Our point of view

Nordic Market Newsletter

18 April 2011

General

The EU Commission has presented a Green Paper on the EU Corporate Governance Framework. The Green Paper deals with the composition, work and responsibilities of the Board of Directors, the role of shareholders, and the concept of comply or explain. The Commission invites interested parties to submit their views on the suggestions in the Green Paper not later than 22 July, 2011.

Sweden

Legislation

Disclosures of shares acquired under endowment insurances

The Swedish Government has instructed the Swedish Financial Supervisory Authority to investigate whether shares acquired under endowment insurances should be disclosed under the Swedish rules on “flagging”, and whether insider persons need to report such indirect shareholdings to the SFSA’s insider register.

Settlement and Financial Collateral Arrangements

The Swedish government has proposed legislative amendments to Directive 98/26/EC on settlement finality in payment and securities settlement systems (the “SFD”) and Directive 2002/47/EC on financial collateral arrangements (the “FCD”), regarding linked systems and credit claims. The amendments are proposed to come into force on 30 June 2011. See Government Bill 2010/11:95.

Capital adequacy

The government has proposed changes to the capital adequacy rules. A majority of the changes are proposed to take effect on 30 June 2011, and the remaining changes on 31 December 2011. The object is to implement two EU directives, regarding, inter alia, large exposures, securitization and co-operation between authorities in stressed situations. See Government Bill 2010/11:110.

Foreign Branch Offices Act

The Swedish government has proposed certain amendments to the Foreign Branch Offices Act (1992:160). The purpose of the proposed amendments is to clarify that the provisions harmonize with EU law. The amendments are proposed to come into force on 1 July 2011. See Government Bill 2010/11:87.

Deposit insurance

The Swedish Council on Legislation has proposed certain minor changes to the deposit insurance system, which are proposed to come into force on 1 July 2011. The changes involve, inter alia, a new alternative order for the entry into force of the right to reimbursement.

Confidentiality rules for financial companies

The Swedish rules regarding confidentiality for financial companies such as banks, insurance companies, stock brokers etc. have been proposed to be aligned. Today, insurance companies apply confidentiality rules on an optional basis and rules for banks differ from other financial companies. A general rule on confidentiality is proposed for financial companies. The proposal is referred for consideration and can be expected to come into force on 1 January 2012.

Swedish Financial Supervisory Authority

Changes to the SFSAs securities regulations

The SFSA has proposed some minor changes to their regulations on securities business (FFFS 2007:16).

The Swedish Securities Council

Incentive programme

In statement 2011:03, a company offered an employee a salary raise, conditional on the increased remuneration being used to acquire shares in the company to be held at least three years by the employee. The Swedish Securities Council concluded that the arrangement did not require the consent of shareholders in a general meeting, as it could not be seen as a circumvention of applicable rules.

Exceptions from the mandatory bid obligation

The Swedish Securities Council has in two statements, 2011:05 and 2011:07, granted dispensations from the mandatory bid obligation in the Swedish takeover rules, one in relation to an issue in kind, one in relation to a rights issue.

Finland

Board Remunerations in 2011

Now that the AGM season is in full swing, board remuneration in public limited liability companies has been a topic of interest. According to the Finnish Corporate Governance Code, a public company shall disclose the remuneration and other financial benefits of each board member for board and committee work. The annual general meeting shall also resolve on the compensation for board members. The remuneration committees’ (or in certain cases board’s or main shareholders’) proposals for remuneration and, therefore, the proposed level of compensation, must also be disclosed in the documents available before the annual general meeting and serve as the basis for the resolution by the annual general meeting. The disclosure allows shareholders and other interest groups to compare the remuneration and other benefits proposed and paid by different companies. The changes (mainly increases) to the board members, remuneration tend to be infrequent but if changes do take place, the amounts are typically substantial. This year increases to the compensation to board members are being proposed (or already approved) in at least 24 companies (out of the total 127 companies) listed on the main list of the Nasdaq OMX Helsinki Stock Exchange.

Among the 20 largest companies (by market value) on the main list of the Nasdaq OMX Helsinki Stock Exchange, increases were proposed (or in some cases approved) in five companies. The increases in such companies vary between five and fourteen percent of the previous year’s amounts, the largest proposed increase being EUR 11,860 for the one year term. The median of the proposed chairmen’s remuneration in the twenty companies is likely to remain approximately the same as in 2010, being EUR 84,000 for the one year term, the average compensation for the chairman being approximately EUR 120,000 (compared to last year’s EUR 118,000). For an ordinary board member, the median will be approximately EUR 46,800 and the average EUR 54,000 (compared to last year’s median and average, EUR 45,000 and EUR 53,600, respectively).

