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The Draft Bill whose purpose is, inter alia, transposing Directive (EU) 2017/828 into Spanish law provides for the introduction of the so-called “loyalty shares” in Spanish listed companies. These are shares that confer additional voting rights, provided they are held for two consecutive years and that this is expressly provided in the articles of association.
In June 2017, Directive (EU) 2017/828 of the European Parliament and of the Council, of May 17, 2017 (“Directive 2017/828”) came into force with the main purpose of encouraging long-term shareholder engagement in the listed companies in which they invest, with the understanding that short-term investment strategies tend to have a negative impact on the sustainable development of these companies and, in general, on the stability of capital markets and the economy.
On June 14, 2019, the period for public consultation ended for this draft bill (the “Draft Bill”) whose purpose is, inter alia, transposing Directive 2017/828 into Spanish law (although the deadline was June 10, 2019) and amending, among others, the Spanish Companies Act.
One of the proposals of the Draft Bill is the introduction of the so-called “loyalty shares” into Spanish law, despite the fact that this figure is not provided in Directive 2017/18, resembling similar figures existing in neighboring countries (like France and Italy). This allows for the articles of association to confer additional voting rights on shares that have been held by the same shareholder for an uninterrupted period of two consecutive years. These additional loyalty votes will be counted when determining the quorum for shareholder meetings and when calculating the voting majorities required to pass resolutions. Furthermore, in paid-up capital increases, the additional loyalty vote will automatically benefit newly issued shares that are allotted free-of-charge to their holders.
As indicated in the preamble of the Draft Bill, the essential purpose of introducing this figure is to enable our corporate legal framework to offer the same options as other European legislations, making it more attractive for investors. Furthermore, this is a mechanism that will encourage investors to invest long-term, thus reducing short-term pressure on corporate management, which is the main purpose of Directive 2017/828. That is why the transfer of shares with these additional voting right privileges results in losing those privileges in all but limited cases (e.g., mortis causa succession or as part of a structural change).
Regarding the approval of loyalty shares, to protect minority shareholders, the Draft Bill provides for a qualified quorum and majority for the general shareholders meeting to validly resolve on the inclusion of the additional loyalty vote in the listed company’s articles of association (i.e., two thirds of the capital present or represented when shareholders representing 50% or more of the subscribed voting capital are present, or 80% when shareholders representing 25% or more of the capital, without reaching 50%, are present). These additional requirements will not apply, however, to the removal of the statutory provisions on additional loyalty votes, so the general requirements to amend the articles of association will apply, thus facilitating their removal. In this regard, the Draft Bill provides that, ten years after the loyalty vote has been approved, any existing additional loyalty votes will no longer be counted, which is also intended to facilitate their removal.
Finally, from the point of view of securities market law, the Draft Bill expressly provides that these votes will be considered for the purposes of (i) the obligation to report major holdings and (ii) the obligation to formulate takeover bids. In this regard, it will be interesting to see how practice shapes the regime of this privilege over time in situations such as the unexpected takeover of a listed company (i.e., the potential acquisition of a controlling interest by the mere lapse of the minimum uninterrupted period of ownership). In any event, it should be remembered that, according to the Draft Bill, the loyalty vote and its exercise would be subject to proving to the listed company the period of uninterrupted ownership indicated and its express entry in a registry, as provided in the articles of association. Therefore, it seems that the affected shareholder will have to act positively so that the effects of the loyalty shares are displayed.
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