New Law on the exercise of shareholders rights in listed companies

Transcription

1 26 January 2011 New Law on the exercise of shareholders rights in listed companies On 25 November 2010, a law on the exercise of certain rights of shareholders in listed companies was approved by Parliament. To date, the law has not yet been published in the Belgian State Gazette. The law is currently scheduled to enter into force ten days after its publication in the Belgian State Gazette. This would mean that several of its provisions would apply to the shareholders meetings to be held in However, where companies have provisions in their articles of association that conflict with the provisions of the law, they have until 1 January 2012 to align their articles with the new law. As a result, these conflicting provisions would continue to apply to any shareholders meetings held before the articles of association are aligned with the new law (see section 12 below for a discussion of the issues relating to these transitional rules and for the merit of a change to the law in this respect). 1 Background and scope The law implements Directive 2007/36/EC. While the scope of the Directive is limited to listed companies (i.e. companies whose shares are admitted to trading on a regulated market), Belgian law has extended certain provisions (such as the possibility of remote participation and the changes to the right to ask questions) to companies other than listed ones (such as SAs/NVs that are not listed and SPRLs/BVBAs). Some of the provisions of the new law (e.g. the obligation to publish the convening notice to a shareholders meeting on the website of the company) were already contained in the Royal Decree of 14 November 2007 on the obligations of issuers of financial instruments admitted to trading on a regulated market. As a result, these provisions will now appear both in the Companies Code and in the Royal Decree of 14 November 2007, without creating an extra burden for companies. Contents 1 Background and scope Convening notices Content Timing Means of publication Website Right to add items to the agenda and file resolution proposals Right to ask questions Mandatory record date Proxy voting Remote participation Voting in advance of the shareholders meeting Minutes of the shareholders meetings Other changes for listed companies whose shares are not admitted to trading on a regulated market Entry into force Principles Convening of the shareholders meeting Record date Other rules...10 In this document we consider the key provisions of the new law that apply to Belgian limited liability companies (SAs/NVs) having their shares admitted to trading on a Belgian or European regulated market. New law on the exercise of shareholders rights in listed companies 1

2 2 Convening notices 2.1 Content The content of the convening notices is now clearly defined by the law. Some of the items to be listed were already required under the current regime. The additional items are essentially aimed at enabling shareholders to better exercise the new rights granted to them by the law (see below). As an example, the convening notice will now have to indicate the right of shareholders to request the inclusion of items on the agenda and to file resolution proposals to be voted on. This defined minimum content is without prejudice to any other provision of the Companies Code imposing specific mentions in the agenda (such as the obligation to indicate in the convening notice the proposal of the audit committee relating to the appointment of the auditor). 2.2 Timing Under the current regime, convening notices must be published at least 24 calendar days before the shareholders meeting or, where applicable, before the record date. The new law extends this minimum period to 30 calendar days. The starting point for the calculation of this 30-day period is now in all cases the date of the shareholders meeting. If a second shareholders meeting is to be organised for lack of quorum at the first meeting ( assemblée de carence / carensvergadering ), the convening notice for this second meeting must (as under the current regime) be published at the latest 17 calendar days before the shareholders meeting, provided that the first convening notice was published in accordance with the law, that the date of the second meeting was indicated in the first convening notice and that the agenda of the second meeting does not contain any new items. Similarly, the period for sending personalised (ordinary) letters to registered shareholders, registered bondholders or holders of a registered subscription right is extended from 15 to 30 calendar days before the shareholders meeting. As a result of this change, the various convening periods are now all aligned: publication, sending of letters and providing of information on the website (see section 3 below). Because of the extension of the applicable periods for convening notices, the law also adapts the time frame in which the auditor must receive the documents for the preparation of its report on the annual accounts. The board must from now on hand these documents over to the auditor 45 calendar days before the planned date of the shareholders meeting. New law on the exercise of shareholders rights in listed companies 2

