A more recent version of these Shareholders And The General Meeting notes – written by Oxford students – is available here.
The following is a more accessble plain text extract of the PDF sample above, taken from our Company law Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:
Supervision 6 Shareholders & the General Meeting Powers of the General Meeting
The GM can be effective where there is a deadlock on the Board? where there are no directors?
or where an effective quorum could not be obtained? or where directors are otherwise disqualified from voting. The GM may also ratify acts of the Directors when they have exercised powers reserved to the GM. In Bamford v Bamford, an act of the directors which is voidable for breach of fiduciary duty can be ratified by the company in GM if (i) The act is within the powers of the company (ii) Meeting acts with full knowledge and (iii) Without oppression of the minority.
Exercising GM Powers
Shareholders must exercise their power to bind the company "unanimously"?
CLR proposed unanimous consent rule should be codified, but this was not adopted. s281(1)(4) CA 2006 confers one vote per Member, subject to the Articles. Due to unanimity, minority shareholders are adequately protected. Accordingly, the shareholders unanimously may overrule the directors on things even within the directors' competence and constitutionally conferred upon the Board per Salomon v Salomon. This emphasises the primacy of shareholders as against the directors. However, Gower &
Davies state shareholders are not in a fiduciary relationship with the company, so they are not subject to the protective fiduciary duties.
When Must Shareholders be Involved in Corporate Decisions?
Whilst generally company law is very flexible, there are a number of cases in which shareholders must approve Board's decision. These are situations which impact upon shareholders' legal or contractual rights. E.G.:
* Alterations to Company's Articles?
* Alterations to the Type of company (PLC/LTD)?
* Issuing shares (s549 CA) or disapplying preemption rights (s569ff)?
* Reduction of share capital, repurchase share capital, redeem or repurchase shares out of capital?
* Alterations to class rights (s630)
* Schemes of Arrangement (s895)
* Decisions to voluntarily wind up the company (s84 IA 1986) There are also four cases of "good corporate governance" which requires Shareholder approval:
* Appointment of Company Auditors?
* Certain transactions with directors or associated companies in Chapter 4 CA?
* Directors taking corporate opportunities?
* Defensive Measures once a takeover offer is imminent?
Appointment of Directors
s12 CA 2006 requires Companies to be formed with Directors?
Any changes must be notified with signed consent to act by new directors per s162ff?
Unless the Articles provide, Directors need not be members of the Company. Companies increasingly confer the title of "Director" to nondirectors e.g. Sales Director. These are not necessarily 'directors' for the purposes of the Act. Remuneration of Directors
* Directors are paid in two ways:
# Fees paid for being director?
# Money & Benefits under the Service Contract
* As a Director is a fiduciary, unless authorised, he cannot obtain fees. Conversely, a 42
manager (even if a Director) can obtain "reasonable remuneration" for quantum meruit for services accepted by the company.
* Now the draft Articles for private companies authorise remuneration to be determined by the Directors (!!) per Art 14, 19 Model Articles.
* Gower & Davies states this leads to concerns of "mutual back scratching". This justifies regulatory intervention. But what kind? Courts are unwilling to scrutinise directors' remuneration decision. Neither has the legislature shown any enthusiasm to determine what level or rate of increase Directors' pay should be.
* Gower & Davies suggest that one strategy would be to exclude executive directors from the process of remuneration setting. Thus nonexecutive committees would determine pay. But once again, this leads to questions of how independent nonexecs actually are. This approach is favoured by UK Corporate Governance Code for Premium Listed Companies. Mandatory Shareholder Approval of Remuneration Package
* Should be revive the old CL principle that shareholders must approve directors' contracts?
# Incentive Pay Schemes Director given right to subscribe for shares at a future date for shares priced at the time option was granted. Thus incentive to increase share price. This is recommended by the Corporate Governance Code. Removal of Directors
* Accountability of Directors to shareholders resolves the agency problem.
* However, appointment is largely regulated by the Articles Thus shareholders might be written out of the appointment process.
