- Due to a just adopted amendment of the Danish Companies Act, the Danish Financial Statements Act and the Danish Act on Gender Equality, the approximately 1,100 largest Danish companies will be obligated to set up targets for the quota of the underrepresented gender in the supreme governing body.
- The Companies affected are ordered to report on both targets and policies annually, and companies may be fined if they fail to act or report in accordance with the rules.
This article presents the main consequences of the amendments to the Danish Companies Act, the Danish Financial Statements Act and the Danish Act on Gender Equality adopted by the Danish Parliament on 14 December 2012 with effect from 1 April 2013. The main purpose of the amendments is to effectively create a more equal distribution of women and men in the supreme governing bodies of the approximately 1,100 largest Danish companies.
Companies covered by this new regulation are under an obligation to implement targets and policies for the quota of the underrepresented gender in the supreme governing body in 2013.
Companies that do not have a gender distribution of 40/60 per cent between the genders must prepare concrete, realistic and ambitious targets, taking the business of the company into account. Further, the companies must prepare a policy on how to achieve the targets. At all annual meetings after 1 April 2013, the companies must take the targets into consideration when electing members of the supreme governing bodies.
As of the financial year 2013, the companies must also report on whether the target has been reached. However, if the company has not set up targets due to the gender distribution already being equal, it is sufficient for the company to report that no gender is underrepresented.
Failure to set a target and/or to prepare a policy for achieving such a target may result in a fine, and against that background we expect these new rules to create real improvements in the quota of women in the supreme governing bodies.
The new obligations apply to the following types of companies etc.:
- Listed companies
- Companies, businesses, foundations etc., who have debt instruments or other types of securities listed for trade on a regulated market in an EU/EEA country
- Large public and private limited companies and limited partnership companies
- Large partnerships and limited partnerships, in which all partners and general partners, respectively, are public or private limited companies, limited partnership companies or a similar type of company
- Large foundations
- State-owned public limited companies
A company, business or foundation is regarded as large if two of the following criteria are exceeded in two consecutive financial years:
- A balance sheet total of DKK 143 million (approximately USD 25 million)
- A net turnover of DKK 286 million (approximately USD 50 million)
- An average number of full-time employees of 250
Additionally, the obligations apply to the Danish Ship Finance, financial companies, financial holding companies, payment institutes, investment associations, SIKAVs, special purpose associations, hedge associations, operators of regulated markets, clearing centres and securities centres if certain criteria are met.
Obligations of the Companies covered
Companies covered by this new regulation are under an obligation to set up a target for the quota of the underrepresented gender in the supreme governing body and must prepare a policy to increase the quota of the underrepresented gender at the other levels of management. Further, the companies must in the annual report, as part of the management’s review, state a status of the fulfilment of the set target, including, if the set target has not been reached, why the company has failed to reach the target. The rules for reporting follow the principles for reporting on civic responsibility.
The company itself must set what, taking the company’s situation into account, is a realistic target. When setting the target, the business of the company may, among other things, be taken into account, as it is recognised that some branches of trade are more attractive to women than others. The target must indicate the quota set as target as well as the time frame within which the company intends to achieve the indicated quotas. It appears from the explanatory notes to the bill that the time frame should generally not be longer than four years.
The company’s policy for increasing the quota of the underrepresented gender may for instance contain a description of the company’s efforts and concrete initiatives in the area. Such initiatives may include cooperating with other companies, creating a framework for career development as well as initiatives to make the company attractive to both genders. The company will determine the relevant initiatives itself, taking the situation of the individual company into account. However, the company must under all circumstances take positive steps to reach the target.
Failure to set targets or to prepare the mentioned policy may result in a fine. In contrast, there is no penalty if a company should fail to reach a set target.
A gender distribution of 40/60 per cent between the genders is regarded as equal, regardless of which gender is in the majority. If this requirement is already met, there is no obligation for the company to set targets and to prepare the mentioned policy. In such cases, it is adequate to indicate the equal gender distribution in the annual report in the management’s review. However, if the distribution subsequently changes, the company will be obligated both to set targets and to prepare a policy to re-establish the gender distribution.