3 2.3 Means of publication Pursuant to the new law, in addition to the publication of the convening notice in the Belgian State Gazette and in a nationally distributed newspaper, the notice must also be published in media as may reasonably be relied upon for the effective dissemination of information to the public throughout the European Economic Area, ensuring fast access to the information on a non-discriminatory basis. According to the CBFA 1, to meet this requirement (which can also be found in the Royal Decree of 14 November 2007), companies should use the largest number of different distribution channels, such as press agencies, newspapers with a wide distribution base, information suppliers, etc. A company s website will thus not be sufficient to satisfy this obligation even if it largely contributes to disseminating the information. As disseminating these convening notices will entail extra costs for the company, the law explicitly indicates that the company may not invoice to the shareholders any costs related to the publication formalities. 3 Website Companies must now, for a continuous period beginning on the date of the publication of the convening notice and until the day of the meeting, make available several items of information on their website. This information includes (i) the text of the convening notice and the revised agenda (if any), (ii) the total number of shares and voting rights, (iii) the documents that will be submitted to the shareholders meeting, (iv) a resolution proposal or, where no resolution is proposed to be adopted, a comment from the board of directors for each item on the agenda of the shareholders meeting, (v) as the case may be, the resolution proposals filed by shareholders as soon as practicable after the company receives them, and (vi) the forms that may be used to vote by proxy and to vote by correspondence, unless those forms are sent directly to each shareholder. Where these forms can not be made available on the company s website for technical reasons, the company shall indicate on its website how paper versions of the forms can be obtained. This information must remain available on the company s website for a period of 5 years as from the date of the shareholders meeting to which it relates. Shareholders keep the right (existing under the current regime) to obtain at no cost a paper copy of the documents to be submitted to the shareholders meeting at the registered office of the company as from the date of publication of the convening notice. The law has nevertheless abolished the obligation on the company to send these documents to each person that fulfils the admission formalities for the shareholders meeting. 1 Cf. item of CBFA Circular FMI/2007_02 of 1 January New law on the exercise of shareholders rights in listed companies 3

4 4 Right to add items to the agenda and file resolution proposals Under the current regime, the right to add items to the agenda and file resolution proposals is incidental to the right to convene a shareholders meeting. As a result, shareholders must represent at least 20% of the share capital in order to make changes to the agenda. Under the new law, one or more shareholders holding together at least 3% of the share capital may add items to the agenda of a shareholders meeting or file resolution proposals relating to topics already on the agenda (i.e. to propose other resolutions than the ones proposed by the board of directors or, as the case may be, by other shareholders where the shareholders meeting is convened at the request of shareholders holding at least 20% of the share capital of the company). This right does not apply, however, to shareholders meetings convened following a first shareholders meeting that could not validly deliberate for lack of quorum. The agenda of the second meeting will thus always be identical to that of the first meeting. In order to exercise their rights, shareholders will have to prove ownership of at least 3% of the share capital on the date the request is made. In addition, the review of the items and/or proposals is subject to the requesting shareholders having registered at least 3% of the share capital on the record date. Shareholders may send their requests to the company by the request must contain the requesting shareholders postal or electronic address. The company must confirm receipt of the request within 48 hours. All requests must be received by the company at the latest on the 22nd calendar day preceding the shareholders meeting. The company must publish a revised agenda (i.e. not the entire convening notice) taking into account the proposals validly submitted by the shareholders, at the latest on the 15th calendar day prior to the shareholders meeting. This revised agenda must be published in the same manner as the convening notice, i.e. in the Belgian State Gazette, in a nationally distributed newspaper and in media as may reasonably be relied upon for the effective dissemination of information to the public throughout the European Economic Area. Proxy forms and forms for voting by correspondence must also be updated on the company s website within this time frame. Proxies received by the company before the completed agenda has been issued will remain valid for the items covered. The lowering of the threshold for adding items to the agenda/filing resolution proposals from 20% to 3% will probably entail an increased use of this right. The exercise of this new right will in practice require extra administrative work for the company, which will have to verify that the required threshold is met both at the date on which the request is made and on the record date. New law on the exercise of shareholders rights in listed companies 4

