MARCH 2007
CS News
The company secretarial newsletter of
Addleshaw Goddard Corporate Services
Index
1. Companies Act 2006 implementation timetable
1
2. Implementation of the Transparency Directive
1
3. Implementation of the Takeovers Directive
2
4. Electronic communication with shareholders
2
5. ABI's simplified remuneration guidelines
4
6. Age discrimination and employee share plans
5
7. Disclosing company information on websites and e-mails
6
8. Granting options – market abuse
7
9. Share scheme reporting
8
© Copyright reserved 2007. Extracts may be copied with prior permission and provided their source is acknowledged. This briefing is for
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1. Companies Act 2006 implementation timetable
On 28 February 2007, the Government announced the commencement timetable for those provisions of the Companies
Act 2006 which are not yet in force. Commencement will be dealt with in stages, with some provisions being brought into
force in April and October 2007, a further tranche in April 2008 and the remainder in October 2008.
The Government has also published the following:
 a consultation document on secondary legislation which will need to be made under the Companies Act 2006;
 a checklist of action points for private companies arising from the Companies Act 2006;
 answers to some frequently asked questions; and
 guidance for private companies on the impact of the Companies Act 2006 generally.
For a detailed summary of the commencement timetable and the broad actions arising from it, please see issue 6 of our
Company Law Reform Series.
2. Implementation of the Transparency Directive
On 20 January 2007, the Transparency Directive (TD) was implemented in the UK through the commencement of Part
43 of the Companies Act 2006 and, in the run up to that date, various transitional announcements were required of
companies listed on regulated markets (therefore, the Main Market of the London Stock Exchange) as well as on the AIM
and PLUS Markets. The FSA's Handbook has now been updated to take account of the changes required by the TD,
including the replacement of the Disclosure Rules with the new Disclosure and Transparency Rules.
For a detailed summary of the requirements of the TD, please see our client bulletin which forms part of our Company
Law Reform Series. It is worth noting here, however, that not only does the TD require companies with securities
admitted to trading on regulated markets to produce periodic financial reports but, for companies listed on the Main
Market, AIM and PLUS Markets, it also replaces the regime relating to the notification of major shareholdings formerly
contained in the Companies Act 19851. One of the more noteworthy consequences of this is that the procedure for
company investigations into the identity of their shareholders, formerly carried out under sections 212 to 220 Companies
Act 1985, should now be carried out under the slightly amended regime in sections 793 to 819 of the Companies Act
2006.
The FSA has also published a special TD edition of List!, intended to supplement the new rules and guidance
implementing the TD. Most of the newsletter is an overview of the new requirements, highlighting changes to the current
regime. Additionally, however, it includes non-binding guidance on matters such as:
 those who are to take responsibility for financial statements;
 the contents of interim management statements;
 the implications for Model Code compliance;
 major shareholding notifications; and
 the dissemination of regulated information.
This provides useful background on how the TD will work in practice and we would recommend that you read the
newsletter alongside our bulletin.
1
Sections 198 – 220 Companies Act 1985
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3. Implementation of the Takeovers Directive
The Takeovers Directive, which seeks to impose minimum standards for the regulation of takeovers across Europe, was
implemented on an interim basis in May 2006 by the Takeovers Directive (Interim Implementation) Regulations 2006
(Interim Regulations). From 6 April 2007, the Interim Regulations will be replaced by provisions in the Companies Act
20062. One, often overlooked, consequence of the Directive is that it requires the disclosure of certain additional
information in directors' reports3. These additional requirements are the same in the Companies Act 2006 as they were
in the Interim Regulations4.
These additional disclosure requirements will continue to apply only in relation to companies whose securities carrying
voting rights were admitted to trading on a regulated market at the end of the relevant financial year beginning on or after
20 May 20065, whether or not they are subject to a takeover offer. A summary of the disclosure requirements can be
accessed below.
4. Electronic communication with shareholders
While electronic communication with shareholders has been possible since 2000, take-up by shareholders has been low.
The difficulties have stemmed from the fact that:
 a company's ability to communicate electronically with shareholders has been restricted to certain, limited
circumstances; and
 the default position has been for shareholders to receive 'hard copy'. For a company to be able to communicate
electronically, each individual shareholder has had to give positive consent.
