UK: Shareholder Rights Directive - New General Meeting Requirements On Traded Companies

Last Updated: 20 July 2009
Article by Peter Bateman and Simon Howley

On 3 August 2009 the Shareholder Rights Directive will be implemented in the UK via changes to the Companies Act 2006. Traded companies (i.e. those with voting shares admitted to trading on an EEA regulated market, such as the UK Official List) will have to include more information in general meeting notices and on their websites about shareholders' rights to vote, put resolutions and ask questions. In order to continue to hold EGMs on a minimum of 14 days' notice, traded companies will need to pass a special resolution and offer all shareholders the ability to appoint proxies electronically. Separately, the opportunity is being taken to clear up current uncertainties over the rights of multiple corporate representatives and proxies to vote at general meetings.

The new rules apply to general meetings of which notice is given (or, where a meeting is reconvened, was first given) on or after 3 August.

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On 3 August 2009 the Shareholder Rights Directive will be implemented in the UK via changes to the Companies Act 2006. Traded companies (i.e. those with voting shares admitted to trading on an EEA regulated market, such as the UK Official List) will have to include more information in general meeting notices and on their websites about shareholders' rights to vote, put resolutions and ask questions. In order to continue to hold EGMs on a minimum of 14 days' notice, traded companies will need to pass a special resolution and offer all shareholders the ability to appoint proxies electronically. Separately, the opportunity is being taken to clear up current uncertainties over the rights of multiple corporate representatives and proxies to vote at general meetings.

The new rules apply to general meetings of which notice is given (or, where a meeting is reconvened, was first given) on or after 3 August.

Summary

To implement the Directive, the Companies (Shareholders' Rights) Regulations 2009 will amend Part 13 of the Act (Resolutions and meetings) so that:

  • Traded companies that wish to be able to hold EGMs on 14 clear days' notice will need to pass a special resolution every year and ensure that they offer all shareholders the ability to appoint a proxy electronically (usually via their registrars' website) as well as by executing a hard copy proxy form. This is because the Directive mandates a minimum of 21 days' notice for all general meetings, but allows companies to reduce this to 14 days for EGMs if these conditions are satisfied. Many traded companies that have held a general meeting since the Regulations appeared in draft form have already put such a resolution to shareholders. Others should now do so.
  • Shareholders in traded companies will have to be provided with more information in the notice of a general meeting and/or on the company's website about how to vote, put resolutions and ask questions.
  • Traded companies will need to put more information on their websites both before and after a general meeting, including the total number of shares in each class eligible to vote and the percentage of shares that were actually voted. The meeting notice and "matters set out in [it]", and any statements or resolutions validly put forward by shareholders, will have to remain on the website for two years.
  • Any shareholder in a traded company (however few shares he holds) will have a right to put questions at a general meeting and to have them answered by the company at the meeting. But no answer need be given at the meeting if doing so would "interfere unduly with the preparation for the meeting", involve the disclosure of confidential information, be "undesirable in the interests of the company or the good order of the meeting", or where an answer has already been given on the company's website in a Q&A format. Whilst such a right is not new, some shareholders may be prompted to put questions. From the point of view of companies, the procedure for dealing with questions at a general meeting is unlikely to need to change much, but they may find it useful to develop more wide-ranging Q&A sections on their websites. It is also sensible to encourage shareholders to submit any questions ahead of the meeting, in order to give the company time to look into the matter and prepare a considered response.
  • Members with 5% of the voting rights in a public or private company will be able to requisition an EGM. Currently the threshold is 10% (although it can be reduced to 5% for private companies in some circumstances).
  • It will no longer be possible for the chairman of a traded company to have a casting vote at a general meeting.

The Regulations will also clear up anomalies in Part 13 relating to the rights of proxies and corporate representatives to vote at general meetings. These changes apply to all companies, but in practice they will impact mostly on listed and AIM companies. Amendments to sections 282 to 285 and 323 will make clear that:

  • Where a corporate nominee holding for two or more beneficial owners appoints multiple corporate representatives to vote different ways in respect of different underlying blocks of shares, all the votes cast by the corporate representative on a show of hands or a poll will be counted. At present, the relevant sections in Part 13 have been interpreted to mean that the votes of the corporate representatives would be invalid. To deal with the problem, the ICSA developed a complicated temporary solution that involved using the "Designated Corporate Representative" (or DCR) method. But for meetings convened by notice sent on or after 3 August, the DCR method will no longer be necessary.
  • Where a single person, such as the chairman, is appointed as proxy by more than one member, and he is instructed to vote in different ways, he can vote each way on a show of hands (as well as on a poll). Similarly, where a registered holder appoints more than one proxy to vote on behalf of different blocks of shares, each proxy can vote on a show of hands (as well as on a poll).

