This briefing note should be read in conjunction with our earlier briefing, ‘Companies Act 2006: Introduction and background’. In this briefing, we consider some of the main changes the 2006 Act will make in relation to company meetings and resolutions of members.
On 28 February, the Government announced that, subject to consultations, the changes outlined below would come into force on 1 October 2007. Companies should therefore take account of these changes in relation to members’ meetings and written resolutions to be held or passed on or after that date.
What we now call “the elective regime” will become the default position for private companies. This means annual general meetings (AGMs) will be optional, short notice of meetings will require consent of 90 per cent of voting members, accounts will not need to be laid in general meeting and there will be no need to reappoint auditors annually, unless the members require this. Individual company articles will be able to set out more restrictive provisions. Slightly different provisions will apply in relation to authority to allot shares. We will outline these in a subsequent briefing, ‘Companies Act 2006: Share Capital and Members’ Rights’.
As a consequence, transitional provisions will override provisions in existing private company articles requiring directors to retire by rotation at successive AGMs. Those directors may then stay in office until otherwise removed under other provisions of the articles or of the Act. However, other provisions in articles which expressly require private companies to hold AGMs will be preserved and will remain effective.
Public companies will still have to hold annual general meetings and do so within six months of the relevant financial year-end. A public company AGM may currently only be held on short notice with the consent of all members entitled to attend and vote. This will remain the case. Short notice of any other public company meeting will still need consent from holders of 95 per cent of the votes. Public companies (and any private companies which choose to have an AGM) will no longer need to produce their registers of directors’ share interests at the meeting. This is because as from 6 April this year, companies will no longer have to maintain these registers.
Types of resolution
Resolutions will be either ordinary or special. Extraordinary and elective resolutions will be abolished. Provisions of the 1985 Act requiring extraordinary resolutions will be re-enacted in amended form. In any case, the requirements for special resolutions under the new Act will be broadly equivalent to those for an extraordinary resolution, ie 14 days’ notice, or in writing, with 75 per cent of votes in favour. Conditional resolutions may be passed in certain circumstances, eg in relation to sub-division or consolidation of shares, where this is part of a wider reorganisation.
As at present, public companies will be unable to pass written resolutions. However, private companies will be able to use written resolutions for anything other than the removal of a director or auditor prior to the expiry of his or her term of office. The company’s articles cannot vary this. “Written” does not necessarily imply hard copy. See our briefing note ‘Companies Act 2006: Electronic Communications and Public Company Shareholdings’ in relation to alternative methods of indicating support for a resolution.
In order for a private company to pass a written special resolution:
- the resolution must specify that it has been proposed as a special resolution; and
- the resolution must be supported by eligible members holding 75 per cent or more of the voting rights (not, as currently, by all the members).
A private company will be able to pass a written ordinary resolution if eligible members holding more than 50 per cent of the voting rights support the resolution.
Eligible members are defined as “the members who would have been entitled to vote on the resolution on the circulation date of the resolution”. If the membership changes on the date of circulation the eligible members will be the persons entitled to vote at the time the first copy of the resolution was sent to a member for signature.
Certain members of a private company, as well as the directors, may propose written resolutions and may require the directors to circulate them together with supporting statements. Unless the articles specify a lower level, members holding five per cent of the total voting rights in relation to the relevant resolution can require a resolution to be circulated.
The agreement of a member to the resolution will be demonstrated when the company receives an “authenticated document identifying the resolution to which it relates, and indicating his agreement to the resolution”, ie the member’s signature does not actually have to be on the resolution itself. If not passed within 28 days (or a different period specified in the articles), the resolution will fail, whether proposed by directors or required by members.
Notice of meetings
If private companies choose to hold general meetings, only 14 days’ notice will be required, irrespective of whether special or ordinary resolutions are being proposed. The same will apply to public companies, except that 21 days’ notice will be required for an annual general meeting, again irrespective of the resolutions proposed. In calculating these periods, the date on which the notice is sent out and the date of the meeting are excluded, giving statutory force to the existing “clear days” rule. There will still be a requirement to send notices of general meetings and written resolutions to auditors. As of 20 January 2007, notice of general meetings may be given in hard copy or, if members have agreed, by electronic form or via a website, or by a combination of all three methods; for more detail, see our briefing note ‘Companies Act 2006: Electronic Communications and Public Company Shareholdings’.
28 days’ special notice to the company will still be required for resolutions to remove auditors or directors before the end of their terms of office. Where companies are required to notify members of special notice resolutions via a newspaper advertisement or other means authorised by the articles (ie where it has not been possible to include that notification with the notice of meeting), the time limit for this is reduced from 21 to 14 days before the meeting.
The Act provides that the chairman of any general meeting may be appointed by a resolution of the members entitled to vote at the meeting. This will be subject to any provision of the company’s articles stating who is to be chairman. Most articles currently provide that the chairman of directors will chair general meetings.
Proxies, quorum and polls
On a poll a member holding more than one share will be able to split the holding and vote different shares in different ways. The same member could instead instruct multiple proxies to vote differently in relation to different shares on the same resolution. These provisions are intended to permit nominee shareholders, such as investment trusts, to allow the ultimate beneficiaries to direct the voting or instruct the proxies direct. Notices of general meeting will need to make clear the ability to appoint multiple proxies.
Proxies will be able to demand, or join in demanding, a poll on any matter on which the proxy is appointed to vote. Proxies will also be able to vote on a show of hands, not only on a poll. For the first time proxies appointed by members of public companies will have rights to speak at meetings. Articles may restrict the number of votes a proxy may cast, but not below the number available to the relevant member attending in person. On a poll, every member will still have one vote for each share held. It will become possible for a proxy to be elected as the chairman of a general meeting by a resolution of the company passed at the meeting, unless this is contrary to the company’s articles.
Two persons who are proxies or corporate representatives for the same member will not constitute a quorum at a general meeting. Weekends, Christmas Day, Good Friday and any bank holiday will be disregarded in calculating the time limit for lodging proxy forms (unless the company’s articles provide differently). Members of quoted companies will be able to require an independent report on any poll taken or to be taken at a general meeting if they hold five per cent of the voting rights or are at least 100 in number and hold an average of £100 paid up capital.
Meetings on members’ requisition
Members of a public company holding the same share qualification as above will be able to propose a resolution to be put to the company’s AGM provided they would be entitled to vote on the resolution. If the proposal is made before the financial year end, the company, not the proposing members, would bear the costs of circulation.
Where members holding 10 per cent of any company’s voting rights require the directors to call a general meeting and circulate proposed resolutions, the directors will have to do so, otherwise the members may do so themselves at the company’s expense. For private companies, the threshold falls to five per cent if there has been no general meeting in the preceding 12 months at which this right could have been exercised.
In relation to any company general meeting, members will be able to require the circulation of statements in relation to matters to be considered at the meeting. To do this, support will be required from members who either hold five per cent of the voting rights exercisable (where the statement relates to a resolution, on that resolution, or otherwise at the meeting) or number at least 100 and hold an average of £100 paid up capital.
Companies will be able to provide in their articles that they need not send notices of meeting etc to members for whom they have no current valid address.
Companies will be obliged to retain copies of all written resolutions, minutes of general meetings and decisions of sole members for ten years. These must currently be retained indefinitely. Records of meetings of managers, required under the 1985 Act, will no longer be required.
Copies of all resolutions required to be filed with the Registrar of Companies will still need to be “embodied in or annexed to” every copy of the company’s articles issued by the company.
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):