The Directive 2017/828 of 17 May 2017: the enhancement of the Directive 2007/36 to encourage shareholder long-term engagement
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Introduction
The 11th July 2007, the Directive 2007/36 on the exercise of rights of shareholders in listed companies has been adopted. [i]
This Directive has been adopted as the result of a common expression of the Parliament and the Commission to strengthen the rights of the shareholders, through the extension of transparency, the voting rights attached to proxies, the participation to general meetings through electronic means and to ensure the effectiveness of cross-border voting.[ii]
Thus, the Directive aims to introduce provisions to protect investors, to promote the smooth and effective exercise of shareholder rights attached to voting shares as minimum standards for Member States.[iii]
The 17th May 2017, a directive amending the Directive of 2007 has been adopted in order to encourage shareholder long-term engagement, the Directive 2017/828.[iv]
The provisions of the Directive 2017/828 must enter in force with the implementation of the Directive by Member States by 10 June 2019.[v]
The Directive 2017/828 facilitates the exercise of SH’s rights[vi], strengthens the non-discrimination principle between shareholders[vii] and ensures transparency in the activities of the intermediaries[viii], proxy advisors[ix], institutional investors[x] and asset managers[xi].
Furthermore, the Directive 2017/828 strengthens the right of shareholders to decide directors’ remuneration.[xii]
The Directive 2017/828 also provides protection of personal data of both shareholders[xiii] and directors[xiv].
More generally and among its goals, the Directive 2017/828 intends to tackle issues such as excessive short-term risks took by managers and the related information of shareholders and the inadequate level of monitoring investee companies by institutional investors and asset managers.[xv]
Moreover, the Directive 2017/828 also tackles the issues of complex chains of intermediaries and of the inability for companies in many cases to identify their shareholders.[xvi]
Thus, the Directive 2017/828 aims to enhance the level of protection of shareholders, companies and investors in amending the current provisions and in adding new provisions to the Directive 2007/36.
The substance of the Directives
The provisions of the Directive 2007/36
The provisions of the Directive 2007/36 are focused on the rights of the shareholders regarding participation to the general meeting and voting procedures in listed companies.
Every relevant provisions of the Directive are subject to the principle of equal treatment between shareholders, in particular regarding the participation and the exercise of voting rights in the general meeting[xvii].
More particularly, the Directive establishes provisions concerning the convocation of the general meeting (i), the participation to the general meeting (ii), the voting procedures (iii) and the proxy regulation (iv).
(i) The convocation of the general meeting
The convocation of the general meeting must be issued no later than 21 days before the day of the meeting[xviii].
Member States may provide that, where a company allows shareholders to vote by electronic means, the general meeting can decide that the convocation to a general meeting, which is not an annual general meeting, must be issued no later than 14 days before the day of the meeting[xix].
In case of second or subsequent convocation issued for a lack of quorum, the convocation must be issued no later than 10 days before the day of the meeting if the first convocation has been issued no later than 21 days or 14 days and if no new item has been added[xx].
The convocation must be issued in a fast access and non-discriminatory manner which may not be restricted by a Member State to media established on the territory of the Member State[xxi].
The company cannot charge any specific costs if the convocation is issued according to the provisions of the Directive[xxii].
The convocation must indicate[xxiii]:
– the place, the date and the agenda proposed for the general meeting[xxiv];
– clearly and precisely the procedures to participate and to cast a vote in the general meeting[xxv], including the rights available for shareholders and deadlines to exercise these rights[xxvi], a form and the procedure for voting by proxy[xxvii] and the procedure if applicable for casting votes by correspondence or by electronic means[xxviii];
– the date from which shareholders must own the shares to be able to exercise the rights attached to these shares to participate and to vote in the general meeting[xxix];
– where the full documents and draft resolutions may be obtained[xxx];
– the address of the website on which relevant information is available[xxxi].
Besides, for at least 21 days before the general meeting, the company must make available for shareholders on its website the following information[xxxii]:
– the convocation[xxxiii];
– the total number of shares and voting rights at the date of the convocation[xxxiv];
– the documents to be submitted to the general meeting[xxxv];
– a draft resolution or in absence of resolution a comment from a competent body for each item of the agenda[xxxvi];
– forms used to vote by proxy and to vote by correspondence[xxxvii].
If documents cannot be made available on the website, the website must provide information regarding the way to obtain the documents on paper, free of charge.[xxxviii]
Moreover, the period is shortened each time the period of convocation is less than 21 days, for a number of days equal to the reduced number of days provided for the relevant period of convocation.[xxxix]
Shareholders must have the right to put an item on the agenda of the general meeting accompanied with a justification or with a draft resolution to be adopted in the general meeting.[xl]
Furthermore, shareholders must have the right to table draft resolutions for items included or to be included on the agenda of the general meeting.[xli]
Member States may restrict the right to put an item on the agenda of the annual general meeting, as long as shareholders may require the company to call a general meeting with an agenda including their items.[xlii]
Member States may provide that those rights are exercised in writing, either by postal services or electronic means.[xliii]
Member States may also limit the right to put an item or to submit a draft to shareholders holding a minimum stake in the company, which should not exceed 5 % of the share capital.[xliv]
The deadline to exercise the right to put items on the agenda or to table draft resolutions must be set by Member States.[xlv]
Member States must transmit any agenda modified with additional items sufficiently in advance of the record date, which is the date on which the company determines the number of shares held by shareholders, or sufficiently in advance to allow shareholders to cast their vote by correspondence or to appoint a proxy.[xlvi]
The rights of a shareholder to sell or to transfer his shares during the period between the record date and the general meeting cannot be subject to any restrictions different from restrictions applicable at other times.[xlvii]
The rights of a shareholder must be determined with respect to the shares held by the shareholder at the record date, which is a specified date prior to the general meeting[xlviii].
The record date may not be applicable to companies that are able to identify the names and addresses of their shareholders from a current register of shareholders on the day of the general meeting[xlix].
