02-10-2008
Risk adverse banks may scupper long-awaited legal changes to company sales
Recent changes to the Companies Act are unlikely to have the hard-hitting impact that was anticipated because credit crunch hit banks are unlikely to play ball, says BPE corporate expert Simon Morris.
Although the latest round of amendments, introduced by The Companies Act 2006 which come into force this month, make it easier legally for a private company to provide financial assistance for the purchase of its own shares or shares in its private holding company, Simon suspects that risk adverse banks will still insist on similar procedures to those previously in existence.
“In reality most companies looking to provide financial help for the purchase if its own shares can only afford to do so with some form of bank finance. So although the law has changed banks are likely to develop their own internal procedures which mirror what was previously in place,” said Simon.
“Unless some form of standardisation is introduced, it is possible that procedures will vary from bank to bank, potentially making the process even more complicated. We will watch with interest to see the exact approach to be taken by the main lending institutions,” he added.
The repeal of the financial assistance restrictions has the potential to save the business industry both time and money – however potential new bank procedures could scupper those benefits.
Other changes being introduced by the Companies Act this month include:
• Requiring companies to have at least one real person, as opposed to a business, such as a bank as a director (although a grace period of 10 years has been provided in order to allow companies to put their ‘houses in order’)
• Imposing a minimum age limit of 16 on directors
• Expecting companies to display company details (such as name, registered office address and company number) on all business correspondence including (in certain instances) emails. This change also extends to partnerships for the first time
• A positive duty imposed on company directors to avoid situations in which their interests can, or do, conflict with those of the company
“The Companies Act is one of the most significant legal changes in the past 20 years affecting almost every aspect of how a company is run. With the final round of Companies Act changes due to come into force in October 2009, companies are strongly advised to start considering prospective changes to their constitution now,” added Simon.
Although the latest round of amendments, introduced by The Companies Act 2006 which come into force this month, make it easier legally for a private company to provide financial assistance for the purchase of its own shares or shares in its private holding company, Simon suspects that risk adverse banks will still insist on similar procedures to those previously in existence.
“In reality most companies looking to provide financial help for the purchase if its own shares can only afford to do so with some form of bank finance. So although the law has changed banks are likely to develop their own internal procedures which mirror what was previously in place,” said Simon.
“Unless some form of standardisation is introduced, it is possible that procedures will vary from bank to bank, potentially making the process even more complicated. We will watch with interest to see the exact approach to be taken by the main lending institutions,” he added.
The repeal of the financial assistance restrictions has the potential to save the business industry both time and money – however potential new bank procedures could scupper those benefits.
Other changes being introduced by the Companies Act this month include:
• Requiring companies to have at least one real person, as opposed to a business, such as a bank as a director (although a grace period of 10 years has been provided in order to allow companies to put their ‘houses in order’)
• Imposing a minimum age limit of 16 on directors
• Expecting companies to display company details (such as name, registered office address and company number) on all business correspondence including (in certain instances) emails. This change also extends to partnerships for the first time
• A positive duty imposed on company directors to avoid situations in which their interests can, or do, conflict with those of the company
“The Companies Act is one of the most significant legal changes in the past 20 years affecting almost every aspect of how a company is run. With the final round of Companies Act changes due to come into force in October 2009, companies are strongly advised to start considering prospective changes to their constitution now,” added Simon.
