The Companies Act 2006 (“CA 2006”), the Disclosure Guidance and Transparency Rules (“DTRs”), the UK Listing Rules and the UK Takeover Code (“Code”) are the principal sources of laws and regulations relating to shareholder rights and activism.  Insider trading and market abuse rules under the UK Market Abuse Regulation (“UK MAR”) and the Criminal Justice Act 1993 are also relevant.

Regulators are supportive of active shareholder engagement, provided that the parties comply with legal and regulatory requirements.  This is reflected in the UK Corporate Governance Code, the Stewardship Code and guidance published by the Financial Conduct Authority (“FCA”), the Takeover Panel (“Panel”), the Financial Reporting Council and investor representative bodies, which encourage effective engagement between listed companies and shareholders.

Institutional investors (and to a lesser extent retail investors) are increasingly supportive of activism, particularly where campaigns align with their investment objectives or concerns around governance and strategy.  However, some investors may be wary of the potential disruption caused by some campaigns.

High profile campaigns are often reported in the media and can attract both positive and negative commentary.  Parties will often engage PR advisers to construct an effective media strategy.

The UK is one of the most mature markets for activist campaigns.  The form of campaign will depend on the company in question and may pursue multiple outcomes including board and other governance changes; challenging executive remuneration; strategy change (including M&A/demergers); operational improvements; capital returns; disrupting M&A processes; and short-selling (usually combined with a negative media campaign).

Activism occurs across a range of industries, but is more prevalent in sectors undergoing significant disruption or facing challenging headwinds.  ESG remains an area of focus, with natural resources companies being a particular target for campaigns on both sides of the debate.

Shareholder litigation involving listed companies is relatively uncommon and the bar for success is in general high.  However, the threat of litigation is sometimes used as a lever in negotiations.  Shareholders can bring derivative actions in the company’s name against directors for alleged breaches of statutory duties or other wrongdoing.  Shareholders may also bring claims where they feel that the company’s affairs are being conducted in a manner that is unfairly prejudicial some or all of the company’s shareholders.  Shareholders may bring claims under the Financial Services and Markets Act 2000 or for misrepresentation, negligent misstatement or otherwise where there have been inaccurate or misleading statements in, or omissions from, prospectuses, circulars or other disclosures.  Contractual disputes may also arise where an activist and a company have entered into a settlement agreement.

A company’s register of members is open to inspection by any member without charge or by any other person on payment of a prescribed fee.  The request must contain certain information about the requesting party and the purpose for which the information is to be used.  Upon the request being made, the company must within five working days either provide access to the register or apply to court for a determination that the request was not made for a proper purpose.

General meetings

Any member (or members together) holding at least 5% of the company’s total voting rights can requisition a meeting and propose the text of a resolution.

Directors receiving a valid requisition must call a general meeting of the company within 21 days, and the meeting must be held no later than 28 days after the date of the notice of the meeting.  If the directors fail to call the meeting, it may instead be called by the requisitioning members, or any of them representing more than half of their total voting rights.  The meeting must be called for a date not more than three months after the date on which the directors first became obliged to call a meeting.

Annual general meetings (“AGMs”) of public companies and traded companies

Where the meeting is the AGM of a public company, members may require the company to circulate a notice of a resolution which may be properly moved at the AGM. This right is exercisable by requests from either (a) members representing at least 5% of the total voting rights of all the members who have a right to vote on the matter in question (excluding treasury shares) or (b) at least 100 members who have a right to vote on the matter in question and hold shares in the company on which there has been paid up an average sum per member of at least £100 (the “Requisite Threshold”).

Where the meeting is an AGM of a traded company (which includes Main Market companies, but not AIM companies), members meeting the Requisite Threshold may also request that the company include in the AGM business any matter (other than a proposed resolution) which may properly be included in the business.

