Our point of view

Nordic Market Newsletter 1/2014

13 February 2014


Amendments to the periodic disclosure obligation

The obligation to publish quarterly financial information has long been considered to contribute to the high costs of compliance linked to listing on the regulated markets and to encourage the culture of short-termism on financial markets.

According to the amended Transparency Directive, published in November 2013, listed companies would no longer be obliged to publish quarterly financial information. Although Member States may require greater disclosure provided that this does not cause unreasonable administrative burden on small and medium-sized companies and provided the additional information required is proportionate to the factors that contribute to investment decisions. The Directive does not define small or medium-sized company and, instead, Member States are responsible for defining such companies where they wish to apply more frequent disclosure obligations on large listed companies.

Obligations in Finland, Sweden and Denmark

In Finland, it is currently expected that no significant additional reporting requirements would be implemented; however, the final outcome remains to be seen especially regarding large companies. The obligation to publish quarterly financial information was amended in the beginning of 2013, when the possibility to prepare lighter-form interim management statements was extended to cover companies with market value of EUR 150 million, instead of the earlier EUR 75 million.

The requirement under Swedish regulation to publish quarterly financial reports will remain in force. However, on 1 January 2014 NASDAQ OMX Stockholm relaxed its rules (which previously were more burdensome than the legislation) on quarterly financial reports for the first and third quarters. Companies can chose to publish an interim management statement for the first and third quarters instead of quarterly reports drafted in accordance with IAS.

Danish listed companies are currently not under any obligation to publish quarterly reports. They are however required to publish interim management statements which must be published during the first as well as the second half-year period of the financial year according to section 27(8) of the Danish Securities Trading Act. The information requirements for such interim management statements are significantly lower than for quarterly reports.

The Danish NASDAQ rules for issuers of shares used to include a recommendation for Danish listed companies to publish quarterly reports as the Copenhagen Stock Exchange viewed this as being best practice in accordance with international standards. However, as of 1 July 2008 the recommendation was removed. Notwithstanding, the majority of Danish companies in the OMXC20 index voluntarily choose to publish quarterly reports. Such quarterly reports must comply with the rules in the Executive Order on Interim Reports and the rules in the Danish Financial Statements Act. Companies who have voluntarily chosen to publish quarterly reports are excluded from the obligation to publish management statements.

The Danish Parliament and the Danish FSA are yet to indicate whether they intend to alter section 27(8) of the Danish Securities Trading Act as a result of the amended Transparency Directive. However, in our view it seems likely that section 27(8) will be repealed entailing that the requirement to publish interim management statements will be abolished.

Additional aspects on financial disclosure and reporting

It should also be noted that the relevant stock exchange may impose reporting requirements beyond the provisions of the Transparency Directive. In addition, companies may publish quarterly information on a voluntary basis. Nor does the amendment alter the obligation to disclose material developments as soon as possible based on the ongoing disclosure obligation, which diminishes the need to rely solely on periodic financial reports for disclosure of material information.

Another issue of interest in the amended Transparency Directive is that listed companies in extractive or logging industries will be required annually to disclose payments made to the governments of the countries in which they operate. The Directive also contemplates that preparation of annual financial reports in a single electronic reporting format would be mandatory from the beginning of 2020.

The amended Transparency Directive shall be implemented in the national securities markets legislation by 2015.

Mads Ilum, Partner, Copenhagen
Tobias Bonde Frost, Associate, Copenhagen
Björn Kristiansson, Partner, Stockholm
Klaus Ilmonen, Partner, Helsinki



Swedish Rules on Clearing with Central Counterparty Adjusted to EU Legislation

The Swedish Finance Ministry has proposed changes to the Bankruptcy Act, the Act on Trading in Financial Instruments, the Financial Instruments Accounts Act, and the Act on the System for the Settlement of Liabilities on the Financial Market (memorandum Ds 2013:68). The changes are aimed primarily at eliminating any conflicts or ambiguities in view of the new European Parliament and Council Regulation No 648/2012 of 4 July 2012 on OTC derivatives, central counterparties and trade repositories. The legislative amendments will come into force on 1 July 2014.

The most important proposed changes are that the Swedish prohibition of forfeiture of pledges will not apply to a security given by a clearing member to a central counterparty and that a security handed over to a central counterparty in certain situations will not be subject to reclamation by a bankruptcy estate.

Björn Kristiansson, Partner, Stockholm
Erik Gadman, Associate, Stockholm

Proposal on simplifications to the Swedish Companies Act

On 12 December, the Swedish government proposed a number of amendments to simplify the regulation of limited companies. The inquiry mainly focused on issues raised in a previous inquiry (SOU 2009:34). However, no standpoint has been taken in the perhaps most controversial matter regarding deregulation of loans to connected persons and loans for the acquisition of shares (so-called financial assistance).

