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

Transcription

1 Sweden Treasury Shares Guide IBA Corporate and M&A Law Committee 2012 Contact Per Berglöf, Olof Reinholdsson, Advokatfirman Delphi, Stockholm, Sweden

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 10 Page 1

3 INTRODUCTION The following guide shall provide an overview of the Swedish legal framework on acquisition and sale of treasury shares of Swedish limited liability companies. 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 Swedish takeover law. The information in this guide cannot substitute professional legal advice. Therefore, anyone involved and considering a buy-back programme of shares should not solely rely on this guide alone and should seek specialist advice. GENERAL OVERVIEW Is the buy-back of shares permitted in your jurisdiction? Yes. However, in Sweden an acquisition of own shares by a Swedish limited liability company is subject to significant restrictions under the Swedish Companies Act (Aktiebolagslagen (2005:551), ABL). A limited liability company may acquire shares only in the cases enumerated in and subject to the conditions and restrictions provided for in Chapter 19 ABL. What are the characteristics (maximum holdings, voting rights and other rights) of treasury shares? Shares which are held by the company may not be represented at general meetings. Treasury shares carry no rights to dividends or repayment in connection with a reduction of the share capital or the statutory reserve and carry no subscription rights as long as they are held by the company. What are the main reasons to acquire treasury shares? The main reason to acquire treasury shares is that it contributes to a more efficient use of the company s capital. The company is able to return surplus funds, for example accumulated profits or excess liquidity in connection with a sale of assets, to the shareholders. Treasury shares are also acquired to be used in stock option programmes for management or employees, to stabilise the stock price and as means of payment in connection with acquisitions of companies and other assets. Acquisition of treasury shares can also be used in connection with a transfer of ownership; the company's funds can be used to buy out a partner. Page 2

4 REGULATORY FRAMEWORK Under Swedish law, both private and public companies are permitted to acquire treasury shares. In general, the acquisition of treasury shares is governed by Chapter 19 ABL which is based on the following European legislation, in particular: Directive 77/91/EC of 13 December 1976 (Second Company Law Directive) as amended by Directive 92/101/EC of 23 November 1992 and by Directive 2006/68/EC of 6 September 2006 (the latter to be implemented by 15 April 2008); Directive 2003/6/EC of 28 January 2003 on insider dealing and market manipulation (market abuse); Commission Regulation (EC) No 2273/2003 of 22 December 2003 as regards exemptions for buy-back programmes and stabilisation of financial instruments. ACQUISITION OF TREASURY SHARES How can a company acquire treasury shares? A company s acquisition of its own shares is permissible in limited circumstances only. Chapter 19, section 5 ABL (for all companies) and Chapter 19, section 13 ABL (for public companies whose shares are traded on a regulated marketplace or a comparable marketplace outside of the European Economic Area), enumerates the circumstances under which a limited liability company may acquire treasury shares. A company may not, as a main rule, acquire its own shares. For all companies there are limited exceptions whereby a company may (Chapter 19, section 5 ABL): 1. acquire its own shares for which payment shall not be made; 2. acquire its own shares which are included in business operations which are acquired by the company, where the shares represent a small portion of the company s share capital; 3. redeem its own shares in accordance with Chapter 25, section 22 ABL (provisions regarding liquidation in the event of abuse of power); 4. purchase at auction its own shares which have been subject to a levy of execution in respect of the company s claim; or 5. acquire its own shares pursuant to Chapter 4, section 50, first paragraph ABL (provisions regarding share splits and reverse share splits). A public company whose shares are traded on a regulated marketplace or a comparable marketplace outside of the European Economic Area may, in addition to the exceptions mentioned above, acquire its own shares pursuant to Chapter 19, section 13 ABL. Hence, such company may acquire its own shares (Chapter 19, section 14 ABL): 1. on a regulated marketplace; 2. on a marketplace comparable to a regulated marketplace outside of the European Economic Area following authorisation by the Swedish Financial Supervisory Authority ( Finansinspektionen); or 3. in accordance with an offer to purchase which has been directed to all shareholders or all holders of a particular class of shares. Page 3

