SHAREHOLDERS VOTING RIGHTS (5217/06)
Letter from the Chairman to Gerry Sutcliffe
MP, Parliamentary Under-Secretary of State for Employment Relations
and Consumer Affairs, Department of Trade and Industry
Thank you very much for your Explanatory Memorandum
5217/06 on voting rights for shareholders which Sub-Committee
A considered at its meeting on 7 March. Whilst the Committee welcomes
the general thrust of the Proposal to improve corporate governance
in the Union, and notes the prominent role the UK should play
in arguing for such measures, we have decided to hold the document
under scrutiny pending clarification of a number of issues. We
consider that such a proposal must focus only on what is necessary
to create a working single market and not go further.
We note the specific concerns you raise about
the potential for the Proposal to obstruct overall rights enjoyed
by shareholders. On the notice periods for meetings (Article 5
of the Proposal) we share your concerns and are pleased that you
will be seeking to amend the Article. We consider that a mandatory
30 day notice period would be unworkable in many situations. Would
you please provide details of the amendments you will be suggesting
and whether these amendments are agreed.
On the right of shareholders to ask questions,
you write that you are seeking clarification of whether companies
will be required to respond to all questions in writing. Please
provide details of this clarification and, if there is to be a
requirement for a written response, please indicate the likely
costs to business and whether you will be opposing it.
On the ability to impose more stringent national
requirements you write that it is unclear what this would mean
in all cases. Although you have helpfully provided some examples,
we would appreciate a fuller analysis of the requirements you
consider may be implemented by other Member States and any effects
this would have on shareholders and business.
Finally, we note your comments on the use of
Article 95 as the legal basis for the Proposal. Please provide
us with the results of your correspondence with the Commissionon
on this, together with your analysis of the potential implications
should Article 95 remain the legal basis.
9 March 2006
Letter from Gerry Sutcliffe MP to the
Thank you for your letter of 9 March in response
to the Explanatory Memorandum. We concur with your assessment
that this proposal must focus only on what is necessary to create
a working single market and not go further. This is the position
we have been taking in the negotiations: it reflects the original
guiding political criteria established in the EU Company Law and
Corporate Governance Action Plan, that measure should be "firm
in the principle, flexible in the application".
Negotiations on this dossier are continuing
in the Council and I should like to update you on progress and
answerin so far as is possible at this stagethe
questions posed in your letter.
I am pleased to report that the Commission has
indicated that it is prepared to be flexible on this point, and
that shorter notice periods should be permitted for Extraordinary
General Meetings (EGMs). We would prefer that the Commission were
to permit Member States and companies to decide in which circumstances
EGMs should take place on shorter notice, and have suggested that
following drafting for Article 5 of the Directive:
General meeting notice periods
1. Without prejudice to Article 9(4) of
Directive 2004/25/EC of the European Parliament and of the Council,
and subject to paragraph 2, general meetings may not be called
on less than [XX] calendar days notice.
2. A general meeting may be called on at
least  calendar days notice if:
(a) the laws of the issuer's home Member
State and its statutes so permit; and
(b) the meeting is not an annual general
It is more likely, however, that the Commission
will seek to define more precisely the circumstances for EGMs
(there is already a carve-out for 14 days in some takeover situations).
We will need to study any Commission proposals in order to understand
how workable they might be in practice.
Questions at meetings
Many Member States have expressed their concerns
about the potential for lengthy and costly meetings and other
burdens on business if there is an unrestricted right to ask questions.
At the most recent Council Working Group, a wide range of opinions
was expressed as to whether, and when, the questions asked in
writing should have to be answered. We have recommended that Member
States should be permitted to allow companies to place constraints
on the asking and answering of questions:
(a) which do not appear to have any reasonable
connection with any resolution to be proposed at the general meeting
at or in anticipation of which they are asked, or which appear
otherwise to be unrelated to the business of that meeting;
(b) which appear to be frivolous or vexatious;
(c) the asking of which would be likely to
prejudice the legitimate interests of the company or other shareholders,
or the efficient conduct of the business of the general meeting
at or in anticipation of which they are asked.
We are currently studying the Commission's Impact
Assessment and will be consulting our stakeholders about the costs
to business of an unrestricted right to askand have answeredoral
and written questions in relation to company meetings.
More stringent national requirements (Article
The issue, and the precise meaning of "minimum
harmonisation" as defined in paragraph 2.1.3 of the Commission's
Explanatory Memorandum, was acknowledged by the Commission early
in the negotiations as one which required more clarity throughout
the directive. The Commission's Explanatory Memorandum says that
the implication of minimum harmonisation is that "Member
States are left free to maintain or introduce provisions which
are more favourable to shareholders."
In order to test this, we asked the Commission,
specifically in relation to the restriction in Article 10 (which
states that shareholders may appoint one proxy onlyas opposed
to one proxy per share in the UK), whether this meant that Member
States could allow shareholders to appoint more than one proxy.
This would seem to us to be an extension of shareholders rights
and "more favourable to shareholders". The Commission
were clear that Article 3 prevented this. This led to considerable
discussion amongst Member States about the exact meaning of Article
3 in relation to the other articles in the directive.
The Commission have said that whilst Article
3 will remain in the directive, the Commission will make clear
what Article 3 means in respect of each other article. When we
have sight of what it proposes, we will be in a better position
to make an informed assessment of what other Member States reactions
might be, what requirements they might implement as a result,
and what the effects of this would be on shareholders and business.
