VI Sources of takeover regulation
1. Danish law
1.1. Introduction – Danish sources and basic structure of regulation
VI. Sources of takeover regulation
listing requirements and regulation of stock exchange trading are found in a number of orders issued by the Ministry of Industry pursuant to § 40 of the Stock Exchange Act.
On O ctober 18, 1990, the Finance Inspectorate (’’Finanstilsynet”, see below) is
sued the following orders: (1) O rder No. 706 on the Copenhagen Stock Ex
change, hereinafter referred to as the “M ain Order” ; (2) Order no. 707 on the conditions for adm ission to the official listing o f securities at the Copenhagen Stock Exchange, hereinafter referred to as the “O rder on Listing R equirem ents” ; (3) O rder No. 708 on the conditions for adm ission for listing o f small and m edium -sized com panies on stock m arket III, hereinafter referred to as the
“Stock M arket III O rder” ; and (4) O rder No. 709 on the requirem ents for the prospectus to be published before securities may be adm itted for official listing at the Copenhagen Stock Exchange, hereinafter referred to as the “Prospectus O rder” .
O rders Nos. 707, 708 and 709 are by and large identical with orders Nos. 813, 814, and 815, all dated N ovem ber 13, 1986, which, in turn, are by and large based on the principles found in O rders Nos. 526, 528, and 527, respectively, all dated N ovem ber 10, 1983. O rder No. 706 is basically identical with O rder No.
812 o f N ovem ber 13, 1986, which introduced several new provisions dealing with, inter alia, the organization o f the Copenhagen Stock Exchange as well as with stockbroker com panies. The reform that created the basis for the current regulation o f the stock market is discussed by Kåre B. Dullum in National
økonom isk Tidsskrift, No. 1/1986, p. 77 ff. See also Stock Exchange Reform, report prepared by a com m ittee established by the M inistry o f Industry, O ctober 1985. For a discussion o f the legal aspects o f public offerings at the Copenhagen Stock Exchange, see Eskil Trolle, U geskrift for Retsvæsen 1984.B249.
§ 40, item 11, of the Stock Exchange Act contains an authority to the Ministry of Industry granting the Ministry the right to promulgate rules regarding disclosure obligations in connection with acquisition of shares as part of a takeover. So far the Ministry of Industry has not used this au
thority. Effective from July 1, 1991, a new provision has been inserted in the Companies Act for the purpose of authorizing the Ministry to imple
M inistry o f Industry tabled a bill (No. L85) in the Danish Parliam ent which w ould alter § 39 and add to this provision a num ber o f new provisions in the Stock Exchance Act governing insider trading. The principal scope o f the bill is to im plem ent the EEC Directive on coordination o f insider trading regulation, dated N ovem ber 13, 1989 (1989/592/EEC). For a discussion o f insider trading under Danish law, see Erik W erlauff & Per Schaum burg-M iiller in Ugeskrift for Retsvæ sen 1988.B73 and Poul Erik Skaanning-Jørgensen in Revision & Regn
skabsvæsen No. 8/1987, p. 10.
VI. Sources o f takeover regulation
ment (parts of) the EEC-Directive on disclosure of major stock transac
tions (see 1.2. below and VII. 1.2.1.), cf. § 28 c.
The Copenhagen Stock Exchange is an independent (’’selvejende”) insti
tution managed under the supervision of a board that lays down the policy of the Exchange, while a management handles the day-to-day business.5 The Stock Exchange is monitored by the Finance Inspectorate, a govern
mental agency under the supervision of the Ministry of Industry.6
§ 12 of the Stock Exchange Act contains an authorization for the Board of the Copenhagen Stock Exchange to issue rules on disclosure obligations for issuers, rules of ethics as well as rules regarding the organization, function and application of the trade systems and the information system.
Of particular interest in this context is the Board’s adoption on November 3, 1987 of the Stock Exchange Rules of Ethics and rules on Information Obligations for Issuers of Listed Securities.7 These two sets of rules create the main body of regulation pertaining to takeovers in Denmark. In addi
tion, customs and usages, referred to in the introduction to the Rules of Ethics as “good stock exchange custom”, may be of relevance for the construction and interpretation of the rules issued by the Board of the Copenhagen Stock Exchange.
