New rules on certain former financial businesses, savings bank funds and voting right restrictions

Date 8 jun. 2011

 

Introduction

On 1 June 2011, the Danish Parliament adopted a number of amendments to the rules on control and supervision of certain financial businesses and certain converted financial businesses.  

 

The adopted bill contains the following important innovations:


  1. Lapse of the statutory voting right restrictions in savings banks and cooperative savings banks in certain situations.
  2. Abolition of the requirement for voting right restrictions in converted savings banks and cooperative savings banks.
  3. Stricter competence requirements for boards in funds which have emerged in connection with conversion of savings banks and cooperative savings banks and special provisions on supervision of converted former financial businesses.

Lapse of statutory voting right restrictions

Today, a guarantor in a savings bank may have 20 votes at most, regardless of whether the guarantor has invested a considerable guarantor capital. Correspondingly, a member of a savings bank may only have one vote, regardless of the size of the member’s investment.

 

However, according to the new rules, the following modifications will apply. If the part of the equity of a cooperative savings bank which is not guarantor capital or share capital in a savings bank constitutes less than 20% of the savings bank’s or the cooperative savings bank’s equity, the statutory voting right restrictions lapse. The statutory voting right restrictions do not enter into force again even if the part of the equity which is not guarantor capital or share capital should once again constitute 20% or more of the equity.

 

The assessment must be made based on the latest audited annual report, the latest audited interim report or the latest audited quarterly report.

 

A savings bank or a cooperative savings bank in which the statutory voting right restriction has lapsed may introduce an individual voting right restriction if desired.

 

Voting right restrictions in converted savings banks and cooperative savings banks

So far, it has been required that provisions on voting right restrictions “which ensure that the existing guarantor, investor and shareholder democracy is retained” be inserted into the continuing company’s articles in connection with conversion of savings banks or cooperative savings banks into a private limited company. However, it has been possible to lift the voting right restrictions five years after the conversion, provided that the decision to lift the restrictions was made in consideration of the voting right restrictions laid down in the articles of association.

 

These provisions have in practice been interpreted in a way that the voting right restriction laid down in the articles of association as a minimum should ensure that no single shareholder could exercise more votes than all other shareholders combined. An external investor who e.g. purchased 90% of the votes would thus as a maximum be able to exercise 10% of the total number of votes corresponding to the share which all other shareholders would be able to exercise in total.

 

The requirement for voting right restrictions laid down in the articles of association lapses as a consequence of the new bill. However, if a financial institution wishes to determine a voting right restriction in connection with the conversion, this may still be done, but now on a voluntary basis.

 

For savings banks and cooperative savings banks which have already been converted the changes imply that they may abolish existing provisions on voting right restrictions without having to wait until five years after the conversion. However, the decision on abolishment must be made considering the existing voting right restrictions.


Stricter competence requirements

So far, it has been an invariable requirement that a majority of the board in funds which have emerged in connection with the conversion of savings banks must be appointed by the board of directors in the limited savings bank company among the members of the board, just as a majority of the board in funds and associations which own more than 25% of the share capital in a limited cooperative savings bank company is appointed by the board of directors in the limited cooperative savings bank company, among the members of the board.

 

Correspondingly, the chairman of the board of the limited savings bank company and the limited cooperative savings bank company has so far always been a member of the board of the fund or the association.

 

With the new rules, a considerable change is introduced so that members of the board of or employees of the limited savings bank company or the limited cooperative savings bank company may not appoint or constitute a majority of the members of the board of the fund or association mentioned. The same applies to members of the board or employees of the fund’s or association’s subsidiary or associated companies. Furthermore, the chairman of the board of the limited savings bank company or the limited cooperative savings bank company may not at the same time sit on the board of the funds or associations mentioned. 

 

Moreover, a number of new provisions on supervision of former financial businesses etc. are introduced.


Commencement of the law

The law enters into force on 1 January 2012. The following special provisions apply.

 

No later than at the next board meeting, general meeting or similar supreme assembly after the commencement of the law, funds and associations emerged from conversion of savings banks or cooperative savings banks must bring the composition of the board into agreement with the new rules of the law, however, in consideration for ongoing appointment periods.

 

Such funds and associations may choose to bring the composition of the board in agreement with the new requirements before 1 January 2012.

 

No later than 1 January 2013, converted former financial businesses must meet different further requirements, just as requirements are set for presentation of annual reports according to the Danish Financial Statements Act with effect for the financial year which begins on 1 January 2012 or later.


Assessment

The automatic lapse of the statutory voting right restriction in certain savings and cooperative savings banks and the abolition of the requirement for voting right restriction in connection with conversions will make it easier for savings and cooperative savings banks to attract external investors who, as a consequence of the new rules, will have the opportunity to achieve management influence equivalent to their investment. At the same time, the savings and cooperative savings banks will still be able to keep provisions on voting right restrictions if this is found appropriate. Thus, a higher level of flexibility is introduced in relation to the formerly applicable rules which, among other things, is an advantage to the distressed financial institutions that wish to attract an external investor.

 

In this connection, it seems appropriate to supplement the higher level of flexibility with stricter requirements for the board of trustees’ independence and the rules on supervision.

 

 

If you have any questions or require additional information on the new rules, please contact Partner Claus Molbech Bendtsen (cmb@mwblaw.dk) or attorney Henning Hedegaard Thomsen (hht@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.