_It was up to Luxembourg to transpose the new European Directive (EU) 2017/828 of the European Parliament and of the Council of 17 May 2017 amending Directive 2007/36/EC with a view to promoting the long-term commitment of shareholders (the "SHRD II Directive") before 11 June 2019.
Implementation of Regulation (EU) 2018/1212 of the European Commission of 3 September 2018, which lays down the minimum requirements for the implementation of these provisions concerning the identification of shareholders, the transmission of information and the facilitation of the exercise of the rights, will apply in the Member States beginning 3 September 2020.
On July 10, 2019, the first constitutional vote was finally held on the Luxembourg bill implementing the SHRD II Directive. An application for exemption from a second vote has been introduced.
Unsurprisingly, the Luxembourg legislature intends to faithfully transpose the entire directive by exercising business-friendly options.
This new legislation will apply to companies incorporated under Luxembourg law with shares that are admitted for trade in a regulated market and with securities that are traded in a regulated market of a state that is not part of the Union and that have been declared applicable by an express reference in their articles of association. It does not apply to undertakings for collective investment (organismes de placement collectif) or cooperative societies.
The new legislation specifically modifies or supplements the following:
- the law of 24 May 2011 on the exercise of certain rights of shareholders at general meetings of listed companies,
- the law of 10 May 2016 relating to the transparency obligations of issuers and
- the X Principles of Corporate Governance of the Luxembourg Stock Exchange.
The main legislative changes are as follows:
1. Introduction of a framework allowing listed companies to identify their shareholders and facilitating the exercise of voting rights
Complete and timely communication of shareholder information must be made by the company or through any intermediary in the form of a link on the company’s website or by the direct transmission of information to the shareholders.
Shareholders of listed companies will have to receive a confirmation of receipt of votes cast electronically from the company.
The shareholders may also request, within a maximum period of two months after the general meeting, a confirmation that the company has re-registered and taken their votes into account if this information is not already available.
2. Transparency of costs
Intermediaries will have to make public the fees applicable to share identification and voting facilitation services, which must be non-discriminatory and proportionate to the actual costs incurred.
3. Policy transparency for institutional investors, asset managers and proxy advisors
The shareholder engagement policies institutional investors and asset managers develop will need to be made public and describe how they incorporate shareholder engagement into the investment strategy.
Voting advisers will be required to make their codes of conduct publicly available on their websites free of charge and to report on the application of these codes.
4. Reinforcement of shareholder control over directors' remuneration
Listed companies must establish remuneration policies, which must be clear and comprehensible and must include at least the information listed in the Directive ("Say on Pay" principle).
This remuneration policy must be made public on the company's website and accessible for at least ten years.
Shareholders of listed companies could benefit from the right to approve the compensation policy for executives at a general meeting before it is implemented (“ex-ante” vote) at least every four years and whenever there is a material change.
The Luxembourg legislature has, however, provided that this vote is purely advisory, unless the articles of association stipulate that it is binding.
In addition, shareholders of listed companies will be entitled, at each annual general meeting, to receive a complete report on the remuneration granted or owed during the last financial year to each director in accordance with the remuneration policy.
For small and medium-sized enterprises (SMEs), the Luxembourg legislature has provided that a simple discussion at the meeting, separate from the agenda.
5. Enhanced control over transactions with related parties
Significant transactions with related parties (as defined in accounting principle IAS 24) will have to be submitted for the approval of either the shareholders or the management or supervisory body.
The Luxembourg legislature has chosen to define "significant" transactions by taking into account the nature of the transaction and the position of the related party by referring to the notion of "significant impact on shareholders' economic decisions".
The Luxembourg legislature has used the option to exclude this obligation for:
- transactions concluded in the ordinary course of business and under normal market conditions,
- those entered into between a company and its wholly owned subsidiaries or where no other party related to the company has an interest in the subsidiary,
- those concerning executive compensation granted in accordance with the remuneration policy,
- those entered into by credit institutions on the basis of measures adopted by the Commission de Surveillance du Secteur Financier (CSSF) and
- those proposed under the same conditions to all shareholders when the protection of the interests of the company is ensured.
6. Introduction of sanctions
The managing directors shall be jointly and severally liable for all damages resulting from the breach of their obligations under the law. The Chamber of Commerce strongly criticised this provision and asked for its deletion.