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May-June
2008
Estonia, Latvia, Lithuania, Finland, Sweden |
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RoschierRaidla News
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Inside this Issue:
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Estonia |
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Latvia |
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Lithuania |
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Estonia
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Advertising Act |
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On 12 March 2008 the Estonian Parliament (Riigikogu) adopted
the Advertising Act. The Advertising Act creates the framework for
regulating advertising, setting forth a definition and various
restrictions on advertising, establishing a supervisory authority,
and imposing liability. Among the restrictions are a prohibition on
misleading advertising and conditions for using comparisons between
products. There is a general prohibition that applies to: the
professional activities of lawyers, sworn translators, notaries,
bailiffs and patent agents, as well as tobacco products, gambling,
lotteries, health care services, pornographic works etc. On the
other hand, information about a product or service displayed at the
place where economic and professional activities are pursued, signs
used to designate such places (incl. exhibiting trade marks), the
marking of a vehicle and information on sales packaging of goods are
not deemed advertising by the act. So-called sponsorship information
is not advertising either. The Act imposes new conditions for
advertising alcohol. Now alcohol advertisement must include the
following warning: "Attention, alcohol! Alcohol may harm your
health”. Requirements for advertising financial services were
introduced as well. An advertisement for financial services must now
include an invitation to study the terms and conditions of the
service offered and if necessary, to consult a specialist. Financial
services advertising also must provide information about the cost of
credit. This also applies to the so-called SMS loans (i.e. fast
credit granted on the basis of a telephone call). The act will enter
into force on 1 November 2008.
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Income Tax Act Amendment |
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On 26 March 2008 the Riigikogu passed the Income Tax Act
Amendment Act, finally bringing the taxation of companies in line
with the parent company and subsidiaries directive 90/435/EEC. The
directive seeks to eliminate double taxation of the profits of a
subsidiary located in one member state when the profit is
distributed to its parent in another member state. The majority of
member states require companies to pay income tax on profit as it is
earned, i.e. at the end of each financial year. Estonia had a
different system, imposing income tax on profit only at the time of
its distribution. As a result of the new amendments Estonia gives up
the principle of taxing profit on distribution. Also the period of
taxation is changed from a monthly to an annual basis (meaning
expenses are now to be reported annually instead of monthly). An
obligation to make advance tax payments is introduced. Advance
payments are calculated on the basis of the average taxable amount
of the three previous periods of taxation. The tax authority may
reduce the amount of advance payments due if an application sets
forth appropriate justification. The amendments also allow more
exemptions of tax and deductions of income tax (aimed at reducing
double taxation). Other amendments include the abolishing of
withholding income tax on royalties paid to non-residents, the
changing of taxation upon reduction of capital and liquidation
proceeds. The amendments shall enter into force on 1 January 2009.
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Other Recent Legislative Developments |
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New Provisions in the Public Procurement Act
On 13 March 2008 the Riigikogu passed the Public Procurement
Act Amendment Act, changing the conditions for excluding a
participant from a procurement procedure. The amendment repealed the
provision that required exclusion of persons who have had tax
arrears within the last 12 months totaling more than 30 days. This
provision imposed a disproportionate restriction on the freedom to
engage in business, since it did not allow any discretion as to the
reason for, or the size of the tax arrears. Under the new rule,
participants who have had arrears may still participate in
procurement procedure as long as they have discharged their
liability for state and local taxes as well as social insurance
payments. The amendments also postponed the entry into force of
provisions concerning a dynamic purchasing system and electronic
auction until 1 December 2009. The other amendments entered into
force on 28 March 2008.
Investment Funds Act Supplemented
On 28 February 2008 the Riigikogu passed the Act Amending the
Investment Funds Act, Guarantee Fund Act and Securities Market Act.
The amendments clarify the conditions for investment funds to invest
in securities and procedures for takeover bids of listed companies.
As an important new development investment funds may now invest in
alternative markets in addition to regulated markets (i.e.
securities exchanges). The amendment of the Securities Market Act
allows an offer or to make a takeover bid, only if it has sufficient
financial resources and the means to carry out the takeover. The
prior provisions did not allow unambiguous interpretation of funding
issues related to takeover bids. Some reference errors that had
resulted from prior amendments of the act were corrected as well.
