PERU Treasury Shares Guide IBA Corporate and M&A Law Committee 2014

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1 PERU Treasury Shares Guide IBA Corporate and M&A Law Committee 2014 Contact Guilhermo Auler Forsyth Abogados, Lima

2 Contents Page INTRODUCTION 2 GENERAL OVERVIEW 2 REGULATORY FRAMEWORK 3 ACQUISTION OF TREASURY SHARES 3 UTILIZATION OF TREASURY SHARES 4 SALE OF TREASURY SHARES 4 TREASURY SHARES AND TAKEOVER LAW 5 Page 1

3 INTRODUCTION The following guide shall provide an overview of the Peruvian legal framework on the acquisition and sale of treasury shares of Peruvian corporations. For purposes of this guide, references to corporation or company shall be considered as done to the sociedad anónima, as it is the corporate form that is mostly used in Peru. Also, in this guide we have only considered the buy-back of shares with compensation and within a reasonable commercial relationship, as the Peruvian General Corporations Act (Ley General de Sociedades) establishes the possibility to acquire treasury shares with no compensation and also some exceptions if the shares are acquired in order to avoid serious damage to the company. On the other hand, we have considered the buy-back of shares in order to maintain them in stock, as treasury shares, as the Peruvian General Corporations Act also considers the possibility of buying back shares with the purpose of redeeming them. Likewise, we are only considering treasury shares that have been already issued in favor of shareholders and afterwards repurchased by the company. The latter considering that the Peruvian General Corporations Act also considers as treasury shares the shares created with the approval of the shareholders meeting but not issued, with the purpose of issuing them in the future. The information in this guide cannot substitute professional legal advice. Therefore, anyone involved and considering a buy-back program of shares should not solely rely on this guide alone and should seek specialist advice. GENERAL OVERVIEW Is the buyback of shares permitted in your jurisdiction? Yes, buy-back of shares is permitted in Peru. Section 104 of the Peruvian General Corporations Act explicitly allows the buyback of shares by corporations, subject to certain restrictions as explained below. What are the characteristics (maximum holdings, voting rights and other rights) of treasury shares? All the rights corresponding to buy-back shares are suspended, including voting rights, and therefore can not be exercised while the corporation holds these shares. On the other hand, buy-back shares will not be considered in order to establish quorum and majority of votes in shareholders meetings and its value shall be reflected in a special account of the balance sheet. The maximum holding of buy-back shares is 10% of the subscribed share capital. Buyback shares can be hold for a maximum period of two years. Page 2

4 What are the main reasons to acquire treasury shares? In our experience, corporations acquire treasury shares to offer employees stock options programs. Also, shares are repurchased in order to eliminate minority shareholders. REGULATORY FRAMEWORK The repurchase of own shares is governed by the Peruvian General Corporations Act, which was approved by Law 26887, as amended, and published in the Peruvian official gazette El Peruano on December 9 th, In the case of companies with securities listed in a stock exchange, also is applicable the Peruvian Securities Market Act (Ley del Mercado de Valores), which was approved by Legislative Decree No. 861, as amended, which unified text was published in the Peruvian official gazette El Peruano on June 15, 2002, as amended. ACQUISTION OF TREASURY SHARES How can a company acquire treasury shares? The acquisition of treasury shares can be done through the execution of written private agreements. If the holder of the shares is a married natural person, the participation of the spouse accepting the selling of the shares is required, unless acquired before marriage or received as part of a heritage. After executing the private agreement, the transfer shall be registered in the share registry and informed to the tax authority. In the case of companies with shares listed in a stock exchange the acquisition can be done also through the stock exchange. Are there any restrictions in acquiring treasury shares? (e.g. purpose-wise; accounting-wise?) Yes. A corporation may buy-back shares and maintain them as treasury shares only if it has accounting benefits or free reserves, and against these accounts. The Peruvian General Corporations Act does not consider the possibility of repurchasing shares if the company does not have accounting benefits or free reserves. The shares shall be fully paid up prior to the repurchase. In fact, shares may be issued subscribing 100% of the shares but paying a minimum of 25% of its face value, but in order to acquire them back they have to be fully paid up. Also, the buy-back of shares shall be done on a pro rata basis in favor of all the shareholders, unless it is done through a stock exchange or unless it is agreed otherwise by the shareholders meeting with the unanimity vote of the attending shareholders. In fact, as a protection to minority shareholders, the Peruvian General Corporations Act does not allow the repurchase of shares to certain shareholders, unless the purchase is done through a stock exchange or unless all shareholders agree otherwise. Page 3

