Companies Act 2006 - New Regulations Relating To Meetings And Resolutions
Friday, August 17, 2007
by
Catherine Feechan and David Gilchrist
Introduction
The new provisions relating to meetings and resolutions come into force on 1st October 2007.
There will be two types of resolution which a company can pass – an ordinary resolution and a special resolution. There will no longer be an extraordinary resolution. A resolution can be passed by a private company either by the written resolution procedure, or at a meeting. A resolution of a public company or any class of its members must be passed at a meeting.
Where the Act requires a resolution of members and does not specify what kind of resolution, then it is deemed to be an ordinary resolution although the company’s articles can require a higher threshold. Where an ordinary resolution is specifically required the company’s articles cannot require a higher majority.
There are no substantial changes to the nature of ordinary or special resolutions. An ordinary resolution requires a simple majority, i.e. it must be more than 50%. A special resolution requires a majority of at least 75%.
Written Resolutions
Companies will be able to pass an ordinary resolution or a special resolution by the written resolution procedure with only the requisite majority of eligible members signing the resolution, rather than requiring the signature of all members. There is no requirement to include the auditors in circulation of resolutions.
The procedure cannot be overridden in the company’s articles of association.
Procedure For Passing A Written Resolution
As with resolutions proposed at meeting, a written resolution may be proposed by the directors or may be required by members to be put to the company.
The company must send copies of the resolution to all eligible members so far as reasonably practicable at the same time by:
-
hard copy form;
-
in electronic form;
-
by means of a website;
-
if possible to do so without undue delay by submitting the same copy to each eligible member in turn, or a number of copies to each of a number of eligible members in turn;
-
or by a mixture of these means.
The copy must be accompanied by a statement of:
a) how to signify agreement to the resolutions; and
b) the date by which the resolution must be passed if it is not to lapse.
Failure to comply with these requirements is a criminal offence committed by every officer in default. However, the validity of the resolution, if passed, is not affected by failure to comply with the requirements of section 291.
If the resolution is to be passed as a special resolution then the it must be stated that it is proposed as a special resolution (s283(3)).
When passing a resolution by way of the written resolution procedure, the resolution need only be circulated to those eligible to vote. There will be cases where a particular shareholder is not entitled to vote, for example on a resolution for the company to purchase its own shares off market the shareholder whose shares are to be bought cannot vote, and the resolution must be passed by the requisite majority of the balance of the members. It will therefore be necessary to establish the eligible shareholder list on the circulation date and the number of shares for which they are an eligible member in order to determine whether the resolution is passed.
In many cases this will be clear and there will be sufficient shareholders available to sign a written resolution form on its date of circulation to ensure the resolution is passed. The resolution must still, however, be sent to everyone.
Period For Agreeing The Resolution
The resolution must be agreed by the requisite majority within the period specified in the companies articles or, if none is specified, within 28 days of the circulation date. The company's articles could contain a longer or shorter period.
Agreement signified after the expiry of the period is ineffective. Unless the contrary is stated in the articles or in the information sent with the resolution. It would appear members have until midnight on the relevant date to signify their agreement.
If the time deadline passes without the requisite majority being achieved then the process must start over again to pass the resolution. It does not appear to be possible to extend the period after it has started running.
Signifying Agreement To The Resolution
A member “signifies his agreement” when the company receives from him or someone acting on his behalf an authenticated document identifying the resolution to which it relates and indicating his agreement (section 296). The document must be sent to the company in hard copy or electronic form and once submitted the agreement may not be revoked.
Where the document is in hard copy, it is authenticated if it is signed by the person sending or supplying it.
If the document is sent or supplied in electronic form, it is sufficiently authenticated if:
-
if the identity of the sender is confirmed in a manner specified by the company;
-
if no manner is specified then if the document is accompanied by or contains a statement of the identity of the sender and the company has no reason to doubt the truth of that statement.
Where the document is sent or supplied by one person on behalf of another, nothing in the section affects any provision of the company’s articles under which the company may require reasonable evidence of the authority of the former to act on behalf of the latter.
Written Resolutions Proposed By members
In line with the provisions for resolutions to be put to members at an EGM, members will have the power to require the company to circulate a resolution to be passed using the written resolution procedure.
The company is required to circulate a resolution when it has received requests to do so from members holding shares representing 5% of the voting rights or any lower percentage in the company’s articles. The members may require the company to circulate a statement of not more than 1000 words along with the resolution. A requisition by a member must be made in hard copy or electronic form, authenticated in accordance with section 1146 and must identify the resolution and any statement to accompany it.
The company must send or submit the resolution within 21 days of becoming subject to the requirement to do so. The company must follow the requirements of the written resolution procedure as regards the sending of the resolution and the receiving of the agreement of members.
The expenses of the company in complying with the Act must be paid for by the members who requested circulation of the resolution, unless the company resolves otherwise (i.e. a resolution of shareholders is required). The company is not bound to send the resolution where the members are to meet the expenses until there is deposited or tendered to it a sum reasonably sufficient to meet its expenses in so doing.
