Advisory Board

  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Peter Clarke
  • Barry Diller
  • IAC/InterActiveCorp
  • Fu Chengyu
  • China National Petrochemical Corporation (Sinopec Group)
  • Richard J. Gnodde
  • Goldman Sachs International
  • Lodewijk Hijmans van den Bergh
  • De Brauw Blackstone Westbroek N.V.
  • Jiang Jianqing
  • Industrial and Commercial Bank of China, Ltd. (ICBC)
  • Handel Lee
  • King & Wood Mallesons
  • Richard Li
  • PCCW Limited
  • Pacific Century Group
  • Liew Mun Leong
  • CapitaLand Limited
  • Martin Lipton
  • New York University
  • Wachtell, Lipton, Rosen & Katz
  • Liu Mingkang
  • China Banking Regulatory Commission (CBRC)
  • Dinesh C. Paliwal
  • Harman International Industries
  • Leon Pasternak
  • Bank of America Merrill Lynch
  • Tim Payne
  • Brunswick Group
  • Joseph R. Perella
  • Perella Weinberg Partners
  • Baron David de Rothschild
  • N M Rothschild & Sons Limited
  • Dilhan Pillay Sandrasegara
  • Temasek Holdings
  • Shao Ning
  • State-owned Assets Supervision and Administration Commission of the State Council of China (SASAC)
  • John W. Snow
  • Cerberus Capital Management, L.P.
  • Former U.S. Secretary of Treasury
  • Bharat Vasani
  • Tata Group
  • Wang Junfeng
  • King & Wood Mallesons
  • Wang Kejin
  • China Banking Regulatory Commission (CBRC)
  • Wei Jiafu
  • China Ocean Shipping Group Company (COSCO)
  • Yang Chao
  • China Life Insurance Co. Ltd.
  • Zhu Min
  • International Monetary Fund

Legal Roundtable

  • Dimitry Afanasiev
  • Egorov Puginsky Afanasiev and Partners (Moscow)
  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Johan Aalto
  • Hannes Snellman Attorneys Ltd (Finland)
  • Nigel P. G. Boardman
  • Slaughter and May (London)
  • Willem J.L. Calkoen
  • NautaDutilh N.V. (Rotterdam)
  • Peter Callens
  • Loyens & Loeff (Brussels)
  • Bertrand Cardi
  • Darrois Villey Maillot & Brochier (Paris)
  • Santiago Carregal
  • Marval, O’Farrell & Mairal (Buenos Aires)
  • Martín Carrizosa
  • Philippi Prietocarrizosa & Uría (Bogotá)
  • Carlos G. Cordero G.
  • Aleman, Cordero, Galindo & Lee (Panama)
  • Ewen Crouch
  • Allens (Sydney)
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Rachel Eng
  • WongPartnership (Singapore)
  • Sergio Erede
  • BonelliErede (Milan)
  • Kenichi Fujinawa
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Manuel Galicia Romero
  • Galicia Abogados (Mexico City)
  • Danny Gilbert
  • Gilbert + Tobin (Sydney)
  • Vladimíra Glatzová
  • Glatzová & Co. (Prague)
  • Juan Miguel Goenechea
  • Uría Menéndez (Madrid)
  • Andrey A. Goltsblat
  • Goltsblat BLP (Moscow)
  • Juan Francisco Gutiérrez I.
  • Philippi Prietocarrizosa & Uría (Santiago)
  • Fang He
  • Jun He Law Offices (Beijing)
  • Christian Herbst
  • Schönherr (Vienna)
  • Lodewijk Hijmans van den Bergh
  • Royal Ahold (Amsterdam)
  • Hein Hooghoudt
  • NautaDutilh N.V. (Amsterdam)
  • Sameer Huda
  • Hadef & Partners (Dubai)
  • Masakazu Iwakura
  • Nishimura & Asahi (Tokyo)
  • Christof Jäckle
  • Hengeler Mueller (Frankfurt)
  • Michael Mervyn Katz
  • Edward Nathan Sonnenbergs (Johannesburg)
  • Handel Lee
  • King & Wood Mallesons (Beijing)
  • Martin Lipton
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Alain Maillot
  • Darrois Villey Maillot Brochier (Paris)
  • Antônio Corrêa Meyer
  • Machado, Meyer, Sendacz e Opice (São Paulo)
  • Sergio Michelsen Jaramillo
  • Brigard & Urrutia (Bogotá)
  • Zia Mody
  • AZB & Partners (Mumbai)
  • Christopher Murray
  • Osler (Toronto)
  • Francisco Antunes Maciel Müssnich
  • Barbosa, Müssnich & Aragão (Rio de Janeiro)
  • I. Berl Nadler
  • Davies Ward Phillips & Vineberg LLP (Toronto)
  • Umberto Nicodano
  • BonelliErede (Milan)
  • Brian O'Gorman
  • Arthur Cox (Dublin)
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Sang-Yeol Park
  • Park & Partners (Seoul)
  • José Antonio Payet Puccio
  • Payet Rey Cauvi (Lima)
  • Kees Peijster
  • COFRA Holding AG (Zug)
  • Juan Martín Perrotto
  • Uría & Menéndez (Madrid/Beijing)
  • Philip Podzebenko
  • Herbert Smith Freehills (Sydney)
  • Geert Potjewijd
  • De Brauw Blackstone Westbroek (Amsterdam/Beijing)
  • Qi Adam Li
  • Jun He Law Offices (Shanghai)
  • Biörn Riese
  • Mannheimer Swartling (Stockholm)
  • Mark Rigotti
  • Herbert Smith Freehills (Sydney)
  • Rafael Robles Miaja
  • Robles Miaja (Mexico City)
  • Alberto Saravalle
  • BonelliErede (Milan)
  • Maximilian Schiessl
  • Hengeler Mueller (Düsseldorf)
  • Cyril S. Shroff
  • Cyril Amarchand Mangaldas (Mumbai)
  • Shardul S. Shroff
  • Shardul Amarchand Mangaldas & Co.(New Delhi)
  • Klaus Søgaard
  • Gorrissen Federspiel (Denmark)
  • Ezekiel Solomon
  • Allens (Sydney)
  • Emanuel P. Strehle
  • Hengeler Mueller (Munich)
  • David E. Tadmor
  • Tadmor & Co. (Tel Aviv)
  • Kevin J. Thomson
  • Barrick Gold Corporation (Toronto)
  • Yu Wakae
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Wang Junfeng
  • King & Wood Mallesons (Beijing)
  • Tomasz Wardynski
  • Wardynski & Partners (Warsaw)
  • Rolf Watter
  • Bär & Karrer AG (Zürich)
  • Xiao Wei
  • Jun He Law Offices (Beijing)
  • Xu Ping
  • King & Wood Mallesons (Beijing)
  • Shuji Yanase
  • OK Corporation (Tokyo)
  • Alvin Yeo
  • WongPartnership LLP (Singapore)