The amendments, which are proposed to enter into force 1 July 2014, include deregulation of residence requirements for company founders and more generous residence requirements for the managing director and other persons authorized to sign on behalf of the company. Currently, the Swedish rules are relatively restrictive in that a founding natural person must reside within the European Union and that a founding legal person must be Swedish or registered within, and have its headquarters within, the EEA. At least one of the persons authorized to sign on behalf of the company must reside within the EEA.

Further, no written rules of procedure or other work instructions will be necessary for private limited companies (except in the case of regulated finance companies).

The proposed amendments also include facilities regarding reduction of share capital. It will be possible to delegate the relevant decisions to the board of directors and the actual procedure will be simplified through less stringent formal requirements. Furthermore, subscription of shares, warrants and convertible bonds, against cash payment will be possible also in other companies than VPC-companies.

The proposal also seeks to simplify targeted share issues in public companies. It is suggested that a share issue targeted to a present shareholder will be considered compliant with the general clause of the Swedish companies act. This matter was the subject of a ministerial memorandum (Ds 2012) which suggested that the Swedish Corporate Governance Board should develop a regulatory framework for targeted share issues and issue authorizations for public companies. This suggestion is repeated in the proposal and the Swedish Corporate Governance Board has expressed its intention to address this matter during spring 2014.

Generally, we welcome the proposals as a means of reducing cost and administrative burdens, particularly for smaller Swedish companies.

Björn Kristiansson, Partner, Stockholm
Johan Lidström, Associate, Stockholm

The Courts

Auditor’s possible breach of accepted accounting principles not liable in damages to the purchaser of a company

Svea Court of Appeal considered the liability of an auditor for damages to a purchaser of a company. The court found that the auditor breached accepted accounting principles by not mentioning that the company had lost one of its largest distributors and that it was involved in a dispute with a former employee in the auditor’s and / or director’s report. However, the auditor was not liable in damages to the buyer of the company because the buyer was aware of the incidents before the purchase.

When the buyer took over the company, sales went down and the company began making a loss. The buyer argued that the reason for the loss was that the company had lost its largest reseller and that the former employee had started a competing business. Despite the fact that the buyer was aware of the events, the buyer argued that financial statements should have disclosed these matters, and that the auditor’s negligence gave rise to a liability compensate a purchaser.

Although Swedish law imposes certain liabilities on auditors vis-à-vis third parties, the court found that there was no causal link between the auditor’s negligence and the alleged injury, because the purchaser was aware of the circumstances and would have made the acquisition anyway. The accountant was not liable.

Richard Åkerman, Partner, Stockholm
Jessica Bouleau, Associate, Stockholm

New Environmental Permit for Arlanda Airport

In a November decision, the Nacka Land and Environment Court relieved Arlanda airport from its obligation to adhere to the limit for carbon dioxide emissions (which included emissions from traffic to and from the airport). However, further actions to prevent aircraft noise over the Stockholm suburb of Upplands Väsby need to be taken. The changes came as the Land and Environment Court issued a new environmental permit for the airport operator Swedavia.

One reason that Swedavia no longer needs to adhere to the limitation on emissions is the difficulty of controlling the emissions caused by passengers and others travelling to and from the airport, and the fact that the company has taken considerable measures to limit the emissions from the air traffic.

While the repeal of the emissions’ limitations enables Arlanda airport to increase air traffic to the airport, the new rules on aircraft noise may act as a countermeasure. It remains to be seen what consequences the new environmental permit will have for the airport, but this is something of an argument within the government because Swedavia is a state-controlled company.

Richard Åkerman, Partner, Stockholm
Erik Gadman, Associate, Stockholm

Malmö District Court dismisses an action for price reduction for accounting services

Malmö District Court recently ruled in a case concerning price reduction for accounting services in a commercial contractual relationship. The case is of interest not just because it relates to a popular Swedish rock band but also because it addresses the lack of Swedish regulation concerning rights to sue for defective services in commercial contractual relationships.

The Hives claimed a retroactive price reduction for mismanaged accounting services rendered by Tambourine Studios during the years 2002 – 2009. In Swedish law, a claim for price reduction is the most common remedy claimed for defect in goods, but there are no equivalent provisions concerning price reduction for defective services in business-to-business relationships where the work is not tied to a particular physical object. The provisions of the Sales of Goods Act (SFS 1990:931) concerning price reduction in defective goods are sometimes (and to some degree) applied by analogy to services.

