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 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.
- 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.