Банкеръ Weekly



The proposed amendments to the Public Offering of Securities Act (POSA) caused sharp disputes between the drafters and the representatives of public companies, who were displeased with the new stipulations. As compared to the version for amendments, about which the BANKER weekly wrote in the beginning of September, the rights of the State Securities Commission (SSC) have been considerably increased. At the same time, the heads of companies whose securities are traded on the stock exchange, will be unpleasantly surprised by new restrictions. They refer to the revealing of information, the increase of capital, and the ways for their writing-off from SSC's register.For example, article 114 of the Act widens considerably the rights of the general meeting in the operational management of the issuers' actovities. In future the general meeting will have to express its opinion on deals in more than 10% of a company's assets (sales, rentals, or pledges) as per the latest certfied accounting balance sheet if relations with connected persons are concerned. The same provisions hold true in cases when a public company has liabilities, exceeding 10% of its assets.When a connected person is not a party in a deal, the general meeting should express its stance when a sum exceeding 33% of the company's assets is transferred. In all cases, transferrence of assets is effected at their market price.The amendments to the POSE stipulate that each public company is obliged to nominate its corporative secretary, who should provide an efficient link between the company' management body and its shareholders. The secretary should have appropriate qualification and experience for the fulfillment of these obligations. Practice in other countries shows that no new employee is appointed to that position and it is usually held by the chief accountant.The regime for companies' writing-off from SSC's register will be tightened, as the BANKER weekly predicted two months ago. The only new thing here is that there will be a slight opportunity for writing-off without making a trade proposal to the other shareholders for the purchase of their paper. Such a chance is stipulated for companies with less than 50 shareholders and whose equity capital is under BGL200,000. In all other cases the owner of more than 90% of a public company's assets shall be obliged to make a such a proposal before writting it off SSC's register. The regulations for a trade offer, however, will be stricter - the value of the securities should calculated through at least three generally accepted methods for evealuation. The trade offer should be accompanied by a price justification, including a description of the criteria and way, used for its determination. Even in case the offer complies with the regulatory framework, this shall not be a guarantee that the majority owner could write off the respective cmpany from the public register. In order to do that, a least 50% of the holders of the remaining shares should sell them or vote for their writing-off at a specially called general meeting. The requirements for a minimum price remain and it cannot be lower than the market price for the last three months or than the highest price, paid by the majority shareholder. A trade offer should be published not only by shareholders whose share is over 50% of the company's capital, but also those who hold two thirds of it. Furthermore, a person with more than half of the voting shares shall not be entitled to acquire over 3% of a certain company's shares within a year without placing a trade offer. The bill's drafters stipulate an opportunity for the government to approve even heavier terms for publishing a trade offer. In its future order, for example, the cabinet could inlude not only shares but other kinds of securities as well. Under the new provisions, a trade offer is admissible in cases when a sharehodler owns at least 5% of a public company's capital and is willing to raise his share to over 33 per cent. The projected legislative amendments certainly increase SSC's role as a regulatory body. The salaries of its members will be increased to reach the remuneration, received by the Bulgarian National Bank. The SSC shall be entitled to issue administrative acts, litigate in court deals closed in violation of POSE's provisions, and decisions of general meetings. The amendments also make easier investors' access to SSC's registers.The enforcement of the new stipulations for increasing the capital of public companies are doubtlessly expected with the greatest interest. Several months ago it became clear that this would be possible only through issuing trading rights. The last theoretical possibility for increasing the capital under a condition will be eliminated. The loophole, which has not been used by anyone so far, was that a public company could transfer bonds in voting shares. In that way the holders of debt securities so far had an chance to become a majority at a general meeting of shareholders, the more so if the holder of a majority package in an enterprise wass behind them. Furthermore, the issuing value of new securities should be fully paid on their registration. Thus, capital increase by paying just 25% of the stocks' price with an option for paying off the balance within two years, for example, shall be eliminated. The terms for participation in the purchase of shares and in the capital increase have been amended, too. The drafters have also made everything possible to ensure full transparency of teh procedures in these cases.The new provision in the drafted amendments, which obliges public companies to make public their accounting reports each quarter, will be also in favour of the investors. So far they had to do that twice a year.

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