On December 13, 2013, the Council of Ministers approved the draft legislation project whereby Royal Legislative Decree 1/2010, dated July 2, approving the redrafted text of the Capital Companies Act (the public consultation process of which finalised January 15, 2014) which is bringing in multiple new regulations to improve corporate governance of companies. The new regulations include:

  • Greater intervention powers are provided to the General Shareholders Meeting in the management of capital companies, with such Meeting having powers to provide instructions to the governing body or to submit the adoption of certain decisions and resolutions relating to management to the authorisation of such body.
  • Directors are bound to provide information described under the Act on public limited companies prior to the convening of the General Shareholders Meeting or during such meeting, unless this information was not required to protect the interests of shareholders, there were reasonable grounds to consider that the information could be used outside the company, or when disclosure could harm the company or related companies. In any event, the violation of the right to information described above shall entitle shareholders to enforce compliance with the duty to provide information and to claim any damages caused to such shareholders, but this scenario is not a cause for the impeachment of the General Shareholders Meeting.
  • At the General Shareholders Meeting items on the agenda that are substantially independent shall be the subject of a separate vote, particularly the appointment, ratification, re-election or removal of any directors, and also the amendment of articles of the bylaws that are not interconnected.
  • As for impeachable resolutions, the draft legislation specifies that there is an injury of company interests when resolutions did not cause any damage to the equity of the company but were, however, imposed unfairly by the majority. A resolution is defined as being unfairly imposed when there is no reasonable need for the above on the basis of the company’s interests, and the resolution is adopted by a majority for their own benefit and is unreasonably detrimental to the remaining shareholders.
  • Limits are established for certain scenarios where resolutions are challenged, and no challenge can be posed in the following cases: (i) mere breaches of procedural rules set forth under the Law, the Bylaws or Regulations of the General Shareholders Meeting and the Board of Directors in relation to notices, convening the governing body or adopting resolutions; (ii) inaccurate or insufficient information provided by the company in response to the exercise of information rights; (iii) when unauthorised persons took part in meetings; and (iv) when one or more votes were voided in a mistaken calculation of votes issued.

In any event, this restriction shall not be applicable in scenarios where the above was an essential requirement for partners to exercise their rights.

  • The draft legislation does not differentiate between void and voidable resolutions and the expiry term for challenging resolutions is one year.
  • In order to exercise challenges against company resolutions at least 1% of the share capital is required.
  • Remuneration of directors shall, in any event, be reasonably in proportion to the importance of the company, its economic situation at each time and the market standards observed by comparable companies. The compensation system of directors shall include the compensation item(s) to be paid to directors which may consist of, inter alia, a fixed assignment, per diem for attendance to meeting, profit sharing, etc.
  • There is a strengthened definition of the duty of diligence of directors with the adoption of new concepts such as the protection of business judgment (in the arena of strategic and business decisions) and the duty of loyalty. The breach of the duty of loyalty shall involve the liability to compensate the damage caused to company equity in addition to returning to the company the unfair profit gained by directors.
  • There is an express regulation on situations or actions to be avoided by directors so as to not incur conflicts of interest. The reform also relates to the liability of directors, establishing a presumption of culpability once the illicit behaviour had been proven.
  • Liability of directors is extensive both to de facto directors and also persons entrusted with senior management duties and, at the same time, the need for a General Shareholders Meeting to approve liability actions is removed. The expiration term to exercise liability actions is extended to four years.
  • Boards of Directors are obliged to meet at least one time per quarter. • When members of the Board of Directors are appointed as Executive Directors or given executive powers, such person shall execute a contract and the consideration agreed therein shall be binding and limiting, as directors may not be remunerated with any other amounts or items not appearing in the contract.
  • The content of management reports is changed. Companies that cannot file abridged annual financial statements must provide details in the management report on the average payment terms for suppliers; in the event that said term exceeds the maximum term provided in laws on late payment, the report shall also detail the measures to be followed in the financial year thereafter to reduce the amount until such maximum payment terms are fulfilled.

As for listed companies, the main amendments are the following:

  • There are additional matters reserved to the scope of responsibility of the General Shareholders Meeting, with the inclusion of Article 511 bis. These are: (a) the transfer to dependant companies of essential activities carried on until that time by the company itself, even when such company fully owned the latter; (b) the acquisition or disposal of essential operating assets; (c) operations with an effect resembling the liquidation of the company; and (d) the policy on remuneration of Directors in the terms set forth in the Act. Activities are to be regarded as essential and assets as operations when the volume of the operation exceeds 25% of the total assets on the balance sheet.
  • Bylaws may not require the possession of more than 1,000 shares for attendance to the General Shareholders Meeting.
  • There is a proposal to reduce the term in which shareholders can request information from seven to five days.
  • When the office of chairman and executive director are held by the same person, the appointment of the chairman of the board shall require a majority vote in favour by two-thirds of the members of the board.
  • The Board of Directors must undertake an annual assessment of its operation and its committees.
  • Boards of Directors are compelled to create a committee on appointments and compensation.
  • The draft legislation proposes that the maximum term for each appointment does not exceed four years, with the current figure standing at six years.
  • The remunerations policy of the Board of Directors must be approved by the General Shareholders Meeting (binding votes), following a report issued by the committee for appointments and compensation, at least once every three years. This report shall contain, at a minimum:
    • The total remuneration paid to directors in this capacity.
    • The system of remuneration of executive directors: description of the breakdown, global amount of fixed annual remuneration and the variation in the reference period, the parameters employed to establish the remaining items and any terms and conditions in their contracts such as bonuses, compensation, etc.
    • The Board of Directors shall decide on the method of individual distribution always within the framework of the policy on remuneration.
    • Any amendments to the above shall require the approval of the General Shareholders Meeting and no payments may be made until the amendment has been approved by the General Shareholders Meeting.
  • The annual report on remuneration shall continue to be submitted to a vote for consultation of the General Shareholders Meeting but, in the event that the General Shareholders Meeting voted against the report, a new motion on the remuneration policy must be submitted.