Our point of view

Nordic Market Newsletter 3/2012

5 April 2012


Open consultation on the future of European company law

The European Commission has launched an invitation to all member states and other interested parties, stakeholders and individuals to submit their views on European company law. The consultation is designed to identify priorities for further actions in this area.


Share consolidation in Finland

Share consolidation (reverse split) is possible for public limited liability companies in Finland and it is mainly conducted to increase the value of the shares. The stipulations regarding share consolidation have been amended to the Finnish Companies Act on 2006 but the possibility for share consolidation has not been widely used so far.

The current Finnish Companies Act, which came into force on September 2006, enables share consolidation (reverse split) in some circumstances. The relevant section of law applies only to the public companies and share consolidation in this meaning is thus not possible for private limited liability companies.

The share consolidation is possible only on a weighty financial reason and the reason must be assessed on the company’s point of view. The requirement for a weighty financial reason is set for protection of the shareholders to ensure the equal treatment. Weighty financial reasons are seen to exist for example when the consolidation is made in order to increase the value of the shares of the company with a view of ensuring a stable price development of the shares in the market (removal of the “penny stock” status). A weighty financial reason cannot ever be an attempt to effect on the ownership relations of the company. The decisions on the share consolidation shall be made by the general meeting of shareholders with at least two thirds of the shares and votes participating to the general meeting supporting the resolution.

The issued shares are consolidated by means of redeeming a given proportion of the shares of all shareholders. For example in share consolidation whereby the number of shares in the company would be decreased to one tenth of the number of shares, nine shares shall be redeemed from each shareholder. The share consolidation cannot result in share fractions in the issued shares and the quantity of shares to be redeemed in each share class shall be an integer. If necessary, the quantity of shares to be redeemed from each shareholder for each share class is rounded up to the nearest integer in order to avoid the share fractions.

Because of the rounding to the nearest integer some extra shares (number of shares not divisible by the number to be redeemed from each shareholder) may be accrued. The company shall sell without delay the extra shares accrued due to the rounding in public trading or in an open auction on the behalf of the shareholders and the funds received from the sale shall be paid out to the shareholders in question. The extra shares are sold as integers and together with other shares of the same share class.

The share consolidation cannot be performed if the redemption according to the shareholder register would result in the redemption of the entire shareholding from more than one in a hundred shareholders.


Review of the criminal regulations on money laundering

On 14 March 2012, the Swedish Government presented to the Ministry of Justice an Official Report on the criminal regulations on money laundering (SOU 2012:12) . The remit of the Inquiry was to assess the criminal regulations on money laundering and consider how they could be made more effective and accessible. The Inquiry proposes that the provisions on penalties for money laundering be separated from the Penal Code and placed in a new law, the Money Laundering Offences Act. Furthermore, it is proposed that so-called ‘self-laundering’ be criminalized, meaning that the person who has committed the predicate offence also can be found guilty of the money laundering offence. In certain cases, a person can be found guilty of a money laundering offence, even though the predicate offence has not been substantiated. It is also proposed that money or other property that has been subject to a money laundering offence can be confiscated in certain circumstances. Furthermore, it is suggested that rules making it possible to impose a prohibition on disposals of property intended to be used to finance terrorism be created. Finally, the Inquiry recommends that Sweden accede to the Council of Europe Convention on Confiscation of 2005.

Owner's report proposes two state-owned management companies

The report concerns the organisation of the Swedish government’s ownership and management of state-owned companies. With two holding companies, one holding company will mainly create economic value through owning and managing the largest state-owned companies and numerous medium and small companies in various industries, as well as holdings in listed companies. The second holding company will mainly create social benefit, through owning and managing economic policy-oriented companies and companies that seek to realize social or other political objectives and deliver welfare. The report also proposes a framework which gives parliament a clearer role in strategic matters. The management companies should, according to the investigator, be able to begin operations on 1 July 2013.

