CHAPTER 2: DERIVATIVE PROCEEDINGS IN SCOTLAND

Clause 248: Derivative proceedings

Clause 249: Requirement for leave and notice

Clause 250: Application to continue proceedings as derivative proceedings

Clause 251: Granting of leave

Clause 252: Application by member to be substituted for member pursuing derivative proceedings

481.     The clauses in respect of proceedings in Scotland seek to ensure maximum consistency between the position in England and Wales and Northern Ireland and the position in Scotland (although the clauses reflect the different procedural requirements which apply where proceedings are commenced in the Scottish courts, in particular the fact that the leave of court must be obtained before derivative proceedings may be raised). In view of this, they also put the rights of the member to raise actions on behalf of the company on a statutory footing.

482.     Clause 248 differs from clause 243 in its approach in that it confers the right to bring the proceedings in the first place, and then, in the clauses which follow, regulate the proceedings. (By contrast, the clauses relating to proceedings in England and Wales and Northern Ireland assume that there is already a right to bring such proceedings in England and Wales and Northern Ireland; they therefore regulate the proceedings rather than confer the right to bring them.)

483.     Subsections (4)-(6) of clause 251 (Granting of leave) confer on the Secretary of State a parallel power to that in clause 246 to make regulations with regard to the criteria to which the court must have regard in determining whether to grant leave to continue a derivative claim and where leave of the court must be refused.

PART 12: COMPANY SECRETARIES

General

Clause 253: Private company not required to have secretary

484.     This clause implements the CLR recommendation (Final Report, paragraph 4.7) that the requirement for a private company to have a secretary be abolished.

Clause 254: Public company required to have secretary

485.     This clause replaces section 283(1) of the 1985 Act. It retains the requirement that a public company must have a secretary. The secretary may also be one of the directors.

Clause 255: Direction requiring public company to appoint secretary

486.     This clause is a new provision, enabling enforcement of the continuing requirement for a public company to have a secretary. Where it appears that a public company does not have a secretary, the Secretary of State may give a direction to the company. The company must comply with the direction (by making the appropriate appointment and giving notice of it) within a specified period. The clause provides for an offence for failure to comply with a direction.

Provisions applying to secretaries of public companies

Clause 256: Qualifications of secretaries of public companies

487.     This clause replaces section 286 of the 1985 Act. It makes it the duty of the directors of a public company to ensure that the secretary has both the necessary knowledge and experience and also one of the specified qualifications listed in subsection (2). The qualifications specified in this clause are the same as in the 1985 Act except that:

• they do not include the qualification of having held the office of the company's secretary (or assistant or deputy secretary) on 22 December 1980;

• in subsection (3)(f), "Chartered Institute of Management Accountants" replaces "Institute of Cost and Management Accountants" as the Institute changed its name in 1986.

• There is no requirement for the company secretary to be a natural person. (Compare the requirement in clause 140 that a company must have at least one director who is a natural person.)

Clause 257: Discharge of functions where office vacant or secretary unable to act

488.     This clause replaces section 283(3) of the 1985 Act. It provides, in respect of public companies, for the situation where the office of secretary is vacant or there is no secretary capable of acting for any other reason. In these circumstances, if the company has an assistant or deputy secretary, then that person may fill the position of secretary; if not, any person authorised by the directors may do so. This clause differs from section 283(3) of the 1985 Act by permitting the directors to authorise any person to act as secretary, rather than only an officer of the company.

Clause 258: Duty to keep register of secretaries

489.     This clause replaces the requirement in section 288 of 1985 Act. Because, under the Bill, private companies need not have a secretary, it applies only to public companies. It requires every public company to keep a register of its secretaries containing specified details. Subsection (2) replicates the existing requirements as to where the register must be kept and what information must be kept in it (see clauses 254 - 256); Subsections (3) - (6) retain the public right of inspection, sanctions and means of enforcement of the right of inspection. Clause 744 provides power to set fees for inspection and copies.

Clause 259: Duty to notify registrar of changes

490.     This clause replaces the requirement in section 288(2) of the 1985 Act. Because, under the Bill, private companies need not have a secretary, it applies only to public companies. It requires notification to the registrar within 14 days of any change in the company's secretary or any change in the particulars contained in the register of secretaries. It retains the existing sanction. This clause ensures that the public record is kept up to date as regards the secretary of every public company.

Supplementary

Clause 260: Particulars of secretaries to be registered: individuals

491.     This clause replaces section 290 of the 1985 Act insofar as it applies to secretaries who are individuals. It requires a public company to enter in its register of secretaries the name and address of any individual who is its secretary. The definition of name is the same as for directors (see clause 148): in particular, the register must include any name used or in use for business purposes. The clause retains a protective provision relating to the former names of peers but, as recommended by the CLR, not that for the former names of married women. The address to be registered is a service address: this implements the CLR recommendation (Final Report, paragraph 11.46) that the requirement for home addresses for company secretaries be abolished.

