ICSA Companies Act - Meetings, Resolutions and Voting

One of the Government’s stated intentions with the new Act is to increase corporate governance through improved shareholder rights – including the rights to indirect investors.
One of the key ways in which ministers see this being achieved is through changes to the organisation and the conduct of general meetings. The Act will impact upon listed companies’ Annual General Meeting preparations in a number of significant areas. Changes to the notice of meeting, proxy cards, the cut-off point for receipt of proxy appointments and the right to nominate beneficial owners to receive communications will all need to be accommodated as the relevant sections come into force.
On the matter of notice for a meeting, one of the most significant changes concerns the extension of rights to electronic notice. Lord Sainsbury, in his statement to the Lords on 2 November, indicated that the clauses in the Bill relating to electronic communications would be implemented in January 2007, which will allow companies to amend their articles at the 2007 AGM, subject to shareholder agreement. Subsequent notices of meetings can then be delivered in hard copy, by electronic form or by means of a website, or partly by another. See page 10 for more on the Bill’s measures with regards to electronic communications.
The conduct of the meeting will need to allow for multiple proxies who are able to speak and vote on a show of hands, and for the right of shareholders to requisition the scrutiny of a poll. Post-meeting, the results of polls must be disclosed on a website, together with the results of a scrutiny poll, as soon as reasonably practicable. They must remain there for two years.
As part of the general tidying-up process, meanwhile, the provision for extraordinary resolutions contained in the 1985 Act, has been removed. The new Act now only provides for ordinary and special resolutions to be proposed at company meetings.

Owners and members’ rights
On beneficial owners, the Department of Trade and Industry (DTI) has indicated that Part 9 of the Bill – which relates to the rights of beneficial owners – will not come into force in January 2007.
When Part 9 does come into force, it will require that the notice of meeting sent to nominated beneficial owners be amended by deleting the statement on voting rights required under Section 332. If included, it must state that it does not apply to beneficial owners be amended by deleting the statement that beneficial owners may have a right under an agreement between them and the member by whom they were nominated, to be appointed or to have someone else appointed as a proxy for the meeting. If they have no such right or do not wish to exercise it, they may have a right to give instructions to the member as to the exercise of voting rights. The nominated person cannot appoint a proxy or ledge a vote with the company.
Where a member holds shares on behalf of more than one person, the rights attached to the shares need not all be exercised – and if they are exercised, they need not all be exercised in the same way. This related not only to voting but to corporate actions – for example, scrip dividends – giving the ability to choose different options for parts of the shareholding.
The Act also provides certain requisitionist rights for members, and these extend to nominated beneficial owners. The rights include circulation of member’s statement, circulation of a resolution for an AGM, the right to demand (or join a demand for) an independent report on a poll, and website publication of audit concerns. The 5 per cent or 100-person test can be satisfied wholly or partly by requisition from nominated beneficial owners. The requisition must be received no later than one week after the poll was taken.
Multiple proxies can be appointed under Part 13, provided that each proxy is appointed to exercise the rights attached to a different share. Proxy cards will need to be amended to allow for multiple appointments, including the number of shares over which rights can be exercised. The proxy rights set out in the Act en be extended by conferring additional rights in the company’s Articles of Association, but cannot be reduced by any provision in the Articles.
The principle of a one-member-one-vote on a show of hands remains intact in the new Act. However, the position changes when multiple proxies are appointed. For example, if five proxies are appointed on a single holding, each proxy will have a vote on a show of hands. The logic for this position appears to be that a vote on a show of hands would not be used for a contentious resolution. It would be open to the chairman, or others, to call a poll if the result from the show of hands was contrary to their wished. In practice, this may well accelerate the decline of a show of hands vote and the adoption of electronic polls for all resolutions.

Implementation
The timetable for implementation is dependent upon when secondary legislation and regulations can be introduced.
The DTI will be consulting on the timetable in February 2007, when interested parties will have the opportunity to express their views on when the different parts of the new Act should be brought into force. In the meantime, the EU directive on shareholder rights is likely to introduce further changes, and these may come through in 2008 or 09.

When planning their next general meeting, companies are advised to review:

the removal of extraordinary resolutions
a resolution to change the communication default from paper to electronic delivery
the notice of meeting wording regarding voting rights
the proxy card design
the last date for proxy appointment
a poll on every resolution; and
beneficial owner communication requirements, if early adoption is intended by the company, or is required by legislation

At the meeting they need to give attention to:

the attendance of multiple proxies for a single shareholding
multiple proxies each with a right to speak
voting on a show of hands by multiple proxies (including careful evaluation of the weight of any possible dissenting view), or move to poll voting
a shareholders’ right to requisition the scrutiny of a poll

Post-meeting they need to:

publish any poll results on a website
publish the results of a scrutiny of a poll on a website
leave the above results available for viewing online for at least two years

Andy Cotter, Head of Industry, Computershare

Another of the most significant changes under the new Act is that private companies will no longer have to hold and Annual General Meeting at all – unless they wish to do so.
The 1985 Act, as amended, introduced the elective regime under which private companies could dispense with some of the normal company formalities such as holding AGM’s, laying accounts, appointing auditors and so forth. The new Act effectively makes the elective regime the default position for private companies. As a consequence of this, they will no longer be required to lay accounts before the AGM (although shareholders will still be entitled to receive them), not appoint an auditor at said meeting unless they positively decide to do so. However, members holding 10 per cent of the voting rights will be able to request that the company hold an AGM.
Most of the business which might otherwise have been considered at the AGM can instead be conducted by means of a written resolution. In fact, with the exception of resolutions for the removal of a director or auditor, private companies will be able to pass all resolutions in writing. Rather than requiring a unanimous vote, as is the case at present, an ordinary resolution may be passed in writing by a simple majority of 50 per cent or more of the total eligible votes, and in the case of special written resolution with a 75 per cent majority of the total eligible votes. The provisions on written resolutions appear in Part 13, Chapter 2 of the Act.
The notice period for AGMs will continue to be 21 date as at present, but for both private and public companies only 14 days’ notice will be required – even where a special resolution is proposed.

William Booth, Editor, Chartered Secretary magazine.

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