All that is set to change now that certain provisions of the Companies Act 2006 have come into force. The new
provisions have two principal benefits:
 they allow companies to communicate electronically for the purposes of any provision of the new Act authorising or
requiring documents or information to be sent or supplied by the company; and
 they allow companies to make website communication the default setting, so that shareholders wanting to receive
hard copy documents will positively have to request that from the company.
The expectation is that the changes will allow companies to realise significant cost-savings, reduce their environmental
impact and enhance the level and quality of their communication with shareholders.
A distinction is drawn between documents and information sent:
 by a company (including from one company to another), which are covered by schedule 5 to the new Act; and
 to a company (excluding from one company to another), which are covered by schedule 4 to the new Act.
Documents or information sent by a company
Companies can choose to send or supply documents and information either:
2
Section 992 Companies Act 2006 which, in fact, amends certain provisions of the Companies Act 1985
Part 7 and Sch 7, Companies Act 1985
Regulations 25 to 28 of The Takeovers Directive (Interim Implementation) Regulations 2006 (SI 2006/1183)
5
Section 992(6) Companies Act 2006
3
4
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 in electronic form - for example, by e-mail; or
 via a website.
Electronic form
A company can only send or supply documents or information in electronic form if the recipient has actually agreed, or in the case of a corporate recipient only - is deemed to have agreed, to that form of communication. A company which is
not listed on the main market does not need to have been authorised to communicate in electronic form by its articles or
shareholder resolution. It does, however, need a positive agreement from individual shareholders, including, of course,
an e-mail address to which the communication can be sent.
The circumstances in which a fully listed company can send or supply documents or information in electronic form differ
due to the fact that a listed company is also subject to the Disclosure and Transparency Rules (DTRs), the requirements
of which are discussed further below.
Website
A company can only send or supply documents or information to its members via a website where the members have
actually agreed, or are deemed to have agreed, to that form of communication. The critical point is that a member will be
deemed to have agreed if either:
 members have resolved that the company can send or supply documents or information via a website; or
 the company's articles provide for this,
and the company has not received a response within 28 days of an individual request by the company to a member for
the member's agreement to that form of communication.
Subject to that agreement, whether actual or deemed, the company must then notify members that the document or
information is available on the website and provide the website address and details of how to access the document or
information.
Members who have received an electronic version of a document are entitled to request, free of charge, a hard copy of
the document, which the company must send within 21 days of receipt of the request.
Documents or information sent to a company
Documents or information can be sent to a company in electronic form if the company has actually agreed, or is deemed
(by a provision in the Companies Acts) to have agreed, that the document or information may be sent in that form. The
address to be used is the address specified, or deemed (by a provision in the Companies Acts) to have been specified,
for the purpose by the company.
An example of a provision which deems a company to have agreed that a document or information may be sent to it in
electronic form is section 333(1) of the new Act. That section provides that where a company has given an electronic
address in a notice calling a meeting, it is deemed to have agreed to the sending of any documents or information
relating to proceedings at the meeting by electronic means to that address, subject to any conditions or limitations
specified in the notice.
Similarly, section 333(2) provides that where a company has given an electronic address either in a proxy instrument or
in an invitation to appoint a proxy sent out by the company in relation to a meeting, it is deemed to have agreed that any
document or information relating to proxies for that meeting may be sent by electronic means to that address, again
subject to any conditions or limitations specified in the notice.
Disclosure and Transparency Rules
Companies with transferable securities admitted to trading on a regulated market – in other words, listed companies on
the main market of the London Stock Exchange, but not AIM – will also need to comply with provisions relating to
electronic communication in the DTRs, which were also implemented on 20 January 2007. The DTRs provide that a
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listed company may use electronic means to communicate with shareholders where the decision to do so has been
taken in general meeting. This differs from the Companies Act 2006 provisions which only require shareholder approval
in general meeting or provision in the company's articles for documents or information sent or supplied via a website, as
opposed to in electronic form. The FSA has confirmed that a resolution to amend the articles to insert the relevant
provisions on electronic communications will satisfy the requirement that the decision to use electronic communications
be taken by shareholders in general meeting.
Transitional provisions
Many companies already use e-mail and websites to communicate with shareholders under the electronic
communication provisions in the Companies Act 1985, inserted by the Companies Act 1985 (Electronic Communications)
Order 2000. Any company wishing to continue to do so need not take any further action. Similarly, under transitional
provisions of the DTRs, a listed company can continue to use electronic communications to the extent that it could
lawfully do so before 20 January 2007.