Some companies also pay separate compensation to board members for meetings, and board members residing outside European Union are often entitled to a higher compensation compared to the ones residing in Finland or in other EU member states to cover time used to attend meetings. The meeting fees proposed or confirmed for 2011 vary from EUR 500 to EUR 1,200 per meeting, and most companies pay the same compensation to the chairman and a member of the board in this regard.

As shareholdings of board members are deemed to align the interests of the board and the shareholders, it has become common that a part of the remuneration of the board be comprised shares of the company. In many companies, 30 to 50 percent of a board member’s yearly remuneration is paid in shares. Some companies have set lock-ups for the shares obtained as compensation by board members, and it is quite common that the required period of ownership corresponds to the term of office of the board member. In general, board shareholdings in listed companies have consequently increased, and direct share remunerations have become a rather common way to compensate board members (in lieu of cash payments). On the other hand, board members’ participation in share based incentive schemes is nowadays rare and the Finnish Governance Code also recommends against permitting external board members participate in such incentive schemes.

Denmark

New Corporate Law Provisions Now in Force

On 1 March 2010 the new Danish Limited Companies Act - replacing the Act on Public Limited Liabilities Companies and the Act on Private Limited Liabilities Companies - came into force. However, a number of provisions did not take effect on 1 March 2010 but were instead postponed due to necessary amendments to the registration system of the Danish Commerce and Companies Agency. On 1 March 2011 the vast majority of the postponed provisions came into force.

The new provisions permit as little as 25 per cent the subscribed share capital in a limited company to be paid up in connection with the incorporation of a company or a later capital increase. The option to only pay up 25 per cent of the share capital - however never less than DKK 80,000 (approximately EUR 10,730) - only applies to cash contributions, and where a premium has been fixed, such premium must be fully paid up, irrespective of whether part of the share capital is not paid up. Upon request by the board of the company, a shareholder is required to pay up any outstanding share capital.

Another significant change is the partial legalisation of self-financing. Up until 1 March 2011 a company was prohibited from granting a loan or providing security for the financing of an acquisition of shares in the company or a parent company. Pursuant to the current legislation a company may - subject to certain conditions being met - provide such loan or security on standard market terms.

Introduction of Corporate Registration Fees

As of 1 April 2011 the Danish Commerce and Companies Agency will charge a fee in connection with registration of corporate changes in primarily limited liability companies (A/S and ApS companies). Consequently, a limited liability company will incur a fee upon registration of changes to its share capital and possible registrations of mergers and demergers. The fee amounts to approximately EUR 45 or EUR 180 depending on whether the registration is paper based or made online.

The registration of certain changes, inter alia, changes to the company’s financial year and auditor remains free of charge.

Newly incorporated companies will be charged a fee of approximately EUR 290 or EUR 90 upon registration of the incorporation of the company.

Restructuring of Distressed Companies

A new restructuring scheme under the Danish Insolvency Act will be implemented as of 1 April 2011. The provisions replace the existing suspension of payments scheme (“betalingsstandsning”) which as a consequence of the implementation is brought to an end. The new restructuring scheme allows a distressed company or its creditors to request the bankruptcy court to initiate a restructuring process.

Contrary to other insolvency processes the debtor retains the management of the company provided that the debtor has consented to the initiation of the restructuring process and that the debtor does not act contrary to the interests of the company’s creditors.

The appointed “re-constructor” shall in cooperation with the company and a specially appointed auditor prepare a restructuring plan and a restructuring proposal which shall result in a compulsory composition of the creditors and/or a transfer of the company’s business in the form of one or more independent economic entities. If the restructuring proposal is not accepted by the creditors, the company shall initiate bankruptcy proceedings unless the company during the restructuring period has regained the necessary financial health to continue its operations.

Investment associations

A new proposal from the Danish Finance and Commerce Minister outlines implementation of a European Directive (the UCITS-Directive). The proposal’s main points are: (i) new rules on information to investors, (ii) more efficient possibilities for cross border marketing regarding shares in investment associations, (iii) possibilities for cross border fusions between investment associations and foreign investment institutes covered by the Directive, (iv) possibilities for master-feeder structures for investment associations, and (v) structure for cooperation and supervision between the members of the European Union.

Norway

Consultation on changes to the Bond Rules for Oslo Børs and Oslo ABM

Oslo Børs wishes to consult with interested parties on proposed changes to the Bond Rules for Oslo Børs and the ABM Rules. The changes result principally from changes in legislation, including changes to the Stock Exchange Regulations whereby issuers of transferable securities listed on a regulated market must establish an audit committee. Certain other minor changes are also proposed, most of which are no more than textual revisions to the wording of the rules.

The proposed changes are circulated for consultation to issuers of fixed income instruments listed on Oslo Børs and Oslo ABM, member firms and other interested parties.