A single record date applies to all companies of a Member State.[l]
A record date may be set for companies that have issued bearer shares and another one for companies that have issued registered shares, as long as that there is a single record date for a company which have issued both types of shares.[li]
The record date cannot lie more than 30 days before the general meeting. [lii]
At least 8 days must elapse between the latest permissible date for the convocation of the general meeting and the record date (those two dates are not included in the calculation). [liii]
In case of second or subsequent convocation, at least 6 days must elapse between the latest permissible date for the second or subsequent convocation and the record date (those two dates are not included in the calculation). [liv]
(ii) The participation to the general meeting
The Directive provides that Member States must allow companies to offer participation to the general meeting by electronic means, in particular in the three following forms[lv]:
– real-time transmission of the general meeting[lvi];
– real-time two-way communication, allowing shareholders to address the general meeting from a remote location[lvii];
– a voting mechanism whether before or during the general meeting without the need to appoint a proxy[lviii].
The use of electronic means in such a way may be subject to constraints only to ensure in a proportionate way the identification of the shareholders and the security of the communication.[lix]
Every shareholder has the right to ask questions regarding items on the agenda of the general meeting and the company must answer the questions of the shareholder.[lx]
The right to ask questions and the obligation to answer them may only be restricted by Member States for the following purposes:
– the identification of shareholders;
– the good order of the general meeting;
– the protection of confidentiality;
– the protection of business interests of companies. [lxi]
Member States may provide that a question no longer requires an answer where the relevant information is available on the website of the company in the adequate format.[lxii]
The rights of shareholders to participate and to vote in a general meeting cannot be subject to the requirement of shares deposit or transfer of shares or share registration in the name of another legal or natural person.[lxiii]
(iii) The voting procedures
Member States must allow companies to offer the possibility to shareholders to vote by correspondence in advance of the general meeting.
Voting by correspondence should be subject to constraints only to ensure in a proportionate way the identification of shareholders.[lxiv]
If a shareholder acts in the course of a business on behalf of another natural or legal person, the client, the exercise of voting rights may only be subject to the requirement of disclosure to the company of a list composed of the identity of each client and the number of shares voted on his behalf.[lxv]
Further requirements imposed by law must not go beyond the necessity to identify the client and the possibility of verifying the content of voting instructions, in a proportionate way.[lxvi]
A shareholder must be allowed to cast distinct votes depending to which shares righting votes are attached when the shareholder acts on behalf of his clients.[lxvii]
If a regulation limits the number of proxy holders for one shareholder, this limitation cannot prevent a shareholder to grant a proxy to each of his clients.[lxviii]
A company must establish for each resolution:
– the number of shares for which votes have been validly cast;
– the proportion of capital represented by those votes;
– the total number of votes validly cast;
– the number of votes cast in favor of and against each resolution;
– the number of abstention if applicable.[lxix]
Member States may, if no shareholder requests a full account of the voting, provide that companies may establish the voting results only to the extent required to ensure the necessary majority is reached for each resolution.[lxx]
The results of the vote must be published on the website of the company no later than 15 days after the general meeting.[lxxi]
(iv) Proxy regulation
A shareholder has the right to appoint any other natural or legal person to attend and vote at a general meeting in his name as a proxy holder.
The proxy holder enjoys the same rights to speak and ask questions in the general meeting as would be entitled any other representative of the shareholder. [lxxii]
Legal capacity is the only requirement permitted to restrict the eligibility of persons to be appointed as proxy holders.[lxxiii]
The proxy holder appointment may be limited to a single meeting or to meetings held during a specific period.[lxxiv]
Member States may limit the number of persons whom a shareholder may appoint as proxy holder for one general meeting.
Such limitation does not prevent a shareholder, if the shareholder holds shares in more than one securities account, to appoint a separate proxy holder for each securities account for one general meeting. In this latest case, the rule prohibiting casting different votes in respect for shares held by one and the same shareholder is still applying.[lxxv]
Companies cannot restrict the exercise of the rights of a shareholder through proxy holders for any other purpose than to address potential conflicts of interest between the proxy holder and the shareholder. Restrictions can only consist in the following requirements:[lxxvi]
– disclosure of certain specified facts in order to assess any risk of pursuing interests other than the interests of the shareholder[lxxvii];
– exclusion of voting rights in absence of specific voting instructions for each resolution[lxxviii];
– exclusion of the transfer of the proxy to another person (members of administrative or management body and employees are not concerned by the exclusion)[lxxix];
A conflict of interest may arise in particular where the proxy holder:
– is a shareholder of the company[lxxx];
– is a member of the administrative, management or supervisory body of the company (or of a controlling shareholder or controlled entity)[lxxxi];
– is an employee or an auditor of the company (or of a controlling shareholder or of a controlled entity)[lxxxii];
– has a family relationship with a natural person referred to in this paragraph[lxxxiii].
The proxy holder must vote in accordance with the instruction issued by the shareholder.[lxxxiv]
Member States may require from proxy to keep records of voting instructions for a defined minimum period and to answer requests in order to confirm that the voting instructions have been carrying out.[lxxxv]
There is no limitation as to the number of shareholders represented by one proxy holder, that must be able to cast votes for a certain shareholder differently from votes cast for another shareholder.[lxxxvi]
Member States must allow the appointment of a proxy holder by electronic means and allow the notification of this appointment by electronic means.[lxxxvii]
The appointment and the notification can only be made in writing. [lxxxviii]
Any other formal requirement must be imposed in a proportionate way by Member States only to ensure the identification of the shareholder and of the proxy holder and to ensure the possibility of verifying the content of voting instructions.[lxxxix]
These provisions are applicable for the revocation mutatis mutandis.[xc]
The provisions of the Directive 2007/36 remain in force. However, the Directive 2017/828 establishes significant additional provisions and enlarges the scope of application of the regulation to encourage the long-term shareholder engagement.
