Minority shareholders’ rights to be beefed up
The Financial Conduct Authority is to strengthen minority shareholders’ rights in an attempt to protect London’s reputation as an international financial centre, after a series of high-profile takeover battles involving natural resources companies.
Under a new proposal, controlling shareholders will have to seek the approval of a majority of independent shareholders in order to delist a company. If approved, the rule will come into force on May 16, and will be implemented by FCA subsidiary the UK Listing Authority.
Under the current rule, three-quarters of a company’s shareholders must consent to any proposal to delist from the stock exchange. This leaves smaller shareholders powerless when one person or company owns more than 75 per cent of a company’s shares.
The new rule will apply in addition to the current rule, rather than replacing it.
In the past year, several London-listed natural resources companies have been involved in high-profile conflicts over minority shareholders’ rights.
This month, independent directors of London listed company Essar Energy urged small shareholders to resist a plan by its majority owner to take the Indian oil refinery and power group private in a hostile takeover. They said that the offer undervalued the business.
Last year, Kazakh mining company the Eurasian National Resources Corporation (ENRC) delisted from the London Stock Exchange while under investigation by the Serious Fraud Office, prompting criticism of the FCA for allowing it to come to the market.
The rule change was first mooted by the FCA in a discussion paper published last November, and will be introduced as part of a wider package of reforms that had already been announced and aim to toughen up the listing regime.
The reforms are also intended to boost minority shareholders’ control over directors’ appointments and operational oversight.
Some investors have argued that the rule changes should go further, giving regulators the power to fine majority shareholders who exercise undue influence.
The UKLA has rejected a suggestion that it should raise the minimum free float level above 25 per cent of a company’s shares.