Our point of view

Nordic Market Newsletter 3/2013

18 June 2013


Negotiating Comfort Letters in the Nordics - Content over Form?

Comfort letters are a staple of U.S. and international securities offerings. Recently, we have seen increasing focus on and demand for comfort letters even in purely Nordic or domestic transactions. We look here at how these operate in the Nordic context and certain specific issues that market participants should bear in mind.

What is a comfort letter?

Under U.S. securities laws, comfort letters help issuers and underwriters manage potential prospectus liability. Basically, a comfort letter is a statement provided by the issuer’s auditor to the underwriters regarding the accuracy of the financial statements and other financial information included in the prospectus. A comfort letter enables a party with prospectus liability to demonstrate that it has undertaken appropriate due diligence efforts to confirm that disclosures in the prospectus are correct – the so-called “due diligence defence”.

Comfort letters in the Nordics

Many market participants have hitherto deemed the risk of prospectus liability in the Nordic countries to be limited. There is uncertainty about the extent to which underwriters and the issuer share prospectus liability, what defences different parties can refer to and to what extent a comfort letter would actually provide a defence to claims by regulators and third parties.

However, recent corporate scandals and the financial crisis have changed these perceptions and bolstered requirements for prospectus disclosure and raised investors’ expectations of financial information provided.

The prospectus liability of issuers is also being clarified in the Nordic countries in the following recent developments:

  • In Finland, some recent cases related to errors in corporate disclosures establish a clearer basis for prospectus liability. Moreover, in new Finnish regulatory guidance regarding due diligence defence there is an increased emphasis on experts’ statements.
  • In Sweden a proposal for new rules on prospectus liability was presented in May 2013, which would come into force 1 July 2014. The new rules would clarify that the issuer and the seller are liable for prospectuses. The liability in connection with new share issues will remain as is under the current Swedish legislation with respect to the Board of Directors and the CEO. The proposal notes that an underwriter can be held liable to the extent it has participated in the drafting of the prospectus. The prospectus liability is based on negligence.

With respect to comfort letters, the proposal explicitly states that if consultants have been engaged within an area where the Board of Directors lack the relevant competence, the Board of Directors may rely on the content of the report from the consultants, subject to the choice of consultant being reasonable. Hence the proposal opens the door for a US style due diligence defence and we believe that comfort letters will become standard in all Swedish transactions where a prospectus is used.

Broadly in the Nordics, there remain question marks over:

  • the form of the letter and the parties to whom it can be addressed;
  • the company accounting records needed to support the review by the auditors;
  • the status of management representation letters; and
  • how and to what extent comfort letters operate in the Nordic legal environment and help issuers and underwriters manage prospectus liability.

The Contents of a Comfort Letter

In essence, a comfort letter should include a formal opinion by the auditor confirming the status of the audited financial statements included in a prospectus. It is normally a “negative assurance statement,” stating that nothing has come to the attention of the auditors based on the specific procedures they have performed to suggest that the interim financial statements are inaccurate.

As a consequence of EU prospectus rules, which require an issuer to state in a prospectus whether it has sufficient working capital for its activities for the 12 months following the date of the prospectus (i.e. a “clean working cap statement”), a separate comfort letter will sometimes address this topic. The investment proceeds, unless subject to hard underwriting, generally cannot be included in the working cap calculation. Prior to the financial crisis, working cap statements were rarely problematic in the Nordic countries, and comfort letters more unusual. However, we have seen several recent instances where issuers cannot give a clean working capital statement and instead include a plan in the prospectus which outlines how sufficient funds will be obtained. These situations sometimes even involve going concern issues but more typically just require careful planning and thorough disclosure.

It is therefore becoming common in the Nordic context to obtain comfort letters – as is more established practice in the UK – with respect to working cap statements generally. The letter normally states simply that the auditors have reviewed management’s plans and believe them to be reasonable.

The Form of the Comfort Letter

As the use of comfort letters in public transactions originated in the United States, these have set the market standard. The form used is governed by the Statement on Auditing Standards No 72 “Letters to Underwriters and Certain Other Requesting Parties” or “SAS 72”. Comfort letters issued in this form outside this regulatory scope are sometimes referred to as “SAS 72 look-alikes”. However, audit firms may take the view the same standards apply to both types of letters, e.g. as regards timing between the statement date and the most recent interims reviewed.