In this case, however, the district court held that the services provided by Tambourine Studios are not amenable to price reduction as a remedy, because it is difficult to assess the appropriate size of the price reduction. Price reduction would, according to the district court, be possible if the parties had agreed on a fixed price and the contractor had failed to perform certain parts of the engagement or not completed it. In this case, the alleged errors were not of this kind. Further, the district court argued that in a commercial contractual relationship, a contractor who takes an independent role must have scope to organize its own work. A buyer who believes that he is paying too much should at first renegotiate the price and, if he still is not satisfied, turn to another contractor. The district court finally stated that the Hives made its claims too late. (Case T- 2657-11.)

Richard Åkerman, Partner, Stockholm
Jessica Bouleau, Associate, Stockholm

The Swedish Financial Supervisory Authority

Regulation on Prudential Requirements for Credit Institutions and Investment Firms

On 1 January 2014 the Swedish Financial Supervisory Authority’s regulation (FFFS 2013:27) on prudential requirements for credit institutions and investment firms entered into force. The regulation supplements an EU Regulation which entered into force simultaneously, and includes the introduction of rules on own funds and capital requirements under the EU Regulation.

Björn Kristiansson, Partner, Stockholm

Questions and Answers on Prospectuses

The European Securities and Markets Authority recently updated its document of questions and answers on prospectuses. The Swedish Financial Supervisory Authority’s regulation states that it considers the newly added questions concerning restrictions on the use of the proportionate rules on rights issues to be the most important.

Björn Kristiansson, Partner, Stockholm

Proposed EU Rules on Market Abuse

The European Securities and Markets Authority has presented a proposal for implementation measures for the new Regulation on insider dealing and market manipulation. The proposed measures have been presented before the formal adoption of the regulation. The Authority presented its proposals in a discussion paper and invited anyone who wishes to do so to submit comments on the proposed measures.

Erik Gadman, Associate, Stockholm


Private Equity in major win over Swedish tax agency regarding taxation of carried interest

On 19 December 2013 the Administrative Court of Appeal in Stockholm decided a case regarding carried interest in favor of Nordic Capital, a major Swedish private equity player. As a result, the taxpayer did not have to pay an additional tax of approx. SEK 700 million. The decision is viewed as a major win not only for the taxpayer, but also for other private equity firms in Sweden since the Swedish Tax Agency had challenged a structure commonly used in Sweden by private equity companies. However, it may be noted that the Tax Agency may still appeal the decision to the Supreme Administrative Court. Further to this, there is also an advance ruling on a similar structure pending assessment by the Supreme Administrative Court, which could alter the view on how carried interest should be taxed.

In the case at hand the Tax Agency decided to challenge the taxation of carried interest. In short, the Tax Agency argued that the carried interest should be taxed as salary, and not as capital gains, on the basis that this should be considered as a performance bonus for work carried out by the managers of the fund. Capital gains on non-listed and non-closely held participations are normally taxed at 25%, while salary income is taxed at 30-57%. As a consequence, the Swedish investment vehicle would also be liable to pay social security charges of 31.42% on the amount considered as salary. Further to this, the Tax Agency levied penalty charges on the additional tax amount due.

In a fairly long and comprehensive decision, the Administrative Court of Appeal rejected the view of the Swedish Tax Agency and ruled the carried interest to be capital income.

We agree with the position taken by the Administrative Court of Appeal and consider the decision to be in line with the current tax legislation. The case may to an extent be considered a pilot case since many of the other private equity firms in Sweden, also under scrutiny, have similar structures. A negative outcome for the taxpayer would consequently have far reaching effects that may jeopardize Sweden’s status as location for private equity firms.
Although the decision has been met with delight from the private equity sector it may still be too early to claim victory because the decision may still be appealed and there is an advance ruling still pending assessment by the Supreme Administrative Court. Hence, we will have to live with continuing uncertainty for a while longer. One should also note that private equity structures differ in certain significant respects to the one in the current case, so there remains a risk on a case-to-case basis.

Hannes Snellman regularly advises private equity funds on structuring of acquisition vehicles (including carried interest) and other relevant tax and legal matters. Please do not hesitate to contact us in case you have any queries regarding this case or any other tax or legal topics.

