Corporate Governance

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The purpose of Spanish Act 5/2021 (“Act 5/2021”) is (i) the improvement of corporate governance matters and the functioning of capital markets, and (ii) the transposition into Spanish law of Directive (EU) 2017/828 (“SRD II”), the main purpose of which is encouraging long-term shareholder engagement in listed companies.

The key changes introduced by Act 5/2021, which mainly affect listed companies, are summarized below:

  1. The regime of related-party transactions (“RPT”) has been clarified and structured. Changes include, among others, (i) adapting the definition of RPT taking as a reference the definition provided by international accounting standards; (ii) introducing separate regimes for the disclosure of RPT (when they exceed certain quantitative thresholds), their approval by the shareholders’ meeting (for those RPT worth 10% or more of the asset value) or the board (in both cases subject to a previous report by the audit committee), without prejudice to the possibility of delegating to the CEO the approval of ordinary transactions under market conditions and transactions that do not exceed 0.5% of the company’s net turnover; (iii) providing special rules on the right of a shareholder who is a related party to take part in the vote, and of a proprietary director in the case of RPT between companies of the same group; and (iv) simplifying the regime of intragroup transactions.
  2. “Say on pay”: most of the provisions of SRD II on directors’ remuneration have been covered since 2014 by the Spanish Companies Act. However, some changes have been introduced regarding the remuneration policy for directors (which must be approved at the shareholders’ meeting at least every 3 years), the content of which is now described in detail. Consequently, the contents of the annual report on directors’ remuneration (which is submitted to the general meeting for a consultive vote each year) have been expanded.
  3. Act 5/2021 recognizes the right of listed companies to identify not only their formal shareholders, but also their “ultimate beneficial owners”, (i.e., when the entity legitimized as a shareholder in the book entry is a financial intermediary acting on behalf of a third party).
  4. Act 5/2021 incorporates the provisions of SRD II on the transparency policy of institutional investors and asset managers, which must publicly disclose an engagement policy that describes how they integrate shareholder engagement in their investment policy and how they have exercised their voting rights at the relevant shareholders’ meetings. New transparency requirements also apply to proxy advisors (e.g., reporting on the application of codes of conduct or disclosing annual information on their research activities, advice and voting recommendations).
  5. Other relevant changes introduced by Act 5/2021 that do not derive from SRD II include the following:
  • Introduction of the loyalty shares regime in Spain. Please see our publication of April 6, 2021.
  • Directors of listed companies must necessarily be natural persons (for new appointments/re-elections as of May 13, 2021).
  • Some changes have been introduced to simplify and make more competitive the processes for increasing share capital and issuing convertible notes.
  • The Spanish Securities Market Act has been adapted to the Prospectus Regulation, which was directly applicable from July 21, 2019.
  • The obligation to publish quarterly financial statements has been eliminated.
  • All limited liability companies may hold general meetings remotely (i.e., without physical attendance) if provided for in their bylaws.
  • When a listed company agrees to delist its shares from regulated markets, it must make a delisting takeover bid to ensure that investors are protected from the share’s loss of liquidity. To date, an exception applied to offerors making a previous total takeover bid for a listed company (whether mandatory or voluntary), allowing them to delist the company subsequently without having to make a delisting takeover bid through the so-called “intermediate procedure”. Specifically, this was facilitated through a permanent purchase order allowing shareholders to divest from the listed company at the same price as the initial offer for at least one month during the 6 months following the total takeover bid.

    Act 5/2021 has tightened the conditions required to delist a company through such “intermediate procedure”, since now the offeror is required to have reached at least 75% of the listed company’s voting rights in the preceding takeover bid.

Act 5/2021 has tightened the conditions required to delist a company through such “intermediate procedure”, since now the offeror is required to have reached at least 75% of the listed company’s voting rights in the preceding takeover bid.

Most of the provisions of Act 5/2021 will enter into force on May 3, 2021. Exceptions to this general regime of entry into force include, among others, (i) the new remuneration policy regulations, which will enter into force on October 13, 2021 (listed companies must submit a new remuneration policy to shareholders for approval at the first general meeting held after that date); (ii) the new content for the annual report on directors’ remuneration enters into force for reports referring to fiscal years closed after December 1, 2020; and (iii) the new regulations applicable to listed companies on transactions with related parties, which enter into force on July 3, 2021.

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