Status 

In progress

Explanatory note re status 

The Federal Cabinet (Bundeskabinett) has passed a draft law regarding the implementation of SD II on 20 March 2019 and submitted the draft law to the Federal Council (Bundesrat).

Implementation Act 

Gesetz zur Umsetzung der zweiten Aktionärsrechterichtlinie (ARUG II)

(Envisaged) Implementation Date 

Unknown 

Approach to implementation

The draft law provides for a 1:1 implementation of SD II's provisions into German law, particularly by amendments to the German Stock Corporation Act (Aktiengesetz) and the German Commercial Code (Handelsgesetzbuch).

Next steps

The draft law is scheduled for discussion by the Federal Council (Bundesrat) on 17 May 2019.

Contact person 

Peter Veranneman and Christoph Meves

Identification of shareholders, transmission of information and facilitation of exercise of shareholder rights

The draft law provides for the following changes to current German law:

  • Identification of shareholders and intermediaries: A listed company with seat in Germany or a member state of the European Union has the right to request from any intermediary which provides services of safekeeping of such company’s shares, administration of such company’s shares or maintenance of securities accounts on behalf of such company’s shareholders, information on the identity of the shareholder or, if applicable, the next intermediary in the chain of intermediaries. The request shall be transmitted between intermediaries up the chain without delay and the information regarding shareholder identity shall be transmitted directly to the company without delay by the intermediary holding the requested information. Any intermediary breaching one of the foregoing obligations commits a criminal offence.
  • Transfer of information in the chain of intermediaries: Information for the shareholder to enable the shareholder to exercise rights flowing from its shares and which is directed to all shareholders in shares of that class shall be forwarded by the company to the shareholder through the chain of intermediaries. Each intermediary has to forward the information without delay. The last intermediary in a chain of intermediaries has to forward the information to the shareholder. Any intermediary breaching one of the foregoing obligations commits a criminal offence.
  • Facilitating the exercise of shareholder rights: The last intermediary in the chain shall forward information regarding the exercise of a shareholder's rights to the listed company either directly or through the chain of intermediaries. For exercise of shareholder rights at a general meeting, the last intermediary also has to provide proof of the right to the shareholdings at the shareholder's request. In addition to the implementation of SD II, the listed company will have to confirm the electronic exercise of voting rights either directly or through the chain of intermediaries.
Transparency of institutional investors, asset managers and proxy advisors 

The draft law provides for the following changes to current German law:

  • Transparency obligation for institutional investors and asset managers: To better inform shareholders and final beneficiaries with regard to their investment decisions, institutional investors and asset managers will be obliged to publish their engagement policy (including conflicts of interest) and the implementation of such policy as well as their voting behavior or otherwise explain their decision not to do so. Institutional investors and asset managers shall further publish information on how the key elements of their investment strategy are consistent with the profile and duration of their liabilities vis-à-vis their investors and how such key elements contribute to the medium-term to long-term performance of their assets. Information has to be published in the Federal Gazette (Bundesanzeiger) or on an internet website for three years and updated yearly. Once a year, asset managers will have to inform institutional investors about their investment strategy and about whether the implementation of their strategy is in line with the mandate. Publication of such information is optional.
  • Transparency obligations for proxy advisors (Stimmrechtsberater): Proxy advisors will be required to disclose yearly whether and how they comply with the regulations of a particular code of conduct or explain their decision not to follow any code of conduct. Furthermore, they will have to publish information regarding their methods and main source of information, quality assurance, qualification and their voting policies. All information has to be published on an internet website for three years and updated yearly. In addition, proxy advisors will have to disclose conflicts of interest to their clients without undue delay.
Remuneration Policy 

The draft law provides for the following changes to current German law:

  • Remuneration of the board of directors: Currently, under German law the supervisory board is almost exclusively responsible for determining the remuneration of the board of directors. In the future, shareholders of listed companies need to be involved in determining the remuneration policy for the members of the board of directors. The supervisory board has to put a remuneration policy as well as all significant changes to this policy to the shareholders’ vote, at least every four years. The remuneration policy has to contain certain minimum information on the elements of the board of directors’ remuneration. The remuneration policy as well as the voting result needs to be published on the company's website for at least ten years. In case the supervisory board's remuneration policy is rejected by the shareholders, the supervisory board has to present a revised remuneration policy at the next general meeting. Furthermore, the shareholders have to vote on and approve the report on the remuneration paid to the members of the board of directors paid for their services during the previous business year; such shareholders’ resolution has been introduced for transparency reasons only and does not have any legal implications. Both remuneration policy and remuneration report have to be drafted in a clear and comprehensible way.
  • Remuneration of the supervisory board: Under German law, the supervisory board's remuneration is currently already determined by the shareholders. In the future, the supervisory board's remuneration system has to be put to a shareholders’ vote at least every four years. The shareholder’s resolution has to state certain minimum information on the elements of the supervisory board’s remuneration system. The remuneration system as well as the voting result has to be published on the company's website for at least ten years. Moreover, the shareholders have to vote on and approve the report on the remuneration paid to the supervisory board members for their services during the previous business year; such shareholders’ resolution has been introduced for transparency reasons only and does not have any legal implications.
Transparency and approval of related party transactions

The draft law provides for the following changes to current German law:

  • Consent to transactions with related parties by the supervisory board: In order to adequately protect company and shareholder interests any transaction which qualifies as a “Related Party Transaction” is, unless exempt, subject to prior consent of the supervisory board or a supervisory board committee if the economic value of such transaction or of all transactions concluded with the same related person within the company’s current financial year exceeds 2.5% of the total of the company’s fixed and current assets pursuant to its most recently approved annual financial statements. “Related Party Transactions” are contractual as well as in rem transactions with a related party as defined, in particular, in IAS 24 (i.e., in evaluating whether a party is related, the formal legal structure of the relationship is not the sole determining factor, rather its economic substance is of importance). Certain transactions do not qualify as “Related Party Transaction”, e.g., transactions which (i) were executed in the ordinary course of business and on normal market terms, (ii) were entered into with subsidiaries that are wholly owned by the company, either directly or indirectly, or in which no related party holds a stake or (iii) require the approval of or authorization or are undertaken in execution of approval or authorization by the general meeting.
  • Transparency of a transaction with related parties: Listed companies must publicly disclose related party transactions requiring approval without delay. The obligation does not apply if the transaction was already published as an ad hoc disclosure pursuant to Article 17 of the EU Market Abuse Regulation. The publication has to include all material information (including, without limitation, the name of the related party, the kind of relationship with the company, as well as the signing date and the value of the transaction) required to determine whether, from the perspective of the company as well as shareholders which are not a related party, the transaction is reasonable. The information has to be published on the company's website for at least five years.
Other

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