The provision delegating the authority to the Minister of Finance to
establish the procedure for application and calculation of
prudential ratios of investment firms, and their procedure for
reporting was reintroduced into the law. The amendments entered into
force on 15 March 2008.
New Trading act Provisions
On 31 January 2008 the Riigikogu adopted the Act Amending the
Trading Act, Register of Economic Activities Act and Other Acts
Related to These Acts. The amendments clarify, simplify, and unify
provisions regulating registration obligations in different fields
of economic activity. Since both the Trading Act and Register of
Economic Activities Act are so-called framework acts, the Alcohol
Act, Building Act and Tourism Act had to be modified as well.
Changes in the Trading Act concern specification of the scope of its
application, the definition of trading and include a definition for
the first time of the term "e-commerce". Further amendments specify
requirements applicable to traders, organizers of trading and
sellers, as well as to goods and services. Provisions regulating
registration of trading also underwent changes. The term "area of
activity subject to special requirements" was specified in the
Register of Economic Activities Act, other modifications in this act
included rules of access to registry data, the composition of data
and the procedure of registration. The amendments entered into force
on 15 May 2008.
Aliens Act Amended
On 12 March 2008 the Riigikogu passed the Act Amending the
Aliens Act and Other Acts. The current act allowed aliens to reside
and work in Estonia, provided that their number remained within the
immigration quota and provided that it was impossible to find
employees in Estonia who possessed the required skills and
qualifications. The amendments increase the quota from a not to
exceed level of 0.05% of the permanent population of Estonia
annually, to 0.1%. The rules for short-time employment in
Estonia and employment on the basis of a temporary residence permit
were clarified as well. Under the new rules an alien to be employed
in Estonia must be paid at least the average gross salary of the
relevant sector, which may not be less than the amount received by
multiplying the national average salary by a factor of 1.24. The
amended act also lists the cases in which the above-mentioned
general rule do not apply. Another amendment shortens the period
during which employees first have to be sought from within Estonia.
The requirement to take fingerprints from visa applicants and
persons applying for an extension of the period of stay was
introduced as well to bring the act in line with the corresponding
European Parliament and Council Regulation. The amendments entered
into force on 14 April 2008.
Energy Efficiency Act and Building Act Amended
On 31 January 2008 the Riigikogu adopted the Act Amending the
Energy Efficiency of Equipment Act and the Building Act. The
amendments extend the list of equipment to which energy efficiency
and ecological design requirements apply. The term “ecological
design” was defined and requirements to achieve an ecological
design, together with principles of conformity assessment and
attestation were introduced. The Building Act was amended to clarify
the conditions for applying energy efficiency minimum requirements
to construction works. The amendments entered into force on 25
February 2008.
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| For further information please contact
Raino Paron,
Partner at Raidla Lejins &
Norcous in Tallinn. |
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Latvia
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Saeima Amends Latvian Commercial Law |
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On 24 April 2008 the Parliament (Saeima) amended the Latvian Commercial
Law introducing a number of significant changes in a number of areas, including
the regulation of the company’s rights to increase the capital, legal regulation
of the bearer shares, taking of security by joint stock companies in their own
shares, and audit requirements in corporate reorganizations. Along with these
amendments the Commercial law was supplemented by regulation of cross-border
mergers in Latvia. The Law has also extended the rules concerning the form,
language and translation requirements of the documents that are files with the
Commercial Register. The amendments entered in force on 28 May 2008.
Management Board’s right to increase share capital in joint stock companies
One of the main amendments to the Commercial Law is reintroduction of the right
of the management board of joint stock companies to increase the company’s share
capital in the periods between the general meetings of shareholders. This right
existed under the Latvian corporate law since early 1990’s but was not carried
over to the new Commercial Law when it was adopted in April 2000. According to
the amendments, joint stock companies will now be allowed to authorize their
management boards to decide on increase of the company’s share capital by up to
30% (or such smaller amount as specified in the charter or determined by the
company’s shareholders’ meeting) of the capital that the company had at the time
the authorization was granted.
