On 17 May 2017, the European Parliament and the Council adopted Directive (EU) 2017/828 on shareholders’ rights, also called the Shareholders Rights Directive II (hereinafter: the Directive), amending and revising Directive 2007/36/EC. One of the Directive’s substantive sections is intended to regulate related parties’ transactions, and the associated protection of the company and its (minority) shareholders (Article 9c), as the related parties’ transactions can be detrimental to companies and their shareholders since they allow related parties to “seize” property belonging to the company. Therefore, guarantees to protect the interests of companies and shareholders are of the utmost importance.
The very issue of the regulation of related parties’ transactions in the Directive has been one of the most controversial among Member States. As a result, a number of compromise solutions have been reached, including the need to regulate the issue in national legislation, leaving Member States a wide margin of manoeuvre in the implementation. In Slovenia, the Directive was implemented with the amendment of the Companies Act (ZGD-1K). It should be noted that the level of protection of the interests of companies and shareholders was already high before the amendment, as ZGD-1 contained many provisions intended to regulate transactions with related parties. Following the German law (verbundene Unternehmen), Slovenia has a fairly detailed regulation of concern law, which regulates the same issues as the Directive when it comes to related parties’ transactions.
The existing rules have already regulated the elimination of conflicts of interest when concluding related parties’ transactions with a company official (Article 38a). The rules on the subsequent formation (Article 188), the preservation of capital (Article 227), the transfer of at least 25 % of the company’s assets (Articles 330 – 332), affiliated companies (Articles 527 – 562), legal status transformations and changes in share capital shall be mentioned as well. Regarding transactions with members of management or supervisory bodies, the company’s loans to members of bodies and executive directors have been specifically regulated (Article 261) and the approval of the supervisory board for contracts determining the rights and obligation of members of management and supervisory bodies has been envisaged (Article 262). It has been already stipulated that the company shall be represented by the president of the supervisory board in relations with the members of the management board (Article 283) and that payments to members of the supervisory board and non-executive members of the management board shall be determined by the articles of association or the general meeting (Article 284).
The provisions of the Directive regarding related parties’ transactions have been substantially implemented in the new provisions of Articles 281.b to 281.d, applying only to public limited companies whose securities are traded on a regulated market. A different regulation is envisaged for transactions with company officials and related persons, as the rules also apply to non-public public limited companies and in some cases also to limited liability companies. Company officials are also subject to stricter regulation under Article 270a in relation to new provisions of Articles 284a, 290a and 515a of ZGD-1. The amendment ZGD-1K has also interfered with Articles 38a and 261, the former of which was almost completely deleted, and supplementing the latter.
Related parties are considered to be related companies and individuals as defined in international accounting standards. In any case, members of the management and supervisory bodies of the parent company, affiliate companies, joint ventures and companies controlled or jointly controlled by a member of the management or supervisory body of the company or the parent company are included in the definition. According to ZGD-1, the aforementioned subjects are defined as related companies, but according to the international standards, this definition may be significantly broader. In defining significant transactions, the amendment ZGD-1K determined one quantitative indicator, namely 2.5 percent of the value of assets shown in the balance sheet form the last approved annual report. Related parties’ transactions do not include only legal transactions, but also various measures of a factual nature, whereby it is essential that assets are transferred from the company to another entity, such as the sale and purchase of assets, order and provision of services, use and relinquishment of the use of objects and rights, financing and provision of guarantees, and provision of collateral for claims. In Article 281b are exhaustively specified exemptions, where the transactions are not considered to be related parties’ transactions.
The related parties’ transactions are still concluded by the company’s management as its legal representative; however, they require an approval by the competent authority. The amendment ZGD-1K designated the supervisory board in companies with a two-tier management system and the board of directors in companies with a one-tier management system as such a body. The amendment also extended the application of the rules on the obligation to submit a transaction for approval to non-public public limited companies and limited liability companies that meet criteria for medium and large companies. All companies, unless the company is organised as a limited liability company and does not have a supervisory board, must also establish an internal procedure for regular verification, whether the transaction falls within the scope of regular activities and is concluded under normal market condition. In case of a “regular” transaction, consent is not required, unless otherwise provided in the articles of association.
In addition to approving transactions with related parties, transparency is also essential, so the new Article 281d stipulates the obligation to publish the information on the conclusion of a transaction immediately thereafter. The company must publish the notice in accordance with Article 11 of ZGD-1, i.e., on the website of the Agency of the Republic of Slovenia for Public Legal Records and Related Services (AJPES). In addition to publication on the AJPES website, the company must also publish the same information on its website or another information system. Additionally, ZGD-1 stipulates the obligation of the controlling company to publish the conclusion of transactions, concluded by subsidiaries of the company with clients related to the company, assuming that the company would have to publish such information if it would carry out such transactions itself.
Due to the new regulation of concluding and approving transactions with related parties, the amendment ZGD-1K comprehensively regulated the conclusion of contracts, legal transactions and other legal acts between the company and its directors and supervisors. The conclusion of four types of contracts is regulated in a new or amended manner, namely contracts on performance of functions, consulting contracts, loan agreements, and transactions with the members of management and supervisory bodies.
Article 689a provides for a criminal sanction for violation of the presented provisions. A fine of 4,000 to 5,000 euros may be imposed on the management or procurator who concludes a legal transaction without the appropriate consent of the supervisory board, board of directors or general meeting. Other civil sanctions are not determined, so the principle of unlimited authority in external relations under Article 32 of ZGD-1 shall still apply.
Source: Companies Act (ZGD-1): with the amendment ZGD-1, introductory explanations by Marijan Kocbek, Saša Prelič, GV Založba, 2021.