5 5 Right to ask questions The law now expressly provides shareholders with the possibility to address their questions to the board of directors and to the auditors in writing, provided that the questions are received by the company at the latest on the sixth calendar day prior to the shareholders meeting. The law also recognises the possibility for the board and the auditors to provide one global answer to questions on the same matter. This is essentially a legal confirmation of the existing practice in listed companies. Answers need only be provided to questions addressed by shareholders who have notified the company of their intention to participate in the shareholders meeting and who have registered their shares on the record date (see section 6 below). As under the current regime, there is no obligation for the board to reply in writing to shareholders questions. Answers are provided orally at the shareholders meeting. 6 Mandatory record date The law introduces a single mandatory record date for all listed companies replacing the current system of blocking of shares. The purpose of this measure is to avoid the blocking of shares during a certain period before the shareholders meeting, considered as one of the obstacles which deter some shareholders from voting. The law sets this single record date at midnight Belgian time on the 14th calendar day preceding the shareholders meeting, both for the first shareholders meeting and for the second meeting convened for lack of quorum at the first meeting. To participate in, and vote at, the shareholders meeting, a shareholder will have to register its shares in its name either in the shareholders register of the company in the case of registered shares or in the accounts of an authorised custody account keeper or clearing institution in the case of dematerialised shares or by delivering them to a financial intermediary in the case of bearer shares, to the extent still applicable. Bearer shares can thus no longer be deposited with the company. In addition, when delivered to a financial institution, bearer shares will automatically be converted into dematerialised shares in accordance with the law on the abolishing of bearer shares. The shareholder is allowed to vote with the number of shares registered on the record date regardless of the number of shares it owns on the date of the shareholders meeting. This means in practice that a shareholder can sell its shares after the record date and still vote with these shares at the shareholders meeting. In addition to registering its shares, a shareholder wishing to attend and participate in a shareholders meeting will have to notify the company (or the person designated by the company) of its intention to take part in the meeting at the latest on the sixth calendar day preceding the date of the shareholders meeting. The number of shares held on the record date by New law on the exercise of shareholders rights in listed companies 5

6 each shareholder who has informed the company of its intention to take part in the meeting and the documents establishing ownership at this date will be indicated in a register created by the board of directors of the company for these purposes. The introduction of the mandatory record date is the provision of the law that will most affect listed companies, since very few companies had opted for a record date under the former optional regime. This new requirement will necessitate a reorganisation of the logistics of shareholders meetings. Convening notices will have to describe in great detail the formalities to be fulfilled by the shareholders depending on the form of shares they own and the documents they will need to provide to the company to prove their ownership on the record date. An efficient way to proceed could be for the company to appoint a centralising bank (on the basis of an agreement containing detailed specifications) responsible for collecting the information that will ultimately appear in the register created by the board of directors. Whatever the practical logistics chosen, they must provide the company, on the date of the shareholders meeting, with a fully reliable legal proof that each of the persons registered was a shareholder on the record date. The entire process will have to be secured so as to guarantee that the capacity of shareholder and the number of shares held by each shareholder on the record date is fully accurate. This is particularly true for companies whose shares are held by shareholders spread all over the world or which have issued ADRs (due to the different time zones involved). Those logistics could lead to numerous problems and litigation if not properly organised and supported by appropriate contractual documents with banks and good coordination with the clearing systems. 7 Proxy voting The new law states that a shareholder may designate, for a given meeting, only one person as proxy holder. As confirmed by the parliamentary documents, this person may in principle be substituted by a third person in accordance with general rules on the granting of proxies. There are, however, two exceptions to this rule: a shareholder may appoint separate proxy holders for shares held in different securities accounts; and a person designated as shareholder but who acts in a professional capacity for the account of other physical or legal persons the law refers to nominees may grant a proxy to each of these other physical or legal persons or to a third person designated by them. The law confirms that a proxy holder may hold a proxy from more than one shareholder, i.e. without limitation as to the number of shareholders so represented. New law on the exercise of shareholders rights in listed companies 6