The provisions of the Directive 2017/828
The Directive 2017/828 establishes, as provided in the article 1 of the Directive 2017/36 as amended by the Directive 2017/828, specific requirements in order to encourage shareholder engagement, in particular in the long term.[xci]
The Directive provides in particular provisions regarding the identification of shareholders (i), the transmission of information from the company to shareholders and from shareholders to the company (ii), the facilitation of the exercise of the rights of the shareholders to vote and to participate in general meetings (iii), the non-discrimination duty of intermediaries (iv), the engagement policy and transparency of institutional investors and asset managers (v), transparency duties of proxy advisors (vi), the remuneration report (vii), the approval of related party transactions (viii).
(i) The identification of shareholders
Companies have the right to identify their shareholders. Member States may provide that the identification of shareholders may be requested only for shareholders holding more than a certain percentage of shares or voting rights, which may not be lower than 0.5 % of shares or voting rights.[xcii]
The intermediaries have to communicate without delay to the company the information regarding shareholder identity.[xciii]
In a chain of intermediaries, the request of information must be transmitted between intermediaries without delay. The intermediary that has the information regarding the shareholder identity must transmit the relevant information to the company.[xciv]
The intermediary must also transmit without delay the identity of the next intermediary in the chain of intermediaries to the company at its request.[xcv]
Member States may allow companies to collect information through central securities depository.[xcvi]
The personal data of shareholders transmitted to the company or to intermediaries must not be stored for a period longer than 12 months after the company or intermediaries have become aware that the person concerned has ceased to be a shareholder[xcvii]. Legal persons have a right of rectification of incomplete or inaccurate information regarding their shareholder identity[xcviii].
This provision is without prejudice to any longer storage period provided by any sector-specific regulation of the European Union[xcix].
(ii) The transmission of information from the company to shareholders and from shareholders to the company regarding the exercise of the rights of the shareholders
The intermediaries are required to transmit, from the company to the shareholder, the following information[c]:
– the information required from the company to enable the shareholder to exercise its rights and which is directed to all shareholders in shares of that class[ci];
– if this information is available on the website of the company, a notice indicating where the information may be found on the website of the company[cii].
Companies must provide intermediaries with the same information, in a standardized and timely manner.[ciii]
Companies are however not required to provide the information to intermediaries where companies send that information directly to all their shareholders[civ].
Intermediaries must transmit to the company information received from shareholders related to the exercise of the rights attached to their shares, without delay and according to their instructions.[cv]
In a chain of intermediaries, the information must be transmitted between intermediaries without delay unless the information can be directly transmitted to the company or to the shareholder.[cvi]
(iii) The facilitation of the exercise of the rights of shareholders to vote and to participate in general meetings
Member States must ensure that intermediaries facilitate the exercise of the rights of shareholders including the right to participate and the right to vote in general meetings, which include at least one of the following[cvii]:
– the intermediary makes the necessary arrangements for the shareholder to allow him to exercise himself his rights[cviii];
– the intermediary exercises the rights on the behalf of the shareholder, upon the explicit authorization and instruction of the shareholder and for the shareholder’s benefit[cix].
In case of a vote casted electronically, an electronic confirmation of receipt of the vote must be sent to the person that have casted the vote.[cx]
Shareholders must be able to get a confirmation that their votes have been validly recorded and counted by the company, on their request, unless that information is already available to them.
A deadline to request such a confirmation may be established, and cannot be longer than 3 months from the date of the vote.[cxi]
If the intermediary receives the confirmation, he must transmit the confirmation to the relevant shareholder without delay. In case of a chain of intermediaries, the confirmation must be transmitted between intermediaries without delay unless the confirmation can be transmitted directly to the relevant shareholder.[cxii]
(iv) The non-discrimination duty of intermediaries
The intermediaries must disclose publicly any applicable charges for services provided for under the provisions of the Directive 2017/828, separately for each service.[cxiii]
The costs must be non-discriminatory and proportionate.
Any differences of charges between domestic and cross-border exercise of rights must be permitted only where duly justified.[cxiv]
This duty of non-discrimination and proportionality is also applicable to intermediaries which have neither their registered office nor their head office in the Union.[cxv]
(v) The engagement policy and transparency of institutional investors and asset managers
The Directive imposes specific rules upon institutional investors and asset managers.
The Directive defines the institutional investor either as an undertaking carrying out activities of life assurance and of reinsurance according to the definition provided by the Directive 2009/138 or as an institution for occupation retirement provision failing within the scope of Directive 2016/2341.[cxvi]
The Directive defines the asset manager as an investment firm that provides portfolio management services to investors as defined by the Directive 2014/65, an AIFM as defined by the Directive 2011/61 that does not benefit from an exemption according to the same Directive or an investment company authorized in accordance with Directive 2009/65.[cxvii]
Institutional investors and asset managers must establish and publicly disclose an engagement policy that describes how they integrate shareholder engagement in their investment strategy.
The engagement policy must describe how they:
– monitor investee companies on relevant matters including strategy, financial and non-financial performance and risk, capital structure, social and environmental impact and corporate governance;
– conduct dialogues with investee companies;
– exercise voting rights and other rights attached to shares;
– cooperate with other shareholders;
– communicate with relevant stakeholders of the investee companies;
– manage actual and potential conflicts of interest in relation to their engagement.[cxviii]
Institutional investors and asset managers must publicly disclose on an annual basis how their engagement policy has been implemented including:
– a general description of voting behavior;
– an explanation of the most significant votes;
– an explanation of the potential use of the services of proxy advisors;
– an explanation of their votes in general meetings of companies in which they hold shares.