In addition, the court on application of the company or other aggrieved person may relieve the company of the obligation to circulate the resolution, if in the courts view the right to require circulation is being abused.
Validity Of Resolutions Passed At Meetings
The Act provides that a resolution passed at a meeting is validly passed if the notice is given and the meeting held in accordance with the Act and the company’s Articles of Association. This extends the Companies Act 1985 provision for special resolutions to any resolutions and requires compliance with the Articles in addition to the Act.
Power to Call A Meeting
Section 302 puts into statue the rule under Table A that the directors have the power to call general meetings of the company. Provisions of sections 303-5 mirror those of the current Act in giving the members the power to require the directors to convene a meeting. However, there are three important changes:
- the threshold at which the power can be exercised is reduced in the case of private companies to 5% of the voting rights if more than 12 months have passed since the last general meeting of the company at which the member would have been able to circulate a resolution (i.e. an AGM if one was held) or otherwise it is 10%. For a public company it remains at 10%;
- the members may now include the text of the resolution they want put to members. The directors do not need to put the resolution if it would be ineffective if passed due to inconsistency with any enactment or the company’s constitution or is vexatious, frivolous or defamatory;
- the request may be submitted electronically.
The time limits within which the meeting must be convened and held are unchanged. However, if the directors fail to call the meeting within the requisite time, the members may do so and the company must reimburse the members their reasonable expenses. The Company must deduct the cost of this from the remuneration and fees of the directors who were in default in not calling the meeting. The right to call a meeting at the company’s expense applies only to general meetings and not to class meetings.
Auditors retain the right to requisition an EGM if upon resignation they consider there are matters which ought to be brought to the attention of the company’s members. (section 518).
Notice Of Meetings
Length of Notice: Only 14 days' notice is required for a general meeting even if a special resolution is proposed. The exceptions to this are public company AGM’s (which remains as 21 days) and resolutions requiring special notice.
A private company which chooses to hold an AGM will only need to give 14 days'' notice. The Articles can provide for longer notice periods and existing articles which provide specifically for 21 days' notice of meetings can be expected still to apply to companies until changed.
Section 360 is a new provision which provides for the computation of notice periods. Any reference to a period excludes both the day of the meeting and the day the notice is given. Thus there is a minimum 16 day period to convene a meeting. This cannot be overridden in the articles as regards notices under the Act. It is unclear how articles which provide for different notice periods will be dealt with where this reduces the notice below 16 days as required by the Act. e.g. by including the day of the meeting in the notice period.
Short Notice: A meeting may be held on short notice with the agreement of shareholders representing 90% of the share capital carrying the right to attend and vote, in the case of a private company and 95% for a public company. Private companies can provide a higher threshold in their articles, not exceeding 95%. A public company AGM on short notice still requires the agreement of all the members entitled to attend and vote.
Manner of Giving Notice: Notices can be given in hard copy form, electronically or by means of a website (section 308). This and the related provisions. for electronic communication came into force on 20th January 2007.
Contents of Notice: The Act repeats the current Table A requirement that the notice contains the time, place and date of the meeting and must state the general nature of the business to be transacted. This is subject to the company’s articles which could provide for additional information such as the text of resolutions.
Section 325 also requires that the notice contains a statement of the member's right to appoint proxies and any more extensive rights conferred by the company’s articles. Failure to include the statement does not affect the validity of the meeting or anything done at it, but defaulting directors are liable to a fine. It is no longer a requirement to state that the proxy need not be a member of the company.
Accidental Failure to Give Notice: The provisions of regulation 39 of Table A are put into statute to provide that accidental failure to give notice is disregarded in determining whether notice was validly given or a resolution validly passed at a meeting, although this can be overridden in a company’s articles.
Proxies
A member may appoint a proxy to exercise all his rights to attend, vote and speak at a meeting. A proxy attending a public company meeting will now have the right to speak at the meeting, which previously would be a question for the company’s articles or at the discretion of the chairman of the meeting.
A further important change to proxy rights is that proxies will be able to vote on a show of hands, when currently they only vote on a poll. On a show of hands a proxy who has been duly appointed a proxy member has one vote.
The third important change is the right to appoint more than one proxy up to a maximum of one per share.
The effect of this is that proxies may significantly affect the conduct and voting at general meetings. The articles may limit the votes exercisable by proxies at a meeting on a show of hands but not below one vote in total for the proxies appointed by a single member. A chairman acting as proxy for many shareholders has a vote on a show of hands for each member he represents. If one shareholder who has appointed many proxies has the same number of votes on a show of hands as the number of proxies, unless the articles alter this. The model articles do not. It may be that companies do restrict proxies to one vote per member. This may be significant in companies with a hostile shareholder group. It may mean that particularly in the context of a public company meeting there are more poll votes conducted, rather than votes on a show of hands.
More extensive rights for proxies may be granted in the company's articles.