Letters from auditors can be provided in other formats too. For example, ICMA has issued a template for comfort letters for bond offerings that is largely followed in European market practice. Underwriters must take specific advice in each case in order to evaluate the level of comfort they are receiving.

In the Nordic context, we think that the form of the comfort letter may not be as crucial as the fact that an appropriate statement was obtained from the auditor with respect to financial information in an offering document. In this sense, it may be more essential to focus on the substance of the comfort letter than its form. However, with very limited case law the scene is not set in this regard and it remains relevant to ensure that there is a reasonable basis for choosing a specific format for the letter.

Negotiating Comfort Letters

Comfort letters are typically presented as a standard form, but these should not be accepted without analysis of the requirements in each specific case. Underwriters and issuers should ensure they understand the financial information being presented in a prospectus, its sources, and how the accuracy of the sources has been confirmed.

The terms and conditions of audit firms in the Nordic countries are typically generic and do not specifically reflect the characteristics of capital markets transactions and the liabilities involved. Key areas for negotiation include:

  • claim limitation periods should typically correspond to any statutory claim periods for securities offerings prospectus liability; and
  • liability limitations – even though international market practice has evolved among the leading audit firms and international investments banks such that auditor comfort letters are issued to the underwriters without liability caps, service providers in the Nordic markets often insist on limitations. If caps are agreed in principle, we think these should at least be sufficiently high to align the interests of service providers and issuers.


Potential prospectus liability is now considered a relevant factor in the Nordic countries and the financial crisis has emphasized the need for thorough disclosure of financial information, which has led to growing reliance on comfort letters. In the Nordic context, practice is still evolving, principally following market requirements rather than regulatory pressure.

Even if there is little precedent in Nordic courts on prospectus liability and the relevance of comfort letters, we believe that various local and international developments will lead to comfort letters being required frequently. The proposed regulatory changes in Sweden will also compel issuers and underwriters to procure relevant comfort letters in such transactions.

Klaus Ilmonen, Partner, Helsinki
Sören Lindström, Partner, Stockholm
Mads Ilum, Partner, Copenhagen


Taxation of owners of closely-held companies ("3:12-Rules")

In an effort to address a perception that tax treatment of owner-managers in Swedish private companies has been overly generous, the Swedish Government is proposing to tighten rules governing the ability to draw capital incomes from such businesses. Media attention has focussed particularly on the effect for large professional partnerships, but this change could also affect any business with individual equity incentive programs.


The top marginal tax rate on salary and business income for individuals in Sweden is approximately 57 per cent. Income derived from capital is generally taxed at a flat rate of 30 per cent for individuals. If the capital income derives from an unlisted company, only 5/6 of the income is taxable bringing the effective tax rate down to 25 per cent.

In contrast to the fairly straightforward rules set out above, “closely held” (or owner-managed) companies are subject to a large number of rather complex tax rules, often referred to as the “3:12-rules”. In short, one effect of the 3:12-rules is that dividend distributions up to a certain threshold amount are taxed at just 20 per cent, while dividends above that amount are taxed as salary (i.e. at a tax rate of up to 57 per cent). These rules have been favorable for closely held companies with a large number of employees such as professional consultancies, because the threshold amount for the application of the 20 per cent tax rate depends mainly on the size the total salary payments of the company/group (the “salary base”).

According to Anders Borg, the Swedish Finance Minister, these incentives (designed to encourage small companies to employ people) are actually leading to tax-driven ownership structures in partner-owned enterprises. Although this is hotly contested by professional partnerships, it has been suggested that such firms are allowing employees to become partners with a small stake in the company so that such new “partners” can in some cases receive large proportions of remuneration taxed as capital income at 20 per cent instead of salary income at a higher rate. (For completeness it should also be noted that the profits of the company capable of being distributed as dividends will of course already have been taxed as corporate income at 22 per cent.)


