4 Exercise of voting rights by shareholders
| (27177)
5217/06
COM(05) 685
| Draft Directive on the exercise of voting rights by shareholders of companies having their registered office in a Member State and whose shares are admitted to trading on a regulated market and amending Directive 2004/109/EC
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| Legal base | Article 95 EC; co-decision; QMV
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| Document originated | 5 January 2006
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| Deposited in Parliament | 16 January 2006
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| Department | Trade and Industry
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| Basis of consideration | EM of 7 February 2006
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| Previous Committee Report | None; but see HC 63-xxviii (2002-03), para 13 (2 July 2003) and HC 63-xxxi (2002-03), para 12 (10 September 2005)
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| To be discussed in Council | No date set
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| Committee's assessment | Legally and politically important
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| Committee's decision | Not cleared; further information requested
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Background
4.1 In May 2003 the Commission published a communication to the
European Parliament and the Council setting out a company law
action plan. The previous Committee considered that communication,
entitled "Modernising Company Law and Enhancing Corporate
Governance in the European Union" on 2 July and 10 September
2003. The Committee noted that the communication identified the
strengthening of shareholders' rights and the fostering of business
efficiency and competitiveness as the two main policy objectives
to be achieved.
4.2 The Committee also noted that the proposed ten-year
action plan contained measures on corporate governance, including
measures to improve shareholder information and improvements in
the ability of shareholders to take part in the affairs of a company
on a cross-border basis.
The draft Directive
4.3 In its explanatory memorandum on the draft Directive,
the Commission notes that Article 17 of Directive 2004/109/EC
of the European Parliament and of the Council of 13 December 2004[14]
(the "Transparency Directive") requires issuers of shares
to make available certain information and documents which are
relevant to general meetings. The information and documents are
to be made available in the issuer's home Member State, but Article
17 does not prescribe when or how these are to be made available,
and in the Commission's view, the provision does not address the
particular difficulties of non-resident shareholders in obtaining
access to information before a general meeting.
4.4 The Commission considers, on the basis of the
consultation it has carried out, that the main obstacles for investors
in cross-border voting are requirements to "block"[15]
shares for a period before a general meeting, difficult or late
access to information before a general meeting and the complexity
of cross-border voting, in particular proxy voting. The Commission
describes the main objectives of its proposal as being to ensure
that all general meetings are convened sufficiently in advance,
to abolish all forms of share blocking, to remove legal obstacles
to electronic participation in general meetings and to provide
non-resident shareholders simple means of voting which do not
require attendance at the general meeting.
4.5 Articles 1 and 2 of the Directive determine the
scope of the measure and provide for definitions. The Directive
is to apply to the exercise of voting rights at a general meeting
of an "issuer".[16]
However, Member States may exempt from the Directive collective
investment undertakings within the meaning of Article 1(2) of
Directive 85/611/EEC[17]
and undertakings formed for the sole purpose of the collective
investment of capital provided by the public.
4.6 Article 4 requires the issuer to ensure equal
treatment for all shareholders who are in "the same position
with regard to participation and voting in its general meetings".
Article 5 requires notice of a general meeting notice to be sent
at least 30 days before the meeting, and prescribes the information
which the notice must contain relating to the venue and time of
the meeting, its agenda, means of voting and access to texts of
resolutions. Article 6 confers a right on shareholders to add
items to the agenda and to submit draft resolutions, with any
minimum qualifying shareholding fixed at no more than 5% of the
share capital or a nominal value of €10 million, whichever
is the lower.
4.7 Articles 7 to 13 are concerned with admission
to, and voting at, general meetings. Article 7 provides that the
right to participate and vote at a general meeting may not be
made subject to any requirement requiring the shareholder to block
the relevant shares by deposit ahead of a general meeting, even
where the blocking does not affect the ability to trade in the
shares. By virtue of Article 7(2), Member States may make the
right to participate and vote in a general meeting subject to
a requirement that the holder qualify as a shareholder on a certain
date before the meeting, but no such date may be earlier than
30 days before the meeting. Article 8 prevents the Member States
from prohibiting participation in general meetings by electronic
means, and Article 9 provides for shareholders to have the right
to ask questions either orally at the meeting or in written or
electronic form beforehand.
4.8 Article 10 provides for proxy voting, with in
principle no restriction on the person who may act as a proxy
other than the requirement that he possess legal capacity. However,
Member States may restrict the voting rights of proxy holders
where such holder has a business, family or other relationship
with the issuer, or has a controlling interest, or belongs to
the management of the issuer or of one of its controlling shareholders.
Article 11 limits the formal requirements for the appointment
of a proxy voter to those which "are strictly necessary for
the identification of the shareholder and of the proxy holder".
4.9 Article 12 provides for voting by post, and Article
13 for voting by persons holding securities in the course of a
business for the account of another natural or legal person.
The Government's view
4.10 In his detailed and helpful Explanatory Memorandum
of 7 February 2006 the Parliamentary Under-Secretary of State
for Employment Relations and Consumer Affairs (Mr Gerry Sutcliffe)
explains that the proposal is intended to improve corporate governance
in listed companies by ensuring that shareholders owning shares
in companies registered and listed in another Member State may
vote without difficulty at company meetings.