5 Finally, treasury shares can not represent more that 10% of the subscribed share capital of the company. Which authorization is needed? The acquisition of treasury shares shall be authorized by the corporations shareholders meetings. Authorization by the shareholders meetings of companies with shares listed in a stock exchange and therefore subject to the regulations of the Peruvian Securities Market Act, requires the attendance of shareholders representing at least 66% of the voting rights in the first call and 60% in the second call, and the vote of shareholders representing the majority of voting shares. Companies with no securities listed in a stock exchange are not subject to this requirement and therefore the agreement may be taken with the attendance of shareholders representing 50% of the voting shares in first call and any number in second call, and with the vote of shareholders representing the majority of shares attending the meeting. What are the publicity requirements in the event of acquisition of treasury shares? There are not publicity requirements in the event of acquisition of treasury shares. Nonetheless, in the case of companies with shares listed in a stock exchange, the repurchase of its own shares shall be informed to the Securities Market Authority (Superintendencia del Mercado de Valores) as a relevant fact. Put and call options do they count as acquisition of own shares? The Peruvian General Corporations Act does not regulate the put and call options. Put and call options are subject to the general rules applicable to options established in the Peruvian Civil Code Nonetheless, as long as these options imply the obligation of the corporation to acquire treasury shares, the exercise of these options shall be subject to the same restrictions applicable to the repurchase of treasury shares as described above. UTILIZATION OF TREASURY SHARES Are there any statutory obligations to resell or redeem treasury shares? Yes, treasury shares shall be resold or redeemed within a period of time no longer than two years. How are treasury shares redeemed? The Peruvian General Corporations Act does not establish how the treasury shares may be redeemed. In this sense, general rules applicable to redemption of shares shall apply: Page 4

6 1- The shares may be redeemed in connection with a reduction of share capital according to the legal applicable procedure. A reduction of share capital shall be approved by the shareholders meeting with a qualified quorum and majority and shall be publicized in the Peruvian official gazette El Peruano -and in other diary if in Lima-, for three times with a five days interval between each publication. The reduction of capital can only take place after thirty days as from the last publication, as long as no creditor opposes to it. 2- Without reducing the share capital, in which case it is required a prior approval of the shareholders meeting in order to increase proportionally the face value of the remaining shares, so that the capital may be divided between them in equal aliquots. SALE OF TREASURY SHARES How can the company sell treasury shares? The company can sell treasury shares through individual written sale and purchase agreements with shareholders or with third parties. These sales should be registered in the company s share registry and informed to the tax authority. Are there any restrictions for selling treasury shares? There are not explicit restrictions for selling treasury shares. Notwithstanding, although the Peruvian General Corporations Act does not contemplates it, there has been some debate on whether shareholders should have a right of first refusal to acquire these shares in order to avoid having only the majority shareholders purchasing the shares, abusing of their rights. Which authorization is needed for selling treasury shares? Due to the fact that the sale of treasury shares may not be considered as part of the ordinary course of business and because the shares where acquired with the authorization of the shareholders meeting, it is recommended to have the sale authorized by the shareholders meeting. Can treasury shares be sold other than via the stock exchange or by public tender offer? Yes, treasury shares may be sold through individual and private written agreements. What are the publicity requirements in the event of a sale of treasury shares? There are not publicity requirements in the event of a sale of treasury shares. What legal restrictions are there in order to avoid market abuse? Corporations with securities listed in a stock exchange are subject to the prohibition of insider dealing and market manipulation according to the Peruvian Securities Market Page 5

7 Act, which covers also treasury shares. There are no rules applying to companies with no securities listed in a stock exchange. TREASURY SHARES AND TAKEOVER LAW What are the general implications of treasury shares under the applicable takeover law regime? The take-over law regime is only applicable to companies that have its shares listed in a stock exchange. Pursuant to the Peruvian Securities Market Act, a person that pretends to acquire or increase directly or indirectly its participation in the share capital of a corporation with at least one class of voting shares listed in the stock exchange shall launch a tender offer to acquire the remaining shares. Pursuant to the regulation applicable to the tender offers (Reglamento de Oferta Pública de Adquisición y de Compra de Valores por Exclusión) approved by Resolución CONASEV No EF/94.10, the tender offer is mandatory if the acquisition or increasing of the participation exceeds certain control thresholds calculated over the share capital. Also, it is established that the shares that have the voting right suspended shall be excluded from the calculation of the share capital. Therefore, considering that treasury rights have the voting rights suspended, treasury shares should be excluded from the calculation of the control thresholds for determining mandatory tender offers. Treasury Shares as defense measures? It is not usual to use treasury shares as defense measures as them can not represent more that 10% of the subscribed share capital. This is in addition to other restrictions such as the obligation to repurchase shares on a pro rata basis in favor of all shareholders. In case the acquisition is done indirectly, through a subsidiary, it should be noted that the Peruvian General Corporations Act establishes that these shares do not grant the subsidiary voting rights and that they are not considered for purposes of the shareholders meeting quorum. Indirect control of shares is regulated in section 105 of the Peruvian General Corporations Act.. Page 6