In an effort to address its concerns, on 15 April 2013 the Government submitted to Parliament a budget bill that proposed certain changes to the 3:12-rules. Basically, only qualifying shareholders owning 5 per cent or more of a closely held company would be able to use the “salary base” when calculating the threshold amount subject to capital taxes. Consequently, shareholders owning less than 5 per cent would effectively pay normal income tax rates on a much larger part (possibly almost all) of dividends received.

The initial proposal received massive criticism from all major consultative bodies, save for the Swedish Tax Agency. The main concerns revolved around the 5 per cent ownership threshold, which respondents saw as wholly arbitrary. It was feared this would create artificial advantages for smaller firms (because owners in firms with more than 20 equal partners would be largely disqualified from the more favorable tax treatment). It might also inhibit the creation or expansion of large internationally competitive consultancy firms and cause tension and possibly splits in existing large firms, for example because partners with different capital shares might receive different tax treatment on the same income or because it might be more advantageous to divide a partnership.

On 30 May 2013, the Minister of Enterprise, Annie Lööf, who had previously supported the proposal, hinted that it was time to listen to the consultative bodies and business community and officials within her political party stated that it is time to revise the proposal. The following day the Government presented a slightly revised proposal where the main change was that the ownership requirement, for taking advantage of the “salary base”, was lowered to 4 per cent.

Our views

The changes to the proposal can hardly be called “listening to the consultative bodies and business community”, since it simply substitutes one apparently arbitrary threshold for another (albeit) lower one. However, we think it likely that the current proposal will be enacted, possibly after further marginal changes.

Beyond much higher taxes for many shareholders of partner-owned enterprises, these changes will likely cause considerable disruption in large professional partnerships and may ultimately affect the international competitiveness of Swedish companies in important sectors of the economy. Hence, owners of closely held companies should now review how they will be affected by the proposed rules and what can be done to mitigate the consequences. In particular, we recommend a review of any equity participation schemes to determine how they might be affected and whether they continue to be an effective incentive to employees.

Carl-Magnus Uggla, Specialist Partner, Stockholm
Bruce McGinn, Senior Associate, Stockholm

Bill to the new law on OTC derivatives, central counterparties and trade repositories

The Swedish Government recently submitted a bill to the Swedish Parliament with a proposal for a new law that is intended to supplement the EU Regulation on OTC derivatives, central counterparties and trade repositories. The Swedish Financial Supervisory Authority ("FSA") will be the competent authority in Sweden under the OTC Regulation, and will be granted certain monitoring and investigative powers. The provisions of the Securities Market Act which regulate the activities of central counterparties are to be revoked in those areas governed by the OTC Regulation, but the rules regarding the FSA’s supervision will continue to apply.

The amendments will enter into force on 1 June 2013.

The amendments to Finnish securities laws to supplement the Regulation entered into force on 15 April 2013. In Finland, the competent authority for the purposes of the Regulation is the Finnish Financial Supervisory Authority.

In Denmark, the Danish Government submitted a bill to supplement the Regulation, amending the Danish law on securities trading act which are now in force. The Danish Financial Supervisory Authority is the competent authority under the Regulation.

Christoffer Saidac, Partner, Stockholm
Mikkel Fritsch, Partner, Copenhagen
Jari Tukiainen, Specialist Partner, Helsinki

Memorandum proposes mandatory rules for payment times in commercial transactions

On 16 March 2013, amendments to the Swedish Interest Act, regarding payment periods in commercial transactions, entered into force implementing the 2011 EU Directive on late payment in commercial transactions. It follows from these amendments that a claim between traders in commercial transactions must be paid no later than thirty days after demand for payment, unless the creditor has expressly agreed on an extended period of payment. The Swedish Government has circulated a proposal, currently in consultation, on mandatory payment periods.

It should be noted that the directive does not require the legislation to be mandatory. It may therefore be questioned if the proposal does not go too far. The implementation of the directive in Finland and Denmark was reported on in the previous edition of this newsletter.

Richard Åkerman, Partner, Stockholm

Administration of alternative investment funds

In a previous newsletter we covered the Swedish Financial Supervisory Authority ("FSA") resolution equating the guidelines from the European Supervisory Authorities for bank, insurance and occupational Pensions Authority (Eiopa) and the European securities markets with general guidelines in Sweden. In April the FSA presented a proposal to the Council on Legislation for new legislation regarding administration of alternative investment funds.

