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Publication

Changes to companies subject to Takeover Code

16/10/2013

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United Kingdom

On 15 May 2013, the Code Committee of the Panel on Takeovers and Mergers published a response statement introducing certain changes to the Takeover Code regarding the removal of the "residency test".

Market reCap October 2013 edition 

 

On 15 May 2013, the Code Committee of the Panel on Takeovers and Mergers ("Panel") published a response statement introducing certain changes to the Takeover Code ("Code") regarding the removal of the "residency test".  The changes took effect on 30 September 2013.

Position prior to 30 September 2013

Previously, the Code applied to all public companies and Societas Europaeas incorporated in the UK, Channel Islands ("CI") or the Isle of Man ("IoM") whose securities were traded on a regulated market in the UK (i.e. the Main Market of the London Stock Exchange) or a stock exchange in the CI or IoM.

For those public companies and Societas Europaeas whose shares were admitted to trading on a market other than a regulated market (e.g. the AIM Market of the London Stock Exchange) then the Code only applied to such companies where the Panel considered that the relevant company had its central management and control in the UK, the CI or IoM (the so-called "residency test").

The residency test also applied to unlisted public companies, Societas Europaeas and private companies which had their registered offices in the UK, CI or IoM. In respect of such private companies then the Code only applied to them where, during the previous 10 years: (i) any of their securities had been admitted to the Official List; or (ii) prices and/or dealings in respect of any of their securities had been published on a regular basis for a continuous period of at least 6 months; or (iii) any of their securities had been subject to a marketing arrangement; or (iv) they were required to file a prospectus for the issue of securities.

Position from 30 September 2013

The rules previously applicable to UK, CI or IoM registered companies and Societas Europaeas whose shares are listed on a regulated market will continue to apply in the same manner.

The principal changes concern the removal of the residency test for UK, IoM and CI registered companies and Societas Europaeas whose shares are traded on a multilateral trading facility ("MTF", which includes the AIM Market and the ISDX Growth Market), and which have now become subject to the Code, regardless of whether they have their central management and control in those jurisdictions.

However, the residency test continues to apply to public companies, Societas Europaea and private companies which have their registered offices in the UK, CI or IoM and whose securities are not admitted to trading on a regulated market or MTF. In respect of such private companies then the Code only applies to them where, during the previous 10 years: (i) any of their securities have been admitted to a regulated market or a MTF; or (ii) they have filed a prospectus for the offer, admission to trading or issue of securities.

Considerations

Points to consider arising out of these changes include:

  • companies that have become subject to the Code may need to amend any conflicting provisions in their articles of association;
  • convertibles, warrants and options may need to be retrospectively whitewashed, something the Panel has indicated it will, in such exceptional circumstances, permit;
  • companies may wish to make an announcement confirming that the Code now applies so that shareholders are made aware of the change; and
  • relevant significant shareholders need to be aware of the implications of the requirements of Rule 9 of the Code (mandatory bid).

 

Nick Heap is a Senior Asociate in the Corporate Group of Field Fisher Waterhouse LLP in London.

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