Founding Directors

  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz
  • Nigel P.G. Boardman
  • Slaughter and May
  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz
  • Peter Williamson
  • Cambridge Judge Business School
  • Franny Yao
  • Ernst & Young

Disclosure

Promoting Long-Term Value Creation – The Launch of the Investor Stewardship Group (ISG) and ISG’s Framework for U.S. Stewardship and Governance

Editors’ Note: This article was co-authored by Martin Lipton, Steven A. Rosenblum, Karessa L. Cain, Sabastian V. Niles and Sara J. Lewis of Wachtell, Lipton, Rosen & Katz.


Executive Summary/Highlights:

A long-running, two-year effort by the senior corporate governance heads of major U.S. investors to develop the first stewardship code for the U.S. market culminated today in the launch of the Investor Stewardship Group (ISG) and ISG’s associated Framework for U.S. Stewardship and Governance. Investor co-founders and signatories include U.S. Asset Managers (BlackRock; MFS; State Street Global Advisors; TIAA Investments; T. Rowe Price; Vanguard; ValueAct Capital; Wellington Management); U.S. Asset Owners (CalSTRS; Florida State Board of Administration (SBA); Washington State Investment Board); and non-U.S. Asset Owners/Managers (GIC Private Limited (Singapore’s Sovereign Wealth Fund); Legal and General Investment Management; MN Netherlands; PGGM; Royal Bank of Canada (Asset Management)).

Focused explicitly on combating short-termism, providing a “framework for promoting long-term value creation for U.S. companies and the broader U.S. economy” and promoting “responsible” engagement, the principles are designed to be independent of proxy advisory firm guidelines and may help disintermediate the proxy advisory firms, traditional activist hedge funds and short-term pressures from dictating corporate governance and corporate strategy.

Importantly, the ISG Framework would operate to hold investors, and not just public companies, to a higher standard, rejecting the scorched-earth activist pressure tactics to which public companies have often been subject, and instead requiring investors to “address and attempt to resolve differences with companies in a constructive and pragmatic manner.” In addition, the ISG Framework emphasizes that asset managers and owners are responsible to their ultimate long-term beneficiaries, especially the millions of individual investors whose retirement and long-term savings are held by these funds, and that proxy voting and engagement guidelines of investors should be designed to protect the interests of these long-term clients and beneficiaries. While the ISG Framework is not intended to be prescriptive or comprehensive in nature, with companies and investors being free to apply it in a manner they deem appropriate, it is intended to provide guidance and clarity as to the expectations that an increasingly large number of investors will have not only of public companies, but also of each other.

Click here to read the full article.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

The Dutch Corporate Governance Code and The New Paradigm

Editors’ Note: This article was co-authored by Martin Lipton, Steven A. Rosenblum, Karessa L. Cain, Sabastian V. Niles and Sara J. Lewis of Wachtell, Lipton, Rosen & Katz.

Executive Summary/Highlights:

The new Dutch Corporate Governance Code, issued December 8, 2016, provides an interesting analog to The New Paradigm, A Roadmap for an Implicit Corporate Governance Partnership Between Corporations and Investors to Achieve Sustainable Long-Term Investment and Growth, issued September 2, 2016, by the International Business Council of the World Economic Forum. The new Dutch Code is applicable to the typical two-tier Dutch company with a management board and a supervisory board. The similarities between the Dutch Code and the New Paradigm demonstrate that the principles of The New Paradigm, which are to a large extent based on the U.S. and U.K. corporate governance structure with single-tier boards, are relevant and readily adaptable to the European two-tier board structure.

Both the New Paradigm and the Dutch Code fundamentally envision a company as a long-term alliance between its shareholders and other stakeholders. They are both based on the notions that a company should and will be effectively managed for long-term growth and increased value, pursue thoughtful ESG and CSR policies, be transparent, be appropriately responsive to shareholder interests and engage with shareholders and other stakeholders.

Like The New Paradigm, the Dutch Code is fundamentally designed to promote long-term growth and value creation. The management board is tasked with achieving this goal and the supervisory board is tasked with monitoring the management board’s efforts to achieve it.

Click here to read the full article.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

CANADIAN UPDATE – Significant changes in proposed amendments to Canada Business Corporations Act

Editors’ Note: This article was contributed by Christopher Murray, a partner of Osler and leader of the Osler Asia-Pacific initiative whose practice focuses on public company M&A as well as corporate finance principally involving REIT Income Funds, mining and energy businesses.  This article was authored by Osler partners Andrew MacDougall and Robert M. Yalden and associates Justin Dharamdial and John M. Valley in the Osler Corporate group.

Executive Summary/Highlights: 

On September 28, 2016, the Canadian federal government introduced Bill C-25: An Act to amend the Canada Business Corporations Act et al. The proposed amendments are the culmination of the first substantive review of the Canada Business Corporations Act (the CBCA) in 15 years and are the result of a consultation process initiated in 2013. The stated objectives of the proposed amendments are to, among other things:

  • reform the process for electing directors of certain corporations;
  • modernize communications between corporations and their shareholders; and
  • require disclosure of information respecting diversity among directors and senior management.

Click here to see the full article.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

GERMAN UPDATE – Amendments to German Securities Trading Act (WpHG) with High Significance in Practice: Disclosure of Significant Shareholdings, Home Country Disclosure, Interim Financial Reporting

Editors’ Note:  Dr. Christof Jäckle and Dr. Emanuel Strehle are members of XBMA’s Legal Roundtable and Partners at Hengeler Mueller, a leading German firm in the M&A and corporate arena.  Dr. Christian Schwandtner, partner of Hengeler Mueller, authored the following article.

Executive Summary

  • Revised notification requirements with regard to significant shareholdings conferring voting rights in companies listed in Germany as well as with regard to (financial) instruments regarding such shares in force since 26 November 2015
  • Mandatory standard form for notifications to be used
  • Scope of sanctions for breach of disclosure requirements substantially broadened
  • One-off disclosure requirements triggered by the mere amendment of the German Securitites Trading Act (WpHG), in particular, any holding of instruments in excess of 5% on 2 November 2015 has to be notified
  • One-off disclosure requirement for all issuers if their (statutory or elected) home state (Herkunftsstaat) is Germany

Main Article

On 1 October 2015 and 6 November 2015, the German Bundestag and Bundesrat passed the Act regarding the Implementation of the Amendment Directive to the Transparency Directive (Gesetz zur Umsetzung der Transparenzrichtlinie-Änderungsrichtlinie, hereinafter the “Implementation Act” – see official document (Drucksache) no. 482/15 of the German Bundesrat (http://www.bundesrat.de/bv.html?id=0482-15) to adopt Directive 2013/50/EU of the European Parliament and of the Council of 22 October 2013 which amends the European Transparency Directive (Directive 2004/109/EC of the European Parliament and of the Council) providing, inter alia, for disclosure requirements for significant shareholdings in companies listed in Germany (please note that, under certain circumstances, the German disclosure requirements may apply to non-German companies whose shares are listed on a German stock exchange). The new law has become effective on 26 November 2015 (hereinafter the “Effective Date“).

 

I.         Summary of Status Quo of Notification Requirements in Germany

The German provisions on the disclosure of significant shareholdings conferring voting rights are set forth in the German Securities Trading Act (Wertpapierhandelsgesetz – “WpHG“), which in this regard is based on the European Transparency Directive. The WpHG has until now provided for the following three separate disclosure requirements with regard to significant shareholdings:

(a)        The owners of shares conferring voting rights in German listed companies must notify the respective issuer and the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – “BaFin“) pursuant to Sec. 21 of the WpHG if certain threshold proportions (3%, 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75%) of the total voting rights in the issuer are reached or exceeded (or if the shareholding falls below such threshold). In this regard, not only the shares conferring voting rights directly owned by the relevant person are taken into consideration but, pursuant to Sec. 22 of the WpHG, shares owned by a third party may be attributed to the relevant person, e.g., shares owned by subsidiaries of such person, or shares which are owned by a third party deemed to be acting in concert with the relevant person.

(b)        In 2007 (amended in 2009), the German disclosure requirements were extended to include certain financial instruments and other instruments which entitle the holder to acquire voting rights pertaining to existing shares of the respective German listed company. These must also be notified to the issuer and BaFin pursuant to Sec. 25 of the WpHG if the aggregate percentage of shares conferring voting rights which may be acquired under such instruments together with shares owned or attributed to the relevant person pursuant to Sec. 21 and 22 of the WpHG reaches, exceeds or falls below any of the above mentioned thresholds (except for the threshold of 3%).

(c)        As certain instruments with regard to the delivery of shares conferring voting rights (e.g., short positions under put options), and more significantly cash-settled instruments, were not captured by the definition of instruments set forth in Sec. 25 of the WpHG and did not trigger notification obligations, new disclosure requirements with regard to such instruments were introduced in 2012. Since then, Sec. 25a of the WpHG provides for a rather broad disclosure of instruments which do not grant an enforceable right to acquire voting rights but facilitate such acquisition at least economically (e.g., cash settled options or total return equity swaps) or provide for an obligation of the holder to acquire shares conferring voting rights (e.g., short positions under put options, share purchase agreements subject to conditions precedent which are not under the sole control of the purchaser). Furthermore, Sec. 25a of the WpHG even captures instruments whose holder is not the beneficiary but which facilitate the acquisition of voting rights by a third party. Again, any shareholding pursuant to Sec. 21 and 22 of the WpHG and holding of instruments pursuant to Sec. 25 of the WpHG must be aggregated with holdings of instruments pursuant to Sec. 25a of the WpHG for the purpose of determining whether the relevant thresholds of voting rights in the German listed company are met (except for the threshold of 3%). The disclosure requirements pursuant to Sec. 25a of the WpHG went well beyond the requirements stipulated by the European Transparency Directive thus far.

 

II.        Amendment to the European Transparency Directive by Directive 2013/50/EU

The European Transparency Directive was amended by Directive 2013/50/EU of the European Parliament and of the Council of 22 October 2013. The key amendments with regard to voting rights notifications relate to the definition of financial instruments, which now not only captures financial instruments entitling the holder to acquire shares conferring voting rights but also financial instruments referenced to shares and “with economic effect similar to” those entitling the holder to delivery of shares (Article 13, para. 1 lit b) of the Transparency Directive (as amended)). Also, Article 13a of the Transparency Directive (as amended) now provides for an aggregation of voting rights held directly or indirectly and financial instruments within the meaning of Article 13 of the Transparency Directive (as amended). In addition, the scope of sanctions for a breach of the notification requirements has been significantly extended (including fines of up to the higher of EUR 10m and 5% of the total annual turnover according to the last available annual accounts), a public ‘naming and shaming’ of the relevant person and a loss of the right to exercise voting rights.

 

III.      Implementation of revised European Transparency Directive into the WpHG

The revised Transparency Directive is implemented into German law by the Implementation Act (the WpHG as amended by the Implementation Act in the following the “Revised WpHG“). BaFin has published on its website, among other materials, Frequently Asked Questions (FAQ) with regard to the new disclosure requirements under Sec. 21/22, 25 and 25a of the WpHG (as revised) to give guidance on the new law:

http://www.bafin.de/SharedDocs/Downloads/DE/FAQ/dl_faq_trl-aendrl-umsg.pdf.

The key changes made to the disclosure requirements under the WpHG can be summarized as follows:

 

1.         Continuation of System of three different Disclosure Regimes but with revised Trigger Events

The new disclosure requirements under Sec. 21/22, 25 and 25a of the Revised WpHG still provide for three separate disclosure regimes as before, but with different trigger events and content:

(a)         Holding/Attribution of Voting Rights

Sec. 21 and 22 of the Revised WpHG require a disclosure of voting rights held or attributed to the relevant person (including rights held by parties acting in concert with them).

(b)         Holding of Instruments

Sec. 25 of the Revised WpHG combines the current disclosure requirements under Sec. 25 and 25a of the WpHG: pursuant to Sec. 25 of the Revised WpHG (x) instruments entitling the holder to acquire shares conferring voting rights as well as (y) other instruments relating to shares conferring voting rights and having similar economic effect as the instruments pursuant to (x) (irrespective of an actual delivery of shares) will have to be notified if the aggregate holding of such instruments reaches, exceeds or falls below the (unchanged) thresholds pursuant to Sec. 21 of the Revised WpHG (except for the threshold of 3%, which still applies only to holdings/attributions of shares conferring voting rights). Please note that Sec. 25 of the Revised WpHG only takes into account the (direct or indirect) holding of instruments for the purpose of determining whether the relevant thresholds are met.

Thus, the disclosure requirements pursuant to Sec. 25 and 25a of the WpHG regarding (financial) instruments have been consolidated in Sec. 25 of the Revised WpHG. Such consolidation shall, pursuant to the explanatory notes of the legislator to the Implementation Act, not result in a change to the scope of instruments which were previously to be notified pursuant to Sec. 25 and 25a of the WpHG although the definition of the relevant other instruments (i.e., instruments under (y) above) has been slightly reworded. However, there will at least be a minor change of scope resulting from the new wording: under Sec. 25a of the WpHG instruments had to be disclosed even if they facilitated the acquisition of shares by a third party rather than their holder. Sec. 25 of the Revised WpHG no longer refers to third parties so that only instruments from which the actual holder benefits have to be disclosed by the holder. However, if an instrument provides for a benefit to a third party (e.g., under a contract containing third party rights) that third party may itself be required to make a disclosure notification pursuant to Sec. 25 of the Revised WpHG.

(c)         Aggregation of Voting Rights and Instruments

Sec. 25a of the Revised WpHG provides for a separate disclosure requirement with regard to the aggregated holding/attribution of shares (Sec. 21 and 22 of the Revised WpHG) and the holding of instruments (Sec. 25 of the Revised WpHG), in addition to the individual notification requirements for each of these. Such aggregation had to be made under the old law as well but as part of the disclosure of instruments rather than as a separate disclosure as it is now provided for in Sec. 25a of the Revised WpHG. Under the new law, if the aggregate holding of shares and instruments reaches, exceeds or falls below any of the thresholds pursuant to Sec. 21 of the Revised WpHG (except for the threshold of 3%) this must be notified pursuant to Sec. 25a of the Revised WpHG even if no disclosure requirement pursuant to Sec. 21/22 and 25 of the Revised WpHG is triggered.

Example: shareholder A holds 2% of the shares of the German listed company X AG (covered by Sec. 21 of the Revised WpHG) and instruments entitling the holder to a delivery of 2% of the shares of X AG conferring voting rights (i.e., an instrument within the meaning of Sec. 25 of the Revised WpHG). Under the new law (as under the current law) such holding (i.e., shares and instruments) does not trigger any notifications as no relevant threshold is reached or exceeded. If A now acquires another 2.9% in the form of instruments relating to the shares of X AG, such acquisition does not trigger a notification pursuant to Sec. 21 of the Revised WpHG as the shareholding is still below 3% (namely 2%) or a notification pursuant to Sec. 25 of the Revised WpHG as the holding of instruments is still below 5% (namely 4.9%). However, a notification pursuant to Sec. 25a of the Revised WpHG is triggered as the aggregate holding of shares and instruments has exceeded 5% (namely 6.9%). Thus, a notification pursuant to Sec. 25a of the Revised WpHG must be made by shareholder A.

 

2.         Sec. 21 of the Revised WpHG: Unconditional Right or Obligation to transfer Shares triggering Voting Rights Notifications

With regard to shares directly held by or attributed to the relevant person, voting rights notifications will no longer be triggered by the closing of the trade/acquisition, i.e., the transfer of legal ownership of the shares. Instead, the right (or obligation, in case of a disposal) to transfer legal ownership of the shares will trigger the voting rights notifications if such right or obligation is (x) unconditional (unbedingt) and (y) to be settled without delay (ohne zeitliche Verzögerung). This is usually the case for the acquisition or disposal of shares via a stock exchange which are settled on the second trading day after the trading on the stock exchange (“t+2”); in such cases, the voting rights notifications are triggered on the day of the trade on the stock exchange already (“t”) rather than on the day of settlement of such trade by delivery of the shares (“t+2”).

Please note that such amendment applies only to the voting rights notifications under the Revised WpHG, and not to the determination of control (30% threshold of voting rights in a German listed company reached or exceeded) under the German Takeover Act (Wertpapiererwerbs- und Übernahmegesetz, WpÜG) for which the settlement of the acquisition and thus legal ownership of the shares remains relevant.

 

3.         Amended Attribution Rules pursuant to Sec. 22 (1) of the Revised WpHG

(a)        Sec. 22 (1) of the Revised WpHG provides for an attribution of voting rights in case of a temporary transfer of voting rights without the underlying shares for consideration (no. 7 of Sec. 22 (1) of the Revised WpHG) and in case of shares which are lodged as collateral (Sicherungsverwahrung) provided the holder of the collateral controls the voting rights and declares his intention to exercise the voting rights (no. 8 of Sec. 22 (1) of the Revised WpHG). The temporary transferee or collateral holder would have to make a notification if the shareholding thresholds under the WpHG were met. Neither attribution rules should have a significant impact in respect of German listed companies, however. A separate transfer of voting rights without the underlying shares is not permissible for shares in a stock corporation (Aktiengesellschaft) incorporated under German law. Collateral over shares, meanwhile, is usually granted by way of pledge over the shares rather than by way of security transfer or security assignment of legal ownership of the shares to the holder of the security, so legal ownership of and thus the voting rights pertaining to the shares remain with the pledgor and the pledgee is not subject to a disclosure requirement pursuant to Sec. 21 and 22 of the WpHG.

In this respect, BaFin is changing its practice with regard to pledges over shares providing for forfeiture (Verfallklausel); in the view of BaFin such pledge no longer is an instrument within the meaning of Sec. 25 of the Revised WpHG.

(b)       Furthermore, the definition of the term “subsidiary” is now included in Sec. 22a of the Revised WpHG. This inclusion has no substantive consequences, but formally consolidates the definitions which were previously spread across Sec. 22 (2) and (3) of the WpHG and the Capital Investment Act (Kapitalanlagegesetzbuch).

 

4.         Non-counting of Voting Rights pertaining to Shares held for Stabilization Purposes

Sec. 23 (1a) of the Revised WpHG implements Article 9, para. 6a of the European Transparency Directive (as amended). Pursuant to the new para. (1a), voting rights pertaining to shares are not to be counted towards the disclosure thresholds if such shares have been acquired for stabilization purposes in accordance with Commission Regulation (EC) no. 2273/2003 of 22 December 2003 (buy-back-programs and stabilization of financial instruments), provided the voting rights attached to those shares are not exercised or otherwise used to intervene in the management of the issuer. Against this background, BaFin is changing its approach to shares subscribed by underwriters in an IPO which will be exempt from notification pursuant to Sec. 23 (2) no. 1 of the Revised WpHG if held for no longer than three trading days for the purposes of settlement of the IPO.

 

5.         Form of Disclosure and Deadline for Notifications due under the Revised WpHG

(a)        New Standard Form for Notifications

Any notification pursuant to Sec. 21/22, 25 and 25a of the Revised WpHG must be made to the issuer and BaFin using the official standard form as will be attached to the Legal Ordinance regarding Securities Trading Notifications and Insider Lists (Wertpapierhandelsanzeige- und Insiderverzeichnisverordnung, WpAIV). The use of the standard form is mandatory and will improve the comparability of notifications. Furthermore, under the new law only one notification is usually required for groups of companies rather than a separate notification by each group company.

(b)        Timing of Notification

As under the existing regime, Sec. 21 (1) of the WpHG states that notifications have to be made without undue delay (unverzüglich) and in any case no later than four trading days after the shareholder gains knowledge of the acquisition or disposal of shares or of a holding of instruments. However, under the Revised WpHG it is also irrefutably assumed (unwiderleglich vermutet) that the relevant shareholder has gained such knowledge two trading days after the trade of shares or instruments has occurred (irrespective of the settlement of such trade). This amendment should not generally have a substantial impact in practice but it underlines the German legislator’s intention to increase the standard of diligence applied by market participants to notification requirements, and hence the risk of sanctions for non-compliance.

 

6.         Sanctions

Broadening the scope of sanctions triggered by a breach of the notification requirements is one of the Implementation Act’s key objectives.

(a)        Loss of Rights pertaining to Shares, Sec. 28 of the Revised WpHG

A loss of voting rights and dividend rights was previously triggered only by a breach of the disclosure requirement relating to shares directly owned or attributed pursuant to no. 1 and no. 2 of Sec. 22 (1) of the WpHG (although fines could still be imposed). Under the new law a loss of rights is also triggered by the breach of a disclosure requirement arising due to any of the other attribution rules under Sec. 22 of the Revised WpHG. Most importantly, this also includes a breach of disclosure requirements with regard to voting rights attributed to parties that are acting in concert within the meaning of Sec. 22 (2) of the Revised WpHG. In these cases, the loss of voting rights and dividend rights not only relates to the shares directly held/owned by the person in breach of the disclosure requirements but also to the shares held by third parties which are attributed to such person pursuant to Sec. 22 of the Revised WpHG.

Example: If shareholders A and B are acting in concert with regard to their respective shares held in a German listed company and if shareholder A (or its direct and indirect controlling shareholder(s)!) does not comply with the disclosure requirements pursuant to Sec. 21 and 22 (2) of the Revised WpHG, both shareholder A and shareholder B will be subject to a loss of rights pertaining to the shares held even if shareholder B has fully complied with his disclosure requirements. Parties acting in concert will therefore have to make sure that each party fully complies with his respective disclosure requirements to avoid a loss of rights.

In addition, any breach of the disclosure requirements pursuant to Sec. 25 (1) (holding of instruments) and 25a (1) (aggregation of holding of shares and instruments) of the Revised WpHG will result in a loss of voting rights and dividend rights pursuant to Sec. 28 (2) of the Revised WpHG. However, such loss of rights relates to shares (directly) held by the relevant person being in breach of the disclosure requirements only but not to shares held by a third party. Previously, a breach of the disclosure requirements relating to (financial) instruments did not result in a loss of rights but could result in a fine being imposed by BaFin.

(b)        Fines

The monetary fines in case of a breach of the disclosure requirements have been substantially increased (Sec. 39 (4) of the Revised WpHG). So far, fines of up to EUR 1m can be imposed. Under the Revised WpHG, fines in the amount of up to EUR 2m may be imposed by BaFin on natural persons being holder of shares/instruments; for legal entities, the increase is very substantial: BaFin may now impose fines of up to the higher of EUR 10m and 5% of the annual consolidated turnover of the group to which such legal entity belongs. BaFin may increase the fine up to an amount equal to two times the economic benefit (including avoided losses) resulting from the non-compliance with the disclosure requirements.

(c)        Naming and Shaming

Moreover, BaFin will now publish actions taken and fines imposed as a result of any breach of the disclosure requirements on its webpage. Such publication will include the name of the relevant person(s) (including individuals) and the disclosure requirement which has not been complied with (Sec. 40c of the Revised WpHG) and will be made regardless whether the administrative action of BaFin is or still can be challenged.

 

7.         One-Off Disclosure Requirements triggered by the Amendment of the WpHG

Sec. 41 (4f) of the Revised WpHG provides for three different one-off disclosure requirements (Bestandsmitteilungspflicht) which are triggered simply by the fact that the WpHG has been amended by the Implementation Act, i.e., without any acquisition or disposal of shares or instruments:

(a)        Pursuant to Sec. 41 (4f) sentence 1 of the Revised WpHG, every person must disclose, by 15 January 2016 at the latest, its current holding of shares conferring voting rights pursuant to Sec. 21 and 22 of the Revised WpHG as per the Effective Date if, solely due to the amendment of Sec. 21 and 22 of the WpHG, one of the thresholds under Sec. 21 of the Revised WpHG is reached or exceeded. It is relatively unlikely that such notifications will be triggered in practice given that the new attribution rules pursuant to no. 7 and no. 8 of Sec. 22 (1) of the Revised WpHG should only very rarely apply. A notification might be triggered by the new rule that the trading rather than the closing of a trade is to the relevant triggering event in the future (see 2. above). Again, however, this would only apply to  rather exceptional cases, e.g., trading on the day before the day the Implementation Act becomes legally effective. Given that BaFin is of the opinion that a one-off disclosure pursuant to Sec. 41 (4f) sentence 1 of the Revised WpHG is not required if a notification pursuant to Sec. 21/22, 25 or 25a of the Revised WpHG is made ordinarily, such one-off notifications should be rare in practice.

(b)       Pursuant to Sec. 41 (4f) sentence 2 of the Revised WpHG, every person must disclose its holding of instruments within the meaning of Sec. 25 of the Revised WpHG as per the Effective Date if such holding is equal to or greater than 5% on the Effective Date. Please note that such notification requirement solely depends on the holding of instruments reaching or exceeding the threshold of 5% on the Effective Date. Any holder of instruments within the meaning of Sec. 25 of the Revised WpHG reaching or exceeding the threshold of 5% through such instruments is thus required to make a one-off disclosure pursuant to Sec. 41 (4f) sentence 2 of the Revised WpHG. Such disclosure must be made by 15 January 2016 at the latest. However, if a regular disclosure pursuant to Sec. 25 of the Revised WpHG is triggered after the Effective Date due to a change in the holding of instruments and a respective notification is made, no one-off disclosure as per the Effective Date is required in the view of BaFin if this disclosure has not already been made.

(c)        Pursuant to Sec. 41 (4f) sentence 3 of the Revised WpHG, every person must disclose, by 15 January 2016 at the latest, its current aggregated holding of shares and instruments pursuant to Sec. 25a of the Revised WpHG as per the date the Effective Date if, solely due to the amendment of Sec. 21/22 and 25a of the WpHG, one of the thresholds under Sec. 21 of the Revised WpHG is reached or exceeded (except for the threshold of 3%). Again, it should be rather unlikely that such notifications will be triggered in practice given that the change in the law should in almost all cases not result in a different aggregated holding of shares and instruments as under the current law.

A breach of the one-off disclosure requirements can result in fines up to EUR 200,000 (Sec. 44 (5) of the Revised WpHG). However, failure to comply will not result in a loss of rights and, the “naming and shaming” provisions do not apply.

 

IV.       Select Overview of Further Changes

By the Implementation Act further changes to the WpHG will be made which do not relate to the notification of the holding of shares and instruments but with significance for issuers, in particular:

  • One-off disclosure requirement for all issuers if their (statutory or elected) home state (Herkunftsstaat) is Germany, Sec. 2c of the Revised WpHG; the disclosure has to be made without undue delay (unverzüglich) after the Effective Date. In case of a breach, fines of up to EUR 200,000 may be imposed. BaFin has made available a draft form of such disclosure in its internet site
  • Issuers of shares listed in Germany have to disclose, without undue delay (unverzüglich), any increase or decrease of the number of shares outstanding, Sec. 26a of the Revised WpHG (while up to know such disclosure has to be made only at the end of the month)
  • Interim financial reporting:
    • Suspension of requirement to publish interim management statements (Zwischenmitteilungen) pursuant to Sec. 37x of the WpHG; however, interim reporting requirements under applicable listing rules of stock exchanges remain unaffected thereby
    • If interim management statements are to be reviewed by an auditor such auditor has to be elected by shareholder’s resolution.
    • Deadline for the publication of half-yearly financial reports extended from two to three months, Sec. 37w of the Revised WpHG
    • New reporting requirements for certain mineral exploiting (mineralgewinnend) and wood harvesting (holzeinschlagend) companies, Sec. 37x of the Revised WpHG
  • Monitoring of financial statements: strengthening of the enforcement procedures pursuant to Sec. 37n et seqq. of the Revised WpHG
  • De-regulation: Repeal of several publication and notification obligations of issuers (deletion of Sec. 30c, 30e (1) no. 1 c), no. 2 of the WpHG

 

V.        Summary

The scope of triggering events for notifications of holdings of shares and instruments does not change substantially under the Revised WpHG as compared to the current law. However, as the potential sanctions for non-compliance with the disclosure requirements have been substantially increased, market participants should familiarize themselves carefully with the new and existing rules and the official form of notifications to be made. Furthermore, it is worth checking whether the one-off disclosure requirements pursuant to Sec. 41 (4f) of the Revised WpHG apply, in particular with regard to the holding of instruments reaching or exceeding the threshold of 5% on 26 November 2015.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

RUSSIAN UPDATE – Overview of the Key Amendments to the Russian Civil Code

Editors’ Note:  This paper was co-authored by Dmitry Stepanov and Daria Izotova of Corporate and M&A Practice at Egorov Puginsky Afanasiev & Partners.  Mr. Stepanov is actively involved in the improvement of Russian laws and has extensive hands-on experience in corporate law, securities, restructuring and corporate finances, M&A, bankruptcy and arbitration. Most recently Mr. Stepanov was engaged by the Russian Government into fundamental reform of the Russian Civil Code as a co-founder of the Non-Profit Partnership for Advancement of Corporate Law and principal member of the Presidential task force to create an international financial centre in Moscow.

Highlights

  • On April 2, 2012, the Russian President introduced draft amendments to the Civil Code geared towards granting greater freedom in determining the management structure for private companies, execution of shareholders’ agreements, and changing the form of incorporation of legal entities.
  • Rules intended to prevent abuse in corporate and ancillary relations will be introduced.
  • New limited property rights will emerge addressing permanent landownership and development of land plots.

MAIN ARTICLE

On April 2, 2012 the President introduced to the State Duma draft amendments to the Civil Code (the Draft) prepared jointly by representatives of both the legal and business communities.

The Draft is primarily geared to improve regulations and the business environment in Russia. It should be furthered by the proposed modifications and enhancements with regard to legal entities, transactions, agreements, and other provisions.

The following should be noted as key changes.

1. CORPORATE LAW

First, the new regulation will grant greater freedom in determining the management structure for private companies, execution of shareholders’ agreements, and changing the form of incorporation of legal entities.

  • Public and private companies

A new classification of business entities will be introduced, so that they will fall into the categories of either public or private companies.

As opposed to members of public companies (joint stock companies, or “JSCs”, with shares traded in regulated markets), members of private companies may freely determine the management structure. For example, they may forego a governing body and change the way general members meetings are convened, prepared, and held.

  • JSC – a unified form

The form of a JSC as a closed joint stock company (“CJSCs”) will cease to exist. Before July 1, 2013 CJSCs may, at their own discretion, either (1) change their company type to an LLC or production cooperative; or (2) retain their JSC status (this will not require any extra steps to be taken as the JSC will be the standard form “by default”).

