Although the vast majority of the Companies Act 2006 is not yet in force, some of its provisions came into force on 20 January 2007. These are the sections dealing with company communications with shareholders and others, including electronic communications and communications via a website, together with provisions regarding notification of interests in shares to public companies and rights to investigate who hold shares in public companies. Companies whose shares are admitted to trading on a regulated market, or a UK prescribed market - including companies on the Official List, on AIM and on the PLUS (Ofex) markets - will also need to comply with the communication requirements in Chapter 6 of the FSA’s Disclosure Rules and Transparency Rules, which also came into force on 20 January 2007.
This note considers how all companies can take advantage of the new regime for electronic communications, resulting in cost savings from reduced print requirements. These steps will include reviewing and if necessary amending the articles of association, possibly at the next AGM, and seeking the consent of shareholders to electronic and website communication. The note then goes on to describe the new rules relating to disclosure of shareholdings in listed companies and investigations into public company shareholdings.
Schedule 5 of the 2006 Act allows companies to send documents and information to shareholders in electronic form and by a website. However, this is subject to shareholder approval. The 2006 Act also introduces a new provision allowing a shareholder to communicate with the company by electronic means where the company has given an electronic address in a notice calling a meeting or in a proxy form.
“Electronic means” would include email or fax. It would also include delivery of a disk on which documents or information are stored.
What do companies need to do in order to be able to send documents and information to shareholders in an electronic form? Companies wishing to use electronic communication will need to obtain shareholder approval in a general meeting. Some companies may already have arrangements in place for this under the relevant parts of the 1985 Act, but may wish to extend the current arrangements, for example to cover a wider category of documents. These approvals could be sought at the 2007 AGM.
In addition, unless the shareholder is also a company that has agreed to receive documents or information in electronic form, a request letter will have to be sent to each shareholder asking for agreement to receive documents or information in an electronic form. The shareholder should also be requested to supply an electronic address for this purpose.
Other arrangements will also need to be put in place to identify shareholders and other persons who control voting rights so that they can be effectively informed of the matters they are entitled to be informed of under the Transparency Directive.
What do companies need to do in order to be able to send documents and information to shareholders by website? Companies may need to amend their articles, possibly at the next AGM, to permit the company to communicate with its members via a website where this is not already permitted.
Companies would also need to obtain shareholder approval in a general meeting to communications by website if there are not already arrangements in place under the 1985 Act. Again, this approval could be sought at the 2007 AGM.
A request letter will also need to be sent to each shareholder asking them to consent to the company sending documents or information via a website. It must be clearly stated that shareholders will be deemed to agree to this unless they notify the company within 28 days that they wish to receive documents or information in another form. A request letter will be ineffective if sent to a shareholder who has been sent such a letter within the previous 12 months.
Any request letters could be sent at the same time as the notice of AGM in order to save costs.
New rules about notification of interests in shares to public companies
These provisions are relevant only to companies whose shares are admitted to trading on a regulated market or a UK prescribed market (see above for examples of the relevant markets). The rules they replace applied to all public companies, whether or not listed.
The old law
Under sections 198 - 211 of the Companies Act 1985, a person who acquired an interest of three per cent or more of the relevant share capital of a public company had to disclose that interest to the company within two business days. In certain limited cases, referred to as non-material interests, the disclosure threshold was 10 per cent. A person then had to disclose when the interest went through any whole percentage figure above three per cent (or 10 per cent as appropriate) and when his interest fell below three per cent (or 10 per cent).
It was a criminal offence not to comply with the disclosure obligations. A company had to keep a register of the interests disclosed and, if it was a listed company, it had to notify a regulatory information service by the end of the business day after it received the notification (paragraph 9.6.7R, Listing Rules). These provisions were in the same part of the 1985 Act as the provisions dealing with a public company’s right to investigate who had an interest in its shares (the section 212 procedure) and used the same concept of “interest in shares”.
The new law
Sections 198 - 211 of the 1985 Act have been replaced by new provisions inserted in Part 6 of the Financial Services and Markets Act 2000 by Part 43 of the 2006 Act. The rules which implement these new provisions (namely the Transparency Rules) took effect from 20 January 2007.
The section 212 provisions allowing a company to obtain information from parties with interests in their shares have been dealt with separately and have been replaced by Part 22 of the 2006 Act, also with effect from 20 January 2007
The main differences between the old law and the new law are as follows.
Obligations of shareholders to notify share interests to companies
As stated above, these rules no longer apply to public companies whose shares are not traded on a market.
The trigger for disclosure under the new rules is where a person controls the exercise of voting rights rather than where a person acquires an interest in shares. The obligation will also arise where a person holds specified financial instruments which result in an entitlement to acquire issued shares (but not for now instruments that give only an economic exposure to the underlying shares). Direct and indirect holdings and holdings of financial instruments are to be aggregated in order to see whether a relevant threshold has been crossed.
For UK issuers, the FSA has kept the existing three per cent and subsequent one per cent thresholds for disclosure. A category of holdings similar to what were non-material interests under the 1985 Act have to be disclosed at a five per cent and then 10 per cent threshold (and at every one per cent threshold above 10 per cent). There are different thresholds for non-UK issuers (where they have shares admitted to trading on a UK regulated market and the UK is their home member state). The exemptions from notification are not identical, and certain exemptions no longer apply.
The notification deadline of two business days continues to apply where shares are held in a UK issuer but is extended to four trading days for non-UK issuers.
Notifications to the company must be made on a prescribed form that will be available on the FSA website. Shareholders must also file a copy of this prescribed form electronically with the FSA. The deadline for issuers to make public notifications they have received is the end of the following trading day for a UK issuer with shares admitted to a regulated market. For other issuers the deadline is by the end of the third trading day.
There are new obligations on issuers to keep the market informed of changes in their share capital, of acquisitions and disposals of their own shares.
It will no longer be an offence for a shareholder to fail to disclose an interest. However the FSA is able to take enforcement action if a person breaches the new rules. The FSA also has new powers to make public information that shareholders and companies are required to publicise but fail to do so. It can also call for information and documents it reasonably requires for the exercise of its functions.
Rights of public companies to investigate who has interests in their shares
Section 793 Companies Act 2006 replaces section 212 of the 1985 Act. Like section 212, it applies to all public companies, with or without listed shares. A person who receives a section 793 notice must respond with the required information within such reasonable time as may be specified in the notice. The company may serve a section 793 notice in electronic form, provided the recipient has consented or is deemed to consent to communications in electronic form (see above).
Part 22 of the 2006 Act also restates Part 15 of the 1985 Act, giving a company the right to apply for restrictions to be imposed on shares when current or former shareholders fail to respond to a notice requiring information about their interests
There is no change to the Part 22 definition of “interest in shares” (see section 820). Contrast this with the changes that have taken place to the disclosure obligations under sections 198 to 211 of the 1985 Act, which, as referred to above, are now triggered by the acquisition or disposal of voting rights in shares. Shareholders will now need to assess separately their voting rights and interests in shares for the distinct purposes of the two sets of obligations.
Other provisions in force
A few other provisions of the 2006 Act are also in force. In the main, these are technical and administrative provisions relating to the Registrar of Companies. Also in force are provisions imposing liability on directors in some circumstances for false or misleading statements in directors’ reports, directors’ remuneration reports and summary financial statements derived from them. For more information, see our earlier briefing note The Companies Act 2006: Directors’ Duties and First Commencement Order.
For the Companies Act 2006, see:
http://www.opsi.gov.uk/acts/acts2006/ukpga_20060046_en.pdf Or perhaps more useful, the related DTI guidance notes (which do not have legal effect):