Of course, whenever the chairman of a general meeting is concerned that the voting on a show of hands may not represent the views of members he should call a poll.

Background

The Shareholder Rights Directive (2007/36/EC) was published in the Official Journal of the European Union on 11 July 2007 with a deadline for implementation of 3 August 2009. The Directive is intended to improve corporate governance by making it easier for shareholders in EEA-incorporated companies with shares traded on an EEA regulated market to exercise their voting rights, to put resolutions and to ask questions. The Commission was particularly concerned to tackle barriers to voting where shares are held by investors who are located in a different country to the issuer, and where there is a chain of intermediaries (such as fund managers, investment advisers and custodians) between the registered holder and the beneficial owner(s).

BERR (now BIS) published a consultation on implementation of the Directive in October 2008 together with draft Regulations. The consultation and draft Regulations also covered the anomalies in Part 13 relating to voting by multiple corporate representatives and proxies. On 21 May 2009 BERR published a revised draft of The Companies (Shareholders' Rights) Regulations 2009.

Changes applicable to traded companies

A "traded company" is defined in a new section 360C of CA 2006 as a company incorporated under the Companies Acts any shares of which carry rights to vote at general meetings and that are admitted to trading on a regulated market in an EEA State by or with the consent of the company. A GB-incorporated company with shares admitted to the Main Market (Official List) of the London Stock Exchange will fall within this definition, but a company with its shares admitted to trading on AIM will not. A private company could also fall within the definition although this would be unusual.

The key changes applicable to traded companies are summarised above. Further details of these, and of other less important changes, are given below:

Period of notice for general meetings

Since 1 October 2007 all companies have been able to hold EGMs on a minimum of 14 clear days' notice unless their articles specify a longer period. (Clear days means excluding the date on which the notice is sent and the date of the meeting.) Most traded companies whose articles previously specified a longer period have removed the relevant provision. But with the aim of allowing shareholders sufficient time to consider the implications of proposed resolutions, and to appoint a proxy or instruct intermediaries how to vote, the Directive mandates a minimum of 21 days' notice for all general meetings. Following intense UK lobbying, however, Member States can choose (as the UK Government has done) to allow traded companies to hold EGMs on 14 days' notice if: (i) they pass an enabling special resolution every year; and (ii) ensure that they offer all shareholders the ability to appoint a proxy electronically, via their own or their registrars' website, as well as by executing a hard copy proxy form. (Allowing proxy appointments to be made through CREST will not, by itself, be sufficient as electronic appointment must be available to all members.)

Many traded companies that have held a general meeting since the Regulations appeared in draft form have already put such a resolution to shareholders. Others should now do so.

The minimum notice period for traded company AGMs remains at 21 clear days.

Where a general meeting has to be adjourned for lack of a quorum, it can be reconvened for a date not less than 10 days after the original meeting (rather than 14 or 21) as long as no new business is added.

Additional information in the meeting notice

The notice of a general meeting will have to include more information, including:

  • The company's website address.
  • The record date for voting (which must be set at a time not more than 48 hours before the time of the meeting).
  • The procedure for members to attend and vote. The cautious view is to assume that this requires a company to explain the procedure for voting on a show of hands, and on a poll.
  • How to appoint a proxy electronically or by completing a form in hard copy.
  • A reminder of the right to ask questions.

Where an AGM notice is sent out more than six weeks before the meeting, the notice must also include a reminder of the rights of shareholders to propose their own resolutions and to add other "matters" to the agenda (see below). In most cases the notice will be sent out within six weeks of the meeting so this information will not have to be included.

Additional information on the company's website before a meeting

From the date a notice of general meeting is sent out until two years later, a company will need to ensure that there is available continuously on its website:

  • "the matters set out in the notice of the meeting". Whereas the Directive requires website publication of all the "documents submitted to the meeting", this wording appears to be narrower and arguably does not require publication of documents that have to be made available for inspection at or before the meeting, such as share scheme rules, an off-market purchase contract, and any acquisition agreement that requires shareholder approval as a Class 1 or related party transaction.
  • the total number of shares in each class eligible to vote.
  • any statements or resolutions validly put forward by shareholders (as soon as possible after they are submitted).

Additional information on the company's website after a meeting where a poll has been conducted

Within 16 days beginning with the day of the meeting (or, if later, the end of the first working day after the result of the poll is declared), in addition to information that must already be given, such as the number of votes for and against each resolution, a company must post on its website:

  • the total number of votes validly cast and the proportion this represents of the total voting rights.
  • "the number of abstentions (if counted)". It may be sensible to interpret this as the number of votes expressly withheld.

