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

Transcription

1 Norway Treasury Shares Guide IBA Corporate and M&A Law Committee 2014 Contact Are Herrem and Per Arne Dæhli Advokatfirmaet Selmer DA, Oslo, Norway

2 Contents Page GENERAL OVERVIEW 2 REGULATORY FRAMEWORK 2 ACQUISTION OF TREASURY SHARES 3 UTILIZATION OF TREASURY SHARES 5 SALE OF TREASURY SHARES 6 TREASURY SHARES AND TAKEOVER LAW 7 Page 1

3 INTRODUCTION The following guide contains an overview of the Norwegian legal framework for the acquisition and sale of treasury shares of Norwegian limited liability companies (both private and public). This guide provides general information on treasury shares, on the legal requirements and restrictions of acquisitions and sales of such treasury shares and implications of treasury shares under Norwegian takeover law. The information in this guide cannot substitute professional legal advice. Therefore, anyone involved in or considering a buy-back program or acquisition of treasury shares should not solely rely on this guide and should seek specialist advice. GENERAL OVERVIEW Is the buyback of shares permitted in your jurisdiction? Yes. Both private limited liability companies and public limited liability companies are permitted to acquire treasury shares by purchase of shares in the secondary market. However, the acquisition of treasury shares by a Norwegian limited liability company is subject to significant restrictions under the Norwegian Private Limited Liability Companies Act and the Norwegian Public Limited Liability Companies Act (collectively referred to as the Acts ). What are the characteristics (maximum holdings, voting rights and other rights) of treasury shares? A company will not obtain full shareholders rights for treasury shares. No voting rights may be exercised for shares held by the company. Furthermore, as a consequence of the Acts prohibition against subscription for treasury shares, a company may not exercise any subscription rights issued in respect of treasury shares. However, a company will obtain the same financial benefits relating to the shares as other shareholders. A public limited liability company may as a principal rule not hold treasury shares with a combined nominal value that exceeds ten per cent of its share capital. What are the main reasons to acquire treasury shares? The main reasons to acquire treasury shares are to (i) stabilize the stock price, (ii) increase shareholder value by acquiring undervalued shares, and (iii) have an inventory of shares in order to fulfil obligations under option schemes for employees or as consideration for the purpose of acquisitions. REGULATORY FRAMEWORK Under Norwegian law, private limited liability companies and public limited liability companies are permitted to acquire treasury shares. Chapter 9 in both Acts govern the company s right to acquire shares. With some exceptions, the same rules apply to private limited liability companies and public limited liability companies. However, acquisition of treasury shares raises particular issues in relation to companies with shares listed on a regulated market (e.g. publication, market manipulation, prohibition of insider trading, etc.). Page 2

4 The relevant Norwegian law is based on the following European legislation: - Directive 2012/30/EU of 25 October 2012, which recasts Directive 77/91/EC of 13 December 1976 (Second Company Law Directive) as amended by Directive 92/101/EC of 23 November 1992 and Directive 2006/68/EC of 6 September 2006; - 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 programs and stabilization of financial instruments. ACQUISTION OF TREASURY SHARES How can a company acquire treasury shares? Except for a prohibition against subscribing for treasury shares, the Acts explicitly permit other methods of acquiring treasury shares. There are, however, some limits to a company's acquisition of treasury shares. Any acquisition of treasury shares by a company requires that the company's board of directors has been authorised by the general meeting, with the approval of no less than two-thirds of both the votes cast and the share capital represented at the general meeting, to carry out such purchase. The Acts require that the authorisation determines the ways in which the board may acquire treasury shares, and contain specific requirements as to the duration and content of the authorisation. The general meeting may impose additional restrictions on the acquisition of treasury shares, for example a condition that treasury shares must be bought on a regulated market. When acquiring treasury shares, the board has to have due consideration to the principle of equal treatment of shareholders. Are there any restrictions in acquiring treasury shares? (e.g. purpose-wise; accountingwise?) The acquisition of treasury shares is comparable to a reduction of the share capital and is therefore permitted, however subject to certain restrictions. Chapter 9 in both of the Acts sets forth the circumstances in which a company may acquire treasury shares. The following principal restrictions apply: - Subscription: A company cannot subscribe for treasury shares. Furthermore, a subsidiary may not subscribe for shares in its direct or indirect parent company. - Volume of treasury shares: In respect of public limited liability companies, the right to acquire shares are permitted only to the extent that the acquisition does not entail that the total nominal value of the holding of treasury shares after the acquisition exceeds ten per cent of the share capital. If the holding of treasury shares (including shares held by the company's subsidiaries) exceeds ten per cent, the shares exceeding such threshold must be sold or cancelled by a reduction of the share capital as soon as possible and no later than three months after the relevant acquisition. - Furthermore, an acquisition must not result in the share capital less the total nominal value of the holding of the company s treasury shares being lower than the minimum permitted share capital (i.e. NOK 30,000 and NOK 1,000,000 for private and public limited liability companies, respectively). Page 3

