Update | Company: women on boards, funding for SMEs, directors' loans, company names

Lord Davies has recently published ?his second annual progress report into the number of women on the boards of UK FTSE companies.

In his original report of February 2011, Lord Davies recommended a target of 25 per cent of female representation on the boards of UK FTSE 100 companies being implemented by 2015.

For the second year running, Lord Davies has reported a growing number of women on the boards of UK FTSE companies. As of 1 March 2013, women accounted for:

? 17.3 per cent of FTSE 100 board positions compared to 12.5 per cent in February 2011 and 15.6 per cent in 2012; and

? 13.5 per cent of FTSE 250 board positions compared to 7.8 per cent in February 2011 and 9.6 per cent in 2012.

?Commenting on the progress, Lord Davies said: "This has never been a hard sell. Companies see that having more women at their top table makes good business sense, especially if we are operating in a global market. We've come a long way over the last two years but we must not get complacent and take the foot off the gas."

However, despite significant progress since 2011, Business Secretary, Vince Cable, has voiced his concerns that progress has slowed and as a result the target of 25 per cent of female representation on all FTSE 100 boards by 2015 may not be reached. He said: "…government continues to believe that a voluntary led approach is the best way forward…[the] report also serves as a timely reminder to business that quotas are still a real possibility if we do not meet the 25 per cent target of women on boards of FTSE 100 companies by 2015".

Lord Davies has also urged companies not to rest "on their laurels and think the job is done" and to maintain their focus on boardroom diversity.

Giving back

On 24 April 2013, the Bank of England and the HM Treasury announced an extension to the Funding for Lending Scheme (FLS) by one year until 31 January 2015.

The FLS launched on 13 July 2012 and is designed to increase the incentives for banks and building societies (banks) to lend to UK households and non-financial companies. The FLS operates by allowing banks to borrow money from the Bank of England at a reduced rate, which in turn allows the banks to provide loans at a cheaper rate themselves.

In addition to the FLS being extended, two further changes to the FLS have also been announced.

Firstly, the banks are being encouraged to lend more to SMEs. For every £1 of net lending to SMEs in 2014, Banks will be able to draw £5 from the FLS, and to encourage banks to lend to SMEs "sooner rather than later", every £1 of net lending to SMEs during the remainder of 2013 will be worth £10 of initial borrowing allowance in 2014.

Secondly, the FLS has been expanding to non-banks such as leasing companies meaning they will be able to access cheaper funding through the FLS for the first time. The remaining provisions of the FLS remain the same.

The Governor of the Bank of England said about the extension: "The FLS has contributed to a sharp fall in bank funding costs and an improvement in credit conditions since the middle of last year. The changes announced today build on that success by broadening the scope of the scheme and ensuring that it will continue to support the supply of credit, especially to small companies, into 2015. I believe such an extension is valuable as it gives banks continued assurance against the risk that market funding rates increase. Today's announcement is, however, a complement to, not a substitute for, ensuring that our banks are adequately capitalised."

The Chancellor of the Exchequer said: "This is a big boost for the small and medium sized businesses that are at the heart of the British economy. The Funding for Lending Scheme has already reduced the costs of household mortgages and loans for businesses. This innovative extension will now do even more for small and medium sized businesses so that they can play their full part in creating new jobs."

This extension is welcome news. However, more could still be done to increase lending to SMEs, and to enable this to have some significant impact on the economy and its growth.

With effect from the Budget 2013 (20 March 2013), the rules have changed regarding the repayment of directors' loans to prevent directors from effectively using their director's loan account as an interest-free loan.

If you are self-employed, you can take money out of your business at any time and use it as your own without any disadvantage to the business.

However, as a company is a separate legal entity, any money that you take out of the business over and above any money that you have put in (and if that money is not due to you in the form of a salary or a dividend) is treated as a loan. The director has received the benefit of a director's loan from their director's loan account.

Prior to the Budget 2013, if the director's loan was repaid in full within nine months after the end of the company's accounting period, then there were no tax implications for the company.

However, if the repayment was not made in full within nine months after the end of the company's accounting period, then the company was subject to a 25 per cent corporation tax bill on the outstanding loan, and the loan was treated and taxed as a benefit in kind in the hands of the director.The company was then able to reclaim the tax paid once the director's loan had been repaid in full.

Due to the nature of the rules prior to the Budget, many directors were tactically repaying their director's loans off immediately prior to the nine month period ending, and soon after were simply taking out a similar loan from the company.

HMRC has amended the rules so as to deny tax relief for the loan where repayment of the original loan and subsequent re-borrowing are made within a short period of time. The effect of this being that a director can no longer take a further loan from the company (or make any arrangements for such borrowings) until at least 30 days have elapsed from the date of the original repayment. Any re-borrowing during this period will result in the company being unable to receive its 25 per cent corporation tax liability back.

What's in a name?

As part of the government's commitment, under the Red Tape Challenge, to reduce unnecessary regulatory burdens, the Department for Business, Innovation & Skills (BIS) has launched a consultation to determine whether the regulations relating to company and business names should be repealed or reduced in scope.

Regulation of company and business names aims to ensure that the general public are not misled by requiring each company name to be easily distinguishable from another. However, the regulations are often complex and overly restrictive and have therefore proved to be a real source of frustration for many companies.

The current regulations limit the words and expressions that companies can use in their company name. Words and expressions that are deemed to be "sensitive" words (e.g. words that suggest a business pre-eminence, or a particular status, or a specific function), or that are deemed to be the "same as" another name appearing on the registrar's index of company names, can not be used without obtaining express consent from ?Companies House.

The consultation proposes to simplify, reduce or even remove some regulations entirely. It is suggested to significantly reduce the list of "sensitive" and "same as" words to give companies greater flexibility.

The Mental Health (Discrimination) Act 2013 (Act) has been published.

Section 3(1) of the Act (which comes into force on 28th April 2013) revokes certain provisions of the model articles, set out in Schedules 1 to 3 of the Companies (Model Articles) Regulations 2008 (SI2008/3229).

The Act removes the model article which provides for the automatic termination of a director's appointment as soon as "…by reason of that person's mental health, a court makes an order which wholly or partly prevents that person from personally exercising any powers or rights which that person would otherwise have."

This move follows criticism that the inclusion of the article was discriminative against people with mental health issues.

For companies that adopt the model articles as their articles of association, this change may result in the automatic removal of the above article from its articles of association. ??Buy back

A company wanting to buy back its own shares has to comply with the provisions set out in the Companies Act 2006 (CA).

A company may want to buy back its own shares for various reasons including: to return surplus cash to its shareholders; or to provide an exit route for its shareholders.

On 19 March 2013, a revised draft of the Companies Act 2006 (Amendment of Part 18) Regulations 2013 was published, which amends the current legislation regarding share buybacks. The key changes include:

(a) Section 692(1) of CA has been amended to allow private companies to buy back shares using small amounts of cash (not exceeding the lower of £15,000 or 5 per cent of share capital in any financial year) that does not have to be identified as distributable reserves, if permitted to do so by its articles. ? Prior to this, a private company ?could only purchase its only shares ?out of distributable reserves, out of capital (subject to various requirements), or out of the proceeds of a fresh issue of shares made for the purposes of financing the purchase.

(b) A new section 693A in the CA extending the ability to authorise in advance multiple share buyback contracts to private companies, where the buyback is connected with an employees' share scheme.

(c) New sections 720A and 720B in the CA allowing private companies to finance buybacks (for the purposes of, or pursuant to, an employees' share scheme) out of capital, subject to ?various requirements.