September 2009 - Important amendment to Act of the Czech Republic No. 256/2004, Capital Markets Act, as subsequently amended (the “CMA”) which among other changes implements the EU Transparency Directive[1] (“TD”) became effective on 1 August 2009 (the “Amendment”).[2]
This newsletter summarizes the provisions of the Amendment that implement the TD.[3] These provisions deal with (i) periodic financial reporting and other obligations of an issuer, (ii) major shareholding disclosures, and (iii) the provision of information to investors.
The TD and the Amendment only apply to securities which are listed on Regulated Markets and so do not apply to the multilateral trading facility markets. Issuers who list exclusively on the multilateral trading facility markets will still have to comply with the current continuing obligations regime of such markets[4].
1. Periodic Financial Reporting and Other Obligations of Issuers
The Amendment sets out new periodic financial reporting requirements for companies admitted to trading on a Regulated Market[5] if the Czech Republic is the company’s “Home Member State”.
1.1 Home Member State
A Home Member State for the purposes of the TD must be determined for each issuer. It may be different from the Home Member State under the PD.
For EU issuers of debt securities having a denomination below €1,000 (or equivalent in another currency), the Home Member State is the state where the issuer has its registered office.
For EU issuers of debt securities having a denomination of at least €1,000 (or equivalent in another currency), the issuer may choose its Home Member State from among the Member State in which it has its registered office or the Member States where its debt securities are admitted to trading on a Regulated Market.
The issuer may choose only one Member State as its Home Member State. Its choice will remain valid for at least three years unless its securities are no longer admitted to trading on any Regulated Market in the EU.
1.2 New Requirements
The Amendment requires that issuers whose securities are listed on a Regulated Market publish annual and half-yearly reports, including financial statements prepared in accordance with IFRS or equivalent standards. Issuers whose shares are listed on a Regulated Market must also produce interim management statements in the middle of each half year.
1.2.1 The annual report requirements have been generally made more onerous, the time for publication is reduced from six to four months, and there is a new requirement for a responsibility statement by directors.
1.2.2 The half-yearly report requirements have been revised and, as for the annual report, there is a new requirement for a responsibility statement by directors.
1.2.3 The interim management statement must include at least an indication of the important events that have occurred, and their impact on the financial condition of the issuer and description of its business activities and its financial results.
In addition to the requirement to publish annual and half-yearly reports, the Amendment also requires an issuer to:
1.2.4 ensure equal treatment for all holders of its securities ranking pari passu in respect of all rights attaching to its securities;
1.2.5 make public without delay any change in the rights of holders of the securities;
1.2.6 make public without delay information about any new issues or loans; and
1.2.7 where it proposes to amend its instrument of incorporation or statutes, provide the draft amendment to the CNB and the operator of the Regulated Market where the security is admitted to trading.
1.3 Main Exemption
If an issuer has exclusively debt securities admitted to trading on a Regulated Market, the denomination per unit of which is at least EUR 50,000 (or equivalent in another currency), the periodic financial reporting obligations set out under the Amendment do not apply (Sections 1.2.1-1.2.3 above).
1.4 Effectiveness
The rules on periodic financial reporting take effect for financial years following the financial year in which the Amendment became effective.
2 Major Shareholdings Disclosures
The disclosure obligations are applicable to voting rights with respect to shares listed on a Regulated Market in any EU country, provided that the issuer has a registered office (i) in the Czech Republic; or (ii) in any state outside of the EU and the prospectus of such shares has been approved in the Czech Republic.
2.1 Notifications
The thresholds of voting rights, to which the disclosures apply, remain the same, i.e. 3% (only for companies with registered capital exceeding CZK 100,000,000), 5%, 10%, 15%, 20%, 25%, 30%, 40%, 50% and 75% and any decrease below such thresholds is required to be notified.
Regardless of the fact that certain voting rights are not exercised, the thresholds are newly calculated from all shares to which the voting rights are attached. The notification must be sent to the CNB and the issuer and the Amendment allows the notification to be made in Czech or English.
The deadline for the notification is extended to four business days from the day the person which is subject to the disclosure obligation becomes aware of the event that triggers the disclosure obligation. Under the Amendment a person is deemed to be aware of the above-described event two business days after the event has occurred.
Newly the voting rights attached to the shares to which a person has a life interest are also subject to disclosure obligations.
