Continuing with our series of articles regarding the new Company Law Reform Bill and the changes it brings to Company Law, the focus in this article is on the practical measures to be introduced by the Bill in connection with the everyday governance of companies.
For example, in line with the Bill's avowed aim to simplify current Company Law and make this more transparent and relevant for the 21st century, there are numerous proposed measures which will alter the way in which quoted companies conduct their day-to-day activities.
Following the passing of the Bill as drafted, quoted companies will be able to use electronic communication with shareholders as the default position (by placing documents on a website for example) unless shareholders specifically elect to receive hard copies. This will obviously have significant cost saving implications as well as being more time efficient, allowing shareholders to have up to the minute information more easily.
The Bill however also creates new shareholder rights aimed at increasing the transparency of internal governance of quoted companies, which will arguably increase in some respects the administrative burden on such companies in relation to meetings.
In particular, quoted company shareholders will have the right, if members holding at least 5% of the shares or more than 100 in number request it, to requisition the scrutiny of a poll. They will also be required to disclose the results of polls at general meetings on their websites.
Shareholders will also have the right, on request by holders of 5% or more than 100 in number to requisition a resolution at the AGM at the quoted company's expense if the requisition is received before the end of the financial year.
Proxies will have enhanced rights, so that they can attend, speak and vote at meetings. Members will be able to appoint more than one proxy or corporate representative.
Where a company makes provisions in its articles to enable a registered holder to nominate a representative who is to be entitled to exercise some or all of that member's rights, then to the extent provided in the articles, references to "members" and their rights under company legislation will be extended to include persons so nominated. If companies do not voluntarily give beneficial owners such rights, the Bill would give the DTI power to pass regulations. The DTI is also proposing, in a move which has already been condemned by institutions, to have power in the Bill to make regulations requiring institutional shareholders to disclose how they vote.
Another change aimed at simplifying governance for all companies is as regards the legal status of a company's Memorandum and Articles of Association. While companies will still have a constitution comprising both Memorandum and Articles, the Memorandum will simply be a document created on incorporation stating that the subscribers wish to form a company and will no longer set out the objects of the company as is the case under the current law. Instead, unless the Articles provide otherwise, the objects of a company will be deemed to be completely unrestricted under the new regime. For existing companies, provisions in the Memorandum setting out the objects of the company will be deemed to be part of the Articles of Association. Companies will therefore be able to remove them from their Articles by special resolution to leave unrestricted objects.
There will also be default articles for private companies limited by shares which will replace Table A and will be very brief. There are also to be separate model articles for public companies. Neither of these items however were published with the Bill.
Next time in the ebulletin we will be discussing the new provisions regarding Accounts and Audits under the Bill.