Shareholders’ Rights Directive

This month sees the publication of The Companies (Shareholders’ Rights) Regulations 2009, which come into effect on 3 August 2009.

The Regulations implement the Shareholder Rights Directive, which is intended to improve communications between listed companies and their shareholders.

One of the main changes introduced is a limitation on the ability of listed companies to call general meetings on only 14 days’ notice. This had been introduced by the Companies Act 2006 and was welcomed by companies that needed to pass resolutions to raise funds quickly. Under the new regulations a general meeting can only be called on 14 days’ notice if the company offers a facility for shareholders to vote by electronic means (which can be done by the appointment of a proxy via a website) and the company has passed a special resolution reducing the notice period at the last AGM. This will now become a standard resolution at AGMs for listed companies.

The notice of a general meeting must include additional information, such as details of the company’s website giving information about the meeting and details of how to appoint a proxy and the right to ask questions. The notice must also provide an electronic address for the receipt of forms of proxy.
As well as sending notice of the meeting, listed companies must also post it on a website, together with details of the total number of shares in the company (and of each class of shares, if more than one) and the number of votes exercisable at the meeting.

Under the Companies Act 2006 shareholders holding 5% of a company’s shares have the right to propose a resolution for the AGM. Under the new Regulations, they also have the right to have a statement circulated with the notice of AGM and also have the right to include matters on the agenda to be discussed at the AGM. These must also be circulated by the company in advance, provided they are received by the company in time, and must also be posted on the company’s website.

There is also a new obligation on companies to answer questions put to a general meeting, although the impact of this may be limited since a question need not be answered if it would involve the disclosure of confidential information or it is undesirable in the interests of the company for the question to be answered.

Previous changes to the Companies Act dealing with electronic communications have given the company the option of using its website as a way of communicating with shareholders. The new changes now make this compulsory for listed companies, who must now also allow proxies to be submitted by electronic means and, if they want to take advantage of shorter notice periods, must also allow shareholders to vote by electronic means.

Electronic communication with shareholders is now becoming mandatory for listed companies and although not binding on AIM companies, this will be seen as best practice which many AIM companies will follow.

If you would like to know more about any of the topics outlined above, contact Andrew Chadwick, Partner.