Implementation of the SRD II Provisions on Related Party Transactions

55 Pages Posted: 22 Sep 2020 Last revised: 19 Oct 2020

See all articles by Paul L. Davies

Paul L. Davies

University of Oxford - Faculty of Law; European Corporate Governance Institute (ECGI)

Susan Emmenegger

University of Bern - School of Law

Guido Ferrarini

University of Genoa - Law Department and Centre for Law and Finance; European Corporate Governance Institute (ECGI); EUSFIL Jean Monnet Center of Excellence on Sustainable Finance and Law

Klaus J. Hopt

Max Planck Institute for Comparative and International Private Law; European Corporate Governance Institute (ECGI)

Adam Opalski

University of Warsaw - Faculty of Law and Administration

Alain Pietrancosta

Sorbonne Law School; European Corporate Governance Institute (ECGI)

Andrés Recalde Castells

affiliation not provided to SSRN

Markus Roth

University of Marburg - Faculty of Law

Michael C. Schouten

University of Amsterdam, Faculty of Law; Amsterdam Centre for Law & Economics

Rolf Skog

University of Gothenburg - Department of Law

Martin Winner

Vienna University of Economics and Business - Department of Business Law

Eddy Wymeersch

Ghent University - Financial Law Institute; ECGI

Date Written: September 22, 2020

Abstract

In 2017 the European Union adopted amendments to the Shareholder Rights Directive enacted a decade earlier. Among the changes was a new Article 9c dealing with the topic of related party transactions (RPT). This paper analyses how that new provision has been implemented in a range of Member States and assesses its impact on the prior laws of those states.

Compared with the initial proposals of the European Commission, Article 9c as adopted was considerably watered down. Allegedly inspired by the related party provisions of the UK Listing Rules, those proposals mandated disclosure at the 1% level of significance (measured typically by the value of the company’s assets), accompanied by a fairness opinion, and approval by the independent shareholders (majority-of-the-minority (MOM)) at the 5% level). As enacted, MSS were given a choice of MOM or board approval and freedom to set the criterion for triggering the approval requirement. The same freedom as to trigger was accorded to the MSS in relation to disclosure and the requirement for a fairness opinion was dropped.

In consequence, MSS had a wide range of choices to make at the transposition stage. A major focus of this piece is an analysis of the choices actually made by the MSS (Part 3). This provides a basis for the assessment in Part 4 of the impact of Article 9c in moving the laws of the MSS towards a more demanding orientation. There are three main conclusions. First, the requirements of Article 9c for approval of RPT had limited impact. No MS which did not already have MOM adopted it in the transposition process. As for board approval, which was already widespread in the laws of the MSS, it is doubtful whether the transposition of the Article ensured the independence of the board members called upon to approve the transaction. Second, it is likely that the most important change required by the Article was public disclosure, even if shorn of the fairness opinion. The adverse impact of disclosure on the company’s share price is potentially capable of reducing the levels of wholly one-sided RPT. Public disclosure, although already required by the laws of some MSS, was not widespread.

Third, and more optimistic, there is evidence that the process of transposing Article 9c caused MSS to review their laws on RPT more generally and, in some MSS, this provided an opportunity for reformers to secure changes beyond those required by the Article itself. This might be termed the “catalysing” effect of transposition. The outcome in any particular MS turns on the balance of power between reformers and conservatives, but transposition gives reformers the opportunity to make a case which might otherwise not have been available to them.

Keywords: related party, approval, majority-of-the-minority, disclosure, materiality, Shareholder Rights Directive, harmonisation

JEL Classification: H73, K22, Z18

Suggested Citation

Davies, Paul L. and Emmenegger, Susan and Ferrarini, Guido and Hopt, Klaus J. and Opalski, Adam and Pietrancosta, Alain and Castells, Andrés Recalde and Roth, Markus and Schouten, Michael C. and Skog, Rolf R. and Winner, Martin and Wymeersch, Eddy O., Implementation of the SRD II Provisions on Related Party Transactions (September 22, 2020). European Corporate Governance Institute - Law Working Paper No. 543/2020, Available at SSRN: https://ssrn.com/abstract=3697257 or http://dx.doi.org/10.2139/ssrn.3697257

Paul L. Davies (Contact Author)

University of Oxford - Faculty of Law ( email )

St Cross Building
St Cross Road
Oxford, OX1 3UL
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Susan Emmenegger

University of Bern - School of Law ( email )

Schanzeneckstrasse 1
Bern, 3012
Switzerland

Guido Ferrarini

University of Genoa - Law Department and Centre for Law and Finance ( email )

Via Balbi, 22
16126 Genova, 16100
Italy
+39 010 209 9894 (Phone)
+39 010 209 9890 (Fax)

HOME PAGE: http://www.clfge.org

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

EUSFIL Jean Monnet Center of Excellence on Sustainable Finance and Law

Italy

HOME PAGE: http://www.eusfil.eu

Klaus J. Hopt

Max Planck Institute for Comparative and International Private Law ( email )

Mittelweg 187
D-20148 Hamburg
Germany
+49 40 41 90 02 05 (Phone)
+49 40 41 90 03 02 (Fax)

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Adam Opalski

University of Warsaw - Faculty of Law and Administration ( email )

ul. Wybrzeże Kościuszkowskie 47
Warszawa, 00-347
Poland

Alain Pietrancosta

Sorbonne Law School ( email )

17, rue de la Sorbonne
Paris, IL 75005
France

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Andrés Recalde Castells

affiliation not provided to SSRN ( email )

Markus Roth

University of Marburg - Faculty of Law ( email )

Universitaetsstrasse 6
Marburg, D-35037
Germany

Michael C. Schouten

University of Amsterdam, Faculty of Law ( email )

Amsterdam, 1018 WB
Netherlands

Amsterdam Centre for Law & Economics ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Rolf R. Skog

University of Gothenburg - Department of Law ( email )

Viktoriagatan 30
Box 650
Göteborg, 40530
Sweden
+46 31 7866990 (Phone)

HOME PAGE: www.law.gu.se

Martin Winner

Vienna University of Economics and Business - Department of Business Law ( email )

Welthandelsplatz 1
Vienna, A-1020
Austria

Eddy O. Wymeersch

Ghent University - Financial Law Institute ( email )

Universiteitstraat 4
Gent, B-9000
Belgium
+32 9 264 68 27 (Phone)
+32 9 264 68 55 (Fax)

HOME PAGE: http://www.law.ugent.be/fli

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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