Newsletter - Reform of the shareholders protection law

The Luxembourg Parliament has transposed Directive (EU) 2017/828 of the European Parliament and of the Council of 17 May 2017 amending Directive 2007/36/EC[1] to promote long-term shareholder engagement (the "SHRD II Directive"). The objective of the SHRD II Directive is to improve the long-term viability of European companies and create a more attractive environment for shareholders, by facilitating their engagement.

The law of the 1st August 2019 amends the law of 24 May 2011 on the exercise of certain shareholders' rights at general meetings of listed companies (the "Shareholders Protection Law") which now applies to

  • Luxembourg companies whose shares are admitted to trading on a regulated market[2] in a Member State of the European Union;
  • those companies whose securities are traded on a recognised market of a non-Member State and which, by an express provision in their articles, have declared that the Shareholders Protection Law is applicable;
  • intermediaries (whether located in the European Union or not) that provide services[3] to shareholders or other intermediaries in relation to shares of companies having their registered office in a Member State and whose shares are traded on a regulated market in a Member State;
  • institutional investors[4]  investing directly or through an asset manager in shares traded on a regulated market in a Member State;
  • asset managers[5] investing in shares traded on a regulated market in a Member State;
  • proxy advisors[6] providing their services to shareholders regarding the shares of companies having their registered office in a Member States and the shares of which are admitted to trading on a regulated market in a Member State.

The new provisions of the Shareholders Protection Law are intended to restructure the Shareholders Protection Law as a whole in order to transpose and meet the main objectives of the SHRD II Directive. The major investors in listed companies, namely institutional investors and asset managers will now be subject to the Shareholder Protection Law.

The consecration of the right of listed companies to identify their shareholders

The company, or a third party designated by it for this purpose, may request any intermediary in the ownership chain in order to obtain without delay all relevant information[7] on the identity of the shareholders.

Taking into account the fact that shares are in practice often held through complex intermediary chains, the new provisions also aim at enforcing a rapid and harmonised transmission of information between listed companies and their intermediaries in order to enable shareholders to fully exercise their corporate rights.

In particular, intermediaries will have to:

  • take the necessary measures to ensure that shareholders, or their agents, can exercise these rights themselves or can mandate intermediaries to exercise these rights in their name and on their behalf. A confirmation of receipt of votes must be sent to the person who voted when voting is done electronically. The shareholder may also request, within 2 months after the general meeting, confirmation that his vote (whether it has been done electronically or not) has been recorded and taken into account by the company if this information is not already available to him; and
  • make public the fees applicable to services related to the identification of shareholders, the facilitation of the exercise of their rights and the transmission of information between companies and shareholders, ensure that such fees are non-discriminatory and proportionate to the costs actually incurred in providing the services. Any difference in charges depending on whether the rights are exercised at national or cross-border level is only permitted if it is duly justified and if it corresponds to the difference in the costs actually incurred to provide these services.
The creation of transparency obligations for institutional investors, asset managers and proxy advisors
  • Engagement Policy

As major shareholders in listed companies, institutional investors and asset managers will be required to develop and make public an engagement policy describing how they integrate shareholder engagement into their investment strategy, as well as an annual report on the implementation of this engagement policy. If they choose not to establish and/or publish a commitment policy and its related annual report, they will have to explain why they have chosen not to do so on a "comply or explain" basis. While the content of this engagement policy is more “principle-based”[8], the Shareholders Protection Law indicates that, beside traditional aspects that would already be monitored by institutional investors and asset managers in accordance with their own regulations, non-financial performance, social and environmental impact and corporate governance should also be considered[9]. While the annual report shall describe the way the engagement policy has been implemented and the general voting behaviour, significant votes and the use of proxy advisors shall also be reported. While the Shareholders Protection Law is silent on the meaning of significant votes, the preambles to the SHRD II Directive provide that the institutional investors and asset managers shall set their own criteria regarding which votes are insignificant on the basis of the subject matter of the vote or the size of the holding in the company. The engagement policy shall, in any case, be compliant with the conflicts of interest policy that the relevant asset manager or institutional investor has to be implement in accordance with its relevant sectorial law.

  • Specific reporting by institutional investors

Institutional investors must disclose how the main elements of their equity investment strategy are consistent with the profile and duration of their liabilities. When an asset manager invests on behalf of an institutional investor (either through discretionary portfolio management or because the institutional investor is an investor in a fund managed by the asset manager), certain key information about the agreement with the asset manager must be made public, mainly with regard to the consistency of the asset manager's strategy with the institutional investor's objectives[10]. Similarly, the asset manager will be required to provide the institutional investor with an annual reporting on the conformity of its activity with the engagement it has taken toward the institutional investor and the implementation of its strategy[11]. Some of the points to be reported could be already included in the fund’s prospectus or annual report and will not have to be reported again in such case.

