On Record Date, Empty Voting, and Hidden Ownership - Some Remarks on EU Directive 2007/36/Ce from a European Perspective
Rivista di diritto societario, RDS, 2010/2, 311-339
29 Pages Posted: 3 Jul 2010 Last revised: 19 Apr 2015
Date Written: July 2, 2010
Adoption in Europe of a record date system for the entitlement to attend and to vote at meetings of listed companies calls for reflection on the possible split between ownership over shares and entitlement to vote. As widely experienced in the US, the more the record date is far from that of the meeting, the more these effects may be relevant. Also, where entitled to vote are necessarily others (nominees or street holders) than final investors (beneficial owners), votes are frequently cast by the former regardless of what the interests of beneficial owners are. This may result in “hidden ownership”, when beneficial owners object identification (OBO). After Hu and Black, “empty voting” means the situation where someone votes without being the holder of the economic interest in the shares.
In 2009, Delaware legislation attempted to solve some of these situations by reducing the incidence of excessive distance between the record date and the exercise of the vote; due to the depositary system of listed shares, however, the problem of hidden ownership remained largely without solution. EU Directive n. 36/2007/CE also deals with these issues. On the one hand, setting the record date no further than 30 days before that of the meeting, it essentially avoids significant separation between ownership and entitlement to vote. However, the reasons for introducing such a system when ICT enables real-time verification of records, thus making the record date anachronistic, remain unclear. On the other hand, hidden ownership is considered an issue the EU shall not address. So may do the member States and various European countries consider the problem of hidden ownership. Hidden ownership in Europe is basically not permitted, as all nominees for shares of listed companies must disclose to issuers the agent on whose behalf they act. Some legal systems provide for a general disclosure rule, so granting issuers and minorities the right to compel disclosure. In case information is not given, the voting rights are frozen (so provide French, German and, with some limits, English law). Other member States do not provide for tools granting ex ante disclosure, but do not permit to hide ownership in an attempt to achieving unlawful purposes (so in Italy and Spain).
This article explores these issues and states some conclusions. A) Notwithstanding entitlement to vote is to be granted to those showing on the records at the record date, the issuer is allowed to object that registration was never supported by a reasonable economic interest other than hiding ownership and permitting unlawful results. B) In general, ownership may not be hidden in case the law requires disclosure; if voting rights are frozen, the issuer shall prevent the shareholder or any nominee or trustee from exercising the right to vote.
Note: Downloadable document is in Italian.
Keywords: Record Date, Empty Voting, Hidden Ownership, EU DIrective 2007/36/CE, Shareholders' Rights
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