Amendments to the Slovenian Companies Act ("Companies Act"), applicable as of 8 August 2015, have introduced some provisions of Directive 2014/56/EU ("Directive") into Slovenian legislation. One of the more important provisions of the Directive prohibits the use of contractual limitations on the choice of auditors by companies. This prohibition is known colloquially as 'the ban on "Big Four" auditor clauses,' since clauses typically limit selection of auditors to one of the "Big Four" auditing firms – Deloitte, PwC, Ernst & Young and KPMG. The introduction of the Directive into the Companies Act provides shareholders' general meeting with greater autonomy and independence in appointing auditors.
The Wider Context of the Ban
The relevant provision requires the company's auditing commission to participate in preparing an agreement between the auditor and company, however, clauses limiting the authority of the shareholders' general meeting to appoint an auditor must be avoided. Such clauses, according to the Companies Law, will be considered null and void. Although the provision in question only mentions an agreement between the company and an auditor, the prohibition applies in a wider context to any clauses which restrict a company's choice of auditor, or which list or categorise auditors in order of preference in any agreement between a company and a third party. Such clauses may be commonly found in facility and master restructuring agreements.
Immediate Effect on Valid Prior Agreements
There is no transitional period provided for in the Directive or the Companies Act, or any exemption for agreements with prohibited "Big Four" auditor clauses concluded prior to the amendment of the Companies Act. This means that the ban is applicable to all agreements concluded prior to the amendment of the Companies Act which are still valid. The direct consequence is that the autonomy and independence of the shareholders' general meeting to appoint its auditor of choice has been strengthened.
Repercussions for Public Interest Entities
Importantly, the ban on "Big Four" auditor clauses also applies to public-interest entities according to Regulation (EU) No 537/2014 (the "Regulation"). These are companies whose transferable securities are traded on a regulated market, certain credit institutions, insurance companies and other companies designated as public-interest companies in accordance with national legislation.
The Regulation further requires that public-interest entities notify the competent authority of any attempt by a third party to impose a restrictive auditor clause in a contract or of any attempt to improperly influence the shareholders' general meeting in the selection of an auditor. The provisions regarding the ban and notification under the Regulation will be applicable from 17 June 2017, allowing time for existing agreements with restrictive auditor clauses to be amended.