Nordisk Tidsskrift for Selskabsret

When a public bid is made pursuant to the Danish Capital Markets Act, the board of directors of the target company must draw up a statement with its reasoned opinion on the takeover bid.

The aim of this article is to determine the content and form of the statement by including results from an empirical study carried out on the basis of 80 statements published from the implementation of the Takeover Directive on 20 May 2006 to 9 December 2022. The empirical evidence is used to elaborate how target companies generally prepare the statement and to provide indicative guidelines for the preparation of the statement.

To a large extent the content and form of the statement depends on the target company’s situation and on the specific takeover bid. The article finds that, there is no one size fits all solution with respect to the preparation and substance of the statement. As a minimum, the statement must comply with the legal requirements set out in section 22 (1) of the Executive Order on Takeover Bids. The Board should also, based on its company law obligation (in Danish: bestyrelsens loyalitetsforpligtelse), include other matters of relevance for the shareholders to reach a properly informed decision on the takeover bid.

The article also examines the possible liability of the Board and determines that the Board may be liable for the content of the statement; even though the Board probably will not become liable for damages, provided that (1) the statement is made on a sufficiently qualified and informed basis and (2) with the interests of the company and shareholders in mind.

EU’s second shareholder directive was adopted in 2017 and implemented in Denmark in 2019. A significant objective was to encourage institutional investors such as ATP to become more active as investors in listed companies. By now, a sufficient period has passed in order to evaluate whether the directive has had the desired effect. This article analyses active ownership as it is practiced today, including the legal background and the objectives institutional investors can have to engage in practicing active ownership as well as the means to do so. Common ways of practicing active ownership are exclusion of certain investments, participating in and voting at general meetings and engaging in dialog with the investee companies’ boards, management and investor relations departments. Among the topics that are high on the agenda is ESG (Environmental, Social and Governance). EU’s Sustainable Finance regulation is increasing the push in that direction. While institutional investors are more active today than in the past, they are still not as active as activist hedge funds in the listed markets and private equity fonds in the private markets. One reason for this is that institutional investors usually have a highly diversified portfolio and need to consider the costs and burden of being active versus the potential gain. To deal with costs many institutional investors outsource the active ownership-role wholly or partly to proxy advisory firms and/or stewardship services firms. However, institutional investors can, if they actively engage with their investee companies, have an impact. They can e.g. help define what the companies’ purposes should be in the light of the investors' own long-term interests, including with regard to sustainability, take an active role in the nomination of the boards of the companies and help keep management under control and be the corrective factor if management does not deliver on what they promise, or if they go too far in relation to e.g. salaries.

The paper examines the treatment under the Danish Companies’ Act of a cancellation of treasury shares repurchased by the company for free reserves. The Act, unlike the Second Company Law Directive and its successor directive, does not distinguish between capital reductions directed against external shareholders and cancellation of treasury shares. As a consequence, administrative practice treats a cancellation of treasury shares as a capital decrease with payout to shareholders. The funds have, however, already left the company and the transactions are therefore different. Indeed, a cancellation of treasury shares presents less of a threat to creditors, and the creditor protective measures required pursuant to the Danish Companies’ Act also in these cases thus seem excessive. It is recommended that the model devised by the Second Company Law Directive is implemented in Danish law as it is more business friendly and provides adequate protection of creditors. Meanwhile, administrative practice should be changed to refer to a different legal basis in order to reflect the financial reality.

This article analyzes the Norwegian Supreme Court’s judgement (HR-2022-1148-A) regarding personal liability for a company’s litigation cost. The CEO/board of directors were held liable under non-statutory civil procedure law due to moving litigation cost from the parent company to a subsidiary. The Supreme Court expanded the scope of non-statutory civil procedure law whilst stating for the first time that it exists a non-statutory personal liability within company law. However, the author question whether there is a need for non-statutory personal liability within Norwegian company law.

TheEuropean Commission presented a package of proposals to strengthen the Capital Market Union. The main proposals concern a reform of the regulation in EU law of listing and they contain many good initiatives to reform the current regulation that forms the backbone of EU securities trading. However, the package also contains a proposal for a directive to introduce multiple voting shares in all Member States for national SMEs that seek admission to an SME growth market. The article focuses on the latter directive proposal and argues that contrary to the main proposals on a listing, harmonisation is unwarranted in this area of national law on corporate governance.

Fodnoter

Until 2008, the Swedish corporate bond market was of limited importance as a source of funding for non-financial corporations and was dominated by a handful of large and established industrial companies. However, over the past twenty years, and especially since the 2008 financial crisis, the market has developed and grown significantly, both in terms of market capitalisation and the number of companies using the market for their debt financing. At the end of 2021, the total outstanding amount of non-financial corporate bonds was USD 77 billion, more than double the amount at the end of 2008. Over the same period, financing through the issuance of corporate bonds has also increased in importance. After remaining stable at a low level of between nine and eleven percent between 2000 and 2012, market-based debt financing had increased to 16 percent of corporate debt financing by 2020. The market has furthermore evolved significantly at the issuer and issue level. Between 2000 and 2010, the average number of issuers was eight per year, while the average between 2011 and 2021 was 39. Issues above USD 500 million accounted for one-third of issuance between 2000 and 2010 (in 2007, 62 percent). Issues below USD 100 million accounted for no more than nine percent on average during this period. The median issue size declined sharply after 2010, reaching USD 60 million in 2021, a decrease of more than 90 percent compared to about ten years earlier. In the same year, issues under USD 100 million accounted for 68 percent of total issuance, while the largest category (over USD 500 million) accounted for only five percent. Over the period, the number of issuers has thus increased significantly while the median issue size has decreased, mainly due to an influx of smaller domestic companies.

