The Companies Act 2006 (part 13, Chapter 5, Ss 342 -354) has placed new obligations on quoted companies in the UK to respond to shareholder requests for an independent report on a poll taken at a general meeting. The independence requirements and time schedules specified in the Act make it extremely advisable for all quoted companies to line up a potential independent assessor like Electoral Reform Services in advance of a General meeting. Taking this precaution now protects the Company’s directors from the very real risks of failing to meet the statutory deadline or making a rushed and inappropriate appointment.
New right of shareholders to demand an independent report on a poll
Section 342 of the Act states that:“(1) The members of a quoted company may require the directors to obtain an independent report on any poll taken, or to be taken, at a general meeting of the company.
(2) The directors are required to obtain an independent report if they receive requests to do so from—
(a) members representing not less than 5% of the total voting rights of all the members who have a right to vote on the matter to which the poll relates (excluding any voting rights attached to any shares in the company held as treasury shares), or
(b) not less than 100 members who have a right to vote on the matter to which the poll relates and hold shares in the company on which there has been paid up an average sum, per member, of not less than £100.”
This means that just 100 shareholders can requisition an independent report. The requisition can be made either before the poll is taken, or up to one week afterwards. And once a report has been requisitioned, the extremely tight deadlines specified in the Act apply.
The new ‘one week’ deadline means quoted companies should prepare in advance
Section 343 (2) of the Act is clear: the appointment of an independent assessor “must be made within one week after the company being required to obtain the report”. There are no mitigating circumstances that can prolong this timing and there is no allowance for public holidays. So a company’s directors may not only have to find an appropriate independent assessor, but also negotiate their rates and gain their unconditional acceptance in as little as 3 or 4 working days. This makes it extremely advisable to line up an independent assessor in advance, especially since once the assessor is appointed, he/she is given auditor-like powers (see below) to demand information.The new Independence Requirement prevents many professional advisers from helping
Sections 343 and 344 of the Act specify exactly how independent the independent assessor has to be.The directors must not appoint a person who “has another role in relation to any poll on which he is to report (including, in particular, a role in connection with collecting or counting votes or with the appointment of proxies)”. This would normally preclude a company’s registrar from fulfilling the role.
A person also may not be appointed as an independent assessor if :
- He is an officer or employee of the company, or a partner or employee of such a person, or a partnership of which such a person is a partner;
- He is an officer or employee of an associated undertaking of the company, or
- He is a partner or employee of such a person, or a partnership of which such a person is a partner;
- If there exists between the person or an associate of his, and the company or an associated undertaking of the company, a connection of any such description as may be specified by regulations made by the Secretary of State.
Auditors can be appointed provided they satisfy the other independence requirements and did not take any part in the original poll. However auditors may consider themselves to have a potential conflict of interest if they might be required to surrender sensitive information to the assessor, or if a resolution to re-appoint them was passed at the same meeting, or if their firm has an additional non-auditing commercial relationship with the company. Auditing firms may also feel that they have too little experience at poll assessments to guarantee in advance that they will be available to carry out this specialist task at one week’s notice.
Selecting an “appropriate” Independent Assessor
The Independent Assessor must not only satisfy the independence requirement but also be considered by the directors to be an “appropriate” person (section 343). As the Directors may have to justify their choice, we suggest that the following tests of appropriateness be applied.- Experience – does the assessor have proven expertise in shareholder vote assessments? For instance, Electoral Reform Services has been managing and scrutinising polls for over half a century and already independently assesses polls at General Meetings for a number of UK quoted companies, verifying the poll itself, the distribution of proxy forms and the vote recording by registrars.
- Independence – will the assessor be accepted as truly independent? For instance, the position of ERS as an independent vote scrutineer or assessor is already recognised by UK parliamentary legislation. The unique balloting focus of ERS also enables it to avoid any other commercial relationship with a company which could compromise its appointment as an independent poll assessor.
- Credibility – is the assessor’s integrity widely respected? For instance, Electoral Reform Services’ reputation is attested to by the calibre of the professional organisations that already use it for electoral services. These include the Law Society, the Bar Council, the Institute of Chartered Accountants in England and Wales, the Chartered Institute of Management Accountants, the Association of Chartered Certified Accountants, the Institute of Directors and the Institute of Actuaries.
- Known Availability – can the Directors depend on the independent assessor being available at one week’s notice? For instance, Electoral Reform Services will guarantee cover to companies that register with it in advance.
- Value - are the independent assessor’s fees commensurate with the work involved? For instance, Electoral Reform Services is the ballot administration arm of the Electoral Reform Society, a not-for-profit organisation. Although ERS charges for its services, its fees are considerably less than those normally associated with professional services companies.
Further details of Electoral Reform’s AGM services including independent reports on polls are available at: http://www.electoralreform.co.uk/election_services/AGM_Proxy_Voting.asp
What does the independent assessor’s report cover?
The independent assessor’s report must state whether—- the procedures adopted in connection with the poll or polls were adequate;
- the votes cast (including proxy votes) were fairly and accurately recorded and counted;
- the validity of members' appointments of proxies was fairly assessed;
- the notice of the meeting complied with section 325 of the Act (notice of meeting to contain statement of rights to appoint proxy);
- the meeting complied with section 326 of the Act (company-sponsored invitations to appoint proxies).
The report must be completed and made available on the company’s web site “as soon as reasonably practicable”. It must be kept available for at least two years.
The independent assessor’s powers and rights
The independent assessor has the right to attend not just the meeting at which the poll was taken but also “any subsequent proceedings in connection with the poll” (section 348). The assessor can also review the company’s records relating to the poll or general meeting, and can demand information from the company’s directors, secretary, employees, shareholders and agents (including bankers, solicitors and auditors). The assessor’s requests for information must be complied with “without delay” provided this is reasonably practicable.These rights and powers make it even more important that care is taken in choosing an appropriate assessor; and this in turn makes it advisable for the assessor to be selected before a report is requisitioned and the ‘one week’ countdown applies. However there is no point in lining up a potential assessor in advance unless that assessor also guarantees their availability in advance.