  • A Shareholders’ agreement may be entered into not only between a company’s shareholders but also between shareholders, company creditors, and any third parties.
  • Reorganisation scheme will be made available in various forms, including involvement of more than two corporate entities of any form of incorporation.

Second, rules intended to prevent abuse in corporate and ancillary relations will be introduced.

  • Registered capital will from now on have to be paid for by cash only.
  • Registration with the Uniform State Register of Legal Entities

Interested parties will be entitled to file their objections to amendments entered in the Uniform State Register of Legal Entities, and the registration authority will be bound to consider such objections and render its decision thereon.

  • Shareholders agreement

Parties to a shareholders’ agreement will be obligated to notify the company as to its execution. If they fail to notify, they will be obliged to indemnify against any damages incurred by other company members.

Furthermore, information about shareholders’ agreements for public will be subject to mandatory disclosure.

Finally, resolutions of corporate governing bodies or transactions involving parties to shareholders’ agreements may be invalidated if such resolutions / terms of transactions contradict the shareholders’ agreement.

  • Affiliation and control

Now the Russian Civil Code will define specific indicia of affiliation and control and the concept of controlling and controlled persons.

Furthermore, even if formal grounds are missing, a court may confirm actual affiliation upon an analysis of factual circumstances.

Liability of controlling entities will be strengthened. In certain cases, they will be liable jointly and severally together with controlled entities and responsible for any losses incurred by the latter and their members.

  • Management liability

Management as well as those who have an actual possibility to give instructions to the company’s management will be liable for any losses incurred by the company through wrongful, unreasonable or unscrupulous acts. Those who actually determine a legal entity’s conduct, without having formal grounds for control, will be also liable.

2. TRANSACTIONS AND OBLIGATIONS

First, regulation as to invalidity of transactions will be clarified.

  • Limitations on grounds for invalidation of voidable transactions

Only a voidable transaction which infringes upon the rights and interests of the contesting party may be invalidated. If a party approved a transaction or expressed its intention to uphold it, that party will not be able to later contest it.

  • A presumption of voidability will be established in respect of: (1) resolutions passed by meetings; (2) transactions executed in breach of a law; (3) transactions executed without the required consent of a third party, corporate authority, government authority, local authority.
  • The following matters will be regulated comprehensively:  (1) invalidation of resolutions passed by meetings; (2) transactions void ab initio in respect of property whose disposal is restricted or limited; (3) invalidity of transactions executed in error.
  • New opportunities

Business entities may independently determine the effect of the invalidity of voidable transactions.

A party to a transaction executed ultra vires may withdraw from such a transaction.

Second, parties will have more liberty in determining terms of their transactions, the principles of optionality and freedom of contract will have a broader application.

  • Conditioned performance of obligations

Despite the restriction of entering into conditional transactions that depend exclusively or primarily on one of the parties, the performance of obligations, exercise, change or termination of rights under a contractual obligation may nonetheless be made conditional in any manner.

  • Irrevocable power of attorney may be used in business relations.
  • Creditor agreements

Creditors will be able to enter into agreements regarding their demands for a debtor to perform its obligations and the priority of such demands.

  • Managing pledged assets

Several creditors will be able to appoint a representative – a manager of pledged assets (by analogy with securities trustee known in foreign law systems) exercising the pledge rights on their behalf and to their benefit.

  • Good faith acquisition of right of pledge and pledged assets

If assets are pledged by an unauthorised person, the good faith acquisition of a right of the pledge will be possible.

Onerous acquisition of pledged assets by a party, which was not aware of and was not obliged to be aware of the pledge, will be considered a good faith acquisition of the pledged assets and in such a case the pledge will be released.

  • Late fee

The court’s powers to reduce the amounts of late fee penalties will be limited in business relations.

  • Representations

Parties will be able to recover losses caused by false representations made prior to or following execution of an agreement.

  • Indemnity

In business relations parties will be able to provide for one of the parties’ right to demand indemnification from the other party for pecuniary losses incurred in connection with performance, amendment or termination of obligations, including misconduct by third parties. Indemnity—a concept that is quite common and widely applicable in large and complex structured deals abroad—would be permitted under Russian law.

  • New types of agreements

New contractual structures will be introduced: (1) a framework agreement (agreement with open terms); (2) option agreement (agreement with unconditional right to enter into a specific agreement); (3) subscription agreement (agreement with performance on demand); (4) escrow agreement.

Third, measures to protect parties’ rights will be improved.

  • Pre-contractual liability will be stipulated as liability for bad faith negotiations or termination of negotiations in respect of an agreement to be executed.
  • The amount of losses must be set by the court even if they cannot be credibly determined.

3. PROPERTY LAW

First, the existing system of property rights will undergo a serious change.

Second, new limited property rights will emerge: (1) permanent landownership; (2) development of land plots; (3) personal usufruct; (4) preferential acquisition of immovable property; (4) pecuniary benefit; (5) limited title of owner of a building to the land plot under such building.

This review covers only some of the changes being introduced to the Civil Code. Generally, the Draft offers a comprehensive revision of the Civil Code. It combines both innovatory and conservative proposals. Generally, the changes covered by this review are progressive in nature. Many of them meet the needs of Russian business practice and create an environment for their long-term improvement. These amendments will be conducive to better corporate governance, increased transparency and a clampdown on abuse in corporate relations, practices to preserve validity of transactions, and growth in business activity in general.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

Subscribe to Newsletter

Enter your Email

Preview Newsletter