Voting rights held by shareholders who are “acting in concert” are mutually attributed for purposes of the German Securities Trading Act (“WpHG”) and the German Takeover Act (“WpÜG”).  Such attribution may thus not only trigger (additional) voting rights notifications, if the relevant voting rights thresholds are reached or crossed, but also the obligation to launch a mandatory offer, if based on the voting rights so attributed a shareholder acquires control of a company.  In light of these implications, the question of what type of behavior constitutes acting in concert is of high practical relevance.  Unfortunately, the definition in statutory law is open-ended, and several details are heavily disputed.  In its decision of September 25, 2018 (II ZR 190/17), the German Federal Court of Justice (“FCJ”) had the opportunity to clarify two important questions:

First, the coordination of shareholder behavior in an individual case does not qualify as acting in concert. According to the FCJ, the question of whether coordination among shareholders is limited to an “individual case” is to be determined applying a formal rather than substantive test. Second, mutual coordination of conduct among shareholders does not constitute acting in concert if it is aimed at maintaining an existing corporate strategy (or defining it for the first time), rather than at bringing about a permanent and material change to an existing corporate strategy. Continue Reading German Federal Court of Justice on Acting in Concert of Shareholders

The Delaware Court of Chancery recently denied Corwin cleansing[1] in a case involving the sale of a public company while it was engaged in a restatement of its prior audited financial statements.  See In re Tangoe, Inc. S’holders Litig., C.A. No. 2017-0650-JRS (Del. Ch. Nov. 20, 2018).  If this sounds familiar, that is because it is the second time in two years that the Court of Chancery has denied a motion to dismiss shareholder litigation on Corwin grounds where the target was in the middle of a restatement process.[2]  Together, these decisions suggest that if a board decides to sell the company while under a cloud of an ongoing restatement process, it would need to satisfy a heightened level of scrutiny of its disclosures in order to obtain the benefit of Corwin.  The court in Tangoe, however, sought to reassure practitioners that it is not impossible to satisfy Corwin in a case involving an ongoing restatement by the target, and provided a checklist of the kinds of facts that, if disclosed, would result in pleading stage dismissal of a shareholder lawsuit in such a case. Continue Reading <i>Corwin</i> Cleansing Denied For Company Sold During Restatement Process—Sound Familiar?

Following its 2019 benchmark voting policy consultation period, Institutional Shareholder Services (“ISS”) recently released its updated voting guidelines for the 2019 proxy season.[1]

A summary of notable governance and compensation policy updates is provided below.  Most significantly, the updated guidelines suggest that ISS continues to be focused on enhancing shareholder rights through increased board responsiveness and accountability.  In general, the updated proxy voting guidelines will be in effect for annual meetings occurring on or after February 1, 2019.  In connection with their preparations for the 2019 proxy season, U.S. public companies should consider the applicability of the new guidelines in light of their individual facts and circumstances. Continue Reading ISS Updates its 2019 Proxy Voting Guidelines

Foreign investors who, for many years, eagerly awaited the ability to establish majority or wholly owned businesses in the United Arab Emirates (“UAE”) outside the free zones can prepare their bait—but cannot go fishing yet.

Following an announcement made by the UAE Council of Ministers earlier this year, the long-awaited Foreign Direct Investment Law was issued in September 2018 through federal Legislative Decree No. 19 of 2018 (the “Foreign Direct Investment Law”). While not repealing the restrictions on foreign ownership under the federal Commercial Companies Law No. 2 of 2015 (the “Commercial Companies Law”), the Foreign Direct Investment Law sets forth a framework entitling foreign investors to apply for a special status for their UAE-based investment vehicles that would accord them certain derogations from the provisions of the Commercial Companies Law, including in relation to the limit on foreign ownership. The new law does not relax foreign ownership limitations across the board.

In the memorandum, we summarize the key provisions introduced by the new Foreign Direct Investment Law and analyze the potential impact on the investment landscape in the UAE.