Such disclosure may exclude votes that are insignificant due to the subject matter of the vote or the number of shares held in the company.[cxix]
The information must be published free of charge on the website of the company. Member States may allow companies to publish the information by other means easily accessible online and free of charge.[cxx]
Rules regarding conflicts of interest applicable to institutional investors and asset managers established by the Directives 2011/61, 2009/65 and Directive 2014/65 are applicable to the activities of engagement.[cxxi]
Institutional investors must publicly disclose how the main elements of their equity investment strategy are consistent with the profile and duration of their liabilities, in particular long-term liabilities, and how they contribute to the medium to long-term performance of their assets.[cxxii]
Where an asset manager invests on behalf of an institutional investor, the institutional investor must publicly disclose the following information regarding its arrangement with the asset manager[cxxiii]:
– how the arrangement with the asset manager incentivizes the asset manager to align its investment strategy with the strategy of the institutional investor[cxxiv];
– how the arrangement incentivizes to make investment decisions based on medium and long-term performance of investee companies and to improve their performance in the medium to long-term[cxxv];
– how the method and time horizon of the evaluation of the asset managers’ performance and remuneration are in line with the strategy of the institutional investor and take long-term performance into account[cxxvi];
– how the institutional investor defines a targeted portfolio turnover and monitors portfolio turnover costs incurred by the asset manager[cxxvii];
– the duration of the arrangement with the asset manager[cxxviii].
The institutional investor must give a clear and reasoned explanation why one or more information is not contained in the public disclosure if it is the case.[cxxix]
The information must be available, free of charge, on the website of the institutional investor and must be updated on an annual basis. Member States may allow the delivery of the information through other means that are easily accessible online and free of charge.[cxxx]
Asset managers must disclose, on an annual basis, to the institutional investor, their investment strategy and its implementation including reporting on:
– the key material medium to long-term risks associated with the investments;
– portfolio composition, turnover and turnover costs;
– the use of proxy advisors and policy on securities lending for the purpose of the engagement activities. [cxxxi]
Such disclosure must also include information about investment decisions based on the evaluation of medium to long-term performance of the investee company and information about conflicts of interest that may have arisen in connection with the engagements activities.[cxxxii]
If the information is already publicly available, the asset manager does not need to provide the information to the institutional investor directly.[cxxxiii]
Where a single asset manager manages assets for several investors belonging to the same fund, the asset manager must disclose the information to all investors, at least upon request.
(vi) Transparency duties of proxy advisors
The Directive defines the proxy advisor as a legal person that analyses on a professional and commercial basis, the corporate disclosure and other information of listed companies with a view to inform investors regarding their voting decisions by providing research, advice or voting recommendations in relation with the exercise of voting rights.[cxxxiv]
Proxy advisors must publicly disclose reference to a code of conduct. [cxxxv] The information must be publicly available on the website of proxy advisors, be free of charge, and be updated on an annual basis.[cxxxvi]
In case of non-application of the code of conduct, proxy advisors must provide a clear and reasoned explanation why they have departed from the code of conduct.[cxxxvii]
Proxy advisors must publicly disclose on an annual basis the following information[cxxxviii]:
– essential features of the methodologies and models applied[cxxxix];
– main information sources used[cxl];
– procedures put in place to ensure the quality of the research, advice and voting recommendations and of the qualifications of the staff involved[cxli];
– how they take in account national market, legal, regulatory and company-specific conditions[cxlii];
– essential features of the voting policies[cxliii];
– potential dialogues with companies which are the object of the research, advice and voting recommendations and their stakeholders[cxliv];
– the policy of prevention and management of potential conflicts of interest put in place by the proxy advisor[cxlv].
The information must be kept available free of charge on the website of the proxy advisor at least 3 years from the date of publication.[cxlvi]
Proxy advisors have to identify and to disclose to their clients without delay any actual or potential conflicts of interest that may influence their activities for their clients.[cxlvii]
(vii) The remuneration report
Companies must establish a remuneration policy as regards directors. Shareholders have the right to vote on the remuneration policy of directors at the general meeting.[cxlviii]
The vote on the remuneration policy at the general meeting is binding for the company and the company must pay the remuneration to its directors in accordance with the remuneration policy.[cxlix]
If no remuneration policy has been adopted and if the general meeting does not approve the new policy proposed, a revised policy must be submitted for approval at the following general meeting. The remuneration of directors is paid according to the existing practices.[cl]
If a remuneration policy has been adopted but the general meeting does not approve the proposed new policy, a revised policy must be submitted for approval at the following general meeting. The remuneration of directors is paid according the existing approved policy.[cli]
Member States may provide that the vote at the general meeting on the remuneration policy is advisory. In that case, the company may only pay remuneration to directors in accordance with a remuneration policy that has been submitted to a vote at the general meeting. In case of rejection of the proposed remuneration policy, the company must submit a revised policy to the vote of shareholders at the next general meeting.[clii]
Member States may allow companies to depart from the remuneration policy but only in the following limited situations:
– the necessity to serve the long-term interests and sustainability of the company;
– the necessity to assure the viability of the company. [cliii]
A remuneration policy must be submitted to a vote by the general meeting at every material change and at least every four years.[cliv]
The remuneration policy must contribute to the business strategy, long-term interests and sustainability of the company.
The remuneration policy must clearly and understandably describe the different components of fixed and variable remuneration, including bonuses and other benefits for directors.[clv]
The remuneration policy must expose how the pay and employment conditions of other employees have been taken in account.[clvi]
If a variable remuneration is awarded, the company must state the criteria for the award of the remuneration, including financial and non-financial performance and corporate social responsibility criteria.[clvii]
If a shared-based remuneration is awarded, the remuneration policy must specify vesting periods and if applicable retention of shares after vesting.[clviii]
Furthermore, the remuneration policy must state the duration of contracts and arrangements with directors, the notice periods applicable, the characteristics of supplementary pension or early retirement schemes and the terms of termination and payments linked to termination.[clix]
Finally, the remuneration policy must explain the decision-making process followed for the determination of the remuneration policy, including process to avoid conflicts of interests and the role of the remuneration committee.
In case of revision of the policy, the revised policy must explain all significant changes and how votes, views of shareholders and reports have been taken in account.[clx]
The policy approved by the general meeting is made public with the date and the result of the vote without delay on the website of the company and must remain available free of charge at least as long as it is applicable.[clxi]
Companies must establish a clear and understandable remuneration report including all benefits of any kind awarded or due during the most recent financial year to individual directors.[clxii]
The remuneration report must contain the following information:
– the total remuneration and its fixed and variable parts and explanation on the contribution of the remuneration on the long-term performance of the company[clxiii];
– the annual change of remuneration and of the performance of the company and the annual change of average remuneration of other employees of the company during the last financial years[clxiv];
– any remuneration from an undertaking belonging to the same group[clxv];
– the number of shares and share options granted or offered, and the conditions for the exercise of the rights related to these shares[clxvi];
– information on the use of the possibility to reclaim variable remuneration[clxvii];
– information on potential deviations or derogations with an explanation of the exceptional circumstances justifying their application[clxviii].