In groups of companies it is possible to set targets and to prepare a policy as a part of the consolidated accounts for the entire group. Therefore, subsidiaries in a group may omit setting a target and to prepare a policy, if the parent company sets a target and prepares a policy for the entire group.
Furthermore, there is a special trifle threshold, entailing that companies etc., who have employed less than 50 employees in the latest financial year may omit preparing a policy for increasing the quota of the underrepresented gender at their other levels of management.
The amendments imply a number of new obligations for the companies covered. The obligations are flexible, but it is necessary for each individual company to perform an actual assessment of what is a realistic and ambitious target for the company and thereafter take positive steps to reach this target.
Failure to set a target and/or to prepare a policy for achieving such a target may result in a fine, and against that background, there is reason to believe that the amendment in the course of a few years will contribute to creating real improvements in the quota of women in supreme company management bodies.
- While the Danish takeover regime is based on the EU Takeover Directive, it includes regulation specific to Denmark which should be considered prior to making investments in Danish companies with shares listed on a regulated market.
- The Danish rules are specific on main areas such as in terms of what constitutes a controlling influence, passive increase in ownership, agreements on bonus to management of the target and rules for making payments from the funds of the target.
- Control under Danish law is generally considered to exist when a shareholder holds a majority of the shares in a company or otherwise has the ability to control the company, including when a shareholder holds more than one-third of the voting rights in the company and the actual majority of the votes of the general meeting and thereby possesses actual controlling influence.
- Under Danish law the obligation to issue a takeover offer is not triggered where a shareholder only passively obtains a controlling influence, i.a. by receipt of a gift or divestment by other major shareholders. Further, Danish law prohibits the offeror from entering into agreements for bonus or other benefits with management of target and requires that it is disclosed in the offer document if payments from the target company’s funds are expected to be made within twelve months of the takeover offer.
- The Danish Financial Supervisory Authority has issued an updated guiding note on the application of the Danish takeover rules and is considering a revision of applicable law.
The Danish takeover regulation is based on Directive EC2004/25 (the “Takeover Directive”). The Takeover Directive provides for a low level of harmonization that sets out the general legal framework that the EU member states must implement but allows for significant national freedom in terms of implementation. As a result hereof material differences apply in the national takeover legislation of the EU member states including in respect of central areas such as what constitutes a change of control and thus when the obligation to launch a takeover offer is triggered. The Danish takeover regime is currently undergoing a review from the public authorities, and in the interim period the Danish Financial Supervisory Authority has issued a revised guiding note to the existing Danish Takeover Order to provide guidance on interpretation hereof. This article touches upon certain key elements specific to the existing Danish takeover regime which should be considered by potential investors prior to making investments in Danish companies with shares listed on a regulated market and certain considerations and potential changes in the undergoing review process.
Specifics of the Danish takeover regime
The Takeover Directive has been implemented in Danish law primarily through provisions in the Danish Securities Trading Act, Consolidated Act no. 855 of 17 August 2012, (the “Danish Securities Trading Act”) and Executive Order no. 211 of 10 March 2010, (the “Takeover Order”). The Danish implementation includes regulation specific to Denmark, including in terms of what constitutes a change of control, in respect of passive increase in ownership, agreements on bonus and benefits to management of the target and payments from the funds of the target.
Change of control under Danish law
The Takeover Directive provides that member states of the European Union must implement rules to assure that, where a person, as a result of his acquisition or the acquisition by persons acting in concert with him holds a specified percentage of securities of a company that gives control over the company, such person shall be obliged to issue a bid for shares of the minority in order to protect their interests. The percentage of voting rights and the methods of its calculation which confers control is determined by the individual member states and the Danish definition of control is quite complex compared to that of other EU member states as it is not simply tied to a specific percentage but requires that an assessment of influence is made for any shareholdings below 50%.
Pursuant to the Danish Securities Trading Act, control, or controlling influence, exists when the acquirer directly or indirectly holds more than half of the voting rights in a company, unless in special cases it can be clearly demonstrated that such holding does not constitute a controlling influence. A controlling influence also exists if an acquirer who owns 50% or less of the voting rights of a company has:
i. the right to control more than half of the voting rights in accordance with an agreement with other investors;
ii. the right to control the financial and operational affairs according to the articles of association or an agreement;
iii. the right to appoint or dismiss a majority of the members of the supreme governing body and this body has a controlling influence in the company; or
iv. more than one-third of the voting rights in the company and the actual majority of the votes of the general meeting or any other similar body and thereby possesses the actual controlling influence in the company.