2.2 Additional exemptions
The Amendment introduces new exemptions from the disclosure obligations. These additional exemptions are applicable to:
2.2.1 person that acquires and disposes with the shares for the purposes of settlement of trades with financial instruments, where a deadline for settlement does not exceed 3 business days;
2.2.2 person that holds shares and exercises the voting rights with respect to the shares solely in accordance with instructions from the owner of the shares;
2.2.3 an investment firm in a position of a market maker that reaches or exceeds a threshold of 5% of the voting rights (or decreases below such level), provided that a market maker does not exercise any influence on the management of the issuer and notifies the respective regulator of the issuer of its position of a market maker; or
2.2.4 voting rights of qualified investors with respect to assets managed by such qualified investors not exceeding a threshold of 5% voting rights provided that a qualified investor does not exercise the voting rights or otherwise does not influence the management of the issuer.
Further exemptions relate to persons controlling investment firms or investment companies and conditions for such exemptions are stipulated by the Amendment. Members of the European System of Central Banks are also exempted from the disclosure obligations under conditions stipulated by the Amendment.
2.3 New obligations of the issuer
The issuer is obliged to publish an information that it has reached or has exceeded a threshold of 3% (only if its registered capital exceeds CZK 100,000,000), 5% or 10% of the voting rights with respect to its own shares (that are subject to disclosure obligations) or any decrease below such thresholds. The information must be published within 4 business days from the day the relevant event occurred.
The issuer of the shares that are subject to disclosure obligations is also obliged to publish a total number of all voting rights and an amount of its registered capital in a calendar month when any change thereto occurred.
3 Provision of Information for Shareholders
Another objective of both the TD and the Amendment is to ensure that investors, including cross-border investors, are enabled to exercise their rights in a simpler way.
To this end, the Amendment contains a number of provisions aimed at ensuring that shareholders, or the holders of debt securities, receive adequate information about meetings, and how to exercise their rights, together with a proxy form (on paper or using electronic means).
The Amendment provides that under certain conditions issuers may use electronic means of communication for these purposes (e.g. to deliver the annual report and invitation to a general meeting).
Companies wishing to take advantage of these provisions will for example need to pass an appropriate shareholder resolution approving the use of e-communications and may also need to amend their articles of association.
The ability to cease sending annual reports and accounts to shareholders who do not opt for hard copies is expected to save many companies substantial amounts of money. The need to specifically opt in to hard copy communications is likely to result in fewer shareholders receiving hard copies than under the current arrangements, where shareholders must positively opt in to receiving electronic communications.
The Amendment is also concerned with ensuring that company information is made accessible to the general public throughout the EU rapidly and without discrimination. This principle applies to all regulated information − which includes information published under the TD, CMA and other applicable rules. The regulated information is to be made public by ensuring that the public has fair, easy, and free access to the information and by sending the information to the CNB.
By Martina Březinová (Associate) and Petr Měštánek (Professional Support Lawyer)
[1] EU Directive 2004/109/EC - it is the final major measure affecting listed issuers under the EU Financial Services Action Plan. Alongside the IAS Regulation, the Prospectus Directive (the “PD”) and the Market Abuse Directive, it is intended to ensure investor confidence in levels of disclosure by issuers of publicly-traded securities and to enhance the operation of efficient pan-European capital markets.
[2] http://www.sbirka.cz/POSL4TYD/NOVE/09-230.htm
[3] This newsletter does not purport to contain a comprehensive summary of the TD or the Amendment, but merely highlights issues of particular interest. This newsletter is intended to give general information only and should not be relied on as legal advice.
[4] Multilateral Trading Facility (“MTF”) means markets for investment instruments which are not Regulated Markets. MTFs are the markets’ response to the strict regulation of Regulated Markets brought about by the PD and the TD. It is envisaged that these markets will run parallel to the existing Regulated Markets and operate under substantially the same rules as the Regulated Markets operated before implementation of the PD and the TD. The main advantage of admitting securities to trading on an MTF is that issuers of such securities do not have to comply with the provisions of the CMA implementing the PD and the TD. The MTFs markets in the Czech Republic are: (i) the Multilateral Trading Facility market of the Prague Stock Exchange and (ii) the Multilateral Trading Facility market of the RM-System.
[5] Under Section 55 of the CMA, regulated market means a market for investment instruments (i) which is organised by an operator licensed by the Czech National Bank (the “CNB“), (ii) where the instruments are regularly traded, and (iii) which has rules for admitting investment instruments to trading, for trading on a regulated market and for access to a regulated market which are in accordance with the Capital Market Act. The definition of regulated market corresponds to the definition included in Article 4 (14) of the Directive on Markets in Financial Instruments (the “Regulated Market“).