The board of directors should establish a clear and predictable dividend policy as the basis for the proposals on dividend payments that it makes to the general meeting. The dividend policy should be disclosed.
Mandates granted to the board of directors to increase the company’s share capital should be restricted to defined purposes. If the general meeting is to consider mandates to the board of directors for the issue of shares for different purposes, each mandate should be considered separately by the meeting. Mandates granted to the board should be limited in time to no later than the date of the next annual general meeting. This should also apply to mandates granted to the board for the company to purchase its own shares.
Commentary:
The Public Companies Act includes provisions to ensure that companies maintain a sound level of equity at all times. If it must be assumed that the company’s equity has fallen below an appropriate level in relation to the scale and risk profile of its business activities, the board of directors is required to call a general meeting within a reasonable time in order to report the company’s financial condition and the measures proposed to rectify the situation. The requirement that a company should maintain its equity capital at a level appropriate to its objectives, strategy and risk profile also implies that if a company retains capital which is surplus to these requirements, it must justify why it is not distributing the surplus to shareholders through dividend payments or a capital reduction.
The Public Companies Act requires that a mandate granted to the board of directors to increase a company’s share capital must specify whether the mandate extends to an increase in capital for contributions other than cash, or a resolution on a merger and whether the pre-emption rights of shareholders are to be waived. The Code of Practice goes further than the Act by specifying that such mandates should be limited to a defined purpose, such as the acquisition of companies within a specific sector or a similar definition of purpose. Specifying the purpose of each mandate makes it possible for shareholders to vote separately on the mandate for each purpose. Share option programs for employees should always be approved by means of a specific board mandate, cf. Section 12.
The Public Companies Act permits a mandate to the board of directors to be valid for up to two years. However, companies should not take advantage of such an extended period (except where the company is already committed to honouring options). The company’s situation and its shareholders’ views may change over the course of a year. For this reason, it is recommended that shareholders be given the opportunity to consider any board mandates at each annual general meeting. A mandate to the board of directors for the company to acquire its own shares should be dealt with in the same way as a mandate to increase the company’s share capital.
| Asal. § 3-4 and § 3-5 include provisions for companies to maintain a sound level of equity and to take appropriate action if their equity is lost. Asal. § 8-1 stipulates what may be distributed as dividend. The general meeting cannot adopt a resolution to distribute a higher amount of dividend than that recommended or approved by the board of directors, cf. Asal. § 8-2. Asal. § 10-14 stipulates that the general meeting may grant the board of directors a mandate to increase the share capital subject to the same majority as is required for an amendment to the articles of association. Such mandates may not be granted for a period longer than two years at a time. A mandate for the company to purchase its own shares shall not be granted for any period in excess of 18 months, cf. Asal. § 9-4. |