7 It also confirms the now established legal principle according to which a proxy may be given for one or more determined shareholders meetings or for all meetings to be held during a determined period. The law prohibits companies from limiting the choice of the persons who can be designated as proxy holders. This means that companies can no longer provide that proxies may only be granted to other shareholders. The law imposes additional formalism in terms of the appointment of proxy holders. The appointment must take place in writing or by means of an electronic form signed by the shareholder in accordance with the law on electronic signatures. The notification of the appointment to the company must be made in writing or by electronic means and sent to the address indicated in the convening notice. The proxy must be received by the company at the latest on the 6th calendar day preceding the date of the meeting. Only proxies sent by shareholders whose shares have been registered on the record date are taken into account. If any voting instructions have been given by the appointing shareholder, the proxy holder must cast votes in accordance with such instructions, keep a record of the voting instructions for a minimum period of one year and confirm at the request of the shareholder who granted the proxy that the voting instructions have been carried out. This is without prejudice to the possibility of granting an open mandate, i.e. without voting instructions (except as indicated below). The proxy should also indicate whether, in case new items are added to the agenda by shareholders (see section 4 above), the proxy holder is entitled to vote on the new items or whether it should abstain. Finally, the law addresses potential conflicts of interests between the proxy holder and the shareholder. It provides that in the presence of a potential conflict of interests, the proxy holder (i) must disclose the specific facts which may be relevant for the shareholders in assessing any risk that the proxy holder might pursue any interest other than the interest of the shareholder and (ii) may exercise the voting right only where it has received specific voting instructions for each item on the agenda. The law identifies, without this list being limitative, certain circumstances where a conflict of interests exists (e.g. where the proxy holder is the company itself or a member of its board of directors). This will affect the practice of many listed companies in which shareholders send a proxy to the chairman of the shareholders meeting, often without clear voting instructions. Similarly, proxy forms returned to the company without indicating to whom they are addressed should be considered as addressed to the board of directors, thereby also creating a potential conflict of interests. As a result, proxy forms will under the new law have to make it clear that, in order to be taken into account when addressed to the company, shareholders must give voting instructions. Indicating on the proxy that, absent clear voting instructions, the shareholders are presumed to vote in favour of all resolutions, may not offer a solution, to the extent that it could create problems where certain resolutions proposed by New law on the exercise of shareholders rights in listed companies 7

8 shareholders pursuant to their new right to do so (see section 4 above) are in contradiction with the resolutions proposed by the board. 8 Remote participation The law provides that the articles of association may authorise shareholders to participate in the shareholders meeting by electronic means via a system set up by the company. The system must ensure the identification of shareholders and may be subject to requirements that are necessary to guarantee the security of the electronic communication. The electronic system must at least allow a real-time transmission of the shareholders meeting and provide for a mechanism for casting a vote on each item on which a shareholder vote is required. The articles may in addition provide that the electronic system must allow a real-time two-way communication enabling shareholders to address the general meeting from a remote location and exercise their right to ask questions. Considering the technical and legal difficulties for companies with a large number of shareholders in setting up such a system, the probability that companies will make use of this possibility seems low. 9 Voting in advance of the shareholders meeting The articles of association may authorise the shareholders to cast a vote in advance of the shareholders meeting, by correspondence (as already possible under the current regime) or by electronic means. Companies are free to choose the most appropriate means for remote voting: secure web page, electronic form, paper form, etc. The law does, however, require that the company be able to check the identity and capacity of the shareholders. The law also provides for the content of the forms to be used for casting votes remotely. The forms for voting by correspondence must be received by the company at the latest on the 6th calendar day preceding the shareholders meeting. Electronic voting on the other hand may take place until the day preceding the shareholders meeting. 10 Minutes of the shareholders meetings Minutes of the shareholders meetings must mention, for each resolution, the exact number of shares for which votes have been validly cast, the proportion of share capital represented by these votes, the total number of votes validly cast, the number of votes cast for and against each resolution and, if applicable, the number of abstentions. This information must be disclosed on the website of the company within 15 calendar days following the shareholders meeting. New law on the exercise of shareholders rights in listed companies 8