Proxy advisors will have to make the code of conduct they apply public on their website free of charge and report on its application. In practice, they will be required to make relevant information public each year, such as the main elements of the methods and models they apply and their policy for preventing and managing actual or potential conflicts of interest. Like other intermediaries, in cases where proxy advisors do not apply a code of conduct, they must provide a clear and reasoned explanation of their reasons for doing so.

These obligations are applicable to UCITS, alternative investment funds and cooperative societies.

The introduction of a real right of shareholders to control director's remuneration

Companies will be required to develop and disclose a remuneration policy that is intended to contribute to the company's business strategy, interests and long-term sustainability. In particular, the compensation policy must describe the various fixed and variable components of executive compensation, including any bonus or benefit in any form whatsoever.

Shareholders will be granted control rights at two levels: (i) an "ex ante" voting right on the remuneration policy at least every four years and at the time of any material change: this vote is provided as an advisory vote[12] and (ii) an "ex post" voting right on the report on the remuneration granted or due during the last financial year to each executive. Principle n°7 of the X Principles of Governance of the Luxembourg Stock Exchange, which recommends the establishment of a fair remuneration policy in accordance with the long-term interests of the company in listed companies, and the "Say on Pay" principle, are therefore fully applied here.

In addition, after the vote, the remuneration policy and the date and result of the vote must be made public without delay on the company's website and remain freely available to the public, at least during the period in which it applies.

Strengthening shareholder control over transactions with related parties

Given the existence of the regulated agreements procedure under Luxembourg law, the conformity of Luxembourg law with the SHRD II Directive requires only a few adjustments to this procedure. Transactions qualifying as "material" under the legislator's definition[13] will be subject to the approval of shareholders or the company's board of directors or supervisory body, as the case may be. Companies will be required to publicly announce[14] "material transactions" with related parties no later than the time the transaction is completed.

With regard to sanctions for non-compliance with the Shareholders Protection Law, the Shareholders Protection Law does not depart from the traditional liability regime, stating only that directors are jointly and severally liable for any damages resulting from the violation of their obligations under the Shareholders Protection Law. No specific penalty is provided for intermediaries, institutional investors, asset managers and proxy advisors.


[1] Directive 2007/36/EC of the European Parliament and of the Council of 11 July 2007 on the exercise of certain rights of shareholders in listed companies.

[2] Within the meaning of article 1, point 38 of the Law of 30 May 2018 on markets in financial instruments.  

[3] i.e. safekeeping of shares, administration of shares or maintenance of securities accounts.

[4] Being Luxembourg life-insurance companies and institution for occupational retirement provision.  

[5] Luxembourg investment firms providing portfolio management services, authorised alternative investment fund managers, UCITS management companies and self-managed investment companies authorized under the Law of 17 December 2010 relating to undertakings for collective investment (the “2010 Law”).  

[6] Legal persons analysing communication and other information of listed companies with a view to informing investors for their voting decisions.

[7] at least: a) the name of the shareholders and their contact details (including the full address and, where applicable, the electronic address) and, in the case of legal entities, their register number or, in the absence of such a number, their unique identifier, such as the legal entity identifier; b) the number of shares held; and c) only to the extent that they are required by the company, one or more of the following information: the categories or classes of shares held or the date since when the shares have been held.

[8] the engagement policy shall described how the “relevant matters” are monitored in respect of investee companies.

[9] Always on a “comply or explain basis”.

[10] Including how the investment strategy matches the profile and duration of the liabilities of the institutional investor, how the asset manager is incentivise (including by its remuneration) to make investment decisions based on long-term financial and non-financial performance….

[11] Including portfolio composition, turnover and turnover costs, use of proxy advisors, securities lending policy, occurrence of conflicts of interest in relation to their engagement with the institutional investor and how they have been deal with. This disclosure shall normally be subject to the principle of equal treatment of investors and market timing policy.

[12] The Luxembourg legislator uses the option provided for in the SHRD II Directive, which allows for an advisory vote. The company only pays remuneration to its executives in accordance with a remuneration policy that was the subject of such a vote at the general meeting. When the general meeting rejects the proposed remuneration policy, the company submits a revised policy to the vote of the next general meeting. However, the Law allows companies to provide in their articles of association for a binding vote of the general meeting.

[13] Article 7quater, (2) of the Shareholders Protection Law: the Luxembourg legislator has chosen to define a "material transaction" as "any transaction between the company and a related party whose publication and disclosure would be likely to have a significant impact on the economic decisions of the company's shareholders and which could create a risk for the company and its shareholders who are not related parties, including minority shareholders. The nature of the transaction and the position of the related party must be taken into account".

[14] The announcement must contain, at a minimum, information on the nature of the relationship with the related party, the name of the related party, the date and value of the transaction and any other information necessary to assess whether the transaction is fair and reasonable from the perspective of the company and shareholders who are not related parties, including minority shareholders.

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Mathieu Scodellaro

Principal, PwC Legal

Tel: +352 26 48 42 35 51

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