However, as compared to the right the company’s management boards had prior to
the adoption of the Commercial Law, the new right to increase the capital is
fairly limited. Firstly, the management board would have this right only if it
has been specifically granted to it in the company’s charter (statutes).
Secondly, the exercise of this right is subject to the consent of the company’s
Supervisory Council and such other requirements and conditions as may have been
imposed by the company’s shareholders in the company’s charter or in the
shareholder meeting resolutions. Thirdly, the grant of the right may not exceed
a period of five years. Should the company wish to extend the right, it will
need to reconfirm it by new amendments to the company’s charter. And, finally,
the company’s management board may decide on the increase of the company’s
capital only by cash contributions, no contributions in kind, including
capitalization of the company’s existing debt obligations may be approved under
this right.
Decisions of the management board on the increase of the company’s share capital
enter in force at the time they are taken. These decisions are not subject to
any subsequent approval or ratification by the company’s shareholders meeting.
The amendments necessary to the company’s charter (statutes) to reflect the
change in the company’s share capital and number of shares are approved by the
company’s Supervisory Board.
However, each shareholder has a statutory right to challenge the management
board’s decision on the increase of capital in the courts of general
jurisdiction. This action may be brought if the management board’s decision
contradicts the company’s purposes, public interests or public morality, is
affecting rights of third parties, is in breach of the law or the company’s
charter, or if the increase of the company’s capital has been made in breach of
the applicable procedures. The claims may be brought within a month of the date
the shareholder became or ought to have become aware of the management board’s
decision, but not later than within a year after the management board decision
has been taken. In order to deter frivolous shareholder claims, the Commercial
law has been supplemented with a provision according to which the shareholders
that have challenged the management board’s decision on the increase of the
company’s capital acting maliciously or in gross negligence may be held liable
jointly and severally for the loss they have caused to the company.
New
regulation of ex-stock dividend
The amendments have changed the existing regulation concerning the right of
limited liability companies to increase their capital on the account of retained
earnings, i.e. the positive difference between the company’s equity and the sum
of the share capital and the reserves that may not be used for the purposes of
increase of the company’s company. If prior to the amendments this right could
only be exercised by increasing the par value of the existing shares but not by
issuing new shares, the amendments will allow the company to do this also by way
of issue of new shares to be distributed to its existing shareholders pro rata
to their shareholdings.
The shareholders which have voted against the increase of the company’s capital
by retained earnings will have a right, exercisable within two months of the date
of capital increase, to require that the company buys out the shareholder at the
price equal to the amount of the liquidation quota the shareholder would have
received had the company been liquidated at the time the decision to increase
its capital was taken.
As an alternative to the above right, the shareholders which have voted against
the increase of the capital of limited liability company by retained earnings,
who does not wish to sell his/her shares to the company will be permitted to
sell the shares to any third party free of the first refusal rights or any other
restrictions applicable to the sale of shares pursuant to the law or the
charter. This right shall be valid and exercisable within two months from the date
of the resolution to increase the capital. This is a new important right that
the shareholders voting on the transfer of retained earnings to the company’s
capital rather than on payment of dividend will no need to take into account.
The law has also re-introduced the right to declare an ex-stock dividend in the
joint stock companies. However, for the time being that right will only apply to
the joint stock companies which have one shareholder only. All other joint stock
companies will continue to be subject to the requirement that the capital may
not be increased by retained earnings.
New
restrictions on bearer shares
Latvia has severely tightened the legal rules concerning issuance and existence
of bearer shares. Thus, the Commercial Law has excluded the right to issue paper
form bearer shares and requires that all bearer shares are issued only in
dematerialized form (so far the joint stock companies were still permitted to
issue paper form bearer shares) and are mandatorily registered in the Latvian
Central Depository. This is a new requirement under the Latvian corporate law as
so far companies were allowed to keep their own share registers even if they
concerned dematerialized shares and only the shares listed on regulated markets
had to be registered with the central depository. The law has also made it clear
that the registration data concerning the bearer shares is not subject to any
specific confidentiality or secrecy rules – the information recorded in the
central depository in respect of the bearer shares will be accessible to the
company which has issued the shares as well as to the competent state
authorities.
