The increased Powers of the Shareholders’ Meeting under the new Law 31/2014, which amends the Companies’ Act with the aim of strengthening the corporate governance
The reformed law has extended the competences and involvement of the General Meeting. Regarding the powers of the General Meeting, the change made to the law is the addition of sub-section f) to Art 160.
This change increases the powers of the General Meeting. Namely, it requires its approval for all the major corporate transactions that have a similar effect to structural changes such as acquisitions, divestments and contributions of core assets to other companies. “Core assets” are assumed to be when the transaction amount exceeds 25% of the value of the assets stated in the latest approved balance sheet.
As a result, in transactions in which core assets are transferred or acquired, the board members must establish whether or not the operation in question is desirable. This forces them, and in turn allows the shareholder, to be fully informed of the importance and repercussions of such a decision. In this sense, the General Meeting acquires a power that prior to the amendments was strictly within the scope of the Board of Directors of the Company, so long as it had regard to the corporate purpose of the company.
To determine what core assets are, the legislation applies objective criteria of a quantitative nature. It chooses this criterion instead of that which was recommended by the Unified Code. This recommended that competence was given to the General Meeting in situations which involve a structural change to the company. The choice of a quantitative criterion can cause problems in practice because it is difficult to attribute a definitive value to core assets. Furthermore, left to the General Meeting, agreements of this type may affect the corporate purpose and could entail a structural change.
Needless to say, in practice we are going to find cases where some of the shareholders will challenge the Board’s decisions to acquire or transfer assets, when such operation has been executed without the General Meeting’s authorisation when the Board’s decision has been based on the fact that the value of the transaction is less than 25% of the balance sheet, because this criterion could be interpreted in different ways. The practical recommendation is to request the General Meeting’s authorisation whenever is possible, in order to avoid the risk of having the transaction challenged by the minority shareholders, and the consequences of such challenge.
It should be noted that this amendment applies to all capital companies despite being recommended by the Unified Code, and a report by a commission of experts on Corporate Governance, that it apply to listed companies only. This amplification demonstrates the legislature’s intention to increase the powers of the general meeting in all capital companies.
Another change made by the new law (article 161) regarding the involvement of the General Meeting in the company’s management is the extension of the ability of the General Meeting to give instruction to the Board of Directors, not only in Limited Liability Companies but in all kinds of Capital Companies. In practice, this amendment will only be relevant in companies with a large number of shareholders, where the Board of Directors is used to having more autonomy.
The purpose of this change, like most in the new Law, is to encourage the participation of shareholders and strengthen their role in the General Meeting, with the aim of trying to prevent abuses, conflicts of interests and lack of loyalty by the Company’s Directors. In this sense, the legislation has extended the shareholders ability to intervene in management issues which prior to the reform was only within the scope of Limited Liability Companies. A limit may of course be stipulated in the articles of association.
Consequently, the possibility of shareholders to instruct the Board of Directors or to participate in certain management issues has now been extended, by virtue of the reform, to Public Limited Companies and to Limited Liability Partnerships.
Despite this amplification of powers, the new Law maintains the idea of the inherent power of representation of the Board of Directors, whose limitation, even when recorded in writing, will be ineffective against third parties. In other words, the company will be bound against third parties who have acted in good faith and without gross negligence.
 Unified Code of good governance of listed companies – the code recommends things to be considered by listed companies in order to fulfil their obligation to provide certain information as required by Art 61 bis of the Securities Market Law 24/1988
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