This article summarises news within capital markets and public M&A that it can be beneficial for listed companies to be aware of.
You are very welcome to contact us if any questions or queries arise.
Implementation of general meetings during 2022
The temporary law that applied during 2021 enabling general meetings without physical participation has been reintroduced through the Act on Temporary Exceptions to Facilitate the Execution of General Meetings in Companies and Associations (2022:121) and applies for the rest of 2022. This means that meetings can also be held during 2022 through a postal voting procedure or through electronic connection, without the right for shareholders or others to be physically present at the meeting.
Many companies have chosen to utilise this law during 2022 and will consequently not be holding a physical meeting. However, our judgement is that the longer into the annual general meeting season we get, the more common physical meetings will become (though often in combination with postal voting in accordance with provisions in the articles of association or the temporary act).
Our recommendation for those companies that do not have a provision in their articles of association that enables postal voting is to insert one to enable postal voting at future general meetings as well.
In connection with the reintroduction of the Temporary General Meeting Act, the Swedish Corporate Governance Board extended its regulations that applied in 2021, stipulating that some of the Code's rules did not need to be taken into account in the light of Covid-19. These rules relate to notification of the date of the meeting, the attendance of board members at the general meeting and the preparation of proposals by the nomination committee for chairperson at the annual general meeting, and deviations from these rules during 2022 consequently do not need to be reported as deviations from the Code.
Proxy firms, which represent many foreign institutional investors, have announced in their joint proxy guidelines for the 2022 annual general meetings that they will continue to focus on sustainability, diversity and board responsibility, but also set requirements for climate measures.
Preparation of an insider list as soon as possible when publishing insider information, as well as date to provide information for the Swedish Financial Supervisory Authority in connection with publishing information that has been postponed in accordance with MAR
The Swedish Financial Supervisory Authority has ordered an issuer to pay a penalty in the light of the issuer's failure to draw up an insider list in accordance with Article 18 of the EU's Market Abuse Regulation (MAR).
In the opinion of the Swedish Financial Supervisory Authority, the issuer had published insider information as soon as possible. Since the publication had not been postponed but had taken place as soon as possible, the issuer had not drawn up an insider list. The Swedish Financial Supervisory Authority has deemed that the obligation to draw up an insider list pursuant to Article 18 in MAR arises as soon as insider information arises in an issuer and that an insider list should be drawn up even if an issuer publishes insider information as soon as possible, and not only when the issuer decides to postpone publication. The Swedish Financial Supervisory Authority's decision has been appealed.
The prevailing view in the market may be considered to have been that the obligation to draw up an event-driven insider list arises when an issuer decides to postpone the publication of insider information and does not publish the information as soon as possible.
As the Swedish Financial Supervisory Authority believes that an insider list should always be drawn up when inside information arises in an issuer, our recommendation is that issuers review their procedures regarding insider lists and that they always draw up an insider list when inside information arises in the issuer.
Furthermore, the Swedish Financial Supervisory Authority has stated in a decision that the notification to be sent to the Swedish Financial Supervisory Authority in connection with the publication of deferred information should be made immediately (not as soon as possible). The Swedish Financial Supervisory Authority concluded in this respect that such information submitted to the Swedish Financial Supervisory Authority one hour after publication has been made too late.
In this regard, our recommendation is that the processes be reviewed so that information about deferred publication is submitted to the Swedish Financial Supervisory Authority in direct connection with publication of the information and not in connection with the closure of the logbook, which often takes place at a somewhat later stage.
Interpretation of the concept of closely associated legal person in transparency reporting according to MAR
Under Article 19 of MAR, persons in a senior position in a listed company, as well as associated persons, are obliged to disclose transactions in the company's financial instruments. Associated persons are defined in Article 3 of MAR, which states, among other things, that a legal person is associated with a person in a senior position if the person in a senior position performs management duties in the legal entity.
The decisive factor in the assessment of whether a person performs management tasks in this regard is whether a person decides on or can influence a transaction with financial instruments in the company, and the Swedish Financial Supervisory Authority has previously indicated that management tasks in a limited liability company are performed, for example, by the CEO, deputy CEO or individual board members who have been given the authority by the board of directors to represent the company within the framework of day-to-day operations.
