3 June 2021 Investment Funds

Portfolio Company Disclosure

Articles 27 to 29 of AIFMD require notifications and disclosures by an AIFM managing an AIF which acquires control of a portfolio company which has its registered office in the EU, or acquires or disposes of interests in an unlisted EU company resulting in the AIF’s ownership interest passing certain specified percentage thresholds.

EU AIFMs are required to comply with these disclosure rules, as are non-EU AIFMs which market AIFs into any EU Member State under Article 42 of AIFMD (i.e. National Private Placement Regimes – please see the Marketing page for more information).

Competent authorities across the EU interpret the scope of the rules differently. Some competent authorities also apply these provisions where the target company is registered in an EEA country (i.e. the EU plus the three EEA states of Iceland, Liechtenstein and Norway).

For the purposes of these rules, “control” is defined in Article 26 of AIFMD as set out below.

Definition of control - test

Broadly, control occurs when an AIF holds the requisite percentage of voting rights in a target company either:

  • individually;
  • jointly with one or more other AIFs managed by the same AIFM, on the basis of an agreement aimed at acquiring control; or
  • jointly with one or more other AIFs managed by two or more AIFMs, on the basis of an agreement aimed at acquiring control.

Interpretation can vary across Member States as to whether the interest of all AIFs in a consortium should be taken into account in determining whether the AIFs jointly have “control”, or whether some types of AIF should be disregarded (in particular, AIFs which are neither managed nor marketed in the EU).

Voting rights held by an undertaking controlled by the AIF or persons acting on behalf of the AIF or such an undertaking are treated as being held by the AIF for these purposes.

For a Non-Listed Company (an EU-incorporated company that does not have its shares admitted to trading on a regulated market) control means holding more than 50% of the voting rights of the company.

For an Issuer (an EU-incorporated company that has its shares admitted to trading on a regulated market), this threshold is defined with reference to the Takeover Directive, which provides that the percentage of voting rights that gives control is determined by the rules of the Member State in which the Issuer has its registered office. In many Member States (including Luxembourg) this is set at around 30%, although it is lower or higher in some other Member States.

Where an AIF acquires control of an Issuer or Non-Listed Company, individually or together with another AIF, the asset-stripping rules set out in Article 30 of AIFMD may also be relevant – please see the Asset-Stripping page for more information.

Notification of the acquisition of major holdings and control of Non-Listed Companies

An AIFM must notify the competent authority of its home Member State if an AIF which it manages acquires, disposes of or holds voting rights of a Non-Listed Company, if the proportion of voting rights held by the AIF reaches, exceeds or falls below certain trigger points. The relevant trigger points are 10%, 20%, 30%, 50% and 75% and the notification of the proportion of voting rights held by the AIF must be made within 10 working days of the trigger event.

An AIFM is also required to provide the following information to the Non-Listed Company, its shareholders and the competent authority of the AIFM’s home Member State within 10 working days of an AIF which it manages acquiring control of that Non-Listed Company, individually or jointly with other AIFs:

  • the resulting situation in terms of voting rights;
  • the conditions subject to which control was acquired, including information about the identity of the different shareholders involved, any natural person or legal entity entitled to exercise voting rights on their behalf (and the chain of undertakings through which voting rights are effectively held); and
  • the date on which control was acquired.

In its notification to the Non-Listed Company, the AIFM must request that the board of directors  inform the employee representatives (or where none, the employees) of the acquisition of control and the above- mentioned information. The AIFM must use its best efforts to ensure the board of directors does inform the employee representatives/employees.

Disclosure in case of acquisition of control of an Issuer or Non-Listed Companies

When an AIF, individually or jointly with other AIFs, acquires control of an Issuer or Non-Listed Company, the AIFM must make the following information available to the company, its shareholders and the competent authority of the AIFM’s home Member State:

  • the identity of the AIFM(s) which manage the AIF(s) that have acquired control;
  • the policy for preventing and managing conflicts of interest, in particular between the AIFM, the AIF and the company;
  • its policy for external and internal communication relating to the company, in particular as regards employees; and
  • for acquisitions of Non-Listed Companies only, the AIF’s intentions with regard to the future business of the Non-Listed Company and the likely repercussions on employment (including material changes to employment conditions). This information does not need to be provided to the competent authority.

Again, in its notification to the company, the AIFM must request that the board of directors inform the employee representatives (or where none, the employees) of the above mentioned information. The AIFM must use its best efforts to ensure the board of directors does inform the employee representatives/employees.

There is no specified time period within which this information must be made available. Some competent authorities only require AIFMs to provide this information on request and not as part of the standard notification procedure. There are no corresponding obligations on AIFMs or AIFs to put in place policies relating to conflicts of interest or communication, although many will have these in place as part of their general fund compliance manuals.

Financing information

When an AIF acquires control of a Non-Listed Company, individually or jointly with other AIFs, the AIFM must also disclose to the competent authority of its home Member State and the AIF’s investors information on the financing of the acquisition. “Financing” is not defined and there is no specified time limit for the provision of the information.

Additional information to be included in annual reports

When an AIF has control of a Non-Listed Company, individually or jointly with other AIFs, its AIFM must include in the AIF’s annual report provided for in Article 22 of AIFMD (see the section on Disclosure and Reporting) the following additional information relating to the relevant Non-Listed Company:

(a) a fair review of the development of the Non-Listed Company’s business representing the situation at the end of the period covered by the annual report;

(b) any important events that have occurred since the end of the financial year of the AIF;

(c) the Non-Listed Company’s likely future development; and

(d) in relation to the Non-Listed Company’s acquisition or disposal of its own shares:

(i) the reasons for acquisitions made during the financial year;

(ii) the number and nominal value or, in the absence of a nominal value, the accountable par of the shares acquired and disposed of during the financial year and the proportion of the subscribed capital which they represent;

(iii) in the case of acquisition or disposal for a value, the consideration for the shares; and

(iv) the number and nominal value or, in the absence of a nominal value, the accountable par of all the shares acquired and held by the Non-Listed Company and the proportion of the subscribed capital which they represent.

