Switzerland Treasury Shares Guide IBA Corporate and M&A Law Committee 2012

Transcription

1 Switzerland Treasury Shares Guide IBA Corporate and M&A Law Committee 2012 Contact Oliver Triebold and Lorenzo Olgiati Schellenberg Wittmer, Zurich, Switzerland

2 Contents Page INTRODUCTION 2 GENERAL OVERVIEW 2 REGULATORY FRAMEWORK 3 ACQUISITION OF TREASURY SHARES 3 UTILISATION OF TREASURY SHARES 6 SALE OF TREASURY SHARES 7 TREASURY SHARES AND TAKEOVER LAW 8 Page 1

3 INTRODUCTION This guide shall provide an overview of the Swiss legal framework on the acquisition and sale of own shares (treasury shares) by Swiss stock corporations. This guide provides general information on treasury shares, on the legal requirements and restrictions of acquisitions and sales of such treasury shares and finally implications of treasury shares under Swiss takeover law. The guide describes the rules and precedents as in effect on 29 February This guide does not constitute legal advice and the information in this guide cannot substitute professional legal advice. Therefore, anyone involved in the buy-back of treasury shares of a Swiss corporation should seek specialist legal advice. GENERAL OVERVIEW Is the buy-back of shares permitted in your jurisdiction? Yes. However, in Switzerland the buy-back of shares by a Swiss stock corporation is subject to significant restrictions under the Swiss Code of Obligations (CO). Provided that the requirements as set forth in Articles 659 et seq CO are fulfilled, the buy-back of shares is permitted in Switzerland. What are the characteristics (maximum holdings, voting rights and other rights) of treasury shares? In general, the maximum holding by a Swiss stock corporation of its own shares (treasury shares) is limited to ten per cent. As an exception to this rule, the maximum holding is 20 per cent, if a company buys treasury shares in connection with a share transfer restriction (Vinkulierung). However, this exception only applies to non-listed companies and the treasury shares in excess of ten per cent that have been acquired in application of that exception must be resold within two years. The voting rights of treasury shares are suspended. Contrary to other jurisdictions, treasury shares in a Swiss corporation do carry dividend rights; however, most Swiss companies do not declare dividends on treasury shares. What are the main reasons to acquire treasury shares? There are various reasons why a company may decide to acquire its own shares. Quite often, the management of a company determines that the company has more financial means than needed to achieve its strategic goals; hence, the company will pay back a part of its capital to the shareholders by way of a buy-back followed by a capital decrease of those treasury shares. By doing so, the resulting reduction of the overall number of shares increases the dividend stake of the remaining shareholder ( Gewinnverdichtung ; concentration of dividend proceeds). Generally, this makes shares of a listed corporation more attractive on the stock market. Page 2

4 Moreover, in privately held corporations it is allowed and rather common to provide in the articles of incorporation for a restriction on the transferability of the shares (Vinkulierung). In such cases, the valid transfer of those shares requires the consent of the company's board of directors. Such consent may only be refused (i) for valid reasons provided for in the articles of incorporation, or (ii) if the company offers to the alienator of the shares to take over the shares for its own account or for the account of other shareholders or for the account of third parties at the real value at the time of the request (so-called escape clause ). As a consequence, if the company does not have a valid reason and still wants to keep an acquirer out, the only way is to purchase those shares. Furthemore, repurchased treasury shares can be used in connection with employee stock option programmes and a company's share liquidity can be improved. Finally, the acquisition of treasury shares can be used as a defense measure against tender offers or it can be used as acquisition currency. REGULATORY FRAMEWORK The general corporate law rules which apply to share buy-backs are laid down in Articles 659 et seq, 663b No 10 and 671a CO as amended as of 1 January With respect to listed companies, in addition, the rules of the Swiss Stock Exchange and Securities Trading Act (SESTA) and certain Circulars of the Swiss Takeover Board (TOB) apply. ACQUISITION OF TREASURY SHARES How can a company acquire treasury shares? A Swiss corporation may acquire treasury shares by way of (i) negotiation and conclusion of a purchase agreement with one or more individual current shareholders (over the counter; negotiated purchase ), (ii) anonymously through the stock market, or (iii) by way of a private or public repurchase offer, or (iv) indirectly, by way of issuance of put options (a right which grants the option to sell a certain quantity of shares at a specified price up to a specified date to the corporation). In all instances, the principle of equal treatment of shareholders must be respected. Are there any restrictions in acquiring treasury shares? (eg, purpose-wise; accountingwise?) The acquisition of treasury shares takes place either (i) in view of a cancellation of the shares (Vernichtung), or (ii) in view of a holding of the shares (Halten). Under Swiss law, the distinction is decisive not only for the tax treatment, but it also for the question who is authorised to execute such a transaction. The acquisition of treasury shares in view of cancellation is the competence of the shareholders reunion, whereas the acquisition of treasury shares in view of holding is a competence of the board of directors. Since the acquisition of treasury shares is in essence a decrease in the number of outstanding shares of a company and leads to a reduction of its assets, in particular, cash assets/share capital, a Swiss corporation may repurchase its shares only subject to the restrictions provided for in Articles 659 et seq. CO, that is: 1. treasury shares can only be acquired if freely disposable equity in the amount necessary for this purpose is available. Under this concept, equity basically is freely disposable if and to the extent there are free reserves exceeding the total of share capital, participa- Page 3

