Title: Outline of the Bill on Transparency and Corporate Governance Best Practices. March, 2001. MINISTERIO DE ECONOMIA
1Outline of the Bill on Transparency and Corporate
Governance Best Practices.March,
2001.MINISTERIO DE ECONOMIA
2Content
- Presentations content
- I. INDIRECT PROTECTION MECHANISMS (Transparency
Regime and Tender Offers) - 1.- Basic concepts
- 2.- Transparency in Public Offering
- 3.- Market Organization
- 4.- Tender Offers
- 5.- Inside Information and Market Fraud
- 6.- Punishment and Procedure Regime. Guarantees
- II. DIRECT PROTECTION MECHANISMS (Securitiess
Act New Section) - 1.- Financial Information
- 2.- Flexibilization rules for capital increases
- 3.- Types of shares. Voting rights. Stock
Options and repurchase of shares - 4.- Functioning of corporate structure and
shareholders meetings. Request of Proxy - 5.- Rules about conflict of interest.
Directors compensation - 6.- Minority shareholders rights. Stockholders
appraisal rights and cumulative vote - 7.- Auditing Committee Regime
3Indirect Protection Mechanisms
- 1.- Basic concepts
- CONSUMER LAW Concept of investor as a
financial products consumer. - PUBLIC OFFER Different disclosure regimes
according to the issuers nature, amount
of the issuance, investors number
or characteristics and other
circumstances. - SECURITY DEFINITION Open definition
securities issued or combined in series and
capable of generalized or impersonal trade in
financial markets. - Residual legal concept of investment
contract. - Freedom to
create marketable securities. Legal Regime of
securities registered on book
entry systems - INSIDE INFORMATION Specific Information,
referred to one or more securities or issuers
that it is not public and if it were public it
would have a material influence on the
securitys price. - CONCERTED ACTION Wide definition for
cooperation among a group of persons to
acquire, hold or dispose securities
MINISTERIO DE ECONOMIA
4Indirect Protection Mechanisms
- 2.- Transparency on Public Offering
- DUTY TO DISCLOSE Issuersdisclosure of material
information. Investors Relation Person. - (in a direct, truthful, Intermediariesdisclos
ure of non habitual situations. - sufficient and Insiders, Rating Agencies
and Regulators CNV information opportune
manner) regarding holding of stock. - Every person in respect of any change of
control or acquisitions over 5. - Every person in respect of agreements which
affect the corporations control. - DUTY TO KEEP RESERVE Rule (disclose or abstain
rule) - Persons included insiders, persons with
special, temporal or accidental relationship
and subordinated persons. - DUTY OF LOYALTY AND Insiders priority of the
corporate interest. - FAIR DEALING. Intermediaries professional
conduct, loyalty and priority of the
principal interest. - MINISTERIO DE ECONOMIA
5Indirect Protection Mechanisms
- 3.- Capital Markets Organization
- SUPERVISION AND INSPECTION
- OF SELF- REGULATED ENTITIES Minimum
standards in rules and regulations - MARKET ARBITRATION Mandatory for Agents
and Public Companies. Optional for
investors. - NEGOCIATION SYSTEMS
- (General Principles) Investors
protection, fairness, efficiency,
transparency
and no fragmentation and reduction of
systemic risk. - RULES ON EXTERNAL AUDITORS Affidavit. Publicity
of Sanctions. Designation by the shareholders
meetings, proposed by the audity committee.
CNV authority to require information,
perform inspections, suggest principles,
establish independence criteria. - Shareholders right to request a special
audit. - LIMITS ON SECURITIES DISTRIBUTION
- AND MARKET STABILIZATION Aim Avoid artificial
prices and other manipulative practices. - DICLOSURE Availability of such materials to
investors - Misleading Publicity (publicidad engañosa)
and the CNV power to stop it. Publicity of
CNV resolutions. Prohibition of False News. -
- MINISTERIO DE ECONOMIA
6- 4.- Tender Offers
- Create a mechanism of mandatory, previous and
partial tender offers (optional for listed public
companies). - Guiding principles
- a) Equal Treatment b) Full Disclosure c) Duty
of Administrators of non-obstruction of Public
Tender Offers d) the corporations activities
must not be affected - The Tender Offer Rules
- a) Significant participation (never less
than 35) - b) Road Rules periods, pro rata
distributions, participation calculation, best
price, revocation, etc. - c) Irrevocability and guarantees, if
applicable - d) Competitive Offers
- e) Information Tender Offers Prospect
- Squeez Out Procedure for public companies.
