To: European Commission, Internal Market Directorate General


Please find the following document herewith:

REPLY CONSULTATION DOCUMENT "FOSTERING AN APPROPRIATE REGIME FOR SHAREHOLDERS' RIGHTS"
by THE COMBINED COMMITTEE ON COMPANY LAW instituted by THE ROYAL DUTCH NOTARIAL SOCIETY ("Koninklijke Notariële Beroepsorganisatie")
and THE NETHERLANDS BAR ASSOCIATION ("Nederlandse Orde van Advocaten").

In case further information is desired, you can contact:
mrs. Barbara Bier, member of the Combined Committee, tel. 020-6741579, e-mail: barbara.bier@allenovery.com

With kind regards,


Corrie Heck,
secretary of the Combined Committee


mr. C. Heck-Vink
Koninklijke Notariële Beroepsorganisatie
Notarieel Juridisch Bureau
Postbus 16020
2500 BA 's-Gravenhage
Tel. +31 (0)70 330 71 53
Fax +31 (0)70 362 45 68
E-mail: c.heck@knb.nl

4. Scope-Listed Companies

Question: Do interested parties agree that the scope of the forthcoming proposal on shareholders’ rights should be restricted to companies whose shares are admitted to trading (‘listed companies’), and that Member States could be invited to extend these facilities to non-listed companies?

Answer: The Combined Committee (CC) agrees that the forthcoming proposal should be restricted to listed companies. The CC is of the opinion however that not all listed companies under any circumstances must comply with the rules of the forthcoming proposal. The rules may be too cumbersome or too expensive for certain small or medium sizes listed companies. Therefore the CC suggests to provide that the rules are applicable and the company in question will comply, unless at the proposal of the managing board the general meeting resolved that the company does not have to apply these rules for a limited period of time (for instance 18 months). The CC is not sure whether non-listed companies will always need these facilities since shares in such companies are normally held directly or, in case of the use of depository receipts, the structure may be set up for different reasons, not requiring these facilities (see below under 5.3). Therefore, the CC considers that, depending on the subject matter, the proposal should provide that non-listed company may voluntarily apply the facilities.

5. Entitlement to control the voting right

5.1. Cross-border voting

5.1.1. Entitlement to control the voting right

Question: Do interested parties consider that the forthcoming proposal for a directive should set up a framework to identify the person entitled to control the voting right as the last natural or legal person holding a securities account in the “chain” of intermediaries and who is not a securities intermediary within the European securities holding systems, nor a custodian?

Answer: Yes, the CC agrees. The CC assumes that no voting rights shall be exercised other than on the instruction of or by the ultimate beneficiary.

Questions: Should it also provide for a securities intermediary who is not admitted as a participant in a European securities system but holds shares on behalf of clients the possibility to designate his clients in its place as controlling the voting rights? And should it be compelled to designate the identity of its clients at the request of the issuer?

Answers: The CC believes that Member States should facilitate such possibility but not be forced to introduce an obligation. This may interfere with existing contractual arrangements with parties that are not subject to the European rules. As to the release of the identity of the client the CC believes that this  should be optional, i.e. only when the client has agreed to such release.

5.1.2. Exercise of the voting right

Question: Do interested parties agree with such provisions to allow the ultimate investor to exercise the entitlement to control the voting rights?

Answer: The CC agrees to this. See also below under 7.4.2.

Question: Do they also agree that the ultimate investor should in all cases be offered the possibility, either to provide the financial intermediary with voting instructions or to be given power of attorney by the same financial intermediary?

Answer: Yes, ultimate investors should be offered the possibility.


5.1.3. Authentication of the ultimate investor

Question: Do interested parties agree that securities intermediaries should be required to certify to the issuing company who the ultimate investor entitled to control the voting rights is and for how many shares?

Answer: Yes, provided however that such certification should only takes place at the request of the ultimate investor.

Question: What do you think is the best option to allow for such an authentication and certification process?

Answer: The CC believes that the second option is to be preferred as it provides most certainty.

Question: Should the forthcoming proposal address the issue of which parties would have to bear the costs in this authentication?

Answer: The CC believes that it will be important to provide rules for this issue. Otherwise the question of costs will be an issue that may and probably will prevent a smooth functioning of the process. The CC suggests that the costs of the authentication process in the first layer (i.e. between the company and the first account holder) will be for the account of the company and that the remainder will be for the account of the ultimate investor. The argument for such split is that it is the choice of the ultimate investor how to invest in a company. When he resolves to make use of an intermediary that is not the first account holder, this will involve more costs which should be born by him.

