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Matched Legal Cases: ['art 1', 'art 2', 'art 1', 'art 2', 'Art. 1', '§ 3', '§ 2', '§ 1', '§ 4', '§ 6', '§ 1', 'art.5', '§18', '§18', 'art.5', 'art.5', 'art.5', 'art.\n0', 'art.6', 'art.4', 'art. 51', 'art.6', 'art.25', 'art.75', 'art.6', 'art.5', 'art.5', 'art.75', 'art.\n160', 'art. 225', 'art. 225', '§ 119', '§ 135', '§ 122', '§ 12', '§ 147', '§ 12', '§ 147', '§ 84', '§ 309', '§ 147', '§ 103', '§ 21', '§ 241', '§ 35', '§ 243', 'Art 61', 'Art 125', 'Art. 58', 'Art. 775', 'Art. 2409', 'Art. 2387', 'Art. 2409', 'Art.25', 'Art. 2387', 'art.5', 'art.25', 'art. 2', 'Art.5', '§ 245', '§ 194', '§ 18', '§ 241', '§ 232', '§ 239', '§ 24', '§ 268', '§ 249', '§ 257', '§ 248', '§ 267', '§ 188', '§ 247', '§ 268', '§ 267', '§ 27', '§ 27', 'art\n7', 'art 14', 'Art.25', 'Art.5', 'Art.25', 'Art. 700', 'Art.5', '§12', 'Art.5', 'Art.5', 'art.5', 'Art. 20', 'art. 32', 'art. 3', 'art.2', '§ 271', 'arts 200', '§ 303', '§ 313', '§ 151', '§ 402', '§ 240', '§ 327', '§ 8', '§ 13', '§ 12']

Extended Shareholder Protection Index | Articles Of Association | Board Of Directors
Extended Shareholder Protection IndexUploaded by Hammad Hassan MirzaRelated InterestsArticles Of AssociationBoard Of DirectorsProxy VotingCorporate GovernanceCorporate LawRating and Stats0.0 (0)Document ActionsDownloadShare or Embed DocumentEmbedView MoreCopyright: Attribution Non-Commercial (BY-NC)List price: $0.00Download as PDF, TXT or read online from ScribdFlag for inappropriate contentCBR EXTENDED SHAREHOLDER PROTECTION INDEX Centre for Business Research, University of Cambridgeby Mathias Siems, Priya Lele, Pablo Iglesias-Rodriguez, Viviana Mollica, Theis Klauberg and Stephan Heidenhain. September 2008
For comments and questions please contact Simon Deakin Centre for Business Research University of Cambridge Judge Business School Building Cambridge CB2 1AG email: s.deakin@cbr.cam.ac.uk
Part 1: Introduction (Priya Lele and Mathias Siems)................................................................. 3 1. Guidelines........................................................................................................................... 3 2. Core Variables................................................................................................................... 6 3. Template............................................................................................................................ 9 Part 2: Countries Coded ........................................................................................................... 10 1. Argentina (Pablo Iglesias-Rodriguez).............................................................................. 10 2. Brazil (Viviana Mollica) .................................................................................................. 16 3. Canada (Priya Lele).......................................................................................................... 23 4. Chile (Pablo Iglesias-Rodriguez) ..................................................................................... 32 5. China (Mathias Siems) ..................................................................................................... 38 6. Czech Republic (Stephan Haidenhein) ............................................................................ 42 7. France (Mathias Siems).................................................................................................... 45 8. Germany (Mathias Siems)................................................................................................ 48 9. India (Priya Lele) ............................................................................................................. 51 10. Italy (Viviana Mollica)................................................................................................... 58 11. Japan (Mathias Siems) ................................................................................................... 64 12. Latvia (Theis Klauberg) ................................................................................................. 67 13. Malaysia (Priya Lele) ..................................................................................................... 69 14. Mexico (Pablo Iglesias-Rodriguez)................................................................................ 74 15. Pakistan (Priya Lele) ...................................................................................................... 81 16. South Africa (Priya Lele) ............................................................................................... 86 17. Spain (Pablo Iglesias-Rodriguez)................................................................................... 88 18. Switzerland (Viviana Mollica) ....................................................................................... 93 19. United Kingdom (Mathias Siems).................................................................................. 97 20. United States (Mathias Siems) ..................................................................................... 100
Part 1: Introduction (Priya Lele and Mathias Siems)
This dataset has been developed as part of the ‘Law, Finance and Development’ project at the Centre for Business Research, University of Cambridge, UK.1 A separate shareholder protection index comprising of 60 variables on a pilot basis for five countries coded the development of the law for a period of 35 years.2 The present index consists of ten core variables which act as proxies for shareholder protection law in order to code the development of the law for a wider range of countries for a shorter period of 11 years, i.e. 1995-2005. The following guidelines were used in the process of coding. The choice of the ten variables is explained in more detail in two papers accompanying this dataset.3
1. Guidelines The dataset draws on provisions of laws, relevant regulations or codes, and relevant court decisions applicable to or answering the description of each of the core variables set out below. Values were assigned to each individual variable between ‘0’ and ‘1’ for each of the last 11 years and expressedt in a tabular form.4 The scores are expressed as a value between 0 and 1. Here, ‘0’ would stand for no protection or worst protection offered and ‘1’ would stand for the best or maximum protection offered with respect to the particular core variable. a) Which areas of law to code This exercise concerns shareholder protection in listed companies only. The starting point should therefore be the company law as applicable to listed companies. However, in some cases it may be necessary to take securities law into account, because certain aspects of the protection of shareholders from directors and majority shareholders may be addressed in securities law.5 b) Mandatory as well as default rules Except while coding the variables 4 and 9 (see 2 below), we took account not only mandatory law but also default rules. As far as default rules are concerned, we also considered the corpo-
For further information on the project see http://www.cbr.cam.ac.uk/research/programme2/project2-20.htm. We gratefully acknowledge funding from the ESRC’s ‘World Economy and Finance’ Programme and from the Newton Trust. 2 See Priya Lele and Mathias Siems, ‘Shareholder Protection: A Leximetric Approach’ (2007) 7 Journal of Corporate Law Studies 17-50 (working paper version available at http://ssrn.com/abstract=897479). 3 John Armour, Simon Deakin, Prabirjit Sarkar, Mathias Siems and Ajit Singh, ‘Shareholder Protection and Stock Market Development: An Empirical Test of the Legal Origins Hypothesis’, CBR Working Paper 358 and ECGI Law Working Paper 108/2008 available at http://ssrn.com/abstract=1094355; Mathias Siems, ‘Shareholder Protection Around the World (“Leximetric II”)’ 33 Delaware Journal of Corporate Law 111-147 (2008) (working paper version available at http://ssrn.com/abstract=991092). 4 See the template contained at 3 below. 5 E.g., while coding for the US, we found that the regulation of proxy voting is to a large extent addressed in federal securities law.
it is a federal state. these were considered to be at least as important as default rules set out in legislation. Code of Best Practice. or judges may disagree. Statutory law was normally coded in the year in which it comes into force and case law was coded in the year in which the relevant judgment was delivered and reported. listed companies cannot escape the relevant listing rules/requirements.
. the statutory law may be ambiguous. the Greenbury Committee.5 or some other intermediary score than to decide that either ‘1’ or ‘0’ score is more persuasive.. d) Statutory and case law A particular legal rule can be based on statutory law or case law. Although in civil-law countries court decisions are not regarded as a formal source of law. and the Hampel Committee. as well as the Cadbury Committee. f) Explanations or references We have included short explanations or at least references to the provisions of law or citations of court decisions on the basis of which we assigned values to each of the core variables and for each of the changes in these values over the last eleven years in the ‘Explanation/Reference’ coloumn provided in the template below. we took those into account while coding any aspect of the shareholder protection law contained in the index below which is to be found in such listing rules/requirements. Code of Best Practice. while coding for the US we have chosen to code the law in the state of Delaware as more than half a million business entities have their legal home in Delaware and it is also home to a majority of US listed companies. 8 E. If no clearly predominant opinion exists.
E. 1992. we took into account the City Code on Takeovers and Mergers and the Combined Code on Corporate Governance. The descriptions of most of the variables in the index (see 2 below) illustrate the use of non-binary coding.g. we considered the NYSE and its rules for the US. in the jurisdiction in question. however.g. For instance. so long as. If. for instance.6 c) Non-uniform law and listing rules If the law on shareholder protection is not regulate in a uniform way in a given country because. we gave intermediate scores where absolutely necessary. if any. 7 E. we took into account the law for the commercially dominant state. 2003. the state where most of the listed companies are registered and/or listed (and as such is the state whose law governs the majority of the listed companies). we took them into account while coding because they can often bring about an effect which is as important as a statutory provision. even where the description of the variable does not mention it specifically. 1995. we considered that it was more appropriate to code a variable as ‘0.7 A related problem exists where there is more than one stock exchange in one country. 1998.e.g. Here we chose the dominant stock exchange. Statutes passed but not yet in force or decisions either secret or expected were not considered for coding. therefore. while coding for the UK. e) Binary as well as non-binary coding We used binary as well as non-binary numbers for coding where appropriate.rate governance codes or takeover codes. Combined Code of Best Practice. in practice. for the purposes of this exercise both must be considered.8 The listing rules/requirements could be based on statutory law or on self-regulation of the stock exchange. i.
g) Comments In addition to coding the shareholder protection law as per the template. the coding process made provision for brief comments to be added about these other changes. our focus is on legal rules which address the protection of ‘shareholders as such’ and not investors in general. The core variables included in the index are proxies for shareholder protection law. as well as accounting requirements. we have provided comments with respect to the following aspects of the coding process. Similarly. In such cases. are not considered in detail here. This means that many parts of securities law were not taken into account in this index. Therefore. on public disclosure and transparency of financial information. the rules on insider trading.
. and to that extent operates as its ‘functional equivalent’.9
But see variable 10. there may be other aspects of shareholder protection law that may have changed significantly in a given country in the subject period which may not be captured by these core variables. therefore there may be different legal rules that achieve a similar function in a given country. For instance. However. below. we sought to take into account any legal rules that might not be specifically covered by the core variables in the template but which in fact achieve a similar function to any of the core variables.
16 It may be noted that (1) in a two-tier system this variable concerns only members of the supervisory board (not the management board). but if it provides that the members of some special committees of the board need to be independent (e. 12 It is not enough that proxy voting is possible (which is the case in most countries anyway). Agenda setting Equals 1 if shareholders who hold 1 % or less of the capital can put an power11 item on the agenda.
2. equals 0. however.5 if 25 % of them must be independent. equals 2/3 if only companies which already have multiple voting rights can keep them. (2) if the law of a given country does not require that a certain percentage of the board must be ‘independent’. otherwise 0. we coded the right to call an extraordinary general meeting provided the minority shareholders can utilise this right to discuss any agenda. equals 0. Core Variables Variables 1..
.g.5 if (1) postal voting is possible if provided in the articles or allowed by the directors.75 if there is a hurdle of more than 1 % but not more than 3%.17 equals 0 otherwise
4. Powers of the general meeting for de facto changes10 Description If the sale of more than 50 % of the company’s assets requires approval of the general meeting it equals 1. so that it indirectly prescribes that some of the board members be ‘independent’. this may. equals 0. equals 0 otherwise. equals 1/3 if state approval is necessary. Equals 1 if at least half of the board members16 must be independent. Anticipation of shareholder decision facilitated12 Equals 1 if (1) postal voting is possible or (2) proxy solicitation with two-way voting proxy form13 has to be provided by the company (i. listing requirements).5 if there is a hurdle of more than 3 % but not more than 5%. always 2 independent directors). equals 0 otherwise. if the sale of more than 80 % of the assets requires approval it equals 0. 17 Other intermediate scores are also possible. equals 0 otherwise. They are calculated in the same way. 14 This may be regulated in securities law (incl. 15 This may be regulated in a corporate governance code (see 1 b. or (2) the company has to provide a two-way proxy form but not proxy solicitation.g. justify a lower score.g. Prohibition of multiple voting rights (super voting rights)14 5. Please also indicate the exact percentage 3. 13 A two-way proxy form refers to a form which can be used in favour and against a proposed resolution. the directors or managers). please use the (estimated) average size of boards in order to calculate the score.5. a lower score was assigned here. compensation and audit committee). Independent board members15
We have not included other powers of the general meeting (e. mergers and division) because they usually do not differ between countries. If the law requires a fixed number of independent directors (e. Equals 1 if there is a prohibition of multiple voting rights. for amendments of the articles. i.2. score = percentage of independent board members/2. above). 11 If the law of a given country does not provide the right to put an item on the agenda of a general meeting (including annual general meeting).e. If there is no ‘comply or explain’ requirement. equals 0. equals 0.e.25 if there is a hurdle of more than 5% but not more than 10 %.
. for instance. equals 1 if there are no special requirements for dismissal and no compensation has to be paid.22 demand requirement). this variable is addressed to both the management and the supervisory board. this can lead to a higher score. 0. equals 0.
7. A 5% hurdle led to the score 0. 0.25 for a 10 or 15% hurdle. Feasibility of director’s dismissal
Equals 0 if good reason is required for the dismissal of directors.6. 24 We have also given intermediate scores. Equals 0 if this is typically excluded (e. 23 Please note that the substantive requirements for a lawful decision of the general meeting are not coded.75 if in cases of dismissal without good reason directors are only compensated if compensation is specifically contractually agreed.5 if there is a threshold of 10 % voting resolutions of the rights. 21 Variables 7 and 8 only concern the law.g. It can also be based on contract.19 equals 0. general meeting16
If the law of a given country follows a two-tier-system. 19 This variable can be based on a specific provision in statutory or case law. 22 We have also given intermediate scores.25 if directors can always be dismissed but are always compensated for dismissal without good reason.g. 20 This restricts dismissal because either (1) an immediate unilateral termination of this contract may not be possible or (2) the directors have to be compensated in case of immediate unilateral termination of this contract..
.25 for a 33% hurdle and 0. Note: If there is a statutory limit on the amount of compensation..20 equals 0. equals 1 if private enforcement of directors duties is readily possible. Shareholder Equals 1 if every shareholder can file a claim against a resolution by the action against general meeting. 0. e.24 equals 0 if this kind of shareholder action does not exist..5 if there are some restrictions (e. We did not consider here the efficiency of courts in general while coding these variables. hurdle which is at least 20 %).66 for a 20% hurdle. Private enforcement of directors duties (derivative suit)21
8. e.23 equals 0.g.75 for a 1% hurdle.18 equals 0. if the company has to conclude an employment contract with the director and this contract cannot be terminated without good reason.5.5 if directors are not always compensated for dismissal without good reason but they could have concluded a non-fixed-term contract with the company.g. because of strict subsidiarity requirement. certain percentage of share capital.
Mandatory bid25
Equals 1 if there is a mandatory public bid for the entirety of shares in case of purchase of 30% or 1/3 of the shares. This variable may be regulated in securities law.9.75 if this concerns 5 % of the capital. Equals 1 if shareholders who acquire at least 3 % of the companies capital have to disclose it.
10.5 if the mandatory bid is triggered at a higher percentage (such as 40 or 50 %).5 if there is a mandatory bid but the bidder is only required to buy part of the shares. equals 0. equals 0 otherwise Please also indicate the exact percentage. equals 0.
. further. equals 0. Disclosure of major share ownership26
This variable may be regulated in securities law or takeover code/law. equals 0.25 if this concerns 25 %. equals 0 if there is no mandatory bid at all. Please also indicate the exact percentage.5 if this concerns 10 %. it equals 0.
Independent board members 6. Shareholder action against resolutions of the general meeting 9.Powers of the general meeting for de facto changes 2.Private enforcement of directors duties (derivative suit) 8. Disclosure of major share ownership 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Explanations/ References
Comments (see 1 g. above)
. Mandatory bid 10. Template
Variable 1. Agenda setting power 3. Prohibition of multiple voting rights (super voting rights) 5. Feasibility of director’s dismissal 7. Anticipation of shareholder decision facilitated 4.3.
the 1968/17811 Act on Public Bids and resolution 368/2001 concerning the rules of the National Securities Commission complete the framework of shareholders´ protection rules.Powers of the general meeting for de facto changes 1995 ½ 1996 ½ 1997 ½ 1998 ½ 1999 ½ 2000 ½ 2001 ½ 2002 ½ 2003 ½ 2004 ½ 2005 ½ Explanations/ References Article 72 of Decree 677/200128 establishes that.Part 2: Countries Coded 27
1. The majority requirements for adopting decisions are the same in both types of
An Excel file reproducing the 20-country dataset set out in this document is available at see http://www. aside from the matters mentioned in section 234 of Act 19550/197229 and amending regulations. Argentina (Pablo Iglesias-Rodriguez)
The Argentine Companies Act 19.cbr.
. the ordinary meeting. sought to increase transparency in capital markets and incorporated certain globally recognised corporate governance practices. in listed companies. this possibility could also be considered as a competence of the general extraordinary meeting before 2001 according to article 235 of the 19550/1972 Act. However.htm.uk/research/programme2/project2-20.cam. shall decide on the disposition or encumbrance of all or a substantial part (no specific percentage is given) of the assets of the company when it is not carried out in the ordinary course of the company’s business (for the coding it is considered that substantial means at least 50% of the company’s assets). enacted on 3 April 1972 is the primary source of law in this area. On Transparency and best practices in the capital markets. Decree 677/2001 on Transparency of capital markets. Decree 677 has been further regulated by the National Securities Commission 400/02 and 401/02 regulations.ac. which states that those items which are not competence of the general ordinary meeting are within the competence of the general extraordinary meeting.550/1972. 29 Companies Act. Variable 1. In addition to these sources. enacted on 25 May 2001.
