UK: Shareholder Rights: Going From Strength To Strength

Last Updated: 11 December 2008
Article by Iain Redford and Rachel Curtis

The latest consultation from BERR on shareholder rights looks to clarify some of the discrepancies in the Companies Act 2006 (the "Act") and to implement European legislation.  Many provisions, particularly in relation to main market listed companies, are likely to receive an enthusiastic welcome from the investment community.  Responses to the consultation are due by 31 January 2009 and the changes must be implemented by August next year.

1. Voting At General Meetings

It is good news that amendments are proposed to the rules concerning proxies and corporate representatives as this is an area where gaps have been exposed in the Act and, consequently, change is needed.

  • Proxies

The proposals sensibly give proxies the same rights for voting at meetings as shareholders would have if they voted in person. 

A Proxy Representing More Than One Shareholder:

On a poll, the proxy will be able to vote separately for each shareholder, rather than having to vote in the same way for each.

On a vote by a show of hands, if some of the proxy's shareholders wish to vote for the resolution and some wish to vote against, the proxy would have one vote for and one vote against the resolution.  If the shareholders it represents all want to vote for (or against) a resolution, the proxy would only have one vote for (or against) the resolution.

A Shareholder Represented By More Than One Proxy: (this is relevant for nominee companies who represent several beneficial owners of shares who wish to vote differently from each other):

On a poll, each of the proxies could vote separately as long as they do not represent the same block of shares more than once.

On a vote by a show of hands, only one vote will count as otherwise the proxies would have greater collective voting rights than the shareholder would have if he had voted in person.

  • Corporate Representatives

The plan is to change the Act to make it clear that multiple corporate representatives appointed by a corporate nominee can vote in different ways from each other as long as they are voting in respect of different blocks of shares.  This is an area of the law which has caused much concern in the past.  It is particularly important for nominee companies as they often hold shares for several different beneficial owners who do not always want to vote in the same way as each other.  In the past, ICSA have recommended the use of multiple proxies, rather than risking votes being invalid, but that is not always possible as it takes 48 hours to appoint a proxy.  We expect, therefore, this change to be a popular one.

  • Voting In Advance

It is proposed to introduce a permissive regime whereby companies can allow shareholders to vote and/or demand a poll by correspondence (either electronically or through the post).  To take advantage of this the company must change its articles.  If a change is made by a main market listed company, their articles must only allow the company to refuse voting in advance of a general meeting if, after proportionate means have been used, it is unable to ensure the identity of the members taking part.  It will be interesting to hear thoughts on what constitutes "proportionate means".  If implemented, this would mean that a proxy or representative would not need to be appointed. 

2. General Meetings

The underlying objective is to increase shareholder participation in general meetings, particularly AGM's, by increasing shareholders' rights to be heard and by making it easier to participate.

  • Members' Power To Force A General Meeting

The proposal is to enable shareholders holding just 5% of the voting rights of the company to force directors to call a general meeting (currently this is 10%).  This is a significant change to the law as it will give shareholders much greater control over the holding of general meetings.  In addition, for main market listed companies, the proposal is to allow shareholders holding 5% of the voting rights to force companies to include particular matters on the agenda of an AGM. 

  • Shareholders' Right To Ask Questions At General Meetings And To Have Them Answered. 

This proposal only applies to main market listed companies, and would make it mandatory for these companies to answer questions put by a shareholder at a meeting.  The chairman would be allowed some discretion to refuse to answer, such as whether the question relates to the business being dealt with at the meeting or would be "undesirable in the interests of good order of the meeting that the question be answered".  This is, however, quite a change in emphasis and will put a degree of responsibility on chairmen to decide whether or not a question must be answered.

  • Electronic Meetings

Members will be able to attend, speak and vote at meetings over the internet, rather than all needing to be present in one room. Main market listed companies would only be allowed to refuse the use of an electronic meeting if, after "proportionate means" have been used, it is unable to ensure the identity of the members taking part and the security of the electronic communication. 

Clearly, the potential cost savings are substantial but we suspect good old fashioned physical meetings will continue to have a role to play for some time to come.

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.

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