The UK Takeover Panel has published a consultation
paper on new proposals to extend the jurisdiction
of the UK Takeover Code to cover all public companies with
registered offices in the UK, the Channel Islands or the Isle
of Man. If brought in, the plans are set to have a wide
Under the current framework, companies whose securities are
not traded on a so-called regulated market are only subject to
the Code if they have their registered office in, and are
centrally managed and controlled in, the UK, the Channel
Islands or the Isle of Man.
"The Panel has taken the view that people may be investing
in these companies under the misapprehension that they are
covered by the Code and they would therefore be benefitting
from the protections the Code provides," said Scott Hopkins of
Skadden in London.
According to Hopkins, as well as causing investor
uncertainty, it can also be unclear from market
participants’ perspective whether a company is a
Code company or not.
Under the present framework, the Panel uses a residency test
to determine whether a company is centrally managed or
controlled in the UK.
This test looks at where the majority of the directors
reside, as well as factors such as the roles of individual
directors and the history of the company.
But the test can produce different results at different
times. "A director’s place of residence is not
always apparent from the public information," said Hopkins.
"The fact that the make up of the board and the residency of
directors can shift means that the Code’s
jurisdiction can be unclear."
Under the new proposals, the location of central management
and control would become irrelevant. This means that a number
of companies listed on non-regulated markets such as the
Alternative Investment Market (AIM) now look set to become
subject to the Code.
The Panel published the consultation on July 5, with the
consultation period ending on September 28. The
Panel’s proposed extension would cover all
transactions, effective from the implementation date. This
includes transactions that straddle that date, unless this
would result in the new rules having retrospective effect.
But many companies set to be affected have Code-like
protections built into their constitutional documents.
These provisions give directors
significant discretion on when and how the Code–like
protections are enforced. If the proposed changes are
implemented, directors would lose that element of
According to Hopkins, bidders
considering offers for these companies will need to seriously
review the impact the Code will have on the deal.
client mailing on the proposals, Skadden commented
that shareholders in such companies with stakes approaching the
mandatory bid threshold of 30 percent (or who hold between 30
percent and 50 percent, such that the acquisition of a single
share would trigger a mandatory bid) should be prepared to put
safeguards in place to ensure dealings do not occur