2. Agenda setting power
3. Anticipation of shareholder decision facilitated
meetings according to articles 243 and 244 of Act 19550/1972 (however, there were no specific provisions on this matter before 2001). Article 71 of Act 17811/196830, incorporated by article 42 of the annex of Decree 677/2001, establishes that up to five days before the general meeting, shareholders with at least 2% of the share capital with voting rights in companies which make a public offering of their shares can send commentaries or proposals to be introduced in the meeting. Before this date there were no dispositions concerning this right. In addition to this, according to article 236 of Act 19550/1972, shareholders with at least 5% of the share capital, or a lower percentage, if established by the articles of association, could call a general meeting, specifying the items to be discussed on it. According to article 239 of Act 19550/1972, shareholders can be represented in general meetings. The representatives cannot be directors, members of the supervision committee, managers or any employees of the firm. The power of representation can have the form of a private document with a certified signature, unless the articles of association establish a different form. No mention of proxy solicitation or two way proxy form is made. However, article 65 of Decree 677/2001 establishes that the articles of association can provide for the possibility of general meetings at a distance; in these cases the National Securities Commission must regulate the means and conditions in order to guarantee the security and transparency of such meetings. It is understood that for these types of meetings, distance voting would be allowed, as the meeting itself would require it. However,
On Public Bids
4. Prohibition of multiple voting rights (super voting rights)
neither General resolution 400/2002 nor General Resolution 401/200231 contain any mention of this kind of general meetings. According to the article 216 of Act 19550/1972, the articles of association can create shares with up to 5 votes per ordinary share. This privilege is not compatible with other economic privileges. It is not possible to create shares with multiple voting rights after the company has been authorized to make a public offering of its shares. The only requirement concerning independence is related to the members of the audit committee. This type of committee must be adopted in any company which makes a public offer of its shares, and must have at least three members who must also be directors of the company. However, the majority of the members of this committee must be independent according to the definition of independence established by the National Securities Commission. This definition is given in article 4 of the resolution 400/2002 and establishes that a member of the board of directors is not independent when one or more of the following circumstances are present: 1. She is dependent of any shareholder with a substantial ownership in the company or member of the board in any other company in which directly or indirectly, these shareholders have a substantial ownership or influence. 2. She is linked to the company because of a relation of dependence or has had this type of relation during the last three years. 3. She has a professional relation or belongs to a company or professional association with professional relations or remunerated (for an activity different from that
5. Independent board members
Both regulating the Decree 677/2001.
related to the membership to the board) by the company or the shareholders who directly or indirectly have in this company a substantial ownership or influence. 4. She directly or indirectly has a substantial ownership in the firm or in another firm which has a substantial ownership or influence on it. 5. She directly or indirectly sells or provides goods or services to the company or the shareholders with a substantial influence or ownership on it, for a sum substantially higher that that related to the exercise of the functions as a member of the board. 6. She is married or relative up to the fourth degree of consanguinity or the second of affinity of persons that, in case of being members of the board, would not be independent. In all these cases, the concept, ´substantial ownership´ means at least 35% of the share capital or a smaller percentage when, as a result of the types of shares they owe, the shareholders in question can nominate one or more directors, or when they have, with other shareholders, made agreements on the management or governance of the company or its controller. The concept ‘substantial influence’ is be defined according to relevant accountanting rules. Due to the fact that the independence requirement only applies to the audit committee, a value of 0.1 has been chosen here. According to Article 256 of Act 19550/1972, the nomination of a director is revocable by the general meeting (the general ordinary meeting, according to article 235 of the same Act). The articles of association cannot limit the revocability of the nomination of directors. Thus, it can be inferred that neither serious cause nor supermajority requirements are required for the dismissal of a director. In these cases the shareholders have to wait until the
6. Feasibility of director’s dismissal
7.general meeting takes place (unless the general meeting is called by shareholders with at least 5% of the share capital (article 236 of the same Act) at which point they can proceed tothe dismissal of the directors.Private enforcement of directors duties (derivative suit) ½ ½ ½ ½ ½ ½ ½ ½ ½ ½ ½ Article 276 of Act 19550/1972 establishes that the bringing of a claim against the directors of the company lies within the competence of the company where this has been previously agreed by the general meeting. Article 251 of Act 19550/1972 states that any resolution of the general meeting which is contrary to law or regulations. can be the object of a judicial claim (calling for its nullity) by the shareholders who did not vote for it at the general meeting (except in the case of a resolution contrary to law in which case the vote can be annulled) and by those shareholders who were not present at the general meeting. on the company’s behalf. Mandatory bid
. Shareholder action against resolutions of the general meeting
9. However shareholders with at least 5% of the share capital can start a derivative suit against the directors for the breach of their duties. The thresholds for a mandatory bid are set out in regulation 401/2002 (following the general mandate established in article 23 of Decree 677/2001) and are the following: Target ownership % ≥35% of the shares with voting rights and/or the votes of the company (1) Mandatory bid ≥50% of the share capital with voting rights
8. a derivative claim may also be made by individual shareholders (under the provisions of article 216 of Act 19550/1972 this means those owning at least 5% of the share capital) against the directors. According to article 75 of the 677/2001 Decree. or to the articles of association.
Aticle 10. Article 12 of Book 6 of resolution 368/200132 establishes a complex rule concerning the disclosure of information which can be summarised thus: acquiring (directly or indirectly) ownership of 5% or any of its multipliers must be communicated to the National Securities Commission.
. and aims to increase the % by at least 6% during a period of 12 months. book 7 of the former resolution 290/199733 reflects the same percentage (without specifying the multipliers). but below 51%. Disclosure of major share ownership
≥51 of the shares 100% of the share capital with voting rights with voting rights and/or the votes of the company 1 When the shareholder already has an ownership stake equal or higher than 35% of the share capital with voting rights and/or voting rights. a bid must be made for at least the 10% of the share capital with voting rights.10. No requirements on this matter were established before this date
On the rules of the National Securities Commission On the rules of the National Securities Commission.
depositing them as guarantee and transferring corporate activities. under special circumstances. and extraordinary transactions that in effect result in the sale of the company (part III. managers must act with due diligence and in the interest of the company and relevant disclosure – brief description of the operation and its effects on the company – must be made. duties of loyalty and rules on misuse of powers are set out in articles 153 to 159 of Law 6404/76 and article 1 of CVM’s Instruction 31/84. Brazil (Viviana Mollica)
Variable 1. a general meeting may be called by any shareholder whenever the officers delay the call for more
2. those concerning fundamental changes.Powers of the general meeting for de facto changes 1995 0 1996 0 1997 0 1998 0 1999 0 2000 0 2001 0 2002 0 2003 0 2004 0 2005 0 Explanations/ References Concerning the selling of relevant assets of corporations. More recently. if such operations result in advantages to the controlling shareholder. However. there are exceptions: following the law on by-law provisions. Agenda setting power
. ‘Fundamental corporate changes’ may include: amendments to statutes or governing documents of the company.1 CVM Recommendation of Corporate governance 2002). the authorization of additional shares. As a general rule. listed below. Article 123 of the Corporation Law determines that it is up to the administrative council or to the directors to summon a general meeting and to propose issues for discussion. The general meeting is empowered to decide all matters relating to corporate purposes and to pass such resolutions as it deems necessary for the protection and development of the corporation.2. CVM’s Instruction 323/2000 considered abuse of controlling power over the selling of assets. esp.
or five per cent of nonvoting shareholders. duly producing proof of shareholder status. the proxy may also be a financial institution. shareholders representing at least five per cent of the voting capital.457). Personal attendance by the shareholder or a proxy is required by law. should the officers not comply with the request within eight days. who may be a shareholder. but in the recitals to the code there is a reference to an intention to make it a ‘comply or explain’ code. comply with the request that a meeting be called in order to appoint a statutory audit committee.’ This is still a ‘moral suasion’ type of code. The power of attorney must date back no more than one year. Anticipation of shareholder decision facilitated
CMV Recommendation on corporate governance 2002 at art. shareholders representing at least five per cent of the corporation’s capital may request to the corporation officers that a general meeting. Art. 1 states that: ‘Regardless of the percentage required by law for calling shareholder meetings. in a publicly held corporation. or a lawyer.
3. while telephone and electronic voting are not permitted.-
than sixty days. Legal representatives of shareholders are also entitled to vote at general meetings. Shareholders must vote in person. take place. the board should include in the agenda relevant and timely issues suggested by minority shareholders. indicating the matters to be discussed. within eight days. the above mentioned shareholders may call the general meeting (directly modified in 1997 by law nº 9. or be represented by a proxy. a corporation officer. may call a general meeting whenever the corporation officers do not. 126
. (new wording in the 1997 law).
manager or controller of the company. less than one third have an independent director on the board. not to have any relationship with the company. in the following cases: I – having a position in a competing company.34
Among the 30 companies that receive a Level 1 or Level 2 certification from BOVESPA. and II – conflicting interests with the company. The requirements of independence are the following: not to have been an employee of the company or one of its controlled companies. Prohibition of multiple voting rights (super voting rights) 5. not to be a relative to any director. especially on a management board or advisory or finance committees. not to receive any other payment of the company other than the compensation for his services as a board member. not be providing any kind of product or services to the company or being an employee of a company which provides such products or services. Source: IBGC 2001
In 2001 a further paragraph was added: (Article 147) § 3. The code of ethics for Board Members issued by IBGC (the Brazilian Institute of Corporate Governance) in 1999 and revised in 2001 states specifically that board members must be independent. Independent board members
Article 110 § 2 ‘Lei de SAs’ prohibits the attribution of plural voting right to any class shares. unless an applicable waiver is granted by the general meeting. Directors shall have unblemished reputations and are ineligible for election.
Should the general meeting decide not to institute proceedings.Private enforcement of directors duties (derivative suit)
Art. Should such action constitute a material event according to CVM’s Instruction 31/84. Should such proceedings not be instituted within three months from the date of the resolution of the general meeting. According to Article 159 of Law 6404. Feasibility of director’s dismissal 7. (as modified by 2001 law) inciso II confers on the general meeting the power to dismiss at any time the directors of the company.
. by a resolution passed in a general meeting. This resolution may be passed at an annual general meeting and. The action described above shall not preclude any action available to any shareholder or third party directly harmed by the acts of the officer. up to the limit of such damages. the corporation may bring an action for civil liability against any officer for losses caused to the corporation's property. any damages recovered by proceedings instituted by a shareholder shall be transferred to the corporation. but the corporation shall reimburse him for all expenses incurred. 122.6. In this case. at an extraordinary general meeting. including monetary adjustment and interest on his expenditure. it must be disclosed to shareholders through the newspaper. In this case. any shareholder may bring the action. if included in the agenda or arising directly out of any matter included therein. they may be instituted by shareholders representing at least five per cent of the capital. the officer or officers against whom the legal action is to be filed shall be disqualified and replaced at the same general meeting.
at the same price and on the same conditions as those offered to the selling controlling shareholder. 117 states that the majority shareholders are held responsible for damages caused through ‘abuse of powers’ behaviours (listed in § 1). It will be considered an abusive exercise of a voting power for a vote to be cast with the intention to cause damage to the company or other shareholder. or to obtain.303. tender offers were no longer necessary. Art. Prior to the latest partial reform of the Corporation Law. However. Under the new system. 9457/97. CVM currently may not initiate a legal action in the name of the shareholder. either for himself or others. The whole operation was subject to CVM approval. Mandatory bid
. who will take action such as issue orders to a supervised entity or initiate an administrative inquiry. Then un-
9. introduced by Law No. This was introduced in Lei nº 10. the acquirer of a controlling stake in public companies was required by article 254 to make a tender offer for the purchasing of voting shares owned by minority shareholders. According to Art. Shareholder action against resolutions of the general meeting
Shareholders who believe that their rights have been violated may file a formal complaint with the CVM. the shareholder needs to exercise his voting right in the interest of the company. de 31.10.2001. designed to facilitate the privatization process and in force since May 1997. who in their turn may initiate such action directly at any time. Paragraph § 4 stated that the resolution taken with the vote of a shareholder who exercises it as an abuse of power is voidable and the shareholder will be held responsible for it and will have to transfer the advantages received to the company. some unjust advantages that may result in a damage caused to the company or another shareholder. 115.8.
which must be filed by all publicly held companies with the CVM annually. CVM Instruction 299. Law 9457/1997 abolishes existing requirements to disclose the price of sales of 5% blocks of voting stock or more. only to the ‘acquisition of control’ of the company. first published and enacted on February 9. including control sales. Disclosure of major share ownership ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾ CVM Instruction 202/93 rules that publicly held companies must provide and update the CVM with several data through different forms.) The Tag Along right grants to minority shareholders of publicly-held companies the right to be bought out at 80% of the purchase price offered to the controlling shareholder. and extends them to apply to sales of 5% (or higher) blocks of any class of shares. acquires shares of a publiclyheld corporation under its control. and these shares directly or indirectly increase their interest in a certain class of shares in a way that hinders the market liquidity of the remaining shares. It does not refer to any particular percentage. provides many types of information. 354 A introduced by Law 10303/01 reestablishes in corporate law the mandatory bid rule. including those on beneficial ownership of every shareholder holding more than 5% of the voting capital of a company.der CVM Instruction 299/1999 mandatory offer rules were reinstated: in particular.
. 1999 reinstates pre-1997 rules on price disclosure. or the controlling corporation. 10. The ‘IAN’ (annual information) form. mandatory open market tenders are introduced for any increase of 10% or higher in the same class. (New Article 4 § 6 provides that if the majority shareholder. they shall be required to publicly offer to purchase all shares remaining in the market. New art.
In fact. the controlling shareholder will be entitled to elect the majority of Board members. representing 10% minimum of the issued stock are also entitled to appoint one Board member. The new Law makes specific reference to the possibility of solution of conflicts among shareholders or between the company and any shareholder by means of arbitration. which cover disclosures regarding the acquisition of blocks of shares. Instruction 31/84. 141 § 1 states that whether or not provided for in the bylaws.Comments: 2001 law changes: Shareholders’ representing 15% minimum of the voting shares are entitled to elect one Board member. shareholders representing at least onetenth of the voting capital may request that a multiple voting procedure be adopted to entitle each share to as many votes as there are board members. Regardless of the number of members in the Board. which covers disclosure of material information. which covers initial registration requirements and periodic reporting. Brazilian corporate law already provides a mechanism for cumulative voting (multiple voting) for minority voting shareholders who have 10% of the voting capital of the company. Art. when electing the members of the board. and to give each shareholder the right to vote cumulatively for only one candidate or to distribute his votes among several candidates
. and Instructions 69/87 and 299/99 (updated by instructions 35/02 and 36/02 respectively). Mandatory disclosure is determined by: CVM Instruction 202/93. Shareholders with non-voting shares. The CVM regularly publishes a list of major violations of the organization’s disclosure requirements.
3. Martin v.C.Powers of the general meeting for de facto changes 1995 0. (1986) 59 O.C. s.C. Hiram Walker Resources Ltd.). Such extreme cases occur when the balance of the assets are monetary including cash. 2nd 256. MNR (1987) 87D.75 1998 0. Both the quality as well as quantity of the property in question must be examined: Warden Drilling Co. the sale of one such business would not cause the provision to become operative.).75 1996 0.189(3): 85956 Holdings. 6164 (F. Canada (Priya Lele)35
Variable 1.C.75 2004 0.R.75 2003 0.A. 312 (T.75 1999 0.C. v. lease or exchange of all or substantially all the property of a corporation other than in the ordinary course of business of the corporation requires the approval of the shareholders in a general meeting by a special resolution. There is some jurisprudence on the issue of what constitutes ‘all or substantially all’ the property of the corporation.): affd 78 D.C. On the other hand where a corporation carries on one or more businesses.T.75 Explanations/ References Canada Business Corporations Act (CBCA).T. (2d) 254. Vose (1975) 515 F. Campbell v.75 2002 0. MNR (1974) 74 D. F.C.T.75 1997 0. Bour35
Thanks to Brian Cheffins for helpful comments
. v.B.75 2000 0. provided the corporation retains business assets: Olympia and York Enterprises Ltd.75 2001 0. promissory notes or an investment portfolio.75 2005 0.T. 6202 (F. The issue does not appear susceptible to precise mathematical calculation: Wood v. supra. 189(3): A sale.D. It seems that sale of as little as one third of the company’s assets might trigger the operation of s.
s.C. 24: it is possible to have multiple voting rights
4. However.5
0. ss.141) See also: Ontario Securities Act (OSA). it only requires management to send a two-way proxy form that could be accompanied by a solicitation by or on behalf of the management.127. s.117 (1) and Québec Securities Act (QSA).L. s.81 CBCA.141: Although the heading for section 149 is ‘mandatory solicitation’. 137: any shareholder entitled to vote at an annual meeting may submit to the corporation notice of any matter he proposes to raise at the meeting CBCA.5
0.). (4th) 296 (Sask.Anticipation of shareholder decision facilitated
0. s.5
0. Prohibition of multiple voting rights (super voting rights)
. S. management is required to send a two-way proxy form that could be accompanied by a solicitation by or on behalf of the management From 2001: Amended ss.2.[See Company Law of Canada. Q. 1993: by – Harry Sutherland. electronic or other communication facility if they make available such a communication facility (see s. management may facilitate voting entirely by means of a telephonic.5
gault Industries Air Seeder Division Ltd. and Alberta Securities Act (ASA). Fraser & Stewart.5
0. Carswell Thomson Professional Publishing – pg.5
0.574] CBCA.5
0. (1987) 45 D.85. British Columbia Securities Act (BCSA).Agenda setting power
3.R.149-150 and s. Sixth Edition. s. 149-150: in case of corporations with 50 or more members. in addition to two-way proxy form with or without solicitation by or on behalf management.
