The Companies (Shareholders’ Rights) Regulations 2009 (the Regulations) took effect on 3 August 2009. The Regulations implement the EU Shareholder Rights Directive (the Directive) and correct a number of related anomalies in the Companies Act 2006. We have highlighted below some of the key changes, which include a reduction in the threshold for members to requisition general meetings.
The importance of being traded
The Regulations have a wider impact for ‘traded’ companies; being companies that have shares which both (i) carry a right to vote at general meetings and (ii) are admitted to trading on a regulated market in an EEA state. In the UK, this includes the LSE Main Market and the listed elements of PLUS, but does not include AIM.
Changes for all companies (including AIM)
The Regulations lower the threshold for members to require directors to hold a general meeting. Previously set at 10% of the voting share capital, the threshold has been lowered to 5% for both public and private companies. This provides shareholders with greater power against a company’s board, by halving the hurdle that previously needed to be achieved. In the face of hostile members, this change will mean that boards may have to face an increasing number of requisitions, with the associated cost to the company in both time and money.
The 2006 Act had left uncertainty as to whether multiple corporate representatives exercising their votes in different ways led to an invalid vote. Many companies adopted the Designated Corporate Representative (DCR) method advocated by ICSA, and included appropriate wording in their meeting notices to explain this to shareholders. The Regulations now make it clear that multiple corporate representatives are able to vote in different ways, both on a show of hands and a poll, as long as they vote in respect of different shares. This removes the need for the DCR method and so simplifies the procedures for general meetings.
Voting by proxy
The Regulations also go some way towards clarifying the position surrounding proxy voting for votes on a show of hands, providing proxies with the option of voting twice (i.e. both for and against) in order to represent conflicting instructions. Shareholders continue to be able to appoint multiple proxies, so long as these are in respect of different shares. Companies should be alive to the possibility of activist shareholders unduly influencing a vote on a show of hands by appointing numerous proxies over their shareholding. Chairmen have a duty to ensure proper conduct at meetings, and should be fully briefed and prepared to call a poll if necessary for the view of the true majority to be heard.
Changes for traded companies (excluding AIM)
Notice of general meetings
The reduction in the notice period for general meetings (other than AGMs) from 21 to 14 days is now only available to traded companies where members have passed an enabling resolution (as many companies did at their last AGM) and the company provides a facility for electronic voting. There are also additional content requirements for the notice itself.
AIM companies have for a while been required to include specified information on a website under AIM Rule 26. The 2006 Companies Act introduced very limited requirements for ‘quoted’ companies (similar to ‘traded’; again includes Main Market but not AIM) to include information on a website, which have now been extended for traded companies in respect of information about general meetings.
Members’ questions and business at AGMs
The Regulations have codified the right to have questions answered at general meetings, and provide the shareholders with a formal power by which matters to be discussed may be added to the agenda. The potential is there for anything that isn’t defamatory, frivolous or vexatious to be included, providing members with additional opportunities to put the company’s executives in the spotlight.
Practical Steps: Proxy Voting
The introduction of the Regulations provides a good opportunity to review articles, both in the light of the changes and to clarify the position for proxies generally.
- Monitor proxy appointments and be prepared for a poll vote to avoid anomalous results when voting by way of a show of hands.
Tom Shaw is a Partner at Speechly Bircham LLP. Tom specialises in corporate and commercial law and has over 20 years’ experience dealing with advisory and transactional work for public and private businesses including mergers, acquisitions and securities issues.
David Hicks is a Solicitor at Speechly Bircham LLP. David specialises in corporate advice and transactional work for public and private companies, including mergers and acquisitions, securities issues, reorganisations, joint ventures and private equity.