Approval of the legal reform introducing new changes in corporate governance

Mireia BlanchPartner, Bufete B. Buigas

The Spanish Parliament has approved the Act, by which the Consolidated Text of the Spanish Companies Act is amended, aiming to transpose into the Spanish legislation the Directive (EU) 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 long-term shareholder engagement in listed companies. In addition, this Act introduces amendments in the area of corporate governance.

Main changes:

  • The right of listed companies to know the identity of the final beneficial owner

It is introduced the right of listed companies to know, besides the identity of the shareholder, the identity of the final beneficial owner (the person on whose behalf the intermediary entity acts as shareholder by virtue of the accounting record, either directly or through a chain of intermediaries), which may be requested directly from the intermediary entity or indirectly through the central securities depository.

  • Related-party transactions

The definition of related-party transactions provided for IFRS (International Financial Reporting Standards) is added and it establishes the obligation of listed companies to publicly disclose related-party transactions when they reach or exceed: a) 5 per cent of total assets or b) 2.5 per cent of annual turnover.

The General Shareholders Meeting is who approves related-party transactions when their amount is equal to or greater than 10% of assets and the Board of Directors approves all the other cases. A report from the audit committee is required.

  • Possibility of holding meetings exclusively by telematic means

The possibility of holding exclusively telematic meetings is provided for all capital companies, including listed and limited liability companies. This possibility must be stated in the by-laws, and its amendment must be approved by the General Shareholders Meeting with a reinforced majority of two thirds of the capital, present or represented.

The meeting held exclusively telematic shall be deemed to have been held at the registered office. In listed companies it is compulsory that shareholders delegate or exercise their vote in advance, and the minutes of the meeting must be drawn up by a notary.

  • Regulation of proxy advisors

Proxy advisors are regulated for the first time and are subject to certain transparency and information obligations, as well as being subject to the CNMV’s supervisory regime.

  • Remuneration of directors of listed companies

It is established that proposals for new remuneration policies must be approved by the General Shareholders Meeting before the end of the last year of application of the current remuneration policy. If the proposal is rejected by the General Shareholders Meeting, the company will continue to remunerate its directors in accordance with the current remuneration policy and must submit for approval a new proposal to the next General Shareholders Meeting.

It also expands the mandatory content of the remuneration policy and the Annual Report on Remuneration of Directors.

  • Issuance of shares and convertible bonds in listed companies

The minimum period for exercising pre-emptive subscription rights is reduced from 15 to 14 calendar days.

An independent expert’s report shall be required to exclude pre-emptive subscription rights in relation to capital increases when (i) the issue is for more than 20% of the capital, or (ii) the 20% threshold is not reached, but the issue price is less than the fair value. The issue of convertible bonds shall not require an independent expert’s report when it does not reach 20% of the capital.

The limit for delegating to the Board of Directors the power to increase the share capital excluding pre-emptive subscription rights is reduced: such delegation may not relate to more than 20% of the share capital at the time of delegation (in the case of convertible bonds, the limit refers to the maximum number of shares into which they may be converted).

The obligation to file the document of the book-entry securities issue with the CNMV is eliminated (it will only be necessary to file it with Iberclear and the governing body).

  • Voluntary de-listing after a takeover bid has launched

It is introduced a requirement referring to the bidder consisting in reaching at least 75% of the voting capital of the offeree company in the takeover bid in order for the company to be able to agree to delist the shares without having to make a delisting bid.

  • Loyalty double voting shares

Listed companies are allowed to introduce double voting shares for loyalty in their by-laws. These shares confer a double vote on each share held by the same shareholder for two consecutive uninterrupted years.

Requirements for obtaining double voting: (i) that the company includes loyalty shares in its by-laws, (ii) that the shareholder previously registers the shares in the special register book to be created by the company for this purpose, and (iii) that the shareholder maintains uninterrupted the ownership of the shares for two consecutive years from the date of registration in the special register book.

Double loyalty votes shall be taken into account for the purposes of determining the quorum and voting majorities at the General Shareholders Meeting. The provision in the by-laws for double loyalty votes must be renewed every five years by the shareholders’ meeting. The company must notify the CNMV of the number of double voting shares existing at any given time.

  • Prohibition on the appointment of legal persons as directors of listed companies

Directors of listed companies may not be legal persons, with the sole exception of companies belonging to the public sector.

  • Confirmation of electronic voting

When voting is done by electronic means, the company shall send to the shareholder the electronic confirmation of receipt of his vote. The shareholder and the final beneficial owner may request confirmation that their votes have been correctly counted within one month of the date of the meeting.

  • Quarterly reports

The obligation to publish quarterly financial information for listed companies is eliminated, although CNMV reserves the power to require the publication of this information when performing its function of verifying periodic information.

  • Prospectus

It is exempted from the obligation to publish prospectus any bid with a total amount lower than 8€ million, in general, and lower than 5€ million in the case of credit institutions (the currently threshold was 5€ million in general).

  • ACGR (Annual Corporate Governance Report)

The information to be included in the ACGR is extended. In particular, details of directors or senior management positions in other entities and information on other remunerated activities of directors should be included.

ENTRY INTO FORCE OF THE ACT AND TRANSITIONAL REGIME

The act will enter into force 20 days after its publication in the Spanish Official State Gazette (BOE). However:

  • Amendments to the remuneration policy shall enter into force six months after their publication in BOE. Companies shall submit for approval the remuneration policy adapted to these amendments at the first General Shareholders Meeting held after that date.
  • The additional mandatory content of ACGR shall apply to ACGRs for the financial years ending on or after 1 December 2020.
  • The new regime for related-party transactions applicable to listed companies will enter into force two months after the entry into force of the act.
  • The requirement that directors of listed companies must be natural persons shall apply to appointments, including renewals, occurring as from the month following the publication in the BOE.

The information contained in this note should not in itself be considered as specific advice on the matter under discussion, but only as a first approach to the subject matter, and it is therefore advisable that the recipients of this note obtain professional advice on their specific case before taking specific measures or actions.