In case of directors appointed by cumulative voting: a director may be removed from office only if the number of votes cast in favour of the director’s removal is greater than
. Independent members
CBCA.5
0. One of these. the shareholders of a corporation may.5
0. 474 (2)]. 1994) the ‘Dey Report’]. CBCA. we have taken into account corporate governance disclosure requirements of the TSE for this variable. Feasibility of director’s dismissal
In 1994 the Toronto Stock Exchange (TSE) published: ‘Where Were The Directors? Guidelines for Improved Corporate Governance’ [(Dec. remove any director/s from office unless that director is elected on behalf of any class or series of shares in which case only the shareholders of that class of shares may so vote to remove that director.5
0. provide that board of directors of every corporation should be constituted with a majority of individuals who qualify as unrelated directors [Guidelines Sec. s. S.5
0.102 (2) – corporations that have distributed shares to the public must have a minimum of three directors at least two of whom are ‘outside’ (i. not officers or employees) directors.5
0. As the largest Canadian public companies are listed on the Toronto Stock Exchange (TSX).5
0. The TSE introduced governance disclosure requirements to implement the Dey Report adopting the Committee’s 14 recommendations as best practice guidelines for listed companies in 1995. 109: Except in cases where cumulative voting is concerned.5
0. by ordinary resolution at a special meeting.
.107 (g)]. Whislt s. namely. Dismissal as a director does not affect the rights of the same individual under a separate managerial services contract. when dismissed without cause. the cost rules undermine its significance and use.the product of the number of directors required by the articles and the number of votes cast against the motion [see s. notice.239 and ‘oppression remedy’ u/s. As the dismissed director will inevitably also be dismissed as an executive.239 requires ‘complainants’ who wish to bring such action to apply to court for leave to bring the action.239 does facilitates to a certain extent the bringing of a derivative action. it requires ‘complainants’ who wish to bring such action to apply to court for leave to bring the action.239 facilitates to a certain extent the bringing of a derivative action. good faith and that it is in the interest of the corporation. he/she can rely on this contract to claim compensation/damages.Private enforcement of directors duties (derivative suit) 1 1 1 1 1 1 1 1 1 1 1 CBCA. 239-242: derivative suits u/s. s. Whilst the CBCA does not specifically contain a provision which states that it does not deprive
any director dismissed under the Act from claiming any compensation or damages payable to him in respect of the termination of his appointment as director or of any appointment terminating with that as director. ss. The moving party must establish three elements. 241 The CBCA s.
. creditor.. C.R. 241 offers a further opportunity to enforce directors’ duties – hence the score. where directors obtain a personal financial benefit from their conduct: Budd v. Directors and officers can be held personally liable for corporate oppression.A. Downdown Eatery (1993)Ltd. leave to appeal refused (2002).. 195 (note) (S. the ‘oppression remedy’ available under s. 43 B. director or officer. or the powers of the directors of the corporation are or have been exercised in a manner that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder. notice.) the Ontario court of appeal’s review of the case law in this case reveals following situations in which directors may be held personally liable: 1.moving party must establish three elements.R. 289 N.L. Ontario (2001) 54 O. (3d) 161. Their liability in this regard does not depend on the breach of a specific statutory duty or on a common law tort but is substantially broader.241. Gentra Inc. (1998).R. namely. good faith and that it is in the interest of the corporation. In addition to derivative action u/s.C. Under s.: Budd v. (2d) 27 (Ont.C. remedy is available where. V. Gentra Inc. any act or omission of the corporation or the business or affairs of the corporation are or have been carried on or conducted in a manner.239.
21 O. Adam (1994). where directors have breached a personal duty they have as directors: e.). Div.R. creditor.g. s.R. 241: for oppression remedy and s. 6 D.) 3. CA). (1984). (3d) 248 (Ont. Div. where directors have misused a corporate power: Gottlieb v. Adam (1994). CBCA. Gen. Gen. 21 O. Gentra Inc.R.8.g. Adam (1994).
. (3d) 248 (Ont. Div. or the powers of the directors of the corporation are or have been exercised in a manner that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder. any act or omission of the corporation or the business or affairs of the corporation are or have been carried on or conducted in a manner. Royal Trustco Ltd. Budd v. affirmed [1986] 2 S.) 5.C. Shareholder action against resolutions of the general meeting
where directors have increased their control of the corporation by the oppressive conduct: e. Scope of corporate conduct subject to review under the oppression remedy is wide. 241 is broad and flexible and is available to ‘a complainant’ [238 (a) security holder] where.) 4. Canada (Director appointed under s. Gen. (4th) 682 (Ont. Gottlieb v. director or officer. and is not
2.L.190 for dissent and appraisal rights The oppression remedy available under s.253 of CBCA) v. 21 O. 537 (S.C.C. where a remedy against the corporation would prejudice other security holders: Gottlieb v. (3d) 248 (Ont.R.R.
Javelin International Ltd.restricted to the wrongdoing of management. Basra (1991) 45 B.R. (No. Wark v. it has been held that the enumerated heads of corporate conduct “are to be regarded as mutually exclusive. 85 (Sask. [1986] R.) at p. It is not necessary for the applicant to establish there is an element of bad faith present in the alleged misconduct in order to succeed. (2d) 143 (Ont. Kozicki (1997). 3.B. One of the goals is to protect the reasonable expectation of shareholders. When dealing with a closely held corporation. Mendel Holdings Ltd. Dennis H. 4. Sparliong v.B. 2.73]
.) at pp.1077.Q. [see Butterworths Shareholder Remedies in Canada. each applying as well to isolated acts as to a continuing course of conduct”. (1984). Sahota v. 1). R. Gen. 1073 (Que. 127 (Q. Div.R. The burden of proof concerning unfairly disregarded or prejudiced is less rigorous than the burden of proof where oppression is claimed. Miller v.J.99. S. Peterson: §18.C. F.L.72.) specified some of the leading propositions in relation to the ‘oppression remedy’ as follows: 1. the court may consider the relationship between their shareholders and not simple their legal rights as such. Q. §18. It is sufficient to establish that the interests of the complainant have been unfairly disregarded or prejudiced. 153 Sask.L. 26 B. 5.) at p.132-133.
0. 190 (1) provides that the dissent and appraisal are subject to the right to bring an oppression application u s. s.95.5 0.s. From 2001.5
0. Under the provincial securities legislation: Trigger: 20%.5 0.5
0. 194-196: Trigger: 10%:.Disclosure of major share ownership
0. changes brought about by Bill S-11: Amendments to the CBCA that came into force in November 2001 eliminated regulation of takeover bids of federal corporations under that statute.5
0.196) and accordingly either sections 195 or 196 would apply for the procedure and details.241.5
0. CBCA as well as the securities legislations of the provinces both contained provisions regulating take-over bids.5
0.89(1) read with s. but the bid could be made for less than all of the class of securities subject to the bid.5
0.5 0. 9.190 gives shareholders right to dissent from certain transactions and to demand a fair value for their shares. ss.5 0.5 0.g. Therefore now regulation of take-over bids in Canada is only under the provincial securities legislations. 10%: Early warning disclosure: any person acquiring control over 10% of securities of a class of voting or equity securities must issue and file a
10.5 0. see e. OSA.5 0. 193 (1) provides that a dissenting shareholder has the right to be paid fair value ‘in addition to any other right the shareholder may have’.5 0.5 Until 2000: The federal act. CBCA.Mandatory public bid 0.5 0.5 0.5
0.195) or less than all of the shares of any class (s.5
. but a takeover bid could be for all (s.5
see O. Nfld. 93.11. 147.A.141.A. B.e. s. s. 107.S. s.110] Until 2000 (i.S. before the amendments to CBCA in November 2001). 9.S. M. s.g. s.111. Comments: Protection of minority shareholders: The provinces of Ontario and Québec have additional rules designed to ensure fair treatment of minority shareholders in connection with certain types of transactions involving related parties. s. s. 101 [See also A. Q.A. s.S.A. 102. N. S.A.S.194 also contained similar provision.A.1 for Ontario]
. the CBCA s.press release identifying the person and the extent of their control over the voting securities.A. [see e.C. Ontario Securities Commission Policy No.S.S.S.S.A.
Powers of the general meeting for de facto changes 1995 0 1996 0 1997 0 1998 0 1999 0 2000 0 2001 1 2002 1 2003 1 2004 1 2005 1 Explanations/ References According to article 57. creation of the General Administration of Funds. or a business plan involving the sale. the extraordinary general meeting has the power to take decisions concerning the selling of the company’s debts in the terms stated in article 67. the 2001 Draft Code will be mentioned. Variable 1.36 ininserted in 2001 by article 5.9 of the same Act requires a vote of 2/3 of all the issued shares with voting rights in the case of decisions of the extraordinary general meeting concerning the sale. Before the 2001 amendment. the law required this majority for the selling of all the assets of the company.9 of the same Act. facilitation of the bank internationalization and perfectioning of the Companies Act and Investment Funds
.2 of Act 19769/200137 (with effect from 2002). Article 67.1981) according to which shareholders of public companies representing at least 1% of the issued shares with voting rights can introduce
2. or the selling of at least the 50% of its credits. The 18045/1981 Act on Stock Markets will also be considered. Presently. including or not sums owed to it. however. there are no Corporate Governance Codes in Chile. A single ‘selling operation’ is one involving one or more different acts relating to the company assets during a period of 12 months.10. of 50% or more of the company assets. Agenda setting power
Limited Liability Companies Act Act on the Flexibilization of Mutual Funds and Insurance Firms. Chile (Pablo Iglesias-Rodriguez)
The main source for evaluating minority shareholder protection in Chile is the 18046/1981 Act on Limited Liability Companies which regulates most of the analyzed points.4 of Act 18046/1981.4. At presnet. The current Law does not contemplate this possibility for minority shareholders. the Draft Project of Reform of the Capital Markets reflects the possibility of including an article 51 bis in Act 18046/1981 (amended the same year by DO 31.
but no mention of a two-way voting form or to the fact that this must be provided by the company is made.10.3 of Act 18046/1981 establishes that the board of directors must call a general meeting when this is required by shareholders with at least 10% of the shares with voting rights (they must also indicate the items to be discussed in the general meeting). under discussion. or make motions in relation to subjects of discussion in the general meeting. even if she is not a shareholder. if they are simultaneous to ordinary voting and properly guarantee the fidelity. the Draft Project on the Reform of the Capital Markets. 3. At present. additionally and complementarily to their ordinary voting system.
Regulation of the 18046/1981 Limited Liability Companies Act
. Article 58. In effect. article 63 of Regulation 587/1982 Regulation38 of the 18046/1981 Act establishes these characteristics.1981) states that shareholders can be represented in the general meeting by another person. proposes the introduction of an article 59 ter.commentaries. It was laid down that a regulation developing the content of Act 18046/1981 would specify the characteristics of the document conferring the representation. make proposals related to the business of the firm. inalterability and confidentiality of the exercise of voting rights. can also have remote voting systems. This power of representation must be conferred by written means and for all the shares the represented shareholder owns. accordingly to which companies. they must also be properly computed. Anticipation of shareholder decision facilitated 0 0 0 0 0 0 0 0 0 0 0 Article 64 of Act 18046/1981 (amended in the same year by DO 31.
Prohibition of multiple voting rights (super voting rights)
Article 21 of Act 18046/1981.14 of the 19705/2000 Act. such as advice concerning the retribution of the directors. Independent board members
Act on Public Bids and corporate governance regimes. So. firms with multiple voting rights must have adapted their internal rules to the new regulation. and thus. the non independent directors
5. or not later than within 180 days following the publication of the Act in the Official Bulletin. According to article 1 of the Transitory dispositions of Act 18046/1981. companies in existence at the time of the publication of this Act must make their articles of association compliant with the new regulation in the first amendment they make concerning on them. The only reference in the Law concerning the independence of the directors is made in article 50. if not taking into consideration the votes of the major controlling shareholder or the persons related to her.
. prohibits the creation of shares with multiple voting rights. In the case there are not enough independent directors to constitute this committee.bis of Act 18046/1981 introduced by article 2. which must be established in each public limited company with a share capital above a given percentage. the director would have equally well have been nominated. by amendment. no shares with multiple voting rights may exist from 1982 onwards. Which is in charge of different tasks.39 and refers not to the board but to the committee of directors. it may be understood that after those 180 days. At present. it is considered that a director is independent when.4. The majority of the members of this committee40must be independent of the controllomg shareholder. according to the same article.
according to the majority requirements of article 61. agreements related to this issue must be adopted by absolute majority of the shares participating in the meeting or represented in it with voting rights. Before 2000. it is not possible to dismiss one or some of the directors only.
. The nominating directors should try to ensure that the majority of the members of these committees are independent. some committees should be created in order to help the board of directors to develop various tasks.3 of Act 18046/1981. the fact that this must affect all the directors explains the attributed value 0. Feasibility of director’s dismissal ½ ½ ½ ½ ½ ½ ½ ½ ½ ½ ½ Article 38 of Act 18046/1981 establishes that all the members of the board of directors can be dismissed by decision of the general ordinary or extraordinary meeting.Private enforcement of directors duties (derivative suit)
Draft Code. thus. representing at least a 5% of the issued shares. the articles of association or the rules established by the National Securities Commission. recommendation number 13. recommends that according to the number of members of the board and the legal rules.21 of Act 19705/2000. confers upon to any shareholder or group of shareholders. the draft Code of Best Corporate Practice41. the right to start a derivative suit in the name and benefit of the company. The nomination or dismissal of directors is a matter of the general meeting as stated in article 56. Aside from this provision. 6. under discussion since 2001.1 of Act 18046/1981. introduced by article 2. article 133 of Act
7. Article 133 bis of Act 18046/1981. established that any depletion of the company’s assets as a consequence of the infringement of that Act. related regulations.5. Even if there are no special requirements for dismissal.majority.
for example. article 133 of Act 18046/1981 just referred to the liabilitiy of persons who do not fulfill with the 18046/1981 Act. she has 30 days after the bid (taking this day into account) to make an offer for the rest of the shares. or the rules established by the National Securities Commission. Mandatory bid
10.8. Article 12 of Act 18045/198142 establishes that persons who directly. or who as a result of any acquisition reach that percentage. along with the directors. Disclosure of major share ownership
Stock Markets Act
. Apart from this. no particular causes of action for a shareholder aiming to file a claim against a resolution of the general meeting are set out. liquidators. If as a consequence of an acquisition by which any person reaches or exceeds 2/3 of the of the issued shares with voting rights of a company which makes a public offering of their shares. the articles of association of the company. by Act 19705/2000 Act. The law just mentions certain rights of shareholders when. by means of other physical or legal person. main managers
9. without specifying how a claim could be brought. Shareholder action against resolutions of the general meeting
18046/1981 just referred to the liabilitiy of persons not fulfilling the requirements of Act 18046/1981 Act. related regulations. the company’s articles of association or the rules established by the National Securities Commission. they do not agree with resolutions of the general meeting (see article 69 of Act 18046/1981). This could also include the general meeting itself when it adopts a resolution against one of these rules. However. This precept (article 69 ter) has been inserted into Act 18046/1981 Act in 2000. No rules concerning this right exist. its related regulations. own at least the 10% of the share capital of a firm whose shares are registered on the Stock Register. or indirectly.
must inform the National Securities Commission and to various Chile Stock Exchanges in which the shares are traded. 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
. Article 54 of Act 18045/1981.and CEO of these companies. Additionally the major shareholders must indicate if the purpose of these acquisitions is the control of the firm or just a financial investment (this last paragraph was introduced by Act 19705/2000 Act. of any direct or indirect buying or selling they do in relation to the company’s shares. independently of the number of shares they own. article 1.).a of Act 19075/2000. by an amendment introduced by article 7.c.4. adds that any person who directly or indirectly aims to obtain control of the company must make a public disclosure of this.
Guidelines to Articles of Associations of Companies Limited by Shares (Guidelines on Memoranda of Associations in Listed Corporations) of 06 December 1997.25
0. 104(no. art. The latter may cover “de facto changes”.5
1997 0. however. Agenda setting power
1996 0. Previously this was only the case for listed companies: Mandatory Provisions in the Articles of Associations for Companies Listed Overseas of 27 August 1994. dissolution. 103(2) (not coded here) was there introduced a general right to put an item on the agenda.5
0. 57: 5 % Company Law 1993.5
Thanks to Rui Wang for helpful comments
. 54 (not coded).Powers of the general meeting for de facto changes
1995 0.10): power of the general meeting to decide about mergers.R. liquidation.5
1998 0. divisions.L.5
0.C.5. Since 2004 there are also the Minority Shareholder Protection rules which require that “all relevant issues that have an important bearing on the interests of minority shareholders require tradable shareholder approval” (see Chao Xi. Only in the Company Law 2006. art.5
0.3): 10 % right to call an extraordinary general meeting
2. art.5
1999 0. 17 I. China (Mathias Siems)43
Variable 1.5
2001 0. 251 at 258 (2006)). and “other matters”.5
Explanations/ References Company Law 1993.5
0.C. 102(no. It has.25
0. art.5
0. Institutional Shareholder Activism in China: Law and Practice. not been clarified what exactly is required.5
2004 0. art.
0. art.6
0. 106: strict one share one vote principle
0. Corporate Governance Code 2001. For calculation of percentages: see Clarke.5
0.59. art.4
0. Prohibition of multiple voting rights (super voting rights) 5. If they do so. ibid. Anticipation of shareholder decision facilitated
0. 10).5
0. art. 51 requrires. however.5
0. ibid. there was a 2000 recommendation by Shenzen Stock Exchange (see generally Donald C. at 200: average number of directors in Chinese companies: 10
0. Mandatory Articles 1994.5
Until 2002 some independent directors were only required for companies listed abroad and in some local provisions. Furthermore. the CSRC issued an opinion on independent directors.3. In 2001. art.6
0. two-way proxies. Mandatory Articles 1997.5
4. 108. Independent board members
Proxy voting but not postal voting is possible (Company Law. Mandatory Articles 1994. 36 Delaware Journal of Corporate Law 125-228 (2006)). 48.5
0. The Independent Director in Chinese Corporate Governance.5
0. art.). Companies do not have to provide proxy solicitation. Clarke. art. art. Company Law 1993. mandating that companies have 2 independent board members by June 2002 and 3 independent board members by June 2003 (see Clarke. 62 and Mandatory Guidelines 1997.