Carl-Magnus Uggla, Specialist Partner, Stockholm
Christian Carneborn, Associate, Stockholm

NASDAQ OMX Stockholm Disciplinary Committee

Penalty for Premature Availability of Information (New Wave)

A company's quarterly report could be accessed via the company's website the day before it was announced through a press release. The report could be accessed by guessing which web address it was published under. The Disciplinary Committee concluded that the ability to access reports in this way ahead of publication is well known, and that there is an obvious risk that third parties can access the information if it is uploaded under a file name that is easy to figure out. The Disciplinary Committee stated that the staff responsible for the publication should have been aware of this risk, and instructed not to act as it did. The Disciplinary Board ordered the company to pay a fine. (Decision 2013:4)

Penalty for Improper Disclosure (CybAero)

A co-operator of a company listed on First North participated in a U.S. public procurement. In the event that the co-operator had been awarded a contract in the procurement, this would have had significant positive consequences for the company. After the U.S. authority that carried out the procurement canceled it, the company delayed in informing the market. The Disciplinary Committee also found that the company had given imprecise and misleading information to the Stock Exchange regarding the timing of the announcement. (Decision 2013:5)

Penalty for Premature Disclosure (Forest Light Entertainment)

A company issued a press release headlined "[The company] has new owners and receives additional capital". Later the same day the company withdrew the press release, stating that it had contained inaccurate information. Two days later, the company announced another press release headlined "[The company] has new owners and receives additional capital" which, in addition to the information that was contained in the first press release, also contained the name of the new owner. The company stated that the first press release was published due to a misunderstanding and that the reason that the information was incorrect was that all contracts were not signed at the time of publication. The Disciplinary Board ordered the company to pay a fine for having violated the rules on disclosure. (Decision 2013:6)

Unclear Procedures led to Penalty (HCS Holding)

After abnormal price movements were identified in a company's share, the stock exchange contacted the company to inquire about whether there was any non-public information that could explain the price movements. The company's CFO stated that no such information existed. Shortly thereafter, however, the company published information that resulted in the company's stock rising further. The company stated to the Disciplinary Committee that, in order to prevent information leakages, not even the CFO had had access to the information. The Disciplinary Committee stated that this safety measure in itself was not a cause for criticism, but that the company should have ensured that the CEO or Chairman was informed of the non-public information after the company was made aware of the share price movements. (Decision 2013:7)

Dissemination through Twitter made Information Price-sensitive (Medivir)

Information about a company was spread when a participant at a research conference published information about the company's products on Twitter. The Disciplinary Committee stated that although the company was justified in assuming that the information was not price-sensitive, the manner in which the information was spread meant that drama was created and that the information thus became price-sensitive. Since the company did not publish the information in the manner prescribed by the applicable regulations, the Disciplinary Board ordered the company to pay a fine. (Decision 2013:8)

Björn Kristiansson, Partner, Stockholm
Erik Gadman, Associate, Stockholm

Swedish Securities Council

Swedish Securities Council statement 2013:44 – best practices in public offers

The Swedish Securities Council (SSC) recently ruled in a case concerning good practice in public offers. In the present case, the main shareholders of SBC Sveriges BostadsrättsCentrum AB ("SBC"), which is traded on NGM Equity ("NGM"), Apriori and the Riksförbundet Bostadsrätterna Sverige Ekonomisk Förening (“RBSEF”) disagreed on a delisting of shares in SBC. The parties had previously entered into a shareholders' agreement which, among other things, regulated the delisting of the shares from the NGM at the end of 2012 and that an unofficial marketplace would be offered to the remaining shareholders. However, after some time, the parties had some disagreements and RBSEF became hostile to the delisting, because it was not in line with SCB's strategy and ownership structure. Despite the disagreement, Apriori issued an offer document and a press release in which Apriori referred to the previous shareholder’s agreement without mentioning RBSEF’s opinion or what the shareholder’s agreement said about offering trading on another marketplace. SSC stated that the press release and the offer document was biased and intended to increase the shareholders' propensity to accept the offer of a possible delisting.

In an overall assessment, the SSC stated that the press release and the offer document regarding the delisting of SBC shares, was intended to serve as a means of pressure on SBC's shareholders and was therefore contrary to best practice in public offerings.

Björn Kristiansson, Partner, Stockholm
Jessica Bouleau, Associate, Stockholm


Corporate matters

Requirements for certification and training of auditors in financial institutions

As of 1 January 2014, all accountants auditing financial institutions must be certified by the Danish Financial Supervisory Authority (the “FSA”).
The new rules aim to enhance confidence in the financial sector and to increase the quality of audits of financial institutions.

Changes to the Danish Financial Business Act regarding certification requirements

The new Danish Financial Business Act introduces two certification schemes, one for banks and mortgage credit institutions and one for insurance companies and pension funds (jointly “Financial Institutions”).

In order to obtain the FSA certification, auditors must have dealt with the services of Financial Institutions for at least 1,500 hours within the last 5 years, of which at least 1,000 hours must relate to actual audit services within the type of business in which the auditor seeks to be certified.

