The European Union (Shareholders Rights) Regulations 2020

The European Union (Shareholders’ Rights) Regulations 2020 (the “Rights Regulations”) came into effect on 30 March 2020. The Rights Regulations are the implementing legislation of the Shareholders’ Right Directive EU 2017/828 (the “SRD II”). SRD II amends the previous Shareholders’ Rights Directive EU 2007/36/EC (“SRD I”). The objective of the Rights Regulations is to increase corporate transparency and shareholder engagement in the longer term.

The Rights Regulations apply 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, such as Euronext Dublin (”Traded PLCs”). In Ireland, the only regulated market is Euronext Dublin. As was the case under SRD I, the Rights Regulations don’t apply to AIM or Euronext Growth as these markets are not regulated markets. The definition of regulated market is set out in paragraph (21) of Article 4 (1) of the Market in Financial Instruments Directive 2014/65/EU. A register of EU regulated markets is available on the ESMA website. 

The Rights Regulations also apply to institutional investors and asset managers that invest in shares traded on regulated markets.

What are the key changes for Traded PLCs under the Rights Regulations?

Company Information Rights

Traded PLCs will have the right to obtain details of their shareholders from intermediaries. Intermediaries are persons that are responsible for the safe keeping of shares, administration of shares or maintenance of securities accounts on behalf of shareholders. Intermediaries include investment firms, credit institutions or central securities depositaries. An intermediary that receives a request for shareholder information must provide the Traded PLC with the information as soon as practicable.  

This section of the Rights Regulations comes into operation on 3 September 2020. 

Shareholder Rights

Traded PLCs and intermediaries are required to provide all necessary information to shareholders to allow shareholders to exercise properly their rights, such as the right to participate and vote at general meetings. 

This section of the Rights Regulations comes into operation on 3 September 2020.

Remuneration Policy

Traded PLCs are required to prepare a policy regarding the remuneration of its directors. The Right Regulations specify in detail what should be included in this policy. 

Every four years, Traded PLCs are required to hold a general meeting to allow shareholders to vote on the remuneration policy. Following such a general meeting, Traded PLCs are required to publish the results of the vote and the remuneration policy itself on their website.

This section of the Rights Regulations applies to the financial years of Traded PLCs’ commencing on or after 10 June 2019.

Remuneration Reports

Continuing on the theme of increased focus on executive pay, Traded PLCs are required to prepare a remuneration report in connection with the remuneration awarded or due to its directors pursuant to the remuneration policy. The Rights Regulations specify in detail what should be included in the remuneration report.  

Traded PLCs are required to hold a general meeting to allow shareholders vote on the remuneration report in respect of the most recent financial year. Following such general meeting, Traded PLCs are required to publish the remuneration report on their website for a period of 10 years.

Traded PLCs listed on Euronext Dublin are currently required under the Euronext Dublin Listing Rules to provide a report to shareholders on the remuneration of their directors. Going forward, Traded PLCs will need to prepare a remuneration report that complies with both the Euronext Dublin Listing Rules and the Rights Regulations.

This section of the Rights Regulations applies to Traded PLCs with financial years commencing on or after 10 June 2019.

Material Related Party Transactions

Traded PLCs are required to announce publicly any material transaction with a related party before the conclusion of such a transaction.  Furthermore, a material transaction with a related party must be approved in advance by a general meeting of the shareholders of the Traded PLC. A material transaction is a transaction in which any percentage ratio calculated in accordance with Schedule 21 of the Companies Act 2014 is 5%  or more. There is a requirement to aggregate prior transactions of Traded PLCs in assessing the 5% threshold.

Companies having a primary listing on Euronext Dublin are already subject to requirements regarding related party transactions in Chapter 11 of the Listing Rules. However, the new rules brought in under SRD II will operate as a parallel regime and, accordingly, such companies now need to consider how best to comply with two sets of similar, but different, requirements.

What are the key changes for assets managers and institutional investors under the Rights Regulations?

Asset Managers

Asset managers are required to develop and publicly disclose a policy on shareholder engagement, or explain why they have chosen not to do so.  In addition, asset managers who invest on behalf of institutional investors are required to annually disclose details of the investment arrangement to the institutional investor.

Institutional Investors

Institutional investors are also required to develop and publicly disclose a policy on shareholder engagement, or explain why they have chosen not do so.

For more information or general advice on what the Rights Regulations might mean for you and your business, please contact your usual ByrneWallace contact.