5 tion capital (if any), legal reserves, reserves for own shares, revaluation reserves and reserves which are locked pursuant to the articles of incorporation of the company by an amount of more than 50 per cent (in holding companies, by an amount of more than 20 per cent). The assessment regarding freely disposable equity must be based on current audited annual financial statements of the company, whereas current means that since the accounts date not more than six months may have passed. Otherwise, interim financial statements must be drawn up. 2. The total par value of the acquired shares may, as a rule, not exceed ten per cent of the total nominal share capital; where registered shares are acquired in connection with a restriction on transferability (see the detailed description in General Overview hereinbefore), the limit is 20 per cent. Own shares held by the company which exceed ten per cent of the share capital must be sold or redeemed by a decrease of the share capital within two years. The total of all treasury shares held by the company or by any third party for the account of the company, irrespective of whether they are reserved for an employee incentive programme or not, must not exceed the said maximum thresholds. 3. Acquired shares must be fully paid up. 4. The company must set aside an amount equivalent to the cost of acquiring the treasury shares as a separate reserve in its financial statements for as long as the treasury shares are held; the reserve may be dissolved in the amount of any sold or cancelled shares valued at cost. If the shareholders meeting authorises the board of directors in advance to acquire treasury shares in view of cancellation, the total par value of the acquired shares may exceed the statutory thresholds (ten or 20 per cent) and no reserves have to be set aside. However, freely disposable equity in the amount necessary still has to be available and once the treasury shares are purchased the shareholders have to approve the capital decrease formally once again. Acquisition by subsidiaries Where a company holds a majority interest in a subsidiary, an acquisition of the parent company s shares by such subsidiary is subject to the same restrictions and has the same consequences as the acquisition of its own shares. Where a company acquires a majority interest in another company which holds shares of the acquirer, theses shares (of the majority-acquirer held by the subsidiary) are deemed the acquirer's own shares. The obligation to create a reserve in the financial statements rests with the company holding the majority interest. General restrictions by Swiss company law In addition, any acquisition of treasury shares is also limited by general restrictions of Swiss company law. On the one hand, every acquisition of treasury shares may not give rise to the unequal treatment or disadvantaging of the shareholders in a manner not justified by the company's legitimate interests. On the other hand, the members of the board of directors shall carry out their duties with due care and safeguard the interests of the company in good faith. They must treat the shareholders equally under similar circumstances. Consequently, in a buy-back situation, to the extent possible, all shareholders must be granted an equal right to sell their shares to the company unless otherwise justified by the company s legimitate interests. If the company does not comply with all of the above-mentioned restrictions cumulatively, the acquisition of treasury shares is not permissible. Which authorisation is needed? In contrast to the law of other jurisdictions, the decision about the acquisition of treasury shares in itself is generally in the sole discretion of the board of directors. In other words, a valid trans- Page 4

