Shareholders Rights Directive

Author:Mr Paul Moloney
Profession:Dillon Eustace


Directive (2007/36/EC) (the "Directive") known as the

Shareholders Rights Directive was introduced in order to improve

corporate governance in listed companies in Europe by enabling

shareholders to exercise their voting rights and rights to

information across borders. While the Prospectus

Directive1 focuses on the information which issuers have

to disclose on admission to the market and the Transparency

Directive2 deals with, amongst other matters,

information which companies are required to make available in

relation to company meetings, neither deal with the shareholder

voting process.

The Commission's proposal for a directive on the exercise of

certain rights of shareholders in listed companies was adopted on

11 July 2007 and published on 14 July 20073.

The recitals to the Directive provide a useful overview of the

principles which the parliament and the council wished to reflect

through the implementation of this directive and are important in

interpreting the provisions of the Directive. The stated aims of

the Directive are that:

shareholders should be able to cast informed votes at, or in

advance of, the general meeting, no matter where they reside;

the possibilities which modern technology offer to make

information instantly accessible should be exploited;

shareholders should, in principle, have the possibility to put

items on the agenda of the general meeting and to table draft

resolutions for items on the agenda. This right should be made

subject to basic rules, namely that any threshold required for the

exercise of those rights should not exceed 5% of the companies

share capital and that all shareholders should in every case

receive the final version of the agenda in sufficient time to

prepare for the discussion and voting of each item on the


every shareholder should, in principal, have the possibility to

ask questions related to items on the agenda of the general meeting

and to have them answered. The Directive proposes leaving the rules

on how and when questions are to be asked and answered to be

determined by Member States;

companies should face no legal obstacles in offering to

shareholders any means of electronic participation in the general

meeting subject only to such constraints that are necessary for the

verification of identity and the security of electronic

communications; and

good corporate governance requires a smooth and effective

process of proxy voting. The Directive therefore provides that

proxy holders should be bound to observe any instruction received

from shareholders and that shareholders have an unfettered right

under this Directive to appoint proxy holders to attend and vote at

general meetings in their name.

Member States may exempt UCITS, non UCITS and co-operative

societies from the provisions of the Directive.

This is a minimum harmonisation directive and therefore Member

States are permitted to introduce more stringent measures if

necessary to facilitate the exercise by shareholders of their

rights. It will be interesting to see if the Irish Government

limits itself to amending existing companies legislation to be in

line with the minimum requirements imposed by the Directive or

whether it will impose further obligations on companies to

facilitate the exercise by shareholders of the rights provided for

in the Directive.

The UK department for Business Enterprise and Regulatory Reform

("BERR") published a consultation document on the

implementation of the Directive in the UK on 24 October 2008 which

contained the UK's proposed draft regulations ("UK Draft

Regulations") for implementation of the Directive.

Interestingly, the UK Draft Regulations apply in certain

respects to private as well as listed companies. They propose that

shareholders of all companies be allowed to vote by correspondence

– electronic or by post – if the companies

articles allow. They also provide for all companies that where

multiple non-proxy representatives are appointed by corporate

nominees to represent different beneficial owners these corporate

representatives will be permitted to vote in different ways from

one another in respect of different blocks of shares.

The rules which apply when a shareholders proxy cast votes for

different shares in different ways are also amended for all

companies pursuant to the UK Draft Regulations. The UK Draft

Regulations propose that on a show of hands a proxy appointed by

one member would have one vote and a proxy appointed by more than

one member would have one vote if instructed to vote in the same

way by all the members who appointed the proxy. If instructed to

vote in different ways, the proxy will have one vote for and one

vote against the particular resolution. Where a shareholder

appoints more than one proxy, all the proxies taken together will

have one vote for and one vote against the particular resolution.

Finally, the UK Draft Regulations create a new statutory obligation

on a proxy to act in accordance with any instructions given by the

member(s) appointing him or her.

As drafted, the UK Draft Regulations apply immediately from 3

August 2009. This means that unless a company has passed an

appropriate resolution at its 2009 AGM it will have to call any

general meetings on 21 days notice unless it calls a general

meeting to pass an appropriate resolution which is unlikely to be

attractive to companies. The...

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