In this article, Corporate & Commercial Partner Karen Edwards looks at what can be done if a shareholder cannot be located.
This article is lifted from Karen’s presentation at our first annual insolvency conference.
What issues can arise?
For the purposes of issuing notice for the MVL or CVL procedure, issues can often arise when:
- A shareholder cannot be found
- A shareholder has died
- It’s not clear who the shareholders are
Why is this a problem?
If the articles require that a specific shareholder should vote in favour to pass the resolution, it won’t be possible to achieve quorum.
The articles might require a poll vote, rather than a show of hands, meaning that without that shareholder, the required majority cannot be achieved.
What can be done if a shareholder is missing?
The most common option is to purchase the shares of the missing shareholder.
How to purchase the shares of a missing shareholder
The purchaser can be an existing shareholder, a third party or the company itself.
Shares can be purchased without contacting the missing shareholder, but the articles must contain relevant provisions to authorise such a purchase.
If the articles do not contain this provision, consider amending them to include these provisions to define “untraceable” e.g. long term missing, no current address, no response to adverts.
Remember, there must be a 75% majority to change the article, so this option is only likely to help where the articles require a higher majority to approve the MVL or CVL (e.g. 90%).
What other options are there?
A company could also consider:
- Reducing the company’s share capital to cancel the shares (only likely to help where higher majority is required)
- Redemption of the shares, provided the shares have a right of redemption
- Forfeiture or surrender of the shares, but only provided there are grounds for doing so under the articles
- Restructuring the company’s share capital and cancelling the shares through a solvent reorganisation/arrangement scheme
As with all options, consider the cost and time involved.
What if a 50/50 shareholder is missing?
This issue can be solved if:
- Present shareholder transfers a share to another, e.g. their spouse
- Notice is then given for the general meeting
- Assuming that notice is given validly (publication), there will be two shareholders (i.e. the present shareholder and their spouse) for required quorum
- Two shareholders can achieve the 75% by both voting in favour on show of hands
The resolution is then passed.
However, beware that this is only possible provided:
- The present shareholder is the sole director and can register the transfer on their own
- The missing shareholder does not have to vote; check articles/shareholder agreement
- The transfer to the spouse (or another) does not breach any pre-emption rights; again, check articles/shareholders agreement
What if a shareholder has died?
On death, title to shares is transmitted to personal representatives (no instrument of transfer required).
Check if the articles for provisions relating to the transmission of shares-personal representatives may transfer shares transmitted to them without being registered as a member, or, they may be entered into the register of members with director approval, giving them the right to vote.
Also consider any Wills or private agreements, such as shareholders agreements and cross options as to who is ultimately entitled to the shares and entitled to vote.
Note, if a joint shareholder dies, the jointly held shares pass automatically to any remaining joint shareholder in accordance with the articles.
Importantly, shares of a deceased shareholder remain in issue and the interest in them should be noted in the register of members, but this can only be done once grant of probate has been given.
Who are the shareholders?
The Companies House register should give a relatively accurate picture of who members are and shareholdings, but there’s no obligation to register every transfer at the point of transfer (remember shareholders agreements are not registered).
Directors have a duty to keep and maintain an updated register of members (section 113 Companies Act 2006)- if inaccurate or not updated regularly, the company and every officer is committing an offence and could be fined.
They also have a further duty to ensure that the Companies House register is updated by way of annual confirmation statement or where, for example, the company has issued, or bought back and/or cancelled shares.
Failure to submit a confirmation statement can lead to fines or directors being struck off.
How can the directors give notice?
The directors are entitled to rely on the information in the register of members for the purposes of establishing where to serve notice, provided that they do not have notice that this information is incorrect.
If they are aware of inaccuracies, there are various companies who specialise in tracking shareholders down.
If a shareholder cannot be located, the directors must publish notice in an appropriate newspaper and provided this has been done, notice is deemed served for the purposes of a general meeting (provided the articles do not say otherwise).
Annual Insolvency Conference
The presentation, on which this article is based, was given by Karen Edwards at the first annual Insolvency Conference with 50+ practitioners in attendance; and went into much further detail.
To receive invites to our insolvency events, webinars and conferences please sign up to our insolvency email list here.
Corporate & Commercial solicitors in Bournemouth, Christchurch and Ringwood
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