The proposal is important for compliance officers in companies subject to FSA regulation in Sweden, because it confirms the direct applicability of EU guidelines.

Björn Kristiansson, Partner, Stockholm


The Government proposes new law on alternative investment funds managers

On April 12th 2013, the Swedish Government referred a proposal on a new law regarding alternative investment fund managers (“AIFMs”) to the Swedish Council on Legislation. The proposal includes regulation needed for the implementation of the EU Directive (2011/61/EU) on Alternative Investment Fund Managers. The AIFM Directive regulates the supervision and authorization of AIFMs and the requirements on AIFMs as regards management of alternative investment funds under their responsibility. An AIFM can be authorized by a competent national authority to perform management and/or marketing activities within other countries within the European Economic Area.

The new law is proposed to come into force on 22 July 2013

Björn Kristiansson, Partner, Stockholm


The Swedish Financial Supervisory Authority imposes sanctions against investment companies

The Swedish Financial Supervisory Authority recently found that two investment companies, Global Investment Finansförmedling Sverige AB and Larsson & Partners Asset Management AB, had shortcomings in their advisory services and in some cases seriously disregarded their clients' interests. The FSA resolved to caution the companies and to issue reprimands and imposed penalties.

The FSA also decided to revoke Key Equipment Finance Nordic AB's permission to conduct financing for deficiencies in the governance and control of its operations.

Fredrik Madani, Partner, Stockholm

ABN AMRO - NASDAQ OMX Stockholm Disciplinary Committee

The Disciplinary Committee of NASDAQ OMX Stockholm AB recently found that ABN AMRO Clearing Bank NV violated the Exchange’s member rules and therefore levied a fine of SEK 300,000.

The case concerned an order placed by ABN AMRO on behalf of a Sponsored Access client. The client’s intention was to register a sell order for 5,000 units of a particular share. However, due to an input error by the customer, the volume field was populated with a negative number (-5,000). Instead of returning an error, ABN AMRO's trading system converted the number of shares to a significantly amplified positive value (294,962,296 shares). The order resulted in the sale of a total of 813,442 shares. According to the Disciplinary Committee, the incident proved that ABN AMRO lacked such technical and administrative controls that should have prevented the erroneous order from being recorded, thereby causing a disruption to the market. Consequently, the Board found that ABN AMRO breached Stock Exchange rules.

Björn Kristiansson, Partner, Stockholm

Related parties transactions

The Swedish Securities Council (the “Council”) recently issued a statement on good marketing for asset transfer to people who are close to the transferring company ("related party transactions"). The statement concerned whether the related party special decision procedure – requiring a General Meeting approval and an independent valuation – was applicable to a planned transaction. So far, the only exception to this procedure is for transactions deemed immaterial to the Company.

The Council has now established that it is irrelevant whether a transaction is financially advantageous to a company in determining whether the special decision procedure needs to be followed or not. According to the Council, a transaction's potential economic benefits should be assessed by the shareholders themselves.

Since the special decision procedure is likely to give raise to higher costs as well as making related party transactions more time-consuming, this should be taken into account in the planning stage for any such transaction involving a Swedish public company.

Björn Kristiansson, Partner, Stockholm


Bidding company convening General Meeting of the target company to elect new board during an ongoing mandatory bid

In AMN 2009:14, the SSC considered whether it was compatible with good practice in the Swedish stock market to convene an Extraordinary General Meeting to elect a new board of the target company in connection with a potential mandatory offer. The proposed board election would take place during the mandatory offer. Through the board election, the acquiring company would appoint a representative to the target company’s board. The SSC concluded that, since the acquiring company had intended to act as the rules for management buyouts were applicable and, furthermore, since it could not be inferred that the purpose of the proposed board election was to affect the board of the target company’s statement on the potential bid, the proposed action was not in contrary to good practice in the Swedish stock market.

Amendment of convertible bond conditions

AMN 2010:08 concerned a planned amendment to convertible bond conditions according to which the bondholder would be entitled to request conversion three times a year instead of once a year, as originally stated. The SSC found that the amendment was not consistent with good practice in the Swedish stock market. According to the SSC, it was irrelevant that the amendment aimed to reduce the company’s financing costs or that the shareholders would benefit from the amendment. Furthermore, the SCC’s assessment was not affected by the fact that the proposed amendments was subject to the General Meeting’s approval.

