MEASURES TO BOOST THE CAPITAL MARKET FOR SMES

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1 MEASURES TO BOOST THE CAPITAL MARKET FOR SMES (DECREE-LAW 77/2017, OF 30 JUNE) Decree-law 77/2017, of 30 June 2017, entered into force last 1 July This statute aims at broadening the range of funding options for companies, notably by increasing the relevance of the capital market in the financing of small and medium-sized enterprises, particularly through equity instruments. This diversification will strengthen the productive entrepreneurial fabric, and therefore foster the consolidation of a sustainable economic growth. Without prejudice to the voting rights attached to the shares held by the person exercising a dominant influence, this statute requires controlling relationships between the same natural or legal person and more than one company to be considered in isolation, in order to clarify which legal duties fall on the controlling companies, for purposes of application of certain requirements on transparency and the rules requiring qualified shareholders of companies listed on a regulated market located or operating in an EU Member State to launch a public offering. This statute also adopts specific measures allowing for alternative forms of leverage of funding and private investment, and for fostering the capital market. 1

2 These measures are: 1) CREATION OF SECURITIES INVESTMENT COMPANIES TO STRENGTHEN THE ECONOMY In order to put the small and medium-sized enterprises on an equal footing with large enterprises, this statute creates and regulates a subtype of the real estate investment company: the Securities Investment Companies to Strengthen the Economy (Sociedades de Investimento Mobiliário para Fomento da Economia SIMFE ). SIMFE, as public limited companies, are undertakings for collective investment in securities issued by eligible companies, with a fixed capital, and which cannot operate as financial dealers, with a duration of not less than 10 years extendable once or more often for identical periods. The minimum capital is EUR 125, and the shares must be admitted to trading on a regulated market located or operating in Portugal, within not more than one year after incorporation. The registered office and effective administration of the SIMFE must be in Portugal. The SIMFE can be new companies established with or without recourse to a public offering, or existing private limited companies that meet the requirements laid down in such law, subject to registration with the Securities Exchange Commission ( CMVM) prior to commencing operations. A portion of not less than 70% of the investment of the SIMFE must be in eligible companies. On the other hand, these companies cannot invest more than 15% of their assets in securities issued by a sole eligible company or group of companies, and cannot raise capital, in any form whatsoever, in excess of 10% of the relevant capital. For purposes of investment by the SIMFE, eligible companies are understood to be those meeting the following criteria: a) Small and medium-sized enterprises within the meaning of Article 2.1 of the Annex to the Commission Recommendation 2003/361/EC of 6 May 2003, on the definition of micro, small and medium-sized enterprises; 2

3 b) Companies issuing shares admitted to trading on a regulated market but which, on the average of the past three years, have had a market capitalization of less than based on the listing price at the end of the three calendar years preceding the investment; and c) Companies qualified as Mid-Caps or Small Mid-Caps within the meaning of Decree-law 81/2017, of 30 June, not issuing securities admitted to trading on a regulated market. The assets of the SIMFE can be the following: a) Shares and other interests in the capital of eligible companies; b) Bonds and other debt instruments issued by eligible companies, as long as the same have not been offered to the public and have, according to the original conditions of issue, a maturity of 5 years or more; c) SIMFE can only acquire the tangible or intangible fixed assets needed for pursuing its activity as well as the assets specified in article of the Legal Framework of Undertakings for Collective Investment (Regime Geral dos Organismos de Investimento Colectivo RGOIC ), approved by Law 16/2015, of 24 February. In any event, and except for the first year of selection of assets of eligible companies, the investment in shares and interests in the capital of eligible companies must at all times correspond to at least 50% of the assets of SIMFE. The members of the governing bodies of SIMFE must be capable of ensuring a sound and prudent management, be of good repute and have proven qualifications, work experience and availability. Each year, the SIMFE must provide CMVM with information on the main instruments in which they trade, the main risk positions and the most important concentrations in the portfolio they manage, and notify CMVM whenever the assets under their management exceed the following limits: a) , for portfolios built with assets acquired through the use of leverage; and 3

4 b) , for portfolios not built with assets acquired through the use of leverage and not attaching repayment rights that can be exercised for a period of five years from the date of the initial investment. 2) ALTERATION OF THE LEGAL FRAMEWORK OF COMMERCIAL PAPER (REGIME JURÍDICO DO PAPEL COMERCIAL RJPC ) It should be noted that this new statute reviews and adjusts the monetary debt instruments known as commercial paper. Namely: I - Maturity of the commercial paper As regards short term debt instruments the so-called commercial paper this Decree-law extends the maturity period of one year under the previous law to 397 days, and requires the same to be nominative and in book-entry form. II - Information to be made available in the Information Note The Information Note of commercial paper not admitted to trading must now include an opinion from the financial dealer, the sponsor of the issue or the auditor, not bound by instructions of the issuer, on the verification of the information therein contained, pursuant to Article c) of the General Framework of Undertakes for Collective Investment. III - Short term debt certificate With a view to fostering the national debt market, a new short-term debt instrument is created the short term debt certificate. The short term debt certificate is understood to be the commercial paper that cumulatively (i) has liquidity pursuant to articles and of the RGOIC when a sponsor of the issue is hired the short-term debt certificates are deemed to be liquid, (ii) a value that can at all times be accurately determined pursuant to article and of the RGOIC, and (iii) freely transferable. 4

5 This being the case, this new security becomes eligible for investment by the Undertakings for Collective Investment in Securities. These certificates must be so identified in the information to be provided to the investors and in advertising messages. Finally, the provisions of article 20-A of RJPC (Other duties of information) apply to these certificates, even if they are not admitted to trading on a regulated market. For more information contact apdfin@abreuadvogados.com Lisboa (New address) Av. Infante D. Henrique, Lisbon (+351) (+351) lisboa@abreuadvogados.com Porto Rua S. João de Brito, 605 E Porto (+351) (+351) porto@abreuadvogados.com Madeira Rua Dr. Brito da Câmara, Funchal (+351) (+351) madeira@abreuadvogados.com Follow us 1st Law fim in Portugal whose management system is certified to ISO Abreu Advogados offsets its carbon footprint and is certified as e)mission neutral. Abreu Advogados is a B Corp. B Corporations, leaders of the global movement of people using business as a force for good, meet the highest standards of verified overall social and environmental performance, transparency, and accountability, and aspire to use the power of business to solve social and environmental problems. 5