A law modifying the Companies Act and other financial regulations has been published to promote shareholders' long-term involvement in listed companies
Published on 19th Apr 2021
On 13 April 2021, Law 5/2021, of 12 April, which amends the revised text of the Companies Act, which was approved by Royal Legislative Decree 1/2010, of 2 July, and other financial regulations, regarding the promotion of shareholders' long-term involvement in listed companies (the "Law"), was published in the Official State Bulletin ("BOE").
Below, we briefly highlight the main novelties introduced by the Law:
The main features in listed companies are:
- Definition of related transaction. Related-party transactions are understood to be those carried out by a company or its subsidiaries with directors, shareholders holding 10% or more of the voting rights or represented in the board of directors of a company, or any other person that must be considered a related party under International Accounting Standards.
- Duty to publicly announce any related-party transaction that the listed company or companies within its group carry out (at the latest at the time of their execution) when they are equal to or exceed 5% of the total assets or 2.5% of the annual amount of the annual turnover. In addition to the announcement, a report must be prepared by company's audit committee, assessing if the transaction is fair and reasonable from the standpoint of the company and of all the shareholders who are not related parties.
- The competence to approve related-party transactions whose amount or value is equal to or above 10% of the total asset will correspond to the general shareholders' meeting. The board of directors will retain its authority in all other related-party transactions, subject to a prior audit committee report, as a general rule.
Also, regarding the novelties applicable to all capital companies and given the content of the International Accounting Standards, it becomes necessary to extend the scope of article 231 of the Companies Act (which specifies what a related party is) to expressly include the companies or entities in which the director holds a shareholding giving him/her significant influence or holds a strategic position, as well as the shareholders being represented by the directors in the management body of the company. To this end, it is presumed that significant influence is conferred by any holding equal to or above 10% of the share capital, or of the voting rights, or by virtue of which it has possible to obtain representation in the company's management body.
The Law foresee the possibility for the by-laws of listed companies to regulate the loyalty voting shares granting a double vote to each share held by the same shareholder for two consecutive years continuously.
The required quorums to approve the provision of the by-law are: (i) 60% of the capital present or represented if shareholders representing 50% or more of the total subscribed capital with voting rights are attending the meeting; and (ii) the favourable vote of 75% of the capital present or represented if shareholders representing 25% or more of the capital are attending the meeting, which shall be required in any case, without reaching 50%. The by-laws provision must be renewed five years after its approval at the shareholders' meeting.
Additionally, the issuer must create a special register of shares with double voting rights and shareholders must request their registration in said book to obtain this authority. Likewise, any registered shareholder in said book may notify the company, at any time, of their decision to totally or partially waive any double voting rights they may hold.
General shareholder meetings exclusively by telematics means
Capital companies, including listed companies, may hold general meetings without the physical attendance of shareholders or representatives, that is, exclusively by telematics means, provided that the following requirements are being complied with: (i) need for a statutory provision that must be approved by a reinforced majority of 2/3 of the capital present or represented in the general shareholder meeting; (ii) that in the notice to convene the general shareholder meeting the management body agrees that it will take place exclusively by telematics means; (iii) that the identity and legitimacy of the shareholders and their representatives is duly guaranteed; and (iv) that all the attendees can participate effectively in the meeting by appropriate means of remote communication to exercise their rights in real time and to follow the interventions of the other attendees.
Likewise, if the meeting is being held exclusively by telematics means, shareholders in listed companies must be able to delegate or exercise their right to vote in advance. Also, the minutes of the meeting must be intervened by a notary public.
The main new features affecting listed companies are:
- Amendment of the current regime for the directors' remuneration in listed companies to differentiate more clearly from the regime applicable to the remuneration for the performance of the duties of the directors as such, and the performance of executive duties.
- The remuneration for the executive duties carried out by CEOs must be in alignment with the by-laws, the remuneration policy, and the contracts signed with said directors.
- The remunerations policy will be approved for a maximum of three years and the proposal of the new policy must be approved before the first fiscal year in which it is applied, although the general meeting may determine that the new policy is applied from the same day it is approved.
- Possibility of including in the remunerations policy temporary application exceptions on some of its elements, subject to strict requirements.
Also, the content of the annual remuneration report is specified and expanded, and it must be included in the management report as a separate section.
Subscription of shares in listed companies
Minimum period to exercise subscription rights. The minimum period for the exercise of pre-emptive subscription rights is reduced from 15 to 14 days.
Independent expert's report. To exclude the pre-emptive subscription rights in a capital increase, an independent expert's report will be required when the amount of the capital increase exceeds 20% of the capital, and even if this threshold is not reached, if the value of the issue is below the fair value (market value and up to 10% less).
Delegation of the power to exclude pre-emptive subscription rights. The delegation to the directors of the power to increase the capital excluding pre-emptive subscription rights is limited to a maximum of 20% of the share capital.
Incomplete subscription. Unless otherwise provided, the resolution to increase the capital will be effective even if the subscription has not been completed. Also, the possibility of an incomplete subscription of the increase should not be expressly stated in the issue resolution to be able to register it.
Delivery of shares. The registration of the capital increase resolution with the Commercial Registry is permitted prior to its execution, unless the incomplete subscription has been excluded. In this event, once the capital increase resolution has been registered, it is permitted, as a general rule, that the shares are transferred at the time the deed of the capital increase execution is granted, without the need to previously register such deed before the Commercial Registry (notwithstanding the foregoing, this deed must be submitted for registration within five days following its execution).
Issue of convertible debentures in listed companies
In line with the modifications made to the capital increase regime, the requirement of the independent expert's report is eliminated when the issue of convertible bonds does not reach 20% of the share capital.
Also, regarding the delegation to the directors of the power to issue convertible bonds excluding pre-emptive subscription rights, the maximum number of shares into which these bonds may be converted is limited to 20% of the number of shares that comprise the share capital at the time of the authorization.
Identification of ultimate beneficial owners
The Law recognizes the right of listed companies to know not only the identity of shareholders, but also the identity of the ultimate beneficial owners. Additionally, said right is also recognised to shareholders' associations that may have been created in the issuing company and which represent, at least, 1% of the share capital, and to the shareholders holding, individually or collectively, at least, 3% of the share capital.
Legal persons directors
The board of directors of a listed company must be exclusively composed by natural persons, unless the company operates in the public sector.
Quarterly financial information
For companies whose shares are listed in regulated markets, the Law removes the obligation to publish quarterly financial information. Although this has become optional, the CNMV may still request the publication of said information to verify the periodic information.
Entry into force and transitional regime
The Law will enter into effect 20 days after its publication in the BOE. However, a transitional regime is established. We highlight the following specific matters:
- Remuneration policy. Such amendments will enter into effect 6 months after the Law’s publication in the BOE. In the first general meeting held after this date, the companies will have to submit for approval the remuneration policy adapted to the new amendments.
- Annual remuneration report. Such amendments will enter into effect for the annual reports on directors' remuneration corresponding to the exercises closed as of 1 December 2020. We believe it is important to underline that this may be a mistake and our understanding is that it should be 31 December 2020.
- Related transactions. The obligations will not be applicable until 2 months after the entry into effect of this Law.
- Legal persons acting as directors. Only to be applied to appointments, including renewals, occurring one month after its publication in the BOE.