9 11 Other changes for listed companies whose shares are not admitted to trading on a regulated market In a certain number of provisions of the Companies Code, the law replaces the words listed company by the words company whose shares are admitted to trading on a regulated market. This implies for example that companies that were listed but without having their shares admitted to trading on a regulated market (e.g. companies only having issued bonds listed on the Luxembourg Stock Exchange) will no longer have to appoint independent directors in accordance with Article 524 of the Companies Code. 12 Entry into force 12.1 Principles The new law is currently scheduled to enter into force 10 days after its publication. However, the new law also provides that, when the articles of association contain rules that are contrary to the provisions of the new law, such rules contained in the articles of association will continue to prevail until 1 January 2012, by which time the articles will have had to be adapted. As from 1 January 2012, the law will prevail over the articles of association, even if the articles have not yet been adapted to the mandatory provisions of the new law. The interpretation and application of these transitional provisions raise a number of complex questions. As a result of the transitional rules, the provisions of the new law will already apply to the cycle of shareholders meetings to be held in 2011 (i.e. shareholders meetings held before the articles of association are adapted to the law) to the extent that the articles of association are not contrary to the new law on a given matter (e.g. silent or simply referring to the Companies Code). Hence, in practice, the application of the transitional rules will necessitate a careful provision-by-provision review of each company s articles of association and will lead to different outcomes for different companies. We have listed below a number of examples of the impact of the transitional rules, without being exhaustive. As indicated above, it is important to note that the situation of each company is specific and needs to be reviewed individually Convening of the shareholders meeting The new rules on the extended convening periods, the new means of publication and the publication of information on the website will apply immediately where the articles are either completely silent or simply refer to the Companies Code (or more specifically to Article 533 of the Companies Code). On the other hand, the articles of association will continue to apply (until 1 January 2012) where, for example, the former text of Article 533 has been copied verbatim in the articles. New law on the exercise of shareholders rights in listed companies 9

10 In addition, companies whose articles are silent (or refer to the Companies Code) on the provision of documents will have to make the documents relating to the shareholders meeting available 30 days prior thereto (see sections 2.2 and 3 above). For shareholders meetings to be held shortly after the entry into force of the new law, this accelerated time line may prove to be challenging for the annual report in particular. On the other hand, companies whose articles specifically refer to the 15 day period under the current regime for the provision of documents do not have to comply with this accelerated time line for the upcoming shareholders meeting and only need to do so after their articles have been adapted Record date The new mandatory record date procedure will only apply to shareholders meetings to be held in 2011 where the articles are silent on the procedure to participate in shareholders meetings. As all companies, however, detail the admission formalities to their shareholders meetings in their articles of association (i.e. proof of registration in the share register for registered shares, deposit of bearer shares and providing of blocking certificate for dematerialised shares) as required by Article 536 of the Companies Code, such provisions should be considered contrary to the single record date system of the new law and will thus continue to apply to the upcoming shareholders meetings. Companies that have included an optional record date in their articles in accordance with the former text of Article 536 will have the choice to apply either the optional record date as described in their articles (i.e. the old rules) or the blocking formalities provided for in their articles pursuant to the former provisions of the Companies Code (i.e. again the old rules). Hence, no company will have to apply immediately the new mandatory record date provided for by the new law Other rules The entry into force of the other rules provided for by the new law will have to be examined on a case-by-case basis. As an example, the new right to add items to the agenda or file resolution proposals as well as the right to ask questions in writing will in principle not apply to the upcoming shareholders meetings of 2011, since the exercise thereof as organised by the new law is linked to the mandatory record date procedure Conclusion As set out above, the transitional rules currently contained in the new law raise complex issues and will lead to different outcomes for different companies (depending on the extent to which the articles of association are contrary to the new law). The more a company s New law on the exercise of shareholders rights in listed companies 10

