On December 4, 2014, Spain’s Official State Gazette has published Act 31/2014 which modified the Corporate Enterprises Act with the aim of improving corporate governance. Thus, the principal novelties concerning the general meeting of shareholders and the board of directors are the following:
1. Matters reserved to the responsibility of the general meeting. The Act incorporates additional powers reserved to the responsibility of the general meeting, such as: the transfer of bodies which are dependent upon the essential activities carried out by the corporation (presumed to exist when the volume of the transaction exceeds 25 % of the corporation’s total assets as listed on the balance sheet) and have been developed, as of now, by the corporation itself; transactions whose effects equal the liquidation of the corporation; and the directors’ remuneration.
2. Conflict of interests.The shareholder cannot exercise his voting right when passing specific shareholder resolutions which could generate a conflict of interests (such as: authorization of transfer stock or shares which are subject to a restriction imposed by the law or the bylaws, exclusion of the shareholder from the corporation and the provision of any kind of financial assistance to the shareholder’s benefit).
– In any circumstances other than specified by the law, the shareholder can exercise his voting right in a situation of conflict of interests, however, the breach of corporate interests is presumed if his vote was decisive for the adoption of the shareholder resolution (in this case, the concerned shareholder must attest that the resolution is in accordance with corporate interests). However, the burden of proof for the conflict of interests is borne by the shareholder or shareholders who contest the resolution’s conformity with the corporate interests.
3. Detriment to the corporate interests.It also results when the resolution’s implementation is detrimental to the majority’s interests, that is, without responding to a reasonable necessity of the corporation, being implemented for personal benefit and for unjustified detriment to the other shareholders – even if it does not cause material damage to the capital.
4. Challenge to shareholder resolutions. The circumstances, on which a challenge to shareholder resolutions cannot be based, are extended to:
– Breach of mere procedural requirements specified by the Act or the breach of internal corporate regulations concerning the convocation or the constitution of the corporate body or the adoption of a shareholder resolution (except if it is a breach related to the formalities or the deadline prior to such convocation, or to the required majorities, or to the regulations essential to the constitution of the corporate body);
– Incorrect or insufficient information provided to the shareholder in exercise of his right to information prior to the meeting (except if such information was essential to adequately exercise the right to information).
– Participation of non-authorized individuals in the meeting, except if their presence was decisive for the constitution of the corporate body
Additionally, it is required that shareholders exercising the right to challenge hold at least 1 % of the capital individually or jointly (previously, all shareholders were legally capacitated to challenge regardless of their percentage holding), however, the required percentage holding can be reduced in the bylaws and, in any case, the shareholders whose participation does not amount to said percentage are entitled to compensation for the damages caused by the resolution. Exception: for listed joint stock companies, the required percentage holding is fixed at 0.1 % of the share capital.
Lastly, the action for challenge of shareholder resolutions expires after one year, except if the claim is based on matters contrary to public order (in such case, the action neither expires nor lapses.)
5. Position of the director. The Act maintains that the position of the director remains unremunerated (except if the bylaws specify the contrary), however, the Act contains compensation items with regard to the director’s remuneration which provide, among others, a fixed allocation, attendance allowances and participation in benefits.
– In any event, the Act contains a provision according to which the remuneration should be reasonably proportionate in relation to the corporation’s significance, its economic situation at any given time and the corporation market standards, for the purpose of a long-term promotion of the corporation’s sustainability.
– The Act specifies the director’s duties when performing his functions, which are subject to penalties in case of non-compliance, as well as powers not delegable by law (e.g. appointment and dismissal of the executives who directly report to the board of directors or one of its members, as well as the establishment of basic contractual requirements, including remuneration).
– If a board member is appointed executive director or if he was entrusted with functions in virtue of any other reasons, the conclusion of a contract becomes necessary, which must be approved prior by the board with a two thirds majority.
6. Challenge of board of directors resolutions. The percentage holding required to challenge resolutions passed by the board of directors is reduced, shareholders who represent 1 % of the capital are legally capacitated to challenge the resolutions.
7. Corporate Liability Action. The Act eliminates the percentage holding of 5 % that was previously required for a shareholder to bring a corporate liability action, however, it is required that the shareholders hold individually or jointly a participation which allows them to request the convocation of the general meeting. On the other hand, the action itself, which is based on the breach of the duty of loyalty during the performance of the functions, is not subject to the general meeting’s decisions.
Notable specialities concerning (listed) stock companies:
Shareholder’s right to information. In listed joint stock companies, the requests for information duly presented, or clarifications or even written questions as well as written responses by the managers must be included on the corporation’s website.
Denial of the requested information. The directors are not obliged to provide the requested information to the shareholder if the disclosure is deemed unnecessary for the enforcement of the shareholder’s rights, or if objective reasons exist which suggest that the shareholder might use this information for purposes outside the corporation’s interests or that its disclosure might be detrimental to the corporation’s interest.
Violation of the right to information. A violation of the right to information solely entitles the shareholder to demand fulfilment of the information obligation and compensation of damages which might have occurred, but it constitutes no ground for challenge to the meeting. Additionally, the shareholder can be held responsible for the damage caused by abusive or detrimental use of the requested information.
Majorities.The shareholder resolutions are adopted by simple majority of shareholders both present or represented, without prejudice to enhanced majorities established for special cases, and to the majorities specified in the bylaws.
Minority rights. The minimum percentage holding of 5 %, which certain provisions require for the exercise of shareholder rights in stock companies, will be 3 % for listed joint stock companies.
Board of directors.Listed joint stock companies must be managed by a board of directors.
– Accordingly, the Act specifies a series of powers of the board of directors which are non-delegable by law, amongst which are to be highlighted: the approval of investments and transactions of any kind which are of strategic character or special fiscal risk due to their elevated volume or special characteristics, except if they require to be approved by the general meeting.
– Shareholders are expected to attend meetings personally, they can however grant power of representation to another board member.
– Shareholders elect a chairman, this function can also be performed by an executive director (his appointment requires a favourable vote of two thirds of the board members), who will be endowed with the powers specified by the Act.
– Shareholders also elect a secretary to the board, who will be endowed with the powers specified by the Act, such as ensuring that the board’s actions are in accordance with the internal rules of the corporation.
– In short, the Act offers a detailed regulation of the functioning of the board of directors which incorporates provisions concerning the evaluation of its own performance, the appointment and re-election of the board members, the dismissal from their positions, their terms of office, the classifications of board members, the board committees, the board members’ remuneration, the shareholders’ representative associations and the balanced participation of men and women.