The new EU Shareholders Rights Directive (EU) 2017/828 (SRD II) has been transposed into national law through a series of amendments to the Listing Rules made by the Malta Listing Authority. The Authority has also published a Consultation Document on defining Material Related Party Transactions and Disclosure Requirements as per the requirements of SRD II.
The main changes effected in Chapter 5 to the Rules relate to general Related Parties considerations, Audit Committee considerations and applicable exemptions to the Rules dealing with Related Parties transactions. On the other hand, Chapter 12 has been amended to reflect changes, as well as incorporate additional definitions in relation to different aspects of shareholder rights. These, in turn, include the identification of shareholders, transmission of information, electronic participation in the General Meeting and remuneration.
The Authority has amended the definition of ‘Material Related Party transactions’, to refer to those transactions which would result in 5%, or more, individually or in aggregate, of any one of gross assets, profits and considerations tests. The definition of a ‘related party’ has been amended to be in line with the International Financial Reporting Standards (IFRSs).
Additionally, the definition of a ‘regulated market’ has also been amended to refer to a multilateral system operated or managed by a market operator, which brings together or facilitates the bringing together of multiple third-party buying and selling interests in financial instruments. Such a market is to be authorised and must function in line with MiFID.
Under Chapter 12 of the Listing Rules, ’information regarding shareholder identity’ now refers to information allowing the identity of a shareholder to be established. This can be established through the name and contact details of the shareholder, the number of shares held and, in certain cases, the category of classes of shares held.
Material Related Party Transactions
The Directive requires that companies, which have shares admitted to trading on a regulated market, must have safeguards in place with respect to Material Related Party transactions. The Listing Rules now also require the Issuer to ensure that the information contained in the Company Announcement includes the nature and details of the transaction, the name of the Related Party concerned, as well as the details of the nature and extent of the interest of the Related Party.
Issuers are now also required to publicly disclose Material Related Party transactions between the Related Party of the Issuer and the Issuer’s subsidiary. Material transactions concluded between the Related Party of the Issuer and the Issuer’s subsidiary, should be subject to the same procedure applicable to Material Related Party transactions entered into directly with the Issuer.
The Listing Rules have also incorporated provisions from the Market Abuse Regulation (Regulation (EU) 596/2014). Issuers are to further ensure that inside information which directly concerns them is made public in a manner which enables both fast access, as well as a complete, correct and timely assessment of the information by the public.
Following the feedback received on the Consultation Document, the Authority has agreed to widen the scope and extend the list of exemptions granted; this now also covers specific remuneration distribution to directors. Moreover, transactions offered to all shareholders on the same terms, ensuring equal treatment of shareholders and protection of the company’s interests may be exempted from the disclosure and approval requirements associated with Related Party Transactions.
Scope of Shareholders Rights
Chapter 12 of the Listing Rules has been amended to include specific requirements intended to encourage shareholder engagement in the long-term. These requirements apply in relation to the:
- identification of shareholders;
- transmission of information;
- facilitation of exercise of shareholders’ rights;
- transparency of individual investors, asset managers and proxy advisors; and
- remuneration of directors and related party transactions.
Chapter 12 of the Listing Rules does not apply to UCITS, collective investment undertakings, co-operative societies and credit institutions and investments firms subject to the use of resolution tools, powers and mechanisms.
The SRD II also facilitates a company’s right to request intermediaries to communicate shareholder identity and transmit of information. If information about the shareholder is available on the issuer’s website, a notice indicating where on the website such information can be found must now be provided to the intermediaries.
Moreover, where shareholders’ votes are cast electronically, an electronic confirmation confirming receipt of the vote is to be sent to the voter.
New requirements for listed entities to establish a remuneration policy have now been put forward with regards to directors. Issuers shall grant the right to shareholders to vote on the remuneration policy at the general meeting. The term ‘remuneration policy’ has also been amended to refer to ‘a policy which contributes to the issuer’s business strategy and long-term interests, as well as sustainability’.
After the vote on the policy is taken at the General Meeting, the remuneration policy together with the date and the results of the vote is made public, without delay, on the issuer’s website and remains publicly available, free of charge, at least as long as it remains applicable.
Issuers are obliged to draw up a clear and understandable remuneration report. The main amendments relate to the information to be given with regards to each director’s remuneration.
Moreover, issuers are to process the personal data of directors included in such report to increase corporate transparency. These amendments aim to enhance directors’ accountability and shareholder oversight over directors’ remuneration.
Article written by Dr Cherise Abela Grech and Legal Trainee Ms Emma Sammut.
This article is not intended to impart legal advice and readers are asked to seek verification of statements made before acting on them.