The law has also introduced a clear bearer shares ownership presumption – all
shareholder rights in respect of these shares will be deemed to belong to the
person in whose financial instruments account these shares have been recorded.
New
Financial Assistance Rule
The Law Amending the Commercial Law has restricted the right of the joint stock
companies to take as a security for their claims their own shares. As a general
rule, subject to certain limited exceptions, the joint stock companies are not
allowed to take a security interest in their own shares, and any creation of a
security interest in the company’s own shares will be subject to the same legal
rules and tests as acquisition by the company of its own shares. By way of
example, the permitted exceptions when a company can take a security interest in
its shares include cases when the security interest is acquired in a merger or
in acquisition of a business enterprise, or in the company’s personal shares.
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| For further information please contact
Dace Silava-Tomsone
(CV),
Partner at Raidla Lejins
& Norcous in Riga. |
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Lithuania
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Amendments and Supplements to the Law on
Companies |
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On 15 May 2008, the amendments and
supplements to the Law on Companies of
the Republic of Lithuania have been
adopted by the Lithuanian Parliament (Seimas).
The modifications are aimed at
implementing the Directive 2006/68/EC of
the European Parliament and of the
Council of 6 September 2006 amending
Council Directive 77/91/EEC regarding
the formation of public limited
liability companies and the maintenance
and alteration of their capital.
Modifications to the Law on Companies
prescribe that requirement to obtain a
special expert valuation of in-kind
contributions paid for the shares issued
when increasing the authorized capital
of the company, shall not be applicable
if:
a) shares are fully or partially paid by
transferable securities or money-market
instruments if they are traded in one or
more regulated markets in Lithuania,
other European Union Member State or
state of the European Economic Area;
b) shares are fully or partially paid by
consideration other than in cash, except
transferable securities or money-market
instruments, which have already been
subject to a valuation by an independent
expert and where the valuation has been
performed for a date not more than six
months before the effective date of the
payment by consideration other than in
cash and where the valuation has been
performed in accordance with the
requirements of the laws.
The amendments and supplements to the
Law on Companies state that where the
valuation of the transferable securities
or money-market instruments has been
affected by exceptional circumstances
that would significantly change the
value of the asset before or at the
effective date of its contribution,
including situations where the market
for such transferable securities or
money-market instruments has become
illiquid, a revaluation should be
carried out on the initiative of the
Board of the company. Moreover, if any
new qualifying circumstances (with
regard to (b) above) that would
significantly change the value of the
asset before or at the effective date of
its contribution, a revaluation should
be performed as well.
Nonetheless, modifications to the Law on
Companies, guarantee the right of
minority shareholders (holding an
aggregate percentage of at least 5% of
the company’s subscribed capital on the
day the decision on the increase in the
capital is taken) to require that
valuation of the contribution other than
in cash be performed.
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Lithuania's New Rules on Management- and
Investment Companies' Information |
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Lithuania's Securities
Commission has approved
rules regarding the
preparation and submission
of information of management
companies and investment
companies when the
management of assets is not
transferred to the
management companies
(hereinafter "the Rules“).
The Rules enter into force
as of 1 July 2008.
The Rules contain new
requirements for periodic
reports prepared by
management companies and
investment companies when
the management of assets is
not transferred to the
management companies. Periodic reports
shall, inter alia,
include general information,
as well as information on
the following: financial
status, net assets value,
the number and value of
investment units, expenses
and income, the payment of
dividends, investment return
and risk rates.
Under the Rules, management
companies are no longer be
obliged to publish financial
reports in daily newspapers.
Publication of such
information on management
companies' websites shall
suffice.
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Amendments to the Law on Alcohol Control |
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On 18 April 2008, amendments
to the Law on Alcohol
Control of the Republic of
Lithuania have been adopted
by Seimas. The
amendments provide for more
detailed provisions
regarding restrictions on
both sale of alcohol and
advertising (including
commercials) thereof.
