Identifying shareholders and disseminating information after 1 July 2013. What are the implications for listed companies and shareholders?
The new Corporate Governance Act, effective as of 1 July 2013, enables a listed company to identify:
- who its shareholders are
- how big their stake is
- what they hold
Under the new law, shareholders can take the initiative as well and ask the company to start an identification process. A shareholder can also request the company to make information available to the other shareholders.
What are the key elements of the Corporate Governance Act?
- The first threshold for notifying the AFM of capital holdings and/or rights of control - gross long positions - is reduced from 5% to 3%; the former 5% threshold is maintained as a second notification threshold.
- There is a new notification requirement for gross short positions – i.e. financial instruments the value which increases if the share price drops - and the same thresholds apply as for gross long positions. Net short positions have to be notified under the EU Shortselling Regulation. The AFM has published a guideline (Dutch) on calculating short positions.
- The qualifying threshold for the "agenda right" – i.e. the right to request that an item be added to the agenda of the shareholders meeting - is raised from 1% to 3%. As before, the threshold applies to all NVs. The former alternative threshold of EUR 50 million in capital interest is abolished. The company's articles may specify a lower threshold, and this will apply instead of the statutory threshold. Many articles of associates provide for the former statutory threshold, i.e. 1%.
- A shareholder requesting discussion of an agenda item should disclose its entire beneficial interest (long and short position) to the company. The company must mention this interest on its website.
- The identity of shareholders of listed companies can be established, and information can be distributed among shareholders. These new provisions apply to Dutch NVs and foreign companies listed in the Netherlands or traded on a multilateral trading facility.
In this legal alert, we will explain the new rules on shareholder identification and dissemination of information, using a practical example and a number of Q&A.
A listed company is holding its annual general meeting on 1 May 2014. One of the items on the agenda is the takeover of a significant player in the market. The company is hoping to get sufficient support from shareholders for this agenda item. What can the company and its shareholders do prior to the AGM?
Identification request by the company (section 49b Securities Transfer by Giro Act)
To get a better idea who its shareholders are, the company can start a process to identify shareholders holding 0.5% or more of the issued capital. Pursuant to the new law, the company can request the name, address, e-mail address, and the participating interest of any affiliated institution, intermediary or participant/shareholder. It may be necessary to approach several institutions and intermediaries in the giro system's custodial chain, such as:
- an affiliated institution (bank) or intermediary
- a foreign institution
- a custodian of an investment institution
If the company's shares are held via a cross-border custodian chain, it will depend on the cooperation given by the foreign institutions whether all information is obtained. Another relevant factor is whether the country in question already has a similar regime. France and the UK do, for example.
There are a number of requirements that an identification request by the company will have to meet.
- The request must be in writing, including e-mail.
- It must be made 60 days before the general meeting at the earliest and on the day of the general meeting itself at the latest.
- It must specify a record date – during the above period – that the identification relates to; this will, in practice, coincide with the registration date, 28 days before the general meeting, because only those holding shares on the registration date may vote at the general meeting.
- It must generally be answered by the affiliated institution within 3 working days, but this can be extended to a maximum of 7 days.
- The request must be announced on the company's website, and the announcement must also mention that information can be made available to shareholders, as explained below.
Identification request by a shareholder (section 49b Securities Transfer by Giro Act)
Not only the company but also its shareholders may set an identification process in motion. This will be useful when they are planning to ask the company to make certain information available to the other shareholders. As in the case of this type of request by the company, an identification request by a shareholder may only relate to holders of 0.5% or more of the issued capital.
An identification request by a shareholder has to meet the following requirements:
- The shareholder must – individually or together with other shareholders – hold at least 10% of the issued capital.
- The request must be made in writing, including e-mail.
- The shareholder must make the request 60 days before the general meeting at the earliest until and not including the 42nd day before the general meeting – the latter is the deadline for convening an general meeting.
When the company receives a valid identification request from a shareholder, it will start the identification process to obtain the details of the shareholders in question. The company must keep the details confidential and handle them with due care.
Dissemination of information (section 49c Securities Transfer by Giro Act)
The new rules on making information available to shareholders are based on the principle that shareholders cannot directly communicate with each other. All communication takes place via the company. To disseminate information, the company can use the details obtained as a result of the identification process.
The company can make information available to its shareholders on its own initiative or at the request of one or more shareholders. Such a request can only be made if the shareholder – individually or together with other shareholders – holds at least 1% of the issued share capital or holds shares representing a market value of at least EUR 250,000. In addition, the requesting shareholder must be an "identified" shareholder: he must have been identified as a shareholder/investor on the record date during the most recent identification request. This additional requirement was added by the legislators to prevent listed companies from being inundated by requests from shareholders to circulate information.
A request to disseminate information must relate to an item on the agenda of a general meeting.
The company may refuse the request if:
- it has received the request less than 7 working days before the general meeting.
- the information sends out or may send out an incorrect or misleading signal.
- the information is of such nature that the company cannot reasonably be required to disseminate it, taking into account factors such as the content and scope of the information and the manner of providing it. Criticism of the company's policy or conduct of business is not a valid reason for refusal.
Shareholders may not make use of the information channel to obtain voting proxies from other shareholders.
The company must as soon as possible but no later than 3 working days after receiving the request:
- send the information to the other shareholders, and/or
- place the information on its website
The Corporate Governance Act is unclear about the period during which the information must remain available on the company's website. Is it up to and including the day of the general meeting, or for one year? To ensure that the company complies with the Act, we would recommend keeping the information available on the company's website for one year.
The new rules allow shareholders to approach their company with requests for information. The company will have to decide how to respond to these requests on a case to case basis. Will it opt for placing the information on the website only, will it send the information on to the other shareholders, or will it publish a response? It is also important to consider what type of information is requested: bear in mind the restrictions on price-sensitive information. Practice will tell whether and how the new rules will improve the dialogue between companies and their shareholders.
A listed company wants to hold an extraordinary general meeting in light of negative developments at its foreign subsidiary.
Can the company or a 10% shareholder start an identification process?
Yes. The company can make the request from 60 days before the general meeting up to and including the day of the meeting. The shareholder can also make its request from 60 days before the general meeting, but only until, and not including, the 42nd day before the day of the meeting.
Can the company decide to disseminate information on its own initiative, and can a 1% shareholder make a request for dissemination?
The company can make information available to its shareholders on its own initiative by placing the information on its website. A shareholder with a 1% stake may only submit a request for dissemination if the shareholder was identified as shareholder/investor on the record date during the most recent identification process.
Who pays the costs of the identification process or dissemination of information?
The company pays the costs of making information available. As regards the costs of the identification process, the original Corporate Governance Bill obliged the company to reimburse every party that had cooperated with the identification request. This obligation was later removed from the bill. From this it can be concluded that the intermediary banks will have to pay for the costs arising from identification requests.
Can the company refuse identification requests by its shareholders?
Under the new rules, the company can only refuse a request if it has not been made within the statutory period, i.e. between 60 and 42 days before the general meeting. It is conceivable that a company may refuse a request that has been made on time but does not specify any reasons why it is made. This would, after all, suggest that the party making the request has no valid interest, as he would otherwise have specified it.