Company Law Reform Bill [HL]

moved Amendment No. 478:"Page 318, leave out lines 10 to 14 and insert—" ““(b) shares that, under the company’s articles of association, do not normally carry rights to vote at its general meetings (for example, shares carrying rights to vote that, under those articles, arise only where specified pecuniary advantages are not provided).”” The noble and learned Lord said: These amendments take up discussions we had during Committee as to the precise meaning of some of the other complex provisions of the takeovers directive. We have returned to Article 11. The provisions of that directive are given effect to by chapter 2 of Part 22 of the Bill. The amendments are concerned with the types of ““securities”” falling within the scope of the directive. On its face, the takeovers directive is relatively explicit on this point. It states at Article 2 that ““securities”” means,"““transferable securities carrying voting rights””." That short definition cannot be expected to cover in detail a whole range of different security instruments that exist across the EU. We must work out what principles it lays down. For the purposes of the domestic implementing legislation, we talk of ““shares”” rather than ““securities””, as we think that that is more natural in terms of existing companies legislation.. So, we need to capture the concept of ““shares carrying voting rights””. There is a long-standing argument as to whether that means voting rights in all circumstances, or whether it includes voting rights that arise only in exceptional circumstances. For example, with some ““preference shares””, there will be a right to vote, but that will arise only when the dividend has not been paid. There will be other categories of shares that carry no voting rights, except on specific matters, such as any variation of the class rights relating to those shares. In the UK, different types of shares are not defined. Instead, the voting rights and the other rights attributable to the shares are generally prescribed, in the first instance at least, by the articles of association. The inevitable result is that there are many variations on the types of shares that can exist. By these amendments, we seek to cut the Gordian knot. They would provide that, in determining the breakthrough threshold and the mechanics of the operation of breakthrough, where the different interpretation has real practical effect, shares that do not normally carry rights to vote at general meetings will be excluded. We think that that drafting reflects the policy intent of the directive. It benefits from being absolutely clear whether a share is a voting share or not, at least in the vast majority of cases. In the most exceptional cases, that matter might have to be determined by the court; but we would have gone a long way to avoid the need for that. Parallel amendments on this matter are also proposed regarding Clauses 651 and 654. Perhaps I may conclude with two further observations. First, companies can help themselves. Breakthrough has not been imposed on UK companies and we have left companies considerable flexibility as to the structure of their articles where they choose to opt in to the breakthrough regime. Secondly, we understand that the majority of UK companies falling within the scope of the takeovers directive have only one class of share, which generally has voting rights. Such shares will be caught by the breakthrough provisions and by the definition that we propose. I beg to move. On Question, amendment agreed to. Clause 651 [Power of offeror to require general meeting to be called]: