|
URÍA & MENÉNDEZ
|
|
|
The information contained in this Newsletter is of a general nature and does not constitute legal advice |
|
BANKING & FINANCIAL LAW1. SUMMARY2. AMENDMENTS TO THE SECURITIES MARKETS ACT(i) General Scope of Application (ii) Shareholders’ agreements subject to publicity (iii) Procedural rules relating to the General Shareholders Meeting and the Board of Directors (iv) Limitations in relation to voting proxies (v) Information in the company report regarding related transactions (vi) Annual report on Corporate Governance (vii) Means of Providing Information. Web page 3. AMENDMENT OF THE PUBLIC COMPANIES ACT(i) Exercise of voting rights and representation at the General Shareholders Meeting (ii) Exercise of the right to information (iii) Directors’ duties (iv) Liability 4. OTHER AMENDMENTS5. ENTRY INTO FORCE
|
|
On July 19, Act 26/2003, of July 17 (hereinafter, the “Transparency Act”) entered into force. The Transparency Act has amended the Securities Market Act (“Ley del Mercado de Valores”; hereinafter, the “SMA”) and the Public Companies Act (“texto refundido de la Ley de Sociedades Anónimas”; hereinafter the “PCA”), in order to improve the transparency of listed public companies.
The Transparency Act adopts many of the corporate governance recommendations contained in the recent Report of the Special Commission for the Improvement of Transparency and Security in Markets and Listed Companies (hereinafter, the “Aldama Report”). Although such report recognises the importance of self-regulation, the Aldama Report also underlines the need for an additional regulatory basis for some of its recommendations, namely: (i) the obligation to explain the extent of compliance with the criteria for good corporate governance; (ii) a more complete definition of the duties of company Directors; and (iii) the need for listed companies to draft procedural regulations for the General Shareholders Meeting and for the Board of Directors.
The Transparency Act has provided a response to these recommendations and, in addition to regulating the three issues mentioned above, it confers legal status to other additional recommendations contained in the Aldama Report, and includes additional rules regarding the governance of Spanish Savings Banks. For these purposes, the Transparency Act basically modifies:
(i) The SMA, to which it adds a new Title X, specifically dedicated to listed companies.
(ii) The PCA, in which certain articles are amended, mostly related to the exercise of voting and information rights at the General Meeting of Shareholders, and the regime of duties and liabilities of the Directors.
(iii) Additionally, it also amends Act 31/1985, providing the Basic Rules on Savings Banks’ Governing Bodies, and also establishes some specific disclosure obligations regarding corporate governance practices for Savings Banks issuing securities in the official markets.
The Transparency Act introduces a new Title X to the SMA named “Listed companies”, incorporating sections 111 to 117.
(i) General Scope of Application
Public companies whose shares are listed in an official securities market.
(ii) Shareholders’ agreements subject to publicity
a) General
The Transparency Act defines shareholders’ agreements as agreements concerning the exercise of voting rights at the General Shareholders Meeting or containing a restriction or conditions regarding the free transferability of shares. The same regulation with respect to shareholders’ agreements will be applicable to agreements with the same purpose referred to convertible or exchangeable debentures of a listed company.
The execution, extension or amendment of this type of shareholders’ agreements must be communicated to the company and the Spanish National Securities Exchange Commission (“Comisión Nacional del Mercado de Valores”; hereinafter, the “CNMV”), and must be accompanied by a copy of the corresponding clauses. The shareholders’ agreement must be published through the CNMV as a public notice (“Hecho Relevante”) and the document containing it must be deposited at the Commercial Registry. Any of the signatories of the shareholders’ agreement is entitled to file these communications.
The failure to execute, deposit or publish these documents is a serious violation of the SMA, for which the parties of the shareholders’ agreement can be held jointly and severally liable. The Transparency Act also establishes that while these communications and deposit have not been made, the shareholders’ agreement will be ineffective with regard to the subjects covered by it (exercise of voting rights and/or restrictions to the free transferability of shares or convertible or exchangeable debentures). For companies subject to special supervision, the communications must also be made to the “Dirección General de Seguros y Fondos de Pensiones” (insurance companies regulator) or to the “Banco de España” (credit entities regulator), as applicable.
This regime is also applicable to agreements between shareholder members of a non-listed company that controls a listed company.
Finally, the Transparency Act allows the parties to request from the CNMV the temporary suspension of both the total or partial publication of the agreement and the obligations of communication to the company and deposit with the Commercial Registry on the basis that the total or partial publication of the agreement could seriously affect the company.
b) Temporary regulations
The shareholders’ agreements (including those relating to convertible or exchangeable debentures) executed, extended or amended prior to July 19, 2003 and affecting more than 5% of the share capital or of the voting rights, must be communicated, deposited and published by July 19, 2006 at the latest. Exceptionally, if a Tender Offer is made for the company which is a party to the agreement, the communication, deposit and publication obligations must be complied with immediately as soon as the authorisation to carry out the Tender Offer has been requested from the CNMV.
The mentioned agreements shall be deemed ineffective, inter-alia:
- With respect to the exercise of voting rights and restrictions on free transferability, if the communication, deposit or publication obligations are not complied with.
- With respect to the agreements executed, extended or amended on or after January 29, 1989, provided at the time of execution, extension or amendment of the agreement the parties bound by such agreements (i) jointly held more than 25% of the voting rights and (ii) failed to launch a Tender Offer.
Any agreement formalising the shareholder agreements referred to in the preceding paragraphs will also be ineffective in the same cases where the underlying agreements would be ineffective.
(iii) Procedural rules relating to the General Shareholders Meeting and the Board of Directors
The Transparency Act places the obligation to create procedural regulations for both the General Shareholders Meeting and the Board of Directors on listed companies. Such regulations cover the functioning and internal rules of these bodies, subject to the matters regulated in the Law and the relevant by-laws. The Procedural Rules of the General Shareholders Meeting must be approved by the General Shareholders Meeting itself according to the ordinary quorum provided in section 102 PCA. With respect to the Procedural Rules of the Board of Directors, these will be approved by the Board of Directors itself, who must communicate these Rules to the General Shareholders Meeting. Both these regulations must be communicated to the CNMV and recorded with the Commercial Registry.
(iv) Limitations in relation to voting proxies
The Transparency Act provides that when the Directors or other persons publicly request proxies to vote at the General Shareholders Meeting -which is very frequent in listed companies-, the Director (the Act omits references to other people here) will not be able to exercise the voting rights of the shares represented in relation to the following decisions:
a) his appointment or ratification as Director;
b) his removal, separation or dismissal as Director;
c) the exercise of a corporate liability action brought against him;
d) the approval or ratification, when applicable, of linked operations of the company with the corresponding Director, with companies controlled by him or which he represents, or with people acting on his behalf; and
e) those other points on the Agenda that entail a conflict of interest (the Transparency Act does not expressly define how the term “conflict of interest” should be interpreted).
The practical consequence of this provision is that, in relation to the referenced subjects, the represented shares would not cast a vote and would be counted as abstentions.
(v) Information in the company report regarding related transactions
The Transparency Act establishes the obligation to include in the company’s annual report any information relating to the transactions of Directors or persons acting on their behalf with the listed company or any other company of its group, when said transactions are outside the ordinary course of business of the company or are not carried out under “normal market conditions”.
In addition, the Transparency Act emphasizes the prohibitive measure, already established on a general basis in section 81 of the SMA, preventing Directors from carrying out or recommending transactions relating to the company or its subsidiaries, affiliated or related companies if they have access to privileged or reserved information, while this information is not available to the public.
(vi) Annual report on Corporate Governance
a) Listed companies
Listed companies must publish an annual report regarding corporate governance, which must also be communicated to the CNMV, who will publish it as a public notice.
The structure and content of the report will be subject to regulations to be implemented by the Department of Economy or, upon its express delegation, by the CNMV. In any event, the report must offer a detailed explanation of the governance structure of the company and its functioning in practice, including:
- Ownership structure (identification of the holders of relevant participation quotas, including, among other data, the existence of family, contractual, commercial or corporate relationships and shareholders agreements).
- The structure of the Board of Directors (composition, functioning, remuneration, etc.).
- Operations linked to shareholders, Directors, or managerial staff and between companies of the group.
- Risk control systems.
- The functioning of General Shareholders Meetings.