This requirement does not apply if the Non-Listed Company is required to draw up an annual report under the law applicable in the EEA State in which it has its registered office and the AIFM requests and uses its best efforts to ensure that the annual report of the Non-Listed Company includes the additional information listed above and the report is made available by the board of the Non-Listed Company to the employees’ representatives or, where there are none, to the employees themselves within the period in which the annual report must be drawn up. 

However, if the relevant information was included in the Non-Listed Company's annual report, then the AIFM must make the same information available to the investors of the AIF, in so far as already available, within six months following the end of the financial year of the AIF, and in any event, no later than the date on which the annual report of the Non-Listed Company must be drawn up. Conversely, if the relevant information was included in the AIF’s annual report, the AIFM must request and use its best efforts to ensure that the board of directors of the Non-Listed Company makes that information available to employees' representatives of the company or, where there are none, to the employees themselves, no later than six months following the end of the financial year of the AIF.

Exemptions

Notification/disclosure is not required in respect of acquisitions or disposals of voting rights in the following Non-Listed Companies:

  • special purchase vehicles used to purchase, hold or administer real estate; or
  • SMEs.

Confidentiality

AIFMD states that the disclosure provisions apply subject to the restrictions on confidential information in Article 6 of the Information and Consultation of Employees Directive (2002/14/EC). This means that employee representatives are not authorised to reveal to employees or third parties any information that an undertaking has, in the legitimate interest of the undertaking or establishment, expressly provided to them in confidence. It also enables Member States to provide that an employer is not obliged to communicate information when the nature of that information is such that it would seriously harm the functioning of the undertaking, or would be prejudicial to it. However, note that although this gives Member States the option to include such a proviso, they are not obliged to do so.

Luxembourg implementation

Luxembourg has implemented the portfolio company disclosure rules through Articles 25 to 27 of the Luxembourg AIFM Law. In Luxembourg, the following entities are subject to notification and disclosure requirements: every Luxembourg authorised AIFM, and every non-EU AIFM marketing AIFs to professional investors in Luxembourg without passport on the basis of Article 45 of the Luxembourg AIFM Law.

The form to be used by Luxembourg AIFMs to notify the CSSF of matters within scope of these rules can be accessed here.

With respect to Luxembourg Issuers, the acquisition of 30% of the voting rights of the Issuer constitutes “control” for purposes of the portfolio company disclosure rules.

In determining whether an AIF has acquired control of a portfolio company jointly together with other AIFs, the Luxembourg CSSF has confirmed in its FAQ concerning alternative investment fund managers, that a Luxembourg AIFM has to notify the CSSF of the acquisition of control when the Luxembourg AIFM cooperates with one or more AIFMs (whether such AIFM is an EU authorised AIFM or a third country AIFM performing marketing activities in Luxembourg pursuant to Article 45 of the Luxembourg AIFM Law.

UK implementation

The UK portfolio company disclosure rules generally

The UK’s implementation of the portfolio company disclosure rules is set out in Regulations 38 to 40 and 42 of the UK Regulations. The UK rules generally apply in the same way as under AIFMD in the EU, but their scope is modified. In particular:

  • The UK rules apply only in respect of UK issuers (i.e. a UK company whose shares are admitted to trading on a UK regulated market) and UK non-listed companies (i.e. a UK company whose shares are not admitted to trading on a UK regulated market).
  • The UK rules apply only in respect of AIFs with full-scope UK AIFMs and AIFs with non-UK AIFMs (including EU AIFMs) that are marketed under the UK National Private Placement Regime.

The notification form to be used by UK AIFMs to notify the FCA of information within scope of the UK portfolio company disclosure rules can be accessed here.

Where an AIF managed by a UK AIFM acquires control of an EU-incorporated entity, or acquires or disposes of interests in an EU Non-Listed Company (which is not within the scope of the UK portfolio company disclosure rules following the end of the Transition Period relating to the UK’s withdrawal from the EU) it will be necessary to consider whether the UK AIFM is subject to equivalent disclosure rules in the EU.

Definition of “Control” for purposes of the UK rules

For purposes of the UK Regulations, “Control” is defined as 50% of the voting rights of a target company if it is a private company or a company with securities quoted on AIM, and by reference to the threshold for a mandatory bid under the City Code on Takeovers and Mergers, which is 30% of the voting rights in the UK, if the target is a the main market of the London Stock Exchange listed company.

In determining whether an AIF within the scope of the UK rules has acquired control of a target company jointly together with other AIFs, a literal reading of the UK Regulations indicates that only the types of AIF within scope of the UK rules would be taken into account (i.e. AIFs with full-scope UK AIFMs and AIFs with non-UK AIFMs marketed under the UK National Private Placement Regime). However, some caution should be exercised when considering whether to exclude the interest of other AIFs for purposes of applying the joint control test.

Confidential/Sensitive information

The UK Regulations confirm that information provided in confidence in connection with the portfolio company disclosure rules to employees, employee representatives or experts assisting them is to be kept confidential save in accordance with the terms of disclosure, subject to challenge on the basis of the reasonableness of the confidentiality restriction. In addition, the UK Regulations confirm that where the communication of information to such persons under the rules would seriously harm the functioning of a UK non-listed company, or would be seriously prejudicial to it, the board of directors is not obliged to comply with a request made by a UK AIFM in accordance with these rules.