Actual controlling influence pursuant to number (iv) above is of specific interest due to the broad scope of the provision. It is a requirement that at least one third of the shares are held by the relevant shareholder and that the ownership structure entails that the shareholder has the actual majority of votes of the general meeting. A number of elements will be relevant in making the assessment of whether the shareholding constitutes controlling influence, including the distribution of voting rights among shareholders, voting rights represented at previous general meetings of the company, any agreements between other shareholders, and the ability to influence the election of board members.
Control through passivity
The flexible structure of the Takeover Directive provides that the member states may derogate from the directive’s provisions in order to maintain exceptions from the mandatory bid rules. This has been done in Denmark in respect of shareholders passively obtaining control and the ability of the Danish Financial Supervisory Authority to grant exemptions. Pursuant to rules in the Takeover Order and administrative practice from the authorities, it is a requirement that an active transfer of shares is the factor that triggers passing of relevant ownership and control thresholds. Otherwise the obligation to issue a mandatory offer will not apply.
This implies that where control is obtained through inheritance, gift, or through debt recovery proceedings or similar it will not trigger obligations to issue an offer. The same applies where the passing of the relevant threshold is not the result of an action from the relevant shareholder. This can be the case where the shareholder’s holding of shares becomes a controlling stake as a result of the issuer decreasing its share capital or cancelling restrictions on voting rights in the articles of association. An additional example of passively obtaining control is through other shareholders’ sale of their holdings. Where two shareholders each holding a number of shares that could potentially constitute controlling influence (above 1/3 of the shares) but only the largest of the two shareholders is controlling and the largest shareholder divest his shareholding in minority portions the sole remaining large shareholder will not be obligated to issue an offer even though he has technically obtained control over the company in connection with the divestment by the other large shareholder.
A further derogation from the obligation to issue a takeover offer is provided in the form of the ability of the Danish Financial Supervisory Authority to grant exemption from the rules for mandatory bids, including the obligation to issue a takeover offer and specific rules such as in terms of the length of the offer period and amendments to the offer document. Exemptions from the obligation to launch a takeover offer may be granted in various cases. This includes situations where a company is in distress and under threat of bankruptcy and where it is considered in the interest of the minority shareholders in a reorganization of the capital structure to safeguard their investment.
Bonus and benefits to management and payments from the target company’s funds
Two other specifics of the Danish takeover regime pursuant to the Takeover Order were originally introduced in order to limit perceived negative effects of private equity funds’ acquisitions of equity stakes in the Danish market and apply to both mandatory and voluntary takeovers offers.
Pursuant to the Takeover Order the offeror or persons acting in concert with the offeror and the board of directors of the target may not enter into agreements or change existing agreements on bonuses and similar benefits to the board of directors or executive management of target from the time when negotiations are initiated and until the negotiations are stopped or a takeover bid is implemented. It should be noted that the obligation not to offer such bonus and benefits apply from the time that negotiations are started which may be prior to the time the takeover bid is launched. The aim of the rule is to avoid conflicts of interest between the board of directors and executive management of target and the shareholders of the target entity.
Further, to ensure disclosure of an offeror’s intention to leverage the target and distribute available funds, the Takeover Order provides that the offer document must state any intentions to make payments from the target company’s funds within a period of twelve months from the implementation of the takeover bid.
Revision of the Danish Takeover regime
Recent cases have sparked discussions among legal experts and authorities on the need for clarification of certain of the Danish rules in respect of takeovers and the potential need for a general revision of the Danish Takeover Order. This has recently resulted in the publication of an updated guiding note from the Danish Financial Supervisory Authority on the Takeover Order, guiding note no. 9475/2012.
The updated guiding note provides clarification, inter alia, in terms of (i) timing of publication of the result of the takeover offer, (ii) that obtaining control through the issuance of new shares, and not only acquisition of existing shares, may result in the subscriber obtaining control and (iii) that internal transfer of shareholdings within a shareholder’s group of 100% owned entities will not result in the obligation to launch a takeover offer.