Controls shareholders right to buy minorities
over 95 and minority right to be bought. - Tender Offer and Voluntary Delisting
- 1. Payment net profits, subject to the
liquidity report that assures solvency. - 2. Price concept of fair price, among
the different market indicators. - 3. CNV power to object the price focus
on decision process and reports produced by the
parties
MINISTERIO DE ECONOMIA
7Indirect Protection Mechanisms
- 5.- Inside information and Market fraud
- INSIDE INFORMATION Prohibition to all those
people who have the duty to keep reserve and the
individuals mentioned in section 35 of the
Act 24.083. - Short
swing profit (purchase and sale within six
months) - MARKET FRAUD AND
- MANIPULATION Legal norm which prevents the
manipulation prices or volumes. - Market fraud general legal norm antifraud.
Aggravating penalties when
performed by insiders or controlling
shareholders - LIABILITY FOR
- PROSPECTUS Impose
liability on the issuer, the directors, the
corporate comptroller and
signers, as well as the controlling
shareholders, experts and intermediaries
that act as organisers and/or
underwriters and arrangers. -
- PROHIBICION TO INTERVENE
- IN THE PUBLIC OFFER Sanctions for public offer
without authorisation - CIVIL ACCTION Contemporary participants
- MINISTERIO DE ECONOMIA
8Indirect Protection Mechanisms
- 6.- Punishment and Procedure Regime. Guarantees
- SANCTIONS Warning, fine (up to 1.5 MM)
Disablement (up to 5 years) Suspension
(up to 2 years) Prohibition of Public
Offering. - Standards to be considered
a) damage to market trust b) infractions
magnitude c) benefits generated by the
infringing person d) corporate volume e)
individual performance f) sanctions record. - SUMMARY AND
- PROCEDURE Amendment to Act 17.811.
Administrative Law principles enforcement. - PREVENTIVE
- SUSPENTION
- OF PUBLIC OFFER By reason of systemic risk or
serious danger - Limits for
self-regulated entities (Act 17.811) - INVESTORS
- GUARANTIES Guaranty Fund
- MINISTERIO DE ECONOMIA
-
9 Direct Protection Mechanism
- 1. Financial Information
- CNV power to require consolidated financial
statements. - CNV power to require the projected cash flows.
(forward looking statement) - Complementary notes include agreements for the
lien and/or disposition of goods and risk
administration policies. - Additional Information of the annual report of
public corporations. E.g. dividends policies and
administrators compensations. - Filing information in the CNV by electronic
means. - Directors, corporate comptrollers and managers
liability for information supplied to the market
and the duty to watch for the independence and
capability of the auditors. - MINISTERIO DE ECONOMIA
10Direct Protection Mechanisms
- 2. Flexibilization of Rules for Capital
Increases. -
- Green shoe clause, except that the
shareholders meeting decides otherwise. - Non-common shares have the preemptive right,
unless the issuance act establishes otherwise. - Improvement in the limitation to the preemptive
right by request of Directors and corporate
comptrollers report, stating the necessity,
fairness and benefit for all the shareholders - Public Corporations, the determination of the
issuances premium may be delegated to the Board
of Directors - MINISTERIO DE ECONOMIA
11Direct Protection Mechanisms
- 3. Types of shares. Voting rights. Options and
repurchase of shares - Freedom of issuance of non common shares
preferred stock, shares without right to vote and
shares with participation. - Right to vote one share one vote in public
corporations. Regulation on exchange offers which
may alter the voting structure. - Non common shares of Public Corporations have
the right of information, voice and objection.
Maximum limit 49 of the corporations capital - Options Legal protection regime for the holders
of options similar to the protection of
convertible bonds. - Repurchase authorises the repurchase of shares
in public corporations, subject to a resolution,
a Corporate Comptrollers report and payment with
liquid reserves plus the liquidity report. - MINISTERIO DE ECONOMIA
12Direct Protection Mechanisms
- 4. Functioning of Corporate Structure and
Shareholders Meetings. Proxy Request. - Board of Directors and Shareholders meetings by
non-presential means. - Broad powers of the Extraordinary shareholders
meetings, for the disposition of total or
substantial part of assets and contracts related
to corporate profits. - Longer term to call shareholders meetings
(between 25 and 45 days). Increase of information
to be considered. Shareholders right to include
issues when represent at least 2 of the stock. - Limits to one day the prohibition to dispose the
shares. (blocking shares) - Regulates the public requests for proxy.
- MINISTERIO DE ECONOMIA
13Direct Protection Mechanisms
- 5. Rules about the Conflict of Interests.
Directors compensation - Clarifies the conflict of interests rules.
- Allows the directors compensation by option
plans in the terms to be established by the CNV. - MINISTERIO DE ECONOMIA
14Direct Protection Mechanisms
- 7. Minority Shareholders rights. Appraisal rights
and cumulative vote - (sections 245 and 263)
- Appraisal rights the criteria for price
settlement in public corporations is modified in
a way similar to the Delisting of shares. - Cumulative vote it extends and ratifies its
application within each class - MINISTERIO DE ECONOMIA