5 Are there any restrictions in acquiring treasury shares? (eg, purpose-wise; accountingwise?) Yes. A public company whose shares are traded on a regulated marketplace or a comparable marketplace outside of the European Economic Area may not acquire its own shares to the extent that the company s holding of its own shares following the acquisition would exceed one tenth of all shares in the company. In conjunction with the calculation, shares in the company held by any subsidiary shall be deemed to be shares held by the company (Chapter 19, section 15 ABL). An acquisition of own shares by a public company whose shares are traded on a regulated marketplace or a comparable marketplace outside of the European Economic Area in accordance with Chapter 19, section 13 ABL (but not an acquisition of own shares by a private and/or a public company in accordance Chapter 19, section 5 ABL) is to be regarded as a value transfer from the company and is therefore subject to certain rules in ABL intended to protect the company s creditors (Chapter 17, section 1, first paragraph, item 2 ABL). Hence, an acquisition of own shares in accordance with Chapter 19, section 13 ABL is only admissible to the extent that there is sufficient coverage for the company s restricted equity immediately after such acquisition (the so-called amount limit ). The calculation shall be based on the most recently adopted balance sheet taking into consideration changes in restricted shareholders equity which have occurred subsequent to the balance sheet date (Chapter 17, section 3, paragraph 1 ABL). A value transfer must also be compatible with the so-called prudence rule. Thus, a value transfer may only take place provided such appears to be justified taking into consideration: (i) the demands with respect to size of shareholders equity which are imposed by the nature, scope and risks associated with the operations; and (ii) the company s need to strengthen its balance sheet, liquidity and financial position in general. Where the company is a parent company, consideration shall also be given to the demands with respect to the group s equity which are imposed by the nature, scope and risks associated with the group s operations as well as the group s need to strengthen its balance sheet, liquidity, and financial position in general (Chapter 17, section 3, paragraphs 2 and 3 ABL). During the period of time commencing the annual general meeting at which the profit and loss account and balance sheet for a financial year have been adopted until the next annual general meeting, value transfers may take place in an aggregate amount not exceeding the amount which, at the time of the first annual general meeting, was available for value transfers pursuant to the amount limit. Upon calculation of the scope for value transfers, consideration shall be given to changes in shareholders equity that have occurred subsequent to the most recent annual general meeting (Chapter 17, section 4 ABL). Furthermore, under the Swedish stock exchange rules, an acquisition of own shares by a public company whose shares are traded on a regulated marketplace is subject to certain restrictions regarding the volume of shares to be acquired during a single trading day and the price to be paid for such shares. The company may as a principle rule only place orders in the company s own shares within the band of prices applying on the exchange. The range of prices pertains to the range between the highest purchase price and the lowest selling price. The fundamental principles of equal treatment of shares (Chapter 4, section 1 ABL) and equal treatment of shareholders (Chapter 7, section 47 and Chapter 8, section 41, paragraph 1 ABL) applies to the acquisition of own shares and shall accordingly be respected at all times, irrespective of the method used for the company s acquisition. ABL does not contain specific provisions on how an offer to acquire treasury shares is to be designed in order to comply with the principles of equal treatment. According to the Swedish Securities Council (Aktiemarknadsnämnden), an offer to acquire shares shall, in accordance with good practice in the Page 4

