New Shareholder Rights Directive introduced to enhance transparency and shareholder engagementTuesday, 29 August 2017
What is the Shareholders’ Rights Directive, when does it apply from and how?
The Shareholders’ Rights Directive EU/2017/828 (the "Rights Directive"), which amends the existing EU Shareholders' Rights Directive 2007/36/EC (the "2007 Directive"), came into force on 9 June 2017. EU Member States will have to implement the Rights Directive into national law by 10 June 2019. This means that Ireland will have to enact new legislation in this area to ensure compliance with EU requirements. This new legislation will replace the existing Shareholder Rights Regulations, which have been in force since August 2009 when Ireland transposed the 2007 Directive into Irish law. The objective of the Rights Directive is to increase corporate transparency and shareholder engagement in the long term.
The Rights Directive applies to companies having their registered office in a Member State and whose shares are admitted to trading on a regulated market in or operating in a Member State. As the likes of AIM and ESM are not regulated markets, AIM/ESM companies will not have to comply with the Rights Directive, which was the case under the 2007 Directive.
What are the key changes under the Directive?
Company information Rights/Shareholder Rights
Companies will have the right to identify and obtain details of their shareholders from intermediaries. Member States will have the option to apply a minimum threshold so that companies will only have the right to that information where a shareholder holds 0.5% or more of the shares or voting rights in the company. In turn, intermediaries will have to ensure shareholders have all necessary information to properly exercise their rights as shareholders, such as the right to participate in and vote at general meetings.
Shareholder vote on pay
Shareholders will have the right to vote on their company’s directors’ remuneration policy at least every four years, and the remuneration policy will have to be publicly disclosed and remain on the company’s website for the duration that it applies. The shareholders’ vote may be binding or advisory, at the option of the Member State implementing the Rights Directive. Shareholders will also have the right to an advisory vote on the annual report on pay.
Material Related Party Transactions
Material related party transactions will have to be publicly announced. What constitutes “material” is to be defined by each Member State. Any related party transaction falling into this category must be approved, at the discretion of the Member State, by the shareholders or the board, and Member States may also require that related party transaction announcements are accompanied by an independent report.
Institutional Investors, Asset Managers and Proxy Advisors
Institutional investors and asset managers must either develop and publicly disclose a policy on shareholder engagement, or explain why they have chosen not to do so. Proxy advisers will also have to disclose certain key information and will be subject to a code of conduct.
For more information or general advice on what the Shareholder Rights Directive might mean for you and your business, please contact Gerry Beausang, Head of ByrneWallace Capital Markets or any member of the ByrneWallace Capital Markets team.