Companies must exclude from the report special categories of personal data concerning directors, including the family situation of individual directors.[clxix]
Companies must make no longer available personal data included in the remuneration report after 10 years from the publication of the remuneration report.[clxx]
The general meeting must have the right to hold an advisory vote on the remuneration report.[clxxi]
For small and medium-sized companies (SME) as defined in the Directive 2013/34, Member States may provide, as an alternative to a vote, a discussion on the remuneration report in the annual general meeting.[clxxii]
Companies must make the remuneration report available 10 years on their website and may keep it available longer.[clxxiii]
The directors have collective responsibility for the publication of the remuneration report in accordance with the requirements of the Directive.[clxxiv]
(viii) The approval of related party transactions
The related party transactions are subject to some provisions of the Directive.
The Directive defines related party with the same meaning as in the international accounting standards adopted in accord with Regulation 1606/2002.[clxxv]
Member States must define material transactions to qualify a related party transaction in taking in account the following elements[clxxvi]:
– the influence of the information about the transaction on the economic decisions of shareholders of the company[clxxvii];
– the risk created by the transaction for the company and its shareholders[clxxviii].
When defining material transactions, Member States must set one or more quantitative ratios based on the impact of the transaction on:
– the financial position of the company;
– revenues of the company;
– assets of the company;
– the capitalization including equity or,
– the turnover of the company or,
– the nature of transaction and the position of the related party.[clxxix]
Member States may adopt different materiality definitions, in particular according to the company size.[clxxx]
Companies must publicly announce material transactions with related party at latest at the time of the conclusion of the transaction accompanied with at least the following information:
– the nature of the related party relationship;
– the name of the related party;
– the date of the transaction;
– the value of the transaction;
– other information in order to ensure that the transaction is fair and reasonable for the company and other shareholders.[clxxxi]
Member States may provide that a report must accompany the public announcement. In this case, the report must be produced by an independent third party, the administrative or the supervisory body of the company or the audit committee without the participation of the related parties.[clxxxii]
Material transactions must be approved by the general meeting or by the administrative or supervisory body of the company.[clxxxiii]
Member States may provide the right for shareholders to vote on material transactions with related parties which have been approved by the appropriate body of the company.[clxxxiv]
The provisions are not in principle applicable to transactions entered into the ordinary course of business and concluded on normal market terms[clxxxv].
However, Member States may require from companies to apply requirements of the Directive to such transactions[clxxxvi].
Member States may exclude from the requirements of the Directive the following transactions[clxxxvii]:
– transactions entered into between the company and its wholly owned subsidiaries or subsidiaries in which no other related party has an interest or for which national laws provide adequate protection of the interests of the company[clxxxviii];
– transactions clearly defined which are required by law to be approved by the general meeting[clxxxix];
– transactions regarding the remuneration of directors[cxc];
– transactions entered into by credit institutions and adopted by the competent authority in charge of the prudential supervision[cxci];
– transactions offered to all shareholders on the same terms with an equal treatment[cxcii].
Companies must publicly announce material transactions concluded between the related party of the company and that company’s subsidiary.[cxciii]
The transactions with the same related parties, that have been concluded in the last 12 months or in the same financial year must be aggregated for the purpose of the requirements provided by the Directive.[cxciv]
The implementation of the Directive 2017/828
The Commission empowerment and reports
The Directive 2017/828 grants the Commission with implementing powers and requires from the Commission to publish reports on the implementation of provisions of the Directive.
Thus, the Directive establishes general implementing powers conferred upon the Commission (i), implementing powers conferred for the identification of shareholders (ii) implementing powers conferred for the transmission of information (iii), implementing powers to facilitate the exercise of the rights of shareholders (iv) and the Directive imposes on the Commission a duty of publication of a report on the implementation of provisions regarding shareholder rights (v) and of a publication of a report on the implementation of provisions related to transparency (vi).
(i) General implementing powers conferred upon the Commission
The Directive 2017/828 grants the Commission with general implementing powers in order to ensure a harmonized implementation under uniform conditions of the provisions on shareholder identification, transmission of information and facilitation of the exercise of the rights of shareholders.[cxcv]
The implementing acts of the Commission must specify minimum standardization requirements such as formats to be used and deadlines.[cxcvi]
The Commission must take in account the relevant market developments, including self-regulatory initiatives, and must encourage the use of modern technologies of communication between companies and their shareholders including through intermediaries.[cxcvii]
The Commission must also adopt guidelines to specify the standardized presentation of the remuneration report, that must be established after consultation of the Member States.[cxcviii]
(ii) Implementing powers conferred for the identification of shareholders
The Commission must be empowered to adopt specific implementing acts regarding the identification of shareholders. Such acts must state minimum requirements such as the format of information to be transmitted, the format of the request, including security and interoperability requirements and the deadlines for the transmission of the information for the identification of shareholders.[cxcix]
The implementing acts must be adopted by 10 September 2018.[cc]
(iii) Implementing powers conferred for the transmission of information
The Commission must be empowered to adopt implementing acts regarding the transmission of information related to the exercise of rights flowing from their shares from the company to shareholders and from shareholders to the company.[cci]
The Commission must specify the minimum requirements for the transmission of the relevant information, especially the types and format of information, including security and interoperability requirements and the deadlines to transmit the information.[ccii]
The implementing acts must be adopted by 10 September 2018.[cciii]
(iv) Implementing powers to facilitate the exercise of the rights of shareholders
The Commission must be empowered in order to adopt implementing acts regarding the facilitation of the exercise of the rights of shareholders as provided within the Directive.[cciv]
The implementing acts must specify minimum requirements such as the types of facilitation, the format of the electronic confirmation of receipt of the votes, the format for the transmission of the confirmation that the votes have been validly recorded and counted through the chain of intermediaries, including their security and interoperability and finally the deadlines.[ccv]
The implementing acts must be adopted by 10 September 2018.[ccvi]
(v) Publication of a report regarding shareholder rights
Member States must inform the Commission in case of difficulty to enforce provisions related to identification of shareholders, transmission of information and facilitation of the exercise of shareholder rights.[ccvii]
The Commission must establish a report on the implementation of these provisions including their effectiveness, difficulties in practical application and enforcement in taking in account the application of the provisions to third-country intermediaries.[ccviii]
The report must be published by 10 June 2023.[ccix]
(vi) Publication of a report regarding transparency provisions
The Commission must publish a report on the implementation of provisions related to the engagement policy and to the transparency rules applicable to institutional investors and asset managers.[ccx]
The report must be published by 10 June 2022.[ccxi]
The Commission must publish a report on the implementation of provisions related to the requirements for proxy advisors.[ccxii]
The report must be published by 10 June 2023.[ccxiii]
Implementation process
Member States must implement and bring into force the provisions of the Directive 2017/828 by 10 June 2019.[ccxiv]
Member States must lay down the rules on measures and penalties applicable to infringements of national provisions that these Member States have taken to implement the provisions of the Directive.