Disclosure of major share ownership
0. However.25
0. 4 only state that “shareholders shall have the right to request the company to sue for such compensation in accordance with law. art.25
0. art.75
0. 115). Furthermore. art.6.25
0. The 2001 Corporate Governance Rules. however.25
0. 46.25
0. not clear. art.5
0.” In 2003 the High Courts of Shanghai and Jiangsu promulgated rules according to which derivative actions were possible.75
0. directors of the management board shall not without reason be removed (art.5
0. Feasibility of director’s dismissal
0. compensation appears to be possible Company Law 1993. art.75
0. art. that shareholders have the right to initiate proceedings if resolutions of the board of directors violate the law. promulgated by the State Council in April 1993.5
0. Shareholder action against resolutions of the general meeting 9. Private enforcement of directors duties (derivative suit)
0. 111 Provisional Regulations on the Administration of Issuing and Trading of Shares.25
0. inter alia. 81: 30 % Provisional Regulations on the Administration of Issuing and Trading of Shares. arts. 111 states. 47 Securities Act 1998 (in force since 1999).75
0. 79: 5 %
10. 48 and Securities Act 1998 (in force since 1999). promulgated by the State Council in April 1993. 103 (nos.5
0. art. Company Law 1993.25
0. 2 and 3). Mandatory bid
The general meeting elects and replaces both the members of the management board and the supervisory board (Company Law 1993. if agreed.25
0. The scope of this provisions was. and derivative suits did not take place until recently.75
Comments: • The new Company Law. has not been taken into account • Private enforcement may be problematic. but government ownership and public-law measures may provide alternative or additional protection. which came into force in January 2006.
otherwise 5% of the registered capital
.6.6. Agenda setting power
0. 67a).1996: Commercial Code. 182(1)(a). the rules which apply to mergers do not apply any more to those contracts (Commercial Code.5
0. Since 1.25
0.2000: Commercial Code. Since 1. s. s.12. the general meeting still decides.5
0. or lease of an enterprise or a part of such. or lease of an enterprise or a part of such. 187(1)(h): the general meeting decides if the statutes of the company transfer this right to the executive board.5
2004 0. 181(1): shareholders of a company whose registered capital is higher than CZK 100 million: 3 %. 187(1)(k): the general meeting decides whether to conclude a contract if its object is the transfer of an enterprise or a part of such. s. ss. Since 1. s. or whether to conclude such contract with a controlled person changes in 2006.5
2003 0. 182(1)(a). 181(1): shareholders of a company who hold at least 10 % of the registered capital.1996: Commercial Code.25
0.1. Czech Republic (Stephan Haidenhein)
Variable 1.25
2002 0. unless the statutes of the company transfer this right to the executive board.25
0. 187(1)(j): general meeting decides whether to conclude a contract if its object is the transfer of an enterprise or a part of such.2001: Commercial Code. however. Until 31.Powers of the general meeting for de facto changes
2001 0.2001: Commercial Code.1. 187(1)(k) and s. ss.25
Explanations/ References Until 30.
0. s. 181(1): possible for shareholders of a company whose shareholders of a company whose registered capital is higher than CZK 100 million: 3 %.6.2000: Commercial Code.by a decision of the general meeting. 187(1)(d). No.5
0. Shareholder action against resolutions of the general meeting
. 131. no compensation is obligatory according to the Commercial Code. Until 30.1. 183
8. 200(1): 2/3 to be elected by the general meeting. Anticipation of holder decision tated 4.5
0. 184 (1) does only address proxy voting in general (and excludes directors) No explicit prohibition applies.5
7. according to Commercial Code. Until 31. board members must not be proxies of the company. and it may be paid only if special agreements or contracts between the director and the company provide for it (however. 200(4). according to the Commercial Code.7.25
0.2001: Commercial Code. s. 181(1): possible for shareholders of a company who hold at least 10 % of the registered capital. Prohibition of ple voting rights voting rights) 5.25
0. s. ss.5
0. Independent members
sharefacilimulti(super board
Commercial Code.2006 Commercial Code. Feasibility of director’s dismissal
0. those stipulations in those contracts are normal).25
0. ss.5
0. otherwise 5% of the registered capital Commercial Code. 187(1)(c).5
0.(e): yes . Since 1. 1/3 by the employees where the company has more than 50 employees.25
0. 182(2).5
0.1996 Commercial Code. 182(1)(a).5
0.12. s. s.(d): as of 1.Private enforcement of directors duties (derivative suit)
0. 183b(1).1996. s.2004 up to now: more or less identical stipulations in the law on the capital market (s.5
0. Disclosure of major share ownership
0. Mandatory bid
0.1996: no disclosure.5
0. s. As of 1.
.2001: Commercial Code.5.5. 183(d): 10 %.2001: Commercial Code.2000: Commercial Code.75
Until 29. 66a(1).4.2001: Commercial Code.5
0. (2): mandatory bid must be made where the shareholder has at least 50 % or 2/3 or ¾ of voting rights of freely negotiable shares.5.5
0.1996: no mandatory bid.5
0.5.1.5.12. ss.5
0. As of 30. 183b(1). As of 30.75
0. ss.12.1996. up to30. Since 1. up to 31. 183(d): 5 %.5
0. 66a(5): mandatory bid must be made where the shareholder has 40 % of voting rights Until 29.1.2004.5
0.9. up to 30.5
0. 122).5
art. Die Konvergenz der Rechtssysteme im Recht der Aktionäre. 225-105). L. 225-120). 128).4)) (see generally. Agenda setting power
. and since there is no case law. million euro) are the main focus of this study. art. e. it is argued that the major assets can be equated with the whole assets (Loi 1966. which for big companies may be 1 or 0. 2000-912 company law is (again) regulated in the Code de Commerce (subsequently amended. first. for which the general meeting is competent. These companies (portion of capital more than 7.Powers of the general meeting for de facto changes 1995 0 1996 0 1997 0 1998 0 1999 0 2000 0 2001 0 2002 0 2003 0 2004 0 2005 0 Explanations/ References There is no explicit provision on sale of major parts of company assets. Since these cases are exceptions. art. art. Code de Commerce 2000. 2005.
2.4). It is debated. Since Loi no 94-679 du 8 août 1994 the proposal right is also extended to shareholder associations (Loi 1996. art. Code monétaire et financier 2000. whether a de facto measure constitutes a change in the object of business (as indicated in the articles).7. Principes de gouvernement d’entreprise résultant de la consolidation des rapports conjoints de l’AFEP (Association Française des Entreprises Privées) et du MEDEF (Mouvement des Entreprises de France) 2003 (French Corporate Governance Principles). Second. art. at 217). 396 (no. deviation from the “0” score would. Siems. Règlement général de l’Autorité des marchés financiers 2004. There is also a graduated threshold.5. Décret no 67-236 sur les sociétés commerciales (as amended). The number of shareholders that can make a topic the object of decision by the general meeting is usually 5% of the registered capital (Loi 1966. 160. Code de Commerce 2000. by Loi sur les nouvelles régulations économiques (NRE) no 2001-420 du 15 mai 2001).5 % (Décret 1967.g. Code de Commerce 2000. France (Mathias Siems)
Main laws on shareholder protection: Loi no 66-537 du 24 juillet 1966 sur les sociétés commerciales (in 2000 repealed). since Ordonnance No. 172-1.. L. not be justified. however. 237-8(no. L. Variable 1. art.
160(3): dismissal was (and is) always possible (now: Code de Commerce 2002. 2nd edn 2001. art. 225-18(2). art. art. Feasibility of director’s dismissal
. Prohibition of multiple voting rights (super voting rights) 5. 225-22(1) as amended by Loi no 2001-1168 du 11 décembre affirms the change from 1994. This effect was not reduced due to contracts which supplement the appointment. Code de Commerce 2000. Loi no 94-126 du 11 février modified Loi 196. (2004) 1 ECFR 36 at 47) is therefore not coded in this variable. This can be regarded as the default rule because the corporate governance principles are in general applied by almost all companies (see note Monks & Minow. 161-1 inserted by Loi no 83-3 du 3 janvier 1983. L. art. art. Loi 1966. art. 225-105(3)). Anticipation of shareholder decision facilitated
Décret no 86-584 du 14 mars 1986 (in force since January 1988) inserted Décret 1967. today: Code de Commerce 2000. 225-107). 175. 160(3): an employment contract is already admissible if it relates to actual employment. art. L 225123: holders of registered shares can be given a double voting right in the articles of association. L. The fact that many companies opt out of the independence requirement (see Storck. at p. Then. art. shall be independent.3. if the shares have been held for two years by the same owner. unless this contract antedated the appointment by at least two years and related to actual employment. 1 Code de Commerce 2000. Independent board members
6. Loi 1966. postal voting is possible (Loi 1966.
4.2). because separate employment contract were inadmissible. It is therefore (only) necessary that this occupation is distinct from the occupation as director. L. 8. 292). 2003: According to the French corporate governance principles a significant number of board members (no. 131-1: shareholders have the right to request a remote ballot form. art. Corporate Governance.
art. arts. arts. art. on nullity of a decision. L. 245. 225-252: Shareholder suit by single shareholder possible. 98-545 du 2 juilliet 1998). 89-531 du 2 août. however. 356. today: Code de Commerce 2000. Disclosure of major share ownership
Loi 1966. arts. 356-1 (amended by Loi no. 234-2. the bidder was only required to buy 2/3 of the shares (see Gardner (1992) ICCLR 93 at 96). 2004. 233-7 (amended by Ordonnance no 2004-604 du 24 juin 2004). Décret 1967. Shareholder action against resolutions of the general meeting
9. the mandatory bid was later regulated in Règlement Général des Conseils des Marchés Financiers (CMF). Loi no. 5-5-2 and today in Règlement général de l’Autorité des marchés financiers 2004. Mandatory bid
10. art. available at http://ssrn. Arrête du 15 mai 1992: Bidder is required to buy all shares. L. 360 et seq. L. art. L. Code de Commerce 2000. here too a decision may be null. 697 (2005)). The Real Difference in Corporate Law between the United States and Continental Europe: Distribution of Powers. This does not concern the case of abuse of majority power. However. p. art. art. Loi no 87-416 du 17 juin 1987 changed Loi 1966. 235-1 et seq. or damages can be awarded (see Cools. J. 233-6. Loi 1966.com/abstract=623286 and now published in 36 Del. 200) and since 1994 (Loi no 94-679 du 8 août 1994) shareholder associations. Loi no.7. 30. Loi 89-531 du 2 août 1989: mandatory bid in case of 1/3 of the target’s shares since 1989.. now Code de Commerce 2000.
.Private enforcement of directors duties (derivative suit)
8. There are also simplified representation provisions for an action by several shareholders (as a rule 5 %. Corp. 96-597 du 2 juilliet 1996.
Gesetz zur Durchführung der Dritten Richtlinie des Rates der Europäischen Gemeinschaften zur Koordinierung des Gesellschaftsrechts (Verschmelzungsrichtlinie-Gesetz). I 2802. Agenda setting power 3. 10.Powers of the general meeting for de facto changes 1995 ½ 1996 ½ 1997 ½ 1998 ½ 1999 ½ 2000 ½ 2001 ½ 2002 ½ 2003 ½ 2004 ½ 2005 ½ Explanations/ References Case law of the German Supreme Court based on the referral possibility in § 119(2) AktG: The management board is obliged to refer questions of conduct of business to the general meeting if serious interference with shareholders’ rights and interests is likely. Gesetz für kleine Aktiengesellschaften und zur Deregulierung des Aktienrechts. BGBl. 4. 2. BGBl. Transparenz. NJW 2004. BGBl. 1860 (Gelatine)). 7. Gesetz zur Kontrolle und Transparenz im Unternehmensbereich (KonTraG). BGBl. BGBl. I 786. 2. UmwG (German Transformation Act). 80% of company assets ((BGH. 2005. however. 24. 8. Gesetz zur Unternehmensintegrität und Modernisierung des Anfechtungsrechts (UMAG). 1985. 7. 4. BGH. I 1749. Unternehmensübernahme-Regelungsgesetz. 2002. BGHZ 83. 2005. I 2267. BGBl.2001. Gesetz über die Offenlegung der Vorstandsvergütungen (VorstOG). 27. 25. BGBl. 10. Details are. According to no. 9. I 2355. 28. I 1425. I 2681. Gesetz zur Durchführung der Vierten. BGBl. BGBl.
2. 1976.und Publizitätsgesetz (TransPuG). Siebenten und Achten Richtlinie des Rates der Europäischen Gemeinschaften zur Koordinierung des Gesellschaftsrechts (Bilanzrichtlinien-Gesetz . WpHG (German Securities Trading Act). 2002. BGBl. 12. GCGC (German Corporate Governance Code). Main reforms: Gesetz über die Mitbestimmung der Arbeitnehmer (MitBestG). I 1961 (Kleine-AG-Gesetz). However. BGBl. BGBl. 1982. I 2010. 20. Anticipation of shareholder decision facilitated
. I 529. BGBl. 19. 26. 18. 21.6. Variable 1. 3. Gesetz über den Wertpapierhandel und zur Änderung börsenrechtlicher und wertpapierrechtlicher Vorschriften (Zweites Finanzmarktförderungsgesetz). I 3822.4 of the GCGC (2002) exercising shareholders’ voting rights shall be “facilitated” and the company shall “assist the shareholder in the use of proxies”. I 123. 1994. 1. WpÜG (German Takeover Act). Germany (Mathias Siems)
Main laws on shareholder protection: AktG (German Law on Joint-Stock Companies). 19. HGB (German Commercial Code). Viertes Finanzmarktförderungsgesetz.3. 1998. there was and is no general requirement for credit institutions to act as a proxy (cf.8. German shareholders appointed credit institutions as proxies. BGBl. Usually. not specified.BiRiLiG). 3. Gesetz zur Bereinigung des Umwandlungsrechts (UmwBerG). 1994. This is presumed if a sale accounts for ca. Gesetz zur Namensaktie and zur Erleichterung der Stimmrechtsausübung (NaStraG). Gesetz zur weiteren Fortentwicklung des Finanzplatzes Deutschland (Drittes Finanzmarktförderungsgesetz). 8. § 135(10) AktG). 1994. 2001. 5. 1998. 122 (Holzmüller)). I 3210. 22. I 1153.12. § 122(2) AktG: 5% of the registered capital is needed.
310(4). new multiple voting rights cannot be granted. new multiple voting rights required state approval. § 12(2) AktG as amended by KonTraG (1998): existing multiple voting rights remained valid until 2003.
5. KonTraG (1998) reduced the hurdle from 10 % to 5 % if facts suggest the suspicion of gross breach of duty (§ 147(3) AktG). Prohibition of multiple voting rights (super voting rights)
§ 12(2) AktG 1965: multiple voting rights that existed before 1965 remained valid. According to § 147(1) AktG shareholders with 10% of the registered capital can enforce claims. Independent board members
6. which is presumed if the general meeting withdraws its confidence (§ 84(3) AktG).4. 317(4). Only a few special provisions in law on groups of companies have to date allowed a shareholder to sue directly (§§ 309(4).000 to bring action in its own name (§ 147a AktG). The UMAG (2005) enables a shareholder minority with a 1% share of the registered capital or a stock-exchange value of €100.Private enforcement of directors duties (derivative suit)
.2 of the GCGC (2002) states that not more than two members of the supervisory board shall be former members of the management board. No. possible only by three quarters of the votes cast. Since 2005 the GCGC states that there shall be “an adequate number of independent members. Dismissal of supervisory board members is. unless an important reason is present (§ 103(1).4. unless otherwise provided in the articles of association. Feasibility of director’s dismissal
7. 318(4) AktG).(3) AktG). 5.” The management board can be dismissed by the supervisory board only in the event of an important reason.
AktG. This has been restricted by the German Supreme Court. § 21 WpHG (5 %) inserted by Zweites Finanzmarktförderungsgesetz (1994). 1428 (Aqua-Butzke) (in general. Mandatory bid 10. bringing the danger of abuse of law. BGH. NJW 2001. Shareholder action against resolutions of the general meeting
§§ 241 et seq.2) AktG).
9. Mandatory bid (§§ 35(1). 29(2) WpÜG) inserted by Unternehmensübernahme-Regelungsgesetz (2001). It could be argued that since 2001 this score should be downgraded because of the decisions of the German Supreme Court in BGHZ 146. similar now UMAG (2005): § 243(4)(s. A problem with this is that these actions can block entry in the commercial register. action can be brought against resolutions of the general meeting with which the wrongly refused information was connected. Disclosure of major share ownership
. 179 (MEZ).8.
S. Offshore Inter Land Services Pvt Ltd v Bombay Offshore Suppliers and Services Ltd (1992) 75 Com Cases 583. 1 lakh]
2.5 2002 0. Ltd.Agenda setting power
.5 2000 0. (1970) 40 Com Cases 466. the activity of a company duly integrated with all its components in the form of assets and not merely some asset of the undertaking: Dhanuka J. Re. 188 (2) [prescribes a hurdle of 20% or not less than 100 members contributing to paid-up capital of not less than Rs. 293 (1) (a). S.5 2001 0.5 Explanations/ References CA 1956.Powers of the general meeting for de facto changes 1995 0.5 2005 0. of any such undertaking”. or substantially the whole.S. (Bom).5 1996 0. but emphasise that the test to be applied would be to see ‘whether the business of the company would be carried on effectively even after the disposal of the assets in question or whether a mere husk of the undertaking would remain after the disposal of the asset?’ CA 1956. of the whole. The expression ‘undertaking’ used in this section is liable to be interpreted to mean ‘the unit’. India (Priya Lele)
Variable 1. or where the company owns more than one undertaking. Yellamma Cotton Woollen and Silk Mills Co. requires shareholders’ approval in case of sale or disposal of “whole.5 1998 0.5 2003 0. the business as a going concern.5 1997 0.5 1999 0..9. Sale of a mere asset or property will not be sale of an undertaking. in P. or substantially the whole of the undertaking of the company.5 2004 0. If the question arises as to whether the major capital assets of the company constitute the undertaking of the company. For a theoretical discussion of the meaning of the expression ‘undertaking’ see. the courts do not specify a qualifying percentage.