- The degree of compliance with the corporate governance recommendations.
The CNMV is responsible for the monitoring of the rules of good corporate governance and, for that purpose, may request and publish any information the CNMV deems necessary or relevant in relation to the level of compliance with such rules of good governance by the company.
Finally, the Transparency Act provides that the lack of publication of the corporate governance report or the existence of omissions or erroneous or confusing data in this report shall be regarded as a serious violation.
b) Savings Banks
As from fiscal year 2004, Saving Banks issuing securities listed on official securities markets must publish an annual report on corporate governance. The report must be communicated to the CNMV, who shall publish it as a public notice. It will also be published on the relevant Savings Bank’s web page.
The structure and content of the report, which should offer a detailed explanation of the structure of the governance system of the relevant Savings Bank and of its functioning in practice will be subject to regulatory development by the Department of Economy or, upon its express delegation, by the CNMV, covering at least the following:
- Administration structure.
- Transactions carried out, directly or indirectly, with the members of the Board of Directors and the Control Commission and first-degree family members and companies of the group.
- Transactions carried out, directly or indirectly, with political groups represented in Local Administrations and in the Parliaments of the Autonomous Regions that have participated in the process for the election of management bodies of the Savings Bank.
- Credit transactions with public institutions that have participated in the process for the election of management bodies of the Savings Bank.
- Remunerations of the Directors, members of the Control Commission and managerial staff.
- Structure of the Business and related transactions.
- Risk control systems.
- Operation of government bodies.
The CNMV will also be in charge of controlling the good governance rules of the Savings Banks issuing securities listed on official markets and, for that purpose, may also request and publish any information the CNMV deems necessary or relevant in relation to the level of compliance with such rules of good governance by the Savings Bank. The failure to produce or publish the corporate governance report or the existence therein of omissions or erroneous or confusing data, is regarded as a serious violation of the SMA.
c) Other entities
Without prejudice to the regulations established for the Savings Banks, the provisions referring to the listed companies in relation to the corporate governance annual report will be applicable to the remaining entities issuing securities listed on official securities markets. For this purpose, the Department of Economy or, upon its express delegation, the CNMV, is empowered to establish specific provisions regarding the structure and content of the corporate governance report, attending to the nature of the relevant entities in each case.
(vii) Means of Providing Information. Web page
The Transparency Act provides that listed companies must have a web page through which shareholders may exercise their information rights and that provides relevant information on the company. According to the provisions to be issued by the Department of Economy or, with its express authorization, the CNMV, the Board of Directors will agree upon the content of the web page. The breach of the obligation to have a web page or to include in it the required information shall be regarded as a serious violation.
The Transparency Act amends the PCA in relation to the exercise of voting and information rights, as well as in relation to the duties and responsibilities of the Directors. Unless otherwise specified, these modifications shall apply to all types of public companies, whether listed or not.
(i) Exercise of voting rights and representation at the General Shareholders Meeting
The Transparency Act amends section 105 of the PCA in order to introduce two new paragraphs (numbers four and five) in which it is specified (a) that subject to the by-laws, the exercise of the voting rights and its delegation to the General Shareholders Meetings may be performed by means of postal or electronic correspondence, or by any other long-distance communication system, provided that the identity of the person exercising the right to vote is ascertained, and (b) that the shareholders issuing their votes by means of any such system will be considered as present for the purposes of the General Shareholders Meeting quorum requirements.
Similarly, section 106.2 is amended to specify that the representation shall be conferred (a) in writing or by means of long-distance communication following the requirements of section 105, and (b) specifically for each General Shareholders Meeting.
(ii) Exercise of the right to information
The Transparency Act amends section 112 of the PCA introducing the following changes:
a) Right to information prior to the holding of the General Shareholders’ Meeting: this right may be exercised up until the seventh day prior to the date of the meeting. Any shareholder is entitled to request from Directors, in connection with the points included in the agenda, any information or explanations on the matters deemed necessary, or formulate any questions in writing as such shareholder considers appropriate. The main novelty consists precisely in restricting the exercise of the right to the seventh day prior to the meeting.
