UK: Legal Tools For Active Or Activist Shareholders

Last Updated: 2 November 2015
Article by Christine Phillips

Boards of quoted companies should prepare to face an increasing risk of campaigns from investors.  These may come from activist shareholders, whose investment strategy includes proactively seeking catalysts for value creation often through structural change in the company, or from investors who aim to influence board strategy, either to drive value creation or for commercial,  political, environmental, social or ethical reasons. 

Investors are being encouraged to become engaged and active through recent changes in regulation, in England and at EU level, designed to encourage long term investors.  Investors who may have traditionally taken a more passive approach are being empowered with additional tools enabling them to voice concerns and to influence and implement change.  This article looks at some of the tools available to investors who may be considering actively engaging with a company and highlights  issues which boards increasingly need to be prepared to face.


Listed companies (but not AIM companies) must prepare an annual report on remuneration setting out actual payments to directors and indicating how the company intends to implement its remuneration policy in the coming year.  This report is submitted for approval by an ordinary resolution at the company's annual general meeting.  The vote is advisory and does not bind the company with regard to the terms of remuneration offered to directors.  However, details of how shareholders voted must be included in the next report, together with a summary of the reasons (if known) for any significant vote against and any action taken by the board in response.

Shareholders must also, at least every three years, approve the company's remuneration policy by ordinary resolution - a vote which is binding on the company.  Any remuneration payments which are not aligned with the remuneration policy will have no legal effect.  The UK Corporate Governance Code provides that the remuneration policy must be designed to promote the long term success of the company. 

The EU has proposed EU wide similar "say on pay" provisions for shareholders as part of the proposed changes to the Shareholder Rights Directive.   

Boards should be wary of signs of investor discontent where a remuneration report or policy may be voted down by shareholders.  If this is the case, the board may need proactively to engage with investors to avoid escalation of shareholder action. 

Re-election of directors

An active or engaged shareholder may seek to vote down the re-election of directors retiring by rotation at a company's annual general meeting and may propose replacement appointments.  The company's articles of association will determine the timing and number of directors that would be required to stand for re-election.  

The UK Corporate Governance Code provides for annual re-election of directors of FTSE 350 companies, for directors of smaller quoted companies to continue to be re-elected at intervals of not more than every three years and for non-executive directors to be subject to annual re-election after nine years in office. Whilst the Code is directly applicable only to premium listed companies and is in any event a "comply or explain" regime, boards may now face more active engagement from investors who consider, for example, that appropriate standards of corporate governance are not being met or that board remuneration exceeds their expectations.

Requisitioning a general meeting and removal of directors

Activist or engaged investors holding 5% or more of a company's paid up voting shares can requisition a general meeting and propose resolutions to be considered at the meeting. Often, these will be resolutions to remove certain directors coupled with proposals to appoint alternative directors.

Investors may seek to remove certain directors as part of a strategy to implement change within the company or as part of a campaign to pressure the board for change.  For example, a change in board structure (or pressure for such change) may result in the board approving a share buy back programme or an M&A transaction to secure value creation.  

Investors holding at least 5% of the paid up voting shares (or at least 100 investors holding shares in the company on which there has been paid up an average amount of at least £100) may also require the company to circulate a statement to shareholders (not exceeding 1,000 words) relating to any matter proposed to be considered at a requisitioned meeting. 

Investors holding 5% or more of the company's paid up voting shares (or at least 100 investors holding shares in the company on which there has been paid up an average amount of at least £100) have a similar right to call an annual general meeting. 


An investor should ensure that, in accordance with the Disclosure and Transparency Rules (DTR 5), the company is notified within two trading days if the investor's interests in the company's shares or cash settled derivatives reach, exceed or fall below certain thresholds. The thresholds for a UK company are 3% and then every 1% change thereafter. The company must then disclose any notifications to the market. Acquisitions or disposals which result in a net short position in the shares of a company may also give rise to an obligation to disclose details of that position  under the EU Short Selling Regulations. If a company goes into an offer period under the Takeover Code, investors are required to disclose their interests and dealings when their interest exceeds 1%. 

