Legal alert no. 4

On September 23rd, it was published in the Portuguese Official Gazette the Decree-Law n. º 63-A/2013, of 23rd of September, which creates the regrouping of shares’ legal framework or reverse stock split for the issuers of shares admitted to trading in a regulated market or in a multilateral trading facility, leading to the twenty-eighth amendment to the Portuguese Securities Code.

Decree-Law n. º 63-A/2016, of 23 September – Creation of the legal framework of regrouping of shares

It was published in the Portuguese Official Gazette the Decree-Law n. º 63-A/2013, of 23rd of September, which creates the regrouping of shares’ legal framework for the issuers of shares admitted to trading in a regulated market or in a multilateral trading facility, leading to the twenty-eighth amendment to the Portuguese Securities Code (“CVM”).

The regrouping of shares’ framework or reverse stock split now legally established aims essentially to eliminate the constraints resulting from legal uncertainties, ensuring the balance of interests of the different players and, in particular, the protection of the shareholders which, as a result of the regrouping, are the holders of the remaining shares. In one word, the balance of interests of the companies, of the shareholders, and also of the capital market, allowing the regrouping of shares outside the scope of a capital reduction transaction.

Therefore, the published Decree-Law adds a new article 23-E to CVM, establishing, briefly, the following:

• The issuers of shares admitted to trading in a regulated market or in a multilateral trading facility can regroup their shares (reverse stock split).
• The referred regrouping operation occurs without changing the share capital, by dividing the number of shares by a coefficient applicable to all shares in the same proportion, defined in accordance with the protection of investors’ principle.
• The applicable coefficient shall be defined in the company’s general meeting, relating to the amendment of the company’s articles of association, and shall also indicate the social interest which determines the regrouping, the determining criterion of the consideration to be paid (if there is a rounding-off, whenever the shareholder has the right to receive a monetary consideration in relation to the shares for which is not possible to attribute a whole number of share), and also the date on which the regrouping takes effects, or its method of attachment, which shall be not less than 15 days from the date of the general meeting.
• In the implementation of the operation, each shareholder will hold shares in the amount corresponding to the division of the number of shares held by the same shareholder on the date on which the regrouping takes effect by the defined coefficient.
• If necessary, the number of shares shall be rounded down to the nearest whole number.

• In addition, in case of rounding-off, the shareholder has the right to a monetary consideration in relation to the shares for which it is not possible to attribute a whole number of share.
• Until the date on which the regrouping takes effect, the company is obliged to deposit the monetary consideration or to provide a bank guarantee securing its payment.
• Finally, it should also be noted that, in relation to the remaining shares, the company shall (i) acquire the same shares, or (ii) promote the respective sale within thirty days following the date on which the regrouping of shares takes effects, practicing on behalf of the respective holders all the acts necessary to the effectiveness of the transmission. After the expiry of this deadline, the company becomes automatically the owner of the remaining shares after rounding-off whose disposal did not occur within the referred deadline, being obliged to pay the consideration due.

The establishment of the regrouping of shares’ framework (reverse stock split) allows companies to adjust the price of the shares representing their capital, contributing to the improvement of the respective capacity for attracting investors, to perform capital increases in a more efficient way and to prevent the sharp and unusual variation of the market value of shares, with the benefits that will flow from it to the regular functioning of the market.

In one word, between the advantages of this new framework, the following ones shall be pointed out:

• Option for the companies to adjust the price of the shares representing their capital;
• Improvement of the ability to attract new investors;
• Completion of capital increases in a more efficient way;
• Maximization of the regulation of the functioning of the market.

In addition to what is mentioned above, the referred Decree-Law falls within the governmental incentives which aims at widening and diversifying the companies’ financing options by enhancing the role of the capital markets in the financing of small and medium size enterprises and, in particular, by way of equity instruments.

The referred Decree-Law entered into force the day after its publication, 24th of September, 2016.

To access the full text of the Decree-Law n. º 63-A/2016, please click on the following hyperlink - Decree-Law n.º 63-A/2016.