Our point of view

Nordic Market Newsletter 4/2013

19 July 2013


“What is the EU’s Phone Number?"

Contributing to EU Corporate Finance Regulation

According to established legends in foreign policy, Henry Kissinger is supposed to have asked “Who do I call if I want to call Europe?” The quote lives on as a criticism that the EU cannot be taken seriously without a single dominant leader. However, even if the EU faces challenges in certain political fields, such as foreign and social policy, it is quickly becoming dominant in the field of financial regulation. Market participants can no longer wait until national laws are debated, because oftentimes the contents have already been largely set at the EU level. How then can one “call Europe” and participate actively in the regulatory debate prior to the adoption of EU regulation?

One answer is through the European Securities Markets Authority (ESMA), one of the key EU agencies tasked with supervision of the financial markets. ESMA provides interpretive guidance on EU regulation and makes proposals for new EU-level financial regulation at the request of the EU Commission. Over the past three years, ESMA has quickly become one of the most important actors in EU level financial regulation.

ESMA has nominated panels of market experts to contribute to EU level regulatory work. As a member of the ESMA Consultative Working Group on Corporate Finance, I have joined a small panel of professors, representatives of the financial industry, in-house counsel, attorneys and other market experts to comment on regulatory initiatives in the field of corporate finance. Our work has involved review of transparency issues, prospectus regulation and some aspects of takeover regulation.

We are consulted in a personal capacity and do not represent interest organizations as such. In this way ESMA seeks insight into how people with different types of expertise of the European financial markets see new regulatory initiatives, without interest group agendas. Oftentimes our advice will focus on technical matters, but we frequently also express a view on whether regulatory intervention is called for in the first place based on market practice. We also raise problems created by unclear regulation where market participants seek additional guidance.

Having worked with ESMA, it is clear that the EU Commission is looking to further increase its role in financial regulation. The Commission seeks to facilitate cross-border business within the EU and tries to minimize national obstacles to the free movement of capital based on the political priorities within the EU. Many differences still remain in how capital markets are regulated and even in how European directives are interpreted nationally. Further work in this area is certainly called for. As the European financial markets are strongly affected by developments outside of Europe, it is important that the EU works to facilitate the competitiveness of EU market participants and our capital markets. In many cases, the EU is better equipped for this work than national legislators.

Sometimes it has seemed that decision-making at the EU level is too politicized or inflexible to take the concerns of market participants into consideration. In small countries, such as the Nordics, there may be a sense that the EU does not pay attention to existing market structures that function in our environment. In many cases, ESMA is bound by the wording of EU directives or by policies decided at the political level. Nevertheless, it seems to me that, within these parameters, ESMA tries to find solutions that, as much as possible, facilitate the activities of market participants while providing adequate protection for investors.

What has been particularly interesting to note is that ESMA and the EU are open to ideas of how financial regulation can be developed. An important aspect of how ESMA works is its openness to constructive input on how markets can be regulated and which regulatory approaches might be pursued. The regulator is open to ideas that facilitate the sound interpretation and application of EU financial regulation – within the politically set parameters.

Klaus Ilmonen, Partner, Helsinki

Klaus heads Hannes Snellman’s capital markets practice in Finland and works extensively with public takeovers and other transactions involving publicly listed corporations. He is a member of the Consultative Working Group on Corporate Finance with ESMA (European Securities Markets Authority). Klaus has also participated in legislative and regulatory work in Finland. He was involved in implementing the Takeover Directive and in drafting the Helsinki Takeover Code.


The Swedish Supreme Court Recognises the Punitive Character of Surtaxes

On 11 June 2013, the Swedish Supreme Court ruled that a natural person cannot be subject to both a surtax (Sw. skattetillägg) and be prosecuted for a tax offence based on the same facts, on the basis that this would breach of the legal doctrine of ne bis in idem or “double jeopardy”, i.e. that no legal action can be instituted twice for the same cause of action.

The ruling reverses the prevailing legal position in Sweden, where it has been possible for authorities to levy a surtax and prosecute individuals for e.g. tax evasion. Sweden has faced criticism from both the European Court of Human Rights and the Court of Justice of the European Union.

The ruling from the Swedish Supreme Court was given in a special session of all the justices and thus forms a new legal precedent. Consequently, a natural person may not be prosecuted for tax offense if that person already has been subject to surtax, e.g. for leaving false information in relation to income tax, employers’ contributions and similar fees as well as value added tax.

This is likely to cause considerable legal uncertainty as to the status of on-going investigations and previous convictions for tax offences and will likely force the Government to reconsider its position on tax enforcement.

Carl-Magnus Uggla, Specialist Partner, Stockholm

The Minority Shareholders’ Auditor May Be Appointed Without a Decision by the General Meeting

On 22 May 2013, the Swedish Court of Appeal held that the County Administrative Board (“CAB”) may appoint a minority shareholders’ auditor for a Swedish limited liability company even though the general meeting (for which the auditor is appointed) has not decided on such appointment.

The statement by the Court of Appeal is of interest because there is no specific provision in Swedish statute enabling CAB to appoint a minority shareholders’ auditor upon the request of the minority without the general meeting of the company having decided on the appointment.

