The Shareholders' Rights (Directive 2007/36/EC) Regulations 2009 (the "Regulations") came into effect on 6 August 2009. The Regulations have made significant changes to the obligations of listed companies regarding the conduct of general meetings. The Regulations only apply to companies with a registered office in Ireland and the shares of which are admitted to trading on a regulated market within the European Union (other than certain collective investment undertakings) ("listed companies"), and apply only in respect of general meetings of which notice is given on or after 6 August 2009.
Procedural Requirements for Convening General Meetings
Notice periods: Previously, a listed company was required to give a minimum of 21 days' notice in writing of its annual general meeting ("AGM"), and 14 days' notice for other meetings (other than meetings for the passing of a special resolution), under section 133 of the Companies Act 1963 (the "1963 Act"). Subject to limited exceptions, this reduced 14 day notice period now only applies to a listed company if:
- it offers the facility for members to vote by electronic means; and
- a special resolution reducing the period of notice to 14 days has been passed at the immediately preceding AGM, or at a general meeting held since that meeting.
A minimum notice period of 21 days will apply in all other circumstances. Although not expressly provided for in the Regulations, this is required by Article 5(1) of the underlying Directive and the requirement has been confirmed by the Department of Enterprise, Trade and Employment in its non-legally binding Guidance Note on the Regulations (the "Guidance Note"). The Guidance Note also clarifies what will constitute "voting by electronic means" for the purposes of section 133, and confirms that this will include circumstances where a company provides an option for members to vote electronically by proxy via a website authorised by the company. We anticipate that the practical implication of this change is that most listed companies will include an additional standing item in the agenda of each AGM dealing with the reduction of the notice period.
Requirements for notice of general meetings: All notices of general meetings of listed companies must comply with the requirements of new section 133A of the 1963 Act, and must be issued in a manner that ensures fast access to the notice on a non-discriminatory basis. In addition to dealing with specified procedural matters, all notices must include a clear and precise statement of any procedures with which a member must comply in order to participate and vote in the meeting, including how to exercise their rights to include items on the agenda, to table draft resolutions, to ask questions, to appoint a proxy (by electronic means or otherwise), and to vote (electronically, by correspondence or by proxy). This will require more detailed notices than those that have typically been given by listed companies prior to the Regulations coming into force.
A listed company must now make the following information available on its website, for the continuous period from the date upon which notice of the meeting is required to have been given up to and including the date of the meeting:
- the notice issued to members;
- information on the total number of shares and voting rights (including separate totals for any separate classes of shares);
- any documents to be submitted to the meeting;
- a copy of any draft resolution (including draft resolutions tabled by its members) or, if no resolution is proposed to be adopted, a comment from the board of directors on each item of the proposed agenda; and
- a copy of forms to be used to vote by proxy and to vote by correspondence, unless these are sent directly to each member or it is not possible to make these available for technical reasons (in which case the website must indicate how the forms may be obtained and the company must send these forms to any member free of charge on request).
The Guidance Note clarifies that confidential documents do not need to be made available on the website. Many listed companies made much of this information available on-line prior to a general meeting as a matter of course, but the Regulations now make such disclosure mandatory.
Increased Shareholder Involvement
Members' right to convene general meetings: Members holding 5% or more of the voting shares of a listed company may require the directors to convene an extraordinary general meeting. Formerly, this right only applied to members holding 10% or more of the voting shares.
Right to put items on agenda of an AGM: Member(s) holding at least 3% of the voting shares of a listed company may put items on the agenda of an AGM, provided that each item is accompanied by stated grounds justifying its inclusion or a draft resolution to be adopted. This right may be exercised by electronic or postal means. Any request to put items on the agenda of an AGM must be received by the company at least 42 days before the relevant meeting. To facilitate members in exercising this right, listed companies must publish the date of the AGM on its website by the end of the previous financial year, or not later than 70 days prior to the next AGM, whichever is earlier. If the agenda of the AGM has already been issued at the time items are added, a revised agenda must be issued before the record date. There was no specific precedent for these rights under pre-existing Irish legislation.
Right to table resolutions for items on agenda of EGM: Member(s) holding at least 3% of the voting shares of a listed company may table draft resolutions for an item on the agenda of a general meeting, which they may do by electronic or postal means. Irish legislation did not previously provide for such rights which were part of common law and practice and, to an extent, uncertain. This right does not extend to putting items on the agenda of a general meeting (other than an AGM), although as mentioned above member(s) holding 5% or more of the voting shares of a listed company may require an extraordinary general meeting to be convened. There is no deadline specified in the Regulations for members to propose resolutions for items on the agenda of a general meeting. The Guidance Note states that this was intentional, as no deadline was contained in the Directive, and indicates that each company should determine the deadline itself. The Guidance Note also suggests that companies could specify the deadline in the notice convening the relevant general meeting, update the internet site with any proposed resolutions, and offer the facility to vote on any such resolution by electronic means, which vote would take precedence over the written vote. Any such approach would need to be carefully implemented to ensure that it did not result in any members (including members who exercise a right to vote by correspondence) being disenfranchised. In practice, the right to table draft resolutions is exercised relatively rarely, and generally only in controversial circumstances where a listed company's compliance with procedural requirements is likely to be subject to particularly intense scrutiny. Additional clarity as to the practical steps which listed companies should take in respect of the new right for members to table draft resolutions would be welcomed, including:
- confirming what would be a reasonable deadline for exercise of the right;
- identifying the priority which should be afforded to resolutions relating to an item on the agenda which have all received sufficient votes to pass but which are inconsistent with each other; and
- identifying how the voting rights of members who vote by correspondence may be adequately protected where a draft resolution is tabled shortly before a general meeting and there is insufficient time for the company to issue a notice of the draft resolution and to receive votes on that draft resolution by correspondence before the date of the general meeting.
