The CA 2006 requires certain details about a company’s directors to be disclosed. The required disclosure may be to the public generally, to the members of the company concerned or simply to the directors, depending on the information concerned.
Disclosure of identity of directors and secretary
Companies are required to disclose certain information concerning their directors and secretary to the public generally. This requirement is found in ss.162-164 and 167 (for directors) and ss.275-278 (for secretaries).
In accordance with these sections, every company must maintain a register of both its directors and secretaries (if, for a private company, it has elected to have a secretary) and should keep this register at its registered office (or any other place as specified in regulations made by the Secretary of State). Each company must also notify the Registrar of Companies (i.e. Companies House) of changes relating to its directors or secretary.
The particulars which must be registered in relation to directors are specified in ss.163(1) and 164 and those for secretaries in ss.277(1) and 278(1) (for individual directors/secretaries and corporate entities respectively).
The information kept at Companies House is available for inspection by the public (s.1085(1)) and, in addition, the register kept at a company’s registered office must be open for inspection by any member of the company without charge and by any other person on payment of a fee (s.162(5) and s.275(5) for the register of directors and secretaries respectively).
Companies House publishes forms to be used for registering such information. In relation to directors, form AP01 is used to notify appointments (this replaced the previous form 288a); form TM01 is used to notify resignation or removal (replacing form 288b); and form CH01 is used to notify change of details e.g. address (replacing form 288c). Whilst all registrations must be on the current forms, you will undoubtedly come across the old forms in practice when looking at a company’s filing history.
The relevant sections requiring registration at Companies House are:
- s.167 for directors; and
- s.276 for the secretary.
Under the CA 1985, directors were required to disclose their residential address on the register of directors, which was available for the public to see. If a director did not want their details to be made available to the public they had to apply to the Secretary of State for a confidentiality order.
The provisions of CA 2006 allow the directors and secretary more confidentiality. Section 163(1) specifies that only a service address for a director needs to be included on the company’s register of directors (or s 277(5) in relation to the address to be included on the company’s register of secretaries). This service address can either be the director’s residential address (if they are not concerned with the need for privacy) or could simply be the company’s registered office and will be the only address available to the public generally. Residential addresses that are already on the public register will not be removed automatically.
Individual directors (but not secretaries) will still have to provide their residential address under s.165 but this information will be kept on a separate, secure register. This register is not open to public inspection.
Disclosure required in notes to annual accounts
Certain information relating to a director’s benefits must be disclosed in the company’s annual accounts under ss.412 and 413.
Section 412 relates to information about directors’ (and past directors’) remuneration and gives the Secretary of State the power to make provision to determine what information will need to be included in the company’s annual accounts. The Small Companies and Groups (Accounts and Directors’ Report) Regulations 2008 and the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 set out in detail the information which needs to be included in the notes to a company’s annual accounts.
This includes information relating to:
- the directors’ salaries, bonus payments and pension entitlements; and
- compensation paid to directors and past directors for loss of office.
Section 412 also applies to any payments made to, or receivable by, a person connected to such a director or a body corporate controlled by a director.
Section 413 relates to the disclosure of information on advances and credits given by a company to its directors, and guarantees entered into by a company on behalf of its directors. The Secretary of State has the power to require any additional information to be disclosed in the notes to a company’s annual accounts under ss.396(3)(b) and 404(3)(b) for individual and group accounts respectively. Section 413 applies to a person who was a director at any time during the applicable financial year.
Every company must send a copy of its annual accounts to every member of the company under s.423(1).
Disclosure of interest in transactions or arrangements
The requirement for directors to disclose any interest they have in any transactions or arrangements with the company will depend on whether it is an existing or proposed transaction/arrangement. A director need only make a disclosure under either s.177 or s.182 (depending on the timing of the transaction or arrangement). So if an interest has already been disclosed under s.177 (see paragraph 2.3.1 below) the director does NOT have to also disclose it under s.182 (see s.182(1)).