6 fer only requires a resolution of the board of directors of the company and not the approval of the shareholders meeting. However, if the share buy-back shall be followed by a respective capital decrease and a cancellation of the acquired treasury shares, the approval of the shareholders meeting is (formally only for the capital decrease) mandatory. In practice, if a company decides to run a significant buy-back programme with subsequent capital decrease; it will submit the proposal to a first shareholders meeting. Upon approval, the company will start the buy-back and will, after acquisition of the intended number of shares, submit the proposed capital decrease/cancellation to the shareholders for specific approval of the capital decrease. Also, with respect to a listed company, once a public takeover offer has been launched, a target company may no longer purchase own shares, unless the shareholders' meeting approves it in a formal vote; see section on Treasury Shares and Takeover Law below. What are the publicity requirements in the event of acquisition of treasury shares? Pursuant to Swiss law, a Swiss corporation must include in the annex to its annual financial statements information on the acquisition, sale and number of own shares held by the company, including its shares held by another company in which it holds a majority participation. The terms and conditions at which the company has acquired or sold its own shares must equally be included. On top of that, with respect to shares in listed companies, the following publicity obligations need to be respected: Disclosure rules Under the disclosure of significant shareholding rules of the SESTA, a shareholder has to disclose its shareholdings if it acquires shares, share acquisition rights or share sales rights of a company incorporated and listed in Switzerland and thereby exceeds the percentages three, five, ten, 15, 20, 25, 33.33, 50 or per cent of that company's voting rights, whether exercisable or not. Put and call options must also be disclosed if the statutory thresholds are exceeded. Although the voting rights of treasury shares are suspended, the law provides that this provision also applies in connection with the buy-back of treasury shares. Therefore, a listed company that acquires treasury shares must also comply with theses disclosure rules. Ad hoc publicity rules Furthermore, the board of directors of a listed company may have to disclose the acquisition under the rules relating to ad hoc publicity, if such transaction is share price-sensitive, for instance, when the factual circumstances of the transaction are capable of triggering a significant price change at the market. Whether or not such ad hoc publicity duty with respect to the buyback of treasury shares is triggered needs to be assessed on a case-by-case basis. Rules on public takeover offers If the company wants to publicly buy back shares it may have to comply with the regulations on public takeover offer, if no exemption can be asserted according to the regulations of the Swiss Takeover Board (TOB); see section on Treasury Shares and Takeover Law below. Page 5

7 Put and call options do they count as acquisition of own shares? Put options It is controversial under Swiss law, whether or not the agreement between a shareholder and the company about the shareholder's put option(s) is subject to the above-mentioned restrictions regarding the acquisition of treasury shares. Although the company's capital is not affected at the time of the conclusion of the agreement, it would be possible that the company must buy treasury shares in an amount which exceeds the allowed threshold. Therefore, the prevailing Swiss doctrine requires that put options are issued under the condition that they can only be exercised if the requirements regarding the acquisition of treasury shares are met. Call options A call option is a right which grants the option to buy a certain number of shares at a specified price up to a specified date. The agreement between the company and a shareholder about the company s call option(s) is not subject to the above-mentioned restrictions regarding the acquisition of treasury shares, since the company's capital is not affected at that time and the company only has the right but not the obligation to buy back its shares. To exercise the option(s), all of the above-mentioned restrictions, in particular the duty to treat all shareholders equally under the same circumstances, apply. Please note in that context that in case of a listed company, the disclosure of significant shareholding rules of the SESTA also apply to financial instruments such as put and call options. UTILISATION OF TREASURY SHARES Are there any statutory obligations to resell or redeem treasury shares? As a consequence of the corporate law principle of a equity protection (Eigenkapitalschutz), Swiss corporate law does not know any statutory obligation of a corporation to redeem shares absent a shareholders resolution to decrease the share capital. If the total par value of all treasury shares held by the company does not exceed the acceptable threshold of ten per cent of the share capital, as a matter of corporate law, there is also no statutory obligation to re-sell treasury shares. By contrast, the company's own shares that exceed the threshold of ten per cent of the share capital must as a matter of corporate law be re-sold or cancelled by means of a capital decrease within two years. Please note in that context that Swiss tax authorities consider the holding of treasury shares in excess of six years to be a partial liquidation of the company. such qualification leads to adverse tax consequences and can only be avoided if the company re-sells its treasury shares within that period or cancels them via capital decrease. How are treasury shares cancelled? The cancellation of treasury shares is effected by way of a formal decrease of the company's share capital. Therefore, the statutory provisions regarding the capital decrease procedure apply including the approval by the company's shareholders' meeting. Page 6

8 SALE OF TREASURY SHARES How can the company sell treasury shares? Treasury shares can be re-sold (i) anonymously on the stock market in case of a listed company; (ii) by way of individual share purchase agreement(s) or (iii) indirectly, by way of issuance of call options. Are there any restrictions for selling treasury shares? In contrast to the acquisition of treasury shares, there is no explicit statutory provision which deals with the re-sale of treasury shares. However, the above-mentioned general restrictions of Swiss company law also apply here. Therefore, a company s management must comply with the principle of equal treatment as well as the duty of care. Although postulated by some legal scholars, the prevailing view of Swiss legal scholars is that the statutory pre-emptive rights (Bezugsrechte) which apply in case of a capital increase are not triggered in the event of a sale of treasury shares. Nevertheless, all shareholders must to the extent possible be granted an equal right to buy treasury shares unless otherwise justified by the company's interest. Although not (yet) confirmed by case law, the general view is that the principle of equal treatment is always met in case of the re-sale of own listed shares via the stock market. Which authorisation is needed for selling treasury shares? Like the acquisition of treasury shares also their re-sale requires a resolution of the board of directors of the company; an approval of the shareholders meeting is, however, not necessary. Can treasury shares of a listed company be sold other than via the stock exchange? Yes, if the board of directors of the company complies with the principles of equal treatment of shareholders and its duty of care, or if a legitimate and prevailing interest of the company requires it, then treasury shares may be sold off-exchange by way of individual share purchase agreement(s). What are the publicity requirements in the event of a sale of treasury shares? The publicity requirements in the event of a sale of treasury shares correspond to those in the event of the acquisition of treasury shares (see also section Acquisition of Treasury Shares above): The company must include information on the sale (including the terms and conditions) and the remaining number of own shares held by the company and its subsidiaries in the annex to its annual financial statements. On top of that, a sale of treasury shares by a listed company may have to be publicly disclosed: (i) (ii) under the disclosure of shareholding rules of SESTA, if the sale of its treasury shares reduces the company's treasury share position below one of the thresholds of three, five, ten, 15, 20, 25, 33.33, 50 or per cent of the company's voting rights; and/or under the ad hoc publicity rules, if the factual circumstances of the re-sale transaction constitute a price-sensitive fact in the specific case. Page 7