Clause 261: Particulars of secretaries to be registered: corporate secretaries and firms

492.     This clause sets out the details which must be registered where the secretary of a public company is either a body corporate or a firm which is a legal person. The requirements that apply in the case of an EEA company follow the recommendations of the CLR (Final Report, paragraph 11.39).

493.     The clause also determines the details which must be registered where all the partners in a firm are joint secretaries.

Clause 262: Particulars of secretaries to be registered: power to make regulations

494.     This clause is a new provision. It provides a power for the Secretary of State to make regulations that add or remove items from the particulars that have to be entered in a company's register of secretaries. A similar power is provided by clause 149 for directors' particulars.

Clause 263: Acts done by person in dual capacity

495.     This clause replaces section 284 of the 1985 Act. It applies only to public companies as, under the Bill, private companies need not have a secretary.

PART 13: RESOLUTIONS AND MEETINGS

496.     The provisions in this Part replace most of Chapter 4 of Part 11 of the 1985 Act on meetings and resolutions. The changes in the law derive principally from the CLR's consultation on "Company General Meetings and Shareholder Communications" and recommendations from Chapters 2, 6 and 7 of their "Final Report", together with two subsequent consultations; the Modernising Company Law White Paper of July 2002 and the Company Law Reform White Paper of March 2005.

497.     In addition to implementing detailed policy changes, the clauses implement two general changes.

• First, the law makes the current "elective" regime the default for private companies. This means, for instance, that private companies will no longer need to "elect" to dispense with the Annual General Meeting (AGM): they will not be required to hold an AGM in the first place.

• Second, the current law is drafted on the basis that the main way in which shareholder decisions are taken is in general meetings. The new provisions proceed on the basis that in future this will not be the case for many private companies. Private companies will not be required in future to hold general meetings; instead provision is made for new procedures for decisions to be taken by written resolution.

498.     The law relating to decisions has been restated in a way that deals first with private companies. Additional layers of requirements for public and quoted companies holding general meetings follow in subsequent provisions. There are provisions at the end of the Part about record keeping. In general, where this Part imposes an obligation or confers a power, it will apply notwithstanding anything in the articles unless otherwise indicated.

CHAPTER 1: GENERAL PROVISIONS ABOUT RESOLUTIONS

Clause 264: Resolutions

499.     This clause provides that members' resolutions can only be passed in accordance with the provisions of this Part. There is no equivalent in the current legislation. Subsection (1) allows a private company to pass a resolution either as a written resolution or at a meeting of the members. Subsection (2) allows a public company to pass a resolution only at a meeting of the members. Subsection (3) preserves the common law unanimous consent rule.

Clause 265: Ordinary resolutions

500.     This clause provides a definition of an ordinary resolution, whether of the members generally or of a class of the members. A simple majority - that is, over 50% - is required.

Clause 266: Special resolutions

501.     This clause provides a definition of a special resolution, whether of the members generally or of a class of the members. A 75% majority is required. If a resolution is proposed as a special resolution, there is a requirement to say so, either in the written resolution text or in the meeting notice. Where a resolution is proposed as a special resolution, it can only be passed as such. The main difference from the existing definition in section 378 of the 1985 Act is that there is no longer a requirement for 21 days' notice where a special resolution is to be passed at a meeting. The subject matter of section 378(4) and (6) is now dealt with in clauses 303 (declaration by chairman on a show of hands) and 284 (resolutions at general meetings) respectively.

Clause 267: Votes: general rules

502.     This clause sets out the general rules on votes of members taken by written resolution, on a show of hands at a meeting or on a poll taken at a meeting. These are adapted from section 370 of the 1985 Act and the default regulations in Table A. Subsection (4) allows these general rules to be varied by the company's articles.

Clause 268: Votes: specific requirements

503.     This clause sets out specific requirements on votes of members, which the company's articles may not override. Subsections (1) and (2) provide for entitlement to vote where proxies have been appointed and ensure that the articles do not disadvantage a member voting by proxy or proxies. Subsection (3) makes new provision for voting rights on written resolutions, reflecting the fact that they will no longer need to be passed unanimously. A member will have the same number of votes whether passing a resolution on a poll in general meeting or on a written resolution.

Clause 269: Votes of joint holders of shares

504.     This clause puts on a statutory footing what was a default regulation under article 55 of Table A on votes of joint holders of shares. The person whose vote counts is the "senior" holder, the joint holder whose name appears first in the register of members.