5.2. Stock Lending

Question: Do interested parties consider that the practice of securities lending create problems for the exercise of voting rights, in particular in a cross-border context that should be tackled at EU level? Should such provisions essentially aim at enhancing transparency and protecting the interests of long-term investors?

Answer: The CC agrees that the practice of securities lending creates problems for the exercise of voting rights, not only in a cross-border context but also at a national level. The CC is of the opinion however that this problem of exercising of voting rights should be dealt with contractually. The CC does not think that the recall of lent shares would be a solution for this problem since this would obviously lead to difficulties in the relationship between lender and borrower. The CC considers that if shares will be used for securities lending this should only be possible in the event that the ultimate investor has agreed that the shares could be used as such and has been notified of the consequences thereof in terms of voting rights.

Similar problems may arise with respect to financial collateral arrangements.

5.3. Depositary Receipts

Question: Do interested parties consider that there are problems associated with the holding of depositary rights that should be addressed in the forthcoming proposal for directive?

Answer: Yes, the CC believes that such problems should be addressed.

Question: If so should it allow holders of depositary receipts to be recognised as holding the rights attached to the underlying shares and that any specific exclusion from voting right should be removed?

Answer: Yes, provided however that Member States should be able to provide for an opt-out for non professional depositaries, such as ad hoc depositaries incorporated for another purpose than facilitating the trade of securities. A typical example of such ad hoc depositary in Dutch practice is a legal entity that holds the shares cum amico ("ten titel van beheer") for the holders of depositary receipts. In such situation it should be possible that the holder(s) of depositary receipts under certain circumstances are not recognised as holding such right.

6. Pre-annual general meeting Stage

6.1. Communication of information relevant to GMs

Questions: Do interested parties consider that the forthcoming proposal should contain provisions regarding the disclosure of GM notice and materials and some standards for the dissemination of such information? What should be these standards? Should it also require issuers to maintain a specific section on their website where they would have to publish all General Meeting- related information?

Should issuers websites or such GM dedicated sections of their websites contain also a description of shareholders’ and investors’ rights in relation to voting (voting by proxy or in absentia) and with regard to the GM (right to ask questions or table resolutions)?

Do interested parties consider that the forthcoming proposal for a directive should deal with the way information is ‘pushed’ by the issuer to the ultimate investor? If so, which of the two approaches (chain or direct) is preferable? Should the possibility be given to the ultimate investor to opt out of such identification system?

Answers: In order to build the appropriate level of providing timely information to ultimate investors, the CC considers it appropriate to change the existing national rules with respect to the convocation of a GM and the announcement and distribution to the ultimate investors of the relevant information. It seems that regular GM's should be announced well in advance (announcement of the annual GM for instance at least 60 days in advance) on the website of the Issuer. Certain information should also be released well in advance, in order for shareholders / ultimate beneficiaries to be able to exercise their rights and consider their position with respect to the upcoming GM.

Many of the relevant issuers already have a separate link on their websites relating to investor relations. Since the introduction of these websites, much of the information regarding issuers is also accessible to other parties than shareholders. It seems that it would technically not be a problem to have a shareholder or intermediary or ultimate beneficiary request by mail to have him informed automatically that a GM will be held on a certain day. The same link could provide information on the manner in which shareholders' rights could be exercised. Ideally, the issuer should not be bothered by having to check an entire proxy chain in the event that the ultimate beneficiary wants to exercise its rights. If a holder of a certain percentage of the share capital (whether directly or as an ultimate beneficiary) has a right to convene a meeting or to table resolutions pursuant to the laws governing the issuer, then at any time prior to the GM and within the period set forth in this national law, the ultimate beneficiary should be able to get confirmation of that situation by the institution through which the shares are cleared. This may imply that the ultimate beneficiary may have the right to instruct the institution where he holds his "share account” to request through the chain a confirmation of his part in providing of capital or value of his participation on a certain day. This confirmation should then be submitted to the issuer in order to validate his rights to convene a meeting or table resolutions. The possibility to ask confirmation for the latter in a GM announced by the issuer should be on such a date that the requesting beneficiary/shareholder is still well within the limits of the period for admitting such request. If the system as described above with automatic mail reply if requested would be implemented, then, apart from the situation whereby the investor actively seeks to exercise certain rights to table resolutions or to convene a meeting, the CC does not consider an identification system necessary. All information with respect to the GM and the way relevant rights can be exercised will be released on the separate section of the website of the issuer, available directly and simultaneously for all interested parties in the chain who will be notified automatically if so previously requested.

In most countries there is still a high number of ultimate beneficiaries/shareholders that do not always have access to the internet. The CC is of the opinion that issuers should always remain under the obligation to announce a GM in a nationally distributed newspaper, indicating that relevant information can also be obtained in writing from the issuer at request and indicating the manner in which such ultimate beneficiary/shareholder can exercise his rights.

