Companies Act 2006 raises environmental threat

UK company directors could face law suits from all over the world for causing environmental damage following this week’s implementation of the Companies Act 2006 (CA 2006), lawyers warn.

Paul Lester, a partner specialising in corporate law at LG, warns that the legislation opens the door for directors to be sued in British courts for damage to the environment in any part of the world.

“This is genuinely groundbreaking in that it is no longer going to be enough for directors solely to focus on the bottom line when assessing their company’s performance—they will also have to consider what impact the company’s activities might have on others and be able to demonstrate that they have fulfilled their corporate and social responsibility,” he says.
Colleen Theron, head of LG’s environmental practice, says CA 2006 will force companies to demonstrate and verify their environmental and social practices.

She says: “The impact is potentially much greater, as businesses will be forced to carry out internal risk assessments and review all their policies and procedures on the environment and social issues to avoid the risk of lawsuits.”

CA 2006 also changes the procedure for bringing derivative actions—which could make it easier for shareholders to sue directors—and introduces new rules on meetings and shareholder resolutions.