The measures and penalties must be effective, proportionate and dissuasive.[ccxv]
Member States must provide the European Securities and Market Authority (ESMA) with the information on whether they have limited shareholder identification to shareholders holding more than a certain percentage of the shares or voting rights, which may not exceed 0.5 %.[ccxvi]
The information must be provided by 10 June 2019.[ccxvii]
The information is then published on the website of the ESMA.[ccxviii]
At the date of this paper, no implementation regulation has been either adopted or entered in force by Member States.
Conclusion
The Directive 2017/828 is the latest directive adopted in the field of corporate law at the European Union level.
The Commission is however holding consultations in this area through the “informal expert group on company law” (ICLEG) which hold meetings on a regular basis.
The “informal expert group on company law” has drawn possible future areas of regulation regarding corporate law during its latest meetings.
One element of discussion of the group is the digitalization of company which includes the scope and rules and conditions regarding online registration of companies.[ccxix]
Other aspects of registration of branches, in particular for branches of third-country companies, such as language requirements, costs of documents, true copies, publication, disclosure of documents and cross-border search of disclosed information are also discussed by the group[ccxx].
Another important topic of discussion at meetings is cross-border mergers, which includes the scope and the content of draft terms of cross-border mergers.[ccxxi]
The group has in particular discussed the potential enlargement of the scope of the existing directive on cross-border mergers, the economic rationale and possible regulatory framework of the share exchange[ccxxii].
The “informal expert group on company law” has also discussed issues related to the protection of minority shareholders and creditors’ protection in general, and the issue of protection of creditors’ and minority shareholders’ in the context of conversions.[ccxxiii]
Besides, the Commission has conducted a public consultation regarding several issues of corporate law. The consultation aims to prepare a legislative regulation by the end of 2017.[ccxxiv]
Legal issues of cross-border mergers, costs of mergers and the protection of shareholders are issues very discussed in the field of corporate law[ccxxv]. Therefore, it is reasonable to think that further regulation intended to harmonize new areas of corporate law will be proposed for inclusion in the European Union law in the future.
[i] Directive 2007/36/EC of the European Parliament and of the Council of 11 July 2007 on the exercise of certain rights of shareholders in listed companies, OJEU 14 July 2007, L.184/17
[ii] Ibid., (2)
[iii] Ibid. 1, (4)
[iv] Directive 2017/828/EU of the European Parliament and of the Council of 17 May 2017 amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement, OJEU 20 May 2017, L.132/1
[v] Ibid., Article 14b, subpara. 2
[vi] Ibid. 4, (11)
[vii] Ibid.
[viii] Ibid. 4, (8)
[ix] Ibid. 4, (26)
[x] Ibid. 4, (17)
[xi] Ibid. 4, (20)
[xii] Ibid. 4, (29)
[xiii] Ibid. 4, (7)
[xiv] Ibid. 4, (37)
[xv] Ibid. 4, (2)
[xvi] Ibid. 4, (4)
[xvii] Ibid. 1, Article 4
[xviii] Ibid. 1, Article 5, para. 1., subpara.1
[xix] Ibid. 1, Article 5, para. 1., subpara. 2
[xx] Ibid. 1, Article 5, para. 1., subpara. 3
[xxi] Ibid. 1, Article 5, para. 2., subpara. 1
[xxii] Ibid. 1, Article 5, para. 2., subpara. 3
[xxiii] Ibid. 1, Article 5, para. 3.
[xxiv] Ibid., (a)
[xxv] Ibid. 22, (b)
[xxvi] Ibid., (i)
[xxvii] Ibid. 24, (ii)
[xxviii] Ibid. 24, (iii)
[xxix] Ibid. 22, (c)
[xxx] Ibid. 22, (d)
[xxxi] Ibid. 22, (e)
[xxxii] Ibid. 1, Article 5, para. 4.
[xxxiii] Ibid., (a)
[xxxiv] Ibid. 32, (b)
[xxxv] Ibid. 32, (c)
[xxxvi] Ibid. 32, (d)
[xxxvii] Ibid. 32, (e)
[xxxviii] Ibid. 32, subpara. 6
[xxxix] Ibid. 32, subpara. 7
[xl] Ibid. 1, Article 6 para. 1., (a)
[xli] Ibid. 1, Article 6, para. 1., (b)
[xlii] Ibid. 1, Article 6, para. 1., subpara. 4
[xliii] Ibid. 1, Article 6, para. 1., subpara. 5
[xliv] Ibid. 1, Article 6, para. 2.
[xlv] Ibid. 1, Article 6, para. 3.
[xlvi] Ibid. 1, Article 6, para. 4.