However, the amendments
establish certain exceptions
whereby commercials of
natural fermentation
beverages composed of no
more than 13% of ethyl
alcohol are allowed during
live broadcasting of
international sport, art or
culture events. Moreover,
the amendments determine
cases which are not regarded
as advertisement of alcohol,
e.g. the logotypes, trade
names and trademarks of
producers and distributors
of alcohol beverages which
are shown during the
broadcast irregularly and
unplanned are not raged as
commercial of alcohol. The
alcohol advertisements are
allowed in mass media until
1 January 2012; afterwards
any type of advertisement of
alcohol beverages shall be
prohibited.
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further information please contact
Irmantas Norkus, (CV),
Managing Partner at
Raidla Lejins & Norcous in Vilnius. |
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Finland
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Recent
Corporate Governance
Developments in Finland |
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The purpose of this article is to present a brief outline of the revision of the
current corporate governance code of December 2003 and the implementation of the
corporate governance provisions of two recent EU directives.
On 6
May 2008 the Finnish Corporate Governance Working Group presented a proposal for
a revised code of corporate governance, which is intended to enter into force on
1 January 2009. Further, the Finnish Parliament has on 3 June 2008 approved the
amendments to the securities markets legislation proposed in the Government Bill
No. 27/2008. Said amendments to the securities markets legislation implement
certain corporate governance provisions of Directives 2006/46/EC (the “Company
Reporting Directive”) and 2006/43/EC (the “Audit Directive”). The amendments
will enter into force as of 1 September 2008.
However,
one of the novelties in the law, namely the companies’ obligation to give the
corporate governance statement, the implications of which is discussed in more
detail below, is intended to start not until beginning of the year 2010 in order
to give the companies sufficient time to prepare for the new reporting
obligations.
Generally, neither the revision of the corporate governance code nor the
amendments to the securities markets legislation seem to change the current
corporate governance practice dramatically. An explanation may be that the
present code enjoys wide support among both listed companies and investors. One
of the main objectives of the corporate governance revision is to increase the
information given to the investors on the shareholders’ rights in Finland and
the proposed code caters well for that purpose. However, despite the
aforementioned, the corporate governance revisions can be seen not only to fine
tune the current situation but also to implement certain amendments that may
have a noteworthy effect to the listed companies as well as the auditors and
advisors thereof.
One of the main substantive amendments in the corporate governance revisions
regards the information published by the companies. As a new requirement, the
listed companies shall publish a corporate governance statement in which they
give a description on, inter alia, the main characteristics of the internal
control and risk management systems as well as the composition and operations of
the board of directors and its committees. Further, the statement will have to
contain the information on the compliance with the corporate governance code as
well as the explanations on the deviations from the code, if any.
The corporate governance statement shall be published in connection with the
financial statements of the company. The statement can be published either as a
part of the annual report or as a separate report, the latter option being
recommended by the revised code. If the statement is given as a separate report,
it will not be audited, but the auditors are required to examine that the
statement has been duly published and that the separate report is coherent with
the financial statements of the company. Further, the annual report shall
contain a reference to the separate report. The statement has to be published on
the company website along with an excessive amount of other investor information
concerning, inter alia, the financial benefits granted to the management and the
board.
It is noteworthy that even if the new provisions on the corporate governance
statement resemble to an extent the Sarbanes-Oxley Act they should not,
according to the representatives of the Working Group as well as the
aforementioned Government Bill, impose excessive reporting obligations on the
companies. However, the new obligation will increase the companies’ reporting
work load and the extent of such increase remains to be defined in the future
corporate governance practice.
Another significant set of amendments in the proposed code regard the
recommendations on the board of directors and the board committees. As to the
audit committee, the proposal provides a list of compulsory duties as well as
certain examples of voluntary additional duties that may be assigned to the
committee. Should the company not establish an audit committee, the board of
directors is liable to take care of the duties thereof. Additionally, certain
independency requirements as well as a recommendation on the number of the
committee members have been added to the proposed code.