Transfer of shares to employees of Associated Company

AMN 2010:10 concerned a transfer of shares to employees of a so-called Associated Company, a subsidiary of a company in which a listed company owned half of the shares. The issue was whether the so-called Leo rules in Chapter 16 of the Swedish Companies Act or the NASDAQ OMX so-called former buyout rules were applicable to the planned share sale. The SSC found that neither of these rules applied. However, there may be cases where it would be objectively justified and most consistent with the general stock market rules to apply Leo rules analogous to the transfer of shares in associated or subsidiary of such a company.

Exemption from mandatory bid rules regarding new issue of shares

In two similar cases, AMN 2013:20 and 2013:21, the SSC granted an exemption from mandatory bid obligations that would arise if, in each case respectively, a company were to subscribe for its entitlement to shares in a planned new issue as well as possible shares to be subscribed in accordance with a guaranteed new issue (Sw. emissionsgaranti). In accordance with the SCC’s established practice, the granted exemptions were subject to approval by a large majority of the shareholders, where the warrantor was not allowed to vote, and that the shareholders were to be informed on what share capital the warrantor would receive.

Björn Kristiansson, Partner, Stockholm


Tax deductibility of transaction costs

The Finnish Supreme Administrative Court (“SAC”) has recently made two rulings regarding tax deductibility of costs in connection with a public offer. The SAC held that costs incurred in the valuation work, assisting in the negotiations and drafting combination documents as well as the breakup fee payable to a rejected tenderer were deductible from the target company’s taxable income. Although the deductibility of such costs may seem self-evident, the SAC deemed it necessary to publish two rulings in a row on this subject.

The deductibility of expert fees and breakup fees had been rejected at lower instance primarily because the Administrative Court deemed that these expenses were incurred in the interests of the shareholders. The reasoning behind this was that the purpose of engaging the experts and agreeing on the breakup fee was merely to obtain the highest possible compensation for the shares. Furthermore, the Administrative Court stated that at the time of the offers, the Board of Directors did not have a legal obligation to take any action by virtue of the offer. Accordingly, the expert fees incurred in such actions were not tax deductible.

The SAC held that the breakup fee did constitute a tax deductible expense for corporate income tax purposes since the breakup fee was paid in order for the company to avoid incurring even greater expenses in the form of claims for damages. The contract, which was determined in order to be able to accept a more favourable offer, was concluded by the Board of Directors on behalf of the company and it was hence binding on the company. Accordingly, it was not possible to allocate the claims for damages to the shareholders.

The SAC held that taking into account the nature of the share exchange offer and the company’s obligation under the Companies Act to take into account the shareholders’ interest, the expert fees paid by the company were deductible from the company’s taxable income. The sole purpose of a limited liability company is generally deemed to be to generate profit for its shareholders. The Board of Directors has general power to act on behalf of the company and a liability to act with due care and in the best interests of the company and its shareholders. According to the SAC’s reasoning, the Board of Directors should resort to external expert services when it deems it necessary in order to fulfil its due care obligation. The SAC accordingly held, quite rightly, that the expenses incurred in such necessary services are deductible from the company’s taxable income.

The decisions could even been seen as the SAC’s statement against the aggressive taxation attitude, which prevails in the Finnish tax administration. An attempt to reject the deductibility of expert fees and the breakup fee on the basis of the fact that these have resulted in advantages also at the shareholder level in the form higher offer fits, all in all, rather poorly to the limited liability company institution taking into account its function, i.e. to generate profit for the shareholders. Furthermore, these attempts are contrary to the well-established legal praxis according which benefit or profit to the shareholders (the so-called hidden dividend provision) has very seldom been applied to listed companies.

Ossi Haapaniemi, Partner, Helsinki
Outi Raitasuo, Partner, Helsinki
Meeri Tauriainen, Associate, Helsinki

Administration of alternative investment funds

On 30 April 2013, the Finnish Ministry of Finance issued a draft proposal to implement the Alternative Investment Fund Managers’ Directive (2011/61/EU). Implementation will involve a new law on alternative investment fund managers and amendments to several existing laws. The Ministry is currently consulting on the proposal.