The FSA will regularly supervise auditors ensure that they meet the requirements to obtain or maintain their certification. In their supervision, the FSA will observe whether, among other things, the auditor has had a case before the Accountancy Tribunal, has violated any relevant law or has acted in a manner that gives reason to believe that he or she will not perform the task of an auditor with the necessary integrity.

The act entails that auditors elected after 1 January 2014 must be certified by the FSA in order to provide the auditor's certificate in the annual report for a Financial Institution.

Changes to the Danish Act on Auditors regarding mandatory continuous training

Any auditor dealing with companies with so-called special public interest must in addition to the training already required for other certified auditors (currently 120 hours over three years) attend continuous training of a minimum of 60 hours over three years, specifically targeting financial service.
The requirement for additional continuous training firstly concerns Financial Institutions but can also constitute the legal basis for requiring additional training of auditors auditing other kinds of companies with special public interest (e.g. state-owned companies, municipalities, regions, municipal institutions and very large companies.)

According to the new rules, the Danish Business Authority is authorised to provide specific requirements regarding the training and examinations of auditors but has yet to do so.

The new rules are yet another step towards a stricter regulation of Financial Institutions. At Hannes Snellman we have a broad experience in advising on all matters related to Financial Institutions throughout the Nordic region.

If you are interested in learning more, please contact:

Mads Ilum, Partner, Copenhagen
Sona Margaryan, Associate, Copenhagen


Tax elements of the Danish budget for 2014

On 26 November 2013, the Danish government, the Liberal Party and the Conservative People’s Party agreed on the budget for 2014 which means that some tax elements of the growth plan from 2013 have been expedited and entered into force as of 1 January 2014, including:

  • Abolition of the weight-based packaging tax;
  • Increase of the threshold for tax credits relating to research and development activities from a deficit of DKK 5 million to DKK 25 million;
  • Extension of the VAT period for small and medium-sized enterprises (turnover of between DKK 1 and 5 million) to 60 days;
  • Reduction of the EU production-related energy taxes; and
  • Deduction for expenses relating to health and industrial injury insurance for self-employed.

If you are interested in learning more about the tax consequences of the Danish budget for 2014, please contact:

Sona Margaryan, Associate, Copenhagen


The Danish Consumer Ombudsman introduces a new spam-guide

Section 6 of the Danish Marketing Practices Act makes it an offence to distribute commercial material by fax, email or any other electronic technology to anyone, whether consumer, trader or public authority, without having obtained a prior consent. Such communication is perceived as “spam” and is punishable by fine under Danish law.

In Denmark, complaints over spam are lodged with the Consumer Ombudsman, who may notify the police of the complaint for the purpose of having the wrongdoer sentenced with a fine.

In December 2013, the Consumer Ombudsman issued a new “spam-guide” specifying and clarifying the rules on commercial communication via electronic means. The new spam-guide includes an overview of the different legal and illegal ways to make unsolicited commercial communication. It also covers various different, including topics such as traders’ use of electronic holiday greetings, blogging and newsletters.

Currently, the spam-guide is only available in Danish, but further information on the subject is available in English on the Consumer Ombudsman’s webpage (www.forbrugerombudsmanden.dk).

If you are interested in learning more about the new guidelines, please contact:

Mette Huss, Senior Associate, Copenhagen
Paula Grønlund, Associate, Copenhagen

A new customs enforcement regulation has taken effect

For more than a decade, an EU customs regulation has provided an opportunity for intellectual property right holders to request assistance from the EU customs authorities to defend their intellectual property rights at the EU borders.

In order to strengthen the enforcement of intellectual property rights by customs authorities, as well as to ensure appropriate legal certainty, a new EU regulation (No. 608/2013) has been adopted.

In comparison to the former regulation, the new regulation offers a greater scope of protection, as it covers a wider range of intellectual property rights and it reduces the administrative burden on right holders. Furthermore, the new regulation introduces a specific procedure for small consignments of counterfeit and pirated goods, which allows the destruction of such goods without the explicit consent from the right holder in each case.

All applications for action granted in accordance with the former regulation will remain valid for the granted period of time. However, the applications granted under the former regulation may not be further extended. Instead the new regulation requires that right holders file new applications for action with the relevant customs authorities when the applications expire. In Denmark such applications are to be filed with the Danish tax authorities, SKAT Taskforce. Before filing an application, a right holder must carefully consider which type of procedure the right holder will choose.

If you are interested in learning more, including information on the Danish practice and handling of the different procedures, please contact:

Mette Huss, Senior Associate, Copenhagen
Paula Grønlund, Associate, Copenhagen