Appointments to the board can be achieved consensually (in which case the company’s board would typically affect the appointment) or non-consensually (via the investor forcing a shareholder vote on the matter).  A company’s articles of association will often provide that a director may be appointed by ordinary resolution, which will require the approval of members holding a simple majority of the total voting rights of shareholders voting.  For most companies with shares listed on the Main Market, if the company has a controlling shareholder (broadly any shareholder who controls, on their own or with their concert parties, 30% or more of the voting rights), a dual voting structure applies to the election or re-election of any independent director.  Such appointments need to be approved both by the shareholders as a whole and by the independent shareholders (by a simple majority of those voting).

Under statute, a director may be removed by ordinary resolution in general meeting.  Special notice (i.e., 28 clear days’ notice to the company) is required of a resolution to remove a director or appoint somebody else at the meeting at which he or she is removed.  When the company receives notice of a proposed resolution to remove a director under the statutory mechanism, it must immediately send a copy of the notice to the director concerned.  It is not uncommon for companies to also provide for alternative removal rights in their articles typically by ordinary or special resolution without requiring special notice.

The director is entitled to be heard on the resolution at the meeting, even if he or she is not a member of the company.  Provided the right is not abused, a director is also entitled to make representations in writing to the company and request that these are notified to members.

Shareholder resolutions put to a poll (as opposed to a show of hands) require the approval of members holding a simple majority (for ordinary resolutions) and not less than 75% (for special resolutions) of the total voting rights of those shareholders who vote in person, by proxy or in advance of the meeting.  A shareholder can therefore block a resolution if it holds 50% of the total voting rights (for an ordinary resolution) and more than 25% (for a special resolution).

Only the registered holder of shares is entitled to vote the shares and exercise other shareholder rights.  Holders of other instruments (e.g., derivatives) will not therefore be able to exercise these shareholder rights unless the registered holder appoints them as proxy or corporate representative to attend, speak and vote on the registered holder’s behalf at an AGM or general meeting or contractually agrees to exercise any voting or other shareholder rights at the direction of the holder of the relevant instrument.

Stamp duty or stamp duty reserve tax (“SDRT“) is payable on share acquisitions at the rate of 0.5% of the purchase price¹. No stamp duty is payable on new equity issuances (e.g., a placing or rights issue) or where an interest in a security is acquired by a derivative transaction. Stamp duty is also not payable on eligible companies whose shares are trading on a recognised growth market such as AIM. Stamp duty is payable where stock is borrowed ‘off market’, but may be avoided either (a) where the stock is instead borrowed ‘on market’ or (b) where the lender is authorised to execute orders on behalf of clients and to undertake own account dealing in relation to the stock.

Footnote(s):

¹ The government has announced its intention to replace stamp duty and SDRT with a single tax in 2027.

An investor which holds 3% or more of the total voting rights in a UK company listed on the Main Market (5% for a non-UK company and for certain qualifying investors) through direct or indirect holdings of shares and/or certain financial instruments must usually notify the company of certain changes to their holdings.  Upon receiving such a notification, the company must then announce this information to the market.  Long (but not short) economic interests held under financial instruments such as contracts for differences (“CFDs”) need to be disclosed.  The relevant rules are set out in DTR 5.  An activist may also have to disclose its position to a company in response to a section 793 notice (see paragraph 23 below).

The Code requires various persons, during an offer period, to make public disclosures, or in certain cases private disclosures to the Panel, of their positions or dealings in relevant securities.  “Relevant securities” covers both target securities and, in the case of a securities exchange offer, bidder securities.

Disclosure requirements under the Code are generally wider in scope than DTR 5 and must be made by the bidder, the target, persons with interests in securities representing 1% or more and parties acting in concert with the bidder or the target.  Concert parties will normally be deemed to be a single person for the purpose of disclosures under the Code.

Subject to certain limited exceptions, the Code prohibits the acquisition of shares in a company if the resulting interests of the acquiror and its concert parties would equal or exceed 30% of the shares carrying voting rights.  It also restricts any acquisition of shares if the acquiror and its concert parties already hold interests of between 30% and 50% of the shares carrying voting rights.

The Code requires a mandatory offer to be made to be made where a shareholder and its concert parties acquires or consolidates control of a company to which the Code applies.  Control for these purposes means being interested in 30% or more of the shares carrying voting rights.

