as pdf - Linklaters

28 January 2015
UK Corporate Update.
Think twice before you make promises - Takeover Code
changes to statements of intent
In this issue
On 12 January 2015 the Takeover Panel introduced a new two-tier regime
relating to undertakings and statements of intent made during an offer by a
bidder or target (see UK Corporate Update 14 January 2015).
Think twice before you
make promises - Takeover
Code changes to
statements of intent .......... 1
A briefing on this issue is available here, on the Linklaters Knowledge Portal.
Takeovers by cancellation scheme – new Draft Regulations
published
A draft of the Companies Act 2006 (Amendment of Part 17) Regulations 2015
has been published and laid before Parliament. As announced in the
Chancellor’s Autumn Statement, the regulations will prevent the use of
cancellation schemes of arrangement in certain circumstances in an effort to
increase stamp duty revenues (see UK Corporate Update 18 December
2014).
The regulations will insert a new section 641(2A) into the Companies Act
2006. This prohibits a company from reducing its share capital as part of a
scheme of arrangement where the purpose of the scheme is to acquire all the
shares (or all the shares in one or more classes) of the company. Scheme of
arrangement is defined as a compromise or arrangement sanctioned by the
court under Part 26 (arrangements and reconstructions). (The draft
regulations were originally laid before Parliament with scheme of
arrangement defined by reference to section 900 of the Companies Act 2006.
This did not work as section 900 schemes are not used in practice so the
regulations were re-laid a couple of days later with the amended definition.)
The draft regulations contain a carve-out to permit a scheme which effects a
restructuring to insert a new holding company into the group structure,
provided that all or substantially all of the members of the company become
members of the new holding company and their proportionate shareholdings
remain substantially the same. Therefore cancellation schemes of
arrangement will still be allowed in transactions such as demergers and
redomiciles.
The draft regulations will come into force on the day after they are made but
they do include a transitional provision for transactions where an
announcement of a firm intention to make an offer has been made, or the
terms of the offer have been agreed (in the case of a company that is not
subject to the Takeover Code), before the regulations come into force. In
these circumstances, the prohibition will not apply.
1
Takeovers by cancellation
scheme – new Draft
Regulations published ...... 1
FCA advises issuers to take
heed after PLC fined
following Model Code
breaches ......................... 2
The draft regulations must now be approved by both Houses of Parliament,
and we expect that they will come into force between mid February and the
end of March.
It is worth noting that transfer schemes of arrangement will still be available
for takeovers. With the exception of the stamp duty saving, transfer schemes
bring all of the advantages over contractual offers associated with
cancellation schemes. These include:
>
a lower approval threshold (75% of votes as opposed to 90% of
shares);
>
a shorter time to get to 100% ownership and avoidance of the slow
and cumbersome squeeze-out procedure under Section 979 of the
Companies Act 2006;
>
increased certainty as to outcome and timing;
>
avoidance of many, particularly US, overseas securities law
implications; and
>
the ability to extend the timetable to accommodate lengthy regulatory
(often anti-trust) clearances.
So whilst contractual offers may still be the preferred structure for some
takeovers, the scheme route remains open and scheme takeovers will
continue to bring many advantages.
Click here for the Companies Act 2006 (Amendment of Part 17) Regulations
2015.
Click here for the explanatory memorandum.
Click here for the draft information and impact note.
FCA advises issuers to take heed after PLC fined following
Model Code breaches
The Financial Conduct Authority has fined Reckitt Benckiser Group plc
£539,800 for breaches of the Listing Rules by failing to take reasonable steps
to secure compliance by persons discharging managerial responsibilities with
the Model Code, and associated breaches of the Disclosure and
Transparency Rules. This decision highlights the need for robust procedures
and regular training and the FCA “expects all listed companies to learn the
lessons from this case”. There was no suggestion that any dealings took
place on the basis of inside information.
What happened?
