‘Front’ or ‘Straw Men’ Directors: A Missing Element in the Effort to Prevent the Abuse of Companies?

Front or straw men directors are often used to conceal who is really managing companies involved in illicit activities of different kinds. Whereas the EU in recent years has made much headway in the effort to curb the abuse of companies, the EU has done little to address this problem. It is pointed out that such front or straw men directors are in fact a problem and that they can – and has been in several Member States – be addressed in different ways. The article analyses these different approaches and points out their pros and cons.

The Judicial Control of a Cross-Border Merger approved by means of an abusive resolution

The fight for the control of the Mediaset group has given rise to several judicial decisions issued in various national jurisdictions and even by the European Court of Justice. Three orders of Spanish Courts have been of particular interest. Two of them were issued by a Commercial Court in Madrid and the third one was issued on appeal by the Provincial Appeal Court Madrid. They instructed the suspension of the shareholders meeting resolutions of the Spanish Mediaset company approving a cross-border merger. The content of this resolution was to approve the acquisition of the Spanish company by another company domiciled in the Netherlands thus changing the applicable law. The resolution approving the merger was presumed (provisionally) to be abusive and, eventually, null and void. The decisions of the Spanish Court were grounded on the fact that the articles of association of the resulting Dutch company would be detrimental to the minority in the Spanish company. This limits the freedom of establishment (Art. 49 TFEU) and is based on a multilevel scrutiny, resulting from the national laws applicable to each company that participates in the merger. Those judicial decisions handled with other issues of interest in company law, such as the conclusive effect of the registration of a cross-border merger, the legitimation of the minority to challenge shareholders resolutions, or the effects of a shareholders meeting resolution replacing a previous merger resolution that has been challenged before the courts.

Breakthrough in Parent Company Liability

Two English and two Dutch cases have recently clarified the (potential) liability of parent companies vis-à-vis third parties in relation to damage caused by their subsidiaries. They concern the decisions of the UK Supreme Court in Vedanta v Lungowe and Okpabi v Shell, the Hague Court of Appeal in Oguru v Shell and the Hague District Court in Milieudefensie v Shell (climate change case).

Concerns About the Quality and Influence of Proxy Advisors, and Its Implications for the Preparations of the Shareholders Meeting

After highlighting the importance of the votes cast by institutional investors in shareholders meetings of listed companies, and the role proxy advisors play in this respect, this article turns to the points of criticism that are strongly emphasized in American literature, as well as to the state of regulation on both sides of the Atlantic, also including the stern action the SEC has been taken recently with respect to proxy advisors. On the basis of a questionnaire issued to Dutch listed companies, I shed light on the perception of listed companies of the actions of proxy advisory services. I will conclude with a few reflective remarks, also about the consequences of the growing role of proxy advisors for the preparation of the shareholders meeting dynamics surrounding the shareholders meeting.

Related Party Transactions – a closer look at the emergence of the new EU regime

The Amended Shareholders’ Rights Directive adopted in 2017 pushed the regulation of related party transactions high up on the Member States’ legislative agenda. The Directive requires binding rules addressing related party transactions in listed companies. This article takes a closer look at the discussions and negotiations in the EU institutions leading up to the Directive adopted and ends with some reflections on the EU legislative process, drawing on my decades long ministerial experience of negotiating and implementing EU legislation in the field of company law, including this one.

Majority of the Minority Approval of Related Party Transactions: the Analysis of Institutional Shareholder Voting

Majority of the minority (MOM) approval of related party transactions (RPTs) has become a popular mechanism to be used in the oversight of RPTs among academics, stakeholders and regulators. Using this mechanism means that for companies, entering into RPTs are subject to the approval of a certain majority of the disinterested shareholders. This article examines the effectiveness of MOM approval as a mechanism to oversee RPTs, i. e. whether it would prevent value-decreasing RPTs while allowing value-increasing ones, by analysing institutional shareholder voting in this context within the US and European legal framework. Specifically, it examines whether institutional shareholders who dominate the shareholding across the world have sufficient incentives to cast informed votes in MOM votes on RPTs and the role of proxy advisors in this regard. Taking account of the relevant theoretical claims and empirical evidence, it provides further policy recommendations to improve the efficacy of MOM approval.