For the first time, the SEC’s staff issued guidance last week under its rule governing audit committees for listed issuers.  The guidance addresses the composition of audit committees for issuers that are listed in both Brazil and the United States, and it takes the form of an interpretive letter from the Division of Corporation Finance to law firms Cleary Gottlieb and Simpson Thacher.

Please click here to read the full alert memorandum.

As both shareholder activists, and the companies they target, become more geographically diverse, it is increasingly important for legal and corporate practitioners to understand the legal framework and emerging trends of shareholder activism in the various international jurisdictions facing activism. The Shareholder Rights and Activism Review is designed as a primer on these aspects of shareholder activism in such jurisdictions.

Please click here to read Cleary partner Michael J. Ulmer’s chapter on Germany.

As 2018 draws to a close, both Institutional Shareholder Services Inc. (“ISS”) and Glass Lewis are in the process of updating their 2019 proxy voting guidelines.

In mid-October, ISS launched its 2019 benchmark voting policy consultation period, pursuant to which ISS solicits feedback on certain of its proposed voting policies for the upcoming proxy season.  This year, ISS requested comment on proposed policies for U.S. public companies related to board gender diversity and its pay-for-performance model, as described in greater detail below.  ISS plans to announce its final policy changes in mid-November.

In addition, Glass Lewis recently released its 2019 shareholder initiatives and proxy voting guidelines, which include the implementation of previously announced policies that were in grace periods, new policies and codifications and clarifications of previously existing approaches to issuing vote recommendations.[1]

A summary of notable executive compensation and governance updates is provided below.  The recent policy updates, and in particular the new Glass Lewis guidelines, are fairly extensive.  In preparing for the 2019 proxy season, U.S. public companies should consider the applicability of the new and proposed policies in light of their individual facts and circumstances. Continue Reading Recent Updates to Proxy Advisory Firm Guidelines

Under proposed regulations issued yesterday (October 31), U.S. multinationals would generally be relieved from the “Section 956 deemed dividend rules” that have significantly limited their ability to provide lenders with credit support (for example, in the form of guarantees and collateral) from their non-U.S. subsidiaries. In general, under the proposed regulations, the credit packages provided to lenders will no longer need to exclude upstream guarantees from non-U.S. subsidiaries or limit the amount of foreign subsidiary stock that may be pledged to support the borrowing to 65% of the stock of first-tier foreign subsidiaries.

While the rules are in proposed form, taxpayers can rely on them for the tax years of their foreign corporations that start after December 31, 2017. However, many U.S. multinationals may prefer to continue to include existing limitations in their financing agreements until the regulations are finalized, and eventually to replace them in future agreements with narrower limitations targeted at those situations to which the Section 956 deemed dividend rules may continue to apply. Other reasons for continuing to exclude some or all non-U.S. collateral may continue to exist, including higher cost of granting and perfecting security interest, local legal limitations and lesser protections for secured lenders.

Please click here to read the full alert memorandum.

There have been plenty of press reports about the SEC’s settlement with Elon Musk arising from his tweeting about taking Tesla private.  But the concurrent settlement with Tesla itself provides interesting lessons for disclosure and governance at public companies.

Tesla agreed to pay a $20 million penalty and agreed to several “undertakings” to strengthen its governance and controls including a requirement that it add two independent directors to its Board.  And, under his own settlement, Musk agreed to step down for three years as chairman of the Board of Directors, although he is allowed to continue as CEO.  Continue Reading The Tesla Settlement – What It Means for Other Companies

Last month, former Uber executive Eric Alexander filed a complaint (the “Complaint”) against another former Uber executive, Rachel Whetstone.  The Complaint alleges breach of a mutual non-disparagement clause in Whetstone’s separation agreement with Uber; a clause that Whetstone, during her negotiation with Uber, apparently insisted specifically name Alexander and preclude them from disparaging each other.  In the Complaint, Alexander alleges that he is a third party beneficiary of the contract and can therefore enforce the non-disparagement obligation against Whetstone.

Continue Reading Shut Up! (Someone Is Actually Suing on the Basis of a Non-Disparagement Clause)