Companies Act 2006 Engaging Shareholders

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(No Transcript)
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Companies Act 2006 Engaging Shareholders
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John HeatonHead of Corporate Client
ServicesEquiniti7th November 2007
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Agenda

• Use of electronic communications with
  shareholders or via company websites
• Information rights of indirect investors
• Access to register of members

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New Shareholder Communications Rules

• Where can the rules be found?
• section 308 (manner in which notice to be given)
• section 309 (publication of notice of meeting on
  website)
• section 333 (sending documents relating to
  meetings in electronic form)
• sections 1143 to 1148 and Schedules 4 and 5 (the
  company
• communications provisions)
• section 1168 (hard copy and electronic form and
  related expressions)
• in section 1173 (minor definitions general), the
  definition of working day
• Disclosure Transparency Rules 6.1.8
  (non-dependency on location)

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New Shareholder Communications Rules

• What issuers should consider
• Review availability of documents on the website
• Deemed agreement
• Consider Amending Articles v Resolution
• Consider general and specific consent
• Electronic Shareholder Communications

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New Shareholder Communications Rules

• section 308 (manner in which notice to be given)
• Meeting notice may be given in electronic form or
  via a website
• section 309 (publication of notice of meeting on
  website)
• Specifies the contents and availability of the
  notice, which must
• State that it concerns a notice of a company
  meeting
• Specify the place, date and time of the meeting
• (for a plc) state whether the meeting will be an
  AGM
• be available on the website throughout the period
  beginning with the date of that notification and
  ending with the conclusion of the meeting.

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New Shareholder Communications Rules

• section 333 (sending documents relating to
  meetings etc in electronic form)
• Provides that if a company gives an electronic
  address in the notice of meeting or on a proxy
  card or notes, it is deemed to have agreed to
  receive any document or information relating to
  proceedings at the meeting or proxies for that
  meeting, electronically at that address unless
  otherwise stated.
• Schedule 5 part 4
• Rules about the availability of the document or
  information
• Must be readable by the naked eye
• Shareholder must be able to retain a copy of it

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New Shareholder Communications Rules

• The Relevant Documents
• Requests for shareholder agreement
• Summary financial statements/annual reviews
• Full annual reports
• Notification of availability on the website
• Proxy cards

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New Shareholder Communications Rules

• Request for shareholder agreement
• This is the first stage of the process
  companies will need to
• Explain to shareholders what is happening (and
  what they are doing in terms of resolution /
  Articles / both)
• Offer the opportunity to elect for paper
• Offer the opportunity to elect for electronic
  communications
• Explain what will happen by default

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New Shareholder Communications Rules

• Schedule 5 part 4 communications by means of
  a website (deemed consent)
• reverses previous model of opt-in for electronic
  communication (historically by means of e-mail)
  concept of deemed agreement where
• shareholders have resolved that the company may
  send or supply documents or information to
  members by making them available on a website and
  advising them that it is there , or the companys
  articles contain provision to that effect
• AND
• shareholders have been asked individually by the
  company to agree that the company may send
  specific or general documents or information by
  means of a website
• AND
• the company has not received a response within
  the period of 28 days beginning with the date on
  which the companys request was sent
• UNLESS
• the companys request did not state clearly what
  the effect of a failure to respond would be, or
  was sent less than twelve months after a previous
  request made for the purposes of this paragraph
  in respect of the same or a similar class of
  documents or information.

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New Shareholder Communications Rules

• Schedule 5 part 4 communications by means of
  a website
• offers two alternative methods of obtaining
  general shareholder consent to website
• communication
• shareholder resolution
• Articles of Association
• Some companies will have changed their Articles
  for other reasons at the 2007 AGM, and
• have included this change. Others have decided
  they can wait for the 2008 AGM to give
• themselves more time to ensure that they are
  compliant with all the features of the new
• Companies Act (following consultation the new
  draft Articles have just been published by
• the BERR)
• Best practice would seem to be to include
  specific reference to any Deemed Agreement
• provision, although that does not seem to be
  specifically mandated

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New Shareholder Communications Rules

• Schedule 5 part 4 communications by means of
  a website
• requires two types of shareholder consent
• General consent by shareholder resolution or a
  change to the Articles of Association AND
• Specific consent by the individual
• But which comes first ?
• Some companies have preferred to seek agreement
  with the 2007 notice of meeting, conditional on
  passing the relevant resolution at the meeting
• Other companies will take the view that the
  agreement should only be sought once the company
  has the constitutional right to do what it says
  it is going to do
• The same will apply in 2008, if nothing has been
  done so far.
• The choice is yours ! A balance between cost,
  convenience and image

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New Shareholder Communications Rules

• More general considerations
• How do you want to communicate with your
  shareholders going forward ?
• Do you have a shareholder management strategy ?
• Do you want to encourage positive elections for
  electronic communication ?
• Will you restrict electronic distributions to the
  statutory requirement, or will you move to
• presentations etc as well ?
• Are they also customers ?

