I. Shareholder notification in the Netherlands
On 23 May 2019, the Dutch government submitted a legislative proposal to classify a shareholding of 2% in a listed company as a substantial shareholding ("Proposal"). With this Proposal, the initial statutory threshold for shareholders to notify their shareholding will be lowered from 3% to 2%. The public was invited to submit comments to the Proposal through an online consultation that ended on 4 July 2019.
This legal alert discusses the background and rationale, the key characteristics and the implications of the Proposal, the reactions following its online consultation and our observations.
II. Background and rationale
The Proposal has been formally submitted by the Dutch government, mainly following two recent developments in the Dutch corporate governance arena (set out below) that emphasize the importance of long-term value creation and the thereto-related dialogue between listed companies and their shareholders:
1. The Dutch Corporate Governance Code, which obtained a statutory basis in 2018, in which long-term value creation plays a central role.
2. The implementation of EU Directive 2017/828 (Shareholders Directive), which aims to achieve long-term sustainability of listed companies by enhancing shareholders' rights and their engagement in listed companies and the increase of transparency between listed companies and their shareholders.
III. Key characteristics of the Proposal
The Proposal includes a few changes to the Dutch Financial Supervision Act. At present, shareholders must report their shareholding in a listed company (with the Netherlands as the home member state) to the Dutch Authority for the Financial Markets (AFM) if their shareholding has reached 3%. The new threshold of 2% will be added to the existing thresholds of 3, 5, 10, 15, 20, 25, 30, 40, 50, 60, 75 and 95%. It should be noted that the current initial threshold of 3% will not disappear. The 2% threshold will become the initial statutory threshold. This means that a larger group of shareholders will become known to listed companies and the public.
The Dutch parliament strives to have the Proposal enter into effect ultimately on 1 January 2021. Shareholders of listed companies (with the Netherlands as the home member state) should take into account the following:
1. A shareholder having at least 2%, but less than 3%, in the capital or the voting rights in a listed company shall comply with these new rules and notify the AFM of its shareholding within four weeks after the Proposal enters into force.
2. If it appears from a prior notification that a shareholder has a shareholding of at least 2% in the capital or the voting rights in a listed company, a new notification with respect to such 2% shareholding is not necessary. This is the case, for instance, if the aforementioned already follows from the notification made for reaching the 3% threshold.
V. Online consultation – Reactions to the Proposal
Several responses were submitted during the online consultation period of the Proposal, including responses from the AFM and Eumedion. The AFM is not in favor of adding an additional notification threshold and advocates a level playing field within Europe. The European harmonized minimum threshold is 5%. The AFM indicates that the Netherlands already applies a stricter regime by having a minimum threshold of 3%. Moreover, the AFM emphasizes that the 2% threshold does not add value to Dutch corporate law. Currently, Dutch corporate law also applies a 3% threshold (not 2%) for the right of shareholders to propose items on the agenda of a general meeting of the shareholders.
Shareholders advisor Eumedion endorses the importance of a constructive dialogue between listed companies and their shareholders. At the same time, it believes that, based on current legislation (Dutch law on shareholder identification (Wet giraal effectenverkeer)), listed companies already have sufficient opportunities to identify their shareholders and start the dialogue with shareholders having a shareholding of more than 0.5%. In Eumedion's view, the introduction of a minimum threshold of 2% is unnecessary, disproportionate and leads to an additional administrative burden for shareholders. According to Eumedion, it remains unclear why existing legislation is insufficient and the Proposal is necessary and proportional.
VI. Our observations
In our view, the AFM and Eumedion rightfully question whether this Proposal contributes to: (i) Dutch corporate law, and (ii) a level playing field in Europe. If this Proposal is adopted, the Netherlands will have one of the strictest disclosure regimes in Europe. Although a larger part of the shareholders group will be disclosed to listed companies and the public, it also creates an additional burden for shareholders and the AFM. We are interested to see if listed companies will actually benefit from knowing the shareholder group with a shareholding of less than 3%.
We are also interested in seeing whether the Proposal will be amended or even withdrawn following the input received during the online consultation.