6 Swedish stock market, as a general rule be addressed to all shareholders in the company and all shareholders offered to participate shall have a pro-rata right to sell their shares (AMN 2006:06). Which authorisation is needed? An acquisition of own shares in accordance with Chapter 19, section 5 ABL can be resolved by the board of directors or as far as the decision can be considered to fall within the scope of the day-to-day management the managing director. Redemption of shares in the event of abuse of power (Chapter 19, section 5, item 3 ABL) can be resolved by the board of directors following an order by the court. A resolution regarding a company s acquisition of its own shares in accordance with Chapter 19, section 13 ABL shall be adopted by the general meeting. The general meeting may also authorise the board of directors to adopt such a resolution (Chapter 19, section 17 ABL). The board of directors may choose whether to make use of the authorisation or not. A resolution by the general meeting regarding a company s acquisition of its own shares pursuant to Chapter 19, section 13 ABL, or regarding authorisation for the board of directors to adopt such a resolution, shall be valid only where supported by shareholders holding not less than two thirds of both the votes cast and the shares represented at the general meeting (Chapter 19, section 18 ABL). What are the publicity requirements in the event of acquisition of treasury shares? Pursuant to Chapter 4, section 18 of the Financial Instruments Trading Act (Lag (1991:980) om handel med finansiella instrument), a Swedish company whose shares are admitted for trading on a regulated marketplace and which acquires or transfers its own shares shall publish information thereon where the acquisition or transfer results in the portion of the shares in the company which are held by the company itself or the portion of the total number of voting interests in the company represented by the own shares reaching, exceeding or falling below five, ten, 15, 20, 25, 30, 50, 66 2/3 or 90 per cent. The information shall be published not later than noon on the trading day after the acquisition or transfer. The information shall be made available to the public within the European Economic Area promptly and in a nondiscriminatory manner (Chapter 4, section 20) and be provided to the Financial Supervisory Authority at the same time (Chapter 4, section 21, paragraph 1). The provisions of Chapter 4, sections 18, 20 and 21 shall also, with some exceptions, apply with respect to shares admitted for trading on a regulated marketplace issued by companies outside of the European Economic Area (Chapter 4, sections 22 24). Furthermore, a Swedish company which acquires or transfers its own shares shall report the acquisition or transfer to the stock exchange which operates the regulated marketplace on which the shares are admitted for trading. Where the trading takes place in a buy-back programme pursuant to Commission Regulation (EC) No 2273/2003 of 22 December 2003 implementing Directive 2003/6/EC of the European Parliament and of the Council with respect to exemptions for buy-back programmes and stabilisation of financial instruments, the report shall instead be made to the Financial Supervisory Authority or, where provided in regulations issued by virtue of Chapter 7, section 1, subsection 5, to the stock exchange which operates the regulated marketplace on which the shares are admitted for trading (Chapter 4, section 19). As of today, no such regulations have been issued and the report shall thus be made to the Financial Supervisory Authority. An acquisition or sale of own shares by a public company whose shares are traded on a regulated marketplace is subject to certain additional publicity requirements under the Swedish stock exchanges rules. Thus, the company s resolution at a general meeting to acquire or sell Page 5

