Any decision to waive the pre-emption rights of existing shareholders to subscribe for shares in the event of an increase in share capital must be justified. Where the board of directors resolves to carry out an increase in share capital and waive the pre-emption rights of existing shareholders on the basis of a mandate granted to the board, the justification must be publicly disclosed in a stock exchange announcement issued in connection with the increase in share capital.
Any transactions the company carries out in its own shares should be carried out either through the stock exchange or at prevailing stock exchange prices if carried out in any other way. If there is limited liquidity in the company’s shares, the company should consider other ways to ensure equal treatment of all shareholders.
In the event of any not immaterial transactions between the company and shareholders, a shareholder’s parent company, members of the board of directors, executive personnel or close associates of any such parties, the board should arrange for a valuation to be obtained from an independent third party. This will not apply if the transaction requires the approval of the general meeting pursuant to the requirements of the Public Companies Act. Independent valuations should also be arranged in respect of transactions between companies in the same group where any of the companies involved have minority shareholders.
The company should operate guidelines to ensure that members of the board of directors and executive personnel notify the board if they have any material direct or indirect interest in any transaction entered into by the company.
Commentary
General
The Public Companies Act stipulates that neither the general meeting, nor the board of directors nor the chief executive may make any decision that is intended to give an unreasonable advantage to certain shareholders at the expense of other shareholders or the company. The Securities Trading Act states that a company may not treat shareholders differently unless there is a factual basis for such discrimination.
Different classes of shares
The basic assumption of the Public Companies Act is that all a company’s shares have equal rights unless the articles of association specify that the company is to have more than one class of shares. Holders of each class of shares must be treated equally. The Code of Practice is more restrictive than the Public Companies Act in that the Act does permit companies to have different classes of shares.
Share issues
The Public Companies Act allows the pre-emption rights of existing shareholders to subscribe for shares in the event of an increase in share capital to be waived by the general meeting. Such a resolution requires the same majority as is required for a change to the articles of association. If the board of directors proposes that the general meeting should approve such a waiver of pre-emption rights, the reasons for the waiver must be justified by the common interest of the company and the shareholders. An explanation of this must be included as an appendix to the agenda for the general meeting. Where the board of directors resolves to carry out an increase in share capital on the basis of a mandate granted to the board, the justification for waiving the pre-emption rights of existing shareholders must be disclosed in the stock exchange announcement of the increase in share capital.
Transactions with close associates
The Code of Practice’s requirements on independent valuation of material transactions between the company and any shareholder(s) etc. do not apply where the general meeting considers the transaction pursuant to the provisions of the Public Companies Act in respect of transactions with close associates and certain transactions between companies within the same group. The Act requires that general meeting approval will be required for certain agreements between the company and shareholders etc. where the value exceeds 1/20th of the share capital at the time of the transaction. In such cases, the board of directors must arrange for a report from an independent expert such as a state authorised public accountant or registered auditor to address, inter alia, the contract/assets etc. involved.
The Code of Practice’s requirements apply where a transaction is not immaterial for either the company or the close associate involved. A transaction may be not immaterial for the company even if the consideration paid by the company is less than 1/20th of its share capital. Where a valuation is required as a result of the Code of Practice but is not required by the Act, the third party does not necessarily have to be a state authorised public accountant or registered auditor. The board of directors should report all such transactions in the annual report.
The Code of Practice stipulates that guidelines should be established to ensure that the board of directors is notified of a situation where a member of the board or a member of the executive personnel has a material interest in a transaction or other matter entered into by the company or binding on the company. This is more comprehensive than the requirements of the Public Companies Act on conflict of interests for members of the board and the requirements of securities legislation on the disclosure of share purchases etc.
| All a company’s shares carry equal rights unless the articles of association stipulate that there are different types of shares (several classes of shares), cf. Asal. § 4-1. A principle of equal rights is also reflected, inter alia, in Asal. § 10-4 on the pre-emption rights of shareholders to subscribe for an increase in share capital by cash payment and the restrictions in § 5-21 and § 6-28 on a general meeting adopting any resolution which may give certain shareholders or other parties an unreasonable advantage at the expense of other shareholders or the company. See also the requirement in Vphl. § 5-4 on discriminatory treatment that is not objectively based in the issue’s and the holders’ mutual interests.
When a company carries out transactions in its own shares it must pay due attention to the rules on duty of disclosure, cf. Vphl. § 5-2, and the requirement for equal treatment of all shareholders, cf. Vphl. § 5-14, the prohibition of misuse of insider information, cf. Vphl. § 3-3, the prohibition of price manipulation and unreasonable business methods, cf. Vphl. § 3-8 and § 3-9 and notification requirements, cf. Vphl. § 4-1. Asal. § 3-9 stipulates that transactions between companies in the same group must be based on standard business terms and principles. Asal. § 3-8 stipulates that that certain agreements between a company and a shareholder (including certain close associates etc of a shareholder), or a member of the board of directors or the chief executive require approval by the general meeting if the consideration exceeds 1/20th of the share capital. The board of directors must ensure that an account of the acquisition is prepared pursuant to the rules set out in Asal. § 2-6, which must also confirm that there is a small correlation between the costs and benefits. The account must be included as an appendix to the notice calling the general meeting, and must be notified to the Register of Business Enterprises. The requirement for approval by the general meeting does not apply for business agreements which fall within the normal activities of the company and which apply prices and other terms and conditions common for such agreements. The company must as soon as possible publicly disclose not immaterial transactions between the company and shareholders, members of the board of directors, executive personnel or the close associates of any such parties, or with another company in the same group, cf. Section 3.3 of ‘Continuing obligations of stock exchange listed companies (Continuing obligations)’. The company’s financial accounts must include further information on transactions with close associates, cf. the Accounting Act (Regnskapsloven) § 3-9, equivalent to IAS 24 Disclosure of related party transactions. See also Securities Trading Regulations § 5-3. |