Towards Harmonised Frameworks for the Liquidation of Non-Systemically Relevant Credit Institutions in the EU?

As part of its ongoing consultation on the European crisis management and deposit insurance framework currently available for the management of bank failures within the EU generally and the Banking Union in particular, the European Commission has called for the respondents’ views as to the need for further harmonisation of resolution arrangements for banks that currently do not qualify for resolution under the auspices of the Single Resolution Mechanism. In this respect, the consultation takes up a broader discussion on the need for harmonised bank insolvency regimes within the EU, which also ties in with an earlier international debate on the functional characteristics of optimal bank insolvency regimes initiated by international standard setters in the early 2000s. Against this backdrop, the paper analyses the case for further reform, and identifies potential impediments (both technical and political) to be expected in this regard. It argues that, while a full harmonisation of resolution powers and the centralisation of decision-making powers can be expected to address relevant concerns regarding the status quo, a comprehensive harmonisation can also be expected to meet with substantial political opposition, which in turn requires a better understanding of the functional requirements to be met by less ambitious reforms.

Clawback Provisions in Executive Compensation Contracts

Clawbacks are contractual provisions in executive compensation contracts that allow for an ex post recoupment of variable pay if certain triggering conditions are met. As a result of regulatory responses to financial crises and corporate scandals, as well as growing shareholder pressure to implement effective measures against executive misbehaviour, the prevalence of such clauses has risen considerably in the recent past, beginning in the US after the 2000 financial crisis. As clawbacks have become a buzzword in the European debate about also ensuring good corporate governance beyond the financial sector, it is time to critically discuss the hopes that have been associated with various types of such provisions.

Go Preventive or Go Home – The Double Nature of MREL

Bank Resolution is considered a cornerstone of the post-crisis financial regulation; however, it is also widely considered ineffective and inefficient in handling bank failures. This article analyses the preventive potential of the resolution framework, specifically focusing on the minimum requirement for own funds and eligible liabilities (MREL). We argue that MREL has a double nature. On the one hand, it should ensure the feasibility of resolution in case of a bank failure. On the other hand, it aims at restricting the funding model of banks, similarly to the other (preventive) capital requirements. By analysing the 2019 reform of the EU banking regulation, we contend that MREL represents an important complement to the rest of the preventive regulatory framework and that the latest reform unleashes such potential. We demonstrate that the new rules on MREL determination and enforcement allow the resolution authority to look after the build-up of systemic risk. The analysis reveals that MREL can serve both micro- and macro-prudential purposes. Finally, we argue that the current institutional architecture represents the main impeding factor for the new regulation to efficiently work, curbing the positive preventive potential of MREL.

Shaped by the Rules. How Inducement Regulation Will Change the Investment Service Industry

Inducement regulation is intended to target the conflict of interests between financial advisors and their clients. Nonetheless, it may also represent a ‘public policy device’ meant to conform the activity of European distributors with investor protection goals; indeed, by selecting the conditions under which distributors can freely collect inducements, the European regulator simultaneously shapes the market for financial services. Accordingly, ‘spot advice’ (which poorly performed in the past) is indirectly banned by the quality-enhancement provision set forth in art. 24 MiFID II, and the acknowledged importance of on-going monitoring of the portfolio opens up the collection of inducements linked to the provision of ‘periodic advice’. Since this new regime will probably increase the overall costs of investment advice enlarging the ‘advice gap’, the European regulator tries also to foster the development of FinTech permitting the collection of inducements even outside the strict provision of investment advice. Nevertheless, the concerns regarding investor protection raised by FinTech services (which allow only a mere ‘self-assessment’ of the investor’s profile) suggest a broader interpretation of inducement regulation, with the purpose of enabling investment firms to provide low-cost financial advice capable of effectively encompassing every stage of the investment relationship, from the early assessment of clients’ characteristics and objectives to the on-going management of the investments (‘simplified advice’).