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New Shareholder Communications Rules

• Positive Election for Paper
• Need to collect an election from the shareholder
• Otherwise no change to the existing position
• Full or Short-form Annual report, together with
  notice of meeting, proxy card etc sent by post to
  registered address

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New Shareholder Communications Rules

• BUT ..
• How many documents will the client need to print
  ?
• Theres no real metrics about this yet, but
  estimates on positive elections for paper seem to
  run in the 5 to 15 range higher than the
  percentage that opt for the full report, but not
  remarkably so.
• BUT by January 2008 well have the new
  beneficial ownership provisions in force.
  Theres no real metrics on this either, but some
  of the nominee companies have suggested that it
  is likely to be only 2 to 5 of their clients
  who opt in to receive this information. The
  estimate is that the number of nominee clients is
  roughly equivalent to the number of registered
  shareholders.
• That suggests a print run of 7 - 20 of the
  current total, but we expect that companies will
  be conservative in the early years, as the cost
  of additional printings will be high.

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New Shareholder Communications Rules

• What about the short-form report ?
• We believe that many companies may withdraw this
  option over time.
• If we estimate that you need a register of more
  than 50,000 shareholders for this to be
• worthwhile, and that a total of 20 registered
  and beneficial shareholders will opt in both
• of which figures could be regarded as generous
  the minimum cost-effective register
• becomes one of 250,000 shareholders, although of
  course this is dependent on the
• glossiness etc of your annual report.
• But some people will want the full report
• We know that between 2 and 5 of shareholders
  opt in now for the full annual report so
• you will have to produce that for them. We can
  probably assume that this will apply to a
• similar percentage of beneficial owners.
  Therefore you only have 10 to 15 of
• shareholders requiring the short form this
  nudges the minimum cost-effective register size
• up towards 500,000 shareholders.

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New Shareholder Communications Rules
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New Shareholder Communications Rules

• section 1145 (right to hard copy version)
• A member has the right to a hard copy version,
  which must be sent free of charge within 21 days
• This need not be the original document, but the
  DTI have indicated that a text only version would
  not be acceptable pictures and graphs give
  information too.
• You need to make provision for such requests to
  be dealt with

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New Shareholder Communications Rules

• Someone will need to collect an e-mail address
• For us, the best model for this would be to ask
  the shareholder to register at
• www.shareview.co.uk. This has the important
  advantage that it retains a link between the
• shareholder, the e-mail address and a password
  protected website to enable the
• shareholder to manage their own account online.
• You will need to send shareholders an electronic
  notification of availability ideally with a
• link to a website on which the annual report etc
  are available, and a link to a website
• through which they can appoint and instruct a
  proxy should they wish to do so.

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New Shareholder Communications Rules
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New Shareholder Communications Rules
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New Shareholder Communications Rules
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New Shareholder Communications Rules

• Important things to note
• Individual e-mailing of an electronic version of
  documentation (a word or.pdf file) is not a
  cost-effective solution.
• Please do not put an electronic image of the
  proxy card on your website - Few things spoil a
  registrars day more than an influx of
  unpersonalised proxy cards, completed by what
  always appear to be members of the BMA !
• Default means that the copy of the document on
  the identified website becomes the statutory
  copy. This has implications in terms of audit
  and security, and may require isolation of the
  Annual Report any document to which the report
  is linked may be interpreted as being part of the
  Annual Report.
• Note also that .pdf documents are not usually
  Disability Discrimination Act
• (DDA) compliant

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New Shareholder Communications Rules

• Schedule 5 Part 4 (13) provides that the
  company must notify the intended recipient of
• (a) the presence of the document or information
  on the website,
• (b) the address of the website,
• (c) the place on the website where it may be
  accessed, and
• (d) how to access the document or information.
• And that the document or information is taken to
  be sent
• (a) on the date on which the notification is
  sent, or
• (b) if later, the date on which the document or
  information first appears on the website after
  that notification is sent.
• So companies must send non-electors a
  notification of availability for most this will
  probably be in a similar form to the one
  currently used for electronic communication.
  However, in the absence of an e-mail address, the
  notification will need to be sent by post.

