Proposed amendments to deals of listed companies that require prior shareholder approval
The financial regulator (the Financial Supervisory Commission or the “FSC”) has proposed to Parliament to amend the law that regulates listed companies (the Public Offering of Securities Act).
One of the proposed amendments will change the rules regarding the need of a prior shareholder approval of certain deals entered into by listed companies.
This amendment (if approved by Parliament) will be important given that without prior shareholder approval these deals are null and void ex lege (in contrast to the general rule applicable to non-listed companies that a deal is valid and binding on the company even if it was not approved by the relevant corporate body of the company).
In principle, under the current rules listed companies cannot buy, sell or otherwise dispose of or give as security assets above a certain value (based on their balance sheet) without a prior shareholder approval of the deal (taken without counting the votes of a significant shareholder if the deal is with it or its affiliates). Deals entered into without such shareholder approval (where needed) are null and void, i.e. they do not bind the listed company. Hence any third party entering into a deal with a listed company must make sure the shareholder approval (where needed) is granted at the risk of the listed company not being legally bound by the deal.
There are certain exceptions regarding deals made in the ordinary course of business of the listed company. But so far the exception failed to capture for example taking bank loans (as it is often difficult to determine with certainty whether taking a bank loan is within the ordinary course of business of a company, particularly where the bank loan is a large one or for a large project or investments rather than normal bank overdraft or working capital bank loan).
One of the proposed amendments will allow listed companies to take any bank loans and give any security for them (regardless of the size of the loan or the value of the security) without the need of a shareholders approval for validity of the deal.
The other proposed amendment will allow listed companies to guarantee or secure bank loans taken by a subsidiary of the listed company.
The FSC has not given any reasons for proposing these amendments, but the FSC probably takes the view that in the case of taking a bank loan the management of a listed company or its significant shareholders cannot abuse the rights of the minority shareholders or wants to give more flexibility to the management of listed companies regarding the bank financing of listed companies.
In addition, the FSC has proposed to exclude from the rule requiring a prior shareholder approval reinsurance deals made by insurers or reinsurers whose shares are listed.
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