The Panel proposes changes to the Takeover Code

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Summary: Yesterday, the Code Committee of the Takeover Panel issued two consultation papers proposing certain changes to the Takeover Code. The changes are designed to close an existing loop-hole surrounding restricted and suspended voting rights attaching to shares and to codify existing market practice by expressly including three new presumptions to the definition of persons “acting in concert”. Comments should reach the Committee by 11 September 2015.

PCP 2015/2 - Key changes

The proposed amendments to the definition of “voting rights” in the Code make clear that where any shares are subject to a restriction and/or suspension of voting rights, such shares will still be regarding as having “voting rights” irrespective of whether the voting rights are in practice exercisable by the current shareholder, with the exception of treasury shares.

By extending the definition to “suspended voting shares”, the Code Committee wishes to eliminate the scope for a company to issue these types of shares as a means, and often with the sole purpose, of avoiding the normal application of Rule 9, including the requirement for a company to obtain a whitewash.

A class of shares which does not carry voting rights in any circumstances (even if they are convertible at any time on a one-for-one basis into voting shares upon service of a conversion notice by the shareholder), will not be treated as voting shares.

PCP 2015/3 - Key changes

The Code Committee proposes to introduce new presumptions into the definition of “acting in concert” in relation to each of these categories of persons:

  • a person, the person’s close relatives, and the related trusts of any of them, all with each other;
  • the close relatives of a founder of a company to which the Code applies, their close relatives, and the related trusts of any of them, all with each other; and
  • shareholders in a private company who sell their shares in that company in consideration for the issue of new shares in a company to which the Code applies, or who, following the re-registration of that company as a public company in connection with an initial public offering or otherwise, become shareholders in a company to which the Code applies. This follows the decision in World Television Group plc where the Executive presumed that vendors of a private company are acting in concert with each other when that company is sold to a company to which the Code applies and they receive, as consideration, new shares in the “Code company”.

Whilst practitioners are generally aware of the Executive’s practices in respect of these groups of persons, the Code Committee wishes to codify existing market practice to ensure that the position is clear going forward. It will still be possible for any of the presumptions to be rebutted by the persons concerned in consultation with the Panel.

As was previously the case, although now formally codified, potential listing candidates (which are subject to the Code) will need to consider the make-up of their shareholder body both pre and immediately post IPO and agree with the Panel which shareholders should be regarded as acting in concert for the purposes of the Code and consequently the form of any disclosure required in the prospectus or AIM admission document.

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