Monthly Archives: February 2015

Oficina profesionales

Impact of reform of the Corporate Enterprises Act on the governing body

Last December 3rd, Law 31/2014 amending the Corporate Enterprises Act (hereinafter the “CEA”) to improve corporate governance was approved, subsequently entering into force on December 24. The main objective of the reform is to enhance transparency and good practices by the governing bodies of companies in order to achieve effective improvement of the corporate governance of companies, as well as greater efficiency in their management and administration.

In this information note we will focus on changes affecting the governing body of non-listed companies.

Remuneration of directors

  • The system of remuneration is now the same for both types of companies, joint stock companies (hereinafter, “JSC”) and limited liability companies (hereinafter, “LLC”).
  • The General Meeting will have to approve annually the maximum amount of remuneration received by all the directors of the company as a whole. Nevertheless, the directors themselves will decide how that amount is shared among them.
  • The remuneration of the directors must be linked to the sustainability and profitability of the company, which is a further reflection of the philosophy behind this reform aimed at achieving transparency and good governance.

Directors’ duties

  • Directors’ duties are delimited and defined with a view to achieving good corporate governance of companies. The changes include, among others, a more detailed description of the concept of due diligence, its mandatory nature and the extension of the liability regime applicable to it. The duty of loyalty and its liability regime are also dealt with in greater depth. The “business judgment rule” is introduced to protect strategic and business decision-making under certain circumstances.

Liability regime

  • Definition of “de facto director” as someone under whose instructions the directors of the company might be accustomed to acting.
  • Extension of the liability regime to the chief executive of the company in cases where there is no managing director and to the natural person who is the representative of a body corporate director.
  • Any action against directors for corporate and individual liability becomes time-barred 4 years from the date on which it could have been exercised.

Board of directors: organization and functioning

  • Regarding board members’ remuneration, the position will generally be unremunerated, unless the Company by-laws provide otherwise. Besides, the amount of remuneration must be reasonable relative to the functions and responsibilities inherent to the position, and proportionate to the importance and economic situation of the company. Henceforth, a contract detailing salary components has to be signed between the company and the managing director (s), or board members having executive functions which are different from those of the managing director (s).
  • The list of non-delegable powers of the Board has been expanded (preparation of annual accounts, appointment and removal of executives, decisions regarding the remuneration of board members, but most notably, non-derogable powers include the power to call meetings and to prepare the agenda. This goes against a line of case law that has been recognizing the competence of the managing director to call meetings).
  • The Board of Directors shall meet a minimum of once per quarter, that is, there must be at least four meetings per year.




Impact of reform of the Corporate Enterprises Act on the General Meeting

Last December 3rd, Law 31/2014 amending the Corporate Enterprises Act (hereinafter the “CEA”) to improve corporate governance was approved, subsequently entering into force on December 24. The main objective of the reform is to enhance transparency and good practices in the governing bodies of companies in order to achieve effective improvement of the corporate governance of companies, as well as greater efficiency in their management and administration.

In this information note we will focus on the changes affecting the General Meeting of non-listed companies.

Increased Powers of the General Meeting

        • The General Meeting of Joint Stock Companies (hereinafter, “JSC”) can now intervene in the management affairs of the company, a power previously reserved only to Limited Liability Companies (hereinafter, “LLC”).
        • The General Meeting will now have the power to take decisions on the acquisition, disposal, or transfer to another company of essential assets (an asset will be considered as essential when the amount of the transaction exceeds 25% of the value of the assets appearing on the last balance sheet approved).


Resolution of Conflicts of Interest

      • The primary aim of the reform in this area is to protect the company’s corporate interest, a concept which is expanded, as we will see below.
      • The reform extends to the JSC the prohibition against the exercise of voting rights by an affected shareholder where there is a transfer of shares subject to a legal or statutory restriction, expulsion of shareholders, release from obligations or the granting of rights, financial assistance or waiver of the duty of loyalty.
      • With the exception of the cases mentioned in the foregoing section, it is possible for shareholders to exercise voting rights in situations of conflict of interest, however, when those votes have been decisive for adoption of a resolution which is subsequently challenged, the shareholders having a conflict of interest bear the burden of proof. Those who challenge the resolution adopted must prove the existence of actual damage suffered by the company.

   Voting system

      • A clarification regarding majorities in JSC companies is introduced. The concept of “simple majority” (when there are more votes in favor than against, of the shareholders present in person or by proxy) substitutes that of “ordinary majority” which has been used until now
      • Obligation to have a separate vote on matters dealt with during the meeting that are deemed to be “substantially independent”. For this reason, it is convenient to separate resolutions of this type under different items of the agenda, in order to avoid distorting the vote. In any event, the appointment, ratification, reelection or removal of a director, as well as the amendment of different articles or groups of articles of the by-laws, and any other matter stipulated in the by-laws, must be voted on separately.