If a company wishes to continue to use electronic communications as it has been doing prior to 20 January 2007 (with or
without authority in its articles) and does not wish to take advantage of the new provisions in relation to deemed
agreement to the use of its website, it does not need to amend its articles. A company which is not listed and which has
not previously used electronic communication will not need a shareholder resolution or to amend its articles if it wishes to
start using electronic communications without taking advantage of the default website provisions.
A company may, however, need to amend its articles if it wishes to send or supply the wider range of documents now
permitted by the Companies Act 2006 electronically. Additionally, if a company wishes to make use of the deemed
agreement provisions relating to the sending or supplying of documents or information by making them available on a
website, it will need to amend its articles or pass a resolution in general meeting authorising the use of this form of
communication and then seek shareholder agreement.
It is anticipated that many companies will choose to use their next AGM to obtain authority from shareholders or amend
their articles, if required, to allow the use of electronic communications. Following the AGM, they will be in a position to
liaise with shareholders to request the use of electronic communications so that they are in a position to deploy electronic
communications fully in relation to their next following AGM.
The Institute of Chartered Secretaries and Administrators (ICSA) has published detailed guidance on the subject,
covering both the Companies Act 2006 and the DTRs and including recommendations for best practice. The ICSA
guidance can be accessed here.
5. ABI's simplified remuneration guidelines
The Association of British Insurers (ABI) launched a new, simplified version of its remuneration guidelines on 14
December 2006. The substance of the guidelines is mostly unchanged, but they have been re-structured into a clearer
format, divided into overarching principles, main provisions and detailed guidance.
The guidelines are aimed at companies with a listing on the main market, although other companies are encouraged to
observe them in the spirit of best practice. The ABI hopes that, in revising the presentation of the guidelines, companies
will find it easier to anticipate the likely response of shareholders to remuneration proposals. Companies and institutional
investors alike are likely to welcome the clearer layout of the guidelines and the fact that they are significantly shorter
than the previous version.
Our client bulletin on the revised remuneration guidelines issued on 20 December 2006 can be accessed below.
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6. Age discrimination and employee share plans
Since 1 October 2006, all discrimination in the UK by reason of age is unlawful, unless either it falls within one of the
statutory exemptions or it can be objectively justified.
If companies have not already carried out a review of their employee share plans, they should do so as a matter of
urgency. The areas of potential concern have been identified as follows:
Qualifying periods
 The Employment Equality (Age) Regulations 2006 (Regulations) permit an employer to make awards based on
length of service not exceeding five years, but any longer period would be in breach of the Regulations.
 This should not cause an HMRC all-employee share plan, such as Save As You Earn (SAYE) or Share Incentive
Plan (SIP) to fall foul of the Regulations, since any qualifying period cannot exceed five years.
 Unapproved discretionary plans are unlikely to contain long qualifying periods, but a review is recommended to
confirm that this is the case.
Favourable treatment at specified ages
 HMRC approved share plans allow participants to benefit from tax advantages should they retire at a specified age
(for a SAYE scheme it is 60 years of age or above and for a SIP it is 50 years of age or above).
 If a company allows retirees who leave after the statutory minimum age to keep their shares, but requires younger
retirees to forfeit them, this would amount to direct discrimination.
 In practice, the Regulations provide that any act done in order to comply with a UK statutory provision is not unlawful.
If the age specified in the plan is the minimum age allowed by the legislation (i.e. 60 for SAYE and 50 for SIP), the
company will, therefore, be able to rely on the “statutory compliance” exemption as a defence to any claim of
discrimination.
Retirement
 Plan rules should no longer prevent awards being made to employees approaching retirement age.
The ABI
Guidelines for listed companies previously recommended that awards should not be made to employees who were
due to retire within a year. The Guidelines have now removed this exclusion but there will be a number of plan rules
which still need to be amended.
 Most share plans allow employees who retire to receive shares early.
Frequently, this is allowed through the
exercise of discretion by a company’s remuneration committee but some plans, particularly discretionary share option
schemes, will have a specified retirement age.
 Such provisions may now be challenged by employees who retire early or by younger employees who leave the
company but do not retire.
 Companies could consider removing the concept of "retirement" from their plan rules and relying on the exercise of
discretion for good leavers or allowing employees who retire to receive an apportioned value to reflect the shortened
vesting and/or performance period.