Clause 270: Effect of provision in company's articles as to admissibility of votes

505.     This clause ensures that nothing in the clauses affects the operation of provisions in the articles which impose a procedure for objecting to and determining the admissibility of a vote. Such procedures are often included in articles to provide certainty as to the outcome of a meeting. A typical provision might say that objections to votes have to be raised with the chairman at the meeting and that his decision is final.

CHAPTER 2: WRITTEN RESOLUTIONS

506.     The provisions of this Chapter replace the present rules on written resolutions of private companies. A key change (apparent from clauses 265 (ordinary resolutions) and 266 (special resolutions)) is that where the existing statutory procedure requires unanimity, the procedure in the Bill does not. Consequently, the clauses are more detailed than sections 381A to 381C of the 1985 Act and set out the procedures for decisions taken outside of a general meeting framework. The use of the expression "written resolution" does not mean that there is a requirement for "writing" in the sense of hard copy.

General provision about written resolutions

Clause 271: Written resolutions of private companies

507.     This clause introduces the written resolution provisions of this Chapter. They apply to private companies only. Subsection (2)(a) and (b) reproduce the two exceptions currently provided for in Part 1 of Schedule 15A to the 1985 Act: a resolution to remove a director or an auditor before the expiration of his term of office may not be passed as a written resolution. These are the only two exceptions to a private company's right to pass resolutions using the written resolution procedure.

Clause 272: Eligible members

508.     The eligibility of members to vote on a written resolution is fixed on the day the resolution is circulated. Subsection (2) ensures that the same shares cannot be voted more than once on the same written resolution. If the person entitled to vote changes during the course of that day, the eligible member is the person entitled to vote at the time that the first copy of the resolution is sent or submitted to a member for his agreement.

Circulation of written resolutions

Clause 273: Circulation date

509.     This clause provides that the circulation date of a written resolution means the date on which copies are sent or submitted to members (or if copies are sent on different days, the first of those days.

Clause 274: Circulation of written resolutions proposed by directors

510.     This clause provides for the circulation of written resolutions by directors of the company. A company must circulate a written resolution either by sending it to all eligible members at the same time or, if it can be done without undue delay, submitting the same copy of the resolution to each eligible member in turn or a combination of these. The latter two options allow companies to pass round a document or email rather than sending out several copies.

Clause 275: Members' power to require circulation of written resolution

511.     This clause enables members to require a written resolution to be circulated. They may also require circulation of a statement about its subject matter. Like the members' right to require a resolution to be moved at an AGM, the percentage needed is 5% of the total voting rights (or lower if specified in the company's articles). Subsection (2) specifies some limits on the kind of resolution that may be circulated in this way, designed to stop the power being abused

Clause 276: Circulation of written resolution proposed by members

512.     This clause specifies what a company has to do when it is required under clause 275 to circulate a resolution and accompanying statement. It must circulate the resolution and statement by sending it to all eligible members at the same time or, if it can be done without undue delay, by submitting the same copy of the resolution and statement to each eligible member in turn or a combination of these. The latter two options would allow companies to pass round a document or email rather than sending out several copies. Subsection (3) requires that the members' written resolution be circulated within 21 days of the company being requested to do so by those members, except that if the written resolution is circulated to members on different days, then the first copy should be dispatched not more than 21 days after the request to circulate the resolution.

Clause 277: Expenses of circulation

513.     This clause provides that the expenses of complying with clause 276 (circulation of written resolution proposed by members) are to be paid by the members who requested the circulation of the resolution unless the company resolves otherwise. The company can require the deposit of a sum to meet its expenses before it circulates the resolution, again subject to any resolution to the contrary.

Clause 278: Application not to circulate members' statement

514.     This clause enables the court, on application by the company or other aggrieved person, to relieve the company of an obligation to circulate a members' statement under clause 276 (circulation of written resolution proposed by members) if in the court's view the right to require circulation is being abused. This mirrors clause 300) (application not to circulate members' statement in the context of general meetings).

Agreeing to written resolutions

Clause 279: Procedure for signifying agreement to written resolution

515.     Under this clause, a member may signify agreement to a written resolution in hard copy or electronic form, although if the company does not permit electronic form communications, or is not deemed to do so by virtue of clause 281 (sending documents relating to written resolutions by electronic means), the member will have to signify his consent in hard copy (see paragraph 6 of Schedule 5 (conditions for use of communications in electronic form)). Once a member has signified agreement to a written resolution, he cannot withdraw his agreement. This provides certainty for the

company as to when the required majority of eligible members needed to agree the resolution has been reached.

Clause 280: Period for agreeing to written resolution

516.     This clause puts a time limit of 28 days for passing a written resolution, unless the company's articles specify a different period. This means that there will be a definite point when the company can say that a resolution with insufficient support has not been passed.