The company in question had stalled several general meetings before the decision on the minority shareholders’ auditor had been resolved upon, but a general meeting (where the minority shareholder had failed to attend) had unanimously decided against such appointment after the appointment by CAB. The Court of Appeal found that the decision by CAB to appoint the auditor thus was likely to be changed and inhibited the appointment.

Björn Kristiansson, Partner, Stockholm

Harmonised Terms and Conditions for Certain Corporate Bonds

On 29 May 2013, the Swedish Securities Dealers Association ("SSDA") published the harmonised terms and conditions for high-yield corporate bonds aimed at professional investors.

The terms and conditions from the SSDA aim to standardise the market and to become an established and balanced reference point. The SSDA has sought to introduce mechanical non-commercial terms that are non-binding and free to use by anyone.

Fredrik Madani, Partner, Stockholm

Disclosure of Non-financial (CSR) and Diversity Information by Large Companies

On 16 April 2013, the European Commission released a proposed directive on disclosure of non-financial and diversity information by certain large companies and groups.

Companies with more than 500 employees would be required to disclose relevant and material information on policies, results and risks concerning environmental aspects, social and employee-related matters, respect for human rights, anti-corruption and bribery issues. For listed companies, information concerning diversity on the boards of directors would also be disclosed.

Disclosures would set out the objectives of the policy, how it has been implemented, and the results. Companies which do not have a diversity policy would have to explain why not.

Björn Kristiansson, Partner, Stockholm

Swedish Council on Legislation Criticises the Government’s New Budget Bill

On 19 June 2013, the Swedish Council on Legislation issued an opinion on the proposed changes of the rules concerning taxation of owners of closely-held companies (so-called “3:12-rules”). The proposed 3:12-rules were announced in connection to the Government’s budget bill of 15 April 2013. (For further information, please refer to our report on this subject in a previous newsletter).

The Council’s role is to comment on new proposals for legislation at the request of the Government or Parliamentary committees. The proposed changes to the 3:12-rules were heavily criticised by the Council in several respects, and the Council recommends that the proposed changes be rejected.

The Council questioned whether the proposed changes would have the intended effects or be compatible with the Government’s stated intentions with the proposed rules. The Council also criticised the apparently hasty preparation of the proposed rules and the failure to carry out a thorough review of the rules on closely-held companies before the proposal is submitted to Parliament.

On 20 June 2013, Anders Borg, the Swedish Finance Minister, issued a statement in response to the Council’s opinion where he recognised the Council’s concerns but reaffirmed the necessity of the proposed changes to the 3:12-rules as a means to hinder “over usage” of favourable tax rules intended for physical persons who take risks by “employees” who hold very small stakes.

Carl-Magnus Uggla, Specialist Partner, Stockholm



Changes in NASDAQ OMX Copenhagen’s Rules for Issuers of Shares

As of 1 June 2013, NASDAQ OMX has amended its Rules for Issuers to the effect that the financial intermediary responsible for the offering and the company’s auditor will no longer be required to declare in a prospectus that all information necessary to give investors a true and fair view of the company’s activities has been made available.

Until 31 May 2013 - in connection with the preparation of a prospectus - the financial intermediary responsible for the offering of the shares would make a declaration in the prospectus confirming that it has received all the information deemed necessary to give investors a true and fair view of the company’s activities. The company’s auditor would likewise declare that the prospectus contains all facts relating to the company’s financial position.

Because the former requirement was not based on rules under the harmonized EU directives and regulations and because NASDAQ OMX has no legislating or approving function in respect of prospectuses, NASDAQ OMX decided to remove the requirement.

The removal could potentially lead to a decrease in legal verifications of prospectuses – which many financial intermediaries required to give them sufficient comfort. In our view, a legal verification is still advisable in IPOs and certain other public offerings in order to mitigate the risk of potential lawsuits if the prospectus turns out not to contain all significant information and therefore does not display a true and fair view of the company’s activities.

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

Changes in Corporate Governance Recommendations

The Danish corporate governance committee has recently published its new recommendations. The recommendations have been reduced from 79 to 47 as the committee has omitted recommendations which are regulated by law or largely already incorporated in companies.

The committee recommends that listed companies set up contingency procedures covering the period from when the board of directors has reason to believe that a takeover bid will be made. The procedures should to ensure that the board of directors does not take any action without the shareholders which will effectively prevent the shareholders from deciding on the takeover bid themselves.

The corporate governance recommendations are “soft law” and only reflect best practice. This voluntarism gives the flexibility necessary for companies to adjust the principles on corporate governance individually. Thus, non-compliance might not be an issue if the “comply or explain” principle is followed; however, it is important to remember that the recommendations are made to support value creation and the company’s management, and thereby contribute to the long-term success of the company and its shareholders.

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


Simplifications to the Norwegian Limited Liability Companies Act

On 1 July 2013, a number of amendments to the Norwegian Limited Liability Companies Act entered into force. These provide a simpler and more flexible regulatory regime for limited liability companies and one that is better suited to the needs of small businesses.

Anett-Kristin Lilliehöök, Senior Associate, Stockholm

Disclaimer: Hannes Snellman Nordic Market Newsletter is intended for information purposes only. It should not be relied upon as legal advice nor should it be used as a basis for any action or final decision without specifically verifying the applicability and relevant issues on their merits in each individual case.

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