7 the company s own shares and decisions by the board of directors to utilise possible authorisations to acquire or sell the company s own shares must be disclosed as soon as possible. The disclosure must contain information on (i) the period during which the decision to acquire or sell the company s own shares is to be effected or during which the authorisation may be utilised, (ii) existing holdings of the company s own shares and the maximum number of shares intended to be acquired or sold, (iii) highest and lowest price per share, (iv) purpose of the acquisition or sale, and (v) other conditions for the acquisition or sale. Furthermore, the company must report to the exchange all acquisitions or sales involving the company s own shares that have occurred as soon as this is possible and not later than 30 minutes before the exchange opens on the trading day immediately following the acquisition or sale. Such notification must include details of the number of shares, distributed by class of share, covered by the acquisition or sale, the price or where applicable the highest or lowest price paid or received per share and the company s current holding of its own shares and the total number of shares in the company. Put and call options do they count as acquisition of own shares? Put and call options are not governed by company law. Pursuant to contract law principles, only the exercise of put and call options is to be regarded as an acquisition of own shares. UTILISATION OF TREASURY SHARES Are there any statutory obligations to resell or redeem treasury shares? Yes. Shares which have been acquired pursuant to any of the exception rules pursuant to Chapter 19, section 5 ABL and which have not been retired through a reduction of the share capital shall be divested as soon as such may occur without loss, however not later than three years from the date of the acquisition. Shares which have not been divested within such period of time shall be declared void by the company. In such cases, the company shall reduce the share capital by the portion of the share capital represented by such shares. A proposal regarding a reduction of the share capital shall be presented to the first general meeting held after the shares became void and the reduction amount shall be transferred to the statutory reserve (Chapter 19, section 6 ABL). The requirement on divestment of shares pursuant to Chapter 19, section 6 ABL is not applicable for public companies whose shares are traded on a regulated marketplace or a comparable marketplace outside of the European Economic Area. As long as the company s holding of its own shares does not exceeds one tenth of all shares in the company, the company may choose to simply hold the treasury shares (Chapter 19, sections 15 and 30 ABL). However, where an acquisition pursuant to Chapter 19, section 13 ABL has taken place in violation of Chapter 17, sections 3 or 4 ABL, or any of the provisions of Chapter 19, sections 14 and 15 ABL, the acquired shares shall be divested within six months from the acquisition. Shares which are not divested within such period of time shall be declared void by the company. In such case, the company shall reduce the share capital by the portion of the share capital represented by the shares. A proposal regarding a reduction shall be presented at the first general meeting held after the shares became void and the reduction amount shall be transferred to the statutory reserve (Chapter 19, section 16 ABL). Page 6

8 How are treasury shares redeemed? Redemption of treasury shares requires a reduction of the company s share capital. The relevant provisions regarding reduction of the share capital are to be found in Chapter 20 ABL. Reduction of the share capital may take place (i) to cover losses where unrestricted shareholders equity equal to the loss is not available, (ii) for transfer to a fund to be used pursuant to a resolution adopted by the general meeting, and (iii) for repayment to the shareholders (Chapter 20, section 1 ABL). A resolution regarding a reduction of the share capital shall be adopted by the general meeting and shall be valid only where supported by shareholders holding not less than two thirds of both the votes cast and the shares represented at the general meeting. Where the company has several classes of shares, the majority requirements shall also be applied with respect to each class of shares represented at the general meeting in respect of which the rights carried by the shares are prejudiced by the resolution (Chapter 20, sections 3 and 5 ABL). ABL also allows a clause in the articles of association pursuant to which the share capital may be reduced through redemption of shares (redemption clause). A company thus has the possibility to prescribe that a reduction shall take place for purposes other than those mentioned above and may also prescribe that such reduction shall take place without requirements on a resolution adopted by the general meeting (Chapter 20, sections 1 and 31 ABL). Should a resolution by the general meeting be required pursuant to the redemption clause, such resolution shall be valid only where supported by a simple majority of the votes cast at the general meeting (Chapter 20, section 32 ABL). A redemption clause must be adopted by the general meeting and such resolution shall be valid only where supported by shareholders holding not less than two thirds of both the votes cast and the shares represented at the general meeting (Chapter 7, section 42 ABL). In addition, a redemption of treasury shares may also take place pursuant to statutory obligations to redeem treasury shares (pursuant to Chapter 19, sections 6 and 16 ABL as described above). The treasury shares cease to exist upon the redemption becoming effective (ie, only after registration of the resolution in the companies register). SALE OF TREASURY SHARES How can the company sell treasury shares? A sale by a public company of its own shares must take place (i) on a regulated marketplace, (ii) on a marketplace comparable to a regulated marketplace outside of the European Economic Area following authorisation by the Swedish Financial Supervisory Authority, or (iii) in accordance with the provisions in ABL regarding share issues (Chapter 19, sections 32 and 35 ABL). The provisions above do not apply in relation to a sale of shares which have been acquired in accordance with Chapter 19, section 5 ABL and which shall be divested pursuant to Chapter 19, section 6 ABL, or where an acquisition in accordance with Chapter 19, section 13 ABL has taken place in violation of Chapter 17, sections 3 or 4 ABL or any of the provisions of Chapter 19, sections 14 and 15 ABL, and the acquired shares shall be divested pursuant to Chapter 19, section 16 ABL. Furthermore, there are no specific provisions regarding the sale of own shares by private companies. Page 7