The code contains also an amendment to the explanatory text of the nomination
committee according to which said committee need not consist of the members of
the board, insofar as this is explained and a description on appointment process
of the committee is provided. Further, the code refers to a potential need of
communication with the major shareholders of the company with respect to the
nominations under preparation, as the case may be. However, despite the
aforementioned, the practice in Finland continues to be that the nomination
committee is appointed among the members of the board.
As to the recommendations of the code regarding the members of the board, the
proposal contains some adjustments and clarifications to the criteria of
evaluating the independence of the board members that extend the criteria
according to which they are presumed not to be independent of the company.
Further, the requirement regarding the minimum number of board members has been
removed and a relatively soft recommendation regarding the gender diversity of
the board has been included in the code. The latter recommendation has, however,
been subject to broad discussion and it may well be that it will be taken under
further revision in the subsequent steps of the drafting process of the code.
From the international perspective, it should be noted that the proposed
revision does not represent a step towards a harmonized Nordic corporate
governance code even though Nordic harmonization has been discussed during the
drafting process of the code.
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For further information please contact
Dimitrios Himonas
(CV),
Partner at Roschier in Helsinki. |
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Sweden
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Revised
Swedish Code of
Corporate Governance |
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On 7 May 2008
the Swedish
Corporate
Governance Board
presented a
revised code of
corporate
governance. It
should be noted
that the
revision does
not represent a
step towards a
harmonized
Nordic corporate
governance code
even though
Nordic
harmonization
has been
discussed.
The revised
code, which will
apply to all
companies listed
on OMX Nordic
Exchange
Stockholm and
NGM Equity, will
enter into force
on 1 July 2008
(currently only
listed companies
with a market
capitalization
of more than SEK
3 billion are
under a duty to
apply the code).
The content of
the code has
been simplified
and the number
of rules has
been reduced to
make it easier
to apply also
for the smaller
listed
companies. There
are various
reasons for the
changes, but
these do not
mean that the
original
principles of
the rules have
changed or
ceased to be
relevant. For
example, some
rules that are
not regarded as
adding to what
is covered by
the existing
legislation have
been removed,
especially where
changes in
legislation have
been enacted
since the
original code
was introduced.
The revision of
the code does
not imply any
material changes
to the previous
corporate
governance
regime. On the
contrary, the
existing high
level of
corporate
governance is to
be withheld,
although the
code has been
simplified. The
principal aim of
the code
continues to be
to increase
public
confidence in
the capital
markets and the
companies listed
thereon, thereby
improving the
conditions for
attracting risk
capital to
Swedish
companies.
Apart from a
general
simplification
of the code, the
revised code
introduces some
adjustments and
clarifications
especially in
relation to the
nomination
committee. The
previous
recommendation
that competitors
should not be
represented in
the nomination
committee has
for example been
removed.
Further, it is
specified that
the sole task of
the nomination
committee is to
propose
decisions to the
shareholders'
meeting on
electoral and
remuneration
issues and that,
regardless on
how they are
appointed,
members of the
nomination
committee are to
promote the
interest of all
shareholders. In
addition, new
requirements on
the nomination
committee’s
independency in
relation to the
company, the
management as
well as to major
shareholders are
being
introduced. The
majority of the
members of the
nomination
committee are to
be independent
of the company
and its
executive
management, and
at least one
member of the
nomination
committee is to
be independent
of the company’s
largest
shareholder or
group of
shareholders in
terms of votes.
Other changes
involve, inter
alia, rules that
make it easier
for shareholders
who live outside
of Sweden to
take an active
part in the
governance of
Swedish
companies. For
example, the
nomination
committee’s
proposals are to
be presented in
the notice of
the
shareholders’
meeting and on
the company’s
web site and not
just at the
meeting itself.
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| For further information please contact
Axel Calissendorff
(CV),
Partner at Roschier
in Stockholm. |
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| This Newsletter is a
periodic publication of RoschierRaidla and
should not be construed as legal advice or legal opinion on any specific
facts or circumstances. We have used reasonable efforts in collecting,
preparing and providing the information in this newsletter, but we do
not warrant or guarantee the accuracy, completeness, adequacy or
currency of the information contained herein. The contents are for
general informational purposes only, and you are urged to consult a
lawyer concerning your situation and any specific legal questions you
might have. |
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