Austria: New Disclosure Requirements to Prevent Secret Stake-Building in Austrian Listed Companies

→ Christian Herbst

From 1 January 2013, Austria will tighten disclosure requirements for significant shareholdings in listed companies.

Summary

• The new rules are aimed at pre­vent­ing secret stake-build­ing in list­ed com­pa­nies and tar­get in par­tic­u­lar stake-build­ing by cash set­tled option arrange­ments and sim­i­lar finan­cial instru­ments.
• The dis­clo­sure thresh­old remains unchanged at 5% and mul­ti­ples of 5%, but an addi­tion­al dis­clo­sure thresh­old at 4% will apply, and list­ed com­pa­nies may low­er that thresh­old in their arti­cles of asso­ci­a­tion to 3%.
• By 28 Feb­ru­ary 2013, those reach­ing or exceed­ing the new thresh­olds, includ­ing by finan­cial instru­ments, must noti­fy the Finan­cial Mar­ket Author­i­ty, the Vien­na Stock Exchange, and the Issuer.
• In addi­tion to admin­is­tra­tive fines, sanc­tions for vio­la­tions now include a tem­po­rary sus­pen­sion of vot­ing rights as to the non-dis­closed shares until six months after prop­er dis­clo­sure, but no sus­pen­sion of div­i­dend rights.

The 2012 amend­ment to the Aus­tri­an Stock Exchange Act (BörseG) under BGBl I ⁸³⁄₂₀₁₂ will take effect from 1 Jan­u­ary 2013. The amend­ment aims at cap­tur­ing finan­cial instru­ments not grant­i­ng an enforce­able right to acquire shares, in par­tic­u­lar cash set­tled equi­ty swaps. These instru­ments cur­rent­ly fall out­side the dis­clo­sure require­ments.

Current Austrian notification requirements

The Aus­tri­an Stock Exchange Act pro­vides for two (sep­a­rate) dis­clo­sure oblig­a­tions: (i) to noti­fy the acqui­si­tion or dis­pos­al of shares in a com­pa­ny trad­ed on a reg­u­lat­ed mar­ket; and (ii) to dis­close finan­cial instru­ments held.

Thresh­olds: Per­sons direct­ly or indi­rect­ly acquir­ing or sell­ing shares car­ry­ing vot­ing rights of an Aus­tri­an list­ed issuer must inform the Aus­tri­an Finan­cial Mar­ket Author­i­ty, the exchange oper­at­ing com­pa­ny, and the issuer of the share of vot­ing rights held, if their pro­por­tion of vot­ing rights reach­es, exceeds, or falls below 5%, 10%, 15%, 20%, 25%, 30%, 35%, 40%, 45%, 50%, 75%, or 90%.

Finan­cial instru­ments: The acqui­si­tion of finan­cial instru­ments cur­rent­ly trig­gers dis­clo­sure oblig­a­tions only if they result in an enti­tle­ment to acquire on the holder’s own ini­tia­tive alone (already issued) shares to which vot­ing rights are attached. Under the pre­vail­ing opin­ion, cash set­tled options and swaps do not qual­i­fy as finan­cial instru­ments trig­ger­ing dis­clo­sure oblig­a­tions.

Act­ing in con­cert: Dis­clo­sure oblig­a­tions can­not be cir­cum­vent­ed or avoid­ed by build­ing a stake via var­i­ous acqui­si­tion vehi­cles if the vehi­cles are (ulti­mate­ly) con­trolled by the same enti­ty.

Finan­cial insti­tu­tions: Excep­tions apply, inter alia, to: (i) shares acquired for the sole pur­pose of clear­ing and set­tling with­in the usu­al short set­tling cycle (max­i­mum three trad­ing days); (ii) cus­to­di­ans, if they can only exer­cise the vot­ing rights attached to the rel­e­vant shares under instruc­tions giv­en in writ­ing or elec­tron­i­cal­ly; (iii) mar­ket mak­ers; and (iv) invest­ment firms and cred­it insti­tu­tions.

