Cessation of administrative Practice regarding the Term a "Single Shareholder"

Date 5 mar. 2014
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19 February 2014, the Danish FSA decided to cease the administrative practice regarding the term a "single shareholder".


The decision is a consequence of the fact that the Danish FSA in recent years has received several inquiries regarding the interpretation of the term a "single shareholder" and its interplay with the concept of "acting in concert", which has given rise to further reflection on the term a "single shareholder" at the Danish FSA .


The concept of "acting in concert" has been in focus in recent months, as the European Securities and Markets Authority ("ESMA") November 12 2013 published guidelines for the interpretation of within which boundaries a listed company's shareholders may be assumed to be able to cooperate ("act in concert") without the shareholders, as a consequence, being considered as having control of the company and therefore being required to submit a tender offer to the remaining shareholders.


The Term a “Single Shareholder”

There have been a series of decisions in Denmark, which have been decided by, among others, the Danish Company Appeals Board (“Erhvervsankenævnet”) regarding the term a "single shareholder". From these decisions, it may be inferred that if shareholders, who own shares in the same listed company, outwardly act as being a single person (hence the term a "single shareholder"), these shareholders would be considered as a single shareholder. This implies that if the shareholders were to be regarded as a single shareholder, they would be able to trade shares internally among themselves without incurring an obligation to submit a tender offer, despite of the fact that a shareholder, formally speaking, would obtain deciding control of the company.


These cases have mainly concerned family members, who have owned shares in the same listed company directly or indirectly.


In practice, both the other shareholders and other parties have had difficulties in assessing whether the shareholders in question were to be regarded as a single shareholder.


The term has, as noted above, been used in a number of decisions regarding the rules on takeover bids. The term does not stem from legislation, but must be considered as an administrative practice, which can be derived from the decisions taken by the administrative authorities.


The Concept of “acting in Concert”

The concept of "acting in concert" became part of Danish law with the implementation of Directive 2004/25/EC on takeover bids (the "Takeover Directive"), cf. executive order no. 618 of 23 June 2005 on takeover bids.


In the Takeover Directive, "Acting in concert" is defined as persons acting in concert with others, i.e. natural or legal persons who cooperate with the offeror or the company on the basis of an (written or oral, implied or explicit) agreement which aims to obtain control of the company, cf. the Takeover Directive article 2, section 1, letter (d).


If several shareholders are considered to be covered by the concept of "acting in concert", this may lead to the shareholders controlling the listed company not being able to trade shares in the company in agreement with another shareholder without it triggering an obligation to submit a tender offer. For those shareholders, who already have control of a company, cooperation with another shareholder will not be covered by the concept of "acting in concert", as this does not take place with the aim of gaining control of the company. However, for non-controlling shareholders, the purpose will be to gain control of the company, and this will thus trigger a mandatory bid, as the circle of people who have control of the company will be changed.

Assessment of the Possibilities of continuing to trade Shares internally

Relative to the change in administrative practice in relation to a "single shareholder", the assessment of whether the shareholders acting in concert may transfer their shares in the company to other shareholders must be made according to a concrete assessment based on whether a change of control actually takes place and whether the circumstances of the company are changed to a significant degree. If so, this will result in an obligation for the shareholders to submit a tender offer.


The Background behind the Cessation of the administrative Practice

The Takeover Directive is a minimum directive, which means that the member states in certain areas have the opportunity to adopt additional or stricter rules than those required by the Directive. Conversely, member states do not have the power to impose less strict rules, as the objective of the directive is to protect minority shareholders.


As stated above, the term a "single shareholder" could give shareholders a wider opportunity to trade shares in the company without triggering an obligation to submit a tender offer in comparison with the concept of "acting in concert", which stems from the Takeover Directive. The Danish FSA has therefore chosen to cease this administrative practice, as the Danish FSA believes that this practice is contrary to the Directive’s provision on "acting in concert with others".


The Implementation of the Danish FSA’s Decision

The administrative practice regarding the concept of a "single shareholder" will cease with immediate effect following the FSA's decision.

If you have any questions or would like additional information regarding the consequences of the Danish FSA’s ending of the administrative practice, please contact partner Dan Moalem (dmo@mwblaw.dk), attorney Anders Kjær Dybdahl Pedersen (akd@mwblaw.dk) or junior associate Poul Quach (pqu@mwblaw.dk).


The above does not constitute legal counselling 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.