Austria: New Disclosure Requirements for Shareholdings in Listed Companies – Five Things Investors Should Know

→ Ursula Rath

The Austrian Stock Exchange Act (Börsegesetz; BoerseG) has recently been amended to significantly extend disclosure obligations for shareholdings in listed companies. The main objective is to capture arrangements, in particular derivatives, which previously escaped major shareholding disclosure rules, even though they could – and were – used for stake building purposes in Austrian listed companies. The changes are effective from 1 January 2013 and are expected to create challenges for investors, fund managers, credit institutions and securities firms.

Former legal framework

http://roadmap2013.schoenherr.eu/austrian-mergers-and-acquisitions-new-disclosure-requirements/Prior to the amend­ment, any person/entity was oblig­ed to report trans­ac­tions to the Aus­tri­an Finan­cial Mar­ket Author­i­ty (Finanz­mark­tauf­sicht; FMA), the Vien­na Stock Exchange (Wiener Börse; VSE) and the issuer, as a result of which the person/entity reached, exceed­ed or fell below cer­tain per­cent­ages of total vot­ing rights in such issuer. Per­cent­ages ranged from 5% to 90%, with the first statu­to­ry report­ing thresh­old being set at 5%.

First statutory reporting threshold lowered to 4%; issuers can adopt 3% threshold in articles

From 1 Jan­u­ary 2013 onwards, the first statu­to­ry report­ing thresh­old will now be low­ered to 4% from the pre­vi­ous 5%. In addi­tion, issuers are free to set the report­ing thresh­old even fur­ther down to 3% in their arti­cles of asso­ci­a­tion. This may in par­tic­u­lar be use­ful for com­pa­nies with sig­nif­i­cant free float. The pre­vi­ous thresh­olds of 5%, 10%, 15%, 20%, 25%, 30%, 35%, 40%, 45%, 50%, 75% and 90% remain unaf­fect­ed.

Significant extension of instruments covered and aggregation rules

A key pur­pose of the amend­ment is to extend the scope of instru­ments that are sub­ject to report­ing require­ments. Par­tic­u­lar empha­sis is made to catch any deriv­a­tive instru­ments that were to date not sub­ject to reporting/aggregation rules and, there­fore, used for stake build­ing pur­pos­es (eg, con­vert­ible bonds), which will now be treat­ed as if the con­ver­sion right had already been exer­cised. In addi­tion, any cash set­tled instru­ment that enables its own­er to par­tic­i­pate eco­nom­i­cal­ly in changes relat­ing to the issuer’s share price will now be sub­ject to report­ing require­ments. While there is no exhaus­tive list of instru­ments cov­ered, the noti­fi­ca­tion oblig­a­tion will now extend to cash-set­tled options (whether put or call, Euro­pean or Amer­i­can style), cer­tain (equi­ty) basked and index instru­ments (eg, swaps) as well as futures or con­tracts for dif­fer­ence that were pre­vi­ous­ly not sub­ject to dis­clo­sure rules.

Instru­ments cov­ered will include the full range of MiFID finan­cial instru­ments and com­pa­ra­ble instru­ments and agree­ments, such as trans­fer­able secu­ri­ties, mon­ey mar­ket instru­ments, options, futures, for­ward rate agree­ments, swaps and finan­cial or com­mod­i­ty deriv­a­tives. Any hold­er of such instru­ments will essen­tial­ly be under a report­ing oblig­a­tion akin to a share­hold­er if rel­e­vant thresh­olds are reached, exceed­ed or fall­en below if such posi­tion:

1. pro­vides a right to acquire shares with vot­ing rights already issued (at the holder’s ini­tia­tive and under a legal­ly bind­ing agree­ment); or
2. pro­vides a right to con­clude an agree­ment to acquire shares with vot­ing rights already issued; or
3. par­tial­ly or entire­ly relates to shares or a basket/index in which the issuer’s shares account for more than 20% of the basket’s/index’s aggre­gate val­ue and if it:
   • grants its hold­er the right (a) to demand, in whole or in part, the dif­fer­ence between the base price and the set­tle­ment price or (b) to con­clude an agree­ment to this effect; or
   • enables its hold­er to par­tic­i­pate eco­nom­i­cal­ly in any changes relat­ing to the issuer’s share price,

   in each case irre­spec­tive of whether the instru­ment is phys­i­cal­ly or cash set­tled; and

4. under a legal­ly bind­ing agree­ment, pro­vides a right to acquire shares in an enti­ty the prin­ci­pal pur­pose of which is to hold shares with vot­ing rights in an issuer, but only if the hold­er would attain a reportable con­trol­ling inter­est in such enti­ty.

For the pur­pose of deter­min­ing vot­ing rights, all finan­cial instru­ments relat­ing to shares of the same issuer must be aggre­gat­ed.

Sanctions: Fines of up to EUR 150,000 and temporary suspension of voting rights

While non-com­pli­ance with major share­hold­er report­ing oblig­a­tions pre­vi­ous­ly trig­gered a fine of up to EUR 30,000 only, sanc­tions will now become increas­ing­ly strin­gent: Not only will fines be dras­ti­cal­ly increased to up to EUR 150,000, but vot­ing rights may now be tem­porar­i­ly sus­pend­ed. This means that the dif­fer­ence between new­ly acquired but not duly noti­fied vot­ing rights and last report­ed vot­ing rights can be exer­cised only after (i) manda­to­ry dis­clo­sure has been made and (ii) a peri­od of 6 months has lapsed.

Reporting of existing holdings by 1 March 2013

Any per­son hold­ing vot­ing rights that reach or exceed any of the report­ing thresh­olds – such as the new statu­to­ry 4% thresh­old or a 3% thresh­old if such has been adopt­ed by the respec­tive issuer in its arti­cles of asso­ci­a­tion – is required to noti­fy this to the FMA, the VSE and the issuer by 1 March 2013. Such oblig­a­tion does not apply if a cor­re­spond­ing noti­fi­ca­tion had been made before the new rules entered into force.

In order to avoid suspension of voting rights and rather significant fines, investors are well advised to monitor not only their existing positions more thoroughly but also to examine any new products carefully to determine what reporting obligations, if any, may apply.