Consultation paper examines ‘best practice’


A new Companies Act could force directors to carry out a range of tasks to protect their businesses, in a move that would override the recommendations of the Hampel report.

Proposals in the government’s consultation paper ‘Modern Company Lawsks to protect their businesses, in a move that would override the recommendations of the Hampel report, writes Phillip Inman. for a Competitive Economy’ carry the threat that if recommendations of best practice are ignored by directors then legislation will follow.

‘The government does not intend to replace the use of best practice by legal rules, provided best practice is seen to be working,’ the document says. ‘There may be a need for legislation in certain areas which are not covered by the code, or where experience shows that some legal underpinning is needed.’

Call for a Companies Act revamp

The paper goes on to state that directors have a ‘fiduciary’ duty to act in the interests of their company, rather than in their own interests.

It says the Law Commission is examining whether case law, which has established these basic duties, could be put on the statute book to make it clearer.

John Brace, chairman of ACCA’s business law committee, agreed the current Companies Act needed to be overhauled, but stressed the review by the Department of Trade & Industry should concentrate on the real needs of companies.

He said the DTI should consider corporate governance in smaller companies, the enhancement of shareholder participation rights and innovations in the field of social and environmental reporting.

Progress by small changes

The English ICA argued the DTI should avoid any massive upheaval that might hurt businesses and instead examine minor reforms.

Malcolm Woodford, chairman of the institute’s company law committee, said: ‘There are a number of areas in which minor reforms could make the Companies Act much simpler to comply with and hence more effective.’

The committee wants the review to clarify rules governing the purchase of own shares out of capital and to amend the rules on distributions of non-cash assets. It also wants further protection for auditors by including employees in the current ban on making misleading statements to auditors.

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