Whilst there may yet be transitional arrangements before the Act, which
became law on 8th November 2006, comes fully into force, there are
three particular issues that have been introduced by the Act which
should be mentioned:
1. THE EXERCISE OR ENJOYMENT OF MEMBERS’ RIGHTS
It is common for investors in companies to hold their investments
through nominees who appear in the Members’ Register of those companies
as the legal owners. The traditional approach of UK company law has
been to disregard beneficial ownerships held behind the nominee
registration and to stipulate that companies only have to deal with
registered members. This has meant that the true beneficial
shareholders, in practice, often have not had immediate access to
shareholder information, given that nominees may not in all cases pass
on corporate circulars etc. to the beneficial owners. The Act therefore
contains provisions whereby registered members can nominate others
(including the beneficial owners for whom the shareholding interests
may truly be held) to receive corporate information such as proposed
written resolutions, notices of meetings, copies of annual accounts and
reports. This is a fairly simple reform to enact which may, however,
serve to improve considerably the relationship between investors and
their companies.
2. THE TRANSPARENCY OBLIGATIONS DIRECTIVE
Under the European Union Transparency Obligations Directive (No.
2004/109/EC) which is due to come into force in early 2007, information
concerning voteholder rights has to be made publicly available in
relation to companies whose securities are admitted to trading on a
regulated market (such as the main Market of the London Stock
Exchange).
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The Act provides for the implementation of this Directive in
the UK and enables the Financial Services Authority (as the UK
competent authority) to enact transparency rules and corporate
governance rules in order to enhance the supply to the public of
shareholder information and information relating to the company
concerned. It is envisaged by the proposed legislation that the
principles underlying the Transparency Obligations Directive may be
extended to public companies which are not necessarily quoted on the
London Stock Exchange’s main Market but are traded on other markets
such as AIM. The extent to which new rules of a similar type will apply
to non-quoted public companies and to private companies remains to be
seen.
3. INSTITUTIONAL INVESTORS:
INFORMATION ABOUT EXERCISE OF VOTING RIGHTS
Quoted companies can become increasingly concerned about who really is
controlling them. Institutional investors, in particular, through their
various nominee shareholdings, it is argued, can exercise their voting
rights in a very opaque way. The Act does envisage the enactment of
regulations requiring institutional shareholders (as defined) to
disclose information about the way in which voting rights attaching to
shares are exercised.
To a dispassionate outsider, all the provisions described above seem
sensible and logical. However, they do require a change in the discreet
approach adopted traditionally by some investors and companies in
relation to their respective dealings. The UK’s financial markets have,
however, proved very adaptable in the past and it seems likely that
when enacted the new rules will be accepted as part of the way in which
corporate affairs have to be run.
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