ShareSoc was recently approached by one of its members for assistance in the case of Europa Oil.
Dr Erika Syba and others, who collectively own more than 5% of Europa’s shares, sought to requisition a general meeting of the company. The Companies Act stipulates that members of a company collectively owning more than 5% of its shares are entitled to requisition general meetings.
Unfortunately, however, Erika’s shares are held in nominee accounts, like the vast majority of individual shareholders’ shares. Indeed, shares held in ISAs and SIPPs can only be held via nominee structures.
Europa rejected the requisition, on the basis that Erika and the other shareholders were not members of the company. Technically, this is correct: it is the nominee operators (e.g. Hargreaves Lansdown) that are the members of the company and entitled to the rights afforded by s303 of the Companies Act.
This is an illustration of how current legislation deprives many individual shareholders of rights that they should be entitled to exercise.
Erika said: “I think many people (including me) are stunned by their lack of rights”.
ShareSoc has been campaigning since 2014 for legislative improvements to remedy this unjust and undemocratic situation. We were heartened by recent recommendations from the Law Commission and the Austin Review. These fed into the terms of reference for HM Treasury’s Digitisation Taskforce, led by abrdn’s chair Sir Douglas Flint and called for the taskforce to:
“Identify immediate and longer term means of improving on the current intermediated system of share ownership so that investors as beneficial owners are better able to exercise rights associated with shares which intermediaries hold on their behalf”.
We were therefore very surprised and concerned that the Taskforce’s interim report didn’t appear to address this issue in any meaningful way, and we call on HM Treasury to ensure that the final report of the Taskforce properly addresses its terms of reference and produces the intended improvements.
Shareholders such as Erika and her co-requisitioners should not find themselves in this situation in the future. It is essential for good corporate governance that shareholders can hold boards to account, as the Companies Act intends.