PROPOSED IMPROVEMENT IN SHAREHOLDERS’ RIGHTS IN LISTED COMPANIES: LUXEMBOURG BILL N° 6128 June 2010
A significant proportion of the shares issued by listed companies are held by shareholders who do not reside in the member state in which the company has its registered office. As a result, such cross-border situations may prevent the non-resident shareholders from exercising their voting rights without being physically present at the general meetings. Similarly, unlike resident shareholders, non-resident shareholders may find it difficult to have access to information prior to the general meetings.
Introduction
In the light of the above, the Luxembourg government proposed, bill n° 6128 on 22 April 2010, on the exercise of certain rights of shareholders at general meetings of listed companies (the “Bill”). The Bill aims to implement the directive 2007/36/EC of the European Parliament and of the Council of 11 July 2007 on the exercise of certain rights of shareholders in listed companies.
The purpose of the Bill is to enhance shareholders’ rights in listed companies no matter where the shareholders may reside.
The Bill also attempts modernize corporate law by recognising the importance of modern technology in the holding of such meetings.
The Bill, if enacted, should therefore reinforce effective shareholders’ control, essential to sound corporate governance. It should also strengthen the public’s confidence in financial markets and enhance the economic activities in the European Union. The Bill will not be integrated into the law of 10 August 1915 on commercial companies as amended (the “Law of 1915”). This is due to certain specific and technical provisions of the law in preparation. It will therefore be necessary to cross-check the Bill with the Law when determining shareholders’ rights.
A/ Scope
Three types of companies are excluded from the scope of the Bill:
(i) the collective investment undertakings within the meaning of Article 1(2) of the Council Directive 85/611/EEC of 20 December 1985 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS);
(ii) undertakings the sole object of which is the collective investment of capital provided by the public, which operate on the principle of risk spreading and which do not seek to take legal or management control over any of the issuers of their underlying investments provided that they are authorized and subject to the supervision of competent authorities and that they have a depositary exercising functions equivalent to those under Directive 85/611/EC; and
(iii) the cooperative companies.
B/ Access to Information prior to the General Meeting of Shareholders
The Bill aims at strengthening the provision of information to shareholders before the holding of general meetings. Shareholders should have sufficient time to examine documents to be submitted to the general meeting in order to enable them to cast informed votes.
Therefore, the Bill extends the notice publication of the general meeting to at least 24 days before the day of the meeting in the Official Gazette (Memorial) but also in media as may reasonably be relied upon for the effective dissemination of information to the public throughout the European Economic Area and which are accessible quickly and on a non-discriminatory basis. The definition of “media” is quite large and will allow the companies to consider which media are most relevant.
Such notice shall be addressed by letter or by any other communication if the shareholders are identified and have expressly and individually accepted in writing another mean of communication. The Bill ensures that directors and auditors of the companies are also recipients of the notice.
The Bill also strengthens the minimum amount of information to be inserted in the notice, which includes inter alia:
(i) a clear and precise description of the procedures that the shareholders must comply with in order to be able to participate and to cast their vote in the general meeting; and
(ii) the address of the internet site on which the information will be available as at the date of the notice publication. Therefore, a company’s website will now be considered as an official source of information for shareholders. However, the availability of the company’s website will not exclude the right for the shareholders also to obtain the documents in hard copies.
C/ Shareholders’ Agenda Rights and Draft Resolutions
The Bill allows the shareholders representing 5 % of the share capital, acting individually or collectively, to put items on the agenda and to table draft resolutions for items included or to be included in the agenda of any general meeting. The minimum requirement of 10 % as provided for in Article 70 of the Law of 1915 is therefore reduced.
Those rights shall be exercised in writing or by electronic means at least 16 days before the holding of the general meeting and the revised agenda will be published at the latest 10 days before the general meetings.
D/ Participation in the General Meeting
The Bill introduces the concept of “record date”. The record date is the date on which the rights of shareholders to participate and to vote at a general meeting shall be determined. The record date will fall from 5 days to 24 hours prior to the meeting.
The record date is important as shareholders will have to inform the company of their intention to participate in the general meeting on the record date at the latest.
The Bill officially recognizes the possibility of taking part in a meeting using modern technology thereby further enhancing shareholders’ voting rights.
It offers the possibility to shareholders to participate in the general meeting by electronic means which ensure
(i) he real-time transmission of the general meeting;
(ii) a real-time two-ways communication enabling shareholders to address the general meeting from a remote location; and
(iii) a mechanism for casting votes, whether before or during the general meeting, without the need to appoint a proxy holder who is physically present at the meeting.
The Bill also provides each shareholder with the possibility to appoint, in writing or by electronic means, one proxy holder (or more when the shares are held in several securities accounts) to attend and vote at the general meeting in his name.
Any statutory clause restricting the eligibility of persons to be appointed as proxy holders is treated pro non scripto, save where it aims at addressing potential conflicts of interest between the proxy holder and the shareholder.
The proxy holder will vote in accordance with the instructions given by the appointing shareholder and will be bound to keep a record of such instructions for a period of one year following the exercise of such vote.
The Bill also allows companies to offer their shareholders the possibility of remote voting in advance of the general meeting either by correspondence or by electronic means. Remote votes are castby way of specific voting forms in paper or electronic version. Where an electronic form is used, the shareholder will be required to use an electronic signature complying with the requirements of Articles 1322-1 and 1322-2 of the Luxembourg Civil Code. However, the company must be in position to ensure the identity of the shareholders.
Participation of the shareholders is also enhanced during the general meeting as the Bill formally recognizes the current common practice where shareholders may raise questions in writing prior to the general meeting.
Finally, the Bill introduces the right for every shareholder to ask questions related to items of the agenda during the general meeting and the obligation of the company to respond thereto, subject to the measures the company may take to ensure the identification of shareholders, the preparation and good order of general meetings. as the company may also take measures necessary to ensure its protection of confidentiality and the business interests.
Sophie Zintzen, Associate
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