On a number of occasions, shares held in the brokerage account of a PDMR
were pledged as security for a credit facility. This constituted dealing under
the Model Code, but the PDMR did not seek clearance as required. When the
company found out about these dealings, some two years after the first
pledge, it did not notify the market as soon as possible (as required by DTR
3.1.4) but instead conducted a reconciliation exercise on the shareholdings of
all its PDMRs. It came to light during that exercise that another PDMR had
sold shares four years previously, a transaction that was not disclosed to the
market and of which there was no record of clearance having been given for
Model Code purposes. When the company did notify the market of these
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UK Corporate Update
PDMR dealings, the notification did not include all the details required to be
made public under DTR 3.
What were the systems failings?
The FCA identified a number of procedures and systems which it considered
inadequate and which therefore gave rise to breaches of the Listing Rules
and the Listing Principles. In particular:
>
the company’s systems did not enable it to effectively monitor all share
dealing by its PDMRs or identify possible breaches of the Model Code.
In particular there was an over-reliance on its share plan administrator
to notify the company of any dealings by PDMRs;
>
the company failed to review its share dealing policy to identify or
mitigate the risks which subsequently crystallised;
>
there was an over-reliance on the knowledge and experience of the
PDMRs to comply with the Model Code and a lack of regular or
structured training or reminders (except in advance of close periods);
and
>
the process for giving clearance to deal under the Model Code was too
informal and inadequate records were kept when clearance was given.
What lessons can listed companies learn?
In light of this decision and the FCA’s clear expectation that listed companies
should learn from it, issuers should consider the following questions.
>
Is our share dealing policy up to date?
>
Do our PDMRs understand the restrictions placed both on them and
on their connected persons under the Model Code, including the full
range of types of dealings that are covered and the correct process for
obtaining clearance? If we sent them a note of these obligations did
they sign and return a copy to acknowledge their understanding?
>
Do we remind PDMRs regularly of the restrictions on dealing, as well
as sending reminders when the company is entering a close period?
Should we remind PDMRs of their obligations before certain trigger
events, such as before a dividend if they may use the dividend
proceeds to purchase more shares?
>
Does our process for PDMRs to obtain clearance to deal comply with
the Model Code and do we keep adequate written records of any
requests for clearance?
>
When was the last time we gave our PDMRs training on the Model
Code (and other obligations)? Is it time for a refresher?
>
How do we monitor dealings by PDMRs? Can our procedures be
improved so that we get timely information on any dealings by PDMRs
and any unauthorised dealings can be investigated?
>
Should we conduct a reconciliation process to ensure there have been
no PDMR dealings (including share pledges) that we are not aware of?
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UK Corporate Update
>
Do we have procedures in place to notify the market as soon as
possible, and in any event by the end of the next business day, once
PDMRs or their connected persons notify us of their dealings? Do we
have a process for ensuring such announcements comply with the
contents requirements of DTR 3?
Back ground
The Model Code imposes restrictions on dealings in a listed company’s
securities by its PDMRs, to ensure that they do not abuse, or come under
suspicion of abusing, their access to inside information. In particular, PDMRs
must obtain prior clearance before any dealing takes place and such
clearance may not be given in a prohibited period.
The Model Code is not directly enforceable against PDMRs. Instead, listed
companies are obliged to require their PDMRs to comply and must take all
proper and reasonable steps to ensure their compliance (LR 9.2.8 R).
Under the Listing Principles (LR 7.2) listed companies must also take
reasonable steps to:
enable their directors to understand their responsibilities and obligations as
directors; and
establish and maintain adequate procedures, systems and controls to comply
with their obligations.
If a PDMR is permitted to deal, he or she must notify the company and the
company must notify certain prescribed information to the market as soon as
possible and in any event by the end of the next business day (DTR 3).
Click here for the FCA’s press release.
Click here for the FCA’s final notice.
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UK Corporate Update
Contacts
For further information
please contact:
Lucy Fergusson
Partner
(+44) 20 7456 3386
[email protected]
Sarah Debney
Managing Associate
(+44) 20 7456 4945
[email protected]
Author: Sarah Debney
This publication is intended merely to highlight issues and not to be comprehensive, nor to provide legal advice. Should
you have any questions on issues reported here or on other areas of law, please contact one of your regular contacts, or
contact the editors.
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UK Corporate Update
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