9 Are there any restrictions for selling treasury shares? Under the Swedish stock exchange rules, a sale of own shares by a public company whose shares are traded on a regulated marketplace is subject to certain restrictions regarding the volume of shares to be sold during a single trading day and the price to be paid for such shares. The company may as a principle rule only close transactions in the company s own shares within the band of prices applying on the exchange. The range of prices pertains to the range between the highest purchase price and the lowest selling price. The fundamental principles of equal treatment of shares (Chapter 4, section 1 ABL) and equal treatment of shareholders (Chapter 7, section 47 and Chapter 8, section 41, paragraph 1 ABL) applies to the sale of own shares and shall accordingly be respected at all times, irrespective of the method used for the company s sale. Furthermore, the Financial Instruments Trading Act (Lagen (1991:980) om handel med finansiella instrument) contains provisions regarding an obligation to prepare a prospectus when shares are offered to the general public. These rules are applicable also in relation to sales of treasury shares. Which authorisation is needed for selling treasury shares? A resolution regarding a public company s sale of its own shares shall be adopted by the general meeting. The general meeting may also authorise the board of directors to adopt such a resolution (Chapter 19, section 33, first paragraph and Chapter 19, section 35 ABL). A resolution to sell shares in accordance with the provisions in ABL regarding share issues may also be adopted by the board of directors subject to the general meeting s subsequent approval (Chapter 19, section 35 ABL). A resolution by the general meeting regarding a company s sale of its own shares on a regulated marketplace, or on a marketplace comparable to a regulated marketplace outside of the European Economic Area following authorisation by the Swedish Financial Supervisory Authority, or regarding authorisation for the board of directors to adopt such a resolution, shall be valid only where supported by shareholders holding not less than two thirds of both the votes cast and the shares represented at the general meeting (Chapter 19, section 33, second paragraph ABL). A resolution to sell shares in accordance with the provisions in ABL regarding share issues is subject to different majority requirements. In situations where the existing shareholders shall hold pre-emption rights to the shares pro rata to the number of shares they own a simple majority of the votes cast is sufficient. However, a resolution to derogate from the shareholders pre-emption rights shall be valid only where supported by shareholders holding at least two thirds of both the votes cast and the shares represented at the general meeting. Should the persons who shall acquire the shares belong to specific categories such as members of the board of directors or management a resolution to derogate from the shareholders pre-emption rights may instead require nine tenths of both the votes cast and the shares represented at the general meeting (Chapter 19, section 35 ABL). The provisions above do not apply in relation to a sale of shares which have been acquired in accordance with Chapter 19, section 5 ABL and which shall be divested pursuant to Chapter 19, section 6 ABL, or where an acquisition in accordance with Chapter 19, section 13 ABL has taken place in violation of Chapter 17, sections 3 or 4 ABL or any of the provisions of Chapter 19, sections 14 and 15 ABL, and the acquired shares shall be divested pursuant to Chapter 19, section 16 ABL. Furthermore, there are no specific provisions regarding the sale of own shares by private companies. In such companies the sale can be resolved upon by the board of direc- Page 8