Exercise of the right to information

      • One of the main objectives of this reform is to avoid damage to corporate interests and, in view of this, the exercise of the right to information is defined in more detail. There is now no obligation to comply with the right to information not only in those cases in which corporate damage may be caused, but also when the information is not considered as necessary for the protection of shareholders’ rights, or the information could be used for non-company purposes. Consequently, the shareholder will be liable for damages caused by use of the information in a prejudicial or inappropriate manner.
      • The determination of whether or not the information needs to be provided will now be made by the directors of the company and not by the chairperson of the general meeting.

Challenging Corporate Resolutions

      • Changes introduced in this area aim to comply with the principle of preservation of corporate resolutions
      • Consistent with the previous paragraph regarding the right to information, the cases in which resolutions may be challenged on the basis of lack of information are limited, and some additional cases are established, for example, the non-decisive participation of unauthorized persons in the meeting (articles 204.2 and 204.3).
      • The former distinction between acts which are null and void and acts which are voidable disappears (from now on there are only “challengeable acts”), and therefore, the different time limits for challenging resolutions also disappear, and are replaced by a single time limit of one year. An exception is made in the case of resolutions contrary to public policy, which will not be time-barred.
      • The concept of “damage to corporate interest” is broadened (and now includes abusive agreements which are prejudicial to the minority, even if they cause no material damage to the company), since it is no longer necessary to prove material damage in order to establish a claim.
      • Requirement for shareholders to hold 1% of share capital to be able to exercise the right to challenge challengeable acts, but no percentage holding required to challenge resolutions contrary to public policy.
      • To challenge resolutions of the board of directors or any other collegiate governing body, shareholders must hold 1% of the share capital (previously, it was 5%)










Derechos de autor de la foto: D. López Rus

CNMC penalizes SGAE with a fine of 3.1 million euros for abusive fees on concerts

Spain’s National Markets and Competition Commission (Comisión Nacional de Mercados y la Competencia) has imposed on SGAE (Spanish Society of Authors, Composers and Publishers) a penalty of 3.1 million euros for subjecting promoters to abusive conditions. The Commission considered that SGAE carried out anticompetitive practices by imposing abusive conditions on license agreements concerning copyright over songs performed in concerts. These practices constitute an infringement of article 2 of the Spanish Law on Defense of Competition and of article 102 of the Treaty on the Functioning of the European Union. The decision was taken the 6th November 2014 and SGAE has had a period of two months since its notification to appeal the decision before the National High Court (Audiencia Nacional).

Specifically, the Commission considered that the amount of the fee, which is 10% of total box office sales – 9% for concerts in venues with seating capacity for less than one thousand persons-, implies an abuse of a dominant position in the market for the management of public performance and intellectual property rights of the composers of pieces of music which are exploited in the music concerts that take place in Spain.

The alleged abuse by SGAE of its monopoly power is a long-standing accusation, but until now, the accusations have been levelled at SGAE without enough proof to back them up. In 2005, the Association of Music Promoters (Asociación de Promotores Musicales) filed a complaint before the former Competition Defense Service (Servicio de Defensa de la Competencia) denouncing these alleged anticompetitive practices carried out by SGAE, but the case was dismissed by the Competition Defense Service and subsequently rejected by the Court for the Protection of Competition (Tribunal de Defensa de Competencia). In contrast, in 2009, Spain’s National High Court considered that the facts had not been sufficiently investigated and ordered the Commission to continue its investigative activities in order to resolve the following three questions. Firstly, whether the fees were justified in comparison with other European countries and having regard to the case-law of the Supreme Court (Tribunal Supremo) and the Court of Justice of the European Union. Secondly, whether the alleged anticompetitive practice had been carried out over a long period of time and in a substantial number of cases. Finally, whether the alleged cartel existed between SGAE and foreign intellectual property rights management entities. The Supreme Court upheld this order and the Department for Competition Investigation (Dirección de Investigación de Competencia) initiated sanction proceedings on April 15th of 2013.

In its decision, the Commission stated that “the amount of the fees applied by SGAE to licenses related to public performance rights of the composers of pieces of music performed in concerts in Spain, has abusive effects on the concert promoters, since SGAE has taken advantage of its dominant market position to charge them fees which are much higher than those charged in other European countries, with the result that the promoters are obliged to pay much higher fees than those that would be payable if fees were fixed at a competitive level.” In particular, the investigation has revealed that 73% of the Member States have a fee which is substantially lower than the 10% established by SGAE.

According to the Commission, the penalty was established taking into consideration the size of the affected market, the market share, as well as the importance and duration of the infringement. Apart from the fine, the Commission ordered SGAE to discontinue the infringing conduct within three months and to refrain from committing similar practices which hinder competition. In a statement issued, SGAE declared its intention to appeal the decision before the Supreme Court. In the meantime, the Department for Competition is responsible for overseeing compliance with the decision.

Copyright picture: Mr López Rus