Significant changes in regulation of listed companies on the way

14.10.2015 Significant changes in regulation of listed companies on the way

The Seimas of the Republic of Lithuania is currently discussing a draft of the new version of the Law on Securities (the “Draft Law”), which will transpose amendments to the EU Transparency Directive and requirements of certain other EU legal acts and judgements of the EU Court of Justice into the Lithuanian law.

The main amendments to the Law on Securities that will affect the issuers will be as follows:

1. The scope of periodic information to be published is going to be narrowed and the term of keeping it will be longer. In order to reduce administrative burden on small and medium-sized enterprises, as well as incentives to go only for short-term financial results, issuers will be obligated to publish only annual and semi-annual (for 6 months) financial information. As until now, annual financial information will need to be published and presented to the Bank of Lithuania no later than within 4 months as of the close of the financial year, whereas semi-annual – within 3 months as of the close of the period (by the end of September each year). Issuers will further be able to choose to draw up and publish interim information (interim financial reports for 3, 9 and 12 months), too, but that will no longer be mandatory. If the issuers decide to publish this information, the same time limits will apply as now – it will have to be done within 2 months after the end of a relevant period. It is also important that the Draft Law prolongs the term of keeping financial information published by the issuer from 5 to 10 years.

2. The scope of the duty to notify about acquisition or loss of voting rights in the issuer will be expanded. In order to avoid a possibility for persons to indirectly acquire, without notifying about it, a large number of the issuer’s shares by use of financial instruments, after the adoption of the Draft Law, persons will be obligated to notify not only about acquisition/loss of 5, 10, 15, 20, 25, 30, 50, 75 and 95 percent of votes in the general meeting of shareholders of the issuer, but also to provide analogous information if these thresholds are overstepped by directly or indirectly acquiring (having) (i) financial instruments, which, according to a legally binding agreement, at the term of their maturity, will grant the right or a possibility to acquire outstanding shares of a relevant issuer granting voting rights or (ii) financial instruments linked to the said financial instruments and having a similar economic effect.

3. Stricter fines for non-compliance with requirements for publishing regulated information and acquisition/loss of voting rights are going to be imposed. In case of breach of these requirements, legal entities may be subject to a fine of up to EUR 10 million or 5 percent of annual revenue, whereas natural persons – may be subject to a fine of up to EUR 2 million. The Draft Law also regulates circumstances to be taken into account by the Bank of Lithuania why imposing the measures of impact for violations of the law (duration and gravity of a violation, person’s fault and financial capability, cooperation with the supervisory authority, the amount of the financial benefit received, consequences for stability and reliability of the financial market, etc.), it also establishes when the Bank of Lithuania may omit imposing measures of impact: (i) when a person proves that he used all possible efforts to avoid the violation, (ii) when a person prevents negatives consequences of the violation immediately and voluntarily, and (iii) the violation is of little significance.

4. A possibility to choose a home Member State is going to be granted to issuers that are not issuers of the Member State and to issuers, the denomination of a unit of which securities is above EUR 1,000. These issuers will be able to choose a home Member State from (i) Member States where their securities are admitted to trading or (ii) where they have a registered office (this paragraph does not apply to issuers that are not issuers of the Member State). According to the general principle, the issuer’s choice will be effective for at least 3 years. After choice of a home Member State, the main supervision over activities of the issuer shall be performed by the supervisory authority of that Member State. If an issuer does not choose a home Member State and does not give a relevant notification about its choice, all Member States where the issuer’s securities are admitted to trading shall be deemed as home Member States.

The new version of the Law on Securities should be approved by the Seimas of the Republic of Lithuania and should come into effect by the end of November, when the time limit for transposition of amendments to the EU Transparency Directive and other related EU legal acts into the national law will expire.