Act No 154/2019 amending the Commercial Code, which came into force on July 1 2019, introduced new rules for remunerating members of the bodies of publicly-listed companies and for significant business transactions with related persons. The changes are intended to bolster the standing of shareholders.
Under the new legislation, publicly-listed companies are required to develop a remuneration policy that will be approved by the general meeting. That means that unlike private companies, publicly-listed companies will not be able to delegate decision-making about remuneration policies to the supervisory board. The designated directors of the company, i.e. members of the management board, supervisory board, and the chief executive officer and deputy chief executive officer will be remunerated in accordance with the approved remuneration policy.
The management board drafts the proposed remuneration policy and is liable for any damage resulting from a failure to comply with this duty. The remuneration policy is valid for a period of no more than four years from the date it is approved by the general meeting. The company is required to announce the remuneration policy publicly on its website without delay after it has been approved, and the announcement should include the date of the general meeting and the voting results.
The amendment also provides for relatively detailed rules in terms of the content of the remuneration policy. If remuneration consists of various components, including a variable element, the remuneration policy must set out clear, complete, and structured conditions for the award of the variable element of the remuneration. If directors are to receive other benefits in any form whatsoever, these must be specified in the remuneration policy.
Publicly-listed companies will be required to prepare a remuneration policy or bring their existing remuneration policy into line with the new legislation, as the case may be, so that the policy can be approved by the general meeting and publicly disclosed on the company's website no later than March 31 2020.
In addition to the remuneration policy, the management board must also prepare a remuneration report and submit this report to the general meeting as part of the annual report. The remuneration report must also be disclosed publicly on the company's website for a period of 10 years from the date it was discussed at the general meeting.
As another new obligation intended to enhance shareholder awareness, the approval of the general meeting is now required for significant transactions. A significant transaction is any performance or provision of security/guarantee pursuant to a contract which the publicly-listed company provided for the benefit of a related party, where the value of the performance or security/guarantee exceeds 10% of the company's share capital. The amendment specifies who related parties are; they include directors, senior managers, authorised representatives, supervisory board members, and anyone holding a minimum of five percent participating interest in the publicly-listed company.
If the company intends to conclude a significant transaction, it must submit an announcement to the Register of Documents along with details of the transaction no later than at the time the transaction is concluded. The company can also satisfy this obligation, within the same time period, by issuing a public announcement together with the transaction details in the official gazette.
Exempt from the above obligations are significant transactions entered into in the ordinary course of business under the customary terms and conditions and normal market terms, as well as transactions that were concluded on the initiative of all the shareholders, as related parties on equal terms, with the publicly-listed company, as well as other transactions that are enumerated in the legislation. If the company wishes to apply the exemption for transactions concluded in the ordinary course of business, the supervisory board must adopt rules for assessing significant transactions. The supervisory board must then assess at regular intervals, at least once per year, whether transactions are actually concluded within the course of ordinary business.
If a significant transaction is found to be in violation of the law, the value of the transaction must be returned to the publicly-listed company according to the principles of unjust enrichment. Members of the management board holding office at the time the transaction was concluded are jointly liable for returning that value. Members of the management board holding office at the time the publicly-listed company failed to exercise its right to the return of the performance or the provision of the security/guarantee who – taking into account all circumstances – were or should have been aware of the above obligation, are also liable for that return.