5 - Distributable equity: A company may only acquire treasury shares if the company s distributable equity exceeds the consideration to be paid for the shares. - Prudent and sound business practice: Treasury shares may not in any circumstances be acquired in excess of the amount compatible with prudent and sound business practice. The company should take into consideration any loss which may have been incurred after the balance-sheet date or which must be expected to be incurred. - Fully paid shares: A company may only acquire shares that have been fully paid. - Certain exemptions: The abovementioned restrictions do not prevent treasury shares from being acquired as a gift, by enforcement to cover the company s claim, by the takeover of another business through a merger, demerger or in any other manner or by specific forms of redemption of shares. However, if the total nominal value of the holding of treasury shares in a public limited liability company exceeds ten per cent of the share capital, the shares exceeding such threshold must be sold or cancelled by a reduction of the share capital as soon as possible and no later than two years after the acquisition. Similarly, if, after the deduction of the total nominal value of the holding of treasury shares, the share capital in a private limited liability company amounts to less than the minimum permitted share capital of NOK 30, 000, any share acquired pursuant to the above exemptions must be sold or cancelled by a reduction of the share capital as soon as possible and no later than two years after the acquisition. - Equal treatment: Shareholders shall in principle be afforded equal treatment. Any deviation from the principle of equal treatment shall be justified on basis of the common interest of the company and its shareholders cf. sections 5-21 and 6-28 of both of the Acts. A decision which states that shares only shall be purchased from one shareholder or a group of shareholders, may be in conflict with the principle of equal treatment. Generally, a company cannot acquire shares if the acquisition could confer an unfair advantage on certain shareholders or other parties at the expense of other shareholders or the company. There is, however, no requirement that the shares only can be acquired after an offer has been issued to all shareholders. For public companies listed on a regulated market, the principle of equal treatment will normally be fulfilled in cases where the treasury shares are acquired on a regulated market or by a public offer. Other forms of acquisitions of shares may be in compliance with the principle of equal treatment depending on the circumstances. - Other provisions: Other provisions of the Acts may in some circumstances provide other limitations to a company's right to acquire treasury shares, even if the conditions set forth in chapter 9 of the Acts are fulfilled. Which authorization is needed? The company may acquire treasury shares if the general meeting has granted the board an authorization to make such acquisition. A resolution to authorize the board to acquire treasury shares requires the approval of two-thirds of both the votes cast and the share capital represented at the general meeting. The authorization must apply for a specific period of time, and cannot exceed two years. To have a permanent authorization to purchase shares, the authorization will in practice have to be renewed annually. In addition, the authorization must state the maximum total nominal value Page 4

