Our point of view

Nordic Market Newsletter 2/2012

13 March 2012


The European Securities and Markets Authority (“ESMA”) has published its final report on the Alternative Investment Fund Managers Directive (“AIFMD)

ESMA has published its final technical advice to the European Commission on possible implementing measures of the AIFMD (the “Report”). The Report brings further clarity to the scope of the AIFMD, which must be implemented into national law no later than 21 July 2013.

It is recommendable to take the future requirements of the AIFMD, especially regarding transparency and disclosure, into consideration already today e.g. when drafting investment agreements. The following will summarise some of the main points in the Report.

Transparency and leverage calculation:

Pursuant to the AIFMD, managers of alternative investment funds (“AIFs”) managing AIFs that employ leverage shall make information about the overall leverage employed by each AIF it manages available to the competent authorities of its Member State.

The Report clarifies the methods for calculating the level of leverage. In addition to the so-called Gross Method and Commitment Method, a third option - the Advanced Method - may be adopted by the managers of AIFs upon notification to the competent authorities. Furthermore, the Report clarifies that for AIFs whose core investment policy is to acquire control of non-listed companies, e.g. private equity funds, the managers of the AIF is not required to include any leverage that exists at the level of the portfolio companies.

With regard to the frequency of reporting, the Report recommends a proportionate approach so that the frequency depends on the amount of assets managed and the size of each fund. More specifically, the Report recommends that the managers of AIFs report annually, semi-annually or quarterly depending on the size of assets under management.


According to the AIFMD a single depositary must be appointed for each AIF under management pursuant to a written agreement. The Report lists the specific elements to be included in the agreement.

The Report also explains the duties of the depositary which include, inter alia, cash monitoring, safe-keeping and oversight duties. According to the Report the depository shall e.g. have access to all information regarding the AIFs’ cash flows. In the Report ESMA has, despite critique from a number of respondents, maintained its view that one of the depositary’s duties is the valuation of the underlying assets e.g. the portfolio companies of a private equity fund and not just the valuation of the units or shares of the AIF.

Next step:

The next step towards the final implementation into national law is that the Commission draws up the implementing measures based on the Report, which is expected to be finalised at the end of 2012.


Helsinki Stock Exchange Imposes a Warning for Breach of Disclosure Rules, FIN-FSA Issues an Administrative Fine for Violation of Mutual Funds Act

In late December 2011 the Disciplinary Committee of NASDAQ OMX Helsinki imposed a warning to Biohit Oyj on the basis that Biohit had not followed the disclosure requirements in conjunction with announcing a sale of business. More recently, on 27 February 2012, the Financial Supervisory Authority ordered FIM Asset Management Ltd to pay an administrative fine for the violation of the limitations on investment of assets set out in the Mutual Funds Act.

Breach of Disclosure Rules

On 28 December 2011, the Disciplinary Committee of NASDAQ OMX Helsinki imposed a warning to Biohit Oyj due to the breach of the Rules of the Stock Exchange. Biohit had not followed the disclosure requirements in conjunction with the disclosure of the company announcement regarding a sale of business transaction. The announcement on the transaction had leaked to the public prior its official publication, as it had appeared on Biohit’s website some 48 minutes earlier.

According to the Rules of the Stock Exchange, a company shall without undue delay disclose information about decisions or other facts and circumstances that are price sensitive. Further, information to be disclosed under the Rules of the Helsinki Stock Exchange shall be disclosed simultaneously in a manner that ensures fast access to such information on a non-discriminatory basis.

The Disciplinary Committee stated in its decision that Biohit’s announcement contained facts that were expected to materially affect the price of Biohit’s listed securities. Information concerning the sale of business had not been disclosed simultaneously and without undue delay to all market participants, which violated the Rules of the Helsinki Stock Exchange. The violation was deemed serious as it concerned one of the key disclosure requirements for issuers.

The Disciplinary Committee also stated that use of an independent service provider to meet the disclosure requirements, as was the case with Biohit, does not limit the liability of the issuer under such circumstances.

