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PART 22: INFORMATION ABOUT INTERESTS IN COMPANY’S SHARES BACKGROUND

1107. The provisions of this Part concern a public company’s right to investigate who has an interest in its shares. They replace equivalent provisions in Part 6 of the 1985 Act. These are purely domestic provisions, and are not required by European Community Law.

1108. The automatic disclosure obligations currently contained in sections 198 to 211 of Part 6 of the 1985 Act will be replaced by regulations under the Financial Services and Markets Act 2000, as amended by Part 43 of this Act, in implementation of the Transparency Obligations Directive. In the regulations, a different concept of “interest in voting rights” will be adopted in order to implement the Transparency Obligations Directive.

1109. This Part re-enacts, with certain modifications, the disclosure obligations pursuant to a notice issued by the company contained in sections 212 to 219 of the 1985 Act. There is no change to the definition of “interest in shares” for this purpose.

1110. The main changes to section 212 of the 1985 Act and related provisions are:

• making clear that notices are not required to be in hard copy, and therefore can be given in electronic form (section 793 read in conjunction with the provisions in Part 37 on the sending or supplying of documents or information);

• providing for how information is to be entered on the register of interests disclosed when the name of the present holder of the shares is not known or there is no present holder (section 808);

• removing the requirement on the company to verify third party information supplied in response to a section 793 notice before putting it on the register (section 817);

• requiring a company to refuse a request to inspect the register if it is not satisfied that the request is made for a proper purpose (section 812);

• removing the requirement for a company to keep information on the register in relation to entries made more than six years previously (section 816).

Section 791: Companies to which this Part applies

1111. This section provides that this Part only applies to public companies (as section 212 of the 1985 Act provides currently).

Section 792: Shares to which this Part applies

1112. This section re-enacts in part the definition in section 198(2) of the 1985 Act of the type of shares concerning which a section 793 notice may be issued, namely shares carrying rights to vote in all circumstances at general meetings. However, shares held by a company “in treasury” following a purchase of its own shares (as an alternative to cancelling such shares on purchase) are now included in the definition.

Section 793: Notice by company requiring information about interests in its shares

1113. This section re-enacts section 212(1) to (4) of the 1985 Act. It allows a public company to issue a notice requiring a person it knows, or has reasonable cause to believe, has an interest in its shares (or to have had an interest in the previous three years) to confirm or deny the fact, and, if the former, to disclose certain information about the interest, including information about any other person with an interest in the shares.

1114. Subsections (3) and (4) enable the company to require details to be given of a person’s past or present interests and to provide details of any other interest subsisting in the shares of which he is aware. This provision allows the company to pursue information through a chain of nominees by requiring each in the chain to disclose the person for whom they are acting. Under subsection (6), where the addressee’s interest is a past one, a company can ask for information concerning any person by whom the interest was acquired immediately subsequent to their interest. Particulars may also be required of any share acquisition agreements, or any agreement or arrangement as to how the rights attaching to those shares should be exercised (sections 824 and 825).

1115. This section serves a different purpose to the automatic disclosure obligations currently contained in sections 198 to 211 of Part 6 of the 1985 Act. It enables companies to discover the identity of those with voting rights (direct or indirect) that fall below the thresholds for automatic disclosure, and it also enables companies (and members of the company) to ascertain the underlying beneficial owners of shares.

1116. The notice is not required to be in hard copy (see the general provisions on sending or supplying documents or information in Part 37 of the Bill). Notices, and responses thereto, may be given in electronic form. A response must be given in a reasonable time. What is reasonable has not been defined so as to allow flexibility according to the circumstances, but if the time given is not reasonable, the company will not have served a valid notice.

Sections 794 and 795: Notice requiring information: order imposing restrictions on shares and offences

1117. These sections re-enact section 216(1) to (4) of the 1985 Act. They specify the penalties for failure to provide information within the specified time when served with a notice under section 793. There are criminal penalties (although a person does not commit an offence if he can show that the requirement to give information was frivolous or vexatious).

1118. Additionally, application may be made to the court for a direction that the shares in question are to be subject to the restrictions specified in section 797.

Section 796: Notice requiring information: persons exempted from obligation to comply

1119. This section re-enacts section 216(5) of the 1985 Act. It provides that the Secretary of State may exempt a person from complying with a notice. The Secretary of State must consult the Governor of the Bank of England, and must be satisfied that there are special reasons for exempting the person (taking account of any undertaking given).

Sections 797 to 802: Orders imposing restrictions on shares

1120. These sections restate Part 15 of the 1985 Act without substantive change in so far as its provisions apply in relation to Part 22 of this Act. They set out the effect of a court order made under section 794 imposing restrictions on shares, and the penalties for attempted evasion of the restrictions. They also make provision for the relaxation or removal of restrictions, or for an order for the sale of shares.

Section 803: Power of members to require company to act

1121. This section re-enacts section 214(1) and (2) of the 1985 Act. It requires a company to exercise its powers under section 793 on the request of members holding at least 10% of such of the paid up capital of the company as carries the right to vote at general meetings (other than voting rights attached to shares held in treasury). This provision, which has rarely been used under the 1985 Act, recognises that members of a company may have a legitimate reason for wanting the company to exercise its statutory powers to demand information even if the management does not want to. For example, the members might want to act where they suspect that the directors are involved in building a holding from behind the shelter of nominees.

1122. Provision is made as to the form and the procedure in relation to requests. In contrast to section 214, the 10% threshold may be met by a series of requests from members that the company act, rather than one collective request. Those making a request must not only specify the manner in which they require the powers to be exercised, but must also give reasonable grounds for requiring the company to exercise the powers in the manner specified (subsection (3)(b)(ii) and (iii)).