(Originally published on September 16, 2011)
2011 has been rather calm as far as new corporate legislation is concerned. The much-awaited implementation of the Shareholders' Rights Directive was finally completed, although the technical details of electronic voting at shareholder meetings have yet to be formalised. Executive remuneration and gender equality on corporate boards are the other topics that have dominated the legislative debates.
1. Shareholders' Rights Act
On 18 April 2011, the Act of 20 December 2010 on the exercise of certain rights of shareholders (hereinafter the "Shareholders' Rights Act" or the "Act") was published in the Belgian State Gazette. The Act transposes Directive 2007/36/EC of the European Parliament and the Council of 11 July 2007 and implements in general a number of mandatory new rules on the calling of and participation in shareholder meetings as well as certain options with respect to remote shareholder participation and voting. It should be noted that the Act applies only to Belgian companies whose shares are listed on a regulated market.
The Shareholders' Rights Act initially provided that it would enter into force 10 days after its publication in the Belgian State Gazette and that companies should amend their articles of association by 1 January 2012 to ensure compliance with mandatory provisions of the Act. This clause proved to be problematic in practice, however, and consequently, the date of entry into force of the Shareholders' Rights Act was changed to 1 January 2012.
In the meantime, many listed companies have already called an extraordinary general meeting of shareholders to amend their articles of association in order to ensure compliance with mandatory provisions of the Act as from 1 January 2012. Indeed, provisions of a company's articles of association that violate mandatory provisions of the Act will not be effective as from 1 January 2012. In preparation for the entry into force of the Act, many companies have also revised their corporate governance charter and updated their website to make available the necessary documents, such as standard proxy forms and/or remote voting forms.
The most important changes for listed companies relate to:
- the convocation formalities: the company's auditor must receive all necessary documents at least 45 days before the date of the annual general meeting; the notice of the meeting must be published at least 30 days in advance in such a way as to ensure its fast and non-discriminatory distribution throughout the EEA; certain documents and/or information should be made available on the company's website as from the convocation date of the shareholder meeting and remain available for at least 5 years;
- the possibility for the holders of the company's securities to request free of charge, as from publication of the notice of the meeting, a copy of any document which should be made available to them at the company's registered office;
- the notice of the meeting: certain minimum information must be mentioned in the notice of a shareholder meeting;
- the right to add items to the agenda, for shareholders owing collectively at least 3% of the company's share capital;
- the rules on the postponement of a shareholder meeting: the board of directors can postpone the meeting by 5 weeks if a transparency notification has been or will be made or should have been made during the 20-day period before the meeting;
- a mandatory record date system for admission to the meeting: the record date is the 14th day prior to the meeting at 24.00 hours CET; shareholders of record should inform the company at least 6 days in advance whether they will attend the meeting;
- the grant, content and exercise of proxies for shareholder meetings;
- the possibility to participate remotely in shareholder meetings by electronic means; and
- the content of the minutes of shareholder meetings.
The Act also introduces new rules for unlisted companies regarding (i) participation in general meetings by electronic means, (ii) voting by correspondence or electronically, (iii) the shareholders' right to submit questions in writing before the meeting (rather than during the meeting), and (iv) proxy voting.
2. Act on gender equality on corporate boards
On 14 September 2011, the Act of 28 July 2011 introducing a gender quota for the boards of directors of, amongst others, listed companies was published in the Belgian State Gazette. The purpose of the act is to ensure greater gender equality on the boards of directors of listed companies by ensuring that at least one third of board members are of a different gender. The quota system will be assessed twelve years after its entry into force.
The bill was initially introduced on 24 September 2010. After several amendments it was submitted to the Council of State, which expressed certain concerns.
The Council of State found in particular that the quota could have a chilling effect on freedom of association. Indeed, in public limited companies, the general meeting of shareholders appoints the company's directors and has the right to remove them from office at will (ad nutum). The Council of State expressed concern that an absolute quota could adversely affect the sovereignty of the general meeting. It therefore advised the legislature to reconsider the quota and recommended making the quota subject to the "comply or explain" principle. This recommendation was however not taken into account.
Further, the bill submitted to the Council of State provided for two sanctions, namely the invalidation of (i) appointments to the board made in violation of the quota and (ii) decisions taken by a board of directors composed in violation of the quota. The Council of State held that the second sanction could result in the complete paralysis of the company and that it is an excessive restriction on freedom of association and contrary to EU law.
The House of Representatives was thus prompted to revise the bill on this point. The sanction in question was removed and replaced with a financial sanction: all financial and non-pecuniary benefits associated with the office of director will be suspended until the quota is met.
The bill was enacted on 28 July 2011 and the act was published in the Belgian State Gazette on 14 September 2011. The quota and the first sanction (i.e., invalidation of appointments) will enter into force on the first day of the sixth financial year following publication of the act or of the eighth financial year if the listed company meets certain criteria. The second (financial) sanction will only enter into force one year after the entry into force of the quota and the first sanction.
3. Bill on the variable remuneration of non-executive directors of listed companies
On 14 July 2011, the House of Representatives adopted a bill amending Article 554 §7 of the Company Code with regard to the share-based remuneration of directors of listed companies. The purpose of the bill is to avoid non-executive directors being overly influenced by the company's share price when taking decisions.
Article 554 §7 of the Company Code currently provides that provisions regarding variable remuneration in an agreement concluded with an independent director of a listed company must be approved in advance by the ordinary general meeting. Otherwise, the provisions will be deemed null and void. Independent directors are members of the board of directors that meet the requirements of Article 526ter of the Company Code, which are intended to guarantee that independent directors are able to participate in the decision-making process of the company in an autonomous and objective manner. The bill extends the scope of Article 554 §7 of the Company Code to provisions regarding variable remuneration in agreements concluded with all non-executive directors of listed companies (thus not only independent directors).
The bill has been submitted to the Senate, which has until 19 October 2011 to decide whether to take it under advisement. If the Senate decides not to discuss the bill or, after discussion, does not propose any amendments, the bill will be submitted to the king for ratification and subsequently published in the Belgian State Gazette.
4. New directive amending the Prospectus Directive and
the Transparency Directive
A directive amending the Prospectus Directive and the
Transparency Directive was published in the Official Journal of the
European Union on 11 December 2010.
The new directive reflects the findings of the European Commission, which was entrusted with assessing the application by the Member States of the Prospectus Directive after five years and, if necessary, improving the text. The new directive has a number of practical implications for issuers, although certain key amendments (regarding, for example, the scope of the Prospectus Directive, the exemptions from the obligation to publish a prospectus, the summary of the prospectus, etc.) will require further implementing legislation.
The directive entered into force on 31 December 2010. The Member States have until 1 July 2012 to transpose the directive into national law.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.