10 tors or as far as the decision can be considered to fall within the scope of the day-to-day management the managing director. Can treasury shares be sold other than via the stock exchange or by public tender offer? Yes. Please see information above. What are the publicity requirements in the event of a sale of treasury shares? Please see information under publicity requirements in the event of an acquisition of treasury shares. What legal restrictions are there in order to avoid market abuse? Under The Financial Instruments Trading (Market Abuse Penalties) Act (Lag (2005:377) om straff för marknadsmissbruk vid handel med finansiella instrument) there are general prohibitions regarding insider dealing and market manipulation (market abuse). Any person who receives insider information (ie, information regarding a circumstance which has not been made public or which is not generally known and is likely to materially affect the price of financial instruments) and who on his own behalf or on behalf of any third party, through trading on the securities market, acquires or sells such financial instruments to which the information relates shall be convicted of the offence of insider dealing. The same shall apply to any person who receives insider information and who, through advice or in any other manner, causes any third party to acquire or sell financial instruments to which the information relates through trading on the securities market. The foregoing shall also apply to any person who possesses insider information which consists of knowledge of that person s own criminal activities (section 2). Any person who, either in conjunction with trading on the securities market or otherwise, acts in a manner which he or she realises is likely to manipulate the market price or other terms and conditions in respect of trading in financial instruments or to otherwise mislead purchasers or sellers of such instruments, shall be convicted of the offence of market manipulation. The same shall apply where a person, in conjunction with trading on the securities market or otherwise, acts in a manner which he or she should have realised was intended to affect or mislead in the manner specified in the foregoing sentence (section 8). However, the prohibitions regarding insider dealing and market manipulation shall not apply to trading in own shares in buy-back programmes or to stabilisation of financial instruments, provided that trading is conducted in accordance with Commission Regulation (EC) No 2273/2003 of 22 December 2003 implementing Directive 2003/6/EC of the European Parliament and of the Council as regards exemptions for buy-back programmes and stabilisation of financial instruments (section 9). Page 9

11 TREASURY SHARES AND TAKEOVER LAW What are the general implications of treasury shares under the applicable takeover law regime? The Stock Market (Takeover Bids) Act (Lagen (2006:451) om offentliga uppköpserbjudanden på aktiemarknaden)) contains provisions regarding the obligation to launch a bid in conjunction with the acquisition of shares. The provisions are applicable for Swedish companies whose shares are admitted to trading on a regulated marketplace or a comparable marketplace outside of the European Economic Area. Treasury shares are included in the calculation of the voting rights in the company for the purpose of determining the relevant control threshold of three tenths of the voting rights giving rise to an obligation to launch a bid in respect of the remaining shares in the company (mandatory bid) (Chapter 3, section 1). Hence, an acquisition by a company of its own shares will not itself trigger a mandatory bid for any shareholder. However, the provisions in respect of mandatory bids shall also apply where a party who holds no shares or who holds shares representing less than three tenths of the voting rights for all shares, through measures by the company or another shareholder, alone or together with another closely related party, attains a shareholding representing at least three tenths of the voting rights for all shares and thereafter other than through a takeover bid, acquires the remaining shares in the company, increases his or her share of voting rights through acquisition of one or more shares in the company (Chapter 3, section 2). Hence, redemption of treasury shares may trigger a mandatory bid for another shareholder. However, the obligation to launch a bid will not be triggered until the relevant shareholder acquires additional shares in the company. Furthermore, where special cause exists, the Financial Supervisory Authority may, following application, grant an exemption from the provisions regarding mandatory bids (Chapter 7, section 5). Treasury shares as defence measures? Under the Stock Market (Takeover Bids) Act there is also a general rule regarding defensive measures. Where, based on information originating from a party who intends to launch a takeover bid in respect of the shares in the company, the board of directors or the managing director of a Swedish company whose shares are admitted to trading on a regulated marketplace, or a comparable marketplace outside of the European Economic Area, has a well-founded reason to believe that such a bid is imminent or that such a bid has been launched, the company shall only be entitled to take measures which are intended to impair the conditions for the launching or implementation of the bid, only following a resolution adopted by the general meeting. However, the company may seek alternative bids (Chapter 5, section 1). Furthermore, where special cause exists, the Financial Supervisory Authority may, following application, grant an exemption from the provisions regarding defensive measures (Chapter 7, section 5). Page 10