The comments received so far highlight the need to clarify how the private placement regime will be available in the future, how to take into consideration potential problems with availability of depositaries and concerns about the implications of certain "gold plating" measures which go beyond the requirements of the Directive.

The Finnish legislation will be somewhat delayed and will not meet the deadline for implementing the directive, which is 22 July 2013. The objective is that the proposal will be processed during September 2013.

Jari Tukiainen, Specialist Partner, Helsinki
Victor Fagerlund, Associate, Helsinki
Jouko Markkanen, Associate, Helsinki



Danish focus on transfer pricing leads to significant increase in reassessments

The Danish blue chip company Novo Nordisk A/S made headlines on 5 February 2013 when it became public knowledge that a Danish tax audit of the company had resulted in a transfer pricing adjustment of almost half a billion euro in taxes payable. This adjustment is just one result of increased attention on transfer pricing in Denmark.

According to the annual report on transfer pricing from the Danish Ministry of Taxation published on 31 January 2013, there has been a clear rise in the number of transfer pricing audits made by the Danish tax authorities (“SKAT”) in recent years. In 2012 alone, transfer pricing audits increased the tax base of the companies involved by approximately EUR 2.8 billion. This number is up from less than EUR 1 billion the year before. In the last five years, a total of 213 transfer pricing audits have been conducted increasing the tax base by almost EUR 8 billion. It is unclear to what extent adjustments have been contested in court, so the numbers reported by the ministry are therefore the subject of some uncertainty. Based on the matters that we have been involved in, appeals are generally made to the Tax Tribunal and vigorously defended by tax payers.

Nevertheless the trend is a clear signal that SKAT has followed through on its intentions to make transfer pricing a high priority area. SKAT has several specialized transfer pricing audit teams which make use of screening and data mining tools when zeroing in on companies of interest. Special attention has been paid to so-called “zero-tax companies”, i.e. companies doing business in Denmark without generating any substantial taxable income, but SKAT is also scrutinizing cross border restructurings and business transfers to a greater extent. According to the Minister of Taxation, Holger K. Nielsen, transfer pricing will not only remain a priority area in coming years, but an increase in both resources and methods applied to the area is to be expected. In 2013 SKAT plans to launch a project regarding pricing of intangible assets as the Minister notes that a large amount of intragroup transactions involve intangible assets. The Minister hopes that SKAT will be able to more accurately assess the value of intangible assets. Another continuing focus area of 2013 is going to be cross border corporate restructurings.

Alongside the increase in audit activities SKAT is also introducing a new service to the largest Danish corporations dubbed the Tax Governance project. SKAT will commit to supply on the spot transfer pricing assessments to the largest corporations in Denmark in order to avoid subsequent audits. In this way SKAT hopes to avoid lengthy and complicated transfer pricing audits reaching back several years. The service is voluntary and when fully operational it is expected to cover approximately 50 of the largest corporations in Denmark.

SKAT’s increased attention to transfer pricing is mirrored by legislation passed by the Danish parliament in recent years in order to raise revenues and prevent erosion of the tax base. One of the more controversial parts of this legislation is the practice of disclosing information regarding companies’ tax matters. Information regarding companies’ income tax paid, taxable base and losses carried forward is made available on SKAT’s homepage. Surprisingly, half of the top six corporate tax payers were foreign multinationals.

Nikolaj Bjørnholm, Partner, Copenhagen
Anders Bang, Associate, Copenhagen


New requirements for insider lists and leading employees' reporting of transactions with securities

The Danish FSA recently published a new executive order with effect as of 1 May 2013, which sets out new requirements for insider lists and leading employees’ reporting of transactions with securities in listed companies with registered office in Denmark. Listed companies should consider whether the Order entails changes to their internal rules and procedures.

Leading employees’ reporting of transactions with securities

Prior to the implementation of the new executive order, the Danish Securities Act required leading employees in listed companies to report all transactions with the company’s securities completed by themselves or closely related persons to the company. The company was liable to forward this information to the FSA. However, the duty to report to the FSA has now been transferred from the company to the employee.