Violation of the Mutual Funds Act

On 27 February 2012, the Finnish Financial Supervisory Authority (the “FIN-FSA”) ordered FIM Asset Management Ltd (“FIM”) to pay an administrative fine of EUR 6,000 for violating the limitations on investment of assets set out in the Finnish Mutual Funds Act on two different occasions during the year 2011. The company had itself informed the FIN-FSA of the violations and had independently initiated corrective action to improve its practices. An administrative fine, amounting to EUR 500–10,000, is the least severe of the sanctions that may be imposed by the FIN-FSA for the breach of securities market regulations.

Under the Mutual Funds Act, management companies may acquire for mutual-fund ownership a maximum of one-fourth of the units of an individual mutual fund or collective investment undertaking. FIM’s mutual fund's holdings in certain target funds had during 2011 exceeded the maximum limit prescribed by law.

The Mutual Funds Act also stipulates that assets of a mutual fund may not be invested in units of mutual funds or collective investment undertakings for which the rules or articles of incorporation allow more than 10% of their assets to be invested in units of other mutual funds or collective investment undertakings. However, some of FIM’s mutual funds had between 2008 and 2011 invested in funds whose rules allow that a maximum of 20% of fund assets are invested in other funds.


Liability of the board for incorrect financial information

The District Court decided against the claimants in a case concerning the liability of the chief executive officer and the chairman of the board of directors (the defendants) of the listed company Countermine Technologies AB (”Countermine”) to pay damages to shareholders for incorrect financial information (judgements T 1590-10 and T 19807-10). According to the claimants, the shareholders of Countermine were wrongfully induced to invest in Countermine on the basis of incorrect and misleading information about the company’s financial situation provided by the defendants in connection with an issue of new shares. The District Court found that the relevant information had been incorrect in four cases. However, it was not proved that the two defendants had intentionally misled the shareholders or that they should have acted differently. No liability for damages existed under the Swedish Companies Act, either due to criminal actions or under general Swedish legal principles. The judgement has been appealed.

No change to the rules on mandatory bids

In October 2009, the Swedish Industry and Commerce Stock Exchange Committee (whose responsibilities have been assumed by the Swedish Corporate Governance Board) made a proposal to change the Swedish rules on mandatory bids. It was proposed that an additional mandatory bid threshold should be introduced at 50% of the votes. However on 9 February 2012, the government decided against implementing the proposal (Ju2009/8381/L1).

Audit of financial companies

On 14 February 2012, the Swedish Ministry of Finance published a memorandum regarding audit of financial companies (Ds 2012:4). Provisions, identical to those applicable to listed companies, are proposed in relation to auditor rotation and audit committees, as well as regarding non-audit services provided to audit clients who are financial companies.

The Swedish Securities Council

The Swedish Securities Council has issued the following statements:

  • In statement 2012:06 (Capilon), the bidder was given permission to exclude shareholders in Switzerland from a planned public takeover bid in respect of all shares and convertibles in Capilon AB. The Swiss shareholders held more than an insignificant part of the total number of shares in the company, but considering e.g. that an exclusion of the Swiss shareholders from the bid would, in practice, not adversely affect them, an exemption from the takeover rules in question was granted.
  • In statement 2012:07 (Josab), Tom Askinger was granted an exemption from the mandatory bid obligation arising from a subscription for new shares in Josab International AB in accordance with his pre-emption right. However, no exemption was granted in relation to the subscription for additional shares in the share issue since the other shareholders would not be given the opportunity to decide on this subscription for shares.
  • In statement 2012:08 (A-Com), Arvid Svensson Invest AB was granted an exemption from the mandatory bid obligation arising from the subscription for new shares and convertibles in A-Com AB in accordance with the company’s pre-emption right. Further, exemption was granted in relation to the subscription for additional shares and convertibles on condition that the shareholders were duly informed and that two-thirds of the shareholders supported the issues of shares and convertibles.


Revised Publication Rules – listed companies

Section 28a of the Danish Securities Trading Act on the obligation to report transactions with company shares conducted by senior employees and their close relations has been revised. Onwards the duty to notify the Danish Financial Supervisory Authority of the transactions in question lies with the senior employee – and not with the company as formerly.

Although the notification obligation will rest with the senior employee on a practical level, the reporting system with the Danish Financial Supervisory Authority allows the company to make the notification on behalf of the senior employees.