The guiding note has been followed by preparatory steps by the Danish Financial Supervisory Authority on amendments to the Takeover Order. This is the result of the interest in recent years from foreign investors to invest in Danish shares which has accentuated the differences between the Danish rules and the rules of other countries. Further, the specific Danish rules on shareholders passively obtaining control have led to situations where control has been obtained but where it has been unclear whether a takeover offer should be issued. Amongst a number of proposals, the Danish Financial Supervisory Authority have indicated they will consider whether the Danish rules should be amended which could inter alia include setting a fixed threshold percentage for controlling influence, the length of the offer period where approval from competition authorities are requires, the handling of rumours in the market where the authorities in other EU member states may demand that a potential offeror either put forward an offer or informs the market that no offer will be made (“Put Up or Shut Up”). Likewise in other EU member states an offeror is prohibited from putting forward a new takeover offer if the first offer cannot be completed (“Cool Of period”), and the Danish Financial Supervisory Authority will consider the need for similar rules in Denmark.
- Under Danish law, a majority shareholder owning at least 70% of the shares in a distressed bank is entitled to acquire the remaining shares by way of compulsory redemption subject to certain conditions.
- In a recent case the Danish Supreme Court has decided that treasury shares must be included when calculating the total number of shares issued by the company thus increasing the shareholding required for a compulsory redemption and making it more difficult for a majority shareholder to carry out the compulsory redemption.
- The case shows how the Danish courts are reluctant to impose restrictions on the rights of minority shareholders.
This article presents a recent landmark court case decided by the Danish Supreme Court regarding the interpretation of the Danish provisions on compulsory redemption of shares issued by a bank in distress. The article presents the implications of the decision by the Danish Supreme Court with respect to the possibilities of carrying out such compulsory redemptions. Further, the article examines the implications of the decisions on compulsory redemptions outside of the scope of the Danish financial legislation.
Under section 144 of the Danish Financial Services Act, a majority shareholder owning at least 70% of the shares in a distressed bank is entitled to acquire the remaining shares by way of compulsory redemption subject to certain conditions.
In a case brought before the Danish Supreme Court, a majority shareholder owned more than 70% of the shares when excluding treasury shares from the total number of shares issued by the company. However, if including the treasury shares, said ownership amounted to less than 70%.
The wording of the provision did not state whether to include treasury shares or not. However, since treasury shares can be cancelled pursuant to a shareholders resolution, it was generally assumed prior to the court case, that treasury shares should not be included in the calculation.
However, the Danish Supreme Court decided that section 144 should be interpreted to require that treasury shares be included when calculating the total number of shares issued by the company.
The Danish Supreme Court emphasized that section 144 of the Danish Financial Services Act constitutes a intensive intervention in the rights of minority shareholders. Accordingly, any deviation from the wording of section 144 is only lawful if firmly supported by other sources of law.
Since the wording of section 144 did not exclude treasury shares and since no other sources of law firmly supported such alternate reading, the compulsory redemption was deemed unlawful. However, no monetary compensation was awarded, since no financial loss had been suffered.
Danish Provisions on Compulsory Redemption
Pursuant to section 70 of the Danish Companies Act of 2009 as amended, any shareholder holding more than 90% of the shares in a limited liability company and a corresponding share of the votes may demand that the other shareholders have their shares redeemed by that shareholder. This provision was first introduced by the Danish Act on Public Limited Companies of 1973.
A special provision applies according to section 144 of the Danish Financial Business Act with respect to banks that do not meet the capital requirement of section 127 of said act. In such cases, the Danish FSA may set a time limit for the re-capitalization of the bank. Following such decision by the Danish FSA, the board of directors of the bank may with a simple majority, upon the request of a shareholder owning 70% or more of the bank’s shares, decide to redeem the shares of the minority shareholders in the bank. This provision was first introduced as part of the Danish Banks and Savings Banks Act in 1998.
When the above provisions were introduced, it did not appear from their wording or the preparatory works, whether treasury shares should be included when calculating the total number of shares issued.
It has generally been assumed that treasury shares should not be included when calculating the total number of shares, since the general meeting of the company may decide to cancel such. Further, when the Danish Companies Act of 2009 replaced the Danish Act on Public Limited Companies of 1973, the preparatory works assumed that treasury shares should not be included when calculating the total number of shares issued by the company for the purposes of the compulsory redemption provisions in accordance with the general assumptions.