 In the case of approved Company Share Option Plans, the rules will need to make it clear that, in order to obtain tax
relief on an early exercise, an employee cannot be treated as retiring earlier than 55 years of age.
If amendments to share plans are required, companies will need to determine how these may be made. In practice,
even listed companies should not need to obtain shareholder approval for such amendments provided that the rules of
their plans permit them to make amendments in order to comply with legislation. All amendments to approved plans will
require prior approval from HMRC.
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There has been some uncertainty, however, over whether plan rules can be changed so that all existing awards are
governed by the same provisions. HMRC has recently stated its view that an amendment to approved share plans must
not take away from present or future participants any rights to which they could become entitled. For example, it would
be acceptable to make an amendment which lowers the specified retirement age on the basis that employees' existing
rights are being improved; but, if a change is made which removes or inhibits an existing exercise right, HMRC would not
approve it unless all those who may be affected by the change have given their consent to the amendment.
This is a developing area, particularly with regard to HMRC approved plans but, in the meantime, companies should
ensure that their share plans are compliant with the new Regulations as far as possible to avoid potential claims.
7. Disclosing company information on websites and e-mails
The Companies (Registrar, Languages and Trading Disclosures) Regulations 2006, which came into force on 1 January
2007, extend the Companies Act 1985 requirements in relation to information which must be mentioned in a company's
correspondence to include websites and electronic communications.
As a result, companies must now state the following details in all business letters and order forms – whether in hard
copy, electronic or any other form – and on their websites:
 name;
 place of registration;
 company number;
 registered office address;
 in the case of an investment company, the fact that it is such a company; and
 in the case of a limited company exempt from the obligation to use the word 'limited' as part of its name, the fact that
it is a limited company.
In addition, where there is any reference to a company's share capital in its business letters or order forms - again,
whether in hard copy, electronic or any other form - or on its website, the reference must be to paid-up share capital.
A large proportion of companies now use e-mail as their primary form of business correspondence. E-mail messages
relating to a company's business are likely to be regarded as business letters in electronic form. Accordingly, companies
need to review their websites, e-mails, faxes and other electronic communications to ensure that they include the
required information along with other standard wording and disclaimers that usually appear in such communications.
A company's name also needs to be mentioned in a range of documents, including notices, bills of exchange, promissory
notes, orders for money or goods on behalf of the company, invoices, receipts and other official publications. As of 1
January, it is clear that the requirement to mention the name applies to all such documents, whether in hard copy,
electronic or any other form.
Limited Liability Partnerships (LLPs) too must comply with these disclosure requirements on their websites and
electronic documents. The new regulations also amend the Insolvency Act 1986 (and corresponding Northern Ireland
legislation) so as to require a company or LLP that is being wound up to include a statement to that effect on its website
and in various documents issued by it or on its behalf or by a liquidator, again whether in hard copy, electronic or any
other form.
Group companies
A corporate website may refer or relate to various companies within a group. Whether any such website constitutes a
website of any particular company within the group will need to be determined on the facts in each particular case and
ownership of the domain name is only one of a number of factors to be considered. Companies will need to use their
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judgment, taking account of all of the circumstances, including how the site is structured and from whose perspective it is
written. Given that the disclosure requirements are not onerous, it may be sensible to adopt a cautious approach and list
the required information for all active companies within the group.
A similar issue arises in relation to e-mails sent on behalf of different group companies. Consideration may need to be
given as to the precise identity of the company on behalf of which the e-mail is being sent, so that the required details for
that company can be included. In practice, it is likely to prove difficult to have to change the e-mail trading disclosures
according to the particular company on behalf of which the e-mail is being sent, particularly in complex groups with
numerous trading companies. The better course of action may be, as with websites, to list the required details for all
active companies within the group. Of course, other commercial and legal considerations may make it desirable or
necessary to identify precisely the company on behalf of which an e-mail is being sent.
8. Granting options – market abuse
There have been many recent media articles regarding option-granting processes, particularly in the United States,
where a number of high-profile companies and executives have been investigated for back-dating option grants. These
investigations have often centred around whether board minutes have accurately reflected the true timing of option
grants and the knowledge possessed by directors when they received options.
It is generally considered that the UK regime is stricter than the pre-Sarbanes Oxley US regime in that the Model Code
for UK listed companies and the AIM Rules both provide for restrictions on option grants during close periods or other
periods where there exists any matter which constitutes inside information. There are also notification requirements in
the DTRs for UK listed companies and in the AIM Rules.