The bar for whether shareholdings must be aggregated for disclosure purposes under the DTRs is high.  A person will be treated as an indirect holder of shares held by a third party for these purposes where they agree that they should adopt, by concerted exercise of the voting rights they hold, a lasting common policy towards the management of the company in question.

The Panel will normally presume shareholders who requisition or threaten to requisition a “board control-seeking” resolution, together with their supporters as at the date of the requisition or threat, to be acting in concert with each other.  However, a mandatory offer will usually only be triggered by activist shareholders if both of the following tests are satisfied:

1. those shareholders requisition a general meeting to consider a “board control-seeking” resolution, or threaten to do so, and by so doing come together to act in concert with each other; and
2. after an agreement or understanding is reached between the activist shareholders that a “board control-seeking” resolution should be proposed or threatened, those shareholders acquire interests in shares such that the shares in which they are interested together carry 30% or more of the voting rights in the company (or, if they are already interested in shares carrying 30% or more of the voting rights of the company, they acquire any further interests in shares).

Whether a resolution would be considered “board control-seeking” is subject to a number of factors, the most important of which is whether there is a significant relationship between the proposed directors and the requisitioning shareholders, with the result that those shareholders would effectively be in a position to control the board.

Where a company is in an offer period, parties acting in concert with the bidder or the target must make certain disclosures in respect of their interests in target securities (and the bidder’s securities on a securities exchange offer).

DTR 5 requires long (but not short) economic interests held under financial instruments such as CFDs to be disclosed.  DTR 5 does not require the disclosure of financial instruments giving the holder the right to acquire new shares that have not yet been issued (e.g. nil paid rights on a rights issue or convertible bonds relating to new shares).

Derivative interests are treated differently in different parts of the Code:

1. The Code disclosure requirements in Rule 8 are more extensive than under DTR 5 and require disclosure of interests in, and rights to subscribe for, target securities, derivative interests, certain dealing arrangements, short positions and securities borrowed or lent.
2. The restrictions under Rule 5 on the circumstances in which a person may acquire or increase a controlling interest in a Code company are concerned with interests in shares carrying voting rights in a company. A person is treated as “interested” for these purposes where it has a long economic exposure to the price of the relevant securities (e.g., it owns them; it has the right to exercise or direct the exercise of voting rights attached to the shares; it has the right to acquire them; it is party to a derivative whose value is determined by reference to their price and which results in the person having a long position in them; it has received an irrevocable commitment in respect of them).
3. The mandatory offer rules under Rule 9 are similarly concerned with the acquisition of interests in shares carrying voting rights. However, a person is not treated as interested in shares solely because it has received an irrevocable commitment in respect of those shares.  Also, generally it is the exercise of convertible securities, warrants and options rather than their issue which triggers a mandatory offer obligation.  A person is also treated as interested in shares that it has borrowed or lent, except for any borrowed shares which it has either on-lent or sold.

A cash offer (or cash alternative) will be required at the highest price paid if any interests in target shares are acquired for cash during, or in the three months before the start of, an offer period.  A cash offer (or cash alternative) will also be required at the highest price paid if during, or in the 12 months before the start of, an offer period, interests in 10% or more of the shares are acquired for cash.

A securities exchange offer will be required if interests in 10% or more of the target’s shares are acquired in exchange for securities during, or in the three months before the start of, an offer period.

