Target Board Liability in Public Takeover Bids : An analysis under Swedish and Danish regulations

Abstract: The board has a central role in a limited liability company, as it manages the company’s affairs. When a takeover bid is made on the company, the Target Board’s role is ex­tended, as the Board undertakes certain obligations due to the takeover regulations. The Board shall decide whether a request of performing a due diligence is to be accepted, and what information such investigation would include if permitted. In addition, the Board shall evaluate the pros and cons of the bid in order to help the shareholders make an informed decision as regards accepting or denying the bid. While fulfilling its duties, the Target Board has to act in the best interest of the shareholders. The Board may therefore not let any self-interest or other stakeholder interests prevail in its decisions and undertakings. Because the Target Board has certain obligations to perform, and the interests in which these are to be performed is clearly expressed, it is important that the Board’s conduct is subject to liability. Under Danish law such liability is provided for under the Danish Companies Act. In the Swedish Companies Act, there is no correlating liability provision. To ensure compliance with the Swedish Takeover Rules, one should argue liability under the Swedish Commercial Code and its rules regarding trusteeship, as the Target Board’s role in a takeover seemingly fulfills the prerequisites of a trustee­ship with the shareholders as its principal. If the duty of loyalty that follows from the trusteeship is breached, the Target Board may be held liable for its conduct. To ensure compliance with the takeover regulations, a liability provision that explicitly covers the takeover scenario should be introduced also under Swedish law.