Newsletter - proposal for several legislative amendments in relation to implementation of EU - directive/828
The Norwegian Ministry of Trade, Industry and Fisheries has released a proposal for several legislative amendments in order to implement EU-directive 2017/828. The most important part of the proposal is a significant liberalization of the Norwegian financial assistance rules that have constrained acquisition financing. The Ministry also proposes simplify the procedure for approving certain related party transactions as well as measures aimed at increasing transparency and shareholder rights in public limited liability companies.
Paragraph 8-10 of the Norwegian Private Limited Liability Companies Act and Norwegian Public Limited Liability Companies Act regulates when a company may finance third parties' acquisition of shares in the company. Under the current legislation, such credit or security can only be granted to a third party acquirer if the credit or security is within the dividend capacity (retained earnings) and sufficient security is provided. The Ministry now proposes the following amendments to paragraph 8-10:
If the acquisition entails that the acquirer and the target company forms part of the same group (more than 50% ownership or control) then financial assistance can be provided without regard to the dividend capacity of the target company and no security is required for any granted credit.
The proposal includes certain procedural requirements which must be observed. For instance, the target company’s board shall sign a report that the financing disposition made by the company is in the company’s interest, and assess any consequences the transaction will have on the target company’s liquidity and solidity. Further, the report shall include the purchase price for the shares. The statement shall be approved by the target company's general meeting of the shareholder(s). Finally, the report shall be filed with the Register of Business Enterprises, who shall promulgate the filing on their webportal (although not the report itself). It should be noted, therefore, that observing these rules will entail that the share purchase price will become public.
Related party transactions:
Paragraph 3-8 of the Norwegian Private Limited Liability Companies Act and Norwegian Public Limited Liability Companies Act regulates under which conditions an agreement between the company and a shareholder, a shareholder`s parent company, a director or the general manager is binding for the company i.e. valid.
Today, one requirement for the agreement to be binding is that the agreement must be approved by the general meeting if the company’s performance under the agreement exceeds one tenth of the company`s real value (for Private Limited Liability Companies) or if the company`s performance under the agreement exceeds one twentieth of the share capital (for Public Limited Liability Companies). The ministry proposes the following amendments (for both Private and Public Limited Liability Companies):
The board may approve the agreement for it to be binding. In addition, the board must notify all shareholders about the agreement. The shareholders may demand that the agreement shall be heard at the general meeting.
The board is only required to approve agreements, when the real value of the company’s performance under the agreement exceeds 2, 5 per cent of the company`s balance sheet.
Transparency and shareholder rights in public limited liability companies
The Ministry proposes a set of new measures to increase transparency and facilitate the exercise of shareholder rights in public limited liability companies, such as:
The board shall compose guidelines for determination of salaries and other remuneration for the general manager, other leading employees and employees that is members of the board or the corporate assembly. The guidelines shall be clear and accessible, and contribute to the company`s long-term interest and economic carrying capacity. In addition, the board shall for each financial year give an overview in a report over the salary and other remuneration that is received by the general manager, other leading employees etc. The report shall be confirmed by the auditor, and shall be published public on the company’s website within two weeks after the annual general meeting.
The Ministry proposes that when shareholders electronically casts a vote at the shareholders meeting, in a public limited liability company, the company shall confirm electronically to the shareholder that the vote was received.
The Ministry proposes that businesses that are giving advice on exercise of shareholder rights, i.e. financial advisors, lawyers and brokers, must make public information about their business, such as the methods and models the business are using.
The Ministry has found that the rules regarding accessibility of the shareholders identity, and rules regarding exercise of shareholder rights, in EU-directive 2017/828 is in conformity with the already existing Norwegian internal laws. Therefore, the ministry proposed no amendments to these rules.
The public consultation period ends on 14 March 2019, and a legislative proposal is expected to be presented to the parliament in the second half of 2019. Any legislative amendments will likely not be effective until 1 January 2020, at the earliest.