The Compulsory Redemption Court Case
The case was initially brought before the Eastern High Court of Denmark as a class action law suit by a group of minority shareholders, who argued that the compulsory redemption had not been lawful and that the price paid for the shares by the majority shareholder in connection with the compulsory redemption had not been correct.
The Eastern High Court and later the Supreme Court therefore had to consider the following matters:
- Was the bank in distress to the effect that the compulsory redemption provisions of the Danish Financial Business Act could be used?
- In the affirmative, did the majority shareholder meet the ownership requirement for carrying out a compulsory redemption of the minority shareholders, i.e. did the majority shareholder own 70% or more of the shares issued by the bank?
- Was the price paid to the minority shareholders fair?
The courts found that the bank had serious financial difficulties and unless the compulsory redemption was carried out, the bank would not have been able to continue its operations unless the compulsory redemption had been carried out. Accordingly, the bank was to be considered in distress for the purposes of section 144 of the Financial Business Act, allowing for the use of the compulsory redemption regime if the majority shareholder met the 70% ownership requirement.
When calculating the ownership, the minority shareholders took the view that treasury shares should be included when calculating the total number of shares issued by the company. Accordingly, the ownership should be calculated as follows:
When using this calculation method, the majority shareholder would only own 67.33% of the shares, meaning that the requirements for carrying out a compulsory redemption were not met.
The majority shareholder argued that treasury shares should be disregarded, and that the ownership therefore should be calculated as follows:
This calculation method resulted in a 73.36% ownership.
The Eastern High Court and the majority of the members of the Supreme Court noted that it did not appear from the preparatory works to the Public Companies Act of 1973 or to the Financial Business Act, whether treasury shares should be included. The fact that the Companies Act of 2009 assumed that treasury shares – also pursuant to existing legislation – should be excluded did not carry any weight in this connection, since section 144 of the Financial Business Act was introduced prior to the Companies Act. Further, it was noted that no case law or administrative practice existed of relevance to the question at hand.
As a result, the case would have to be decided based on the wording of the provision, which did not exclude treasury shares. It was also considered that the involuntary share transfer which is part of a compulsory redemption constitutes an intensive intervention in the rights of the minority shareholders. Accordingly, any such obligation on the part of the minority shareholders must be firmly supported. The exclusion of the treasury shares would have made it easier for a majority shareholder to carry out a compulsory redemption than provided for by the wording of the provision in question and due to the lack of other sources of law providing for such easier access, the provision would have to be interpreted in favour of the minority.
Accordingly, the requirements for carrying out a compulsory redemption pursuant to section 144 of the Financial Business Act had not been met and the compulsory redemption was therefore unlawful.
It should be noted that the minority shareholders did not request to have their shares returned to them – which would also have been somewhat difficult given the fact that the bank following the compulsory redemption had been merged with a major Danish bank resulting in the cancellation of the shares.
Instead, the minority shareholders argued that the price paid in connection with the compulsory redemption had been too low.
The Supreme Court noted that the shares would probably have been worthless if the compulsory redemption had not been carried out. Further, the fact that the compulsory redemption had not been lawful did not entitle the shareholders to a higher price than they would have been entitled to if the redemption had been lawful.
Accordingly, the minority shareholders were awarded no monetary compensation and no changes were made to the transactions with their shares or the ensuing merger.
Protection of Minority Rights
It is sometimes argued that a pragmatic view should be taken when considering whether certain formal requirements have been met to the extent relevant legislation leaves room for interpretation. In the case at hand, the bank could possibly have cancelled its treasury shares or disposed of them, thus eliminating the issue resulting in the court case.
This approach, however, tends to collide with the views of the courts, who are generally very concerned with ensuring that no intensive interventions are made in the rights of minority shareholders and other rights relating to property rights, unless such interventions are firmly based on relevant sources of law, see for example the now famous decision by the Eastern High Court in the matter of the compulsory redemption of shareholders in the Danish telephone company TDC. Case law in other areas demonstrates that this view is also held in other aspects of Danish law outside of the area of company law.
