UK Law Society Takes Issue With New EU Proposals On Shareholder Rights

by Robin Pilgrim, LawAndTax-News.com, London

19 January 2006

The UK's Law Society has expressed concerns over new EU proposals that would require listed companies to issue the notice for any general meeting at least 30 days in advance.

The European Commission last Tuesday presented a proposal for a Directive to facilitate the cross-border exercise of shareholders' rights in listed companies, through the introduction of minimum standards.

The proposed Directive seeks to ensure that shareholders, no matter where in the EU they reside, have timely access to complete information and simple means to exercise certain rights – notably voting rights – at a distance.

Internal Market and Services Commissioner Charlie McCreevy explained that:

“Shareholders need to be able to get relevant information on time and vote without encountering unnecessary obstacles, wherever they are in the EU. Otherwise they can't exercise their influence properly and make sure that management is acting in their best interests. Our proposals will introduce a range of key minimum standards to make this happen – using modern, reliable technology. All this will help to strengthen the role of shareholders and spread EU investing.”

After having carried out a comprehensive impact assessment, the Commission has proposed the following minimum standards which would eliminate the main obstacles in the cross-border voting process and enhance certain other rights of shareholders:

• General Meetings should be convened with at least one month's notice. All relevant information should be available on that date at the latest, and posted on the issuer's website. The meeting notice should contain all necessary information.
• Share blocking should be abolished and replaced by a record date which should be set no earlier than 30 days before the meeting.
• The right to ask questions should be accessible to non-residents. The maximum shareholding thresholds to benefit from the right to table resolutions should not exceed 5%, in order to open this right to a greater number of shareholders while preserving the good order of general meetings.
• Proxy voting should not be subject to excessive administrative requirements, nor should it be unduly restricted. Shareholders should have a choice of methods for distance voting.
• Voting results should be available to all shareholders and posted on the issuer's website.
  
  

Speaking last week, however, President of the Law Society, Kevin Martin, criticised the Commission for failing to take on board the previous comments made by the Society’s Company Law Committee.

“We acknowledge that the Commission's proposals on shareholders’ rights are a substantial improvement on what was originally being suggested and support their overall objectives. Many of the concerns we expressed during the Commission’s consultations were taken on board," he announced, continuing:

“However, the application of this 30-day limit to all general meetings, with the exception of EGMs to examine takeovers, fails to recognise the important distinction between AGMs and EGMs. While the rule may be suited to an AGM, it doubles the notice period currently required in the UK for EGMs and, we believe, it fails to take account of business reality. EGMs are usually organised for a single issue and exceptional items of business, such as obtaining shareholder approval for a business transaction, and require shorter notice periods."

“This is clearly at odds with comments made by Commissioner McCreevy at an event on better regulation organised by the Society, where he spoke of not imposing unnecessary additional burdens on business. Of course we want to facilitate cross-border voting and participation in general meetings but I have yet to be convinced that the current proposal is appropriate for EGMs."

“The Commission also fails to distinguish between the types of general meeting in the provisions that govern the ability of shareholders to table resolutions and add agenda items. This could really interfere with the smooth running of EGMs.”

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