The Board of the Stock Exchange must see to it that issuers of listed se
curities and stockbroker companies comply with the Stock Exchange Act, the orders promulgated by the Ministry of Industry, and the Stock Ex
5 See § 5, Subsections 1 and 2 o f the Stock Exchange Act.
6 For the sake o f convenience, the designation “Finance Inspectorate”, rather than the official term “Supervisory Authority o f Financial A ffairs” is used here. The duties o f the Finance Inspectorate are set forth in Chapter 10 o f the Stock Ex
change Act.
7 The Rules o f Ethics and the Information O bligations for Issuers o f Listed Se
curities cam e into force on January 1, 1988, and replaced the initial rules of ethics w hich had been adopted in 1979. The Rules on Information Obligations for Issuers o f Listed Securities w ere am ended on January 24, M ay 23, and June 20, 1989. Updated versions o f both sets o f rules were issued in August 1989. H ow
ever, on M arch 2, 1990, both sets o f rules were am ended again. The new rules and their history are presented by Poul Erik Skaanning-Jørgensen, Erik Bruun H ansen & Lene Nielsen in Revision & Regnskabsvæsen No. 3/1988, p. 33 ff. O f lesser interest in this context is the adoption by the Board o f the Copenhagen Stock Exchange o f rules regarding the deliverability o f bonds.
VI. Sources of takeover regulation
change Rules of Ethics, cf. § 10, items 4 and 5 of the Stock Exchange Act.8
The Board of the Stock Exchange may order the board, the managers or the auditors of a stockbroker company or of a listed company to provide information regarding such company necessary to ensure compliance with the Act, the orders promulgated pursuant to the Act and the rules issued by the Board of the Stock Exchange, cf. § 13, Subsection 2.
Violations of the Act as well as orders issued pursuant to the Act and the rules issued by the Board of the Copenhagen Stock Exchange, must be reported to the Finance Inspectorate, cf. § 13, Subsection 1, of the Act.
While § 44, Section 4, of the Act states that orders promulgated by the Ministry of Industry pursuant to the Stock Exchange Act may provide for enforcement by means of fines, no penalties are directly provided for with respect to violations of the rules issued by the Board of the Copenhagen Stock Exchange. However, pursuant to § 46 of the Stock Exchange Act, the Finance Inspectorate may order issuers or stockbroker companies to comply with the rules issued by the Board of the Stock Exchange. § 46 presupposes that attempts are made to bring violations to an end by means of negotiations before an order is given. Typically, negotiations will be conducted by the Board of the Stock Exchange in the first place, while the Finance Inspectorate comes into the picture if the preliminary negotiations do not lead to a satisfactory solution. Failure to comply with an order by the Finance Inspectorate may be penalized by fines according to § 44, Subsection 3, of the Stock Exchange Act. Also, the Inspectorate may compel the board, managers or auditor of an issuer or stockbroker company to follow its orders by means of daily or weekly fines, see § 45.
Consequently, even violations of the rules issued by the Board of the Stock Exchange may be punished, albeit indirectly only.9 It is noteworthy, however, that the penal system described here only aims at violations by issuers and stockbroker companies and not others, e.g. acquirors of shares.
If it is deemed to be desirable, the Finance Inspectorate may publicize orders issued by the Inspectorate. Another means is the right for the Board of the Stock Exchange and the Inspectorate to express their criticism publicly. Finally, the Inspectorate may take a more drastic step and sus
8 Although no separate reference is made in § 10 to the Inform ation Obligations for Issuers o f Listed Securities, the Board also has to ensure com pliance with these rules.
9 This tw o-tier penal system resem bles the system set forth in Chapter 6 o f the Act on Good M arketing Practices (’’M arkedsføringsloven” ).
VI. Sources o f takeover regulation
pend or discontinue the listing of an issuer’s securities on the Stock Ex
change, cf. § 46 of the Act.