In October 2021, the Swedish Financial Supervisory Authority announced its decision to impose fines in relation to transparency reporting for a legal person in which the Swedish Financial Supervisory Authority expands its view of who should be considered as performing management tasks in a Swedish limited liability company. The Swedish Financial Supervisory Authority argued that the board of directors is responsible for the company's organisation and affairs and is thus ultimately responsible for the day-to-day management of the company. According to the Swedish Financial Supervisory Authority, this indicates that a board member may typically be presumed to engage in management duties in the sense intended by MAR, even though the board member is not the sole member of the company.
In the Swedish Financial Supervisory Authority's current opinion, it may normally be assumed that a person's position as a board member, CEO or deputy CEO of a limited liability company means that the person performs management tasks in this regard. Holders of other senior positions may also perform management duties in a limited liability company as different limited liability companies organise their operations differently. Based on the company's specific circumstances, it is the individual's responsibility to assess who performs management tasks.
Since the Swedish Financial Supervisory Authority seems to have expanded its interpretation of the associated party concept in terms of transparency reporting, our recommendation is that issuers review their policies and lists of people in senior positions and their associated parties. The Swedish Financial Supervisory Authority's decision has been appealed.
When does MAR start to be applied in connection with a listing process?
MAR shall be applied to, among other things, financial instruments for which an application has been submitted for their admission to trading. The date for when an application shall be considered to have been submitted is therefore decisive for when an issuer has to start applying MAR. This date is also decisive for when, for example, notification is required for persons in senior positions and their associates.
The matter has been tried in a case at the Administrative Court of Appeal in Stockholm, gaining legal force on 7 February 2022. In its judgement, the Administrative Court of Appeal states that MAR becomes applicable when an application for admission to trading has been submitted, and that MAR does not contain any exception which means that it should not be applied if an application is not complete.
The Financial Supervisory Authority has stated in response to the judgement that it is clear that an application has been submitted if an issuer has submitted the documents to the trading location that are necessary for it to begin its substantive examination of whether the listing requirements are met. Furthermore, according to the Financial Supervisory Authority, it is obvious that the date when an application is considered to have been submitted occurs significantly earlier than in direct connection with the shares being admitted for trading.
In view of the above, it is our recommendation that issuers that are involved in a listing process, or that intend to initiate one, pay particular consideration to the question of when MAR should be applied and introduce procedures well in advance of the first day of trading for the management of inside information etc.
Certain decisions and statements of the Disciplinary Committee from the Swedish Securities Council
Review procedures for publishing information on the website
The Disciplinary Committee at Nasdaq Stockholm concludes in its ruling 2021:02 that the listed company broke the exchange's regulations regarding information disclosure as inside information from the company's year-end report was accessible on the company's website before the information was published through a press release. In the relevant case, a newspaper had been able to search for the correct file name on the company's website and obtain the information and publish an article prior to the company's announcement.
The Disciplinary Committee notes that the approach used by the newspaper in this case has been applied on several occasions previously. Issuers are thus encouraged to review their systems and procedures for publishing financial statements on their website in order to avoid information leakage.
Statement regarding the so-called Leo Rules
In February 2021, the Swedish Securities Council issued a new statement (AMN 2021:09) regarding the so-called Leo Rules, which deal with certain related party transactions and which can be found in Chapter 16 of the Swedish Companies Act. The Committee's statement largely replaced previous statements by the Committee related to the Leo Rules.
The Committee began the statement by stating that those persons affected by the Leo Rules (the "Leo Circle") are being extended to apply not only to a company's transactions with board members, CEO or other members of the executive management, but to transactions with persons about to take up such a position. Examples of this might be a person who has been proposed as a board member or a prospective CEO. The Committee argued further that good practice requires that the Leo rules be applied for a directed issue or transfer to someone who has left the board of directors or executive management, but who had previously had a significant influence on the decision's formulation.
The Committee briefly addressed the issue of associate companies of the persons who are members of the Leo circle and highlighted good practice in relation to conscious circumvention of the Leo Rules. The Committee was able to conclude that previous practices regarding associated companies and circumvention of the Leo Rules can continue to serve as guidance in the assessment of individual cases.
In addition, the Committee stated that decisions regarding incentive schemes where a company issues or transfers shares, convertibles or warrants to third parties, which, in accordance with an agreement with the company, in turn transfer the instruments or issues call options for any of these to the company's employees, shall be taken by the general meeting in accordance with the Leo rules.
