Why do issuers need a Registrar?

The Companies Acts require that companies shall maintain registers of members (shareholders) and Listing Agreements and Admission Rules of recognised stock exchanges further require listed companies (“issuers”) to have arrangements in place for electronic settlement of trades. Electronic settlement in the UK is provided by the UK's central securities depository, CREST, operated by Euroclear (UK & International) Limited. Companies contemplating an initial public offering (“IPO”) accordingly need to engage one of the UK's half a dozen or so CREST-accredited registrars to receive electronic share transfers via CREST and to communicate on their behalf with CREST.

Registrar Services

The Registrar's most important function is the keeping of the issuer's register of members, which principally involves the processing of share transfers of shares, which may be numerous immediately following an IPO and again around the time of announcements of the issuer's results.

A small proportion of shareholders on the issuer's register are likely to be financially sophisticated CREST participants who require minimal help from the issuer's registrar, the remainder of the issuer's register may consist of a large number of certificated shareholders who may need professional help from the issuer's registrar in dealing with such matters as bereavement, transmission of shares upon death, executorship, probate, lost share certificates or stamp duty reserve tax on transfer of shares.

In addition, the registrar, as the issuer's registration agent, will be called upon to assist the issuer's directors and company secretary with such matters as the administration of General Meetings, receiving and reporting proxy appointments and instructions, payment of dividends and other corporate actions.

Furthermore, issuers may seek information concerning changes in their register of members and underlying beneficial ownership and may require their registrar to despatch notices in accordance with s.793 of Companies Act 2006 requiring information about the identity of underlying beneficial holders of their shares and to report accordingly.

To Whom do Registrars provide their services?

Many of the services provided by the registrar, require understanding of the Companies Acts and professional advice: these services will be provided direct to the issuer's directors and/or company secretary by the registrar, often via the issuer's nominated account relationship manager: these services allow the issuer to monitor closely the quality of the registrar's services. On the other hand, all services which are provided direct to the issuer's shareholders by the registrar are unlikely either to be overseen by an account relationship manager or readily to allow monitoring of service quality.

Quality service from a registrar is very important to shareholders, and it may be worthwhile for an issuer to make enquiries and to sample the quality of the service which its shareholders would receive or, failing this, at least to make enquiries as to how and from where such shareholder services will be provided. A registrar may, for instance, arrange for shareholder enquiries to be dealt with by a separate call centre, possibly located overseas.

At least one registrar still requires its shareholders' telephone enquiries to be made to an 08 UK premium number which costs the shareholder 12p per minute plus network extras.

Easy access by telephone call from a shareholder to the registrar is of importance. In order to assess whether shareholders will have easy telephone access an issuer may potentially need to ascertain whether shareholder enquiries are discouraged in this way, passed through to an automatic switchboard or dealt with from the outset by a friendly responsive human being.

How Many Quotes should be sought?

It is recommended that companies contemplating an IPO should seek quotes – and compare them carefully - from each of the five principal CREST registrars:- Equiniti Group Limited, Computershare Investor Services plc, Link Market Services Limited, Neville Registrars Limited and Share Registrars Limited.

Registrars' Tariffs

Registrars' quotes for services will normally provide a tariff for a variety of different service items: the issuer contemplating an IPO may find such tariffs less than helpful for budgeting purposes because the expected post-IPO numbers of live shareholders and of annual transfer activity will at all early stages be unknown quantities. The ‘headline' fee for each live shareholder may turn out not to represent the largest amount on the registrar's invoice: the activity charge, for instance, quoted by registrars for each electronic share transfer (“Register Update Request” or “RUR”), can vary as between one registrar and another by a multiple of five times. For an issuer contemplating an IPO, the quantum of registrar fees does not normally seem significant for budgeting purposes, but registrar fees will be an annually-recurring expense item. If a strict budget figure is required initially, it should be possible for a registrar to provide an all-in, fixed-price contract for one year, subject to review of that fixed price when the one-year contract is completed and a renewal contract negotiated.

Financial Stability of a registrar

As with any entity with whom an issuer may be about to considering enter into a contract, the issuer should look to examine the potential registrar's latest accounts filed at Companies' House in order to check that they show a surplus of net tangible assets, a surplus of net current assets, profitability (but not excessive profitability!) and no excessive borrowings (nor by its parent company) relative to assets so as to present no risk of insolvency.

