The Shareholder Rights Directive (“Directive”) was implemented in the UK with effect from 3 August 2009. The Directive deals with matters such as the notice period for shareholder meetings, the content requirements for notices, the rights of proxies and corporate representatives and the manner of communication with shareholders. Whilst the Directive principally affects companies registered in the UK whose shares are traded on a regulated market (which includes the main market of the London Stock Exchange and the Plus-listed market but excludes AIM) (“Traded Companies”), certain provisions are of general application to all companies registered in England, Wales, Scotland and Northern Ireland.
PROVISIONS RELEVANT TO ALL COMPANIES
Representation at general meetings
The Directive provides clarification for proxies voting on a show of hands where they have conflicting instructions or where there are multiple appointments by the same shareholder:
- if a proxy is appointed, by more than one member and all the shareholders who have appointed him instruct him to vote in the same way, he is only able to vote once, ‘for’ or ‘against’ the resolution, on a show of hands. If, however, the members give different instructions to the proxy, the proxy is able to reflect both types of instruction and have one vote ‘for’ and one vote ‘against’ the resolution on a show of hands. He is therefore able to put his hand up twice, once ‘for’ and once ‘against’ the resolution; and
- if a member appoints more than one proxy in respect of different shares within the same shareholding, each appointed proxy has one vote on a show of hands.
On the face of it the provisions are somewhat paradoxical since, in theory at least, a shareholder with 10 shares could enhance his votes by appointing 10 proxies each voting in respect of one share (and if he had attended in person he would only have had one vote on a show of hands) whereas 10 shareholders who appoint the same proxy would only have one vote between them (and if they had attended in person they would have had 10 votes between them on a show of hands). However, the right of the chair to demand a poll before or on the declaration of the result of a show of hands has not been affected by the new provisions and, where the result on a show of hands would be anomalous, we believe that the chairman would be under an obligation to call for a poll under his common law duty to establish the “mind” of the meeting.
The Companies Act 2006 (“Act”) has been amended to make it clear that where a shareholder appoints more than one corporate representative, each in respect of different shares comprised in its shareholding, those corporate representatives may act independently of each other and may validly vote in different ways on a show of hands.
Where a corporation authorises more than one person as its corporate representative in respect of the same shares and the corporate representatives vote in different ways then the voting power will be treated as not exercised and their votes will be disregarded.
Advance voting on a poll
All UK companies are now permitted to offer their shareholders the facility to vote on a poll in advance of general meetings. In such a case, the company will need to amend its articles to allow for votes cast in advance to be counted at a poll taken at the meeting. Votes given in advance of a meeting may be changed at any time up to and including the meeting itself (although if it is intended to vote at the meeting by proxy then the proxy form must be delivered prior to the designated time for delivery if it is to be valid).
Given the long established use of proxies in the UK (itself a form of “advance voting”), the adoption of a specific advance voting provision may be confusing and guidance issued by the Institute of Chartered Secretaries Association (“ICSA”) recommends that companies do not adopt this facility.
Members’ power to require directors to call general meetings
The required percentage for members of a company to require its directors to call a general meeting of shareholders has been reduced from 10 to 5 per cent. This is the same as the percentage of voting rights required to be held by shareholders exercising their right to require a company to circulate a written statement to its shareholders or the new right to require items to be tabled at the annual general meeting (see below under “New right of members to include a matter in AGM business”).
PROVISIONS RELEVANT TO TRADED COMPANIES
The Act dispensed with the requirement for differential notice periods for ordinary resolutions (14 clear days) and special resolutions (21 clear days) and introduced a universal minimum notice period of 14 clear days for all general meetings, other than an annual general meeting (“AGM”). The Directive not only reverses this development but actually increases the minimum default notice period for general meetings of Traded Companies to 21 clear days. A Traded Company may, however, “contract out” of the new provisions for all general meetings other than AGMs (and regardless of the type of resolution to be proposed) by:
- passing a special resolution authorising the holding of general meetings (other than AGMs) on not less than 14 clear days notice; and
- offering shareholders the facility to vote by electronic means (including enabling all shareholders to appoint a proxy by means of a website).
In relation to meetings of which notice is first given on or after 3 August 2009, the Act states that if a general meeting is adjourned for lack of quorum, then the adjourned meeting must be held at least 10 clear days after the original meeting provided that no business is to be dealt with at the adjourned meeting the general nature of which was not stated in the notice of the original meeting.
The chair may, in relation to meetings of which notice was first given before 3 August 2009, adjourn a meeting in accordance with the company’s articles of association. Guidance issued by ICSA suggests that if a company’s articles of association allow a meeting adjourned due to lack of quorum to be held less than 10 clear days after the date of the original meeting, they should be amended so as not to conflict with the Act.
Introduction of a voting record date
The Directive introduces a requirement for a company to determine the eligibility of shareholders to vote at general meetings by reference to a record date, which may not be more than 48 hours before the time for holding the meeting. Shareholders acquiring shares after the record date will not therefore be entitled to vote those shares.
Guidance issued by ICSA recommends that companies either remove any existing provisions about voting record dates from their articles or mirror this new provision of the Directive.