[xlvii] Ibid. 1, Article 7, para. 1., (b)
[xlviii] Ibid. 1, Article 7, para. 2.
[xlix] Ibid., subpara. 2
[l] Ibid. 1, Article 7, para. 3.
[li] Ibid.
[lii] Ibid.
[liii] Ibid.
[liv] Ibid.
[lv] Ibid. 1, Article 8, para. 1.
[lvi] Ibid., (a)
[lvii] Ibid. 55, (b)
[lviii] Ibid. 55, (c)
[lix] Ibid. 1, Article 8, para. 2.
[lx] Ibid. 1, Article 9, para. 1.
[lxi] Ibid. 1, Article 9, para. 2.
[lxii] Ibid., subpara. 2
[lxiii] Ibid. 1, Article 7, para. 1., (a)
[lxiv] Ibid. 1, Article 12
[lxv] Ibid. 1, Article 13, para. 1. & 2.
[lxvi] Ibid. 1, Article 13, para. 3.
[lxvii] Ibid. 1, Article 13, para. 4.
[lxviii] Ibid. 1, Article 13, para. 5.
[lxix] Ibid. 1, Article 14, para. 1.
[lxx] Ibid., subpara. 2
[lxxi] Ibid. 1, Article 14, para. 2.
[lxxii] Ibid. 1, Article 10, para. 1.
[lxxiii] Ibid., subpara. 2
[lxxiv] Ibid. 1, Article 10, para. 2.
[lxxv] Ibid., subpara. 2
[lxxvi] Ibid. 1, Article 10, para. 3.
[lxxvii] Ibid., (a)
[lxxviii] Ibid. 76, (b)
[lxxix] Ibid. 76, (c)
[lxxx] Ibid. 76, subpara. 5, (i)
[lxxxi] Ibid. 76, subpara. 5, (ii)
[lxxxii] Ibid. 76, subpara. 5, (iii)
[lxxxiii] Ibid. 76, subpara. 5, (iv)
[lxxxiv] Ibid. 1, Article 10, para. 4.
[lxxxv] Ibid., subpara. 2
[lxxxvi] Ibid. 1, Article 10, para. 5.
[lxxxvii] Ibid. 1, Article 11, para. 1.
[lxxxviii] Ibid. 1, Article 11, para. 2.
[lxxxix] Ibid.
[xc] Ibid. 1, Article 11, para. 3.
[xci] Ibid. 4, Article 1, (1), (a), para. 1.
[xcii] Ibid. 4, Article 1, (3), Article 3a, para. 1.
[xciii] Ibid. 4, Article 1, (3), Article 3a, para. 2.
[xciv] Ibid. 4, Article 1, (3), Article 3a, para. 3.
[xcv] Ibid., subpara. 3
[xcvi] Ibid. 4, Article 1, (3), Article 3a, para. 3., subpara. 2
[xcvii] Ibid. 4, Article 1, (3), Article 3a, para. 4., subpara. 2
[xcviii] Ibid. 4, Article 1, (3), Article 3a, para. 5.
[xcix] Ibid. 4, Article 1, (3), Article 3a, para. 4.
[c] Ibid. 4, Article 1, (3), Article 3b, para. 1.
[ci] Ibid., (a)
[cii] Ibid. 100, (b)
[ciii] Ibid. 4, Article 1, (3), Article 3b, para. 2.
[civ] Ibid. 4, Article 1, (3), Article 3b, para. 3.
[cv] Ibid. 4, Article 1, (3), Article 3b, para. 4.
[cvi] Ibid. 4, Article 1, (3), Article 3b, para. 5.
[cvii] Ibid. 4, Article 1, (3), Article 3c, para. 1.
[cviii] Ibid., (a)
[cix] Ibid. 107, (b)
[cx] Ibid. 4, Article 1, (3), Article 3c, para. 2.
[cxi] Ibid., subpara. 2
[cxii] Ibid. 110, subpara. 3
[cxiii] Ibid. 4, Article 1, (3), Article 3d, para. 1.
[cxiv] Ibid. 4, Article 1, (3), Article 3d, para. 2.
[cxv] Ibid. 4, Article 1, (3), Article 3e
[cxvi] Ibid. 4, Article 1, (2), (b), (e)
[cxvii] Ibid. 4, Article 1, (2), (b), (f)
[cxviii] Ibid. 4, Article 1, (3), Article 3g, para. 1., (a)
[cxix] Ibid. 4, Article 1, (3), Article 3g, para. 1., (b)
[cxx] Ibid. 4, Article 1, (3), Article 3g, para. 2.
[cxxi] Ibid. 4, Article 1, (3), Article 3g, para. 3.
[cxxii] Ibid. 4, Article 1, (3), Article 3h, para. 1.
[cxxiii] Ibid. 4, Article 1, (3), Article 3h, para. 2.
[cxxiv] Ibid., (a)
[cxxv] Ibid. 123, (b)
[cxxvi] Ibid. 123, (c)
[cxxvii] Ibid. 123, (d)
[cxxviii] Ibid. 123, (e)
[cxxix] Ibid. 123, subpara. 7
[cxxx] Ibid. 4, Article 1, (3), Article 3h, para. 3.
[cxxxi] Ibid. 4, Article 1, (3), Article 3i, para. 1.
[cxxxii] Ibid.
[cxxxiii] Ibid. 4, Article 1, (3), Article 3i, para. 2., subpara. 2
[cxxxiv] Ibid. 4, Article 1, (2), (b), (g)
[cxxxv] Ibid. 4, Article 1, (3), Article 3j, para. 1.
[cxxxvi] Ibid. 4, Article 1, (3), Article 3j, para. 1., subpara. 3
[cxxxvii] Ibid. 4, Article 1, (3), Article 3j, para. 1., subpara. 2
[cxxxviii] Ibid. 4, Article 1, (3), Article 3j, para. 2.