Measures a company can employ to reduce the risk of being targeted by activists include:

• understanding its shareholder base (including regular use of section 793 notices to identify any shareholders hiding behind corporate or holding structures)
• communicating its strategy clearly
• interacting regularly with key shareholders and ensuring that they understand and support the company’s strategy
• recognising the moments when the company is likely to be vulnerable (e.g., following poor results; where there is a change in CEO; or where a particular division has performed badly)
• having a defence plan for when an activist appears on the register

In a live activist situation, options include:

• arranging meetings with the activist to understand its intentions
• serving section 793 notices on the activist
• preparing a PR campaign
• ensuring that public statements are factually accurate and verified, and do not contain defamatory statements
• engaging with key shareholders and procuring public statements in support of the board
• scrutinising any meeting requisition notices (and any statements that the activists require the company to circulate) for any deficiencies
• drafting appropriate responses to any statements which the activist requests that the company circulates to its shareholders

Section 793 of the CA 2006 gives a public company the right to investigate the identity of any person it knows or has reasonable cause to believe is (or was at any time in the preceding three years) interested in its shares by sending them a notice which meets certain requirements.  The notice may request details of the recipient’s own past or present interests or other past or present interests of which it is aware.  The concept of being “interested in shares” is not defined in statute, but is interpreted broadly to capture direct and indirect interests, including beneficial interests and shares held through derivative contracts (e.g., CFDs and put and call options) other than where the derivative is solely cash settled.

Yes.  Under UK MAR (and the Criminal Justice Act 1993), inside information may only be disclosed to another person if (a) the disclosure is strictly necessary for the exercise of an employment, profession or duties, and is reasonable and proportionate and (b) the recipient owes a duty of confidentiality to the discloser.  One of the categories of persons to whom an issuer may (depending on the circumstances) be justified in disclosing inside information is a company’s major shareholders.  However, the FCA ruled in 2022 that it was not strictly necessary, reasonable or proportionate for the non-executive chair of a listed company to notify two major shareholders of an impending announcement.

The activist’s holdings, intentions and strategy regarding a company may constitute inside information.  This may present difficulties if the activist wishes to privately approach other shareholders before publicly launching its campaign.  To address this the activist needs to confirm that (i) disclosure of the potential inside information to each shareholder is strictly necessary, reasonable and proportionate and (ii) each shareholder agrees to be “wall-crossed” (i.e., provided with potential inside information) and to comply with appropriate confidentiality requirements.  Once this has been done, the potential inside information can be shared with the relevant shareholder.

Settlement agreements are permitted in the UK and some activist campaigns are resolved in this way.  Settlements often include the right to appoint one or more directors, creation of special board committees and commitments to strategic changes.  Any agreement will need to comply with applicable laws and regulations, including UK MAR, the UK Listing Rules and the CA 2006.

General meetings

Where a member requisitions a general meeting, the company bears the cost of convening the meeting (but the requisitioning member may bear the cost of circulating any accompanying statement, see paragraph 2d. below).

AGMs

The expenses of a public company or traded company in circulating a notice of a resolution or including matters in the AGM business are borne by the company, provided that requests from members meeting the Requisite Threshold are received before the end of the financial year preceding the AGM.  Otherwise, the company’s expenses must be paid by the requesting members, who may be required to deposit sufficient funds to cover the company’s reasonable expenses no later than (a) six weeks before the AGM or (b) if later, the time when notice of the AGM is given.

In connection with any AGM or other general meeting, members meeting the Requisite Threshold may also require the company to circulate a statement of up to 1,000 words to members entitled to receive notice of the meeting.  The statement must relate to a matter referred to in a proposed resolution, or other business, to be dealt with at that meeting.

The expenses of the company in complying with the request do not need to be paid by the members if the meeting to which the requests relate is an AGM of a public company and requests from members meeting the Requisite Threshold are received before the end of the financial year preceding the AGM.  Otherwise, the company’s expenses must be paid by the requesting members, who may be required to deposit sufficient funds to cover the company’s reasonable expenses not later than one week before the meeting.

Shareholders on the register at the date specified in the meeting notice are entitled to attend and speak at the meeting together with their proxies and corporate representatives.  Auditors may also attend meetings, but are usually only entitled to speak on business which concerns them as auditors.  A company’s articles often give the chair a discretion to allow non-members to attend and speak at meetings.

Directors owe a wide range of duties to the company.  In the context of an activist campaign, the duty of confidentiality and the duties to exercise independent judgement, to exercise powers for a proper purpose, to avoid conflicts of interest and to promote the success of the company for the benefit of its members as a whole are often particularly relevant.