Progress at Last! Review of Intermediated Securities

This blog gives you the latest topical news plus some informal comments on them from ShareSoc’s directors and other contributors. These are the personal comments of the authors and not necessarily the considered views of ShareSoc. The writers may hold shares in the companies mentioned. You can add your own comments on the blog posts, but note that ShareSoc reserves the right to remove or edit comments where they are inappropriate or defamatory.

As members of ShareSoc will know, our Shareholder Rights Campaign is one of our most important activities. The current difficulty of contacting shareholders whose shares are held in nominee accounts, and the difficulty many such shareholders have in voting, is a severe impediment to driving necessary change. This is a particular problem with smallcap companies.

In other words, without improved shareholder rights, it is difficult for any other campaigns directed at problem companies to succeed. Less scrupulous directors know this and feel immune to shareholder pressure, as it is currently so hard to galvanise opposition when needed.

ShareSoc and our sister organisation UKSA have been campaigning for improved shareholder rights for 20 years. This has involved letter writing campaigns, petitions and several meetings we have held with government officials and other relevant actors.

It is gratifying that we are finally seeing some real progress. After all that pressure, BEIS has finally commissioned a review of legislation concerning “intermediated securities” – which includes shares held in nominee accounts – by the Law Commission. You can find details here:

I am pleased to report that, even before the official launch of this review, fellow ShareSoc director Cliff Weight and I have met with the Law Commission experts tasked with conducting the review and received a warm welcome. ShareSoc and UKSA will, of course, respond to the Law Commission’s call for evidence, when it is issued. We will maintain a close dialogue.

Whilst this is a crucial and positive development, we should not get too excited yet. What is being proposed is just a “scoping study” initially. We hope that this will then lead on to a full review of legislation, ultimately leading to recommendations for legislative change. It is then up to parliament to respond to the recommendations and enact legislation. I.E. it will be several years before we see any positive changes. Nevertheless, the launch of this review marks an important milestone in our campaign and demonstrates that persistence and hard work can pay off.

One way to fix the current problems would be:

  • A recognition in law of the concept of a “discretionary beneficial shareholder” (DBS). I.E. a beneficial shareholder who is not a member of a company directly but has discretion over the buying and selling of shares held on their behalf (e.g. by a nominee operator).
  • DBSs should enjoy the same rights as members of a company, including information, voting and meeting attendance rights. This would overcome the anomaly introduced by the precedent set in the Eckerle vs Wickeder Westfalenstahl Gmbh case (see Nominee Accounts).
  • Shares held on behalf of DBSs by nominee operators should be treated in the same manner as certificated shareholdings held on shareholders’ behalf by those operators, should the operator be wound up. In the Beaufort case, the judge ruled that share certificates held by BACSL (the failed nominee operator) should be returned to shareholders on whose behalf they were held, without deduction of administrator’s fees.
  • An accurate register of DBSs should be maintained, in the same manner as the register of members and should be accessible to those with a “proper purpose” also in the same manner as for the register of members.

We look forward to progress with this review.

Mark Bentley, Director, ShareSoc

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