The Order specifies how to comply with this new way of reporting directly to the FSA. According to the Order, transactions must be reported in one of the following ways:

  • Electronically by the employee using a digital signature/NemID.
  • Electronically by another person or company to whom the employee has given a power of attorney.
  • By the company by issuing a company announcement through the company’s news centre system by a power of attorney from the employee.

The reporting person or company warrants that a power of attorney is valid.

Insider lists – Requirement changes

Listed companies are required to prepare and continuously update their insider list showing which persons have access to insider information. The requirement applies also to persons or companies that obtain insider information when acting on behalf of a listed company. The Order sets new requirements for the information to be contained in an insider list.

The Order took effect on 1 May 2013, and changes made to any insider list after this date must include the new identity information. Listed companies should consider reviewing their current insider list procedures and make sure that the procedure is compliant with the Order.

Christian Bülow, Associate, Copenhagen
Peter Lyck, Partner, Copenhagen


New rules on the gender composition of management of Danish companies

As of 1 April 2013 new legal provisions became effective which aim at encouraging gender diversity in the management and board of directors of both privately and stated-owned companies.

The new rules apply to approximately 1,100 top companies in Denmark. These companies are now required to set a target for the share of the under-represented gender in the top governing body. A gender is regarded as under-represented if it makes up less than 40 per cent of the members of the top governing body. These companies must also prepare a policy on how the company plans to increase the share of the under-represented gender. Further, the companies are required to report on how the company is doing in reaching the said goals, in its financial statement.

The companies which are subject to the new regulation include listed companies as well as larger companies as such term is defined in the Danish Financial Statement Act, i.e. companies which for two consecutive years exceeds two of the following limits: (i) a balance sum of DKK 143 million, (ii) a turnover of DKK 286 million, and (iii) an average number of full time employees of 250.

Groups are also subject to the new regulations, and the above mentioned minimum limits will apply to the whole group. All state-owned institutions and companies with more than 50 employees are also subject to the new regulation.

Birgitte Barfoed, Associate, Copenhagen


The Equal Treatment Act

The Danish Equal Treatment Act has been amended with effect from 8 March 2013 implementing the 2010/18/EC Parental Leave Directive in Danish law.
Employees are as a consequence of the amendment to the Danish Equal Treatment Act entitled to request a change in working hours and working patterns when returning from maternity or parental leave. The employer is, however, not obligated to meet such requests but the employer shall take both the employees and the company’s needs into consideration when replying in writing to the request. There are no sanctions connected to the new provisions which are intended to improve the rights of employees returning from leave.

Temporary Agency Work

A new bill has been put to hearing implementing the 2008/104/EC Directive on Temporary Agency Work.

The new bill on temporary agency work regulates the right of temporary employees who are employed through a temporary employment agency. Currently the rights of such employees are not subject to separate regulation in the Danish legislation and the new bill is expected to become effective on 1 July 2013.

The most central part of the new bill is the equal treatment principal which secures the temporary employees the basic working and employment conditions that would apply had the temporary employee been permanently employed.

Furthermore, the bill secures the right of the temporary employees to be informed about vacant positions and access to the amenities or collective facilities under the same conditions as workers employed directly by the company.

Birgitte Barfoed, Associate, Copenhagen


Changes in the Norwegian companies act

The Norwegian government wants to modernise and simplify the Norwegian Limited Liabilities Companies Act (Aksjeloven) to harmonise it with the similar regulations in other countries within the Nordics and the EU. One of the main reasons behind the proposed changes is foreign companies’ growing use of the Norwegian “Branch Office” (Norsk Utenlandsk Foretak) when establishing businesses in Norway, which is frowned upon by the Norwegian authorities, who would prefer to see local legal entities in the form of subsidiaries. The suggested changes make it easier, particularly for small and mid-size limited liability companies, to set up and conduct business in Norway.

