Corporate / M&A
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.
- 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.