The Stock Corporation Amendment Act 2019 (AktRÄG 2019) Federal Law Gazette I 2019/63 amends the Stock Corporation Act in two areas: Firstly, new regulations for listed companies will be issued. Secondly, there will be a significant change to the provisions – relevant not only for AGs but also for GmbHs – regarding the committee for reviewing the exchange ratio. This article is intended to provide an overview of all changes, some of which came into force retroactively as of June 10, 2019.
- Changes for listed stock corporations
The changes listed under this point only apply to listed stock corporations and SEs with their registered office in Austria.
- Remuneration policy (Sections 78a and 78b AktG)
Section 78a of the German Stock Corporation Act (AktG) contains the general provisions on the remuneration policy: this document, which is to be prepared by the Supervisory Board, must describe the criteria according to which the remuneration of the members of the Management Board is determined. The seven paragraphs of this standard contain very detailed specifications as to what information the remuneration policy must contain.
- Section 78b AktG regulates the vote on the remuneration policy, which must be submitted to the Annual General Meeting for a vote at least every fourth financial year and whenever a significant change is made. An innovation in the AktG is the fact that this vote is only of a recommendatory nature. The resolution passed by the Annual General Meeting on the remuneration policy is also explicitly not contestable.
Although the result of the vote at the Annual General Meeting is not legally binding, the remuneration policy has a significant legal effect: in accordance with Section 78b (2) AktG, the company may only remunerate the members of the Management Board in accordance with a remuneration policy that has been submitted to the Annual General Meeting for approval. In concrete terms, this means that the Supervisory Board, which is responsible for concluding remuneration agreements with the individual members of the Management Board (Section 97 para. 1 AktG), must adhere to the provisions of the remuneration policy it has drawn up itself. An individual remuneration agreement that is not in line with the remuneration policy will still be valid, but the supervisory board that concludes such an agreement is in breach of the law.
Pursuant to Section 78b para. 3 AktG, the remuneration policy, including the voting results, must be published on the company’s website no later than the second working day after the Annual General Meeting, where it must remain available free of charge until the end of its validity.
The analogous applicability of Sections 78a-78e AktG stipulated in Section 98a AktG means that the remuneration policy must also include information on the remuneration of Supervisory Board members.
Pursuant to Section 262 para. 41 AktG, the first remuneration policy must be prepared for the first Annual General Meeting in the financial year that begins after June 10, 2019. A listed company with a standard financial year must therefore prepare the first remuneration policy for the Annual General Meeting in the calendar year 2020.
- Remuneration report (Sections 78c – 78e AktG)
In listed stock corporations, the Management Board and Supervisory Board must prepare an annual remuneration report (Section 78c (1) AktG). The purpose of this remuneration report is to create transparency regarding the remuneration actually granted. The law contains detailed regulations on the content of the report (Section 78c (2) AktG). Paragraphs 3 and 4 of Section 78c AktG deal with data protection issues.
The remuneration report must also be submitted to the Annual General Meeting for a vote, whereby the corresponding resolution is also only of a recommendatory nature and cannot be contested (Section 78d AktG).
After the Annual General Meeting, the remuneration report must be made publicly available on the listed company’s website for ten years in accordance with Section 78e AktG, which must be reviewed by the company’s auditor. In contrast to other documents dealt with at the Annual General Meeting (Section 120 para. 4 AktG), the remuneration report must expressly not be submitted to the commercial register as an enclosure to the minutes of the Annual General Meeting.
The first remuneration report must be submitted at the Annual General Meeting of the financial year following the financial year in which the remuneration policy is first submitted (Section 262 (41) AktG), i.e. in the case of a company with a standard financial year in the calendar year 2021.
- Transactions with related companies or persons (Section 95a AktG)
The fundamental problem with transactions with related companies or persons (so-called “related party transactions“) is that some companies and persons – collectively referred to as “related legal entities” in the AktG – are in a particularly close relationship with the company and therefore there is a risk of the executive bodies acting in favor of these legal entities when it comes to concluding a contract, for example. A typical example would be the core shareholder of a listed AG who wishes to conclude a purchase agreement with the company: In such a case, the management board might be tempted to grant the core shareholder particularly favorable (and therefore suboptimal for the company) conditions (the issue of the return of capital contributions remains unaffected).
Since 31 July 2019, certain material transactions that a listed company concludes with related parties must be approved by the Supervisory Board or additionally published at the time they are concluded.
In accordance with Section 95a AktG, a transaction is considered “material” if its value exceeds 5% of the company’s balance sheet total (or the consolidated balance sheet total in the case of parent companies). Above this threshold, the transaction requires the approval of the Supervisory Board. Above a value of 10% of the balance sheet total, the transaction must be publicly announced (publication) in addition to the approval of the Supervisory Board, stating all necessary information.
With regard to the definition of “related party”, direct reference is made to the international accounting standards IAS/IFRS. The corresponding definition can be found in IAS 24.9. IAS 24.9 also defines what is meant by a “transaction”.
However, if a transaction fulfills all the requirements of Section 95a AktG, this does not mean that it is actually subject to the approval or disclosure requirement, as there are numerous exceptions in Section 95a (6) and (7) AktG.
- Issue of voting right confirmations (Section 126 (2) and Section 128 (4) AktG)
The AktRÄG 2019 also introduced the innovation that a listed company must issue two types of confirmations in connection with the casting of votes at the Annual General Meeting.
The first type of confirmation, which only concerns electronic voting (remote voting), was already regulated in the AktG. The second form of confirmation was introduced with the Stock Corporation Act Amendment Act 2019: Section 128 para. 4 sentence 2 AktG now stipulates that a listed company must, upon request, issue each shareholder with a confirmation that the votes cast by them at the general meeting have been correctly recorded and counted. However, this only applies if the company’s articles of association do not already provide for the publication of shareholders’ individual voting behavior (Section 128 para. 4 sentence 1 AktG).
The obligation to issue these new voting right confirmations exists pursuant to Section 262 para. 41 AktG if the convening of the relevant Annual General Meeting was announced after June 9, 2019.
- Changes concerning the committee for reviewing the exchange ratio
The AktRÄG 2019 also introduced some changes for the committee reviewing the exchange ratio pursuant to Section 225g AktG: For example, the committee that reviews the exchange ratio (including any additional cash payments) or the cash compensation following a merger or a squeeze-out is no longer tasked with providing an expert opinion in future, but only with settling disputes (section 225g para. 1 AktG). However, if it proves necessary for promising settlement negotiations, the committee can, as before, obtain an expert opinion from an external expert.
In order to avoid excessively long proceedings, the committee’s dispute resolution activities should generally be limited to one year. However, if all parties agree, this period may be exceeded (Section 225g (1) and (6) AktG).
In the area of procedural costs and reimbursement of costs, there is now an order that the court must state the total value of the additional payments (or the shares to be paid in lieu of additional payments) in its decision approving the settlement reached before the committee (Section 225i (3) AktG). This value represents the “total value in dispute” of the judicial review proceedings. However, only the portion of this total value attributable to each individual shareholder is decisive for the claim for reimbursement of costs against the company (Section 225l para. 2 AktG).