338 10 Exit of Shareholders
or, in the absence thereof, the accountable par of the acquired shares, including
shares previously acquired by the company and held by it ... may not exceed a
limit to be determined by Member States. This limit may not be lower than 10% of
the subscribed capital”.
Other terms. There also other constraints on the terms of the acquisition. The
transactions must take place “at fair market conditions” (especially with regard to
interest received by the company and security provided to the company). The
credit standing of the third party or each counterparty must have been “duly inves-
tigated”.^55 Furthermore, where a third party, by means of financial assistance from
a company, acquires that company’s own shares, the acquisition shall be made “at
a fair price”.^56
Market abuse. The acquisition of shares must not constitute insider trading^57 or
market manipulation.^58 If the general prohibitions in the Directive on market abuse
were applied according to their wording, they would seem to prohibit even share
buy-backs and the stabilisation of the share price. However, share buy-backs and
the stabilisation of share price are sometimes regarded as acceptable forms of
market behaviour and permitted on certain conditions under Article 8 of the Mar-
ket Abuse Directive. The rules that the firm should comply with can be found in
Regulation 2273/2003 complementing the Directive. Stock exchange rules can
provide for more detailed rules on the execution of the buy-back programme.
In the US, Rule 10b-18 under the Securities Exchange Act of 1934 provides issuers with a
qualified safe harbour from liability for market manipulation when they repurchase their
common stock in accordance with the rule’s timing, price, manner of purchase and volume
conditions. The SEC has emphasised that failure to satisfy the safe harbour’s conditions
does not give rise to any presumption that the repurchases are manipulative.^59
Disposal of shares. The Second Directive both permits the company to keep part
of its shares and requires it to dispose of its own shares in some cases. Depending
on the governing law, a public company may hold at least 10% of its subscribed
capital.^60 For example, an English company listed in England has a limited right to
own “treasury shares”.^61
(^55) Article 23(1) of Directive 77/91/EEC (Second Company Law Directive) as amended by
Article 1(6) of Directive 2006/68/EC.
(^56) Articles 23(1) of Directive 77/91/EEC (Second Company Law Directive) as amended by
Article 1(6) of Directive 2006/68/EC.
(^57) Articles 3 and 4 of Directive 2003/6/EC (Directive on market abuse).
(^58) Article 19(1) of Directive 77/91/EEC (Second Company Law Directive); Articles 3 and
4 (insider trading) and 5 (market manipulation) of Directive 2003/6/EC (Directive on
market abuse).
(^59) See Cole J Jr, Kirman I, Takeover Law and Practice. In: PLI, Doing Deals 2008: Under-
standing the Nuts & Bolts of Transactional Practice. New York City (2008) pp 157–158.
(^60) Article 20(2) of Directive 77/91/EEC (Second Company Law Directive).
(^61) See Morse G, The Introduction of Treasury Shares into English Law and Practice, JBL
(2004) pp 303–331.