9 What legal restrictions are there in order to avoid market abuse? The purchase and sale of treasury shares are generally subjected to the prohibition of market abuse, in particular the prohibition of insider dealing and market manipulation. As Switzerland is not a member of the EU there is no direct impact of EU regulations on Swiss market abuse including insider trading regulations. Generally, Swiss regulations on insider trading and fair market conduct are set out in various statutory provisions as well as regulatory rules ranging from criminal provisions to regulatory and self-regulatory rules. Additional statutory amendments are currently before Swiss Parliament and might become effective as early as 1 January The most important provision, with respect to insider trading is Article 161 of the Swiss Penal Code. This provision incriminates, in essence, the abuse of privileged material non-public information. However, despite recent changes in the law, it is still intensely debated among Swiss legal scholars, whether and to what extent this provision also applies to trading in own shares (or single sales or acquisitions of own shares) by a company. A cautious approach involving a caseby-case review is strongly recommended. TREASURY SHARES AND TAKEOVER LAW What are the general implications of treasury shares under the applicable public takeover law regime? Offers by a Swiss listed company to repurchase own equity securities including the mere announcement of such an intention constitute public takeover offers within the meaning of the SESTA, if more than two per cent of the share capital of such Swiss listed company shall be repurchased. However, a buy-back offer or programme does not generally have to comply with the regular takeover rules but is subject to a separate, less burdensome regime if it complies with the requirements and conditions set forth by the TOB. According to TOB Circular No 1, buy-back programmes are exempted from the stricter requirements under normal takeover rules if (i) the purpose of the buy-back is clearly and completely defined, (ii) the buy-back programme extends to all classes of the offeror's listed shares, (iii) the implementation of the buy-back programme does not result in any material change in the control exercised over the offeror, (iv) the buy-back relates to no more than ten per cent of the company s share capital or voting rights, (v) the buy-back does not exceed 20 per cent of the free float of the company's shares, and (vi) as a result of implementing the buy-back programme, the free float does not fall below the minimum threshold required for listing in accordance with the rules of the stock exchange on which the securities are listed. Such buy-back offers must, nevertheless, be notified to the TOB for an exemption from the application of the regular takeover rules via a reporting procedure. If the exemption is granted the buy-back programme also needs to be publicly announced. In addition, the board of directors has to publish full and binding details (timing, buy-back method, price) of the intended buy-back programme to enable shareholders to make their decision based on all the information available. Page 8

10 Treasury shares as defence measures against unsolicited takeovers? As a rule, the implementation of preventive defensive measures against unsolicited takeovers is generally admissible prior to the launch of a tender offer. Once, however, a public offer has been launched, with other words, from the date of the launch of a public takeover offer until the publication of the final result, the board of directors of the target company is restricted in its ability to implement defense measures against a tender offer. During that time period, the approval of the shareholders meeting is mandatorily required. In addition, the target company must notify the TOB in advance of any defensive measures it is considering. The takeover regulations contain a catalogue of such prohibited defensive measures which may only be taken with the additional approval of the shareholders meeting. In particular, the board of directors itself may during a public takeover neither purchase nor sell its own shares (or shares in the company whose shares are being offered in exchange) or related financial instruments, nor issue or grant rights to acquire its own shares, in particular conversion or option rights. Such transactions are only exceptionally permitted if they are carried out as part of an employee equity participation scheme or in fullfilment of obligations arising from financial instruments that were entered into before the publication of the tender offer. Consequently, once a public takeover offer has been launched, a target company may no longer purchase own shares, unless the shareholders meeting approves it in a formal vote. Page 9