New regulations, containing a number of significant provisions on the rights of shareholders in listed companies, were signed into law this morning. The Shareholders' Rights (Directive 2007/36/EC) Regulations 2009 (the Regulations) implement the provisions of a new EU directive due for implementation this month by member states across the EU.
The Regulations will be of interest to shareholders of listed companies in Ireland and also to the companies themselves who, as a result of the Regulations, may want to take action in a number of areas.
The Tánaiste and Minister for Enterprise, Trade and Employment, Ms. Mary Coughlan, this morning stated that the Regulations "introduce new rights for shareholders and provide for timely access to company information. They also promote the use of simplified electronic or internet-based means for shareholders to exercise their right to vote at general meetings of publicly listed companies... [and] would assist in increasing shareholders' understanding, activism and engagement with the companies that they own."
This note deals in brief with the scope of the Regulations, some of the key provisions of the Regulations, when the Regulations take effect for listed companies and the steps companies may wish to take as a result of the Regulations. Please feel free to contact us should you wish to discuss any aspect of the Regulations further.
Scope of the Regulations
The Regulations apply to companies listed on the Main Market of the Irish Stock Exchange and to companies listed on a regulated market elsewhere in the EU but having their registered office in Ireland. The Regulations do not apply to companies whose shares are traded on AIM or IEX, to UCITs and non-UCITs or to companies without a listing.
In general, the rights granted under the Regulations apply only to the registered members of affected companies. (There was a concern on previous drafts of the Regulations that rights might be extended to other persons such as the holders of depository receipts. A&L Goodbody strongly urged the Department of Enterprise Trade and Employment (DETE) to limit the scope of the Regulations to registered members only, because extending rights to persons other than registered members would simply have been unworkable, and, thankfully, this key concern was addressed in the final Regulations passed into law today.)
Power of Members to Requisition an EGM
Previously, members representing not less than 10% of the paid up voting share capital of the company could requisition an EGM under the Irish Companies Acts. The Regulations amend this provision so that, in respect of listed companies only, members representing not less than 5% of the paid up voting share capital of the company can now requisition an EGM. A similar amendment has been introduced in the UK on this issue under equivalent regulations.
Notice Period for EGMs
Another significant provision of the Regulations concerns the notice period for EGMs. Previously under Irish law, AGMs were required to be held on 21 days' notice, but EGMs (other than meetings for the passing of a special resolution) could be held on 14 days' notice. The Regulations now provide that EGMs of listed companies (other than meetings for the passing of a special resolution) may be held on 14 days' notice, only where:
(a) the company passes a special resolution at its next general meeting (and every AGM thereafter) approving the holding of EGMs on 14 days' notice; and
(b) the company offers all members the facility to vote by electronic means.
Even though EGMs are relatively rare, given that their subject matter is generally important and sometimes urgent, it is anticipated that many companies will want to retain the right to hold EGMs on 14 days notice and, therefore, implement conditions (a) and (b) mentioned above to facilitate this. As regards condition (a), we recommend that companies pass this resolution as soon as possible at their next general meeting. As regards condition (b) above, we recommend that the company's articles of association be reviewed to ensure that members are permitted to vote by electronic means. (We understand from the DETE that voting by electronic means for this purpose effectively means appointing a proxy holder electronically. However we had asked that the Regulations clarify this point to put the matter beyond doubt. Unfortunately they do not seem to do so, and therefore the point is not entirely free from uncertainty.)
Members' Right to Ask Questions at Meetings
Members will have the right to ask questions related to items on the agenda of a general meeting and to receive answers, subject to certain qualifications (such as where the answer has already been given on the company's internet site or where the chairman considers that answering the question is undesirable in the interests of the good order of the meeting). Prior to this, a member's right to be heard was somewhat more limited and had no statutory basis. Changes such as this are likely to be of interest to chairpersons of listed companies.