Of the UK's half a dozen or so CREST-accredited registrars, three were formed prior to 1990 as clearing-bank subsidiaries and have since been acquired by overseas buyers, accumulating (some more than once) additional borrowings, reflected either in their own accounts or in those of their parent company. Some such borrowings may have acquired an element of permanence on the balance sheet and may be due to incur increased servicing costs as interest rates rise.

Service Quality

Registrars attempting to describe (and sell) their own services may be inclined to exaggerate: it is recommended that attention be paid rather to commendations for good service from shareholders themselves or from independent sources such as Trustpilot.

Rankings Guides

In addition, Rankings Guides are published twice a year, to which your financial advisers should have access. These guides show which registrars have recently gained and lost market share: such indicators may guide issuers towards those registrars whose better quality service has received general recognition.

Contract Duration

With the background of substantial differences between registrar fees, the duration of an initial registrar's contract at IPO should not be more than one year if the risk of an issuer possibly finding itself locked into an burdensome contract is to be reduced. In respect of services other than registration, the vast majority of commercial contract are of no more than one year's duration. Issuers content with the price and quality of the services they have received will, of course, be happy to renew annually. It may, indeed, be considered somewhat arrogant for a supplier of services to decline to offer services for a contract period as short as only one year. There is no good reason why any registration contract should be of more than one year's duration. There may be pressure to enter into a longer contract simply because the longer duration is contained within a lengthy standard agreement whose other terms the issuer does not wish to challenge: longer contracts give registrars an unnecessary and undeserved contractual advantage. Registration contracts of one-year duration are available and should be insisted upon.

Automatic Extension of Contract Term

If a Registrar's standard contract provides both for an automatic extension of the contract term and a lengthy (say six months') period of notice, it is recommended that issuers seek advice from lawyers familiar with competition law. The inclusion of both such terms in a consumer contract (but not in a commercial contract) may well fall foul of the Unfair Contract Terms legislation: such complexity is best avoided because of its possible unfairness.

Transfers of Registers between Registrars

The UK's central securities depository, CREST, requires that transfers of registers shall take place on Friday evenings and that CREST shall be given 20 business days' prior notice of such transfers. The period for termination of notice period proposed by a Registrar does not therefore need to exceed say, 25 business days, and any request for longer notice (six months' notice is commonly requested) should, on this basis, be contested.

Notice of Termination

When giving notice of termination, issuers need to avoid any termination dates which could conflict with their own corporate action requirements, such as their Annual General Meeting.

The length of termination notice laid down in a registration contract will, of course, be sufficient to allow the outgoing (“incumbent”) registrar time to make any necessary arrangements for migrating the register to an incoming registrar. Taking into account that CREST requires that transfers of registers shall take place on Fridays, issuers giving notice of termination are advised, having selected their new registrar, to notify both their incumbent registrar and CREST of the particular Friday on which the transfer of register is to take place. If this advice is followed, delay or failure on the part of an incumbent registrar to meet the specified register transfer date will be a breach of contract.

If it is not done, an outgoing registrar may ignore the strict terms of the contract, say that the intended register transfer does not fit easily into his busy work schedule and propose a ‘migration project', with timetable, to proceed in the same manner as a corporate action. The effect would be to extend the term of his registration contract, sometimes by several months.

Additional Services, not covered in Contract, which an incumbent Registrar may be asked to provide

An issuer planning any of a wide variety of corporate actions will require to refer to its register of members and will need assistance from his incumbent registrar. The issuer may request a quote from the incumbent registrar for such assistance. In such circumstances, the bargaining position between issuer and incumbent registrar in relation to register access and services to be provided is unequal and will be skewed in favour of the incumbent registrar. Any issuer dissatisfied with an incumbent registrar's price for services arising from such skewed negotiations should request a quote from another registrar.

Is further assistance required?

It is hoped that the above guidance is of help, but if you would like to discuss any of the above matters, Neville Registrars would be delighted to hear from you and would be grateful if you would telephone Emma Winnall, please, on 0121 585 1131.