For 2000: Listing Agreement.192 A.000/.Anticipation of shareholder decision facilitated
0. s. 176(1) proviso (c)]. such proxy forms being so worded that a shareholder or debenture holder may vote either for or against each resolution. matters relating to change in management etc. where the shareholding or the voting rights of the company exceeds 25%.5
0. sale of investments in the companies.179 (1) (a)]. Clause 34 (f) of the Listing Agreement as on 1985 (which is identical to the clause 34 (f) of the Listing Agreement of 2005) requires listed companies to send out proxy forms to shareholders and debenture holders in all cases.75
0.3. corporate restructuring. holding 1/10th voting power or shares of Rs.875
0. sale of whole or substantially the whole of the undertaking. s.5
0.179 (Demand for poll) and Art 61 of Table A of Schedule I. 50. Clause 49 Annexure 3 (d) as added by Circular No.875
0.[Amended S. 176 (Proxies) read with s.875
From 1995-1999: CA 1956. unless the articles of association of the company provide otherwise [see CA 1956. A poll can be demanded by members present in person or through proxy. S. From 2001: CA 1956.5
0. SMDRP/Policy/Cir-10/2000 dated 21-2-2000: mentions certain non-mandatory requirements which included postal ballot in case of certain resolutions (e. introduced by
0. Proxies have no right to speak at the general meeting and can participate in deciding only in the case of a written vote.). matters relating to alteration in the memorandum of association of the company.
The draft of what is known as the ‘Desirable Code of Corporate Governance’ or ‘Desirable Corporate Governance: A Code’ was published in April 1997 and the final code was released in April 1998.75 1 0.e. Prohibition of multiple voting rights (super voting rights) 5. 2001 provide that certain important resolutions specified in Rule 4 ‘shall’ be passed by postal ballot (these include most of the important resolutions e.Independent board members 1 0 1 0 1 0 1 0. 4.f. S.g. the following was the recommendation with respect to independent
.169 (6) From 1998: Voluntary Code: The Confederation of Indian Industries took an initiative in the area of corporate governance in the early 1990s and established a task force in 1995 to prepare a voluntary code of Corporate Governance in India.) According to this Code. election of a director under sub-section (1) of section 252 etc. 10-05-2001) as amended on 11th October.e.75 1 0. giving loans or extending guarantee or providing security in excess of the limit prescribed under sub-section (1) of section 372A.75 1 0. 15/6/01 to be read with Companies (Passing of the Resolution by Postal Ballot) Rules.75 1 0. certain alteration in the Articles of Associations. alteration in the Object Clause of Memorandum. (By 2000 over 25 leading and forward looking companies had already reviewed and/or complied with the voluntary Code.f. buy-back of own shares. 2001 (introduced w.75 CA 1956. sale of whole or substantially the whole of undertaking of a company.25 1 0.25 1 0.25 1 0.the Amendment Act of 2000 w.
5 0. nonexecutive directors.5
0.5 0.Private enforcement of directors duties (derivative suit)
0.I (A) of the Listing Agreement (introduced from 2000) prescribes that where the Chairman of the Board is a nonexecutive director. For instance.5
0. Further see also S. 284 (7) provides that the section does not deprive any person removed thereunder of any compensation or damages payable to him in respect of the termination of his appointment as director or of any appointment terminating with that as director.284 for dismissal of directors. mat-
7.5 0.5 0.board members: Recommendation 2: Any listed companies with a turnover of Rs. independent.5
0. Harbottle) but there are certain well known exceptions to this rule in which cases the shareholders may take action.318 for a possibility of claim by managing director or a director in the wholetime employment of the company for compensation in case of dismissal. Feasibility of director’s dismissal 0. at least half of the Board should comprise of independent directors 6.5 See CA 1956 S.5 0.5
0.5 0. Derivative suits: Ordinarily the directors of the company are the only persons who can conduct litigation in the name of the company (rule in Foss v. who should constitute .5
0. From 2001: Clause 49.5 0.100 crores and above should have professionally competent. or at least 50 percent of the board if the Chairman and Managing Director is the same person. S.at least 30 percent of the board if the Chairman of the company is a non-executive director.5
0.5 0. at least one-third of the Board should comprise of independent directors and in case he is an executive director.5 0.
Edward Ganj Public Welfare Association Ltd. see Jahangir Rustomki Modi v. 397/398 is the possession of 1/10th of voting right or of the total number of its members or a minimum of 100 members whichever is less [S. in cases where the jurisdiction of civil courts over matters is not expressly or impliedly excluded by CA. (1977) 47 Com Cases 285 (P&H). (1973) 75 Bom LR 778 for when the right to start an action on the company’s behalf in exceptional cases reverts to the general meeting. Union of India.399 (4)].399 (1) (a) [See S.D. Rameshshwar Prosad Bajoria (1950) 20 Com Cases 39. Shareholders actions under S. even if they don’t constitute the requisite shareholding to take action under S. Shamji Ladha.) v. (1867) 4 Bom OC 185.397 or 398.g. Ltd. However. 1956.397/398: CA S. if in its opinion circumstances exist which make it just and equitable so to do. Further.ters which are ultra vires (e. civil suit to challenge the validity of a notice calling a meeting: Niranjan Singh v. See also Shanti Prasad Jain v. AIR 1994
.g. Padukone (Mrs. the Central Government may.S. Satya Charan Law v. shareholders may take action in ordinary civil courts which does not require the compliance of S. to save the company from two warring factions among the Board of directors: Jayanthi R.C.399 (1) (a)]..399: The threshold for bringing shareholders’ action under Ss. authorise any member or members of the company to apply to the Company Law Board under section 397 or 398. acts constitute fraud on minority. Dr.399 e. where action of majority is illegal or where articles require super majority. I. AIR 1950 FC 133). apart from an action u/Ss.
Shareholder action against resolutions of the general meeting
0. authorise any member or members of the company to apply to the Company Law Board under section 397 or 398. even if they don’t constitute the requirement of minimum shareholding to sue under S. 2002 CLC 539 (Delhi) held that: where the aggrieved member is not qualified for filing a petition because of his low shareholding and the Central Government’s order for relaxing the requirement in this case is also not available to him.75
0..Kant 354 ‘Member not qualified may file a civil suit’: The Delhi High Court in Spectrum Technologies USA Inc. v. 2002 CLC 539 (Delhi) held that: where the aggrieved member is not qualified for filing a petition because of his low shareholding and the Central Government’s order for relaxing the require-
. for instances of matters over which ordinary civil suits were allowed to be filed..75
0. v.75
0. Ltd. Ltd.399 (1) (a) [Power of Central Government to relax requirements of 399: S. the Central Government may. See note 75 supra. However. Spectrum Power Generation Co.399 (1) (a)].75
0. Further.75
0. The threshold for bringing shareholders’ action under Ss. 397/398 is the possession of 1/10th of voting right or 100 members [S. if in its opinion circumstances exist which make it just and equitable so to do.75
0. it is possible for shareholders to bring action against resolutions of the general meeting in the ordinary courts under certain circumstances. Spectrum Power Generation Co.75
0. his remedy would be to file a civil suit. ‘Member not qualified may file a civil suit’: The Delhi High Court in Spectrum Technologies USA Inc.399 (4)].
10. 1997 (Regulations 6 and 7)
0.Mandatory public bid
0.Disclosure of major share ownership
0. Regulation 21 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations.5
0. For position from 1994: see SEBI (Substantial Acquisition of Shares and Take-overs) Regulation. 1994 (Reg 6) and from 1997 see SEBI (Substantial Acquisition of Shares and Take-overs) Regulation.75
0. Clauses 40A and 40B (of the Listing Agreement) incorporated in May 1990 and from November 1994 as per Regulation 9 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations.75
ment in this case is also not available to him.75
0. 1997.75
A new Clause 40A (of the Listing Agreement) was incorporated in the Listing Agreement Form in May 1990. any person acquiring 5% or more of the shares in a company was to notify the stock exchange of such holding.5
0. 1994.75
0. his remedy would be to file a civil suit. According to this clause.5
when they possess at least 10% of the shares. 125 d. the interpretation of art. doctrine recognises an obligation imposed on the directors to call for the meeting. even different from the minority formulation. According to Art 125 the minority shareholders should indicate also the topics to be discussed in the meeting. Yet. on the other hand. Art. modified this rule for listed companies. reduction of the capital in case of a shareholder. 2367 c. Agenda setting power
.Powers of the general meeting for de facto changes 1995 0 1996 0 1997 0 1998 0 1999 0 2000 0 2001 0 2002 0 2003 0 2004 0 2005 0 Explanations/ References Art. lgs. on mergers. The new wording of the article provides for an eventual delegation of power to the board of directors (or the audit committee or the supervisory board). 2367 c.10. with the only limit that the topics eventually chosen by the directors cover in substance what was asked by the minority that requested the meeting.. and would be free to reject it even for their
2. some part of the doctrine thinks directors have only an obligation to consider the request. Art. 58/1998 (TUF).c. and provides for the power of the minority to ask a shareholder meeting. 2410 now confers the power of issue obligations to the board. Italy (Viviana Mollica)
Variable 1. etc. transfer of the seat of the company. The directors can nevertheless introduce other topics.. n. Art. The directors have to comply with the request in the time and modes established by law. and no longer to the extraordinary shareholders meeting. is still very controversial and there are two main streams options above it: on one hand. (before the reform) regulates the power of the minority to ask for a meeting to be held if they possess 1/5 of the company capital. 2365 Codice Civile deals with the power of the extraordinary shareholders’ meeting.c.
II. 2367. Napoli. unjustified. unless expressly prohibited by the Company Statute. illicit requests. in Società. 1994.000 or
3. in Giur. II. Art. 775.000 but less than 25. 12 aprile. The old legislation was silent on the matter. or requests that concerns areas that are outside the competence of the shareholders meeting. 1990.817. 2372 Codice Civile: Proxy voting is normally permitted. The new wording of the article adds that the latter is the norm.70. 127 Testo Unico della Finanza 1998 (TUF): “The Company Statute can allow postal voting to be cast. The same person cannot represent more than 50 shareholders if the company capital amount to less than Euro 5... states that the meeting won’t be called if the request concerns subjects that have to be prompt by the directors. p.” Transposed into the new Art. Comm. 1987. Comm.000. Art. More over the new art. p. 24 gennaio 1996. Trib. p.I.c. unless the delegation of power is made through a general delegation clause or if the delegating person is a company and the delegate one of his employees. I.000. New art. or 100 if the company capital amount to more than Euro 5. Recent case law recognises the right-obligation of the directors not to accept illegitimate. Trib.000. 1995. Trib. Trib. p. 22 marzo 1990. repetitive. in Società. Milano. The delegation of the voting power must be conferred in writing and it is valid only for one shareholders meeting. in Giur. Milano.000. 21 novembre 1994. 2° co. 812. 1996. 2370 co. in Società. II. 1995. Anticipation of shareholder decision facilitated
.own mere convenience. Trib. c. states that the Court president is not automatically authorised to call for the meeting. 4 Codice Civile. Aosta. p. 2367.586. Milano. 7 maggio 1987. but shall do so only after having heard all the relevant parties in order to establish why the meeting was not called..
New Art. 2409–septiesdecies. The Regulation has a Comply or Explain requirement. For the traditional model.1
1 0. Particularly relevant are ‘le Linee Guida della Borsa Italiana. the requirement of independency is traditionally attached to the auditors. art. Prohibition of multiple voting rights (super voting rights) 5. Art. paragraph 2. 4 Codice Civile The (self-disciplinary) Preda Code (1999 revisited in 2002) Art. 2387 Codice Civile states that the Company Statute may subordinate directors’ appointment to some pre-requisites of independence. the law reform introduced for the first time a formal mention of the independence requirement in the Civil Code.25
1 0.000. co. In the traditional model. As for the one-tier structure introduced by the company law reform.4
200 if the company capital is more than Euro 25. n. 2351. 2409-octiesdecies.25
1 0.000. ‘Le line guida di Confindustria’. Besides. co. 2409-
. – freedom with accountability principleOther (soft law) regulations that referred to the independent directors are 1.1
1 0.2.4. 2 introduces the compulsory figure of the independent director: at least one third of the board must be independent.lgs. In the Stock Exchange Regulation. though these are soft rules. written on the basis of D. 231/2001. makes provisions about the roles that independent directors (again the reference is to an adequate number) should have in listed companies. which represent a moral suasion rather than a legal obligation. Independent board members
1 0. Art. Le line guida dell’ ‘Associazione Bancaria Italiana’. which recalls art.. and concerning the annual report that listed companies have to compile. 3: which states that the board should comprise an ‘adequate’ number of independent not executive directors”.
0.. and 1/20 for the court intervention. 2409-undecies recalls Art. 2409 e 2408 Codice Civile. 2409 duodecies c. For the new two-tier system. and 5% to ask for the auditors checking intervention powers. 3 Codice Civile Directors can be dismissed at any time by the board. Old Artt.5
0. 2393 del Codice Civile gives the exclusive competence to the shareholders meeting: the latter can act against the directors in case the fiduciary relation between the two is coming to an end. but only if 1/5 of the capital doesn’t veto the waiving. Art.25
0. 129 TUF provides for 5% shares to start an action in front of a Court.Private enforcement of directors duties (derivative suit)
0. Lower percentage can be established in the company statute. Feasibility of director’s dismissal 7.5
0. but compensation for breach of contract must be paid in case there is not a good justification for the dismissal. the eventual remuneration and nomination committees must be composed mainly by independent directors. Art. 2387.25
0.6. 2383.5
septiesdecies c. 2393 bis
0. Since 1998 onwards. 2408 and 2409 makes reference to a specific fraction of the social capital: 1/50 for asking the auditors intervention.25
0. As for the managing board.25
0. set relatively high percentages for shareholders remedies: 10% for starting an enforcement action in front of a court (in case of serious irregularities and a founded suspect of a serious breach).25
0. 129 TUF legitimates shareholders who possess at least 5% of the company shares.c.5
0. New art. Old text of art.5
0.c states that the member of monitoring board can be asked for the necessary requisites of independence. states that the audit committee. co. 2% shares to ask for the auditors checking powers. Art. this power can be also eventually waived. Art. And new art.25
in Rass.reasons concerning the substantial part (content) of the resolutions: -reasons concerning procedural vices in their formation. Dir. the vice can be classified in ‘nulli’ (null) that can be objected by whomever has an interest regulated by art. fasc. 1988. 1993. 2379 c. in Vita not. Tribunale Trieste. Mass. II. 27 settembre 1983. and never in the case of mere op-
.818. 124.2). Tribunale Milano. 1979. Tribunale Milano. 949. 5 maggio 1995 n.. Civ.. 1994. but also when the meeting has not been called. 15 aprile 1991. Dir. 311.. Civ. but it is ONLY actionable when there is a frauding intent aimed to produce a patrimonial advantage for a majority at the expense of other shareholders (cfr. 649. in Giust. (nota).. 3 luglio 1987. 2377 and 2379 Codice Civile (new and old version) Resolutions of the shareholders meeting can be the object of a claim for two categories of reasons: . 2377 has always been considered the instrument granted to the minority against the excessive power of the majority. Mass. civ.2958 in Riv.attributes the power to the shareholders that now represent 1/20 of the company capital. 1991. 18 maggio 1992. Art.c.11 marzo 1993 n.4923 in Giust. II. comm. Cass. Cass. Shareholder action against resolutions of the general meeting 1 1 1 1 1 1 1 1 1 1 1 Artt. and ‘annullabili’ (voidable) that are regulated by art. 2. Cass. 2379 clarified the hypothesis in which a resolution can be defined as ‘nulla’ stating that it is so not only in case of illicit or impossible object (as the previous text).. 812 (nota).. 1995.c. New art. in Giur. 876. 2377 establishes that only shareholders who represent 1/1000 of the company capital can use this remedy: all the rest can ask for damage compensation. 7 febbraio 1979 n. Besides. in Giur. I. Comm. The new version of art. and when the meeting written report is missing. It. 8.. 1985. Corte Appello Milano. 2377 c.
).9. A mandatory bid will take place in case of the purchase of 30% of the shares Legge n. Further disclosures are mandatory when one owns 5%. 2. 9 transposed. mod. 7. Reversely. Mandatory bid
10.. there is a mandatory disclosure obligation when the shares possessed goes below those percentages. Now. physical person) of disclosure (made to the Company and the Italian Stock Exchange) if it directly or indirectly owns more than 2% shares. CONSOB 11520/1998. 7.
. The initial provisions introduced only the ‘opa residuale’ into the Italian landscape. I. Disclosure of major share ownership
portunity. 216 del 1974 (e suc. 149 del 18-2-92. Art. Legge n. See Tribunale Milano. 3. It. 1991. 120 TUF: There is an obligation placed on every shareholder (companies. 15 aprile 1991 in Giur. 8. The shares that are the object of this norm are only those with voting rights. 10% and eventual 5-multiples. or reach less than 2%. cause the court cannot interfere in the running of the company. 1. 106 TUF and regulated by Reg. The bid was mandatory if 90% (or a minor percentage if so indicated by CONSOB) of the shares were concentrated on the hand of a shareholder. 649. 10 co. Art. Art.5%. required the disclosure of more than 2% of shares.