Compulsory Redemption under the Danish Financial Business Act
The Supreme Court has rejected that the preparatory works to the Danish Companies Act of 2009 can be used to interpret the intentions of the compulsory redemption provisions of the Danish Financial Business Act introduced in 1998.
Accordingly, any future compulsory redemption will need to comply with the strict 70% ownership requirement set by the Supreme Court, which will possibly require a cancellation of treasury shares in order to meet said requirement.
Compulsory Redemption under the Danish Companies Act of 2009
The preparatory works to the Danish Companies Act assume that treasury shares should be excluded when calculating the total number of shares issued by a company for the purposes of the general compulsory redemption provisions requiring a 90% ownership. It appears from the preparatory works that this statement is based on an assumption that exclusion of treasury shares in this connection is a principle of Danish company law already applicable prior to the passing of the Danish Companies Act.
However, the Eastern High Court and the majority of the Supreme Court found that no such general principle applies.
It will remain to be seen whether this case will result in changes to the Financial Business Act or the Companies Act. Until such time, a cautious approach will likely be taken with respect to the exclusion of treasury shares in similar transactions.
DANISH UPDATE – Danish Disclosure Obligations Potentially Broader Than Other European Countries in M&A Context
- Under Section 27 of the Danish Securities Trading Act, inside information must be disclosed by an issuer at the earlier of (i) the coming into existence of the relevant circumstances or occurrence, albeit not yet formalised, (ii) the disclosure of the inside information to a third party, or (iii) a leakage of the inside information.
- This Danish implementation of Article 6(1) of Directive 2003/6/EC is broader than the interpretation of other European countries and could lead to more extensive and earlier disclosure.
1.1 This article presents the Danish regulations on the disclosure obligations of listed companies and the most recent amendment – the “Rule on Leakages.” The article presents the implications of the Danish regulations to how parties and advisors should structure cross border mergers and acquisitions involving a Danish issuer of shares listed on NASDAQ OMX Copenhagen A/S or another regulated market (an “Issuer”) and to the relating documentation.
2. Executive Summary
2.1 In any potential or ongoing transaction involving an Issuer, the involved parties should prepare publicity guidelines specifying the procedure for any disclosure of information and the responsible parties.
2.2 The foreign party should take extra care when dealing with the press both domestically and abroad. Particular care should be given to the wording of non-disclosure agreements and confidentiality clauses in order to address the disclosure obligations of the Issuer under the Danish Securities Trading Act (consolidated Act no. 883 of 09-08-2011, the “Act”), including the Rule on Leakages found in Section 27 (2)(3) of the Act.
2.3 The Issuer must have a procedure for immediately publicly disclosing the inside information and should in cases involving a high risk of leakage (mainly transactions) keep a draft company announcement ready.
3. Danish and EU provisions on disclosure and leakage
3.1 Under Section 27 (1) of the Act, any Issuer shall publicly disclose inside information immediately upon the coming into existence of the relevant circumstances or occurrence, albeit not yet formalised. This implements the Danish interpretation of Article 6 (1) of Directive 2003/6/EC on insider dealing and market manipulation (the “Market Abuse Directive”); that the Issuer as a starting point is obligated to disclose inside information only when the inside information has been realised. Other member states interpret the article to mean that all inside information must be published, regardless of whether the inside information relates to something which is a fact.
3.2 Inside information must be publicly disclosed simultaneously with the disclosure of the inside information to a third party, unless such third party is considered an insider and is subject to a duty of confidentiality, see Section 27 (2) of the Act, or immediately after the Issuer becomes aware or should have become aware of having disclosed the said inside information. The wording of Section 27 (2) is an implementation of Article 6 (3)(1),(2) in the Market Abuse Directive, which is likely implemented the same way in all the member states.
3.3 On 1 January 2011 the so-called “Rule on Leakages” was implemented as a new Section 27 (2)(3) of the Act. The amendment was implemented to ensure information parity in the market and to some extent to protect the market from being affected by rumours. The Rule on Leakages is not an implementation of any EU directive or regulation, but is implemented following a dispute regarding the interpretation of the Danish disclosure obligations (see below).
3.4 The Rule on Leakages stipulates that the Issuer must publicly disclose any inside information no longer held confidential (leakage of inside information), regardless of whether the source of the breach can be identified.