Apart from a shift in the reporting obligation from the listed company to the senior employee no changes to the substance of the rule are made. The effective date of the revised section 28a is still unknown as it awaits the implementation of certain practical measures in the IT-system of the Danish Financial Supervisory Authority. However, listed companies may now consider if the new rule necessitates an amendment of the company’s internal rules and procedures.

Remuneration in Financial Entities

On 9 February 2012 a revised Executive Order regarding remuneration policies in financial undertakings and financial holding companies was issued with effect from 1 March 2012.

The Order elaborates on certain remuneration and reporting rules set out in the Financial Business Act (“FBA”) comprising the board of directors, management board and certain other employees. In excess of the introduction of easier rules for variable remuneration below a DKK 100,000 threshold and new reporting rules, the Order now allows for a departure from the variable remuneration requirements when it comes to termination payments. The rationale behind the revised termination payment rules is to facilitate termination payment negotiations in connection with wrongful or unfair dismissals.

Provided that a termination agreement (i) is entered into in connection with the appointment of the relevant person, (ii) the termination payment does not depend on the results created during the term of the appointment and (iii) the termination payment at the time of resignation does not exceed a value equivalent to the past two years’ remuneration including pension, the termination payment is not required to meet the specifications regarding variable remuneration contained in section 77a, subsections 1-7 of the FBA.

If a termination agreement is entered into in connection with the director’s, manager’s or employee’s resignation, section 77a, subsections 1-7 of the FBA does not apply to termination payments not exceeding one years’ salary including pension.

Changes in Danish Bank Package IV

On 17 February 2012, the European Commission approved a guarantee scheme on liabilities for merging banks in Danish Bank Package IV. The approval entails that banks established in Denmark under certain circumstances are entitled to state guarantees on their liabilities in case of a merger.

The purpose of the original Bank Package IV was to provide a possibility for banks to extend their state guarantee or receive a new guarantee under certain criteria, if a healthy and stronger bank acquires a weaker target. The change implies that there is now no requirement for the continuing entity to be a healthy or stronger bank as long as it is considered viable.

As mentioned in our January 2012 newsletter, the two Danish banks Vestjysk Bank A/S and Aarhus Lokalbank A/S have launched a merger plan as a result of their funding problems. The issue regarding Bank Package IV in the case of Vestjysk Bank and Aarhus Lokalbank is that both banks are troubled and therefore a change of Bank Package IV was necessary for the banks to be able to extend the state guarantee in accordance with the guarantee scheme on liabilities for merging banks in Danish Bank Package IV.

The approval of the Commission means that a bank established in Denmark, including subsidiaries of foreign banks, may be entitled to state guarantees on their liabilities when merging with another bank established in Denmark, as long as one of the merging banks is troubled or is likely to become troubled. However, the continuing entity needs to be estimated viable by the Danish Financial Supervisory Authority.

The overall balance sheet of the continuing entity has to be less than EUR 3 billion. This is a new condition in Bank Package IV added by the Commission. The Commission has to be notified of mergers exceeding this limit for inspection under the state aid rules.

With the Commission’s approval of the revised Bank Package IV, the Danish Financial Supervisory Authority is now expected to approve the merger of Vestjysk Bank and Aarhus Lokalbank.

The Danish Veterinary and Food Administration’s interpretation of the EU Health Claims Directive causes debate

In mid-February several renowned Danish newspapers and bloggers criticized the Danish Veterinary and Food Administration’s injunction to the popular Danish juice bar chain “Joe & the Juice” to change the marketing of their “Strong Bones”, “Immunity”, Hangover Heaven” and “Stress Down” juices which the Administration found to violate EU’s Health Claims Directive. The Administration claimed that the names of the juices contained health claims which are only permissible if documented that the juices have the specific health related effect on the body as indicated by the names.

“Joe & the Juice” was also ordered to change the marketing of the juice “Go away doc” as consumers may get the impression that the juice could prevent or relieve diseases. Claims thought to be overly rigid by many.

The Veterinary and Food Administration subsequently received a number of complaints regarding the marketing of cocktails such as “Sex on the beach” and “Bloody Mary” and has later withdrawn the injunction to reconsider the legal grounds for the injunction.


New more effective competition law in Norway

On 14 February 2012, a Norwegian Official Report was submitted regarding a new competition law (NOU 2012:7).