Exemption from the obligation to submit a tender offer in connection with refinancing and restructuring II

Date 12 maj. 2008
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3 April 2009, the Danish Financial Supervisory Authority (the DFSA) decided on the matter of exemption from the obligation to submit a tender offer according to the Danish Securities Trading Act (STA) Section 31(4). With the decision, the DFSA confirms the line of conduct adopted in its decision of 8 December 2008.


The case in brief

A company listed on the alternative market, First North (Issuer), had since March 2008 had liquidity problems. At the end of February 2009, the Issuer was DKK 1-2 million short of being able to pay wages and other necessary operating costs. The Issuer had depleted all common possibilities of raising the necessary funds and therefore had to initiate a capital increase by issue of shares. Another company (Investor) already owned 27.76% of Issuer’s share capital and voting rights. After the capital increase, and after having taken over all the new shares, Investor owned a total of 70% of Issuer’s shares and voting rights. On this background, Investor asked the DFSA for an exemption from the obligation to submit a tender offer to Issuer’s minority shareholders.


Current rules on takeover bids

The regulatory basis is to be found in STA section 31(1), according to which the Investor is obligated to submit a takeover bid if the transfer of shares to Investor results in Investor gaining control over Issuer. STA section 31(1 (1-5)) further defines control.  


According to STA Section 31(4), an exemption from this obligation can be granted. It further appears that the DFSA can grant an exemption under certain conditions.


In the legislative material of the regulatory basis, certain conditions are further described. In the material, it is stated that:


”An example of a condition which according to current practise and after specific assessment could result in an exemption from the obligation to submit a tender offer is in case of restructuring where the existence of the issuer is directly threatened.”


The DFSA’s decision of 3 April 2009

In this particular case, the DFSA found that, at the time of the capital increase, the Issuer was an ailing company, and that the company’s existence was directly threatened. The reason is that the Issuer could not raise the necessary funds for the company’s continued operation. Therefore, the DFSA was of the opinion that the company’s certain conditions did grant the possibility of exemption from the obligation, according to STA Section 31(4).


The DFSA states in more general terms that the requirement in STA Section 31(1) regarding the obligation, which exists to protect the minority shareholders, can only grant exemption from the obligation if such exemption is not detrimental to the minority shareholders.


As noted by the DFSA, it must generally be assumed to be in the minority shareholders’ interest that the Issuer reorganises its capital structure, so that the disclosure and value of the minority shareholders’ investment is secured in a situation where the Issuer is an ailing company, and where the alternative is bankruptcy.


Summary of the two decisions

The DFSA’s newest decision of 3 April 2009 confirms the line of conduct adopted in its decision of 8 December 2008. Thus, the primary point of both decisions is that the Issuer was an ailing company, and that the Issuer’s specific situation was to be considered directly threatened. For the company to be considered ailing and directly threatened, it has thus been confirmed that two quite decisive conditions for the Issuer are the lack of funds for payment of wages and other necessary costs for the company’s continued operation, and that all other possibilities of raising capital on the regular loan market have been depleted.


Especially in the newest decision of 3 April 2009, the DFSA emphasised certain conditions in the submitted financing plan, among these that the banker had accepted before the Issuer a three-year period of interminability of the loan exposure. The DFSA notes that this extension from the bank in combination with the capital increase provided a possibility of restoring the trust in the Issuer and thereby increasing the value to the shareholders.


The DFSA further emphasises that, before the capital increase, the Investor already had actual controlling influence in the company, and therefore the Issuer’s control structure did not change med the financing plan. In addition, the DFSA emphasises in their assessment that the shares subscribed by Investor were invested in the Issuer in cash.


In DFSA’s former decision of 8 September 2009, the investor in question had no ownership in the ailing company prior to the capital increase, which illustrates that, according to the DFSA, this does not in itself prevent the possibility of granting an exemption from the obligation to submit a tender offer.


The general conclusion of the two decisions must be that the DFSA to a great extent base their decision on a specific assessment. However, such an assessment will always focus on the long-term interests of the minority shareholders in the listed company.


Both decisions closely follow the legislative material of STA which defines the threatened status of an ailing company as a certain circumstance authorising an exemption.



If you have questions regarding the above or require additional information on exemption from the obligation to submit a tender offer , please contact attorney Dan Moalem (dmo@mwblaw.dk) or junior associate Christian R.J. Nielsen (crn@mwblaw.dk) .


The above does not constitute legal counseling, and Moalem Weitemeyer Bendtsen does not warrant the accuracy of the information. With the above text, Moalem Weitemeyer Bendtsen has not assumed responsibility of any kind as a consequence of a reader’s use of the above as a basis of decisions or considerations.