Legal Framework
Disclosure of Major Holdings
Mandatory Purchase of Minority Holdings

Legal Framework

On January 1 1994 the European Economic Area Agreement (EEA) between the European Union and several countries of the European Free Trade Association (EFTA) came into effect. Under the EEA requirements Iceland has incorporated EU Regulations and Directives regarding company law and the law on financial markets.

Icelandic law on companies is now in two separate acts: the Act on Public Limited Companies 2/1995 and the Act on Private Limited Companies 138/1994.

Mergers under company law
Mergers of public companies must be treated differently depending on whether any of the companies are listed on the stock market. Should none of the companies be listed on the stock market mergers are only governed by the provisions in Chapters 14 of Act 2/1995 and Act 138/1994.

Redemption of shares
Provisions in the Company Act authorize a shareholder that owns more than 90% of the share capital and controls more than 90% of both the votes and the board to decide that other shareholders must accept redemption of their shares at an agreed price, or failing agreement, at a price determined by assessors appointed by a court in the relevant jurisdiction. Correspondingly when a shareholder owns more than 90% of the share capital each of the minority share holders can demand that their shares be redeemed at a price determined under these conditions.

Disclosure of Major Holdings

Under Regulation 433/1999, issued under the authority of the Stock Exchange Act, shareholders are obliged to notify the Stock Exchange and the company concerned if their shareholdings increase or decrease above or below the limits of 5%, 10%, 20%, 33.3%, 50% or 66.7% on the principle that these notices are required to ensure the transparency of the market. The Icelandic rules conform to the EU disclosure rules in EU Directive 88/627.

Mandatory Purchase of Minority Holdings

Article 19 of the Stock Exchange Act requires the mandatory purchase of minority holdings in listed companies when a party meets any of the following conditions:

  • acquires 50% of the voting rights in a company or the corresponding part of the share capital;

  • acquires the right to nominate or to dismiss the majority of the board of the company;

  • acquires the right to govern the company on the basis of its articles or in another way by an agreement with the company; or

  • has on the basis of an agreement with other shareholders acquired the right to control 50% of the votes in the company.

The potentially controversial requirements in Article 19 have not yet been tested in the decrees by regulatory bodies or the courts. The requirements are based on proposed changes to the 13th EU Company Law Directive, which at present are left to the discretion of the separate states. The Icelandic requirements are comparable to Danish and Norwegian legislation and follow a political wave of interest in protecting minority rights in limited companies. Critics expect the requirements to prevent necessary consolidation in listed companies. Due to the great economic interests involved, it will be interesting to follow the eventual regulatory/court decrees and whether it will subsequently be considered necessary to amend the legislation.

For further information on this topic please contact Jakob R Möller at LOGOS by telephone (+354 540 0300) or by fax (+354 540 0301) or by email ([email protected]).

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