6.2. Admission to/Participation in GM – Share blocking

Question: Do interested parties consider that share blocking requirements represent a barrier to the exercise of voting rights, especially for cross-border investors?

Answer: Yes, the CC believes this is the case.

Question: Do interested parties agree that the forthcoming proposal should require the abolition of share blocking requirements and propose an alternative system States to determine which shareholders are entitled to participate and vote at the GM?

Answer: Yes, the CC agrees.

7. Shareholders' Rights in relation to the GM

7.1. Participation in the GM via electronic means

Question: Do interested parties consider that Member States should be prevented from imposing requirements on companies regarding the venue of the GM that would act as a barrier to the development of electronic means of participation? Should additional criteria be defined at EU level to enable shareholders participation to the GM by electronic means?

Answer: The CC considers that the present level of electronic equipment is more than sufficient to facilitate electronic involvement of relevant parties in a GM. There should not be any barriers in further developing means to facilitate this further, provided that sufficient security is build in to ensure that only those parties entitled thereto can participate in the meeting. The latter should be limited in the opinion of the CC to (a) following the meeting through a web cam system and (b) voting electronically. The CC does not think that it is practical to facilitate the possibility to ask questions during a GM electronically, since this may have a strong interrupting and disturbing effect on the GM. If an interested party (i.e. beneficial owner/shareholder) wants to ask questions in a GM, physical attendance would still be necessary.

7.2. Right to ask questions

Question: Do interested parties consider that the forthcoming proposal for directive should define minimum standards on the way shareholders’ questions may be filed and dealt with at the GM? If so what should such minimum standards be?

Answer: The CC believes that the minimum standard should be set forth as a principle rather than as a detailed provision. Such principle should include the possibility for a company not to address certain issues if the GM is not the forum to discuss such issues or if it would be in conflict with the interests of the company. In relation to this matter, the CC believes the role and authorities of the chairman of the GM may need harmonisation as well.

7.3. Right to add proposals to the agenda and to table resolutions

Questions: Do interested parties consider that the forthcoming proposal for directive should define certain criteria concerning the maximum shareholding threshold for the tabling of resolutions and placing items on the GM agenda and the timing to file these ahead of the GM? If so, what should these minimum criteria be?

Answers: The CC considers that the directive should definitively define criteria for the minimum shareholding threshold, 1% or a specific market value when giving shareholders rights to table resolutions or to place items on the agenda.  The CC considers both the tabling of resolutions and the possibility to place items on the agenda as actions to be performed within a certain period prior to the GM and not during the GM. The question rises when these thresholds have to be met, a) on the registration date for exercising the voting rights at a GM or b) at any time, which would mean that it would be irrelevant whether the shareholder still meets the threshold at the registration date (the present Dutch system)? Assuming that there will be substantial time between the registration date and the GM, the CC considers the first system more logical for the threshold regarding the tabling of resolutions and putting items on the agenda. If it would also concern the right to convene a meeting, obviously the threshold should not be linked to the registration date.

In view of the previously mentioned earlier notice of the GM, possibly including an earlier registration date for the exercise of shareholders' rights, the timing to be able to do exercise these rights should be defined as well. If notice has to be given for instance 60 days in advance for ordinary GM, then the shareholder meeting the threshold criteria must notify the issuer within a certain period whether he would like to exercise these rights. This could be for instance 50 days in advance, giving the issuer well enough time to prepare the official agenda for the GM.

The CC is of the opinion that it should always remain possible for the management of the issuer to convene extraordinary meetings on which only items are put on the agenda by the management of the issuer. Or, as the case may be, by the supervisory board of the issuer. (Or, as the case may be, by the supervisory board of the issuer.) This would also apply to meetings convened by shareholders/ultimate beneficiaries in case the law or the articles of association of the issuer would allow holders representing a certain percentage of the capital or a certain market value of the shares to convene an extraordinary meeting. These extraordinary meetings may be convened with observance of a shorter notice, including a registration date that is closer to the date of the extraordinary GM provided that the relevant parties are still able to exercise their shareholders' rights.

7.4. Voting in Absentia

7.4.1. Voting by correspondence

Question: Do interested parties consider that the forthcoming proposal should oblige Member States to introduce in their national company law the possibility for all companies to offer shareholders the option of voting in absentia (by post, electronic or other means)?

Answer: Yes, with the proviso made under 4. It may be a hurdle for certain small companies to participate in such a process.

7.4.2. Proxy Voting

Questions: Do interested parties consider that the forthcoming proposal should contain provisions to further facilitate the use of proxy voting across Member States and to lift obstructive local requirements? If so, what should be the minimum criteria that should be defined at EU level, taking into account the constraints of cross-border voting?

