On 7 October 2022, the Swedish Securities Council released a new statement on good practice regarding publicly traded companies’ obligation to provide information in connection with a directed share issue which was followed by a sanction decision from Nasdaq. The statement prompts the position that good practice sets out stricter requirements than what the market might previously perceived and acted in accordance with. Thus, companies listed in Sweden are advised to take note of the Council’s latest statement when contemplating a directed share issue.
In addition to the Swedish Companies Act (2005:551) (the “Act”), publicly traded companies are contractually obligated towards the stock exchange to consider good practice on the Swedish stock market, which is expressed in, for example, the Swedish Securities Council’s (the “Council”) statements and the Swedish Corporate Governance Board’s recommendation (the ”Recommendation”) regarding directed share issues. The Recommendation underlines the Act’s principal rule, that share issues shall be conducted with abidance of the shareholders preemptive rights, and elaborates the Act’s information requirements stipulating that companies are to inform the shareholders and the stock market in a detailed and clear manner of the reasons for deviating from the shareholders' preemptive rights, how the issue price has been, or will be, determined and how conformity with market conditions has been or will be ensured.
The Council has noted a perfunctory attitude amongst companies when deciding on directed share issues and has thus in AMN 2021:41 emphasized that good practice demands that companies undertake a requisite analysis of the conditions to issue shares on a preemptive basis in the first place and that the board must in a clear manner report to the shareholders how they have reasoned when proposing to deviate from the shareholders preemptive rights.
However, despite these requirements and the Council’s clarification, the companies’ information to the stock market are often written briefly and in a standardized manner. Against this background, in the latest statement by the Council, AMN 2022:36, it is made clear that the information must, to be consistent with good practice, give the shareholders the opportunity to assess the board's deliberations in the light of the circumstances within the specific company. This means that standardized statements, that the deviation from the preemptive rights is a time- and cost-effective way of acquiring capital, is not in line with good practice and will thus not be tolerated. Regarding the issue price, the Council emphasized that the information must give the shareholders an idea of how conformity with market conditions has been ensured and on what grounds the board has formed its opinion. In the statement, the Council heavily criticized two companies which induced the Disciplinary Committee of Nasdaq to commence proceedings against one of the companies. The Disciplinary Committee found the violation of good practice and hence the Rule Book to be serious and imposed a fine as a penalty.
In conclusion, publicly traded companies on the Swedish Stock market contemplating a share issue are advised to take note of the Council’s statements and thus i) undertake a requisite analysis of the prerequisites to undertake a rights issue in the first place, ii) inform the shareholders and the stock market in a comprehensive and clear manner of the reasons for deviating from the shareholders’ preemptive rights and how conformity with market conditions has been ensured in relation to the issue price and iii) the information must give the shareholders opportunity to assess the board’s deliberations in the light of the circumstances within the specific company.
We at Synch follow the development with interest. If you have any questions or need any help preparing for a directed share issue or rights issue in your company, you are welcome to contact us at email@example.com.
Written by Amanda Luthman