Shareholder Rights Directive Transposition Act II: Strengthened rights, easier exercising and cross-border information

Directive (EU) 2017/828 is to be transposed into national law by June 10, 2019. Shareholder Rights Directive Transposition Act II Directive aims at further improving shareholder participation in listed companies and at facilitating cross-border information and the exercising of shareholder rights.

The draft bill for the transposition of the second Shareholder Rights Directive – Shareholder Rights Directive Transposition Act II – provides for new provisions in four subject areas:

• shareholders' right to have a say in the remuneration of the Executive Board and Supervisory Board (“say on pay”)
• shareholders' rights of participation in transactions with related companies and persons (“related party transactions”)
• identification and information of shareholders (“know your shareholders”)
• improving transparency as regards institutional investors, asset managers, and proxy advisors

With respect to the remuneration of the management board and supervisory board members, the draft bill provides for an advisory vote at the general meeting at least every four years. It is only supposed to have recommendation character and not be contestable. In the event of rejection by the general meeting, the supervisory board must submit a revised remuneration policy in the subsequent year. Companies intending to pass a resolution on remuneration policy at the 2019 general meeting should already comply with the requirements under the new provisions to avoid further changes after Shareholder Rights Directive Transposition Act II enters into force.

In addition, all transactions of listed companies with related parties are to be announced immediately upon conclusion and are to be subject to approval by the supervisory board or the general meeting. This will only apply to transactions whose financial value amounts to at least 2.5 percent of assets, however. Also excluded are transactions in the ordinary course of business and at arm’s length, transactions with wholly-owned subsidiaries or subsidiaries without the participation of related parties, as well as transactions in the contractual group.

With Shareholder Rights Directive Transposition Act II, a listed company’s right to information refers to the identity of all shareholders and also applies to intermediaries holding shares in custody for a shareholder or another intermediary. Non-listed companies may establish their right to information by means of provisions in the Articles of Association. Despite continued approximation, the distinction between registered shares and bearer shares in stock corporation law remains unchanged.

Institutional investors and asset managers are to publish their participation policy and report on its transposition annually once Shareholder Rights Directive Transposition Act II enters into effect, while proxy advisors state annually whether they have complied with the requirements of the Code of Conduct.  

It is to be expected that the draft bill will be amended and enter into force shortly prior to the end of the June 10, 2019 transposition deadline. Shareholder Rights Directive Transposition Act II provides for various transition periods. The provisions on remuneration policy are to apply four months after entry into force, while the provisions on shareholder identification are to apply at general meetings one year after Shareholder Rights Directive Transposition Act II has entered into force.

Your contacts are the experts from the Capital Markets and Banking & Finance Practice Groups. Michael Neises, Irene Braunagel, and their team specialize in Stock Corporation Law and Corporate Finance.