.Powers of the general meeting for de facto changes
2. of joint stock companies.2) of the new Company Act the transfer of “not more than a fifth of the entire assets” will be excluded from this requirement. Prohibition of multiple voting rights (super voting rights) 5. § 245(1)(no. Americanization of Stock Corporation Laws Around the World and Shareholders’ Derivative Suits as a Forgotton Element Therein.11. However. Agenda setting power 3. § 194) Commercial Code. § 18(1) requires that half of the members of the “board of auditors” are independent (since 2001. § 241(1) Law for special exceptions to the Commercial Code concerning audit. but Law for special exceptions to the Commercial Code concerning audit. etc.1): transfer of a substantial part of the company’s business is sufficient. of joint stock companies. § 232-2: 1 % Commercial Code. Independent board members
Explanations/ References Commercial Code. Japan (Mathias Siems)44
Variable 1. 467(1)(no. this board does not
Thanks to Kenji Hirooka for helpful comments. According to art. which courts already assume as from 10% of the whole firm (see Kenichi Osugi. § 239: only basics. (2002) 13 ZJapanR 29 at 36). postal voting possible if the board decides.45 Commercial Code. § 24-3(1)-(4): postal voting required for big companies Disclosure of proxy voting regulated in securities law (cf. Securities and Exchange Act. from 1993-2000: at least one member). Anticipation of shareholder decision facilitated
0. § 268-2) was introduced. § 249(1)). but. Principles of Japanese Corporate Governance do not recommend independent directors.e. amicable settlement with its defendant directors without consent from the entire shareholders possible (Commercial Code.Private enforcement of directors duties (derivative suit)
0. Moreover.267-3). the general law mentions outside directors but does not require independence (cf. In 1993 court fees were reduced and a regulation on reimbursement of lawyers’ fees (Commercial Code.
0. Feasibility of director’s dismissal 7.25 0.5
0. § 257(1): compensation possible (s. actions for avoidance) and actions for declaration of non-existence or nullity of resolution (Commercial Code.25 0.25 0. Thus.75
0.25 0. Commercial Code. Commercial Code. Shareholder action against resolutions of the general meeting
. by contrast with the German model.2).g. The time limit for avoidance here is three months (Commercial Code. § 248(1)). for instance.5
have comparable powers to. The Tokyo Stock Exchange. § 267). 252). § 188).75
0. demand requirement (Commercial Code. Amendment of 5 December 2001 (in force since 1 May 2002): extension of demand period from 30 to 60 days (Commercial Code. the Court may require provision of security (Commercial Code.6.25 0.. e.5
0. §§ 247. Since 1950 derivative suit possible.25 0.75
0. §§ 268-5.268-7) (before 2001 this was controversial) Japanese law differentiates between actions to quash a resolution (i. With respect to directors.75
0. §§ 267-1.25 0. it is not taken into account in this coding.. the German supervisory board.75
0.25 0.25 0.25 0.
be made through a tender offer open to all shareholders. Mandatory bid
0. The offer does not have to be for all outstanding shares.75
Since 1991: Securities and Exchange Act.75
0.3% of the target’s shares.75
0. § 27-2(1) requires an off-exchange offer. the acceptance of which would result in the acquisition of more than 33.75
0. § 27-23: 5 %
0. Securities and Exchange Act.
Until 2002: Law on Joint Stock Companies. 279.25
0 0. 54 Since 2002: Commercial Law.25
0 0. Independent board members 6.
0. 274: 5% Until 2002: Law on Joint Stock Companies.25
0. The articles of association may provide that the sale of registered stock shall require the consent of general meeting. Anticipation of shareholder decision facilitated. Powers of the general meeting for de facto changes.25
0 0. Prohibition of multiple voting rights (super voting rights)
0 0. s.25
3. 4. 296: no special requirements for supervisory board.25
0. 58: proxy voting only possible Since 2002: Commercial Law.25
0 0. 280: imperative norm one share – one vote. s. s.25
0 0. s. 1995 0 1996 0 1997 0 1998 0 1999 0 2000 0 2001 0 2002 0 2003 0 2004 0 2005 0 Explanations/ References Since 2002: Commercial Law. s. s. 277 Until 2002: Law on Joint Stock Companies. 268 A stockholder may freely alienate their stock.12.25
0. 238. s.
2.Feasibility of director`s dismissal
0. Latvia (Theis Klauberg)
Variable 1. s.5
0 0. Agenda setting power. s. s. Not in Commercial Law The Corporate Governance Principles are only applied since 2006 Since 2002: Commercial Law. There is no case law that provided another interpretation. 306: for director’s dismissal important or good reason is necessarily. 55: 10 % Since 2002: Commercial Law. 57: imperative norm one share – one vote. Until 2002: Law on Joint Stock Companies.25
10. s. Until 2002: Law on Joint Stock Companies.5
1 0. s. s. s.5
0. 61: 10 % (since 2006: 5 %) Not in Law on Joint Stock Companies
. 66: 50 % of the total number of votes.5
0. not in Law on Joint Stock Companies Since 2000: Group of Companies Law. s. 172: by 5 % of the equity capital or equity capital of not less than 50 000 LVL.5
0. Not in Commercial Law.5
8. but there are compensation for damages for breach of contract without important reason.5
Until 2002: Law on Joint Stock Companies. s. Private enforcement of directors duties (derivative suit)
0. Shareholder action against resolutions of the general meeting 9. 63 Since 2004: Law of the Financial Instrument market. Disclosure of major share ownership
0. 100: by 10 % of equity capital. Since 2002: Commercial Law. 6: 10 % Since 2004: Law of the Financial Instrument market. Since 2002: Commercial Law. 287 Until 2002: Law on Joint Stock Companies. s. 66 and 78: no special requirement for dismissal of supervisory members or director. s.
5 2002 0.5
0. V Aik Ming (M) Sdn Bhd & Ors. a transaction is of substantial value if it relates to an acquisition or disposal of property which will materially and adversely affect the financial position of the company. Malaysia (Priya Lele)
Variable 1. 2002]
2.5 1998 0.5
0.5 2003 0.Powers of the general meeting for de facto changes 1995 0.5
0. ‘Substantial value’ is not defined under the section. s 151: members holding at least 5% of the total voting rights of members having the right to vote on the matter to which the
.5 2001 0. Since the directors failed to obtain shareholders’ approval at general meeting.5
0.5 Explanations/ References Companies Act 1965.13. the land which was disposed of by the directors was the only asset of the company.5 1999 0.5
0.5 1996 0.5
0. In Chang Ching Chuan & Ors. s 132C: any proposal or transaction involving the disposal of a substantial portion of the company’s undertaking or property which would adversely and materially affect the performace or financial position of the company requires the approval of the general meeting.5
Companies Act 1965.Agenda setting power
0.5 2000 0.5
0.5 2004 0. the disposal of the property was invalid [p.5
0.291: Commercial Applications of Company Law in Malaysia: Aiman Nariman Mohd Sulaiman and Aishah Bidin. (Pekan Nenas Industries Sdn Bhd Intervenors) [1992] 2 MLJ 583.5
0. The court held that its disposal would affect the financial situation of the company.5 1997 0. However.5 2005 0.
a mechanism adopted by the government to encourage best practices and high standards for companies in Malaysia.Anticipation of holder decision tated 4.5 0
0.25 since 1999-2000: Because of the Malaysian Code on Corporate Governance .5 0
0. return of capital or otherwise 0 until 1999 because there was no special requirement in relation to composition of the board and independent board members 0. Prohibition of ple voting rights voting rights) 5. s 149 read with Article 59 of Table A Table A.5 0
0.Independent members
0.5 since 2001: Because many of these recommendations have now been codified in the listing requirements (LRs) of the Kuala Lumpur Stock Exchange (KLSE) (now the Bursa Malaysia since 2004).5
requisition relates or numbering at least 100 with an average of not less than RM500 having been paid by each member for the shares.5 0
. A lower score has been assigned because it’s a voluntary code.25
0. whichever is the higher.5 0
0. may propose resolutions to be considered at a meeting of the company Companies Act 1965.3.25
0. deferred or other special rights or restrictions with regard to dividend. article 2 grants directors a wide power to issue shares with preferred. As per these LRs: Board of directors of a listed company to contain at least two independent di-
0. voting. 0. Part II of the Corporate Governance Code which set out the best practices stated the recommended number of independent directors on a board to be at least two or one-third of the board of directors. which were launched on 22 January 2001.5
[LR 3. It is unlawful for a company to make payment or give any benefit to a director by way of compensation for loss of office unless particulars of the proposed payment have been disclosed to the members of the company and approved by the general meeting: S.rectors or be one-third comprised of independent directors.5 0.14] 6. he is precluded from proceeding with his complaint. S.Private enforcement of directors duties (derivative suit)
.137 (1) But S. 137 Compensation for loss of office: S. whichever is higher. Harbottle.5 0.5 0. as a part of consideration for agreeing to hold office and a bona fide payment by way of damages for breach of contract.5 0.5 0. namely. personal action.137 attempts to limit the power of the board of directors to pay compensation to a director for loss of office.5 0. If a member is unable to bring his case within one of the established exceptions.
7.5 Companies Act 1965.5 0. Harbottle.137 (1): which includes: a payment made or given under an agreement entered into between the company and a director before he or she took up office. At common law: A member’s entitlement to commence legal proceedings to remedy wrongs done to the company …is circumscribed by the rule in Foss v. Feasibility of director’s dismissal 0. the action to be commenced may take one of three forms.137 (5) provides that certain payments are ‘exempt benefits’ which are not subject to the prohibition of S.5 0. 128 read with S.5 0.5 0. Once it is established that the case comes under one of the exceptions to the rule in Foss v. a representative action or a derivative action.
The company is added to the action as a mere nominal defendant so that it may be bound by any order that the court makes. there is no procedure prescribed for a derivative action and it takes the form of a representative action as in O.181 covers a wide range of conduct inclyding fraud on minority: however. and Re Tong Eng Sdn Bhd [1994] 1MLJ 451
8. 2002] Companies Act 1965. S. courts are generally reluctant to intervene in the affairs of companies unless bad faith is established: see Zephyr Holdings Pty Ltd v Jack Chia (Aust) Ltd (1989) 7 ACLC 239: Re TriCircle Investment Pte Ltd [1993] 2 SLR 523. 341: Commercial Applications of Company Law in Malaysia: Aiman Nariman Mohd Sulaiman and Aishah Bidin.Under the Rules of the High Court 1980 (RHC).15 r. [p.12 of the RHC. unfairly prejudicial or unfairly discriminatory. s181 (1) (b): under this section any member can apply for a remedy if the affairs of the company are being conducted in a manner which is oppressive. s 181: s 181 (1) (a) allows the court to provide remedy to a member where the court finds that: affairs of the company are being conducted or the powers of the directors are being exercised either in an oppressive manner to one of the members including petitioner or in disregard of the member or other members’ interests. Shareholder action against resolutions of the general meeting
. Companies Act 1965. it appears that despite the wide terminology of section 181.
Malaysian Code on Takeovers and Mergers 1987: 27.75
0.4 allows the offerror to bid for only a percentage of the target company’s shares with the consent of the Securities Commission (established in March 1993 under the Securities Commission Act.
0. 1998 Trigger: 33% or 50% for creeping takeover: Rule 34.75
0.376: Company Law in Malaysia.75
0.383 Div 3A of Pt IV of the Companies Act 1965 and the Listing Requirements: 5%
. 1993). Malaysian Code on Takeovers and Mergers 1987 And partial takeover is possible with the consent of the Securities Commission: Rule 27.75
Pg. Cases and Commentary: Krishnan Arjunan. Malay Law Journal.75
c of the 2005 Mexico Stock Markets Act (SMA)47. Only if this type of operations imply a change in the object of the company or a modification of the articles of association would they be the object of the general extraordinary meeting. they consist of the buying or selling of company’s assets with a value equal or higher to a 5% of the consolidated assets of the company. or. Operating since June 2006 48 Based on the balance of the immediate last trimester before the operation takes place. This article requires the authorization of the board of directors for operations that are executed simultaneously or successively. A new Stock Markets Act has been created in 2005 and is currently (since June 2006) in force as the relevant regulation for the Stock Markets. Even if it is not considered in the coding (as it was not in force for the period examined here). as it is the new regulation in foce since 2006.
Thanks to Oscar Alvarez Macotela for helpful comments.
Variable 1. several references to this new regime are made below.48 No other provisions make direct reference to this right.
.Powers of the general meeting for de facto changes 1995 0 1996 0 1997 0 1998 0 1999 0 2000 0 2001 0 2002 0 2003 0 2004 0 2005 0 Explanations/ References The sale of an amount equal or higher than 5% of the assets of the company is within the competence of the board of directors according to article 28. as stated in article 182 of the 1934 Mexico Companies Act (MCA).3.14. which by their characteristics can be considered like a single operation and which are sought to be carried out by the company or the people controlling it. The 1999 Code of Best Corporate Governance Practices will be referred to when analyzing directors’ independence requirements. Mexico (Pablo Iglesias-Rodriguez)46 The primary legal sources in the Mexican case are the 1934 Mexican Companies Act as well as the 1975 Stock Markets Act. done in the course of a social exercise. where they are unusual or nonrecurring.
in absence of such provision.2 of the 1975 SMA. Article 14.c. by Decree of 1 June. Agenda setting power
The commissaries (persons in charge of the monitoring of companies. Article 184 of the MCA establishes that shareholders with at least 33% of the share capital can ask a member of the board. who can be both shareholders or persons with no relation with the society and who are nominated by the shareholders) can introduce items on to the agenda. representatives of the interest of the shareholders.5 of the 1934 MCA.bis 3. Apart from the powers of the commissaries (who can also be shareholders) in these circumstances. by written means.
3. introduced in 2001.2. the value 0.VI. In these cases. As the commissaries are. according to article 166. but not members of the board or commissaries. the board of directors or any commissaries to call a general meeting.25 has been attributed during the relevant period. The power of representation will be conferred in the way established by the articles of association. the commissaries must inform the general meeting about these complaints. and article 49 of the 2005 SMA develops this general principle and establishes the right to be represented in the general meetings by another person with a two-way voting proxy form provided by the company. Apart from this. or. Anticipation of shareholder decision facilitated
. in some sense. Article 192 of the 1934 MCA offers the possibility of shareholder proxy solicitations. indicating items to be discussed. the minority shareholders are not able to introduce items on to the agenda of general meetings. The representatives can be other shareholders. as well as make any suggestions or proposals they consider to be sufficient. article 167 of the 1934 MCA allows shareholders to inform the commissaries about any irregularity they consider to have arisen in the management of the company.
bis. creditors.IV of the former 1975 SMA.4. debtors. Article 14. Independent board members
Article 113 of the 1934 MCA clearly states that each share will just have one vote. Prohibition of multiple voting rights (super voting rights)
5. suppliers. as well as article 24 of the current 2005 SMA. introduced in 2001.
. partners. customers. According to article 14.3. or spouses or those living together as well as relatives by blood or marriage. shareholders who may have authority over the company's managers. directors or employees of a company that is a customer. supplier. These shares must indicate their particular conditions. The transitory dispositions of the 1934 MCA establish that the dispositions of the Law will be applied to the effects of all the previous legal acts of the company unless this application is retroactive. employees or a foundation. It is thus considered that all the companies with the form of a PLC cannot have shares with double voting rights. association or civil company that receives significant donations from the company. partners or employees of corporations or associations that provide advice or consulting services to the company or to other companies belonging to the same business group as the company and whose earnings represent 10 per cent or more of the company's total earnings. establish a requirement for at least 25% independent members on the board of directors (where the board is of a size between 5 and 20 members). Today it is understood that these particular conditions cannot go against the rule established the article 113 of the 1934 MCA. Article 114 allows the company to issue special shares for people working for the company. debtor or significant creditor. general directors or high level officers of companies on whose board of directors the general director or top managers of the company have a seat.bis of the 1975 SMA. in no case may independent board members be: employees or officers of the company (including employees or officers who have worked as such during the previous year in the company).
