Shareholder Powers Flashcards
Two key ways shareholders exercise their control of a company?
1) Determining the company’s constitution
2) Voting on shareholder resolutions
Which section of CA 2006 says shareholders can vote on a resolution to remove directors?
s168
Which MAs say directors have control of day to day company management and broad powers to do this?
MA 3 and MA 5
How does the CA 2006 control directors?
By way of the extensive duties that directors are subject to (s 170 – 177).
Which MA gives shareholders ‘reserve’ power
MA 4
Why is MA 4 important?
It acts as a further check on the powers of directors and offers protection for shareholders
What is the MA 4 shareholders reserve power?
1) The shareholders may, by special resolution, direct the directors to take, or refrain from taking, specified action.
2) No such special resolution invalidates anything which the directors have done before the passing of the resolution.
Barron v Potter [1914]?
Shareholders of the company in a general meeting may act in place of the directors where there is no board of directors competent or able to do so.
Case that says shareholders may act where the board of directors is unable to do so?
Barron v Potter [1914]
How are GMs usually called?
By directors at board meetings - s302 CA 2006
How many days clear notice does the board need to give for a GM?
14 clear days - s307(1)
What percentage of shareholders must vote for the short notice procedure for a GM?
90% - s307(4)
What if the board refuses to call a FM/
The shareholders reserve the power to do so under s303-305
s303-305 CA 2006?
If the Board refuse to call a General Meeting, the shareholders have a reserve power to do so themselves.
How many shareholders are needed for a s303 request to call a GM?
Under s 303(1) CA 2006, shareholders together holding not less than 5% of the paid-up voting share capital of the company can serve a request
What must directors do with a s303 request?
Under s 304(1) CA 2006, when the directors receive a s 303 request, they must call the General Meeting within 21 days and it must be held within 28 days of that
What if directors refuse a s303 request?
All of the shareholders who submitted s 303 request or any of them representing more than half of the voting rights of those who submitted that s 303 request, can call a General Meeting themselves pursuant to s 305 CA 2006
Do private companies need to call AGMs?
No
Which section dictates that public companies must call AGMs?
s336 CA 2006
When must an AGM be called?
- AGM must be called by directors (s 302)
- 21 clear days’ notice (s 307(2),
- s 360(2)) within six months’ of the financial year end. Section 360 provides that the days must be “clear” days.
What is a ‘clear day’?
“Clear” days means that the day the notice is given and the day of the meeting are discounted in calculating the relevant number of days.
What happens at an AGM?
Directors of the company present an annual report containing information for shareholders about the company’s performance and strategy.
Shareholders with voting rights then vote on current issues, such as appointments to the company’s board of directors, executive compensation, dividend payments, and the selection of auditors
How can votes be made at an AGM?
Show of hands
Poll vote
Difference between pole vote and show of hands?
Show of hands = one vote each
Poll vote = one vote per share held
Which voting method if generally used at AGMS?
Under MA 42, a resolution put to the vote of a General Meeting must be decided on a show of hands unless a poll is duly demanded in accordance with the articles.
MA 42?
A resolution put to the vote of a General Meeting must be decided on a show of hands unless a poll is duly demanded in accordance with the articles.
Which MA deals with right to demand a poll vote?
MA 44
When may a poll vote be demanded under MA 44?
44 (1) A poll on a resolution may be demanded -
(a) in advance of the general meeting where it is to be put to the vote, OR
(b) at a general meeting, either before a show of hands on that resolution or immediately after the result of a show of hands on that resolution is declared.
According to MA 44 who may demand a poll vote?
MA 44 (2)
A poll may be demanded by -
(a) the chairman of the meeting;
(b) the directors;
(c) two or more persons having the right to vote on the resolution; or
(d) a person or persons representing not less than one tenth of the total voting rights of all the shareholders having the right to vote on the resolution.
What is important to note about MA 44?/
It cannot be excluded from the companies Articles, and any provision to do so will be considered void unless its to do with election of a chairman or adjourning a meeting
What kind of majority is required for a an Ordinary Resolution?
Simple majority s282(1)
s282(1) CA 2006?
Ordinary resolution = simple majority
What is the required majority for a special resolution?
No less than 75% s283(1)
s238(1) CA 2006?
Special resolution is no less than 75%
What notice period must be given for GM?
Timely - s307
Appropriate - s311
What is the usual notice period of a GM?
14 clear days - s307(1)
Why is a proper notice period important?
The validity of resolutions depends on it
What is the quorum for a GM?
2 unless it is a single member company s318
Which section says shareholders may appoint proxies for GMs?
s324
s324 CA 200^?
Shareholders may appoint a proxy to exercise any or all of their rights to attend and speak and vote at a General Meeting
How do corporate shareholders attend GMs?
They must appoint a representative - s232 CA 2006
What is Bushell v Faith clause?
A mechanism by which a company’s directors who are also shareholders can seek to prevent themselves from being removed from office
How does a Bushell v Faith clause work?
The clause is inserted into the articles of the company and provides that, when voting on a resolution for the removal of a director in a general meeting, the director/shareholder in question will have their votes weighted by a factor of great enough magnitude that the other shareholders cannot get the requisite majority in the meeting to pass this motion
Does a Bushell v Faith clause impact s168 requirement to pass an ordinary resolution to remove a director?
It doesn’t. Just an internal agreement amongst shareholders about the weight of their votes
Which section dictates private companies may pass written resolutions?
s288 CA 2006
What is the time limit for eligible members to respond to a written resolution?
28 days
Which two resolutions CANNOT be passed by written resolution?s288(2)
Removing a director under s168
Removing an auditor under s510
What is the Duomatic Principle?
Informal resolutions agreed by all the shareholders outside of a formal meeting will be valid and binding
What must happen for the Duomatic principle to apply?
There must be unqualified agreement of all shareholders, whether this is express or implied, verbal or by conduct
What is the general principle of a shareholders right to vote?
They may vote in their own interests
Case stating shareholders must act bona fides?
Clemens v Clemens Bros [1979]
When can a court order a shareholder’s right to vote be restrained?
If their vote was irrational
Case showing irrational shareholder voting can be blocked by the courts?
Standard Chartered Bank Ltd v Walker [1992]
Standard Chartered Bank Ltd v Walker [1992]
A minority shareholder was ordered not to vote against a restructuring agreement where the consequence of his doing so would be that the company would collapse and his shareholding would become worthless.
How must shareholders act when voting on amending the articles?
The court will look at whether reasonable shareholders could have considered that the amendment was for the benefit of the company
Sidebottom v Kershaw, Leese & Co [1920]
In this case the court held that the power to alter a company’s articles must be exercised bona fide for the benefit of the company as a whole.
Citco Banking Corpn NV v Pusser’s Ltd [2007]
The test was whether reasonable shareholders could have considered that the amendment was for the benefit of the company.
On the facts of this case it was found that it would have been reasonable for shareholders to have accepted in good faith the arguments put forward by the Chairman as to why the amendment would be in the interests of the company.