Directors to disclose interest in proposed transactions or arrangements (s.177 CA 2006)
This is one of the general duties of directors set out in Chapter 2 of Part 10. Under s.177 it is the duty of a director of a company who is in any way, whether directly or indirectly, interested in a proposed transaction or arrangement with the company to declare the nature and extent of that interest to the other directors of the company. This may, but need not, be declared at a board meeting or by giving general notice.
There are a number of points to note in relation to this provision:
Direct or indirect interest
A direct interest is easy to identify. An example would be where a director is to enter into a service contract with the company. In such a case, the director will clearly have a direct interest in the proposed transaction.
An indirect interest is not as easy to identify. The case referred to below gives some guidance. Where a director has some interest whether through a spouse or another relative or through a company in which he/she is a member, the director is likely to be deemed to have an indirect interest. Therefore, the director himself does not have to be a party to the transaction for these provisions to apply.
Re British American Corporation (1903) – If a director of Company A is also a member of Company B then that director will be regarded as indirectly interested in any contract that his company, Company A, enters into with Company B.
When must the interest in the contract be disclosed?
Section 177(4) states that a declaration must be made before the company enters into the transaction or arrangement. However, it is important to check the company’s articles of association for any additional requirements the articles may impose; for example, an obligation to disclose at the earliest opportunity.
A further declaration must be made if the original declaration of interest proves to be or becomes, inaccurate or incomplete (s.177(3)).
When does a director not need to make a declaration?
Section 177(5) and (6) set out when a director is not required to make a declaration; namely when:
- the director is not aware of the interest or transaction or arrangement in question (a director is treated as being aware of the interest or transaction/arrangement if it is a matter of which he ought reasonably to have been aware);
- the interest cannot reasonably be regarded as likely to give rise to a conflict of interest or the other directors know about or ought to have known about the conflict of interest; or
- if the conflict arises because it concerns his service contract and his service contract has been or will be considered by the board, or a committee of the board, of directors.
In practice, directors are likely to continue to declare their interest even if the other directors know or ought to have known about any conflict. This can easily be documented in the board minutes and avoids the need to rely on an exception that may or may not apply.
Written notice
If a director discloses an interest to the other directors by way of written notice rather than in a meeting of the directors then the notice must be sent to all directors either electronically (if agreed) or in paper form (s.184).
General notice
Under s.185, a director can give general notice to the effect that he is always to be considered interested in any transaction or arrangement with a specified party. This will be if a director has an interest in a specified body corporate or firm (s.185(2)(a)) or is connected to a specified person (s.185(2)(b)).
For example, where a director of Company A is a shareholder of Company B and Company A has business dealings with Company B, the director could make a general disclosure to the board of Company A that he will have an interest in all contracts with Company B for as long as he remains a shareholder.
The same principle would apply if, for example, the director’s father had ongoing business dealings with Company A.
Under s.185(3), the general notice must state the nature and extent of the director’s interest in the body corporate or firm or the nature of his connection with the person.
Effect on Chapter 2, Part 10 (ss.170 – 181) CA 2006
It is important to note that disclosure of an interest by a director does not absolve the director from the need to comply with the other general duties under Chapter 2 of Part 10 and the other statutory duties of directors.
Consequences of non-disclosure
If a director (or shadow director) fails to comply with s.177, the consequence will be the same as for failure to comply with any of the general duties of directors under ss.170–177 (except for s.174; see paragraph 1.3.2 above). The consequence will therefore be the same as would apply under the corresponding common law rule or equitable principle.
Directors to disclose interest in existing transactions or arrangements (s.182 CA 2006)
Similar to s.177 above, a director of a company who is in any way, directly or indirectly, interested in a transaction or arrangement that has been entered into by the company must declare the nature and extent of that interest to the other directors of the company either at a meeting of the directors, by notice in writing under s.184 or by giving general notice under s.185.
