Legal Update for NGBs

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Legal Update for NGBs
The Companies and Charities Acts 2006 5 June
2007 Serena Hedley-Dent
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Legal Structures for NGBs

• NGBs come in various guises the majority are
  companies others Industrial and Provident
  Societies or unincorporated associations
• Limited Liability structures have become
  commonplace for NGBs over the last 20 years so
  that the organisation is a legal entity and the
  members of the Committees (Boards) do not face
  personal liability for actions of the
  organisation.
• Although the administrative side of sport has
  limited liability, many organisations within
  sport do not (eg clubs, county or regional
  associations).

3
The Companies Act 2006

• The Companies Act 2006 received Royal Assent in
  November 2006 and is the result of a major review
  of company law in the UK.
• The Act is the biggest change to company law for
  nearly 20 years and is intended to modernise and
  simplify company law.
• National Governing Bodies (NGBs) established as
  companies will be affected by many of the
  changes.
• The consultation on the timetable for change has
  now ended and the dates for implementation are
  expected to be confirmed shortly.

4
When will the changes take effect?

• Some provisions came into force in January and
  April 2007. These are aimed at enabling more
  companies to save costs by making greater use of
  electronic communication.
• Further provisions will come into force in
  October 2007.
• The remainder of the Act and vast majority of its
  provisions will come into force between April and
  October 2008.

5
In force now - Electronic Communications

• Changes which took effect in January 2007 relate
  to
• electronic filing at Companies House and
• the disclosure of corporate information on
  websites, and in order forms and business letters
  sent in electronic form.
• communications sent to a company by its members
  and
• electronic communications sent by a company to
  its members.
• These changes are relevant to NGBs and may
  require action.
• Changes which came into force in April 2007
  relate to the takeover of public companies and
  are less relevant to NGBs.

6
Electronic disclosure of corporate information

• Business letters and order forms (whether sent in
  paper or electronic form) and websites must now
  include
• company name
• registered number
• place of registration
• registered office address and
• The fact that the company is a limited company if
  it is exempt from using the word limitedin its
  name.
• NGBs therefore need to
• make sure this information is on websites
• review outgoing emails and add this information
  to standard signatures or email footers

7
Electronic communications with members

• The company communication provisions of the Act
  have introduced a new regime which distinguishes
  between communications sent
• in hard copy form (paper)
• in electronic form (email, fax or on disk) and
• by means of a website.
• NGBs wishing to make use of the new electronic
  communications provisions will need to jump
  through the hoops set out in Schedules 4
  (documents sent to a company) an 5 (by a company)
• Members retain a right to require hard copy form.

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Provisions coming into force in the future

• Between now and October 2008 we will see changes
  relating to
• Company constitutions
• Company officers
• Directors duties
• Decision making

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Companies and their constitutions

• Anticipated enforcement date October 2008
• The Articles will become the sole constitutional
  documents of all companies. Provisions currently
  written into the memorandum of an existing
  company will be deemed to be in their articles.
• New simplified model articles will apply to
  companies by default.
• All new companies will have unrestricted objects
  (unless their articles restrict them or they are
  charities).
• NGBs need not do anything but when these changes
  take effect it may be sensible to review the
  articles and set them out in the new form.

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Companies and their officers

• Anticipated enforcement date October 2008
• At least one director must be a natural person
  (not a company). NGBs which are the director of a
  subsidiary or a sole corporate trustees of a
  charity will need to ensure that an additional
  director is appointed.
• All directors may give service addresses for the
  public record.
• A company secretary will no longer be required
  for a private company.

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Statutory duties for directors

• Anticipated enforcement date October 2007
• Directors will have new statutory duties
• to act within their powers
• to promote the success of the company for the
  benefit of its members as a whole and having
  regard to (amongst other matters) the long term
  effect of their decisions, the interests of
  employees and the impact on the community and
  environment
• to exercise independent judgement
• to exercise reasonable care, skill and diligence
• to avoid conflicts of interest
• not to accept benefits from third parties and
• to declare interests in proposed transactions or
  arrangements.

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Directors

• The statutory duties
•  are not comprehensive
•  can apply to de facto and shadow directors
•  are owed to the company (although the Act
  provides a mechanism for members to enforce the
  statutory duties by derivative actions) and
•  reflect wider expectations of responsible
  business behaviour.

13
Decision making

• Anticipated enforcement date October 2007
• Private companies need not hold AGMs but may need
  to amend their articles before ceasing to hold
  them.
• A simple majority or 75 majority will be
  required for a written ordinary or written
  special resolution (not unanimity as under the
  old Act).
• Private companies will be able to hold meetings
  on "short notice" if members holding 90 of
  voting rights agree.
• All registered members will have a right to
  nominate proxies to attend, speak and vote at
  meetings. Every notice of a meeting must contain
  a statement informing the member of this right.

14
Accounts and audit

• Anticipated enforcement date April 2008
• Reduction of filing time limits - 9 months (from
  year end) for private companies.
• Members may limit liability of auditors to such
  amount as is determined by the courts to be just
  and equitable.
• Auditors will commit a new criminal offence -
  knowingly or recklessly giving an incorrect audit
  opinion. This will carry unlimited fines.

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Summary on Companies Act Changes

• NGBs constituted as companies cannot ignore the
  changes
• The changes also apply to subsidiary companies
• NGBS need to consider whether existing practices
  need to be changed to fall into line with the law
• These reforms are designed to make life easier
  and although NGBs may need to take steps to
  obtain consents to communicate electronically,
  this will be worth doing
• NGB Board members may need training on the
  changes to company law and their duties as
  directors

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Charities Act 2006

• Charity and sport background
• The advancement of amateur sport
• Public benefit
• Implications for Sport

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Questions for sport arising out of the Act

• What is amateur sport?
• What happens to community participation in
  healthy recreation (RR11)?
• What does a charity need to do to satisfy the
  public benefit requirement?
• Identifiable benefit
• To the public or a section of it
• People on low incomes must be able to benefit (Re
  Resch)
• Any private benefit must be incidental
• Public Benefit Consultation
• Submissions to Charity Commission

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Final charity law issue Finance Act 2006

• Tax on Transactions with Substantial Donors
• Why is this a problem for NGBs?
• What is a substantial donor and what is the
  relevant chargeable period?
• Is there a relevant transaction?
• What is the risk?
• What should NGBs do?

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Further Information

• For a more detailed article on the Charity Law
  issues, please visit the Sports section of our
  website at www.farrer.co.uk
• Serena Hedley-Dent
• shd_at_farrer.co.uk
• 020 7917 7352