Section 22(2) of the Companies Act 2006 provides that a provision for entrenchment in a company’s Articles can only be made on formation of the company or with the unanimous consent of its members. Implementation of this provision has been delayed indefinitely to allow further time to consider concerns that have been raised.
A provision for entrenchment is a provision to the effect that certain provisions of the Articles can only be amended if certain procedures are complied with that are more restrictive than a special resolution.
Commentators have raised concerns that this definition could include class rights and so make it difficult to create or amend rules for variation of class rights. The implementation of Section 22(2) (which was due to come into force on 1 October 2009) has been postponed to give BIS further time to consider and consult on the provision.
The Companies Act 2006 and Limited Liability Partnerships (Transitional Provisions and Savings) (Amendment) Regulations 2009 (SI 2009/2476) are available at http://www.opsi.gov.uk/si/si2009/pdf/uksi_20092476_en.pdf
and an explanatory memorandum is available at http://www.opsi.gov.uk/si/si2009/em/uksiem_20092476_en.pdf.
FAQs on entrenchment have been published by BIS and are available at http://www.berr.gov.uk/whatwedo/businesslaw/co-act-2006/faq%20Act%202006/page38503.html.