6 of the shares that the company may acquire, and the minimum amount and maximum amount that may be paid for the shares. The authorisation shall determine in which ways the treasury shares may be acquired and sold. This requirement may be fulfilled by stating that the methods of acquisition and sale shall be determined at the board s discretion. Within the scope of the authorizations and restrictions provided for by the resolution of the general meeting, the board is free to take necessary measures in order to acquire treasury shares in the name and for the account of the company (e.g. signing and closing of the respective transaction). The board is not obliged to use the authorization, and may determine whether an authorization to acquire treasury shares shall be utilized. The board of directors may choose to let the validity period of the authorization expire without acquiring treasury shares. What are the publicity requirements in the event of acquisition of treasury shares? For both private and public limited liability companies, the general meeting s resolution must be reported to the Norwegian Register of Business Enterprises and registered before treasury shares can be acquired in accordance with the authorization. For companies listed on a Norwegian regulated market, the acquisition of treasury shares shall be publicly disclosed. The acquisition of treasury shares must be notified to the regulated market immediately after the agreement is entered into, and in any event no later than the opening of the regulated market the following business day. The notification shall contain, inter alia, the time and market for the transaction, type of transaction, price and volume, whether the acquisition concerns the company itself or closely related parties, and the number of treasury shares held after the acquisition. Put and call options do they count as acquisition of own shares? Put options As a principle rule, issues of put options are not considered as an acquisition of treasury shares. However, the validity of such options may be contested if the requirements for acquisition of own shares pursuant to the Acts are not complied with upon exercise of the options. Call options The Acts do not prevent the company from acquiring call options relating to treasury shares. Reservations must be made for options that are so extensive that they must be deemed to constitute an actual acquisition of shares. Acquisition upon exercise of the call option must be made in compliance with the Acts. UTILIZATION OF TREASURY SHARES Are there any statutory obligations to resell or redeem treasury shares? Except as described above, there is no statutory obligation under Norwegian law which requires the company to resell or redeem treasury shares. If the company wishes to dispose of treasury shares, the board may decide to either sell or otherwise dispose of the shares or summon a general meeting to redeem the shares by way of a share capital reduction. Page 5

7 How are treasury shares redeemed? The most common method of redeeming treasury shares is through a share capital reduction resolved by the general meeting in accordance with chapter 12 of the Acts. Such resolution requires the approval of two-thirds of both the votes cast and the share capital represented at the general meeting. The main rule for a share capital reduction, including by way of redemption of treasury shares, is that a creditors notification period of six weeks is required prior to implementation of the share capital reduction and redemption of shares. The creditors notification period may, however, be avoided if the company s share capital is increased with an amount equivalent to the amount of the share capital reduction through issue of new shares against contribution. A less common method for redemption of treasury shares is that the company includes a redemption right in its articles of association. Redemption pursuant to provisions in the articles of association will not require a creditors notification period if (i) the redemption relates to shares issued concurrently with or after the registration of such provision with the Norwegian Register of Business Enterprises and (ii) the shares are redeemed without distribution, or the distribution is does not exceed the company s distributable equity. For public limited liability companies an additional requirement is that an amount equivalent to the nominal value of the redeemed shares is allocated to an undistributable reserve. The treasury shares continue to exist until the redemption has been implemented, i.e. the capital decrease has been registered in the Norwegian Register of Business Enterprises. SALE OF TREASURY SHARES How can the company sell treasury shares? The Acts do not limit the ways in which a company may sell treasury shares. The authorization to acquire treasury shares shall, however, also determine the ways the in which the company's treasury shares may be sold. This requirement can be fulfilled by stating in the authorization that the ways shares may be sold is subject to the board s discretion. Are there any restrictions for selling treasury shares? The sale of treasury shares is subject to the principle of equal treatment of shareholders. As a principal rule, the company cannot sell shares at an advantageous price to selected shareholders. A sale of treasury shares on a regulated market or by a public offer will normally be in compliance with the principle of equal treatment of shareholders. Other sales methods may be permitted depending on the circumstances. Which authorization is needed for selling treasury shares? The general meeting s authorization to acquire treasury shares shall determine which ways the company may acquire and sell treasury shares. The authorization can in any way limit the company's access to carry out sale of treasury shares. The general meeting may also leave it to the board's discretion to determine how treasury shares may be sold. It is not required to issue a separate authorization for sale of treasury shares. If the board is given an authorization to acquire treasury shares, the shares may also be sold by the board without further authorization (unless otherwise stated in the authorization). Page 6