Pursuant to the 2005 SMA (article 24), stock exchange companies’ boards of directors must have a maximum of 21 directors of which at least 25 per cent must be independent directors. Each director may have an alternate director. Independent directors will be designated by virtue of their experience, capacity and professional training. The Code of Best Corporate Practice, introduced in July 1999, page 7, recommends that at least 20% of the members of the board shall be independent. The fact that the percentage of independence has been raised and recognized by the Law justifies the increase in 0.25 points in the coding since 2001. 6. Feasibility of director’s dismissal ½ ½ ½ ½ ½ ½ ½ ½ ½ ½ ½ Article 50 of the 2005 SMA allows shareholders owing 10 per cent (individually or in group) of the shares with voting rights, even those with limited or restricted voting rights, to nominate or revoke the designation of a member of the board of directors. Apart from this provision, article 162 of the 1934 MCA only permits the dismissal of the directors in the cases in which the general meeting decides it as a result of their responsibility. However, the articles of association may provide that such an appointment or removal of the sole director or board of directors must be made through an extraordinary shareholders' meeting (attending to the rule established in article 182.12 of the 1934 MCA). This is the reason why the value 0.25 has been attributed. Article 163 of the 1934 MCA allows shareholders owning at least 33% of the share capital of a firm to start a derivative suit against the breach of duties by the directors. Today article 38 of the 2005 SMA allows shareholders of listed firms with at least 5% of the share capital to start
7.Private enforcement of directors duties (derivative suit)
8. Shareholder action against resolutions of the general meeting
this kind of actions. Before 2005, the 1975 SMA (art 14.bis.3.6.d, by amendment introduced in June 2001, allowed shareholders with at least 15% of the share capital to start the derivative suit. Article 201 of the 1934 MCA establishes that shareholders with at least 33% of the share capital can file a claim against a resolution of the general meeting unless they were not in the general meeting where the decision was adopted or they voted against the claimed resolution, in whose case the claim is not possible. This claim cannot cover the resolutions concerning the responsibility of the directors or the commissaries. According to article 51 of the 2005 SMA, shareholders with voting rights, even if these are limited or subject to restrictions, owning individually or together at least 20% of the share capital, can file a judicial claim against a resolution of those general meetings in which they have voting rights. In these cases there is no application of the percentage (33%) established by the article 201 of the MCA. The former 1975 SMA, in its article 14.bis.3VI.f (introduced in June 2001) reflects the same percentage. The improvement in the percentage requirement has been considered adding 0.1 to the 0.5 percentages of the precedent years. As stated in article 98 of the 2005 SMA, a person or a group of persons aiming to acquire or reach by any mean directly or indirectly at least 30% of the share capital of a PLC with registered shares, listed or not, by one or more different operations, at the same time or in different stages, must make an offer for the 100% of the share capital when they want to get the control of the company. There are also rules governing cases in which the purpose of the bidder is not to get control of the firm. According to article 2.III of the 2005 SMA one of the definitions of ‘control’, is the power of a person or a
9. Mandatory bid
group of persons to keep the ownership of rights which allow to directly or indirectly exercising more than the 50% of the voting rights of the firm. Thus, it can be assumed that for bids of more than 50% of the share capital with voting rights there is sn obligation to bid for 100% of the share capital. Neither the 1934 MCA nor the1975 SMA contain rules regarding this type of bid. 10. Disclosure of major share ownership 0 0 0 0 0 0 0 0 0 0 0 Provisions regarding the disclosure of major share ownership are contained in the articles 109-111 of the 2005 SMA. Article 109. - The person or group of persons who acquire, directly or indirectly, inside or outside any stock market, by means of one or several operations of any nature, simultaneous or successive, ordinary shares of a PLC registered in the Registry, leading to an ownership percentage equal or higher than the 10% and less than the 30%e qual of these shares, are required to inform the public of this. At the same time, the person or group of people just mentioned must disclose whether they intend or not to acquire significant influence in the company. Article 110. - Persons related to a PLC with registered shares, who directly or indirectly increase or decrease by a 5% their participation in its share capital, by means of one or several operations, simultaneous or successive, must publicly dislose this. In addition, they must disclose whether they intend to acquire or increase a substantial influence in that company. Article 111. - A person or group of persons who directly or indirectly own at least the 10% of the share capital of a registered PLC as well as the members of the board and the main managers must inform the National Securities Commission and, in the cases involving dispositions of general character, must make public disclosure, concerning the acquisition or sale of those shares, within the
terms established by the National Securities Commission. 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
. Before these provisions. neither the 1934 MCA nor the 1975 SMA contained any rule concerning disclosure of this type of information.
196 (3) : sale.5 2000 0.15.25
0.5 2002 0. Further.Powers of the general meeting for de facto changes 2.25
0. the Code of Corporate Governance includes clause (i) on Board Composition. 0 until 1998: Companies Ordinance 1984.5 1998 0. 0.25
0. Prohibition of multiple voting rights (super voting rights) 5.5
0. 1999 dated 30th June 1999 read with the Companies.5 2003 0.25
3.161 read with Regulation 39 of Table A in the First Schedule.25
0. 2000 – in particular rules 3 and 5. but apart from clause (i) (b) which requires at least one independent director from amongst the institutional investors.90 1/3 from 1999: Companies Ordinance 1984.5 1996 0.5 1999 0.5 1997 0.-. S. Companies Ordinance 1984.members representing not less than onetenth of the voting power can requisition or themselves call for an extraordinary general meeting.e. S.Anticipation of shareholder decision facilitated
0.90 as as substituted by Finance Act.5 2004 0. to facilitate the minority shareholders as a class to contest election of directors.25
0.5 2001 0. S.164 (2): 10% Companies Ordinance 1984.5 2005 0. lease or other disposal of the undertakings or a sizable part thereof requires the consent of general meeting. S.25
0. Because there is nothing in the Companies Ordinance 1984 on the composition of the board of directors and the requirement of independence of directors. 0 until 2001: Companies Ordinance 1984. S.Agenda setting power 1995 0. it merely recommends the encourage-
0. 159 (2): Calling of extraordinary general meeting. Share Capital (Variation in Rights and Privileges) Rules.5 since 2002: Because the Code of Corporate Governance mandates the provision of proxy solicitation but only in one case.5 Explanations/ References Companies Ordinance 1984. i.Independent board members
. Pakistan (Priya Lele)
1984.5 0
0.6.5 0.25
0.Private enforcement of directors duties (derivative suit) 8. 1984.5 0
0.290: Action could be taken against decision of general meeting when it amounts to oppression and mismanagement within the meaning of that section: hurdle of 20% Introduced since 2002:by Ordinance No. S.5 0.5
0. Feasibility of director’s dismissal 7.5 0
0. including those representing minority interests on the Board of Directors of listed companies and is in any case dependent on voluntary compliance.Disclosure of major share ownership
0 0.Mandatory public bid 10.5 0
0. 2002 is S.5
.160A. S. Listed Companies (Substantial Acquisition of Shares and Takeovers) Regulations.5
Companies Ordinance.5 0
ment of effective representation of independent nonexecutive directors. under which proceedings of a general meeting may be declared invalid by reason of any material defect or omission in the notice or irregularity in the proceedings of the meeting which prevented members from using effectively their rights .5
0.hurdle of 10% Regulations 5 and 12 of the Listed Companies (Substantial Acquisition of Shares and Takeovers) Regulations.290: 20%
0.181 Companies Ordinance. C 2002 dated 26 Oct.5 0
0. Companies Ordinance 1984.5
0.5 0. S.5 0
0. 2000: Regulation 4: 10%. 2000.25
for the criteria of “other business and economic reasons” are fairly lax and enables a great deal of manoeuvring space for dismissal. or . if a member of the management board was dismissed without good reason. reorganisation of the company.6. other business and economic reasons (e. No good reasons are required nor any financial burdens imposed (Article 266 of ZGD). shareholders who hold at least 10 % of the share capital or 400. However.severe breach of directors duties.5
0.Private enforcement of directors duties (derivative suit.incapability of running the business.passing a vote of no confidence to the board member.75 to this variable. From 2001. shareholder action)
0. he was entitled to certain remuneration.b Feasibility of director’s dismissal: supervisory board 7. major changes in the ownership structure. .).75
0. (i) another good reason for dismissal is introduced – that is.5
0.g.a Feasibility of director’s dismissal: management board
0. etc.75
Until 2001 members of the management board could be dismissed for the following (good) reasons: .5
0. major changes in the business of the company.75
0. I allocate the value 0. and (ii) compensation is not mandated by the law anymore.000 EUR can file the suit
6. ZGD amendments of 2001 introduced two major changes.5
0. If the resolution to file a lawsuit is not adopted at the shareholder meeting (51% majority vote required).5
0. whereby the maximum amount was provided by the law (Article 250 of ZGD).
From 1997.75
. acquired 5 %
0. The new Takeovers Act of 2006 (ZPre-1) eliminated these exceptions.75
0.ZPre). Mandatory bid
10.(Article 73 of the Takeover Act of 1997). Articles 359 and 366 of ZGD.75
0. this issue has been transferred from takeovers law to company law. and (iii) for the two para-state funds (KAD and SOD) and other shares acquired by PIFs the mandatory bid was triggered at 40 %. the mandatory bid obligation is triggered at 25 % of the voting rights (Article 4 of the Takeovers Act of 1997 . The Takeovers Act of 1997 mandated a shareholder who.75
0. exceptions from this rule were three fold: (i) privatisation investment funds (PIFs) were not required to issue the mandatory bid for shares they had acquired in the privatisation process.75
0. (ii) so called “empowered companies”. Until 2006.5
0. were excluded from the mandatory bid requirement when acquiring shares. directly or indirectly. Article 146). were subject to disclosure requirement (the Securities Markets Act of 1994. Note that with the new Companies Act of 2006. Until the adoption of the Takeovers Act in 1997.5
0. shareholders who acquired 10%. Shareholder action against resolutions of the general meeting 9. established by shareholders of those companies that have not chosen public sale of shares as a privatisation method.75
0. 50% or 75% of shares with voting rights listed at the official market. 25%. Disclosure of major share ownership
10. introducing major amendments to the Slovenian company law. I indicate the amendments introduced by the ZPre-1. The same holds for the Takeovers Act. which was adopted in 1997. 25.33.
. Where appropriate. however. I also indicate the amendments introduced by the ZGD-1. The new Takeovers Act of 2006 requires disclosure at 5. In the template I refer to the old Companies Act (ZGD) and its amendments as applicable in each year of the coding. to notify the issuer of securities and the Securities Market Agency thereof within three working days (Article 64 of ZPre). Where appropriate. 15. 20. 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Comments Please note that in 2006 a new Companies Act (ZGD-1) was adopted. 50 and 75% (Article 10). It has not been amended until 2006 when the new Takeovers Act (ZPre-1) came into force.and each subsequent 5 % of shares with voting rights. 33.
S. The King II Report states that a company should have a balance of executive and non-executive directors.5 2003 0.5 2000 0.189 read with Article 50 of Table A Companies Act 1973. S.25
½ 2/3 0.Agenda setting power 1995 0.5 1996 0. Please note that s 228 has been amended in terms of the Corporate Laws Amendment Act 24 of 2006.193 (1) read with S. 185 (2): members representing 20% of voting rights or at least 100 members Companies Act 1973. A special resolution is now needed.25
We thank Irene-Marie Esser for helpful comments.25
½ 2/3 0.5 1998 0.Anticipation of holder decision tated 4. South Africa (Priya Lele)49
Variable 1. “preferably comprising a majority of non-executive directors of whom sufficient should be independent of management for minor-
3.Powers of the general meeting for de facto changes 2.5 1997 0.5 2005 0. 228: the disposal of the ‘whole or substantially the whole of the undertaking of the company or the whole or the greater part of its assets’ requires the consent of the general meeting.5 Explanations/ References Companies Act 1973. S. Prohibition of ple voting rights voting rights) 5.50 Companies Act 1973. S.5 2002 0.
.196 (1) The King reports (King I -1994 and King II 2001) are both voluntary codes of Corporate Practices and Conduct – result of self-regulatory initiatives.5 2001 0. We understand that there was nothing substantial in the King Report I on the requirement of ‘independent directors’.5 1999 0. S.5 2004 0.16. 181: members representing 20% of voting rights or at least 100 members can requisition or themselves call for a general meeting other than the annual general meeting Companies Act 1973. Independent members
½ 2/3 0
½ 2/3 0.
5 0.Mandatory public bid 10.75
0.Private enforcement of directors duties (derivative suit) 8. Since 2003 Rule 3. For technical issues shareholders will have to rely on the Act and request that the specific decision be declared void based on the fact that it went against the Companies Act.5 0. 220 read with S.5 0. unjust or inequitable). Securities Regulation Code on Takeovers and Mergers.5 0. including this recommendation on the composition of the board.75
0.252 (which covers cases where the majority is oppressive or unfairly prejudicial. S.5 0.5 0.5 0.Disclosure of major share ownership
0.5 0.Shareholder action against resolutions of the general meeting 0.5 0.5 0. S.75
0.5 0. 6.5 Companies Act 1973. Regulation 8.26) of the JSE Limited Listings Requirements
9. King II does not provide specific numbers on the number of independent directors.5 0. normal contractual principles can therefore also be used.266.75
0.2). S 65(2) also states that the articles and memorandum of association constitute a contract between the company and the shareholders and between the shareholders themselves.ity interests to be protected” (sec 2.5 0.5 0.5 0. Companies Act 1973.5 0.227
Companies Act 1973. S.5 0.75
0.84 of the JSE Listing Requirements states that certain recommendations on corporate governance issues are now mandatory for listed companies.63(d) and (f) (former Section 11. Rule 8.75
0.5 0. Feasibility of director’s dismissal 7.
Anticipation of shareholder decision facilitated
4. Article 107 of the same Act establishes that the company (via directors or register and deposit firms) may provide proxy solicitation with a two way proxy form.4 of the Companies Act introduced by article 2. 2006 Unified Code Variable 1. The law does not impose this obligation. The 1989 Companies Act (article 50) prohibits the crea-
3. Before that year there were no provisions giving this right. Spain (Pablo Iglesias-Rodriguez)
Legal rules: 1988 Stock Markets Act (listing requirements). modified by the 2005 Act on the European Limited Liability Company. Companies Act 1989 (article 97). just creates the possibility.Powers of the general meeting for de facto changes 2. Article 106 of the 1989 Companies Act establishes that all the shareholders with attendance rights can be represented in the meeting by another person. voting on any item of the general meeting can be delegated or exercised by postal or electronic means or any other communication means which properly guarantees the identity of the person exercising the voting right. However this right can be limited by the articles. Agenda setting power 1995 0 ½ 1996 0 ½ 1997 0 ½ 1998 0 ½ 1999 0 ½ 2000 0 ½ 2001 0 ½ 2002 0 ½ 2003 0 ½ 2004 0 ½ 2005 0 ½ Explanations/ References No legal provisions exist concerning these powers. and there is no explanation of what ‘secure means’ are. 2003 Aldama Report . Article 105. establishes that shareholders representing at least 5% of the share capital can introduce items on to the agenda. 1989 Spanish Companies Act (limited liability companies). 1991 Act on Public Bids.1 of the 2003 Transparency Act states that according to the articles of association. 2005 Act on the European Limited Liability Company Codes of Conduct: 1998 Olivencia Report. 1991 Royal Decree on communication of substantial ownership on listed firms. But the right to call extraordinary meeting requires 5% of share capital. Prohibition of multiple
.17. 2003 Act on transparency of listed firms.
2) to be those who are appointed to the Board of Directors on the basis of their high professional qualifications. These directors have the mission of representing the floating capital (ordinary shareholders). they must comply with their respective requirements. although establishing
5. The report establishes that a wide majority of the directors should be non executive and that among non executive directors. The 2003 Aldama report reflects a similar definition of independent directors (point 2. once they affirm they follow any of these codes. all provisions in the articles of association going against the Companies Act will have no effect from the coming into force of the Companies Act.c). it can be assumed that there are no shares with multiple voting rights after 1990. regardless of whether or not they are shareholders. As the code states: ‘the reasonable and flexible nature of the rule allows it to be adapted to each company's individual circumstances’. This is a recommendation which tries to ensure that independent directors carry sufficient weight in the Board's decisions.voting rights (super voting rights)
tion of shares which directly or indirectly modify the proportion between the value of the share and the voting rights or the preemptive rights attached to it. which can freely decide whether to comply with them or not. the ratio between the independent and domanial directors (those who hold or represent the holders of blocks of shares which can control the company) should be based on the ratio in the company's shareholders between the floating capital (in the hands of ordinary investors) and the stable capital (held by significant investors). just governance codes. 0 0 0 ¼ ¼ ¼ ¼ ¼ ¼ ¼ ¼ No legal provisions concerning this requirement exist. Thus. The 1998 Olivencia Code considers independent directors (point 2.1. According to the second transitory disposition of the same law. However. These codes are not compulsory for companies. Independent board members
6. The Unified Code. According to the 1989 Companies Act (article 117). Resolutions of the general meeting which can be subject to this action are resolutions which are against the law (void) or the articles of association. claims may be brought by those shareholders who attended the general meeting and indicated their opposition to that resolution in that meeting. those who were not in the meeting. The 1989 Spanish Companies act (article 134. Feasibility of director’s dismissal ½ ½ ½ ½ ½ ½ ½ ½ ½ ½ ½ The 1989 Spanish Companies Act (article 131) allows the general meeting to agree on the dismissal of the directors at any moment with no special requirements for proceeding in this way. the code follows the criteria established in the Olivencia report. Shareholder action against resolutions of the general meeting
. compensation is probably possible. However. to the benefit of one or some shareholders. or those which damage.4) allows shareholders owing at least 5% of the share capital to call a general meeting to decide on the exercise of the derivative suit or to directly exercise it when the directors fail to call a meeting to discuss the exercise of the action. When it comes to the balance between independent and not independent directors. the interest of the company (voidable) –article 115). In the case of voidable resolutions. or when an agreement to exercise it is not carried out by the company. and those who were illegally deprived of their voting rights.
7. any shareholder can file a claim in respect of a resolution of the general meeting which is null and void.more specific restrictions.Private enforcement of directors duties (derivative suit)
8. valid from may 2006 establishes a unified set of criteria based on the earlier codes.
that the purchaser aims to achieve a percentage equal or higher than 5% or where. where the intention of the purchaser is to nomi-
. Mandatory bid
Ownership: The 1991 Act on the regime of public bids establishes percentages concerning the mandatory bid in case of purchase of shares (article 1): PURCHASE ≥25% ≥50% BID ≥10%1 100%2
1: A bid must also be for 10% in these cases: when the purchaser already had a percentage equal or higher than 25% but lower than 50% and aims to increase that percentage by at least a 6% in a period of 12 months. the target is below 5%. secondly. is at a level which would allow him to nominate members of the board representing (along with those previously nominated) more than a third but less than 51% of the members of the board of the firm. the target is below 5%. A bid must also refer be for 100% of the share capital in a case in which the offer refers to a percentage below the 50% but the following circumstances pertain at the same time: firstly. where the intention of the purchaser is to nominate the said amount of the members of the board. is at a level which would allow him to nominate members of the board representing (along with those previously nominated) more than a third but less than 51% of the members of the board of the firm. that the purchaser aims to achieve a percentage equal or higher than 5% or where. 2.9. secondly. when the offer refers to a percentage lower than 25% but the following circumstances pertain: firstly.
Disclosure of major share ownership ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾ The 1991 Royal Decree on the communication of substantial stakes on listed companies (article 1). as a general rule. and the National Securities Commission. following the requirement of the 1988 Stock Markets Act (article 53) establishes. an obligation upon shareholders purchasing shares leading to an ownership percentage equal or higher than 5% of the share capital and their successive multipliers to communicate this to the listed company.nate the said amount of the members of the board.
. the stock exchange where the firm is listed. 10.
