Luxembourg implementation of the shareholders’ right directive II

Introduction

Law n°562 of August 1, 2019 implementing the Directive (EU) 2017/828 with regards to the encouragement of long-term shareholder engagement (the SRD II) and amending the Luxembourg law of May 24, 2011 on the exercise of certain rights of shareholders in listed companies (the Law) was published on August 20, 2019.

In addition to the Law, a new Regulation (EU) 2018/1212 will become applicable from September 3, 2020, aimed at improving the communication between listed companies and their shareholders.

The Law applies to:

• Luxembourg issuers (Issuers), the shares of which are listed on a regulated market within the meaning of MiFID II (Shares)
• Asset managers (i.e. MiFID portfolio managers, AIFMs (whether EU AIFMs or non-EU AIFMs, and whether internal or external AIFMs – it therefore potentially applies to self-managed AIFs notwithstanding their form, eg. SIFs, RAIFs or non-regulated AIFs), UCITS Management Companies, self-managed investment companies under the form of UCITS or Part II UCIs) investing in Shares, irrespective of where the issuer is located (the Law does not restrict its application to issuers located in Luxembourg or in the EU). No threshold with respect to Shares is provided by the Law, which would therefore apply to mixed funds. In case of master feeder structures and funds of funds, it would apply to master fund and the underlying fund respectively
• Institutional investors (i.e. life insurance and reinsurance companies and pension funds) investing directly or through an asset manager in Shares (no threshold is provided by the Law), irrespective of where the issuer is located (the Law does not restrict its application to issuers located in Luxembourg or in the EU)
• Intermediaries (including third-country intermediaries) (i.e. credit institutions, investment firms, CSDs) providing services of safekeeping, administration of shares, or maintenance of securities accounts on behalf of shareholders or other intermediaries regarding Shares of an issuer having its registered office in the E
• Proxy advisors (including third-country proxy advisors) providing services to shareholders regarding Shares of an issuer having its registered office in the EU.

Directors of the relevant entities will be personally and jointly liable for any damage resulting from the breach of their respective obligations imposed by the Law.

Main obligations for asset managers

Asset managers are subject to transparency obligations (i) relating to their engagement policy describing the integration of shareholder engagement into their investment strategy and (ii) towards institutional investors.

Main obligations for institutional investors

Institutional investors are subject to (i) transparency obligations similar to those of asset managers and (ii) disclosure requirements in connection with equity investment strategy and agreements entered into with asset managers.

Main obligations for intermediaries

Intermediaries are subject to obligations relating to the transmission of information (i) to the Issuer to allow the identification of shareholders and (ii) to the shareholders to allow the exercise of their rights. In addition, they must (iii) facilitate the exercise of shareholder rights and (iv) disclose the applicable non-discriminatory and proportional charges for services provided to shareholders.

Main obligations for proxy advisors

Proxy advisors are subject to disclosure obligations with respect of (i) their code of conduct or justification in case of non-compliance and (ii) annual disclosure of key information in relation to their research and voting recommendations.

Main obligations for issuers

Issuers are subject to obligations relating to (i) transmission of information to shareholders and facilitation of the exercise of their rights, (ii) voting/approval rights of shareholders on, and disclosure of, remuneration policy and remuneration report and (iii) the submission of material related party transactions to the approval of the competent management body.