11 Contacts For further information please contact: articles of association replicate the existing provisions of the Companies Code and therefore conflict with the new law, the less such company will have to comply with the new rules for the upcoming shareholders meeting. This creates uncertainty for investors in various listed companies, who could be treated differently. A modification of the transitional provisions of the law to the effect that none of the provisions of the new law would apply as long as the articles of association have not been adapted in the transitional period would certainly be welcome. François De Bauw Partner (+32) francois.de_bauw@linklaters.com Eric Pottier Partner (+32) eric.pottier@linklaters.com Nico Goossens Partner (+32) nico.goossens@linklaters.com Thierry L Homme Counsel (+32) thierry.lhomme@linklaters.com Pia Lavrysen Counsel (+32) pia.lavrysen@linklaters.com Alexia Bertrand Managing Associate (+32) alexia.bertrand@linklaters.com This publication is intended merely to highlight issues and not to be comprehensive, nor to provide legal advice. Should you have any questions on issues reported here or on other areas of law, please contact one of your regular contacts at Linklaters. Linklaters LLP. All Rights reserved Linklaters LLP is a limited liability partnership registered in England and Wales with registered number OC The term partner in relation to Linklaters LLP is used to refer to a member of the LLP or an independent consultant or, outside of Belgium, an employee of Linklaters LLP or any of its affiliated firms or entities with equivalent standing and qualifications. A list of the names of the members of Linklaters LLP and of the non-members who are designated as partners and their professional qualifications is open to inspection at its registered office, One Silk Street, London EC2Y 8HQ, England, or on Please refer to for important information on our regulatory position. We currently hold your contact details, which we use to send you newsletters such as this and for other marketing and business communications. We use your contact details for our own internal purposes only. This information is available to our offices worldwide and to those of our associated firms. If any of your details are incorrect or have recently changed, or if you no longer wish to receive this newsletter or other marketing communications, please let us know by ing us at Marketing.Belgium@Linklaters.com. A Rue Brederodestraat Brussels Telephone (+32) Facsimile (+32) Graanmarkt Antwerp Telephone (+32) Facsimile (+32) New law on the exercise of shareholders rights in listed companies 11

12 Timeline of a shareholders meeting under the new law A. Ordinary shareholders meeting Receipt by company of shareholders resolution proposals or new items to be added to agenda Record date (at the latest) (at the latest) (at midnight CET) Shareholders meeting Publication of voting results on website Publication of convening notice Information available on website Sending of convening notice and documents to registered shareholders Acknowledgment of receipt by company of new items/resolution proposals (at the latest) Publication of revised agenda (if any) Notification by shareholders of their intention to participate in the meeting Deadline for proxy voting, voting by correspondence and written questions New law on the exercise of shareholders rights in listed companies 12

13 B. Extraordinary shareholders meeting (with lack of quorum at first meeting) Receipt by company of shareholders resolution proposals or new items to be added to agenda Record date Notification by shareholders of their intention to participate in the meeting Deadline for proxy voting, voting by correspondence and written questions Publication of voting results on website (at the latest) (at the latest) (at midnight CET) 1st shareholders meeting (lack of quorum) 2nd shareholders meeting Publication of the convening notice Information available on website Sending of convening notice and documents to registered shareholders Acknowledgment of receipt by company of new items/ resolution proposals (at the latest) Publication of revised agenda (if any) Publication of convening notice Information available on website Record date (at midnight CET) Notification by shareholders of their intention to participate in the meeting Deadline for proxy voting, voting by correspondence and written questions New law on the exercise of shareholders rights in listed companies 13 * 17 = 42 days 14 6 * This timeline provides for the minimum convening period with a one-day buffer (i.e. the second notice is published two days after the date on which it is established that the quorum is not met) and assumes (i) that the company knows (based on past experience) that the quorum will not be met at the first shareholders meeting, (ii) that the date of the second shareholders meeting was provided for in the first convening notice in order to benefit from the reduced convening period and (iii) that the company has managed to timely publish the second convening notice in the Belgian State Gazette and in the press. 15