In the UK, shareholder rights, especially in the area of mergers and acquisitions (M&A) are thoroughly acknowledged and safeguarded by a robust legal and regulatory framework.
A close examination of this system reveals key provisions and mechanisms pertaining to shareholder approvals, disclosure requirements and the influential role of shareholder activism.
Other pivotal aspects, such as corporate governance and fiduciary duties, are also underpinned by this framework.
Shareholder approvals
Under the Companies Act 2006, most types of M&A transactions, including schemes of arrangement, require the approval of shareholders.
For instance, in a scheme of arrangement, 75 per cent of voting shareholders must approve the arrangement.
It underscores the importance of shareholders’ decision-making authority and involvement in significant corporate actions.
Furthermore, the Takeover Code, administered by the Takeover Panel, governs public company takeovers and provides for mandatory offers to be made to shareholders under certain conditions, hence, safeguarding shareholder interests.
Disclosure requirements
Transparency and full disclosure form the cornerstone of shareholder rights, especially in M&A transactions.
The Takeover Code requires shareholders to be given comprehensive and accurate information to make an informed decision about the proposed transaction.
This includes material information about the deal, potential risks, future plans and the implications for shareholders.
A failure to provide adequate information can lead to sanctions from the Takeover Panel, thereby ensuring accountability and adherence to disclosure norms.
Shareholder activism
Shareholder activism, an influential force in corporate governance, is a key component in shaping M&A transactions.
Activist shareholders can use their equity stakes to pressure management and boards into making changes that align with their interests.
In the context of M&A, shareholders might push for or against potential deals, advocate for better terms or challenge the actions of directors.
The Companies Act 2006 provides certain rights to shareholders, including the right to call general meetings if they own at least five per cent of the company’s paid-up share capital, giving them a platform to propose resolutions and voice their concerns and influence corporate decision-making.
Corporate governance and fiduciary duties
Directors have a fiduciary duty to act in the best interests of the business, which in the context of M&A, extends to achieving the best possible outcome for shareholders.
Under the UK Corporate Governance Code, directors are encouraged to engage constructively with shareholders and ensure their interests are duly considered in major corporate decisions.
Breaches of these duties can lead to directors being held personally liable, highlighting the legal and regulatory emphasis on the protection of shareholder rights.
The legal and regulatory framework provides robust shareholder rights and protections in M&A transactions.
It balances the interests of various stakeholders while maintaining a particular focus on transparency, accountability and the promotion of shareholder activism.
As M&A transactions evolve, it remains vital that these protective measures adapt to ensure that shareholders’ rights continue to be robustly safeguarded.
Do you need help navigating your shareholder rights during a M&A? Get in touch today.