Revised rules on takeovers

On 13 February 2012, the Swedish Corporate Governance Board presented a review of the takeover rules to NASDAQ OMX Stockholm and NGM. The revised rules are expected to come into force on 1 July 2012. At that time, the Board will simultaneously issue revised, corresponding rules for the trading platforms First North, Nordic MTF and AktieTorget. The revised rules are a result of an overall review and a codification of the Swedish Securities Council’s accepted practices. The highlights are summarized below:

  • The scope of the takeover regulations refers directly to the scope of the Act on Public Takeover Offers (LUA).
  • It is emphasized that deal protection arrangements should only be made restrictively if motivated by special cause. However, no ban on such arrangements is imposed.
  • Rules regarding financing terms have been clarified. A bid can be made conditional upon an acquisition credit from the lender. However, terms in the credit agreement cannot be invoked by the offeror as a reason not to fulfill the offer unless it has been imposed as a condition for the bid.
  • If the offeror intends to offer target employees bonus arrangements before the bid is unconditional, the board of the offeree company must approve such an arrangement.
  • The holding of financial instruments that provide the offeror a purely financial exposure corresponding to a holding of shares (e.g. cash-settled equity swaps) must be disclosed in the bid announcement, in the offer document and in the press release concerning the result of the bid.
  • A number of proposals regarding communication have been made. It is stated that the Swedish Securities Council has a mandate to decide whether actors are allowed to deviate from public statements regarding the offer. The general rules on information disclosure are applicable for the target company during a takeover process. Information which does not have to be disclosed by the target company but may affect the assessment of the deal should be As a main rule, the offeror is not required to extend the acceptance period in order to allow terms of the offer to be fulfilled.
  • A general possibility for the offeror to exempt holders of certain share-related transferrable securities from the offer is proposed.
  • The rules for pre-, side- and post-acquisitions are clarified.

New prospectus legislation

On 22 March 2012, a legislative proposal regarding amendments in the prospectus legislation was referred to the Swedish Council on Legislation. The proposal derives from Directive 2010/73/EU, amending the Prospectus Directive and the Transparency Directive. The proposed legislation aims to enhance the legal security and reduce the administrative costs for companies and is expected to come into force on 1 July 2012. The proposed amendments include a higher threshold for the obligation to publish a prospectus before an offer can be made to the public, a new definition of ‘qualified investors’, a harmonization of the form and content of the prospectus, lower information requirements for some companies and a shorter time limit for withdrawal after a supplement to the prospectus is published.

Proposal for new bribery legislation

The Swedish Government has submitted a proposal to reform bribery legislation to the Swedish Parliament. The intention is to provide a clearer legislation and improve efficient crime-fighting in this area. The new rules will also include a code to be combined with the financial industry’s own measures to supplement bribery legislation. The code shall constitute the self-regulation of the financial industry. It is proposed that the new regulation will come into force on 1 July 2012.

Pharmaceutical company warned by the NASDAQ OMX Stockholm's disciplinary committee

On 10 February 2012, the Disciplinary Committee of NASDAQ OMX Stockholm issued a warning to a listed pharmaceutical company for shortcomings in routines regarding joint dissemination of information. The information, which presented the results of a study concerning a non-registered drug, was supposed to be published at a certain hour by the company together with an Israeli company, which holds a license to the drug and has shares listed on the American and Israeli markets. However, the information was published on the American market approximately half an hour earlier than expected due to the publication of a communiqué by the Israeli company. The communiqué was also published on the Israeli market before the information reached the Swedish market. The Disciplinary Committee declared that the requirements regarding routines for publishing information that can have potential effect on the price of shares are strict. The Committee held that the pharmaceutical company did not meet these requirements since it did not have a list of routines regarding publishing of information in writing. This shortcoming was, however, considered excusable in the circumstances, but sufficient to merit a warning. Furthermore, the Committee held that the heading of the press release could be misleading, but not in a way that any further sanctions were considered necessary.


Proposal for new regulation on knowledge and experience required by board members of financial institutions

On 20 March 2012 the Danish Financial Supervisory Authority (DFSA) published three similar drafts on requirements on knowledge and experience on the board of directors (the Board) of banks and mortgage institutions, insurance companies, life assurance companies and pension funds.
Each draft clarifies and supplements existing requirements for the Board to continuously evaluate if board members collectively possess the necessary knowledge and experience to ensure a sound running of the institution. Each draft - intended to ensure the Board’s ability to challenge management and maintain strategic overview – reflects a principle of increased requirements depending on the complexity of the business model.
The drafts do not encompass financial holding companies. However the DFSA will evaluate at a later stage if financial holding companies should also be cover by the rules.
The Drafts are in open consultation until 1 May 2012 where after final versions will be published on 1 June 2012.

