by Ken Casey , David Mangan July-07-2023 in Corporate

Headline summary:

  • The UK Investment Association has published Member Guidance on Effective Requisitioning of Shareholder Resolutions.
  • The application of the Guidance to Irish PLCs needs to be approached with caution – there are important differences in the exercise of shareholder rights under Irish law.
  • Notably, the right to table shareholder resolutions is highly restricted under Irish law and exercise thresholds differ.
  • The settlement of Irish PLC securities via Euroclear Bank presents specific obstacles to the exercise of shareholder rights by underlying holders.
  • Investment managers who wish to escalate their engagement with a listed Irish PLC via the requisition of a shareholder resolution should consider whether they need to withdraw shares into certificated form in order to access shareholder rights directly or whether they can rely on the PLC’s constitution.

 

The UK Investment Association has published guidance on requisitioning shareholder resolutions and meetings in listed PLCs (the Guidance).  The rights of shareholders to requisition meetings and resolutions are key escalation tools in the oversight and management of investments in listed securities – and typically undertaken only where other forms of engagement have failed.

The Guidance summarises the key steps to file a resolution with a UK-incorporated PLC and includes practical advice on submission deadlines, documentation and cost considerations.

Given the similarities between Irish and UK company law and the number of Irish-incorporated companies admitted to trading on UK markets, it is likely that the Guidance will also be taken as a point of reference for engagement with Irish-incorporated PLCs.  Nevertheless, the application of the Guidance to Irish PLCs needs to be approached with caution, due to important differences in how shareholder rights are exercised under Irish law and the obstacles presented by the settlement regime for Irish securities to the exercise of shareholder rights.

 

Investment stewardship

As noted, the rights of shareholders to requisition general meetings and table resolutions are important rights that support the stewardship of listed companies by investment managers.  The Guidance affirms that “[r]equisitioned resolutions are an important escalation tool for investment managers where engagement with company management and voting on standard resolutions have not resulted in the desired changes in company behaviour.”

This principle is recognised in the UK Stewardship Code, which underlies the Guidance, and the EFAMA Stewardship Code (the latter of which has been acknowledged by the Irish Association of Investment Managers, which is in the course of formulating its own code). 

 

Key legal differences in the exercise of shareholder rights in the UK and Ireland

The first area where rights of shareholders in UK PLCs differ from rights of shareholders in Irish PLCs is company law:

  • Right to table resolutions – Under Irish law, the right to table resolutions at scheduled meetings is exercisable only in respect of companies listed on a regulated market (such as the regulated market of Euronext Dublin). The right is not available for companies listed on non-regulated markets/MTFs (such as the Euronext Growth market and UK markets, such as the Main Market of the London Stock Exchange, AIM and the UK Aquis Exchange).
  • Thresholds for exercise – The thresholds at which shareholder rights are exercisable are different. For an Irish company, the threshold for the right to requisition general meetings is 5% of voting rights for companies listed on a regulated market and 10% for all other companies (instead of 5% of total voting rights for all UK companies).  The threshold for the right to table resolutions in qualifying PLCs is 3% of issued share capital, representing at least 3% of total voting rights (instead of 5% of total voting rights for UK PLCs). 
  • Exercise by indirect holders – While UK company law facilitates the exercise by indirect holders of rights to requisition resolutions and meetings, the transposition of the Shareholder Rights Directive II (SRD II) into Irish law actually hinders the exercise of rights by indirect holders, since it fails to oblige shareholding intermediaries (e.g. CSDs, custodians and nominees) to facilitate the exercise of shareholder rights by underlying holders. Nevertheless, most Irish listed PLCs have enabled the exercise of such rights by providing directors with discretion to permit exercise by a person who has provided evidence of ownership of the underlying shares (see the following section).  The EU Commission’s forthcoming review of the proposal for a harmonised definition of shareholder (anticipated later this year) is awaited with interest in this regard.

