Shareholders Rights Directive

Author:Mr Paul Moloney
Profession:Dillon Eustace

BackgroundDirective (2007/36/EC) (the "Directive") known as theShareholders Rights Directive was introduced in order to improvecorporate governance in listed companies in Europe by enablingshareholders to exercise their voting rights and rights toinformation across borders. While the ProspectusDirective1 focuses on the information which issuers haveto disclose on admission to the market and the TransparencyDirective2 deals with, amongst other matters,information which companies are required to make available inrelation to company meetings, neither deal with the shareholdervoting process.The Commission's proposal for a directive on the exercise ofcertain rights of shareholders in listed companies was adopted on11 July 2007 and published on 14 July 20073.The recitals to the Directive provide a useful overview of theprinciples which the parliament and the council wished to reflectthrough the implementation of this directive and are important ininterpreting the provisions of the Directive. The stated aims ofthe Directive are that:shareholders should be able to cast informed votes at, or inadvance of, the general meeting, no matter where they reside;the possibilities which modern technology offer to makeinformation instantly accessible should be exploited;shareholders should, in principle, have the possibility to putitems on the agenda of the general meeting and to table draftresolutions for items on the agenda. This right should be madesubject to basic rules, namely that any threshold required for theexercise of those rights should not exceed 5% of the companiesshare capital and that all shareholders should in every casereceive the final version of the agenda in sufficient time toprepare for the discussion and voting of each item on theagenda;every shareholder should, in principal, have the possibility toask questions related to items on the agenda of the general meetingand to have them answered. The Directive proposes leaving the ruleson how and when questions are to be asked and answered to bedetermined by Member States;companies should face no legal obstacles in offering toshareholders any means of electronic participation in the generalmeeting subject only to such constraints that are necessary for theverification of identity and the security of electroniccommunications; andgood corporate governance requires a smooth and effectiveprocess of proxy voting. The Directive therefore provides thatproxy holders should be bound to observe any instruction receivedfrom shareholders and that shareholders have an unfettered rightunder this Directive to appoint proxy holders to attend and vote atgeneral meetings in their name.Member States may exempt UCITS, non UCITS and co-operativesocieties from the provisions of the Directive.This is a minimum harmonisation directive and therefore MemberStates are permitted to introduce more stringent measures ifnecessary to facilitate the exercise by shareholders of theirrights. It will be interesting to see if the Irish Governmentlimits itself to amending existing companies legislation to be inline with the minimum requirements imposed by the Directive orwhether it will impose further obligations on companies tofacilitate the exercise by shareholders of the rights provided forin the Directive.The UK department for Business Enterprise and Regulatory Reform("BERR") published a consultation document on theimplementation of the Directive in the UK on 24 October 2008 whichcontained the UK's proposed draft regulations ("UK DraftRegulations") for implementation of the Directive.Interestingly, the UK Draft Regulations apply in certainrespects to private as well as listed companies. They propose thatshareholders of all companies be allowed to vote by correspondence– electronic or by post – if the companiesarticles allow. They also provide for all companies that wheremultiple non-proxy representatives are appointed by corporatenominees to represent different beneficial owners these corporaterepresentatives will be permitted to vote in different ways fromone another in respect of different blocks of shares.The rules which apply when a shareholders proxy cast votes fordifferent shares in different ways are also amended for allcompanies pursuant to the UK Draft Regulations. The UK DraftRegulations propose that on a show of hands a proxy appointed byone member would have one vote and a proxy appointed by more than...

To continue reading