With respect to listed companies, their shareholders may also request information or explanations and formulate questions in writing regarding any information that the company has made publicly available and communicated to the CNMV since the last General Meeting. This provision appears to be very broad: in practice, it implies that the shareholders will be able to request information regarding any public notice or data communicated since the last General Meeting.
In any case, Directors are obliged to provide in writing, up to the date of the General Meeting, the information requested.
b) Right of information during the General Shareholders Meeting: this is confined to the points on the agenda, as it is in the current regulations, and includes the request for information or clarifications. The novelty is that the Directors may supply the information requested in writing within seven days following the end of the Meeting, when it is not possible to satisfy the shareholder’s right at the time of the Meeting.
c) Obligation to provide information and exceptions: the current regulation is maintained. Directors must provide the requested information except if, according to the Chairman’s opinion, the publicity of the information affects the company’s interests. This exception will not be available when the request comes from shareholders representing a minimum of 25% of the share capital.
The Transparency Act implements the current section 127 of the PCA, emphasising the duty of care (including the obligation to remain informed of the progress of the company’s business).
The Act also includes new sections 127 bis, 127 ter and 127 quater, which implement the general duty of loyalty of Directors. To that extent, the Transparency Act:
a) prohibits the execution by Directors of transactions on their own behalf or on behalf of related persons, using the name of the company or invoking their position as Directors of the company;
b) prevents Directors from exploiting corporate opportunities for their own benefit or for the benefit of related individuals, when the Directors have had knowledge of the relevant transaction due to their position as Director of the company and such transaction was offered to the company or the company was interested in them, unless the company had refused the investment or transaction without the Director’s influence;
c) requires the Directors to communicate to the company any conflict of interest which they incur, and to refrain from taking part in any transactions in which these conflicts arise. The corporate governance annual report shall contain information regarding these conflict of interest situations.
d) imposes the obligation to communicate (i) any stake that the Directors may have in the capital of another company which performs the same, an analogous or an additional activity to that which constitutes the corporate purpose of the company in which they act as Directors, (ii) the performance of any functions or duties in the said companies, as well as (iii) the performance, on their own behalf or on behalf of a third party, of any equivalent, analogous or additional activities to that of the company. This information must be recorded in the company’s annual report.
The duties of the Director also extend to transactions carried out in, with or for the benefit of related parties within the meaning of the Transparency Act
Last, the Transparency Act extends the Director’s duty of secrecy. The narrow obligation of secrecy in relation to confidential information that was contained in section 127.2 is maintained. In addition, the new act provides that Directors must reserve any other type of information, data, reports or background of which they have become aware due to their position and that those data and information should not be communicated to third parties when it could cause harmful consequences to the company’s interest.
The duty of secrecy and reserve does not affect those cases in which the law allows or requires disclosure to third parties.
In the event that the Directors are legal entities, the Transparency Act provides that the duty of secrecy will fall upon the representative of this legal entity, who should also notify the legal entity of the duty of secrecy.
Finally, the Transparency Act amends section 133 of the PCA, widening the liability regime for Directors of a public company.
The liability vis à vis the company, the shareholders or the company’s creditors arises in the case of damages caused by acts that are contrary to the law, the by-laws or carried out in breach of the Directors’ duties. In this regard, the only new development is that the reference to acts “carried out without [due] care” is replaced by a wider reference to acts carried out in breach of any of the duties of the Directors as mentioned above.
The liability regime is also extended by the Transparency Act, with the same content as explained above, to the de facto Directors.
In addition to the above, the Transparency Act provides for the inclusion of certain new sections into the Act 31/1985, of August 2, on the Regulation of the Basic Regulations on the Governing Bodies of Savings Banks, providing for the incorporation of a Remuneration Commission and an Investments Commission into the Savings Banks’ Board of Directors.
The Transparency Act also introduces an amendment to section 142 of the Corporate Income Tax Act (Act 43/1995, of December 27), referring to the obligation on certain taxpayers to file some new declarations.
As indicated, the Transparency Act came into force on July 19, 2003. Nevertheless, listed public companies will have twelve additional months to adapt their organization and by-laws to the new regulation (this includes the approval of regulations on the General Shareholders Meeting and Board of Directors). With respect to the corporate governance report of the Savings Banks, it will be compulsory starting with the information referring to the 2004 financial year.
Madrid, September 17, 2003