Sanc­tions: Poten­tial sanc­tions include: (i) an admin­is­tra­tive law fine of up to EUR 30,000 (increased to EUR 150,000 under the 2012 leg­is­la­tion); (ii) dam­age claims by mar­ket par­tic­i­pants; (iii) sus­pen­sion of vot­ing rights, if pro­vid­ed for in the issuer’s arti­cles of asso­ci­a­tion (under the 2012 leg­is­la­tion, sus­pen­sion of vot­ing rights is statu­to­ri­ly fore­seen); and (iv) sus­pen­sion of trad­ing.

The new rules

Scope of instruments qualifying for disclosure enlarged

The broad­ened def­i­n­i­tion of Finan­cial Instru­ments under sec 91a Stock Exchange Act now includes instru­ments that do not grant an enforce­able right to acquire vot­ing shares but make the acqui­si­tion of vot­ing stock (eco­nom­i­cal­ly) pos­si­ble. As of 1 Jan­u­ary 2013, it will be irrel­e­vant whether an instru­ment pro­vides for a cash set­tle­ment or phys­i­cal deliv­ery of the under­ly­ing shares. Thus total return swaps and cash set­tled options and con­tracts for dif­fer­ence will have to be dis­closed. The new dis­clo­sure require­ments also cov­er instru­ments relat­ing to bas­kets and indices if the issuer’s shares exceed 20% of the total val­ue of the bas­ket or index.

Disclosure Threshold starting at 4%

The cur­rent statu­to­ry dis­clo­sure thresh­olds, with 5% as the low­est dis­clo­sure thresh­old, stays unchanged. The amend­ment leg­is­la­tion intro­duces, how­ev­er, a new addi­tion­al thresh­old at 4%. More­over, com­pa­nies may pro­vide for a low­er dis­clo­sure thresh­old of 3% in their arti­cles of asso­ci­a­tion; to be effec­tive, such 3% dis­clo­sure thresh­old must also be noti­fied to the FMA and pub­lished on the cor­po­rate web­site.

No grandfathering but disclosure by 28 February 2013

By 28 Feb­ru­ary 2013, those reach­ing or exceed­ing the new thresh­olds of 4% (or 3% if pro­vid­ed under the list­ed com­pa­nies arti­cles of asso­ci­a­tion, or any oth­er addi­tion­al dis­clo­sure thresh­old by finan­cial instru­ments new­ly qual­i­fy­ing for dis­clo­sure as of 1 Jan­u­ary 2013) must noti­fy the Finan­cial Mar­ket Author­i­ty, the Vien­na Stock Exchange, and the Issuer.

Sanction now include suspension of voting right

Under the 2012 leg­is­la­tion, the admin­is­tra­tive law fines for breach­ing the dis­clo­sure require­ments have increased to EUR 150,000.

Under a new Sec 94a Stock Exchange Act, the law now pro­vides for a tem­po­rary sus­pen­sion of the vot­ing rights of the shares affect­ed by the non-dis­clo­sure until six months from the date of dis­clo­sure. The sus­pen­sion of vot­ing rights will not be trig­gered if, includ­ing by request of the issuer, the share­hold­er meets his noti­fi­ca­tion oblig­a­tion with­in two trad­ing days.

But this exemp­tion requires that (i) the total share­hold­ing (includ­ing the shares affect­ed by the stake-build­ing, of that stake­hold­er, or of stake­hold­ers act­ing in con­cert) not reach 15% of the total vot­ing stock of the issuer and (ii) the num­ber of shares not yet noti­fied be below 3%. Dif­fer­ent from Ger­many, the Aus­tri­an rules on non-com­pli­ance with dis­clo­sure oblig­a­tions still do not pro­vide for a sus­pen­sion of div­i­dend claims.

Under-the-radar stake-building still possible?

With­in lim­its the amend­ed dis­clo­sure rules still allow com­pli­ant under-the-radar stake-build­ing by, inter alia, using call options on pref­er­ence shares or util­is­ing the bank priv­i­lege regard­ing trea­sury port­fo­lios, which, how­ev­er, has been mod­i­fied. Also, giv­en the def­i­n­i­tion of the basis for cal­cu­lat­ing the vot­ing rights of all finan­cial instru­ments, com­pli­ant avoid­ance struc­tures involv­ing finan­cial instru­ments may still work.

The 2012 Amendment of Austrian disclosure rules broaden the definition of financial instruments to capture cash settled instruments, allowing secret stake-building.