The Draft Bill for the partial transposition of Directive 2017/828 of 17 May 2017 amending Directive 2007/36/EC with regard to the promotion of the long-term involvement of shareholders

Written on 21 Jun 2019

On 25 May 2019, the Ministry of Economy and Business published on its website the Draft Bill (the "Draft Bill") for the partial transposition of Directive 2017/828 of the European Parliament and of the Council, of 17 May 2017, amending Directive 2007/36/EC with regard to the promotion of the long-term involvement of shareholders (the "Directive"). This Draft Bill is in parliamentary procedure since 14 June 2019.

The Directive seeks to implement into Spanish Law a series of improvements in the area of corporate governance of listed companies in order to facilitate long-term investment in them.

The Draft Bill seeks to transpose these improvements, as well as others not expressly provided for in the Directive, into Spanish Law.

The following is a brief description of the main developments introduced by the Draft Bill.

Right of listed companies to identify ultimate beneficiaries

The Draft Bill recognises the right of listed companies, or third parties appointed by them, to request not only the identification of formal shareholders but also of ultimate beneficiaries in the event that the entity or person legitimised as a shareholder by virtue of the accounting record of shares is an intermediary entity which keeps custody or manages the shares on behalf of such ultimate beneficiaries. It also recognises the aforementioned right to shareholders’ associations which have been incorporated in the issuing company and which represent at least 1 per cent of the share capital, and to shareholders who individually or jointly hold at least 3 per cent of the share capital, but limited to the identification of those shareholders who hold at least 0.5 per cent.

Facilitating the exercise of the rights of ultimate beneficiaries

The Draft Bill obliges intermediary entities legitimised as shareholders by virtue of the accounting record (as well as, where appropriate, the other intermediary entities in the chain) to facilitate the exercise of the rights of ultimate beneficiaries, including the right to participate and vote at general shareholders´ meetings. On the other hand, in the case of voting by electronic means, the Draft Bill obliges the company to send an electronic confirmation of receipt of the vote to the person casting the vote (either the shareholder or the ultimate beneficiary).

Additional vote for loyalty

The Draft Bill introduces the possibility of amending the ratio between the nominal value of the share and the right to vote by means of the relevant provision of the listed company´s bylaws, in order to confer one additional vote on each share held by the same shareholder for a minimum period of 2 consecutive uninterrupted years. Unless otherwise provided in the bylaws, such additional vote shall be taken into account for the purposes of determining the quorum of general shareholders’ meetings and the calculation of the voting majorities required for the approval of resolutions.

In any event, additional votes for loyalty shall be taken into account for the purposes of the obligation to notify significant shareholdings and the obligation to make a takeover bid.

The additional vote for loyalty privilege shall lapse as a result of the transfer by the privileged shareholder of the share with which the privilege is associated from the date of the transfer, even if free of charge. However, the Draft Bill establishes certain exceptions (for example, transfer by mortis causa succession and structural modifications).

Abolition of the obligation to publish quarterly information

The Draft Bill proposes to repeal Article 120 of the Securities Market Act in order to harmonize the Spanish Law with that of practically all the countries of the European Union. Thus, it will no longer be compulsory for listed companies to present quarterly financial information, and it will therefore be voluntary.

Proxy Advisors

A series of requirements will be introduced to increase the transparency of proxy advisors who have their registered office in Spain, or who have their main place of business in Spain if they are domiciled outside the European Union. Among other obligations, proxy advisors shall publish an annual report to ensure that their clients are properly informed about the accuracy and reliability of their activities, communicate without delay to their clients any conflicts of interest that may affect their work and the measures to be taken to eliminate, mitigate or manage conflicts of interest, and publish the code of conduct they follow on their website.

A proxy advisor is defined as a legal entity that analyses, on a professional and commercial basis, the information that listed companies are legally obliged to publish and, where appropriate, other type of information, in order to advise investors on the exercise of their voting rights by means of analysis, advice or voting recommendations.

Developments in relation to the remuneration policy

The Draft Bill allows listed companies to apply temporary exceptions to the remuneration policy provided that the policy sets out the procedure and the conditions under which such exceptions may be invoked, as well as the contents of the policy that may be subject to exception. Such exceptions may only be applied where they are necessary to serve the long-term interests and sustainability of the company, or to ensure its viability.

On the other hand, the Draft Bill widens the contents of the annual remuneration report and requires it to be included in the management report, together with the annual corporate governance report.

Transactions with related parties

The Draft Bill endows the regime of related party transactions with greater clarity and systemization, regulating separately the publicity operations regime, its approval regime and the different exceptions to each. The main developments in this area are:

  • The duty to publish an announcement on the company’s website and to communicate to the National Securities Market Commission (Comisión Nacional del Mercado de Valores) as relevant information, information relating to transactions carried out by the listed company or its group companies with related parties, provided that they are equal to or exceed certain thresholds (5 per cent of the value of the net equity appearing in the last individual or consolidated balance sheet of the company; or 2.5 per cent of the amount of the annual turnover appearing in the company’s individual or consolidated profit and loss account), whether considered individually or in aggregated form when they have been carried out with the same related party in a period of 12 months or in the same financial year.
  • The announcement must be accompanied by an independent third party’s report on whether the relevant transaction is fair and reasonable from the point of view of the company and of the non-related party shareholders, including the explanations of the assumptions on which it is based together with the methods used.
  • A related party shareholder shall not exercise the right to vote at the general shareholders’ meeting approving the corresponding transaction, if applicable, unless the majority of the independent directors has approved it.