With the AGM season in full swing, this article takes stock of rule changes that public companies have been dealing with when presenting their accounts and holding their AGMs. Before looking at the changes it is worth remembering that the legal and governance regimes do not apply in their entirety to all companies.
There are various categories – traded, quoted and public – which appear to be fairly similar, but there are some important differences:
- A quoted company is a company whose equity share capital is listed on the Official List, officially listed in an European Economic Area (EEA) state, or is admitted to dealing on either the New York Stock Exchange or Nasdaq.
- A traded company is a company that has any shares, which:
- carry voting rights at general meetings; and
- are admitted to trading on a regulated market in an EEA state.
- A public company is any company that is recognised as such under the provisions of the Companies Act (CA) 2006.
Alternative Investment Market (AIM) companies do not fall under the definitions of quoted or traded in CA 2006, because the AIM market is not regulated or part of the Official List. Therefore, it is only the provisions of CA 2006 relating to public companies generally that will apply to them.
The changes that companies have been dealing with this year stem from many factors:
- Various provisions of CA 2006 now apply to financial years starting after 6 April 2008. In particular, many of the Companies Act (CA) 1985 requirements were contained in various schedules to CA 2006, but are now found in the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (the 2008 Regulations), which were brought into force pursuant to CA 2006. The 2008 Regulations apply to all public companies whatever their size.
- Disclosure and Transparency Rules (DTR) 7 applies to financial years beginning on or after 29 June 2008 for those companies subject to the DTRs (this does not include AIM companies, as they are only required to adhere to DTR 5, which covers vote holder and issuer notification rules).
- The Shareholders’ Rights Directive as implemented by the Companies (Shareholders’ Rights) Regulations 2009 (the 2009 Regulations), which came into force on 3 August 2009. Most of the new provisions brought in under the 2009 Regulations apply to traded companies only.
more significant new developments
DTR 7 requires issuers subject to the DTR regime to include corporate governance statements in their directors’ reports (or as a separate statement). This overlaps with existing provisions of the Listing Rules and Combined Code, so the introduction of DTR 7 should not result in a material change to the information on corporate governance as contained in last year’s annual report, and accounts for those companies that are subject to those regimes.
Quoted companies must make their annual accounts and reports available on their website until the accounts and reports for the next financial year are made available (s430, CA 2006).
The threshold for the disclosure of political donations, and expenditure and charitable donations, has been raised from £200 to £2,000, and now includes a disclosure requirement for donations to independent election candidates (the 2008 Regulations).
Transactions with related parties must be fully disclosed with details of the amount of the transaction, the nature of the related party relationship and ‘any other information necessary for an understanding of the financial position of the company’. The exemption from disclosure is now only for transactions with wholly owned subsidiaries, whereas previously transactions with 90%-owned group companies were exempt. Additionally, related party transactions disclosed in consolidated financial statements may need to be repeated in the notes to the parent’s individual financial statements, whereas previously there was an exemption from disclosure in parent financial statements. These provisions, which are contained in the 2008 Regulations, have also led to a change to Financial Reporting Standard 8, so that the definition of ‘related party’ ties in with the International Accounting Standards Board definition.
Members of quoted companies now have new rights to raise questions about the work of a company’s auditors at any meetings concerning the accounts. If there is sufficient support (5% of the total voting rights or 100 members each holding shares with an average of £100 paid up), members can require publication of a statement on the company’s website concerning any matter to do with the audit of the accounts. The statement can also be dealt with as part of the business of the meeting and it can be received up to one week before the meeting (s527, CA 2006).
Shareholders of traded companies now have the right (if they have sufficient support) to request items of business to be placed on the AGM agenda as long as the items are not defamatory, vexatious or frivolous. The request can be made up to six weeks before the meeting or, if later, the time at which notice is given of the meeting. If the notice of AGM is sent out more than six weeks in advance of the AGM, the notice must set out the rights of shareholders to table business. This new right is in addition to the existing right of members to require the circulation of AGM resolutions (the 2009 Regulations).
Following the final parts of CA 2006 coming into force (on 1 October 2009), references in the resolutions, typically proposed at the AGM, to give directors authority to allot shares and to give a limited disapplication of rights of pre-emption on allotment should be in line with the new CA 2006 provisions. Thus the old section 80 authority should now have references to s551 of CA 2006 and the disapplication of pre-emption rights in what was s89 of CA 1985 should now refer to s561 of CA 2006.
There are several provisions that will not apply until the 2010/11 financial year, such as the requirement for a statement setting out how pay and employment conditions of employees of the company, and of other undertakings within the same group as the company, were taken into account when determining the directors’ remuneration for the relevant financial year (the 2008 Regulations).