We are currently consulting the Commission on
this issue. Our initial conclusion is that Article 95(1) would
seem to be the correct treaty base.
In ECJ case C217/04 United Kingdom v Parliament
and Council, the Advocate General delivered his opinion in
favour of the United Kingdom, saying, at paragraph 18:
"18. Measures on the basis of Article 95(1)
EC are intended to improve the conditions for the establishment
and functioning of the internal market, but that provision does
not confer on the Community legislature any general power to regulate
the internal market. The Court has also stated that measures under
Article 95(1) EC `must genuinely have that object, actually contributing
to the elimination of obstacles to . . . free movement'."
In the case of this directive, the conditions
set out by the Advocate General seem to be satisfied. Nevertheless,
we are also taking advice from Cabinet Office Legal Advisors on
Following three Council Working Groups, the
Presidency has said that it will be shortly in a position to issue
a compromise text, which will be discussed at a meeting on 18
and 19 May. We do not, however, expect Member States to reach
an agreed position before the Summer, and expect that negotiations
will continue in the Council well into the next (Finnish) Presidency.
I have attempted to answer your questions as
fully as possible given the current stage of the negotiations.
If there are any matters which you feel require clarification
I am, of course, happy to provide further explanation.
19 April 2006
Letter from the Chairman to Gerry Sutcliffe
Thank you very much for your letter dated 19
April regarding EM 5217/06 which Sub-Committee A considered at
their meeting on 25 April. The Committee have decided to continue
to hold the document under scrutiny.
The Committee remains in favour of the proposed
Directive and welcomes the general thrust of the Proposal to improve
corporate governance in the Union.
On notice periods for general meetings, the
Committee were pleased to see that the Commission has indicated
its willingness to be flexible. We consider that the agreed Directive
should be sufficiently flexible to allow EGMs to be called at
short notice as is currently the case in the UK. Please provide
details of the Commission's future proposals in this area.
On the right to ask and have answered all questions
at company meetings we are glad to see that concerns over the
possible burden to business are widely shared by Member States.
We support the general thrust of your proposed amendment to this
Article and would like to be kept updated on negotiations.
On the ability of Member States to impose more
stringent requirements than the Proposal itself does, whilst we
are sympathetic to this in principle, we are unable to judge effectively
what this might mean in practice. We would therefore like to have
details of the Commission's promised clarification when this becomes
We assume the stakeholder consultation exercise
to which you refer in your original Explanatory Memorandum elicited
a positive response and would appreciate details of it as well
as of the proposed public consultation.
Finally, on the question of the legal base,
we note that you are consulting Cabinet Office legal advisors
and we would be interested to learn the outcome of that exercise.
26 April 2006
Letter from Jim Fitzpatrick MP, Parliamentary
Under-Secretary of State, Department of Trade and Industry to
Thank you for your letter of 26 April to Gerry
Sutcliffe, about the above. The matter you have raised now falls
within Margaret Hodge's portfolio and I am replying on her behalf
as Duty Minister.
We should like to update you on the progress
of negotiations on this directive. You last wrote to the DTI about
this on 26 April. I am sorry for the delay, but we have been pursuing
certain negotiating objectives and have awaited developments before
reporting back to you. DTI officials have been in touch with the
Clerks in the intervening period.
The Commission's first compromise proposal in
response to requests for differentiating between notice periods
for AGMs and EGMs, was to propose a period of 21 days for both.
Nevertheless, there remains a good deal of support for differentiation,
and both the rapporteurs for the European Parliament Committees
(ECON and JURI) which are considering the directive have proposed
amendments in favour of differentiation and the UK has supported
these. We hope that the Commission will take this into account
in future proposals.
In our previous letter, we included a proposed
amendment the purpose of which was to allow companies to place
certain constraints on the asking and answering of questions and
so reduce administrative and cost burdens. We now consider that
we have reached an appropriate compromise text which achieves
The right to ask questions and the obligation
to answer are subject to the measures which the Member State may
take, or allow companies to take, to ensure the identification
of the shareholder, the orderly preparation of the general meeting
and the protection of confidentiality and business interests of
the company. The Member State may provide that the company shall
not be obliged to respond individually to a question if the requested
information has already been available in a question and answer
format on the Internet site of the company.
Here, again, we believe that we have reached
an appropriate compromise text as follows:
This Directive does not prevent Member States
from imposing further obligations on companies or from otherwise
taking further measures to facilitate the exercise by shareholders
of the rights referred to in this Directive.
The important difference with this wording is the
omission of "more stringent national requirements" and
the positive reference to "measures to facilitate the exercise
by shareholders of the rights referred to". The inclusion
of a description of what "more stringent" means for
each article has been rejected as impractical by all parties.
We are pleased to report that the Commission
has accepted that Article 44 EC is a relevant treaty base, given
that it has been used to adopt other company law measures. The
Commission has recommended that Article 44 EC is used jointly
as a treaty base, along with Article 95 EC. We are inclined to
accept this compromise.
The clearance process is now underway and we
intend to issue the consultation document in mid-October. In addition,
we will be holding a public meeting.
We are still waiting to hear from the Presidency
whether there will be further negotiations in the Council. Political
agreement is still scheduled for the Competitiveness Council in
December, but discussions in the European Parliament Committees
have now been postponed twice, so there is some doubt over whether
this timetable can be achieved.
21 September 2006