Proxy appointments and terminations

A traded company must provide an electronic address for the receipt of proxy appointments and any supporting materials required (such as a copy of a power of attorney giving a non-member authority to appoint a proxy on behalf of the member). The address can be given either in the proxy form itself, any covering letter, or on the company's website.

Right to nominate matters of business at AGMs

A new section 338A gives members the power to include in the business to be dealt with at an AGM "a matter (other than a proposed resolution) which may properly be included in the business". Shareholders in public companies already have a right to add resolutions to the AGM agenda if they number at least 100 and have at least Ł100 paid up on average or if they hold at least 5% of the voting capital. A resolution must be proposed at least six weeks before the AGM, and if it is received by the company before the end of the financial year preceding the meeting any expense must be borne by the company. A company need not include a resolution that would be ineffective, defamatory, frivolous or vexatious. The same qualifications will apply to the new right to include a "matter" – although it is difficult to see what such a matter could be. The same proportion or number of shareholders in a public company continue to have a right to require the company to circulate a statement of not more than 1,000 words about any business dealt with at any general meeting.

Class meetings of traded companies

With some exceptions, the provisions in Part 13 apply by virtue of section 334 to class meetings as well as general meetings. But amendments to section 334 will stipulate that, broadly, the changes described above that are being introduced to implement the Directive do not apply to class meetings of a traded company. In particular, unless the company's articles require a longer period, it will continue to be possible to hold a class meeting on 14 clear days' notice.

No share blocking

Share blocking is a process – unfamiliar in the UK - where, on a specific date prior to a general meeting (usually several weeks before), shareholders are required to notify the company of their identity and intention to vote. After this date the shares cannot be traded. As the block on trading discourages many shareholders from voting at all, the Directive prohibits it and instead mandates a record date system very similar to the one already used in the UK. As a result, investors in UK traded companies will see little change, but those with holdings in some continental overseas companies should find it easier to vote.

Private companies that are traded companies must hold AGMs

This is unlikely to affect many companies, as few private companies will be traded companies.

Other changes that apply to all companies

The Regulations make a number of changes to CA 2006 that apply to all companies. In particular:

  • A new section 324A requires a proxy to vote in accordance with any instructions given by the person who appointed him.
  • A new section 322A allows a company's articles to provide for votes to be cast in advance of a meeting. As with section 324A, this section has been added to ensure compliance with the Directive. Due to the UK's established system of proxy appointments it is unlikely that this option will be taken up by many companies

Changes from the draft Regulations published in May 2009

A number of drafting changes have been made to improve clarity. The only changes of substance are:

  • New section 311A (information to be available on traded company's website before a general meeting) was amended to require the meeting notice and other information to remain on the company's website for two years. The section also now specifies that access to and printing of the documents must be unrestricted.
  • New section 333A (company to provide electronic address for receipt of proxy forms) now gives more detail as to where the address can be given.

Practical implications for traded companies

Add to the business of the next AGM (and, if such a resolution has not already been passed, to the next EGM) a special resolution allowing the company to call EGMs on a minimum of 14 clear days' notice. To be able to do so, the company will also need to ensure that all shareholders can appoint a proxy electronically via the website of the company or its registrars.

For any meeting of which notice is sent out on or after 3 August:

  • Update the procedures for dealing with voting by proxies and corporate representatives.
  • Ensure that the notice includes the additional information described above and that references to the DCR method have been removed.
  • Check that the notes to the proxy form reflect the right to appoint a proxy by electronic means and that on the form itself or the website the company gives an electronic address for receipt of proxy appointments.
  • Update any description on the company's website of shareholders' rights to requisition EGMs, put resolutions and ask questions.
  • Where a poll is conducted, ensure that within 16 days of (and including) the meeting the results and other information specified above are posted on the company's website.
  • Ensure that the chairman is briefed on his responsibilities and powers to govern the conduct and good order of general meetings.
  • Consider developing a new, or more wide-ranging Q&A section on the company's website to which shareholders with questions can be referred.
  • Consider amending the company's articles to bring them into line with the amendments to Part 13 CA 2006. The opportunity could be taken to deal with other matters raised by the implementation of the Act – e.g. to remove objects that will automatically be brought across from the memorandum on 1 October 2009

Text of the Regulations and other materials

The Companies (Shareholders' Rights) Regulations 2009 (SI 2009/1632).

The accompanying explanatory memorandum prepared by The Department for Business, Innovation and Skills (BIS).

BIS has also published frequently asked questions on shareholder rights, and feedback on the consultation process leading to the introduction of the Regulations.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 16/07/2009.

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