EU related party transaction rules: the latest position

Controversial proposals to introduce rules on related party transactions at an EU-level have reached a significant stage in the European legislative process. The proposals have been revised and, if introduced in their current form, are likely to have little impact on UK-listed companies.

Last year, proposals were introduced for a new EU Directive to amend the Shareholder Rights Directive. The amendments included the introduction of a new regime on transactions entered into between listed companies and their related parties. The proposals caused a number of concerns and were generally considered onerous on listed companies and lacked a number of exemptions needed to make the rules workable in practice.

The European Parliament’s Legal Affairs Committee (JURI) has now voted to adopt the proposal for the Directive to amend the Shareholder Rights Directive. This does not mean that the rules are final, but is a significant stage in the process.

The proposal as adopted at this stage is significantly less restrictive on related party transactions than the initial proposals which caused such concern. There are now exemptions for intra-group transactions and ordinary course transactions. There is also a great deal of flexibility for Member States to set the parameters for when related party transactions have to be approved or announced and whether they have to be approved by the shareholders or just the board.

Now both co-legislators (European Parliament and Council) have finalised their negotiation positions, the trilogues (informal negotiations between the European Parliament and the Council, during which the European Commission has a mediation and facilitation role) will start. The aim of the trilogues is to find a political agreement on a final text. Once the political agreement is reached, the European Parliament and then the Council will adopt their first reading positions and conclude the legislative process for the file.