* However, shareholders have a statutory right to terminate director's employment by ordinary resolution at any time under s168 CA 2006. This statutory right overrides any contractual agreement between company and director. This renders any "term of office" ineffective whether in the Articles or the Employment Contract ineffective as Shareholders may intervene at any time.
* There are two qualifications to the s168 CA 2006 power:
# The courts have authorised indirect ways around the section?
# The section preserves the director's contractual rights to compensation?
* Weighed Voting Rights
# In Bushell v Faith HL held that the section can be lawfully frustrated by attaching increased votes to a director's shares on a resolution to remove him, thereby enabling him to defeat such a resolution. This is because of the "quasipartnership" nature of such small firms.
* Statutory Rights on Termination
# Special notice must be given of any resolution to remove a director per s168(2) and this means 28 days notice to company per s312 CA. The company must inform the director, who is entitled to vote at the meeting per s169(1) CA.
* Contractual Rights on Termination
# s168(5)(a) CA states this does not deprive director of claims for damages.
# This comes at the risk of fettering the company's statutory right to dismiss the director due to facing large compensation liabilities.
# But obviously, Director can only claim compensation for valid, binding contract which entitles him to hold that position for a fixed term, or only be dismissed after "reasonable/fixed notice". He only gets termination pay if the contract so provides.
* So breach of contract with director (damages)?
* OR termination triggering contractual termination payments?
# If D's contract simply incorporates the Company's Articles Changing the Company's Articles to effect dismissal, or exercising the statutory termination power, is not breach of the director's contract because the contract is always 43
subject to this possibility. But this can't avoid past acts Shareholders' voting cannot have retrospective effects.
# Alternatively/typically, Director will have separate contract of employment with the company, whether formal or informal. If this is for fixed term or has a notice period, or termination triggers compensation, provisions will inevitably be breached if the shareholders exercise their statutory termination powers. Thus Company is liable for breaching contract or payment of termination package. But sometimes termination packages are so large it can be quite impractical for the company. Controlling Termination Payments
# None of the provisions would protect a director when the company was entitled to terminate the contract without notice for breach of contract. Mere lack of economic success would not be enough.
# s228229 CA requires all directors contracts are in writing, or a memorandum of its terms for inspection by members.
# The Company is required to produce an "Annual Remuneration Report" (DRR) which like all reports must be sent to the Registratr per s423 CA. It must disclose company policy on duration of contracts, notice periods and termination packages.
# Shareholders must vote on any remuneration package per s439 CA 2006 But the vote is advisory only: the package does not need to be approved.
# s188 CA requires that where a contract cannot be terminated within a 2 year period ("guaranteed term"), prior approval by GM resolution is required. In the absence of approval, the guaranteed term is void and contract can be terminated at any time on reasonable notice. Termination Payments
# If contract provided for defined termination payment.
# The remaining directors might wish to make a gratuitous payment to one of their number removed from office to ensure they go quietly etc. s217 CA states it is unlawful for members to give a director any payment for loss of office or as consideration for retirement without particulars of the proposed payment (and its amount) being disclosed to members and approved by members.
* This doesn't apply to compensation contractually.
* Any unauthorised payment is held on CT for the company and such directors are jointly and severally liable to indemnify the company for any loss suffered where it cannot be recovered.
Structure of the Board
A single tier Board is the norm, with managing and supervisory functions discharged by a single Body. However, the CLR noted increased delegation, and this is lawful provided Articles permit it. The Board must monitor effectively to avoid breaching their duties too!
But the "European Company" (SE) which opts to register in Britain can choose to register with a onetier Board or a twotier board consisting of a supervisory organ and management organ
similar to the German style. Gower & Davies state it remains to be seen whether the adoption by SEs in the UK of 2 tier boards produces a "Spillover" effect into domestic law... It's unlikely since so few SEs have been registered in the UK.
Shareholder Decision Making
Often the Shareholder GM is seen as an "unnecessary encumbrance":
* In small companies, Directors/Members are often the same people?
* In large companies, Members have little involvement in the running of the company?
The easiest way to resolve this was to have a single decision making body in small companies. The CLR considered this but it did not find enough support for the idea to use it in the UK. 44
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