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New Shareholder Communications Rules

• How do non-electors vote?
• Logic suggests that if youve got to send them
  something, you may as well make it something
  useful
• A suggestion (from the DTI) combine the
  notification of availability with a proxy card,
  which can be completed and returned in the normal
  way - it will be necessary to look carefully at
  what this document will actually have to say, and
  what can be carried on the website in terms of
  the notice of meeting
• ICSA have published a revised and updated version
  
• of their Best Practice Guide on Electronic
• Communications with Shareholders
• http//www.zoomerang.com/recipient/survey-intro.zg
  i?pWEB2266CA2J5UZ

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New Shareholder Communications Rules

• Can you assume that new shareholders are
  defaulted ?
• No. The wording of Schedule 5 (10) is quite
  clear that there must be a specific individual
• request of the shareholder before this can happen
• Could that be included in the welcome pack ?
• It could, but Schedule 5 (10.4) provides that the
  deeming process is invalid if the request is
• sent less than twelve months after a previous
  similar request
• The twelve months is significant, as it is
  defined as calendar months, and if the welcome
• pack is used will necessitate a record of the
  date of the request being maintained of
• course this would not apply to a normal request
  to sign up for electronic communications
• This could also mean that the mailing can only be
  combined with the AGM mailing if the
• mailing dates are more then twelve months apart
  ie the AGM date will need to be rolled
• forward each year.

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Information rights of indirect investors

• Part IX s145 s153
• s146 for listed companies shareholders may
  nominate someone else to receive defined
  information rights
• Default is that nominations are all or nothing
  (s146.5)
• Nomination may be terminated at the request of
  the member or the
• nominated person

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Information rights of indirect investors

• What does this mean in the context of e-comms
• Registered member should offer the underlying
  investor the same alternatives as the
• issuer offers its registered holders Option
  for hard-copy so no danger of investors
• being disenfranchised
• BUT where hard-copy is requested, the member must
  specifically notify the company
• In practice that means that the default will be
  communication via the website, just as with
• registered shareholders, but with the key
  difference that nothing need be sent out in those
• circumstances, unless the issuer has previously
  been supplied with an address and the
• nominated person subsequently opts or is
  defaulted to website communication

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Information rights of indirect investors

• Additional factors for Beneficial Shareholders
• A member who holds shares on behalf of another
  person may nominate that person to enjoy
  information rights
• The company may enquire annually whether the
  nominated person wishes to retain information
  rights as well as the 12 month deeming letter
  which can be sent to all shareholders, registered
  or beneficial

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Information rights of indirect investors

• From a practical point of view the central issues
  are
• The rights covered must be consistent ideally
  across the market, but certainly across
• a company
• There must be a clear link from a registered
  member to any underlying beneficiary
• The opt-in mechanism should be a question of the
  member notifying the company, not the company
  asking the member
• The opt-in mechanism should be in the form chosen
  by the company, not a free-for-all in which any
  member can deliver their request in whatever from
  they choose, although it is questionable whether
  the legislation supports this
• Note that under s149 a notice of meeting sent to
  a beneficial owner must contain a statement of
  the rights of the beneficial owner and either
  omit or exclude the notice of the rights of a
  shareholder required under s325.

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Information rights of indirect investors - where
are we now?

• We know when it all takes effect
• Effective October 2007
• Live with effect from January 2008
• The ICSA Registrars Group have discussed a
  standard format for nominations with APCIMS and
  some of the Brokers, seeking to ensure that an
  industry-wide approach is adopted
• The ICSA have published a Best Practice Guide to
  the practical implementation of these sections in
  conjunction with registrars and issuers on their
  website http//www.zoomerang.com/recipient/survey-
  intro.zgi?pWEB2272GEAPQQW
• Systems changes under way to hold additional data
  similar to s808 data, but different
• Feedback received so far seems to be that
  expected volumes are very low

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Information rights of indirect investors - where
are we now?

• Can companies Articles of Association mandate
  that a specific format be used for notification ?
  
