Shareholder Powers

Question 1

Two key ways shareholders exercise their control of a company?

Answer 1

1) Determining the company’s constitution

2) Voting on shareholder resolutions

Question 2

Which section of CA 2006 says shareholders can vote on a resolution to remove directors?

Answer 2

s168

Question 3

Which MAs say directors have control of day to day company management and broad powers to do this?

Answer 3

MA 3 and MA 5

Question 4

How does the CA 2006 control directors?

Answer 4

By way of the extensive duties that directors are subject to (s 170 – 177).

Question 5

Which MA gives shareholders ‘reserve’ power

Answer 5

MA 4

Question 6

Why is MA 4 important?

Answer 6

It acts as a further check on the powers of directors and offers protection for shareholders

Question 7

What is the MA 4 shareholders reserve power?

Answer 7

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.

Question 8

Barron v Potter [1914]?

Answer 8

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.

Question 9

Case that says shareholders may act where the board of directors is unable to do so?

Answer 9

Barron v Potter [1914]

Question 10

How are GMs usually called?

Answer 10

By directors at board meetings - s302 CA 2006

Question 11

How many days clear notice does the board need to give for a GM?

Answer 11

14 clear days - s307(1)

Question 12

What percentage of shareholders must vote for the short notice procedure for a GM?

Answer 12

90% - s307(4)

Question 13

What if the board refuses to call a FM/

Answer 13

The shareholders reserve the power to do so under s303-305

Question 14

s303-305 CA 2006?

Answer 14

If the Board refuse to call a General Meeting, the shareholders have a reserve power to do so themselves.

Question 15

How many shareholders are needed for a s303 request to call a GM?

Answer 15

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

Question 16

What must directors do with a s303 request?

Answer 16

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

Question 17

What if directors refuse a s303 request?

Answer 17

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

Question 18

Do private companies need to call AGMs?

Answer 18

No

Question 19

Which section dictates that public companies must call AGMs?

Answer 19

s336 CA 2006

Question 20

When must an AGM be called?

Answer 20

• 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.

Question 21

What is a ‘clear day’?

Answer 21

“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.

Question 22

What happens at an AGM?

Answer 22

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

Question 23

How can votes be made at an AGM?

Answer 23

Show of hands

Poll vote

Question 24

Difference between pole vote and show of hands?

Answer 24

Show of hands = one vote each

Poll vote = one vote per share held

Question 25

Which voting method if generally used at AGMS?

Answer 25

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.

Question 26

MA 42?

Answer 26

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.

Question 27

Which MA deals with right to demand a poll vote?

Answer 27

MA 44

Question 28

When may a poll vote be demanded under MA 44?

Answer 28

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.

Question 29

According to MA 44 who may demand a poll vote?

Answer 29

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.

Question 30

What is important to note about MA 44?/

Answer 30

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

Question 31

What kind of majority is required for a an Ordinary Resolution?

Answer 31

Simple majority s282(1)

Question 32

s282(1) CA 2006?

Answer 32

Ordinary resolution = simple majority

Question 33

What is the required majority for a special resolution?

Answer 33

No less than 75% s283(1)

Question 34

s238(1) CA 2006?

Answer 34

Special resolution is no less than 75%

Question 35

What notice period must be given for GM?

Answer 35

Timely - s307

Appropriate - s311

Question 36

What is the usual notice period of a GM?

Answer 36

14 clear days - s307(1)

Question 37

Why is a proper notice period important?

Answer 37

The validity of resolutions depends on it

Question 38

What is the quorum for a GM?

Answer 38

2 unless it is a single member company s318

Question 39

Which section says shareholders may appoint proxies for GMs?

Answer 39

s324

Question 40

s324 CA 200^?

Answer 40

Shareholders may appoint a proxy to exercise any or all of their rights to attend and speak and vote at a General Meeting

Question 41

How do corporate shareholders attend GMs?

Answer 41

They must appoint a representative - s232 CA 2006

Question 42

What is Bushell v Faith clause?

Answer 42

A mechanism by which a company’s directors who are also shareholders can seek to prevent themselves from being removed from office

Question 43

How does a Bushell v Faith clause work?

Answer 43

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

Question 44

Does a Bushell v Faith clause impact s168 requirement to pass an ordinary resolution to remove a director?

Answer 44

It doesn’t. Just an internal agreement amongst shareholders about the weight of their votes

Question 45

Which section dictates private companies may pass written resolutions?

Answer 45

s288 CA 2006

Question 46

What is the time limit for eligible members to respond to a written resolution?

Answer 46

28 days

Question 47

Which two resolutions CANNOT be passed by written resolution?s288(2)

Answer 47

Removing a director under s168

Removing an auditor under s510

Question 48

What is the Duomatic Principle?

Answer 48

Informal resolutions agreed by all the shareholders outside of a formal meeting will be valid and binding

Question 49

What must happen for the Duomatic principle to apply?

Answer 49

There must be unqualified agreement of all shareholders, whether this is express or implied, verbal or by conduct

Question 50

What is the general principle of a shareholders right to vote?

Answer 50

They may vote in their own interests

Question 51

Case stating shareholders must act bona fides?

Answer 51

Clemens v Clemens Bros [1979]

Question 52

When can a court order a shareholder’s right to vote be restrained?

Answer 52

If their vote was irrational

Question 53

Case showing irrational shareholder voting can be blocked by the courts?

Answer 53

Standard Chartered Bank Ltd v Walker [1992]

Question 54

Standard Chartered Bank Ltd v Walker [1992]

Answer 54

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.

Question 55

How must shareholders act when voting on amending the articles?

Answer 55

The court will look at whether reasonable shareholders could have considered that the amendment was for the benefit of the company

Question 56

Sidebottom v Kershaw, Leese & Co [1920]

Answer 56

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.

Question 57

Citco Banking Corpn NV v Pusser’s Ltd [2007]

Answer 57

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.