A provision of a company’s articles requiring a proxy to be submitted mote than 48 hours before the meeting is void (as is the case under the 1985 Act). However, now no account is to be taken of any part of a day that is not a working day. This means that for a meeting on a Monday the cut off time will be Thursday, rather than Saturday.
The provisions about a proxy joining in a demand for a poll are unaltered. However nothing seems to prevent the member appointing 5 proxies and these 5 proxies satisfying the requirement for 5 members or proxies for a member demand a poll.
Some care will be needed on the management of proxy voting at meetings, as a proxy may have more votes than he has hands.
Corporate Representatives
The Act expressly allows for the appointment of more than one corporate representative, clarifying the position under the current law. However, if more than one is appointed and the exercise of their powers at the meeting conflict then the power is treated as not having been exercised and the corporation will be deemed to have abstained from voting. The appointment of proxies would solve this problem if a corporation wished to allow shares to be voted in different ways, for example it they are held by it as a nominee.
Quorum For Meetings
The quorum for meetings remains at two, or one for single member companies, unless the articles provide otherwise. However, it is clarified that two representatives of the same corporation or two proxies of the same member do not count as a quorum, there must be representatives of two separate members.
The draft model articles provide for the quorum to be two unless the company increases this by ordinary resolution.
Poll Voting
The principles of conducting a poll vote are not affected by the new Act. It will still proceed on the basis of poll cards issued at the meeting or be conducted on a separate occasion.
The main changes in this area are for quoted companies. These companies are required to disclose on a website the results of any poll taken at a general meeting (section 341).
This disclosure must include:
· the date of the meeting;
· the text of the resolution;
· the number of votes cast in favour;
· the number of votes cast against.
Failure to disclose the information does not invalidate the poll, but is an offence by the officers of the company liable to a fine. The section does not give a time limit within which the disclosure must be made. It will apply to poll votes taken after 1st October 2007, but not for polls demanded before that date but taken after it.
Members of quoted companies are also given the right to demand the directors obtain an independent report on any poll vote. The request must be made by members holding not less than 5% of the shares entitled to vote on the matter to which the poll relates, or not less than 100 members. The request maybe submitted in electronic or hard copy form within one week of the date the poll was taken, but it can be submitted any time before that, so may be made in advance of a meeting at which members are planning to demand a poll.
The directors must appoint an independent assessor within one week of being required to obtain the report. If appointed before the meeting, the assessor has the right to attend the meeting. There are various tests to be applied to determine if the assessor is independent, but it cannot be an employee or director of the company or anyone associated with the company or their directors. The Secretary of State has power to make further regulations on who may or may not be the assessor. It is expressly provided that the auditor is not regarded as an officer or employee so could be appointed. The same would be the case for the Company’s solicitors. In the House of Lords debate the suggestion was another firm of registrars other than the company’s registrars would be appropriate.
The identity of the assessor and his report must be posted on a website. The report must cover the assessor's opinion on the procedures adopted for the poll; whether the votes were accurately counted; and whether the proxy appointments were fairly assessed. The assessor must give his reasons for his opinion. However, the report has no effect on the validity of the poll results or the resolution.
Record Of The Meeting
Minutes of the meeting are still required, but these need only be kept for 10 years, as opposed to indefinitely at present.
Annual General Meetings
There will no longer be a requirement for private companies to hold an AGM. For existing companies, the government’s view is that if there is a specific requirement in the Articles to hold an AGM this will continue to apply, but if the AGM is only referred to indirectly, such as requiring directors to be re-elected at an AGM this will not of itself mean the Company must hold an AGM. All private companies will need to check their articles to see if they still need to have an AGM. Table A would not require an AGM to be held. If one is held, the other provisions of Table A would apply to it, such as 21 days' notice and directors retiring by rotation, if those provisions are not varied in the Companies articles or removed.
The Notice of AGM must still specify that the meeting is the AGM and the nature of the business to be transacted. This is subject to the company’s articles so if they provide for a distinction between ordinary and special business (as Table A did before the 1985 Act) then this will continue to apply.
Laying Accounts Before The Meeting
Only a public company must lay the accounts before a general meeting of the company and this must be done before the deadline for filing the accounts, i.e. 6 months after the year end. (section 437) The AGM must be within 6 months of the end of the accounting reference period (section 336) . Unless the articles provide otherwise, a private company is not obliged to lay the accounts before a general meeting.
Re-election Of Directors And Auditors
Directors will need to retire by rotation if the articles provide for this. The auditors or a public company must be appointed or reappointed at the meeting at which the accounts are laid before the meeting. For a private company, the auditors remain in office unless the company’s articles require re-appointment by the members, or the members resolve not to reappoint them.
Documents On Display.
At the AGM the directors service contracts must be available for inspection throughout the meeting. The requirement to have the register of directors' interests on display was repealed on 6th April 2007.
It is important that all board members and office holders are made aware of these changes. Biggart Baillie LLP would be pleased to provide you with any further advice you require in relation to directors duties under the new Act, or on other aspects of the new legislation. If you are interested in any particular areas - please click here
The information contained in this article is given for general information only and does not constitute legal advice on any specific matter.