I Have The Power – But Should I Use It?

Both private and public companies will soon be required to seek the information needed to set up and maintain their PSC register (register of persons with significant control) and the power to impose restrictions on shares if this information is not forthcoming. (For further information on PSC registers, download our briefing paper.) This new power is similar to the power given to directors of many quoted companies by their articles of association, to place restrictions on shares for failure to comply with statutory disclosure notices seeking information about interests in shares. In both cases, the power is draconian: restrictions will prevent shares being voted or transferred, and no new shares can be issued to that shareholder whilst the restrictions remain in place.

Directors have a duty, codified in the Companies Act 2006, to exercise all their powers only for the purposes for which they are conferred. The scope of this duty in the context of their ability to restrict shares has recently been clarified by the Supreme Court in a judgment of relevance to all directors and shareholders.

The case concerned JKX Oil & Gas plc (JKX) and resolutions proposed at its 2013 annual general meeting to re-elect the chief executive, approve the directors' remuneration report and empower the board to allot shares for cash, disapply existing shareholders' pre-emption rights on the allotment of shares, and make market purchases of the company's shares. A minority shareholder, Eclairs Group Ltd, had published an advertisement in the Financial Times and an open letter to shareholders inviting them to oppose the resolutions.

The JKX board believed that Eclairs and another minority shareholder, Glengary Overseas Ltd, were mounting a corporate raid on the company. The board issued statutory disclosure notices under the Companies Act to various people thought to be involved with Eclairs and Glengary, and received responses admitting the existence of interests in the company's shares, but denying any agreement or arrangement between the holders of those interests.

The JKX board thought the responses to the disclosure notices were inadequate, and believed that there were undisclosed agreements or arrangements. It therefore resolved to exercise powers, conferred by the company's articles of association, to impose restrictions on the shares in JKX held by Eclairs and Glengary. As a result, the voting rights attached to the shares were suspended such that those...

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