SuperGroup is the company which owns the SuperDry business - a UK manufacturer of American and Japanese-inspired clothing catering primarily to the 15-25 age group. After beginning life on a market stall in 1985, the SuperDry label has expanded rapidly. The group now has more than 200 stores across 40 countries worldwide as well as a thriving online business, with revenues totalling £313 million in the most recent financial year. The group went public with a share issue in 2010 and in February 2011 saw further expansion with the acquisition of its distribution partner CNC Collections BVBA.
However, 2012 was a tumultuous year for the group. A management dispute led to the resignation of one of its original co-founders, which was followed by a reported "shareholders rebellion" against the board of directors. To top it off, the group made less money than expected, with the group's profits falling by 9 per cent from 2011.
What do its corporate documents reveal about the company what's going on? In this issue, we start by looking at its articles of association.
A company's directors, also known as its board, are responsible for the management of the company. Executive directors run the company on a day-to-day basis, while non-executive directors provide expertise and strategic guidance, but do not have a hands-on role.
The articles cover many aspects of how directors work with the company, including how they're appointed, what their powers and duties are, how they make decisions, how they're paid, and how they can retire or be removed.
Powers of the board
Most articles give directors the power to manage the business and to exercise all of the powers of the company to do so. Note that these powers apply to the board jointly, not to individual directors, though the board will usually delegate the power to take certain steps to particular directors or other individuals, or a committee.
SuperGroup's articles give the board the very broad power to "exercise all the powers of the Company whether relating to the management of the business or not". The articles specify that the board can delegate its powers to individual directors or to a committee, as long as the majority of the committee's members are directors.
One of the most potentially risky decisions a board can make for the company is the decision to borrow money. Therefore many articles limit how much money the directors can authorise the company to borrow. Larger amounts of money can usually be borrowed with the permission of the shareholders.
SuperGroup's articles state that "all borrowings by the group (exclusive of any borrowings which are owed by one group company to another...) shall not...exceed a sum equal to the higher of £50,000,000 or two times the...total of [the company's] capital and reserves". The directors can, however, be given the power to arrange for the company to borrow more money by a shareholders' resolution.
Conflicts of interest
It's possible that a director may have an interest in a step that the company is considering taking - for example, they might be a director of another company the company is considering entering into a business agreement with. Most articles state that a director with such an interest cannot participate as a director in a board meeting when a decision about that action is being made. The usual exceptions are where the company's shareholders authorise the director to do so, where the director's interest isn't regarded as likely to give rise to a conflict of interest, or in certain other circumstances.
SuperGroup's articles require such directors to declare their interest and state that they cannot take part in any decisions about the relevant action or transaction, unless the exceptions mentioned above apply.
SHARES AND SHAREHOLDERS
As their name suggests, the shareholders of the company hold shares - ownership rights - in the company, so collectively are the company's owners. It's usual for the articles to contain a provision by which the shareholders delegate the day-to-day management of the company to the board of directors, but the shareholders retain ultimate control of the company. In the case of smaller companies, there might only be a few shareholders who may well also be the directors, but public companies like SuperGroup, whose shares are traded on the financial markets, will have large numbers of shareholders so it makes sense that the company is run on their behalf by the board.
A company's articles usually contain provisions relating to how shares are issued, allotted and transferred, and to dividends, periodic payments to shareholders out of the company's profits.
One of the key advantages of using a company structure for a business is limited liability for the owners of the business. A company is a separate legal person to its shareholders. This fact means that should a company's business fail, the amount of money that shareholders can lose is limited to the amount of money they've invested in it by buying shares, unless they've specifically guaranteed any of its debts or other financial obligations. The articles of a limited company such as SuperGroup must include a statement of limited liability.
SuperGroup's articles state: "The liability of the members [shareholders] is limited to the amount, if any, unpaid on the shares held by them."
A company's articles usually state that its shareholders retain the right to authorise or forbid the making of certain important decisions, such as changing the company's name. In addition, shareholders usually have a general "reserve right" to control the actions of the directors if they feel it's necessary for them to do so. However, note that the shareholders cannot compel directors to do anything against the law.
SuperGroup's articles state that the directors' powers are subject to "any directions" given by the shareholders. However, no shareholder action can "invalidate any prior act of the Board which would have been valid if...such direction had not been given".
While it's important that the shareholders, as the owners of the company, retain ultimate control of the company, it's also important that no-one should be able to gain ownership rights in a company fraudulently. For this reason, articles usually contain a provision stating that directors can refuse to register the transfer of a share if certain formalities have not been complied with.
SuperGroup's articles state that "the Board may, in its absolute discretion...refuse to register any transfer of a share" unless specific conditions have been met, including that the share has been paid for, transfer documentation has been delivered to the company's offices, and the transfer documentation includes the relevant share certificates.
ADMINISTRATION AND DECISION-MAKING
A company's articles contain provisions relating to how the company is run and how it makes decisions. These cover everything from calling and running meetings to what to do if share certificates are lost.
Most articles contain provisions relating to how board meetings operate, including how they can be called, how many directors need to be at the meeting to make it a valid board meeting (this number is known as a quorum), how a chair of the meeting is appointed, and how decisions will be made (usually by means of a simple majority with the chair having the casting vote). The articles of public companies usually also permit written board resolutions to be made. These are resolutions not considered and voted on by directors at a meeting, but circulated in writing and passed when the required number of directors have indicated their approval to them.
SuperGroup's articles include standard provisions and also specify that directors can participate in meetings electronically, a common inclusion for practical reasons. They state: "Any Director...may validly participate in a meeting of a Board or a committee of the Board by means of conference telephone or any other form of communications equipment, provided that all persons participating in the meeting are able to hear and speak to each other throughout such meeting, or by a series of telephone calls from the Chairman of the meeting or by exchange of communication in electronic form addressed to the Chairman of the meeting."
A general meeting of the company is a meeting of the shareholders. The most important of these is often a company's annual general meeting (AGM) where, in many cases, the board of directors is elected by the shareholders. A company's articles will contain provisions relating to how AGMs and other general meetings are run and how decisions are made.
Unlike private companies, public companies such as SuperGroup are required to hold an AGM every year. SuperGroup's articles state: "An annual general meeting shall be held at such time, date and place as the Board may determine."
A company secretary is a senior member of a company's management team who provides organisational advice and support to the board, and ensures that the company's decision-making processes comply with the law. Having a company secretary is not compulsory for all companies, but many businesses find them very useful.
Because of the complexities and scale of their operations, public companies such as SuperGroup are required to appoint a company secretary, and may sometimes even have more than one person fulfilling this role. SuperGroup's articles state: "The Board shall appoint a Secretary or Joint Secretaries and shall have power to appoint one or more persons to be an Assistant or Deputy Secretary."