Government to Amend the Takeover Act?

The Governing Coalition has submitted to the Croatian Parliament a proposal on amendments of the Takeover Act which is to be adopted in an urgent procedure at the next session of the Parliament which is scheduled for June 13.

Even though the proposal has been justified by the need for expedite process of privatization of those companies which fall within the scope of the State’s interest it seems that the main issue the new law tries to solve is the deadlock position of the City of Opatija and three other municipalities which have been imposed the obligation to publish takeover bid for leading local tourist company Liburnia Riviera Hoteli d.d.

The City of Opatija and other municipalities are unwilling to publish the takeover bid and have been ignoring the final decision of the regulator for a while by explaining that the assets required for announcement of the takeover bid exceed few times the value of the annual authorities’ budget.

In general, the Amendments are tailor-made to benefit the City of Opatija and other municipalities in that they provide for two additional exceptions from announcement of the takeover bid in case of acquisition of more than 25% shares of the target company. The new law shall be applied retroactively and even abolish final decisions already adopted by the regulator and the courts’ judgments rendered in favour of minority shareholders.

In a brief, according to the amendments a local or a regional self government unit acting independently or jointly, or a legal person owned by the local or the regional self government unit, which on the basis of the decision of the Croatian Government, Agency for State Property Management or other competent public authority as a compensation for the real estates contributed into the share capital of a target company acquires the shares of that company shall be exempted from the obligation to publish takeover bid.

Another exemption addresses natural or legal person and a local or a regional self government unit acquiring the shares pursuant to the law or the decision of the Croatian Government or other competent public authority which subject is settlement of mutual claims or fulfillment of the obligations towards third parties or if such an acquisition is a consequence of conversion of receivables into the share capital of a target company on the basis of the court verdict or the settlement.

The amendments of the Takeover Act have been heavily criticised by the minority shareholders, media, legal theoreticians and practitioners because of a rather peculiar provision providing retroactive application of the new law in that all the takeover procedures that have commenced under the old Takeover Act shall be continued and decided under the new law whereas the authority which rendered decision in the takeover proceedings shall declare such a decision null and void.

This becomes even more interesting considering that such a proposal had already been put in front of the Croatian Parliament in 2010 and was decisively rejected with the explanation that it is not in accordance with the acquis communautaire, the Directive 2004/25/EC and the Croatian Constitution.

If in any case the Croatian Parliament accepts the amendments to the Takeover Act and the retroactive application of its provisions, there is a number of arguments to claim that the Constitutional Court of Croatia shall find such a law contrary to the basic constitutional principles, whereas the shareholders will have to continue a long lasting and uncertain battle for their rights before local courts which remain under the great pressure of local policy makers. Without need to mention that such a law may put Croatia under unpleasant spotlight of the EU regulatory authorities which may even delay Croatian accession to the EU.