3.5 The Issuer’s disclosure obligations may be illustrated as follows:
4. Leakage case
4.1 In mid-July 2005, major Danish tele-, broadband and cable-TV supplier TDC A/S (“TDC”) was approached by a club of private equity funds (Apax, Blackstone, KKR, Permira and Providence) with the purpose of submitting a voluntary takeover bid for minimum 90 % of the outstanding share capital.
4.2 Negotiations continued during 2005 and very specific rumours concerning the transaction began to circulate in the media. On 17 August 2005, the transaction and the names of all the potential buyers were published on the front page of The Wall Street Journal, citing “sources close to the transaction” as the source. TDC published a company announcement confirming only that TDC “continually receives inquiries from interested buyers.” On 30 November 2005, TDC published a company announcement confirming that the five funds mentioned above were issuing a joint offer for TDC.
4.3 The Danish Securities Council ruled – on recommendation of the Danish Financial Services Authority (the “FSA”) – that TDC had failed to comply with its disclosure obligations under the Danish Securities Trading Act applicable at the time. According to the FSA’s interpretation of the Danish Securities Trading Act, the Issuer should publish any inside information as soon as the Issuer became aware of it, regardless of whether the inside information had become a fact. The ruling was never published because the high-profile case could not effectively be made anonymous.
4.4 On 19 April 2007, the FSA published a memo describing the above-mentioned interpretation of the Act. This interpretation was highly debated in Danish capital markets law and was eventually overturned by a ruling from the Danish Companies Appeals Board of 11 September 2008, incidentally in another case concerning TDC.
4.5 In accordance with the decision above, the interpretative notes of the Rule on Leakages reaffirm that the Danish Companies Appeals Board’s interpretation of Section 27 (1) of the Act, see clause 3.1 above, is in accordance with the Market Abuse Directive, and that the Danish rules are now supplemented with the obligation to disclose inside information in case of a leakage.
4.6 Today, the Rule on Leakages would imply that the issuer is forced to immediately disclose inside information confirming the leaked inside information. Such premature disclosure of course increases the risk of serious negative implications to the transaction and of the attraction of event driven hedge funds.
5. The Rule on Leakages and cross-border public M&A
5.1 The Danish disclosure obligations, including the new Rule on Leakages, are highly relevant to both cross-border and domestic mergers and –acquisitions.
5.2 In any transaction involving a Danish Issuer, the involved parties should carefully consider preparing publicity guidelines specifying the procedure for any disclosure of information and the responsible parties.
5.3 In a cross-border transaction, the foreign party should take extra care when dealing with the press both domestically and abroad to prevent that the Issuer is obligated to publicly disclose inside information about the potential transaction.
5.4 Under Section 27 (1) of the Act, the board of directors of the Issuer may be obligated to disclose a particularly firm indication by a potential offeror or merger partner of an upcoming public tender offer or merger proposal. Therefore, it is in the interest of a potential offeror that the Issuer is bound by a non-disclosure agreement as early as possible, and the initial contact with the Issuer should specify that the decision to put forward a public tender offer or merger proposal is not a certainty as well as what factors the decision will depend on, e.g. satisfactory due diligence.
5.5 Particular care should be given to the wording of non-disclosure agreements and confidentiality clauses in order to address the disclosure obligations of the Issuer under the Danish Securities Act (including the Rule on Leakages), which may differ from the disclosure obligations under the foreign party’s domestic regulations. In relation hereto, a foreign party in the EU should be aware of whether the foreign party’s home country employs the Danish interpretation of Article 6 (1) of the Market Abuse Directive, see clause 3.1 above.
5.6 These procedures and documents should be in place in order to (i) disclose inside information to as few people as possible, especially external persons, and on a need-to-know basis only and (ii) complete any confidential transactions as soon as possible, both in order to minimize the risk of a leakage of inside information.
5.7 Any leakage or true rumour in the market will obligate the relevant Issuer to disclose the leaked inside information, which could be very detrimental to a potential or ongoing transaction. Danish Issuers must have a procedure for immediately publicly disclosing inside information which is no longer held confidential and should in cases involving a high risk of leakage (mainly transactions) keep a draft company announcement ready.