The Administrative Court has ruled in a case concerning the extent of the obligation to register transactions performed by persons discharging managerial responsibilities – and more specifically surrounding the interpretation of which legal entities are to be regarded as related to persons discharging managerial responsibilities. The background was the Swedish Financial Supervisory Authority's decision that a company X should pay a penalty because the company did not register transactions with shares in the listed company Y within the prescribed period.
According to article 19 in MAR, persons discharging managerial responsibilities in a company, as well as persons closely associated with them, must register transactions with the Swedish Financial Supervisory Authority that are performed on their behalf regarding shares that have been issued by the company, so-called insider trading.
”Persons discharging managerial responsibilities” are defined in article 3.1.25 MAR and include persons who are members of administration, management or inspection bodies in a company as well as certain senior executives. ”Closely associated person” is defined in article 3.1.26 in MAR and can include a legal entity whose management duties are performed by someone who is a person in a leading position in the issuer (the listed company).
In the case in question, persons A and B had been board members in both company X and listed company Y during the period for the transactions, and the question was whether A and B could be considered to have performed management duties in company X in the way referred to in MAR. As they were persons discharging managerial responsibilities in company Y, if the answer was affirmative, company X would be counted as a closely associated party to A and B with the obligation to register the transactions that were undertaken with Y's shares.
The Administrative Court concluded that board members in Swedish limited companies can be regarded as mainly performing management duties according to MAR when they perform customary board tasks. This is in view of the fact that, among other things, no specific decision-making authority or specific mandate is required for a board member to be able to influence investment decisions at, for example, board meetings. The board of directors also has the opportunity, as well as the obligation, to exercise control over the CEO.
WHAT DOES THIS MEAN?
The Administrative Court's conclusion means that more companies can be considered to be closely associated with persons discharging managerial responsibilities than was previously the case. The judgement creates a presumption that a close relationship exists in relation to legal entities where a person discharging managerial responsibilities is a board member.
However, as companies can be organised in different ways, the Administrative Court believes that exceptions from this general rule can arise in individual cases. For the closely associated person issue not to become relevant requires the board member to have been prevented or not to have had the opportunity to participate in or influence the company's investment decisions. There are thus certain opportunities, after an overall assessment in the individual case, to limit a board member's participation in management duties and to organise the company's governance in such a way as to prevent this in order to avoid such a relationship arising.
In conclusion, the judgement means that persons discharging managerial responsibilities need to:
- review their existing duties and identify those companies that should be regarded as closely associated parties according to the Administrative Court's assessment.
- notify these companies in writing of the obligations that a closely associated party has according to MAR
- notify the issuer (the listed company) in writing so that the issuer's register of closely associated parties can be updated
We also recommend that listed companies regularly review their register of persons discharging managerial responsibilities and their closely associated persons to ensure that it is correct and up-to-date.
The Administrative Court's judgement has been appealed. At the time of writing, the Administrative Court has not yet issued a decision on whether the case will be reviewed.