8 Can treasury shares be sold other than via the stock exchange or by public tender offer? As a principal rule, the company may sell its shares in any way it sees fit, provided that such sale is carried out in accordance with the principle of equal treatment of shareholders and any restrictions set forth by the general meeting in the authorization to acquire treasury shares. What are the publicity requirements in the event of a sale of treasury shares? For companies listed on a Norwegian regulated market, the sale of treasury shares shall be publicly disclosed. The sale must be notified to the regulated market immediately after the agreement is entered into, and in any event no later than the opening of the relevant market the following business day. The notification shall contain, inter alia, the time and market for the transaction, type of transaction, price and volume, whether the sale concerns the company itself or closely related parties and the number of treasury shares held after the sale. What legal restrictions are there in order to avoid market abuse? Acquisition of treasury shares is subject to the general rules of chapter 3 of the Norwegian Securities Trading Act on market abuse, including insider trading and market manipulation. Section 3-12 of the Securities Trading Act sets forth a safe harbour from the prohibition against market manipulation by incorporating Commission Regulation (EC) No 2273/2003 into Norwegian law by reference. The safe harbour rules only apply to buyback programs which aim to reduce the capital of the issuer or to meet obligations under convertible bonds or employee stock option plans. Furthermore, the safe harbour rules set out requirements inter alia related to (i) disclosure of the buy-back program itself and any trades made, (ii) limitations on purchase price for the shares and (iii) the maximum number of shares to be purchased each day based on the daily trading volume of the shares. However, as the safe harbour rules in general are considered to balance the considerations to the market and the company, it is advisable to follow certain of the safe harbour rules for buy-back programs with other purposes as well. TREASURY SHARES AND TAKEOVER LAW What are the general implications of treasury shares under the applicable takeover law regime? Since treasury shares do not carry voting rights, acquisitions of treasury shares impact the proportion of votes for all shareholders. The treasury shares shall not be considered when the decision requires the consent of all shareholders, or a certain part of the share capital or of the capital represented at a general meeting. In relation to companies which are subject to Norwegian takeover rules (inter alia Norwegian public limited liability companies with shares listed on a regulated market), a mandatory offer obligation will be triggered when a shareholder (or a consolidated group) through acquisition becomes owner of shares representing more than 1/3, 40 per cent or 50 per cent of the votes in the company. In general, an acquisition of treasury shares which results in a shareholder (or group) exceeding such threshold will not trigger a mandatory offer obligation for the relevant shareholder. As a principal rule, any subsequent acquisition by such shareholder will trigger a mandatory offer obligation (provided that neither the relevant shareholder nor the company has sold sufficient treasury shares to reduce the holding below the threshold). A company has no general obligation to prevent that an acquisition of treasury shares results in a shareholder exceeding a threshold for a mandatory offer obligation. Page 7

9 Treasury shares as defence measures? Treasury shares cannot be acquired in the period from the company having been informed that a voluntary or mandatory offer will be put forth and until the offer period has expired and the result is clear, unless the authorisation explicitly states that it may be used in such situations or the acquisition is made in the company s ordinary course of business. The same rules apply for the sale of treasury shares already held by the company. There are no specific prohibitions against acquiring or disposing of treasury shares in connection with a takeover for companies that do not have shares listed on a regulated market. However, the board must have due consideration to equal treatment of shareholders and the common interest of the shareholders and the company if such acquisitions or sales are to be made. Page 8