0. so approximately 45 days before the meeting.25 2001 0 0. 707 states that all directors must be shareholders of the company.25
0.. Since 1992 proxy voting is facilitated.5
0. Art.25
0.18.25 1997 0 0.5
0.25 2005 0 0.5
0.”faktische Liquidation”) Ex Art.5
0.e.5
Thanks to Gerhard Schnyder for helpful comments. Each shareholder is entitled to participation in the general meeting. Prohibition of multiple voting rights (super voting rights)
0. Switzerland (Viviana Mollica)51
Variable 1. The shareholder may be represented by proxy.5
0. Art. such proxy must be in writing. Agenda setting power 1995 0 0.25 2000 0 0. however. super-voting shares cannot carry more then 10 times as many votes as ‘normal’ shares.25
0. The management is not obliged to act as a proxy. (but in some cases because of “Teillquidation”. 693(2) limits the extend of multiple voting rights to a maximal distortion of 1:10. Recently. the requesting shareholders who represent shares of an (aggregate) nominal value of 1 million Swiss Francs of the issued capital.25
0.25 Explanations/ References No. 689b. Multiple voting rights have been issued by two companies (Serono and Swatch Group: data in 2005). it has to guarantee that in case of proxy voting shareholders have to have the chance to effectively voice their opinion (Arts.25
0. Anticipation of shareholder decision facilitated
0.25 1998 0 0. 10 % can call extraordinary general meeting The general meeting exercises the rights of the shareholders respecting the affairs of the company.25
0. a “Code of Best Practice” recently was issued in 2002 by Economie Suisse.25 1996 0 0.5
0. but Art.25 2003 0 0.25
0. 699 (3): to exercise a requisition right.5
0. Independent board members
0.25 1999 0 0.5
0. In the case of registered shares.25 2002 0 0.25
0. (Art. 700 (2) and market practice fix a time limit of 2 or 3 weeks before the notice.Powers of the general meeting for de facto changes 2.5
0. 689).5
0. (provision unchanged). the leading Swiss business
3. c).25 2004 0 0.5
” According to article 705 para.6.5
0. suppress or limit shareholders’ right in violation with the company articles. 756 any shareholders can apply for court proceeding against a director. whenever due. be composed of […] non-executive members […]. There is limited legal commentary and no leading case or other precedent on the subject. Art.5
7. The Code recommends at section IIb §12 : “That the majority of the Board should. 3.5
0. Co. as a rule. 1 CO the general assembly can remove members of the board of directors. shareholders and creditors. (provision unchanged) Art.5
association contains non-binding recommendations for the corporate governance of listed and non-listed companies. diligently and with due care.Private enforcement of directors duties (derivative suit)
8. 754 makes the directors liable to the company. suppress or limit shareholders’ right in an incongruous way. employment) contract.5
0.g. 2 states that compensations can still be paid for the dismissal. The condition in which the company may indemnify its D&Os is not addressed by statute. The commentators suggest that indemnification is impermissible in respect to claims brought by shareholders. in cause they caused damage to the company while violating their duty to act honestly. The scope of indemnification may also be affected by the terms of the articles of incorporation or by (e.5
0. The second comma adds that the resolution that can be the object of such an action are those that: 1. Art.5
0. although providing a defense may be allowed as long as the claim is unsuccessful. 706 states that the board and any shareholder have the right to start an action in front of the Court to oppose a resolution of the general meeting if they are in breach of the law or the company statute. they create an unequal treatment for different share-
do not respect the fundamental structure of the company or are in breach of the capital provisions. which is subordinate to the Federal Banking Commission. 32(1)(s. companies may raise the threshold for a public takeover offer to 49% (optingup) (art.5
0.2)). In practice 22% of all companies listed at the SWX Swiss Exchange have opted out and 6% have opted up. suppress or limit the right to take part in the general meeting.75
0. securities in a Swiss company listed in Switzerland. 50 or 66 2/3 per
0. companies might even exclude that obligation (opting-out) before they are listed (art. and who thereby reaches. the minimum voting right or the right to enforce rights mandatorily guaranteed by the law. for his own account. Under the SESTA.75
holders or a prejudice that is not justified by the company’s scope. acquires or sells. Disclosure of major share ownership
0. 10. 706b states that can be considered void the resolutions that: 1.1)) to submit a takeover offer to purchase all of the existing securities of the target company. exceeds or falls below the thresholds of 5.9. indirectly or acting in concert with third parties. In their articles of incorporation.75
0. 4. (provision unchanged) If a shareholder exceeds a participation of 33% of the voting rights. then he has an obligation under the Federal Act on Stock Exchanges and Securities Trading (SESTA entered into force in 1998.5
10. insofar this checking power is provided to them by law.5
0. Furhtermore.75
0. 22(2)). whoever directly.5
0. Public takeover regulations are controlled by the Takeover Board. Mandatory bid
0. limit the power of shareholders to check on the company matters.5
0. 2. Art. 20. or 3.75
0. suppress the lucrative goals of the company without the unanimous consent of all the shareholders. art. 32(1)(s. 33 1/3.
listed companies in Switzerland have not been required to publicly disclose information on aspects of corporate governance.cent of the voting rights must report these participations to the company and to the exchange on which the shares are listed. the identity of shareholders or organized groups of shareholders with a title or beneficial interest of more than 5 per cent (subject to a lower percentage pursuant to the articles of incorporation) in the companies’ shares to the extent such interest is known to the companies. 699 (3): to exercise a requisition right. Although without foundation in the corporate law of Switzerland. Article 663c CO (Swiss Code of Obligations) requires listed companies to disclose. apart from ownership stakes above five percent and the names of directors. consultative voting is today a well established even if under-utilised tool in Swiss corporate practice. The disclosure obligations also include put and call options and conversion rights. 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Comments Before 2003. Consultative voting is a procedure through which shareholders may form and express their opinion on any issue concerning the affairs of the corporation. the requesting shareholders who represent shares of an (aggregate) nominal value of 1 million Swiss Francs of the issued capital. Art. Ex Art. They have no binding effect. in their annual business report. the articles must guarantee that each group will have at least one elected representative on the board of directors. 709 states that if there are several groups of shareholders with different legal status. but they are used by the board members to know what the shareholders expect from them and to express their dissatisfaction with the management's general performance.
s. Companies Act 1980 implementing the Second EEC Directive. 140.28(a).. 1099. Cadbury Committee. Greenbury Committee. 2. Dismissal without particular thresholds is possible (CA 1948. e.3. an agreement
.4. Code of Best Practice.2 (majority of nonexecutive directors must be independent). Audit Committees Combined Code Guidance. Independent board members 6. In particular. Financial Services and Markets Act 2000. 2003). 2003. CA 1948. s. but management does not have to provide solicitation. 1998 (applied since June 1998). 377: 5 % or support from holders of not less than 100 shares on which there has been paid up an average sum of not less than £100. Modern Company Law. Agenda setting power 3. Hampel Committee. 2003 amendments of the Combined Code (based on: Smith Report. Variable 1. at. Feasibility of director’s dismissal 1995 1 1996 1 1997 1 1998 1 1999 1 2000 1 2001 1 2002 1 2003 1 2004 1 2005 1 Explanations/ References As from 25 % of total assets involvement of the general meeting is required (Listing Rules 1984 (in force since 1985). ch. Listing Rules. 376.3. CA 1985. 2003. CA 1985. Main previous laws: Companies Act 1948. 1995 (applied since 1996). Bushell v. Prohibition of multiple voting rights (super voting rights) 5. Combined Code on Corporate Governance 2003.5): major class 1 transactions. Section 9 of the European Communities Act 1972. 2. ch. Companies Act 1981 implemented the Fourth EEC Directive.12. Combined Code 2003. 6. ss. Faith [1970] A. Company Directors Disqualification Act 1986. not yet in Listing Rules 1979-83. s. 1993 para.C. Insolvency Act 1986.37: super class 1 transactions). Review of the role and effectiveness of non-executive directors. United Kingdom (Mathias Siems)
Main laws on shareholder protection: Companies Act 1985 as amended by Companies Act 1989. 5. Multiple voting rights are admissible Cf. 184. Listing Rules 1979. 303).19. But there is often a financial burden on the firm where on appointment the member concluded a contract giving rise to a compensation claim upon dismissal. s. 10. Davies.2 (at least haft the board members must be independent). Code of Best Practice. Higgs Report. Listing Rules 1984. UK Listing Rules (but the October 2005 version is not yet taken into account). 1992 (applied since 1993). Anticipation of shareholder decision facilitated 4. 4. para 13. 620-1.(b): two-way proxy forms required. Companies Table A Regulation 1985. City Code on Takeovers and Mergers of the Panel on Takeovers and Mergers. s.36. 7th edn. Code of Best Practice 1992.Powers of the general meeting for de facto changes 2.. s.. A. Listing Rules. Combined Code of Best Practice.g.
there are still limits (and therefore the coding ½) because the courts can relieve officers (cf. 2002). s. 84) with long notice periods. CA 1985. it could be said that this provision was only about discriminatory treatment so that an unfair conduct which affected all shareholders equally would not have been covered (Davies. D2 and Combined Code 1998. Minority Shareholders’ Remedies. s. 744) from their liability if the breach of duty can in the circumstances be excused (CA 1985. CA 1985. Code of Best Practice 1992. Yet. so that a compensation claim arises in the event of early dismissal.
. sch. 7. 75 (now: CA 1985. 448). 108. s. sue on behalf of the company for compensation for damages. see Boyle. CA 1989. s.whereby the (ex-) director receives compensation is possible (CA 1948. art. 3.Private enforcement of directors duties (derivative suit) ½ ½ ½ ½ ½ ½ ½ ½ ½ ½ ½ Foss v. with court authorisation. CA 1985. Moreover. 19 amended CA 1985. formerly CA 1948. 727. s. However. 184(6). B. But CA 1980.6: notice or contract periods should be one year or less.1: a contract with a period of more than three years can only be concluded with the assent of the general meeting. ss. Code of Best Practice 1995. members of the board may often agree on a separate service contract (Table A 1948. Table A 1985. s.1. t 513). 459: now it is clarified that CA 1985. 303(5)). 459. s. s. s. 319: a contract with a period of more than five years can only be concluded with the assent of the general meeting. 461) shareholders could. According to CA 1980. 107. Harbottle (1943) 2 Hare 461: it is in principle not possible for a shareholder to bring an action on behalf of the company (although there are some exceptions. s. s. 459 is about both cases of unfair conduct. s. s. 47. arts.
rule 9. CA 1985. Edwards v. Shareholder action against resolutions of the general meeting 9.1. CA 1967. s. CA 1976. Halliwell [1950] 2 All E. City Code.
. CA 1985. 199(2)(a) was changed by Companies Act 1989 (usually 3 %. s.8.33.g. 1064 at 1067.R. 199(2)(a) (usually 5 %). Disclosure of major share ownership
See.. e. 26(2). s. s. Mandatory bid 10. in some special cases 10 %).
2d 599 (Del. 404. Secondly. shareholders who have held 1% of shares (or least $ 2. frequent changes thereafter. In Katz v. Agenda setting power
Thanks to Cynthia Williams for helpful comments. L. by the shareholder communication rule (SEC Rule 14a-7) any shareholder may collect proxies for matters relating to the general meeting and thus affect its course. 316 A.000 in market value) for at least one year may require proxy documents to be included at company expense with the general documents for voting proxies (SEC Rule 14a-8(b)(1)). United States (Mathias Siems)52
Main laws on shareholder protection: Delaware General Corporation Law (DGCL. Bregman.2002. 116 Stat. 50 % was regarded as sufficient. unless otherwise stated the notes refer to the 2005 version). 1974). In these cases only the cumbersome path via SEC Rule 14a-7 is possible. Two communication possibilities are to be distinguished: First.20. management may at its discretion either send the shareholder the list of other shareholders or pass on his communication to them.) affirmed in part.2d 1274 (Del. 48 Stat. Securities Act of 1933 (SA 1934).
2. Listed Company Manual of the New York Stock Exchange (NYSE Manual).1981) ca. To enable contact with fellow shareholders. codified at 15 USC secs. Variable 1. § 271(a) approval in case of “substantially all of its property and assets”. No. 38. 745.2d 619 (Del. ch. that in either case the shareholder must bear the costs (not coded in this index). 17 CFR Parts 200-30.07. major revision in 1967. 881. 107-204. 316 A. however. Ch. but emphasise the qualitative and quantitative characteristics of the transaction at issue (Gimbal v. 48 Stat. The courts do not specify a specific qualifying percentage. 78a-78kk. 431 A. codified at 15 USC secs. Securities Exchange Act of 1934 (SEA 1934).Ch.Powers of the general meeting for de facto changes 1995 ¾ 1996 ¾ 1997 ¾ 1998 ¾ 1999 ¾ 2000 ¾ 2001 ¾ 2002 ¾ 2003 ¾ 2004 ¾ 2005 ¾ Explanations/ References DGCL. Model Business Corporations Act (MBCA. Signal Companies. SarbanesOxley Act (Public Company Accounting Reform and Investor Protection Act) of 30. for information purposes only). Rules of the SEC based on Securities Exchange Act of 1934 (SEC Rule). 7. ch. Pub. The problem is.
. Particular areas are however excluded. 77a-77m.
§ 303A. 2003)). Note: the rules of NASDAQ are different. 12. §§ 313.12.04 (proxy solicitation required in order to afford shareholders a convenient method of voting) (the NYSE first mandated proxy voting in 1959). New York Stock Exchange.376. and National Association of Securities Dealers. Independent board members
NYSE Manual. and companies with existing dual class capital structures are generally permitted to issue additional shares of the existing super voting stock. But listing at the NYSE excluded (see Douglas C. 47 Bus. 1464 n.00. which was.1994 prohibits multiple voting rights. ibid. 212(a): multiple voting rights possible.. Inc.00 as amended on 05. 53 Fed.05. Reg. SelfRegulatory Organizations. invalidated by the DC Circuit Court (The Business Roundtable v. Michael. §§ 151(a). Inc. Prohibition of multiple voting rights (super voting rights)
5. Yet. SEC Rule. 14a-4(b)(1) (two way proxies). Untenable Status of Corporate Governance Listing Standards Under the Securities Exchange Act. DGCL. 1463 n.2d 406 (1990)).15 (1992)). the SEC issued a ban on multiple voting rights (Voting Rights Listing Standards. 68 Fed. the new policy is more flexible than the SEC-Rule. 1461. Order Approving Proposed Rule Changes (SR-NYSE2002-33 and SR-NASD-2002-141). 26. 308. § 402.19c-4 (1990)).
. at note 70).Reg. SEC. 2002: NYSE Manual. Disenfranchisement Rule.01: half of the board members independent (approved by the SEC. NYSE Manual B-23 (1966): at least two independent directors. 905 F. 26. Anticipation of shareholder decision facilitated 4.394 (1988). NYSE Manual. the verbatim counterpart adopted by the NYSE remained valid until 1994 (see Michael. codified at 17 CFR § 240. however. 64154 (Nov. When the NYSE first proposed to repeal its voting rights listing standards in 1985. Law. Yet.3.
1 of the Court of Chancery of the State of Delaware. L. 2003) (regarding independence of litigation committees). Feasibility of director’s dismissal
DGCL. review of special litigation committees. 207.g. In re Abbott Laboratories. for a different assessment see Reese & Herring (2005) 7 Del. there are also various requirements which have to be fulfilled (e. see also MBCA. 825 A. see also Rule 23.6. 923 (2006)).08. Yet. 125 (2001)). 325 F. Bruce A. Rev.Private enforcement of directors duties (derivative suit)
. 2003) (Disney II) (regarding demand requirement). In re Oracle Corp. Ch. § 327). see also the decision in Disney IV. The Golden Parachute Provisions: Time for repeal?. demand.. 2003) (regarding demand requirement) “evidence a heightening of judicial scrutiny on directors in the wake of the corporate governance scandals” (Hern. This incentive is further enhanced by the possibility of a class action (cf. Wolk. 2005) in favour of the (former) director (Note. 177). see also DGCL. (general) compensation agreements as well as “golden parachutes” in the event of a change in corporate control are possible (but see also on the argument that “golden parachutes” help to reduce the conflict of interest between shareholders and managers in case of takeovers. Rev. 141(k). Ch.. Rev. L. (2005) 41 Willamette L. 2005 WL 2056651 (Del.
7. contemporaneous ownership rule. § 8. Tax Rev.2d 917 (Del. Rule 23 of the Court of Chancery of the State of Delaware). Derivate suits are possible (Rule 23. 21 Va.2d 275 (Del. 824 A.1 Federal Rules of Civil Procedure).3d 795 (7th Cir. Ch.. Their use of is fostered because lawyers can agree on contingency fees and thus expect considerable gains if successful. In re Walt Disney Co. 119 Harv.
01. Supp. Shareholder action against resolutions of the general meeting 9. 1944) (exercise of power granted to majority). 1943) (exercise of power to amend certificate of incorporation). 442 (Del. 2003.8.02). 582 A. No.. CERBCO. Thorpe v. 8453. 1987). 1943). Inc.. 53 F. 676 A. In Delaware courts have repeatedly emphasised that controlling shareholders may obtain a premium for their shares which they need not to share with other shareholders (see In re Sea-Land Corp. 2nd edn. S’holders Litig. § 13(d). Supp. Carter. Barrett v.2d 222. Mandatory bid
10. at §§ 12. SEA. Corporations. aff’d.75
. 1990). There is no mandatory bid. Del. 1996)). Postal Tel. Harris v. 763 (D. 146 F.. Denver Tramway Corp. 52 F. 12.. 198 (D. 234 (Del. Inc.. Ch.2d 436.. 1987 WL 11283 (Del. Disclosure of major share ownership
¾ 1995
¾ 1996
¾ 1997
¾ 1998
¾ 1999
¾ 2001
¾ 2002
¾ 2003
¾ 2004
See already Goldman v. Fiduciary duties in case of sale of corporate control are only recognised to a limited extent for smaller companies (see Cox & Hazen.2d 701 (3d Cir. Del. Ch. Schedule 13D: 5 % 0.
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