The 20 second summary
On 15 May 2013, the Code Committee (Committee) published its Response Statement introducing changes to the Takeover Code (Code) concerning the removal of the “residency test”.
What was the Committee’s main proposal concerning “companies subject to the Code”?
The removal of the “residency test” i.e. the provision of the Code (paragraph 3 (a) (ii) of the Introduction to the Code) by virtue of which the Code applies to offers for certain companies which have their registered offices in the United Kingdom, the Chanel Islands or the Isle of Man (UK, CI or IoM registered companies) only if they “are considered by the Panel to have their place of central management and control” in the UK, the Channel Islands or the Isle of Man.
Which companies will be affected by the removal of the “residency test” and from when?
From 30 September 2013, the “residency test” will no longer apply to those UK, CI or IoM registered companies whose securities are admitted to trading on a multilateral trading facility in the UK eg AIM or ISDX Growth Market. Consequently the Code will apply to all such companies wherever they are managed and controlled.
Which companies will continue to be subject to the “residency test”?
The “residency test” will continue to apply to those UK, CI or IoM registered companies whose securities are admitted to trading only on an overseas market eg NYSE or HKSE, unlisted public companies, and private companies that satisfy the ten year rule (as amended).
How will this impact those companies that will fall within the Panel’s jurisdiction following these amendments?
Companies which will (from 30 September 2013) fall within the Panel’s jurisdiction as a result of these amendments may want to remove any provisions in their articles of association (or other constitutional documents) which seek to replicate the Code provisions, particularly if they conflict with the Code provisions. However, if the application of such provisions is subject to the discretion of the company’s directors (which is usually the case), the Committee does not believe that their removal would be an urgent matter.
How will this impact shareholders in those companies that hold a certain number of convertible securities, warrants or options?
For any shareholder in such a company that holds convertible securities, warrants or options to subscribe for new shares, the exercise of which might trigger an obligation to make a mandatory offer (under Rule 9.1(a) or (b)), the Committee has indicated that the Panel is likely to grant dispensation from Rule 9 on the exercise of those rights provided:
- a shareholder approval had been obtained at the time of the issue of those securities, rights or options; or
- the company seeks a shareholder approval at some point after 30 September 2013; or
- the shareholder undertakes to reduce the number of shares carrying voting rights in which it is interested to below 30 percent. within a reasonable time (and subject to the imposition of voting rights restrictions under Rule 9.7 prior to such reduction).
What next steps would you suggest?
- Consider whether any of your clients who currently don't fall within the jurisdiction of the Code will do so.
- Undertake a review of any provisions in their articles of association (or other constitutional documents) which seek to replicate the Code provisions to ascertain the position.
- Identify any shareholders in such company who may be subject to a Rule 9 obligation as the result of holding convertible securities, warrants or options.
Table summarising the application of the Code to the UK, CI or IoM registered companies