There are, however, certain types of option grant practices which have been brought to the attention of the FSA. Issue
17 of the FSA's Market Watch newsletter (November 2006) discussed the concepts of "spring-loading" and "bulletdodging" and whether these could be considered market abuse within the framework of the Financial Services and
Markets Act 2000 (FSMA). "Spring-loading" is when a company brings forward the timing of its option grants to directors
to allow them to benefit from an anticipated rise in the share price while "bullet-dodging" involves delaying the timing of
an option grant to directors so they can benefit from having the options priced after an anticipated fall in the share price.
Whether these practices can amount to market abuse under FSMA will depend on the facts of the case but the following
should be considered:
 an employee, being an insider, who acquires options on the basis of inside information, may be committing market
abuse, as may the person granting the option;
 if a director is aware of an impending announcement and discloses that information to the person responsible for
granting options in order to influence the timing of option grants, that could amount to improper disclosure;
 a decision by a company to give clearance for dealings during the run up to the release of inside information would
be a breach of the Model Code;
 any attempt to delay the announcement of the grant date would be a breach of company law and the DTRs; and
 any decision by a company to announce awards in an open period but back-date the price would be a breach of the
Listing Rules which prohibit the granting of options at below market value without prior shareholder approval.
There are a number of precautionary steps that companies should take with regard to the granting of options, which can
help to minimise the risk of allegations of market abuse. For example:
 internal procedures should prescribe defined periods throughout each year during which grants can be made without
breaching the Model Code or the AIM Rules as applicable;
 listed companies should maintain up-to-date lists of insiders in order to comply with the DTRs;
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 companies should ensure that the relevant disclosures are made promptly following the grant of options;
 companies should maintain accurate records, including dates on which approval is given to the grant of options and
actual grant dates; and
 the Remuneration Committee should play a key role in upholding corporate governance standards by being able to
act independently of the board.
9. Share scheme reporting
HMRC has now published on its website the annual return forms for companies to complete with details of approved and
unapproved share schemes operated during the tax year 2006 - 07. These returns need to be completed and filed by 6
July 2007 in order to avoid penalties for late filing. Companies should receive a notification to file from HMRC. The
forms are also available to download from the HMRC website on http://www.hmrc.gov.uk/shareschemes/ann-appschemes.htm
For further information on any of the issues covered in this update, please speak to your usual contact at Addleshaw
Goddard or any member of the Corporate Services team listed overleaf.
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Addleshaw Goddard Corporate Services
Addleshaw Goddard Corporate Services, our company secretarial team, is an integral part of the firm's Corporate
department. Established 15 years ago, it is one of the largest company secretarial teams to be found in a UK law firm.
The team provides a broad spectrum of company secretarial services.
Companies' records are maintained electronically, with password-protected internet access so that clients can view their
information on-line at any time. A registered office service can also be provided.
The Corporate Services team comprises both qualified solicitors and chartered secretaries with knowledge and
experience of working within both the professional services sector and industry. Clients range from fully-listed and AIM
quoted companies to small, privately-owned companies and charitable organisations. We currently manage the company
secretarial requirements of more than 1,500 entities including some of the world's best known companies.
Michael Harris
Partner
 0161 934 6417
 michael.harris@addleshawgoddard.com
Emma Davies
 0161 934 6401
 emma.davies@addleshawgoddard.com
Mary Anne Fermoy
 020 7544 5285
 maryanne.fermoy@addleshawgoddard.com
Wendy Hurst
 0161 934 6685
 wendy.hurst@addleshawgoddard.com
Muriel Thorne
 0161 934 6684
 muriel.thorne@addleshawgoddard.com
Fahrin Ribeiro
 020 7544 5439
 fahrin.ribeiro@addleshawgoddard.com
Nicola Ellis-Leagas
 020 7544 5294
 nicola.ellis-leagas@addleshawgoddard.com
Jillian Elliot
 0161 934 6661
 jillian.elliot@addleshawgoddard.com
Sally Thwaites
 0161 934 6360
 sally.thwaites@addleshawgoddard.com
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© Copyright reserved 2007 Addleshaw Goddard LLP.
Addleshaw Goddard LLP is a limited liability partnership registered in England and Wales (with registered number OC318149) and is regulated by the Law Society.