Answers: The CC agrees that the forthcoming proposals should further facilitate the use of proxy voting, not only in a cross border situation, but more in general. Any obstructions should be deleted  in the laws of the Member States. Therefore restrictions like a maximum number of votes to be exercised by a proxy holder should be deleted.  The CC clearly means the granting of a proxy by a person authorised to vote, not the situation whereby a shareholder has issued depositary receipts for shares for which it has no obligation by law or the articles of association to issue a proxy to the holders thereof. The minimum criteria to be defined would concern the verification of the validity of the proxy.

The CC recommends a system whereby the shareholder/ultimate beneficiary will ask confirmation of its participation in the issuer as per the record date as described above. The issuer will receive notice by the "first level" participant requesting an admittance card for the meeting. This card will carry the information regarding the number of shares for which voting rights can be exercised and will also be the proof of the validity for the exercise. The ultimate beneficiary The "first level" participant may, upon instruction send this card directly to the ultimate beneficiary./shareholder may then use this card personally or, alternatively issue a proxy to a third party. The proxy holder may then present at the GM the card, authorising him to exercise the votes registered thereon. The issuer then does not need to "check" the power of attorney chain.

This system assumes a further use of voting boxes whereby at the GM every voting participant puts the card in the box and pushes the buttons for every item that is voted upon. The computer then rapidly discloses the votes in favour, against and abstaining. If it is the intention to really have small investors participate, the whole system of adopting resolutions by acclamation should be replaced by the actual counting, be it by computer, of the voting.

Obviously, this is only an example; other technical solutions such as providing an identity code would also be possible.

It seems that technically it would not be a problem to use the same cards for distance voting i.e. provided that the user has the appropriate equipment, he participates in the GM via web cam and, when voting is up, submits his vote by using his card. If this system would be implemented, the use of voting by proxy seems to be less relevant.

8. Post-GM information

8.1. Dissemination of GM results and minutes

Question: Do interested parties consider that companies should be obliged to disseminate the results of votes and minutes of the GM to all shareholders and/or to post these on their website within a certain period following the meeting?

Answer: Yes. Posting on the website as a minimum obligation would seem sufficient.

8.2. Confirmation of vote execution

Question: Do interested parties consider that the non-confirmation of vote execution hinders significantly the exercise of their voting rights? If so, do they consider the forthcoming proposal should address the issue by defining obligations on issuers and securities intermediaries to provide and pass automatic confirmation of vote execution along the chain from the issuer to the ultimate investor?

Answer: The mere fact of using proxies will always have the potential risk that votes are not exercised in conformity with proxy instructions. The CC does not see how this can be solved, other than by use of the voting boxes if they could be programmed as such that after the use of the voting buttons it will disburse a "receipt" indicating how the voting buttons were used. The person registered on the Registration Date for the shares on which the voting rights were exercised may then request this “receipt”.

The CC does not see any role for the issuer in this respect.

9. Additional issues

a. Dividend Registration Date

The CC encourages a directive to foster an appropriate regime for shareholders' rights, but considers that an important issue has not been included in the consultation document, which only focuses on voting rights.

The CC considers the economic rights of ultimate beneficiaries/shareholders equally important and wants to stress the differences in the national systems on the question when a share will be "ex dividend". The issue boils down to the problem that the determination of the ultimate beneficiary/shareholder who is entitled to distributions to which was resolved on the GM is not clear. Obviously, this may concern completely different parties than the persons that were entitled to vote. Since many jurisdictions have different systems to determine the entitled person, this may make the situation for investors in a cross border situation completely unclear. The CC suggests a provision in the EC directive providing that the "Dividend Registration Date" shall be the end of the day on which the GM is held, meaning that only those (ultimate) investors included in the books of accounts of the participating institutions (throughout the chain in Europe) Since for instance in the US these shares may be held through a different system, it seems that cross continental shareholdings may still cause problems in this respect. will be entitled to dividend.

This means that the issuer shall only have to look at the "first level participants", but any higher level in the chain shall have to observe the same Dividend Registration Date, fixing the entitled party as per that date of record.

b. Proxy solicitation

The CC believes that enhancement of electronic communication between a company and the ultimate investors will also lead to a wider use of proxy solicitation. Although the CC is in favour of such development, it has to conclude that there are no rules or regulations with respect to the sort of information to be sent to or the nature of the proxy requested from investors. Art. 28 of the draft 5th EC Directive includes some guidelines with respect to proxy solicitation. The CC is of the opinion that it would be a logical step to include such guidelines in a Directive regarding shareholders rights.