was unable to meet the
solvency test, and where by prudent management the directors should have
realised this was the case.
CREDITORS
RIGHTS
The
purpose of the solvency test is to ensure that the rights of creditors are
protected. However, under the
current legislation, the Act does not provide creditors with any direct remedies
upon a breach of the solvency test. This
would, however, only become an issue after the payment of a distribution had
been authorized at a time when the company was insolvent.
The creditors only redress may be through the general powers of
competence of directors, and being able to prove in liquidation that these
powers had been breached.
IMPACT
ON TRADING WHILE INSOLVENT
The Act clearly states that a director must fulfill in this circumstance, which include:
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|
|
A duty not to agree to the company incurring an obligation unless the director has reasonable grounds that the company will be able to perform the obligation |
| Ensure
that they have been fully appraised of the situation of the company.
This is particularly important for directors who are not directly
involved in the running of the company |
| Document
their assessment as to why the company is able to continue in the
foreseeable future |
| It
is important to ensure that when a company is in difficult times
that such considerations are made regularly (e.g. monthly) to ensure
that the directors are meeting their statutory duties.
This may also serve to limit their liability should the company be
placed into liquidation and actions are taken against the directors. |
OPTIONS
OF CREDITORS WHO ARE AGGRIEVED THROUGH THE ACTIONS OF A COMPANY
Four
principal prescribed remedies available to creditors are:
| Statutory
demand- these are a common method for creditors to instigate recovery of
debts, after normal debt collection procedures |
| Place
the company in liquidation under the Companies Act 1993 |
| Place
the company into receivership under the Receiverships act 1993 |
| Apply
for the company to be placed under statutory management under the
Corporations (Investigations and Management) Act 1989 |
LIQUIDATION
OF A COMPANY
A
liquidator can be appointed by three groups of people:
| The
shareholders of the company by special resolution of those shareholders
entitled to vote and voting on the question |
| The
Board of the company upon the occurrence of an event specified in the
constitution |
| The Court, upon application of the company, or a director or shareholder or other entitled person, or a creditor of the company, or the Registrar |
In
cases where application is made to the Court to appoint a liquidator, it will do
so, if it is satisfied that:
| The
company is unable to pay its debts. Or |
| The
company or the Board has persistently or seriously failed to comply with the
Act, or |
| The
company does not comply with the essential requirements of a company (i.e.
has a name, one or more shares, one or more shareholders, one or more
directors, or |
| It is considered just and equitable that the company be put into liquidation |
The
principle duty of a liquidator is to take possession, protect, realize and
distribute the assets to the creditors of the company.
RECEIVERSHIP
A
receiver can be appointed in respect of the property of a person by a deed or
agreement to which that person is a party- usually a debenture.
Where a receiver is appointed, the debenture that provided the means for
appointment usually specifies the grounds on which a receiver can be appointed.
These may include
| Default
in the payment of loans under the debenture |
| Where
the company ceases to trade |
| Where
the company makes arrangements with other creditors in respect of the
payment of debts outstanding |
| Failure to meet obligations placed on the company by the debenture |
Generally
speaking, the receiver, when appointed, becomes the agent of the grantor, and
will be appointed to obtain sufficient assets to meet the demands of the
debenture holder. However, this agency ceases upon the appointment of a
liquidator.
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