UK: listed companies: calling general meetings after 3 August 2009

The UK's implementation of the Shareholder Rights Directive (2007/36/EC) will require several changes to the Companies Act (2006) with regard to the calling of general meetings by listed companies. The Department for Business, Enterprise and Regulatory Reform is currently consulting on the implementation of the Directive and the amendments it will make to the 2006 Act - see the DBERR consultation paper for further information; the consultation period ends on 30 January. The deadline for implementing the Directive is 3 August.

The Directive requires a minimum of 21 days for annual general meetings (this is the current requirement for public companies under Section 307 of the Companies Act (2006)). Article 5 of the Directive provides that Member States may permit other general meetings (i.e., extraordinary general meetings) to be called with 14 days' notice providing the following criteria are met:

[1] the shareholders have approved the holding of general meetings on 14 clear days’ notice by passing an appropriate resolution at an AGM; and
[2] that the company offers "the facility for shareholders to vote by electronic means accessible to all shareholders".

The Directive requires the approval required in [1] to be by no-less than a two-thirds majority. DBERR is consulting on whether this should be a 75% majority in order that it is the same as that required for a special resolution (see Section 283 of the Companies Act (2006)). Until the outcome of the consultation is known, DBERR has recommended that listed companies consider passing a special resolution at their next AGM in order that they are able to call general meetings on 14 days' notice after 3 August 2009. This resolution would need to be passed at each subsequent AGM. 

With regard to the requirement in [2] that electronic voting "accessible to all shareholders" is offered, it is noted in the DBERR consultation paper (at para. 3.16):

It is not entirely clear in this context what this final phrase covers in terms of accessibility and the circumstances when accessibility is required. For example it may mean that companies must offer the facility for members to vote electronically (eg. via the company’s website) at all times; or it might mean that any method available to vote electronically (eg. via certificate acceptable and that shareholders should use such facilities.

PwC World watch - 2008 issue 3 published

The third issue for 2008 of PwC's World watch newsletter has been published. The newsletter provides an excellent overview of recent developments - from across the world - concerning corporate governance and corporate reporting. Amongst the items reported is the publication by the Institute of International Finance of Principles of Conduct on Compensation Policies. The principles can be found in the IIF's report on market best practices. 

Elsewhere in issue 3 there is a note concerning the joint work of the IASB and FASB with regard to the development of a conceptual framework for financial reporting. Issue 3 of World watch was, however, published before the publication by the IASB and FASB of a discussion paper setting out a joint approach to the recognition of revenue.

UK: England and Wales: more Morshead Mansions litigation

The recent Court of Appeal decision Morshead Mansions Ltd v Di Marco [2008] EWCA Civ 1371 illustrates the interaction between company law principles and property law. The company (Morshead) was formed to manage a block of flats in London (or, to quote from the company's website, "perhaps the premier mansion block in Maida Vale"). The lessees of the flats were shareholders in Morshead, which owned the freehold.

The company's articles of association gave the directors the power to establish reserves and funds, to which members were obliged to contribute in terms decided by an ordinary resolution of the members in general meeting. Under this provision the company claimed over £ 4,000 from Mr Di Marco. Mr Di Marco claimed that this was a service charge within S. 18 of the Landlord and Tenant Act 1985 and therefore subject to statutory limitations. 

The Court of Appeal held that the company was entitled to claim the sum demanded, although it was not required to consider the S. 18 arguments raised by Mr Di Marco. Mummery LJ stated that it was important to remember the important legal distinction between a tenant’s liability to the landlord under a lease and the tenant’s liability qua member of a company. There were two relationships, giving rise to different legal obligations, and a defence to one claim would not necessarily be available as a defence to another legally separate claim.

Notes:

[1] The decision has been noted by the ICLR as part of its WLR(D) service: see here (this summary will be removed should the ICLR report the decision in one of its series of reports). 

[2] There has been much litigation concerning Morshead Mansions, which the trial judge noted in Mactra Properties Ltd. v Morshead Mansions Ltd. [2008] EWHC 2843 (Ch) had been described as "too horrific to record in detail". 

Europe: update on company law and financial services reform

The Joint Brussels Office of the Law Societies of England and Wales, Scotland and Northern Ireland has published the December edition of its very useful EU financial services and company law reform update. 

ICGN: statement and guidance on non-financial business reporting

The International Corporate Governance Network has published a statement and guidance on non-financial business reporting. The aim of the statement and guidance is set out in the document's preamble as follows:

to emphasise [the importance of non-financial reporting] within the overall context of company reporting and promote better understanding by setting out disclosure criteria that will assist companies in meeting the expectations of investors. As such, the ICGN Statement and Guidance aims to generate substantive dialogue between investors and company boards about the content and timing of non-financial business reporting".

The ICGN identifies several qualities of non-financial business reporting, including:

• be genuinely informative and include forward-looking elements where this will enhance understanding;
• be material, relevant and timely;
• describe the company’s strategy, and associated risks and opportunities, and explain the board’s role in assessing and overseeing strategy and the management of risks and opportunities;
• be accessible and appropriately integrated with other information that enables investors to obtain a whole picture of the company;
• use key performance indicators that are linked to strategy and facilitate comparisons;
• use objective metrics where they apply and evidence-based estimates where they do not;
• be strengthened where possible by independent assurance that is carried out having regard to established disclosure standards applicable to non-financial business reporting, such as those issued by the IASB.