 

There are a number of key areas where (for now), the relevant UK law and regulation described in the Guidance do not differ substantially from their Irish equivalents:

  • Market Abuse Regulation (MAR) – Since UK MAR, as it forms part of retained UK law, currently mirrors EU MAR, the same concerns arise that engaging with other shareholders may amount to sharing inside information and risk being characterised as insider dealing.
  • Acting in Concert Laws & the Takeover Code – The Irish Takeover Rules substantively reflect the UK Takeover Code approach with respect to the formation of concert parties. Similarly, the act of shareholders voting together on a resolution does not necessarily indicate a concert party relationship under either code.  However, the UK Code provides an additional note stating that shareholders who requisition or threaten to requisition board “control-seeking proposal” at a general meeting will be presumed to be acting in concert.  The Guidance provides a useful summary of the these concerns.
  • Disclosure and Transparency Rules (DTR) – The same concerns apply in the Irish Transparency Regulations that a group of shareholders requisitioning a resolution would be considered to have indirect holdings of each other’s shares. The group would then have to comply with the requirements of the Irish Transparency Regulations to notify the issuer and the market of this and any subsequent 1% change in the size of the holding.

 

Accessing shareholdings

In a system of intermediated security ownership, such as in the UK and Ireland, the exercise of shareholder rights requires a couple of additional steps in order for an ultimate beneficial holder to exercise its rights.

For holders of shares in listed UK PLCs settled via CREST, this involves obtaining evidence of ownership, such as confirmation from a custodian, as summarised in the Guidance.

The exercise of shareholder rights in listed Irish PLCs was affected by the migration in 2021 of Irish securities settlement from the CREST system to the Euroclear Bank system (the EB System).  Since the EB System operates as a book-entry system rather than a “name on register” system, certain shareholder rights – including rights to requisition resolutions and meetings – are no longer directly exercisable by uncertificated holders. 

This difference in treatment applies notwithstanding that a shareholder may hold rights via legacy CREST Depositary Instruments (CDIs), since the underlying securities are still held in the name of the Euroclear Nominee via the EB System.

With a view to mitigating this deficiency, Irish listed PLCs have amended their constitutions to provide for the indirect exercise of shareholder rights by underlying holders.  The standard terms of such provisions typically give absolute discretion to the directors whether or not to facilitate the exercise of rights by an underlying owner.  The directors’ discretion presents an additional hurdle for the exercise of rights in contentious circumstances, even though it must be exercised subject to fiduciary duties.

The other option is for a shareholder to withdraw the relevant shares from Euroclear Bank and hold them in certificated (i.e. paper) form with a view to exercising rights as registered holder.  This option provides direct access to rights under the Irish Companies Act 2014 but entails serious disadvantages, since the shares will not be tradable on an exchange during the period that the shares are held in certificated form.

 

Considerations for US-listed Irish PLCs

The considerations are more complex for an Irish PLC that has securities admitted to trading on a US market via ADRs issued through DTC.  The Irish implementation of SRD II gives no direct access to shareholder rights via intermediaries, such as US custodian banks, so the rules and procedures of the relevant custodians (some of whom accept SRD II-type obligations) and DTC will be relevant.  US should be sought on whether an Irish issuer is subject to the SEC’s full governance rules – including the new universal proxy – which will be of critical importance in this regard.

 

Action points for activists

The Guidance outlines how stewardship principles can be implemented in practice via the exercise of shareholder rights to requisition resolutions and meetings.

Investment managers who wish to escalate their engagement with a listed Irish PLC via the requisition of a shareholder resolution or meeting should seek advice on the legal and practical aspects of exercising shareholder rights in contentious circumstances, including whether it is necessary to withdraw shares into certificated form in order to access shareholder rights directly or whether they can rely on facilitating provisions in the PLC’s constitution.

While the Guidance is a very helpful resource, it needs to be approached with caution as regards Irish PLCs.

Back to Full News
Share this article:

About the Authors

Ken Casey
Ken Casey

Ken is Head of the Corporate team and has built a practice in acquisitions, disposals, and capital markets transactions across various industry sectors; joint ventures and corporate re-organisations of publicly quoted and private companies; and advises on corporate governance and general corporate law. He has extensive expertise in the financial services, aviation, gaming, technology, media and sports sectors.

David Mangan
David Mangan

David is a partner in our Corporate team. He advises clients on structuring and executing domestic and cross-border transactions, including mergers & acquisitions, joint ventures, private equity investments and capital markets transactions.