Changes in the relationship between the company and its shareholders conducive to transparency
10 June 2019 marked the elapse of the deadline for implementing the changes arising from Directive (EU) 2017/828 of the European Parliament and of the Council of 17 May 2017 amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement (hereinafter referred to simply as “the Directive”). The Polish legislature has not yet managed to transpose all the Directive’s provisions to the national legal order, although the relevant legislative work is now well underway and we expect the relevant changes to become law in the near future.
One of the key changes brought by the Directive lies in the solution devised to guarantee greater transparency as regards remuneration for Management Board and Supervisory Board members of companies whose shares are listed on a regulated market. The draft legislative Act regarding amendment of the Public Offering Act and of certain other acts now making its way through parliament would implement the Directive within Polish national law as regards the duty to adopt formal policies governing remuneration for the members of management, administrative and supervisory bodies. As the draft Act now is, a new chapter 4a would be appended to the current chapter 4 of the Public Offering Act, providing for the adoption of such remuneration policies and their approval by the General Meeting.
Art. 9a.1 of Directive 2017/828 provides that adoption of a remuneration policy requires a shareholder vote and is subject to approval by the General Meeting at least once every four years. The Directive also provides that individual Member States may elect to frame the General Meeting vote on the remunerations policy in advisory terms, and it is this path that the Polish legislature chose to follow. If the amendments now proposed become law, companies will pay their directors only on the basis of remuneration policies submitted to a vote by the General Meeting. If the General Meeting rejects the proposed policy, or if no remunerations policy had been implemented at the company to date, the company shall submit the policy (with any amendments) for a vote at the next General Meeting and, in the interim, may continue disbursing remunerations as before.
The mooted amendments to the Public Offering Act point to elements which are likely to become mandatory in resolutions concerning remuneration policy, including: (i) description of the various components of the remuneration package, (ii) definition of the proportions between the various components of the remuneration package and (iii) the term for which contracts with the Management Board or Supervisory Board members have been executed. Significantly enough, all the above information is to be made available for perusal by investors in the given company in that the remunerations policy will be subject to publication on the issuing company’s website promptly upon its adoption.
Directive 2018/828 also provides for a duty to draw up a report on remunerations. The amendments now proposed to the Public Offering Act would impose the same duty on the Supervisory Board, which – if the present proposals eventually become law – will be obligated to draw up, for each individual member of the Management Board and of the Supervisory Board, a detailed report specifying the value of the collected remuneration. This report will then be assessed by the General Meeting (which will be asked to adopt a resolution in this respect) and remain available for viewing on the issuer’s website for a minimum of 10 years.
The other major change introduced by Directive 2018/828 is the guarantee for companies that they will be able to identify their shareholders. After a few months’ hiatus, legislative work has been resumed on a draft legislative Act amending the Polish Commercial Companies and Partnerships Code and certain other acts (on 13 June, the draft was formally submitted to the Sejm). This raft of proposed amendments includes compulsory dematerialisation of shares; for companies which are not publicly traded, the shares will be subject to entry in the register of shareholders. Once these amendments become law, the status of a shareholder in a non-public company will follow from entry in the register of shareholders, and the document affirming such rights from shares as cannot be exercised on the basis of the entry only will be comprised in the register certificate.
The draft amendments as they now are put the date of expiration of share documents at 1 January 2021, with entries in registers of shareholders to become legally valid on the same day. Shareholders will have only five years during which they can still assert their rights vis a vis the company on the basis of share documents; in this connection, companies will be bound by statute to call on shareholders to present their share documents at the company’s seat on five separate occasions – the rules governing such calls are slated to come into force on 1 January 2020 and, as of that date, calls to return share documents may be made at intervals not longer than one month and not shorter than two weeks, with the first call to be issued by 30 June 2020 at the latest.
Under the proposed laws, selection of the entity which will maintain the register of shareholders (which must be licensed to maintain securities accounts) is deferred to the General Meeting. Once this entity has been chosen, the company must execute a relevant agreement with it.
All in all, the amendments outlined above make for a significant re-orienting of the relations between companies and their shareholders in the direction of greater transparency. On the one hand, shareholders will benefit from greater say in remuneration for key personnel within the company; on the other hand, companies will be in a position to know more about their shareholders.
In this connection, please note that these legislative changes, once enacted, will require appropriate General Meeting resolutions; it is advisable to keep this in mind when formulating agendas for future General Meetings.
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