In August 2021, the Swedish Securities Council issued a statement (AMN 2021:41) in which the Council (in addition to the Swedish Corporate Governance Board's recommendation regarding good practice in directed issues from 2014) underlined that directed issues are a deviation from the general rule that cash issues should be executed with preferential rights for the shareholders.
The Swedish Securities Council draw attention to a certain superficiality in the market in recent years when deciding on directed issues and underlines that it is not compatible with good practice to decide on a directed issue without the necessary analysis of the conditions for conducting a rights issue. In the Board's opinion, regardless of whether the issue is decided by the general meeting or the board of directors, good practice requires the board of directors to clearly inform the shareholders of its reasoning when deciding to deviate from the general rule that new cash issues shall be made with preferential rights for the shareholders.
Information disclosure and new sanctions in response to Russia's invasion of Ukraine
Russia's invasion of Ukraine has led to a comprehensive and largely coordinated package of sanctions, primarily from the EU, the US and the UK. New sanctions are being added on an ongoing basis and are having major effects on trade with Russia, both directly and indirectly. In previous news updates, we have summarised the main features of the sanctions imposed so far, but we would like to stress once again the importance of keeping regularly up to date with developments in the event that your business activities have links to Russia or Belarus.
Further, ESMA¹ has published a statement highlighting the importance of companies complying with sanctions issued and addressing the development of the conflict in their disclosures and financial reporting. Among other thing, it emphasises the importance of the issuer publishing inside information as soon as possible relating to how the company's prospects and financial situation are affected by the crisis (unless there are valid reasons for postponing the disclosure of information according to MAR). Further, it emphasises the importance of companies being transparent in their forthcoming financial reporting regarding predictable direct and indirect impacts on operations, exposure to affected markets, supply chains, financial situation and earnings. In addition, the Surveillance Department at Nasdaq Stockholm has drawn attention to the importance of listed companies taking ESMA's statement into account.
Our recommendation is to review operations for links to Russia and draw up a risk map and a contingency analysis. Further, companies must seek clarity on how they are affected by the crisis and evaluate their disclosures and financial reporting based on the results of the evaluation (including management of logbook for insider information). We also recommend that a review is conducted of how compliance with sanctions is managed in the company and ensure that there are adequate procedures and processes in place in relation to the sanctions risks to which the company is exposed (both in relation to the current situation with Russia and other countries affected by sanctions).
¹ European Securities and Markets Authority
Proposal for an EU directive on due diligence for companies in relation to sustainability
On 23 February, the European Commission published proposals for a new directive requiring large companies to review their value chains (perform due diligence) to identify, counteract and mitigate sustainability risks in regard to human rights and the environment.
It is proposed that the requirements apply to companies with either (i) more than 500 employees and net global sales of more than EUR 150 million or (ii) more than 250 employees and net global sales of more than EUR 40 million and which operate in certain sectors with a high environmental impact.
The proposed directive requires the board of directors to monitor due diligence processes in regard to human rights and the environment. In addition, it includes requirements to take sustainability risks into account as part of corporate governance. It is proposed that violations of the provisions of the directive lead to fines and liability.
Our recommendation is to start now in reviewing how work on due diligence is managed in the value chain with respect to sustainability risks, and in particular to human rights and the environment. Although the strict demands are a number of years away, they are coming. In addition, having effective procedures and processes in this regard is an important aspect of sustainable business and will increasingly become a hygiene factor.
Deadline approaching for adaptations to new whistleblowing law
As of 17 July this year, all companies with 250 or more employees will need to have a whistleblowing system in place that meets the requirements of the new Act on the Protection of Persons Reporting Misconduct (the "Whistleblowing Act") that entered into force in December. Requirements set by the Act include appointment of independent and autonomous recipients of reports and documentation and provision of information about the whistleblowing system.
Our recommendation is to identify the gaps in relation to the new legal requirements and adapt procedures and documentation to the extent that it has not already been done.
We have also compiled a comprehensive checklist in this article.
If you would like further information about any of the news items, or if they gave rise to further questions, you are more than welcome to contact one of the below within capital markets and public M&A or your regular contact at Lindahl.