Right to ask questions: A member of a listed company has the right to ask questions related to items on the agenda of a general meeting, and to have its questions answered. It is not necessary to provide an answer that has already been provided on the company's website, or where it would interfere unduly with preparation for the meeting or the confidentiality and business interests of the company. Similarly, no answer is required where the Chairman considers it undesirable in the interests of good order of the meeting that the question be answered. The ability for members to ask questions is consistent with established practice and procedure, but the Regulations represent the first time that a right to do so has been enshrined in Irish legislation.
Voting at General Meetings
Equal treatment: A listed company must ensure equal treatment for all members who are in the same position with regard to the exercise of voting rights and participation in a general meeting. This concept is consistent with previous requirements.
Record date: The record date, before which a member must be entered on the register of securities in order to be entitled to participate in and vote at a general meeting, may be not more than 48 hours before that general meeting (although the Guidance Note confirms that this time period does not include weekends or public holidays). Any changes in the register between the record date and the general meeting are disregarded in determining the right of a member to participate and vote at the general meeting. A member is free to transfer shares during this period (if his right to sell would not otherwise be subject to restriction), and if he does so would not lose his right to vote at the relevant general meeting if his name was entered on the register of securities at the record date. A member's right to vote cannot be subject to any requirement that shares be deposited with, transferred to or registered in the name of another person before the general meeting. These provisions are broadly consistent with current procedures.
Voting by electronic means: New section 134B of the 1963 Act introduced by the Regulations enables, but does not require, listed companies to provide for participation in a general meeting by electronic means. The methods for such participation are not exhaustively listed (which allows for developments in technology), but would include a mechanism for electronic casting of votes which does not require the member to be physically present or to appoint a proxy who is physically present, real time transmission, or real time two-way communication allowing members to address the meeting from a remote location. Where a company provides for participation by electronic means, their use may only be made subject to proportionate restrictions which are necessary to establish the identification of those taking part and the security of the electronic communication, and members must be informed of any such requirements or restrictions. Listed companies must ensure, as far as practicable, that such means guarantee the security of the electronic communication, minimise any risk of data corruption and unauthorised access, provide certainty as to the source of the electronic communication, and that any failure or disruption are remedied as soon as practicable.
Voting on a poll: The Regulations permit a listed company to provide for votes on a poll to include votes cast in advance by correspondence, subject only to such proportionate requirements as are necessary and to ensure the identification of the person voting. Votes cast in advance by correspondence will only counted if they are received before the specified date and time set by the company, which must be not more than 24 hours before the conclusion of the vote.
Establishing and publishing results of vote: The Regulations now require a listed company to comply with the previous general practice of conducting a poll if requested by any member. However, the Regulations do not impose the restrictions on the exercise of this right that were previously commonly contained in listed companies' articles of association, such as a requirement that the request for a poll be made by at least five members, or by members representing not less than 10% of the total voting rights or 10% of the paid-up share capital). Results of any vote at a general meeting must be published on a listed company's website within 15 days of the relevant meeting.
Appointment of Proxies
Eligibility to be appointed as a proxy: The Regulations expressly confirm that the proxy appointed by a member of a listed company may be any natural legal person, including a company (whether a member or not). Any provisions of a listed company's articles which restrict the eligibility of a person to be appointed as a proxy (other than a requirement that a person possesses legal capacity) are void.
Appointment of proxy by electronic means: Proxies are appointed either by written notification or by electronic means. All members of a listed company are now entitled to appoint a proxy by electronic means, and must have at least one effective method of doing so offered to them by the company.
Number of proxies that may be appointed: The 1963 Act previously restricted the number of proxies which a member could appoint to attend the same meeting to one, unless the articles otherwise provided. The Regulations provide that no limitation may be placed on the right of a member to appoint more than one proxy in respect of shares held in different securities accounts. A member acting as intermediary on behalf of a claim may grant a proxy to each of his clients or to any third party designated by a client. Any such intermediary has an express right to cast votes attaching to some of its shares differently from others.
The minimum standards of protection which have been introduced by the Regulations provide a significantly enhanced level of transparency, and protection for shareholders, and in many cases exceed the levels of protection required under the Directive. There will be significant work for listed companies in transitioning to the new regime, as well as an increased administrative burden to ensure compliance. It remains to be seen whether this burden will be justified by an increase in the level of active participation by shareholders, and a more effective operation of the market.