The changes proposed are the following:

  • Repeal the requirement of an opening balance sheet when the share capital only consists of cash money.
  • Fewer rules regarding what the articles of association shall contain.
  • Possibility to incorporate limited companies electronically.
  • More freedom regarding the company’s equity. New rules less based on formal audited accounts, and more based on the company’s actual needs.
  • Repeal the rule that dividends may not be declared if the equity is below 10% of the total balance.
  • Repeal the rules regarding share premium reserve as equity.
  • The annual general shareholders meeting will be able to authorize the Board of Directors to decide on dividend.
  • New rules to facilitate annual general meetings.
  • New rules making it possible for the company to decide the number of board members and if they wish to appoint a CEO. Furthermore, it is proposed to abolish the duty to appoint a deputy director in companies that consists of less than three directors.

Anett Kristin Lilliehöök, Senior Associate, Stockholm


European Parliament adopts CRD IV package

On 16 April 2013, the European Parliament adopted the so-called CRD IV package which will implement the Basel III framework in the EU. The CRD IV package aims to increase both the size and the quality of banks’ equity in order to enhance their resiliency in case of future financial crises. Critics fear that greater capital requirements will force banks to reduce lending activities and/or increase lending margins. In a study published by the IMF it is estimated that lending rates will increase with 8 -28 bps in Japan, Europe, and the US due to increased regulation.

In Sweden, a governmental report on the implementation of the directive is being prepared and will be published after the summer.

In Finland, the Ministry of Finance is preparing a revision of the Credit Institutions Act to facilitate the implementation. A government bill on the new legislation is expected to be submitted to the parliament during the autumn session.

In Denmark, the Minister for Business and Growth is planning to submit a proposal for legislation implementing the directive in the next parliamentary session (after October 2013). The new rules are expected to come into force on 1 January 2014.

Jonathan Andersin, Associate, Helsinki
Björn Kristiansson, Partner and Fredrik Madani, Partner, Stockholm
Mikkel Fritsch, Partner, Copenhagen

Latest on European state aid

On 19 March 2013, the European Court of Justice delivered an important ruling on state aid. The main question was whether certain statements and an offer of a temporary shareholder loan from the French state in favour of a public limited company constituted unlawful state aid within the meaning of Article 107.1 TFEU. The ECJ set aside the judgment of the European General Court and referred the cases back to the GC.

The ECJ confirmed that state aid requires a direct link between the advantage gained by the recipient and a reduction of the state budget or a sufficient risk of burden on that budget. However, contrary to the General Court’s first instance ruling, the ECJ held that such a reduction need not correspond precisely to the advantage or vice versa. Nor does the advantage need to be of the same nature as the state’s commitment of resources.

This ruling confirms that governmental actions, such as government guarantees which cannot directly be said to burden the state budget, are also capable of constituting state aid. This potentially gives the Commission wider discretion as to what might constitute illegal state aid, leading to greater uncertainty. There are many areas where this may be relevant on the Nordic market, where the Nordic States are relatively active in the economy. Indeed, our Competition and Procurement Newsletter for May/June 2013 reports on proposed reforms to the Finnish Municipalities Act to address concerns about how state and municipal enterprises act in competitive markets.

Björn Kristiansson, Partner, Stockholm
Mika Pohjonen, Specialist Partner, Helsinki


Spanish capital gains tax

The European Court of Justice ("ECJ") recently made an important ruling on the interaction between taxation (an area outside the EU’s competence) and freedom of establishment.

The ECJ found that Spanish provisions thathad the effect of causing taxes on unrealised capital gains to become payable on the transfer of the place of residence or of the assets of a company established in Spain to another Member State was contrary to EU law. The starting point was that the taxation of unrealised capital gains on assets assigned to a permanent establishment which ceases to operate in Spain does not amount to a restriction on the freedom of establishment. However, the ECJ found that the immediate taxation of unrealised capital gains on the transfer to another Member State will amount to a restriction on the freedom of establishment. The ECJ considered that the Spanish legislation had a legitimate objective (i.e. to safeguard Spain’s powers in fiscal matters), but the measures adopted to achieve the objective were disproportionate. Thus, the ECJ concluded that the right to the freedom of establishment does not preclude capital gains generated in a territory from being taxed, even if they have not yet been realised. By contrast, it does preclude a requirement that that tax be paid immediately.

Carl-Magnus Uggla, Specialist Partner, Stockholm
Nikolaj Bjørnholm, Partner, Copenhagen