Members' Right to Put Items on the Agenda of AGMs and to Table Resolutions
The Regulations provide that member(s) holding 3% of the issued share capital of the company, representing at least 3% of its total voting rights, will have the right to put items on the agenda and to table draft resolutions at AGMs. The request must be received by the company at least 42 days before the relevant meeting. Where an agenda has been circulated to members prior to the exercise by a member of this right, the company must re-circulate a revised agenda.
This new members' right does not apply to EGMs.
Publication of the Date of the Next AGM
The Regulations provide that in order to facilitate a member availing of the right to put items on the agenda of AGMs and to table resolutions, mentioned above, the company shall ensure that the date of its next AGM is placed on its internet site by:
(a) the end of the previous financial year; or
(b) not later than 70 days prior to the date of the AGM;
whichever is earlier.
This is a new requirement for listed companies which could perhaps in some cases be somewhat onerous. Companies will need to bear this requirement in mind well in advance of the planning of AGMs going forward.
Content and Publication of Notices of General Meetings
The Regulations contain a number of provisions on notices of general meetings of listed companies, including the following:
- Notices of general meetings must contain certain minimum information.
- The company must publish on its internet site a specified minimum list of items prior to a general meeting, such as the notice, share information and documents to be submitted to the general meeting.
- A notice of a general meeting must be free of charge and issued in a manner ensuring fast access to it on a non-discriminatory basis (presumably to ensure that resident and non-resident shareholders receive notice at the same time).
Electronic Participation and Voting in Advance
Listed companies will now be allowed to offer members participation in and voting at general meetings by electronic means (although there is likely to be debate about exactly what this means). Listed companies will also be allowed to offer the possibility of voting by correspondence in advance of a general meeting. However neither of these provisions is mandatory and companies are merely permitted to provide these facilities. Having said that, it is possible that in the future companies may come under pressure from members to provide such facilities.
The Regulations also contain a number of provisions around the appointment of proxies and professional nominees in listed companies, including the following:
- Proxy holders will now be under a statutory duty to act in accordance with shareholder instructions.
- Proxies may be appointed (and the appointment may be revoked) by either written notification to the company or by electronic means.
- More than one proxy may be appointed by a member in certain circumstances. Previously under the Irish Companies Acts, members could only appoint more than one proxy to attend on the same occasion where the articles of the company provided for it. Now, a member of a listed company can appoint more than one proxy in respect of shares held in different securities accounts. In addition, a member of a listed company acting as an intermediary on behalf of a client shall not be prohibited from appointing more than one proxy to act on behalf of the intermediary's various clients.
Establishment and Publication of Voting Results
The Regulations also provide that, where a member requests a full account of a vote before or on the declaration of the result of the vote at a general meeting, the company must establish for each resolution the number of shares for which votes have been validly cast, the total votes validly cast, the proportion of the share capital represented by those votes, the number of votes cast in favour and against and the number of abstentions.
In addition, voting results must be published on the company's internet site not later than 15 days after the meeting.
When the Regulations Take Effect for Companies
The Regulations come into force today, 10 August 2009, but apply in relation to meetings of listed companies of which notice is given on or after today's date.
(We had hoped (and had petitioned the DETE) that the Regulations would apply to meetings only after the next AGM of each company following today's date, so as to ensure that companies had time at their next AGM to make any changes required to be made to their articles of association to take account of the Regulations. However, having liaised with the DETE, it seems that there is some understanding that the articles of association of a company may not fully reflect the changes brought about by the Regulations until the end of their next general meeting.)
Next Steps for Listed Companies
There are a number of issues, from a legal perspective, arising out of the Regulations in relation to which listed companies may decide to take action. In particular, it is advisable for companies to propose a resolution to deal with the issue of EGM notice, mentioned above, as soon as possible at their next general meeting. In addition, companies should consider having their articles of association reviewed in light of the provisions of the Regulations to identify any amendments which may be required to be made, for example in the areas of the appointment of proxies by electronic means, the appointment of multiple proxies in certain cases and the contents of notices of general meetings.
Full text of the Regulations is available below:
S.I. No. 316 of 2009 (0.12 MB, Adobe PDF)