Decisions made by the Copenhagen Stock Exchange under the Act may be appealed to the Finance Inspectorate within 4 weeks.10 Decisions made by the Inspectorate cannot be appealed to any other administrative au
thority, however, “questions of law” 11 may be submitted to the Ministry of Industry’s Appeal Board (’’Industriministeriets Erhvervsankenævn”) within another time limit of 4 weeks. Any decision made by any of the above mentioned entities can be brought before the ordinary courts within 8 weeks after the decision has been made.12
1.2. EC Regulation. As Denmark is a member of the EC, EC law is rele
vant when considering Danish law. Provisions under EC law may either be directly binding upon citizens in Denmark (regulations) or impose on member states a duty to enact national legislation for the implementation of the EC rules (directives).
The EC-Commission has on several occasions stated that it considers mergers and acquisitions within the European Communities as a vehicle to increase the efficiency of European business and achieve increased eco
nomic growth that can satisfy the needs required to complete the internal market.13
Making European business more competitive is one of the key issues in the “ 1992-program” that has the purpose of revitalizing the industry of the EC-countries.14 The creation through mergers and acquisitions of larger
10 Cf. § 43, Subsection 1, o f the Stock Exchange Act. Com pare the corresponding provision in § 159 c, Subsection 1, o f the Com panies Act regarding decisions by the Stock Exchange pursuant to rules issued on the basis o f the authority in § 28 c o f that Act.
11 The test w hether or not a matter includes questions o f law is likely to be a diffi
cult one. M ost problem s contain legal aspects o f some kind, but how much is re
quired in order to create the basis for appeal? See the identical rule in § 159 c, Subsection 2, o f the Com panies Act.
12 See § 43, Subsection 3, o f the Stock Exchange Act.
13 See “Completing the Internal M a rk e t”, W hite Paper from the Com m ission to the European Council, June 1985, p. 36, item 143 and p. 5, item 8.
14 The signing by the EC-countries in February 1986 o f the Single European Act, which cam e into force on July 1, 1987. and constitutes an addendum to the Treaty o f Rome, has created the legal basis for a coordination o f the industrial policy within the EC-countries. Article 130 f o f the Single European Act states, inter alia, that the aim o f the Com munity shall be to strengthen the scientific and technological basis o f European industry and to encourage it to becom e more
VI. Sources of takeover regulation
business entities is considered crucial in connection with the competition from other parts of the world, in particular the United States and Japan.
Prior to the preparation of the Commission’s White Paper on the comple
tion of the EC internal market the EC-Commission, in a report on the competitiveness of European industry said that the current concern “over the competitiveness of Community industry arises from a widely held but vague general feeling that the Community is in danger of “losing the race””.15
As will be seen later, the existing Danish regulation of takeovers only deals with part of those problems that are connected to takeover activity.
The reason for this is probably in part that it is expected that regulation will take place at the EC-level of the takeover process.
In September 1990, the EC-Commission issued a proposal for a 13th Council Directive on “Company law concerning takeover and other gen
eral bids”. 16
One o f the fundam ental principles o f the D raft Takeover Directive is that all shareholders o f a target-com pany who are in the same position receive equal treatment. Also, they must have the opportunity to make an informed assessm ent before deciding whether to accept a takeover offer. Target-m anagem ent m ust act in the interest o f all shareholders and may not frustrate a bid. M oreover, the D raft Takeover Directive seeks to avoid “false m arkets” for shares o f any o f the com panies involved in the bid and restrictions in the target-com pany’s conduct
com petitive at the international level. Pursuant to Article 130 f one o f the means by w hich this goal should be achieved is to enable undertakings to exploit the C om m unity’s internal m arket potential fully by removing legal and fiscal barriers am ong the EC-countries.
15 See EC-Com m ission, Dossier, The Com petitiveness o f the Community Industry p.
7(1982).
16 COM (90) 416 Final – SYN 186, Brussels, Septem ber 19, 1990. Although it is not unlikely that the text o f the draft m entioned here will be changed in the final version o f the directive, the draft will be com m ented on where relevant through
out this book. The proposed directive is hereinafter referred to as the “Draft Takeover D irective” . The Draft Takeover Directive must, in order to be effective, be adopted by the EC-Council. The Stock Exchange Act, § 40, item 16, contains an authority for the M inistry o f Industry to im plem ent EC legal provisions on stock exchange issues. Earlier versions o f the Draft Takeover Directive, o f which the first was prepared in 1987, are discussed in Business Europe, January 9, 1989, p. 4, Securities Regulation & Law Report, January 6, 1989, p. 26, B N A ’s Corporate Council W eekly, January 4, 1989, p. 5, and Financial Times, Decem ber 23, 1988, p. 1.