[cxxxix] Ibid., (a)
[cxl] Ibid. 138, (b)
[cxli] Ibid. 138, (c)
[cxlii] Ibid. 138, (d)
[cxliii] Ibid. 138, (e)
[cxliv] Ibid. 138, (f)
[cxlv] Ibid. 138, (g)
[cxlvi] Ibid. 138, subpara. 9
[cxlvii] Ibid. 4, Article 1, (3), Article 3j, para. 3.
[cxlviii] Ibid. 4, Article 1, (4), Article 9a, para. 1.
[cxlix] Ibid. 4, Article 1, (4), Article 9a, para. 2.
[cl] Ibid. 4, Article 1, (4), Article 9a, para. 2., subpara. 2
[cli] Ibid. 4, Article 1, (4), Article 9a, para. 2., subpara. 3
[clii] Ibid. 4, Article 1, (4), Article 9a, para. 3.
[cliii] Ibid. 4, Article 1, (4), Article 9a, para. 4.
[cliv] Ibid. 4, Article 1, (4), Article 9a, para. 5.
[clv] Ibid. 4, Article 1, (4), Article 9a, para. 6.
[clvi] Ibid., subpara. 2
[clvii] Ibid. 155, subpara. 3
[clviii] Ibid. 155, subpara. 4
[clix] Ibid. 155, subpara. 5
[clx] Ibid. 155, subpara. 6
[clxi] Ibid. 4, Article 1, (4), Article 9a, para. 7.
[clxii] Ibid. 4, Article 1, (4), Article 9b, para. 1.
[clxiii] Ibid., (a)
[clxiv] Ibid. 162, (b)
[clxv] Ibid. 162, (c)
[clxvi] Ibid. 162, (d)
[clxvii] Ibid. 162, (e)
[clxviii] Ibid. 162, (f)
[clxix] Ibid. 4, Article 1, (4), Article 9b, para. 2.
[clxx] Ibid. 4, Article 1, (4), Article 9b, para. 3., subpara. 2
[clxxi] Ibid. 4, Article 1, (4), Article 9b, para. 4.
[clxxii] Ibid., subpara. 2
[clxxiii] Ibid. 4, Article 1, (4), Article 9b, para. 5.
[clxxiv] Ibid., subpara. 2
[clxxv] Ibid. 4, Article 1, (2), (b) (h)
[clxxvi] Ibid. 4, Article 1, (4), Article 9c, para. 1.
[clxxvii] Ibid., (a)
[clxxviii] Ibid. 176, (b)
[clxxix] Ibid. 176, subpara. 4
[clxxx] Ibid. 176, subpara. 5
[clxxxi] Ibid. 4, Article 1, (4), Article 9c, para. 2.
[clxxxii] Ibid. 4, Article 1, (4), Article 9c, para. 3.
[clxxxiii] Ibid. 4, Article 1, (4), Article 9c, para. 4.
[clxxxiv] Ibid., subpara. 2
[clxxxv] Ibid. 4, Article 1, (4), Article 9c, para. 5.
[clxxxvi] Ibid., subpara. 2
[clxxxvii] Ibid. 4, Article 1, (4), Article 9c, para. 6.
[clxxxviii] Ibid., (a)
[clxxxix] Ibid. 187, (b)
[cxc] Ibid. 187, (c)
[cxci] Ibid. 187, (d)
[cxcii] Ibid. 187, (e)
[cxciii] Ibid. 4, Article 1, (4), Article 9c, para. 7.
[cxciv] Ibid. 4, Article 1, (4), Article 9c, para. 8.
[cxcv] Ibid. 4, (46)
[cxcvi] Ibid. 4, (47)
[cxcvii] Ibid. 4, (48)
[cxcviii] Ibid. 4, (49)
[cxcix] Above, The provisions of the Directive 2017/828, (i) The identification of shareholders; Directive 2017/828/EU of the European Parliament and of the Council of 17 May 2017 amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement, Article 1, (3), Article 3a, para. 8.
[cc] Ibid.
[cci] Above, The provisions of the Directive 2017/828, (vi) Transparency duties of proxy advisors; Directive 2017/828/EU of the European Parliament and of the Council of 17 May 2017 amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement, Article 1, (3), Article 3b, para. 1. to 5. and para. 6.
[ccii] Directive 2017/828/EU of the European Parliament and of the Council of 17 May 2017 amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement, Article 1, (3), Article 3b, para. 6.
[cciii] Ibid.
[cciv] Above, The provisions of the Directive 2017/828, (iii) The facilitation of the exercise of the rights of the shareholders in voting and participating to the general meeting; Directive 2017/828/EU of the European Parliament and of the Council of 17 May 2017 amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement, Article 1, (3), Article 3c, para. 1. and 2. and para. 3.
[ccv] Directive 2017/828/EU of the European Parliament and of the Council of 17 May 2017 amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement, Article 1, (3), Article 3c, para. 3.
[ccvi] Ibid.
[ccvii] Ibid. 4, Article 1, (3), Article 3f, para. 1.
[ccviii] Ibid. 4, Article 1, (3), Article 3f, para. 2.
[ccix] Ibid.
[ccx] Ibid. 4, Article 1, (3), Article 3k, para. 1.
[ccxi] Ibid.
[ccxii] Ibid. 4, Article 1, (3), Article 3k, para. 2.
[ccxiii] Ibid.
[ccxiv] Ibid. 4, Article 1, (5), Article 14b
[ccxv] Ibid., para. 2.
[ccxvi] Ibid. 4, Article 1, (4) Article 3a, para. 7.
[ccxvii] Ibid.
[ccxviii] Ibid 216.
[ccxix] Commission, “Informal expert group on company law ” (ICLEG), Minutes, Brussels, 30 March 2017
[ccxx] Ibid.
[ccxxi] Commission, “Informal expert group on company law ” (ICLEG), Minutes, Brussels, 23 February 2017
[ccxxii] Ibid.
[ccxxiii] Ibid.
[ccxxiv] Commission, “EU Company law upgraded: Rules on digital solutions and efficient cross-border operations”, 10 May 2017
[ccxxv] Commission, Summary, Conference « Company Law in the Digital Age », 2 October 2015