The risk profile has also changed. First, the credit quality of the market has declined. For bonds issued in 2021, the average volume-weighted credit rating was just above BBB-, which is historically low. This also applies to the share of BBB bonds among investment-grade issues. In 2021, BBB bonds accounted for almost 76 percent of investment-grade issues, up from an average of less than eleven percent over the period 2000-2008. By far the largest corresponding decrease has occurred in the category of A-rated bonds. In addition, a significant proportion of Swedish corporate bonds have no credit rating at all. Of all the issues carried out between 2000 and 2021, 46 percent had no credit rating. In addition, covenant protection, especially for non-investment grade bonds and bonds with lower credit quality, has also weakened during the period 2011-2021, likely in part as a result of investors accepting higher risk for higher returns in a low interest rate environment.

Two other risk profile trends concern the maturity of the outstanding bonds and the share of bonds issued at floating rates. With regard to the maturity of outstanding bonds, this is lower in Sweden than the global average. The value-weighted average maturity of Swedish non-financial corporate bonds in 2021 was 8.4 years, which is 11 percent lower than the global average. At the same time, the share of variable rate bonds of the total amount issued in Sweden has increased significantly over the past decade: from 18 percent in 2010 to 53 percent in 2021. From the company's perspective, this increases the exposure to interest rate increases. Ultimately, this can also have consequences for the financial stability of the bond market in general, if the proportion of debt with variable interest rates is high. If cost levels become unsustainable for a sufficiently large number of firms, this could in turn lead to widespread defaults and further pressure on capital markets. When firms have large amounts of debt maturing within a short period of time, they are exposed to refinancing risks. If a large share of the total outstanding bonds in a market matures in a relatively short period of time that coincides with a general decline in the availability of debt financing, this can lead to a systemic risk for the market that could reinforce a general downward economic trend and affect the real economy.

Finally, the composition of investors has also changed over the past twenty years. An important development is that investment funds have grown as an investor group since 2012. In 2011, investment funds held around 2 percent of total outstanding bonds (by value), which increased to 17 percent in 2020. Counting only domestic ownership, they account for 43 percent, compared to 6 percent in 2011. This has been partly matched by a decline in the ownership of banks, money market funds and credit institutions, which now account for 12 percent of domestic ownership, compared with 46 percent in 2009. Although the direct participation of private individuals (households) in the bond markets is very low, private investors have thus gained increased exposure to the market through the funds.

The Swedish corporate bond market development is over all positive: it opens up new financing opportunities for more companies, especially SMEs, and gives investors new options. But it does also give rise to some concerns. The market has evolved from a niche market for financing a handful of large industrial companies to a market one and a half times the size of the public equity market, now accounting for a significant share of total corporate debt financing, but without any accompanying positive developments in liquidity or transparency. The number of non-financial issuers has increased by 800 percent over a couple of decades, mainly due to an influx of smaller companies making smaller but more frequent issues with shorter maturities, variable interest rates and lower covenant protection, as well as with lower credit quality.

Overall, the market has thus gained significant economic importance, while at the same time it seems to have become more exposed to economic fluctuations, and the risk for investors has increased. If systemic stability and (or) investor risk are assumed to be reasons for regulation, this picture probably raises questions about how the regulation of the market looks and works. For understandable reasons, regulation has not evolved at the same pace as the market, and in a number of areas the need and conditions for regulation (in some form) should be examined:

Disclosure in connection with issues: market developments combined with market practice mean that the information a company provides in connection with an issue is not subject to prospectus or other equivalent regulation. To ensure that investors receive adequate information in connection with issues and to reduce information asymmetries, there is reason to consider whether the information provided in connection with an issue should be regulated.

Comparability of bond terms: despite the fact that the Swedish Securities Market's template terms have been widely applied in the market, there are large variations between bond terms, including in terms of covenants. It can be considered whether regulatory measures should be taken to facilitate analysis and comparability between bond terms.

Equal treatment of bondholders: Chapter 16, section 3 of the Securities Market Act stipulates that the issuer shall treat all bondholders of the same status equally. How this principle of equal treatment is to be applied is unclear, however, and given the importance of the principle, there is reason to consider whether the principle should be concretised in the same way as on the stock market.

Issuer disclosure: it is unclear what applies to the obligation of issuers to disclose inside information under Articles 7 and 17 of MAR. Although regulation in any form seems less appropriate to clarify this, discussion among market participants to establish market practice is likely to be beneficial.

Regulation of the agent's role: the role of the agent is not subject to specific regulation in Sweden. Given the conflict of interest inherent in the agent's role, there is good reason to consider introducing regulation of the agent's role and obligations in relation to the bondholders, similar to what applies in the other Nordic countries.

Credit rating: Sweden has an unusually high proportion of issuers with no credit rating at all, which can be explained by the composition of the market and the costs of obtaining a credit rating, as well as certain historical reasons. However, credit ratings may fulfil an important function in the market and there is thus reason to consider measures that create further incentives for the use of credit ratings.

In 2022, there was only one judgment interpreting the company law directives, but there were several judgments addressing issues of secondary EU law linked to company law.