4.11 The Minister draws attention to the fact that
the proposal is based on Article 95 EC, whereas earlier Directives
in the field of company law have relied on Article 44 EC. The
Minister adds that Directive 2004/109/EC was itself based on both
Article 44 and 95 EC, and that the Government will be seeking
clarification of the reason for the choice of legal base.
4.12 The Minister further explains that the proposal
addresses four areas in relation to the exercise of voting rights.
First, the proposal abolishes the practice of "share-blocking".
In its place, the Commission proposes a system whereby shareholders
are validated on a specified date for voting at the subsequent
general meeting. The Minister explains that the proposal does
not prescribe the specified date, but it does provide that it
may not be earlier than 30 days before the general meeting, and
adds that the UK voting process uses a date which, for most publicly
traded shares, may not be more than two days before the meeting.
Secondly, the proposal will require minimum notice of 30 days
to be given before a meeting, which compares with the practice
in the UK whereby minimum notice of 21 days must be given for
an annual general meeting and 14 days for an extraordinary general
meeting. Thirdly, the proposal will remove legal obstacles to
electronic voting and participation. In this regard, the Minister
explains that electronic voting is widespread with UK listed companies.
Fourthly, the proposal provides for shareholders to be able to
vote without attending the meeting, and the Minister points out
that in the UK shareholders have the right to appoint proxies
by post.
4.13 The Minister notes that the UK has the largest
and most prestigious equity market in Europe and the most dispersed
shareholder structure, with the main market of the London Stock
Exchange dealing in the shares of around 1,800 companies, with
a total market capitalisation of more than £3,500 billion.
The Minister states that the regime of shareholder rights is well
developed and that shareholders in UK listed companies "face
no significant barriers to exercising their rights".
4.14 On the policy implications of the proposal,
the Minister comments that the abolition of share-blocking, the
removal of obstacles to electronic participation, and the right
to vote in absentia, already exist in UK law and practice
and — when applied to cross border situations — should
meet the Commission's objectives and are supported in principle
by the Government. However, the Minister points to a number of
detailed provisions which he considers have the potential to obstruct
shareholder rights overall.
4.15 The first of such provisions is the requirement
in all cases to prescribe a notice period of not less than 30
days. The Minister makes the point that Directive 2004/25/EC[18]
(the Takeovers Directive) itself prescribes a notice period of
14 days and that this proposal is to be without prejudice to that
provision. The Minister adds that there are situations, such as
the approval by shareholders of a rights issue, where it is in
the interests of all concerned that a meeting be called at short
notice, in particular in order to reduce risks and underwriting
costs. Another case identified by the Minister is one where the
shareholders wish to call an extraordinary general meeting to
prevent action which they consider not to be in the interests
of the company (a right not available in some Member States).
The Minister concludes that a uniform 30 day period would detract
form shareholders' rights in some cases, and that the Government
will seek to amend this provision.
4.16 Secondly, the Minister draws attention to the
requirement that the proposed record date be not earlier than
30 days before the meeting. The Minister points out that this
would make it possible for Member States to permit companies to
issue the meeting notice and fix the record date for the same
day. The Minister indicates that the wider implications of this
are being examined, but that it might result in shareholders being
unable to recall shares on loan in order to exercise the voting
rights conferred by the shares.
4.17 Thirdly, the Minister refers to the provisions
on the answering of questions at company meetings which suggest
that a company might be required to answer all questions in writing.
The Minister indicates that the Government will be seeking clarification.
The Minister also notes that the proposal permits Member States
to impose more stringent national requirements, and that it is
not clear what this would mean in all cases.
Conclusion
4.18 We agree with the Minister in welcoming the
principle of the proposal, but we note that some of the detailed
provisions might have the unintended effect of decreasing the
rights of shareholders, in particular, by imposing an excessively
rigid regime for giving notice of company meetings.
4.19 We also agree with the Minister's comments
on the use of Article 95 EC as the legal base, when Article 44
EC has been used on previous occasions for adopting measures on
company law. The present measure is concerned essentially with
the internal governance of companies and for this reason we consider
that Article 44 EC should have been used on this occasion.
4.20 We look forward to an account by the Minister
in due course of the negotiations on the question of the legal
base and on the detailed provisions which the Minister has identified
as having the potential to obstruct shareholder rights. We shall
hold the document under scrutiny in the meantime.
14 OJ No. L 390, 31.12.2004, p.38. Back
15
A requirement imposed on shareholders to notify the company on
a specified date of their identity and intention to vote in a
forthcoming general meeting. After the specified date, the share
in question may not be traded. Back
16
This is defined in Article 2 as a "legal entity governed
by public or private law, including a state, whose shares are
admitted to trading on a regulated market". Back
17
OJ No. L 375, 31.12.1985, p.3. Back
18
OJ No. L 142, 30.4.2004, p.12. Back
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