Obligation to Notify
Mandatory Offer
Calculation of Voting Rights
The Law on Securities, which regulates the public issue, registration and trading of securities, also imposes certain obligations which must be complied with upon the acquisition or sale of publicly traded stock.
An investor who acquires sufficient publicly traded stock to ensure it has at least one-tenth, one-quarter, one-half or three-quarters of all votes at the joint stock company's shareholders meeting must notify both the Finance and Capital Market Commission and the company itself within seven days of the acquisition.
If the investor sells the acquired stock within seven days of the acquisition, it is not obliged to notify the joint stock company of the acquisition.
A shareholder must notify the commission and the joint stock company of a sale of its shares within seven days if (i) those shares which exceeded the thresholds stipulated above are sold, or (ii) a stake is sold which reduces the number of votes held by the shareholder by 5% or more.
The joint stock company must publish these shareholder notifications in the official state newspaper within nine days of the date on which it receives notification or otherwise becomes aware of the change in the voting rights. Publication is not necessary if a stake is sold which reduces the number of votes by less than 10%.
Failure to comply
If a shareholder fails to comply with its obligation to notify, it will be prohibited from exercising the voting rights represented by those shares which exceed the relevant thresholds listed above. Resolutions of the shareholders meeting which are adopted through the illegal exercise of voting rights are invalid.
The Law on Securities also requires a shareholder to make a mandatory offer to the remaining shareholders if, as a result of a direct or indirect acquisition of publicly traded shares, its voting rights will reach or exceed one-half or three-quarters of the total number of votes at the shareholders meeting. A mandatory offer must also be made by shareholders who have voted in favour of withdrawing the company's shares from public trading at the shareholders meeting.
When making a mandatory offer, the shareholder must comply with regulations issued by the Finance and Capital Market Commission which govern the procedure for these offers, and must utilize the mechanism established by the commission for determining the purchase price for the outstanding shares.
The mandatory offer procedure must also be followed by any party which makes a public offer to the shareholders of a Latvian joint stock company. However, the Finance and Capital Market Commission mechanism for determining the purchase price need not be used in such cases.
Failure to comply
If a party fails to make a mandatory offer where this is required by law, or fails to comply with the procedural requirements of the Finance and Capital Market Commission, it will be denied the right to exercise newly acquired voting rights at the shareholders meeting.
In order to calculate the voting rights for the purpose of these obligations, the following voting rights must be added to the number of shares held by the investor:
- voting rights that are acquired by subsidiary undertakings of the investor;
- voting rights that are acquired by a third party in its own name, but on behalf of the investor;
- voting rights that are acquired by third parties in accordance with an agreement with the investor on long-term and systematic joint activities in relation to the management of the issuer;
- voting rights resulting from shares that have been transferred for holding to a third party, which that third party may exercise at its discretion without receiving special instructions from the investor;
- voting rights arising from shares owned by the investor that have been pledged as security in favour of a third party. If a third party controls the voting rights arising from pledged shares and notifies the issuer of its wish to exercise them, the relevant voting rights shall be deemed to be the voting rights of the third party; and
- voting rights which are acquired in any other indirect way.
For further information on this topic please contact Filip Klavins or Mikus Buls at Klavins & Slaidins by telephone (+371 703 5222) or by fax (+371 703 5252) or by email ([email protected]).