Each draft is accompanied by a draft template for self-evaluation which can be applied by the Board either directly or as inspiration.
The drafts underline increased requirements of caution related to certain business models, i.e. exposures concentrated on few or volatile sectors. In respect to such business models the DFSA requires heightened demands for knowledge and expertise available on the Board. In this respect the DFSA also requires certain financial institutions to have (at least) one board member with prior management experience from a similar financial institution.

Reporting duty
Danish financial companies must by 1 October 2012 submit documentation to the DFSA that the Board has met the requirements of self-evaluation. If such self-evaluation is inadequate, or if the Board lacks the necessary knowledge and experience and does not take steps to remedy it, the DFSA will issue either a risk warning or an injunction, which must be published by the institution as well as the DFSA.

Similar trends within EU legislation
The proposal for the Capital Requirements Directive (CRD IV) – currently being negotiated in the EU – holds a number of management requirements for the Board of certain financial institutions, primarily those of a considerable size. In addition the revised Markets in Financial Instruments Directive (MiFID 2) also holds rules on corporate governance intended to strengthen the profile, role and responsibility of both executive and non-executive directors. A closer regulation on the matter is to be drafted by the European Securities and Markets Association (ESMA).

New act holds changes on anti-money laundering legislation

On 23 February 2012 the Danish Parliament passed an act (the Act) on changes to several laws including the Act on Measures to Prevent Money Laundering and Financing of Terrorism. The Act – introducing various initiatives in response to the financial crisis - came into force on 1 March 2012.

Field of application
The Act expands the field of application of the Act on Measures to Prevent Money Laundering and Financing of Terrorism (AMLA) to include agents of foreign financial institutions. The Act also exempts transaction advice, given by lawyers, from AMLA, unless explicitly mentioned in AMLA. Going forward advice offered by lawyers, except for actual transaction advice, is exempted from AMLA.

Identification of occasional customers
AMLA holds requirements for identification and proof of identity for customers with one-off transactions, so-called “occasional customers”. However it has been unclear if identification requirements also included one-off advisory tasks. Prior to the Act, identification requirements had to be adhered to for transactions (singular or combined) superseding DKK 100,000. The Act clarifies that advisors are exempt from identification requirements for one-off advisory tasks, provided that these tasks do not involve a business relationship or a suspicion of money laundering or terrorist financing. The Act also reduced the limit on identification requirements from DKK 100000 to EUR 1000.

Third party information
AMLA permits – under certain conditions – for institutions and persons covered by AMLA to rely on identity information and credentials obtained by 3rd parties (3rd party information) when fulfilling identification requirements. The Act introduces a more explicit regulation on use of 3rd party information; firstly information must stem from an entity mentioned in section 1 of AMLA or a similar business in a country within the EU, a country with which the EU has concluded an agreement for the financial area or a third country subject to corresponding requirements on AML. Secondly the receiving party must have sufficient information about the 3rd party to determine that sufficient measures are in place to combat money laundering and terrorism financing. Finally the 3rd party must commit to immediately transmit appropriate monitoring data and other relevant documentation to the receiving party if requested to do so.

Outsourcing of compliance tasks related to AML
The possibility for financial undertakings to outsource tasks, which they must perform under AMLA, is not mentioned in AMLA and explanatory notes are unclear. The Act specifies that financial undertakings and other individuals covered by AMLA may, under certain conditions, outsource AML tasks required by AMLA to a 3rd party. The financial undertaking or individual is still, however, responsible for ensuring compliance with AMLA.

Exemption from identification requirements
AMLA exempts financial institutions and persons covered by AMLA from performing identification requirements on certain clients, i.a. specified financial institution, hereunder Currency Exchange Companies, with headquarters in EU/EEA. The Act, however, exempts Currency Exchange Companies from the exclusion rule – going forward Currency Exchange Companies must be identified as regular clients.

Extension of statute of limitation
The statute of limitation in AMLA has been 2 years while the statute of limitation in the Financial Business Act is 5 years. The Act imposed an extension of the statute of limitation in AMLA from 2 to 5 years.