Nasdaq Copenhagen adopts controversial Delisting Rule

Date 8 jan. 2020
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7 January 2020, Nasdaq Copenhagen announced its decision to change the rules for issuers so that as of 15 February 2020, the removal of shares from trade (“delisting”) in principle would require support from a majority of nine-tenths of the votes cast and the share capital represented at the general meeting. Prior to this change, listed companies were in principle entitled to delisting unless there was a concrete risk that this would cause material harm to the investors’ interests or the proper operation of the market[1].

 

The amended rules correspond exactly to a working draft previously published by Nasdaq Copenhagen which we have reviewed and analyzed in the Nordic Company Law Gazette[2].

 

In the following we will give a brief account of the amended rules and whether they are in compliance with applicable law as well as their significance in relation to takeover offers going forward.

 

Background

When the Danish Capital Markets Act replaced the Danish Securities Trading Act on 3 January 2018, the previous rules on companies’ access to delisting were not included. Regulation applicable thus far provided that companies were entitled to delisting unless there was a risk that this would cause material harm to the investors’ interests or the proper operation of the market.

 

In an important decision on 15 August 2016, the Danish Company Appeals Board determined that the issuer not being subject to the same duties of disclosure as a listed company and no longer having access to trade their shares on a regulated market after delisting were consequences of any delisting and could thus not be characterized as “material harm”[3].

 

The preliminary work for the Capital Markets Act state that the reason for revoking the rules on delisting was that they were a case of an excessive implementation of EU regulation and that these rules were not necessary, in consideration of e.g. ensuring sufficient investor protection[4].

 

Nasdaq Copenhagen announced that the current practice would be continued until further notice, but that the need for new rules would be assessed. Such new rules have now been adopted.

 

The new Delisting Rules

The new delisting rules provide that, going forward, any decision of delisting must be made at a general meeting and the proposal must be endorsed by a majority of at least nine-tenths of the votes cast and of the represented share capital.

 

This requirement does not, however, apply in the following cases: (1) if one shareholder owns more than nine-tenths of all shares and votes and would effectively be able to pass a decision of compulsory redemption; or (2) if the shares are listed on another regulated market or a similar market; or (3) if the issuer is dissolved; (4) if the issuer ceases to exist by way of merger or demerger; or (5) if the issuer ceases to exist by way of bankruptcy.

 

The requirement of a majority of nine-tenths of the votes cast and of the share capital corresponds to the scheme known from particularly extensive amendments to the articles of association in pursuance of the Danish Companies Act. The Danish Companies Act’s provisions are, however, characterized by relating to interference in the shareholders’ rights of ownership (or particularly cumbersome language requirements). With delisting, however, it is important to bear in mind that the shareholders’ rights of ownership are not interfered with.

 

In Relation to the Law

Revocation of the statutory rules on voluntary delisting was motivated by a wish to avoid excessive implementation of EU regulation and because law makers did not find such rules to be necessary, e.g. in consideration of investor protection. The new rules do not appear to be reflective of the law makers’ intentions.

 

Further, the new rules are problematic in relation to other aspects of the law, not least as the new rules are made on a contractual basis, with no actual authorization by law, between the private actor Nasdaq Copenhagen and each issuer. The new rules may be seen as a precaution with similar effect as the negotiability restriction, which is not consistent with the requirement in the Capital Markets Act, Section 75(2) on how listed shares must be freely negotiable. Seen in relation to company law, it is problematic that delisting will require a majority of nine-tenths, while listing may in principle be decided on by the board of directors. Seen in relation to competition law, Nasdaq Copenhagen’s special position results in limitations on which conditions may be imposed on a party to an agreement, and particularly conditions such as this, which in reality result in interminability. Seen in relation to contract law, it is questionable whether a continuous contractual relationship, which agreements with Nasdaq Copenhagen in fact are, may be made subject to interminability by way of a condition of a particularly strong majority and without the implementation of the condition being presented to the shareholders.

 

Our Opinion

The current practice and the decision by the Company Appeals Board had created a clear and predictable legal position favouring both issuers, investors and bidders: Issuers were given access to delisting; the shareholders were given the best opportunities to accept takeover offers or to continue as shareholders; and bidders were able to act taking into account the wishes of the majority of shareholders and not be unnecessarily restricted by e.g. hedge funds that might speculate in gaining a minority that could block decisions.

 

The new rules are to be expected to limit the amount of takeover offers to the detriment of the market and investors. The new rules may also be expected to create a favourable market for so-called hedge funds which, by taking position after bid announcements, will make it more costly and difficult to obtain the necessary majority. Further, it seems that consideration of minority shareholders will not be made in that the way is paved for arbitrage so that transactions that have thus far been subject to regulation in relation to capital markets law and safeguarding precautions may in future be considered carried through by way of active sales, mergers, demergers etc., which only require a double two-thirds’ majority of the attending shareholders at a general meeting.

 

 

If you have any question or would like additional information regarding any of the above, please feel free to contact Partner Dan Moalem(dmo@mwblaw.dk) or Senior AssociateHenning Hedegaard Thomsen (hht@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 assumes responsibility of any kind as a consequence of any reader’s use of the above as a basis for decision or considerations.

 


[1] The new rules can be found (in Danish) https://www.nasdaq.com/solutions/rules-regulations-copenhagen under ”Kommende version i mark-up: Nasdaq Copenhagen regler for udstedere af aktier (med virkning fra den 15. februar 2020)”

[2] Dan Moalem, Henning Hedegaard Thomsen og Marcus Alexander Svendsen, Delisting and Minority Shareholder Protection, Nordisk Tidsskrift for Selskabsret no. 4/2019, pp. 41-58 (in Danish)