Boards should, in addition to implementing effective investor communications, also consider the systems they have in place to monitor the company's share register to be aware of changes which may indicate that active investor engagement may commence.   Under section 793 of the Companies Act 2006, a board can require disclosure from any party it believes has or had an interest in the company's shares at any time during the previous three years.  A board may use this process to ascertain details of beneficial interests in its shares.   A company's articles may also provide for disenfranchisement of an investor's shares for non-compliance with a section 793 request.  However, in the light of certain case law, a board should take care if considering this as a course of action and take legal advice beforehand.

Litigation, derivative claims and unfair prejudice

As part of its negotiations with a board, an investor may consider the possibility of action against the company or individual directors, for example, for breach of directors' duties.  Investors or the board may require strategic legal advice on the existence of grounds for such a claim and how best to progress a potential action or how best to protect the board from such a claim.  

Collective action and regulatory issues

An investor may need to gather support from other shareholders as part of its engagement strategy, in order to accumulate sufficient votes to pass a proposed resolution or  to evidence sufficient shareholder support for the purposes of negotiations with the board. 

Under section  116 of the Companies Act 2006, an investor can inspect or request a copy of the share register of the company in order to identify other shareholders whom the investor may wish to approach.   A company is required to keep a register of any interests disclosed under section 793 requests and an investor is also able to inspect or request a copy of this register. 

An investor would need to think carefully about how it approaches other shareholders to canvass opinion and support.  Legal advice should be obtained, particularly where an open approach to shareholders is contemplated or where shareholders are likely to resist an approach where there is a perceived risk that inside information is to be shared with them thereby restricting dealing in the company's securities.

An investor should also seek legal advice to avoid the formation of a concert party which can be presumed where an investor has a "board control seeking proposal".  It would not generally be considered to be control seeking for an investor to seek to appoint non-executive directors where the appointment is being sought to improve standards of corporate governance.  Legal advice should be sought in relation to the wording of any proposed resolutions to this effect as well as the structure of such a proposal more generally. 

If a concert party has been formed, it will be necessary to consider the shareholdings of those in concert to ensure that a Rule 9 mandatory offer has not been triggered under the Takeover Code.  If not, it will remain important to ensure that further stake building is controlled and standstill arrangements may be required to prevent a Rule 9 mandatory offer being subsequently triggered, as well as monitoring compliance with the restrictions on insider dealing and market abuse. 

Whilst ESMA have published a White List of certain activities in which shareholders may engage, which in themselves would not lead to the conclusion that such shareholders are acting in concert, it will remain important to liaise with the Takeover Panel Executive on a case by case basis particularly in light of the Panel's Practice Statement 26 relating to shareholder activism.


Investors may wish to seek support from other shareholders for their proposals by engaging with the press, for example, where it is necessary to achieve support to pass any proposed resolutions.   Equally a board may wish to engage more with  investors via the press to seek support and protect their position. 

Both investors and boards who engage with the press should take legal advice on any press statements to avoid creating grounds for an action in defamation  and to ensure compliance with other regulatory requirements, such as the market abuse regime or requirements relating to price sensitive information.

UK Stewardship Code

The UK Stewardship Code introduced standards of good practice for investors on a "comply or explain" basis which seek to encourage dialogue between investors and the board of a listed company.  This may provide a tool to more passive investors to become more engaged and active in managing their investments in listed companies.  The UK Stewardship Code requires investors to monitor their investee companies, to have in place clear guidelines on when and how they will escalate stewardship activities and to publicly disclose their policy on how they will discharge stewardship responsibilities. It also requires investors to be willing to act collectively with other investors where appropriate. 

The Investor Forum

One of the recommendations of the Kay review of UK equity markets and long-term decision making was the establishment of an investors' forum to facilitate collective engagement by investors.  The Investor Forum was formally launched on 1 July 2014 with the objective of creating value by way of long term investment and may offer some investors an alternative route to discuss and take action collectively.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.