The provisions relating to s.177 set out above apply equally to s.182 with the following exceptions:
When must the interest in the contract be disclosed?
Section 182(4) states that an interest in an existing transaction or arrangement should be disclosed as soon as is reasonably practicable.
Consequences of non-disclosure
The disclosure requirement under s.182 is not a duty (unlike under s.177). A director who fails to comply with s.182 will have committed a criminal offence and could be liable to a fine under s.183. However, subject to any other relevant statutory provisions, the director’s service contract will not be affected by any such failure.
The s.182 requirement applies equally to sole directors of a company and shadow directors. However, in both instances certain adaptations to the above requirements apply under s.186 and s.187 respectively.
Model Article 14
MA 14 specifies that a director who is interested in a transaction or arrangement with the company cannot vote on or count in the quorum for board resolutions in respect of that transaction or arrangement.
This could cause difficulties in small companies like Mange Tout Limited described in Exercise 1 below. However, MA 14(2) and (3) allow the conflicted director to count in the quorum and vote if:
- the company disapplies MA 14(1) by ordinary resolution;
- the director’s interest cannot reasonably be regarded as likely to give rise to a conflict of interest; or
- the director’s conflict arises from a permitted cause (defined in MA14(4)).
An alternative, and more permanent, measure would be to remove the article under s.21 CA 2006 (assuming the provisions are not entrenched; see s. 22) and replace it with an article expressly permitting a director interested in a transaction or arrangement with the company to vote and count in a quorum on board resolutions to approve the transaction or arrangement.
Disclosure of information concerning directors’ service contracts s.228 CA 2006
The company must keep at its registered office (or such other place as specified in regulations made by the Secretary of State) copies of its directors’ service contracts. If the contracts are not in writing, written memoranda setting out the terms of service contracts must be kept. These must be retained for at least one year after the date of termination or expiration of each contract.
Copies and memoranda must be open to inspection by any member of the company without charge (s.229(1)). In addition, members have the right, subject to payment of a fee, to request a copy of the service contract/memoranda (s.229(2)). Non-compliance with the disclosure obligations in s.228 and/or s.229 will mean that every officer of the company in default will commit an offence.
What constitutes a service contract is set out in s.227 and is widely defined so as to apply to the terms of a person’s appointment as a director as well as to any contracts for services. The requirements relating to service contracts (as well as the wider requirements under Chapter 5 of Part 10) apply equally to shadow directors (s.230).
Members’ approval of directors’ service contracts (s.188 CA 2006)
Under s.188, shareholder approval by ordinary resolution is required for any director’s service contract which is, or may be, for a guaranteed period in excess of two years (referred to as the ‘guaranteed term’). The guaranteed term applies to either:
- a period during which the contract is to continue other than at the instance of the company (i.e. a contractual term of more than two years or where the director is in control of how long the contract continues), and
- during this time the company either cannot terminate the contract or can only terminate in specific circumstances (s.188(3)(a)).
OR
- the period of notice to be given by the company (s.188(3)(b)).
It will also apply to an aggregate of any periods covered by either s.188(3)(a) or (b). For example, if a company is unable to terminate a director’s service contract for the first 18 months of the term and thereafter has to give a minimum of nine months’ notice to terminate, this contract will fall within s. 188(3) because the aggregate period of the two provisions is in excess of two years. Such a contract will need to be approved by an ordinary resolution.
A written memorandum setting out the proposed contract incorporating the provision which relates to the term must be made available to all members before the resolution can be passed (s.188(5)).
Wholly-owned subsidiaries: Under s.188(6)(b) approval is not required by the members of any company which is a wholly owned subsidiary of another company.
Consequences of non-compliance
If a company agrees to a provision in a service contract in contravention of s.188, the provision will be void to the extent of the contravention under s.189, and the contract will be deemed to contain a term entitling the company to terminate it at any time by the giving of reasonable notice.