• Where the Act gives shareholders the right to
  appoint a proxy and the Articles provide how this
  may be done, this can be extended to indirect
  investors.
• However, there are a number of outstanding issues
  with BERR relating to-
• the number of proxies who can vote on a show of
  hands and
• whether, if corporate representatives are
  appointed (as opposed to proxies), S323 stating
  that if more than one is appointed they have to
  vote in unison takes precedence over S152 which
  allows rights to be sub-divided
• My view is that, in the case of the first, a
  practical approach should be adopted (the
  Chairman allowing multiple proxy votes but opting
  for a poll in the event that the resulting
  outcome would be different if he exercised the
  proxies held and
• In the case of the second, registered
  shareholders be strongly encouraged to use the
  new powers to appoint multiple proxies in a
  timely manner (as envisaged in the Act) rather
  than waiting until after the 48 hour cut-off and
  appointing last-minute corp reps.

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Access to register of members

• New rules and charges come into force between 1st
  October 2007 and 1st October 2008 (s116 -119)
• Charges are slightly higher for inspection /
  copies of smaller registers (lt 5000 members) but
  significantly lower for larger registers
• The actual date depends on when the company
  submits its first Annual Return after 1st October
  2007 but the decision has been taken to set a
  proper purpose test for all copying and
  inspections requests with immediate effect. If
  there are any objections to this process, we can
  manage them on a case by case basis, dependent on
  the register concerned.
• The proper purpose test means that it can
  request details of the enquirer and the purpose
  for which inspection is / copies are being sought
  and within five working days from the date that
  it receives the form and payment, either comply
  with the request or apply to the court for
  authority to refuse the request if the company
  believes that the inspection or copying is not
  for a proper purpose (not defined in the Act).
  
• ICSA has published a guidance note on this issue,
  identifying a number of agreed proper and
  improper purposes which can be found at
  http//www.zoomerang.com/recipient/survey-intro.zg
  i?pWEB226QMMUPJUR

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Access to register of members

• S119 creates an offence for a person knowingly or
  recklessly to make a statement that is
  misleading, false or deceptive in a material
  particular in a request under section 116, and
  for a person in possession of information
  obtained by exercise of either of the rights
  conferred by that section to do anything that
  results in the information being disclosed to
  another person, or to fail to do anything with
  the result that the information is disclosed to
  another person, knowing, or having reason to
  suspect, that person may use the information for
  a purpose that is not a proper purpose. The
  maximum penalty for these offences is
  imprisonment for a term not exceeding two years
  or a fine (or both).
• The ICSA Registrars Group has been discussing
  this issue for some time in order to ensure a
  consistent approach across the market and a
  broadly standard form has been deigned for
  completion and reference to the issuer
• Requests from shareholders for a copy of the
  register entry or inspection of their own or a
  joint holding, or inspection relates to probate,
  administration of a deceased estate, court order,
  or is made by an authorised representative of the
  company, a bank, broker, solicitor or next of kin
  (subject, as above, to the registrar validating
  the bona fide of the requester in accordance with
  their standard procedures), will be granted on
  demand, without further reference to the client
• Whether the request is for a proper or
  improper purpose (as defined in the ICSA
  guidance) the form will be referred to the issuer
  within 24 hours

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Access to register of members

• What does the client need to do?
• Advise us of any exceptions or additional
  requirements that they wish us to note, otherwise
  we will assume their agreement to the parameters
  we have set out above
• Given the time criticality of the referral to
  court, it is suggested that all clients provide a
  clear contact point (and deputy) to whom such
  referrals can be made, and put in place a process
  for reference to court where appropriate
• Note that where a company assesses a request to
  be not for a proper purpose, there is an
  applied duty to refer the matter to the court, as
  to provide the information where there is not a
  statutory duty to do so will forfeit the
  statutory safe harbour under the Data Protection
  Act, or to challenge the applicant and seek their
  withdrawal of the request.
• N.B. The existing regular users have all been
  asked to complete the relevant form on behalf of
  their employees in respect of all the registers
  of shareholders that we maintain we believe
  that to ask each individual inspector or their
  employer to complete a separate form per company
  or per day would be unnecessarily obstructive.
  Of course, if a firm wishes to use data for a
  purpose not declared on their form, they will be
  obliged to complete a new one.

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Companies Act 2006 Engaging Shareholders

• John Heaton
• Head of Corporate Client Services
• Equiniti
• 7th November 2007

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