Additional information to be included in notices of general meetings
In addition to stating the time, date and place of the meeting and the general nature of the business to be dealt with, the Act now requires that a notice convening a general meeting of a Traded Company must also include:
- a statement giving the URL of the website on which information about the meeting is published (see below under the heading “Information to be included on a website BEFORE the general meeting”);
- a statement that the right to vote at the meeting is determined by reference to the register of members, and of the time when that right will be determined;
- a statement of the procedures with which members must comply in order to be able to attend and vote at the meeting including the date by which they must comply (for example, the completion of proxy forms and how to obtain a personalised proxy form);
- a statement giving details of any forms to be used for the appointment of a proxy;
- where the company offers the facility for members to vote in advance or by electronic means, a statement of the procedure for doing so; and
- a statement of the right of members to ask questions at the meeting (see below under the heading “Right to have questions answered”).
Requirement to provide electronic address for receipt of proxies
Shareholders must be provided with a facility to appoint a proxy by electronic means. To facilitate this Traded Companies are now required to provide an electronic address for the receipt of any document or information relating to proxies for a general meeting. The company must provide the electronic address either:
- by giving it when sending out an instrument of proxy or issuing an invitation to appoint a proxy, for the purposes of a meeting; or
- by ensuring that it is made available on a website throughout the period commencing with the giving of notice of the meeting and ending on the conclusion of the meeting.
Information to be included on a website BEFORE the general meeting
Traded Companies are now required to make available on their website, on or before the first date on which notice of the meeting is given:
- the matters set out in the notice of the meeting;
- the number of shares in issue and the total number of shares of each class in respect of which members are entitled to exercise voting rights;
- the total number of votes that members are entitled to exercise at the meeting in respect of each share class; and
- members’ statements, members’ resolutions and members’ matters of business received by the company after the first date on which notice of the meeting is given.
This information is required to remain available on a website for a period of two years beginning with the date on which it is first made available on such website.
Information to be included on a website AFTER the general meeting
Where a poll was taken at the general meeting the following additional information must be included on the website after the meeting:
- the date of the meeting;
- the text of the resolution (or a description of the subject matter of the poll);
- the number of votes validly cast;
- the proportion of the company’s issued share capital (taken as at the record date) represented by those votes;
- the number of votes cast in favour;
- the number of votes cast against; and
- the number of abstentions (if counted).
The information must be made available as soon as reasonably practicable (and in any event, within 16 days beginning on the day of the meeting, or if later, the end of the first working day after the poll results are declared) and remain available available for two years.
Chairman's casting vote abolished
The Directive makes it clear that any provision in the articles of a Traded Company which gives the chairman a casting vote where there is an equality of votes on an ordinary resolution (being one which may be passed by a simple majority) is void.
Right to have questions answered
Shareholders now have a statutory right to have their questions answered to the extent that the questions relate to the business being dealt with at the general meeting. However, no answer need be given:
- if to do so would interfere unduly with the preparation for the meeting or involve disclosure of confidential information;
- if the answer has already been given on a website in the form of an answer to a question; or
- if it is undesirable in the interests of the company or the good order of the meeting that the question be answered.
In practice, this does not represent a substantial change to the position which already applies under the common law relating to meetings.
In guidance issued by ICSA it is noted that, as a company cannot prepare for all questions which might be asked, it may consider reviewing and expanding the Q&A sections on its website so that the chairman can refer questioners to answers posted there where possible.
There is nothing in the Act which requires the answer to a question to be given at the meeting itself. The ICSA guidance notes that a company should attempt to answer all questions at the meeting itself but in circumstances where the answer, or a full answer, is not available for the chairman to provide, it will be reasonable to nominate a representative of the company to answer a question, or provide a fuller answer to a question, after the meeting.
New right of members to include a matter in AGM business
Shareholders may now require a company to include a matter of their choosing in the agenda for its annual general meeting. This is in addition to their existing right to require the circulation of statements and resolutions. The request must be made by shareholders who hold at least 5 per cent. of the total voting rights or by at least 100 members entitled to vote and each holding an average of at least £100 paid up share capital and must be received not later than 6 weeks before the meeting or, if later, the time notice is given. The company must bear the cost of circulating details of the new business if the request is received before the end of the financial year preceding the AGM. As is the case with requisitioned resolutions, a company can refuse to include a matter in the AGM business if it is defamatory of any person, or frivolous or vexatious.
We believe that the Directive largely achieves its objective of enhancing the rights of participation of shareholders in the affairs of the companies in which they invest without adding excessive layers of cost and bureaucracy. In part, this is due to some judicious amendments initiated by member states, including the United Kingdom, during the implementation stage. The provisions entitling shareholders to require matters to be tabled at shareholder meetings and to demand answers to their questions will doubtless be welcomed by the new breed of shareholder activists.
As mentioned earlier in this eUpdate, the “clarifications” of the voting rights of proxies and corporate representatives on a show of hands do raise a number of questions for which there are probably no perfect answers. We believe that an inevitable outcome of this is that the use of polls to decide the outcome of resolutions will become the default position for larger companies save in the most straightforward cases.
In most cases the historic articles of companies are likely to be at odds with the new overriding provisions. Whilst there is no express requirement to amend articles to align them with the new provisions (although some amendments have been recommended by ICSA, as detailed above), it will generally be advisable to amend the articles in any event so to avoid confusion amongst boards and shareholders, who will often look to the articles as the primary reference source for resolving constitutional and procedural issues.