VI. Sources o f takeover regulation
o f business beyond a reasonable time due to the occurrence o f offers. See generally the pream ble and Articles 6a, 7, 8, 10, 12, 16 and 17 o f the Draft Takeover Directive. The Draft Takeover Directive is probably m eant to provide a minimum level o f regulation, and it hardly affects the m em ber states’ rights to maintain or introduce more far-reaching or detailed provisions in their national laws, insofar as such provisions further the principles contained in the directive.
M em ber states are required to designate a supervisory authority or authorities that must m onitor com pliance with the rules o f the directive, see Article 6 o f the D raft T akeover Directive. It is likely that the Danish Finance Inspectorate would be the supervisory authority in Denmark designated pursuant to Article 6. In that case it should be expected that a num ber o f the functions o f the Finance In
spectorate will be delegated to the Board o f the Copenhagen Stock Exchange, w hich w ould be possible under the directive. The scope o f the Draft Takeover D irective is restricted to takeover or other general bids (as defined) for the se
curities (as defined) o f listed com panies, cf. Article 1(1). If adopted in its present form, the Directive would have to be transposed into national law by January 1, 1992, such national laws to com e into force no later than January 1, 1993, cf.
Article 22(1) and (2). The particular provisions o f the Draft Takeover Directive will be discussed below in connection with the discussion o f the various subject matters under Danish law.
On December 12, 1988, the EC-Council adopted a directive on the infor
mation to be published when a major holding of shares of a listed com
pany is acquired or disposed of.17
The purpose o f this directive is to create increased “transparency” in connection with transfer o f m ajor stockholdings. M em ber states were obligated to take the m easures necessary for them to com ply with the directive before January 1,
1991, see Article 17(1), o f the directive.
There is another directive, or rather draft directive, which, if adopted, would be of relevance in this context. The draft fifth company law direc
tive on the structure and organization of public companies18, inter alia, deals with the right for companies to issue low-vote and no-vote shares.
Also, the Draft Fifth Directive would regulate the use of proxies.
17 Council Directive 88/627/EEC o f D ecem ber 12, 1988, hereinafter referred to as the “D isclosure D irective” .
18 This directive has been on its way for several years but because of, am ong other things, disagreem ent on the role o f em ployees (Britain on one side and Continen
tal European countries on the other), no directive has been adopted so far. The draft dealt with here is the am ended proposal submitted by the Com m ission to the C ouncil on A ugust 19, 1983 (see O.J. No. C 240/2 o f 9.9.1983) as am ended again in D ecem ber 1990, cf. COM (90) 629 Final – SYN 3, Brussels, D ecem ber 13, 1990, hereinafter referred to as the “D raft Fifth D irective” .
VI. Sources of takeover regulation
The development at the EC-level discussed here has been accompanied by changes in national laws affecting mergers and acquisitions in a num
ber of European countries. For example, Great Britain and France have relaxed their regulation of the financial markets. Other countries have followed or should be expected to follow. Generally, the EC-Commission has responded favorably to this deregulation at the national level. How
ever, there is no doubt that the EC-Commission envisages that the national deregulation will be replaced, at least to a certain extent, by EC regulation.
1.3. Preliminary observations. One of the characteristics of Danish regu
lation within the corporate acquisition area is the role played by the Board of the Copenhagen Stock Exchange. In addition to supervising the existing rules, the Board has adopted, and from time to time changes, the prime source of regulation, i.e. the Stock Exchange Rules of Ethics and the rules on Information Obligations for Issuers of Listed Securities.
The fact that the Board itself issues and administers the rules, seen in conjunction with the fact that the statutory framework leaves considerable discretion with the Board in connection with the operation of the Stock Exchange, gives the persons and companies dealing with or at the Stock Exchange a legal position that is quite different from what would be the case if a more detailed framework by means of statutes existed.
Another feature of the takeover regulation is the (indirect) penal system.
Before evaluating the implications of the choice of regulation made in Denmark, it is useful to consider in what ways takeovers are regulated in other jurisdictions.