Supplementary

Clause 281: Sending documents relating to written resolutions by electronic means

517.     This clause needs to be read together with the provisions about electronic communications to companies in Part 3 of Schedule 5 (communications in electronic form). Taken together, these provisions allow a member to communicate with the company by electronic means where the company has given an electronic address in a document containing or accompanying a proposed written resolution.

Clause 282: Publication of written resolution on website

518.     This clause should be read in conjunction with the provisions about communications by means of a website by a company other than a traded company in Part 4 of Schedule 6 (communications by means of a website). This clause, together with those provisions, allow a company in some circumstances to publish a written resolution on a website rather than send it to a member individually.

Clause 283: Relationship between this Chapter and provisions of company's articles

519.     This clause ensures that the company's articles cannot remove the ability of a private company and its members to propose and pass a statutory resolution using the statutory written resolutions procedures of this Chapter.

CHAPTER 3: RESOLUTIONS AT MEETINGS

520.     This Chapter replaces sections 368 to 377, 379 and 381 of the 1985 Act and makes provision about resolutions passed in general meeting. The provisions apply equally to private and public companies. The new provisions reflect the fact that private companies will no longer have to hold AGMs. For example, the provisions about circulation of statements in sections 376 and 377 of the 1985 Act have been separated from the provisions on circulation of resolutions prior to an AGM - which are in Chapter 4 (public companies additional requirements for AGMs). The Bill repeals section 367 of the 1985 Act which gives the Secretary of State a power to call a meeting where there is no AGM.

General provisions about resolutions at meetings

Clause 284: Resolutions at general meetings

521.     This is a general provision about the circumstances in which resolutions at meetings are validly passed. It extends to all resolutions the principle in section 378(6) of the 1985 Act relating to special resolutions: that passing a resolution in a meeting is not just a question of obtaining the right majority but of using the correct procedures. An important difference from the position under section 378(6) is that, under this clause, a resolution must be passed in accordance with the relevant provisions of the Bill and with any additional requirements imposed by the company's articles. So, where there are mandatory provisions in the Bill (like those about proxies' rights to vote) these cannot be avoided by making alternative provision in the articles; and where provision is made about meetings in a company's articles, these must also be complied with.

Calling meetings

Clause 285: Directors' power to call general meetings

522.     This clause puts into statute part of the default regulation at article 37 of Table A which allows the directors to call a general meeting. The company's articles will set out how the directors act collectively.

Clause 286: Members' power to require directors to call general meeting

523.     This clause, together with clauses 287 (directors' duty to call meetings required by members) and 288 (power of members to call meeting at company's expense) make provision similar to that in section 368 of the 1985 Act requiring the directors to call a general meeting if requested by the members. There are three main changes.

524.     First, there is a change in the threshold required for a meeting request. For public companies this remains members with voting rights holding at least 10% of the paid-up capital. For private companies the threshold is 5% or 10% of the paid-up capital (or, in a company with no share capital, 5% or 10% of the total voting rights) depending on when there was last a meeting in advance of which members had a right - equivalent to the right under this clause (see below) - to circulate resolutions. The threshold is lower if there has been no such meeting in the last twelve months. Second, as indicated above, subsection (4)(b) extends the provisions of the 1985 Act by enabling members to include the text of a resolution to be moved at the requested meeting. Subsection (5) defines what type of resolution may be properly moved. For example, if the resolution would have no effect, then it cannot be properly moved. Third, requests in electronic form are permitted.

Clause 287: Directors' duty to call meetings required by members

525.     This clause sets time limits within which the directors must call and hold a meeting required by members. Subsection (2) requires that if the members' request

identifies a resolution to be moved at the meeting, notice of this resolution should be included in the notice of the meeting.

Clause 288: Power of members to call meeting at company's expense

526.     This clause enables the members to call a meeting at the company's expense in the event that the directors fail to call a meeting on members' request. Subsections (6) and (7) provide for members to be reimbursed appropriately and that the directors are penalised directly by the reimbursement being taken out of the fees or other remuneration due to them.

Clause 289: Power of court to order meeting

527.     This clause reproduces the effect of section 371 of the 1985 Act and gives the court power to order a meeting of the company and to direct the manner in which that meeting is called, held and conducted.

Notice of meetings

Clause 290: Notice required of general meeting

528.     This clause replaces part of section 369 of the 1985 Act. It retains the current minimum notice period requirement of 21 days for public company AGMs, with 14 days' notice required for all other general meetings (whether public or private company general meetings). A general meeting may be called on shorter notice if the requisite majority of members agree. The key substantive change from the position under existing legislation is that the requisite majority required to agree a short notice period has been reduced for private companies from 95% to 90% of the voting rights, although the articles may specify up to 95% if the company wishes. For public companies, the majority required to agree a short notice period remains at 95% of the voting rights.