Brexit: impact on UK takeovers regime

The legislation underpinning the UK Takeover Code (Code) and certain provisions of the Code itself have been updated. Most of the changes are technical in nature and do not materially alter the Code. A substantive change is that the shared jurisdiction of certain takeovers with other regulators has ended. These changes took effect at the end of the transition period.

Code and legislation changes

The Takeover Panel (Panel) published its response statement (RS 2018/2) in March 2019 with the final proposed changes to be made to the Code when the UK leaves the EU, following its consultation paper (PCP 2018/2).

On 4 April 2019, the Panel published Instrument 2019/3 with the final changes.

The UK Government has published The Takeovers (Amendment) (EU Exit) Regulations 2019 (Regulations) (and an explanatory memorandum) which make changes to Part 28 of the Companies Act 2006 (2006 Act) which deals with takeovers.

On 12 November 2020, the Takeover Panel published Panel Statement 2020/11 with various minor amendments to the Takeover Code that took effect at the end of the transition period.

What are the changes in the Regulations?

These changes remove all references to the Directive, EEA companies and EEA regulatory authorities in Part 28 of the 2006 Act.

All references to articles of the Directive in Part 28 have been replaced with references to provisions in a new Schedule 1C (Schedule) to the 2006 Act which has equivalent provisions to those set out in the Directive.

The Schedule also sets out the General Principles for the Code, instead of referring to the general principles in the Directive.

What are the changes to the Code?

Shared jurisdiction

Pre-Brexit, the Code allowed for shared jurisdiction of certain takeover offers, so that the Panel regulated certain aspects of a takeover offer and a regulator in another EEA member state regulated other aspects of the takeover offer. This regime applied to an offer for a company which has its registered office in one EEA member state but its securities are admitted to trading on a regulated market in another member state (and not also on a regulated market in the member state where it has its registered office).

The changes remove the shared jurisdiction regime. The scope of the Code has also changed so that it no longer applies to an offer for:

• a company registered in an EEA member state (ie not in the UK) and whose securities are admitted to trading on a regulated market in the UK, or
• a company with its registered office in the UK and whose securities are admitted to trading on a regulated market in a remaining EEA member state (and not on a UK regulated market) if it does not satisfy the Code’s residency test.

The Code does, however, apply in full to an offer for a company with its registered office in the UK and whose securities are admitted to trading on a regulated market in a remaining EEA member state (and not on a UK regulated market) if it satisfies the residency test. A company will satisfy the residency test if it has its place of central management and control in the UK. These offers will also potentially be subject to the "dual jurisdiction" of the Panel and the relevant EEA supervisory authority in the member state where the securities are admitted to trading.

Introduction to the Code

Various minor amendments have been made to the Introduction to the Code including to:

• amend certain definitions, for example "regulated market" has become "UK regulated market" and "multilateral trading facility" has become "UK multilateral trading facility". (The new definitions are in the Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018.)
• amend references to "Societas Europea" to "UK Societas" as any UK registered SE will have been automatically converted into a new UK corporate form called a UK Societas at the end of the transition period
• remove all references to cross-border mergers and withdraw Practice Statement No.18 as the Code no longer applies to EU cross-border mergers as UK companies can no longer do them, and
• amend the basis on which the Panel must co-operate with other supervisory authorities.

General Principles

The General Principles have been amended to reflect the principles that are in the Schedule instead of those in the Directive. There are a few minor drafting and formatting differences but no change in substance.

RS 2018/2 also makes it clear that the General Principles continue to apply to all transactions to which the Code applies (and not only to transactions which fall within the narrow “takeover bid” definition in the Schedule).

Rules and Appendices

The following amendments have been made:

• Phase 2 European Commission proceedings: as the UK has left the EU, it has ceased to be subject to the EU competition regime and the Competition and Markets Authority (CMA) is the only authority with jurisdiction to review mergers for the effects in the UK. But, mergers that also meet the EU thresholds will still be reviewed by both the CMA and the EU Commission. The Panel, therefore, kept the references to Phase 2 European Commission proceedings in Rules 12 and 13 but have deleted references to the EU Commission referring matters back to the CMA as that is no longer possible.

• Breakthrough rule: companies can now opt-in to provisions in the Schedule (instead of the Directive) that will allow them, in a takeover situation, to override certain defensive devices that may be put in place by companies. The Code requires the offer document to state the compensation offered for the removal of those rights together with particulars of the way in which that compensation is to be paid and the method employed in determining it. The Panel has retained this rule but amended it to refer to the rights in the Schedule instead of the Directive.

• Making documents available: the requirement (in Rule 30.4) to make documents, announcements and information available to shareholders and employees in the EEA has been amended to refer only to shareholders and employees in the UK, the Channel Islands and the Isle of Man.

• Bid documentation offence: s953 of the 2006 Act provides that it is a criminal offence for failure to comply with the contents requirements of the offer document rules (under the Code). The criminal offence also covers non-compliance with the Code's response document rules. The offences remain but the Code rules refer to equivalent provisions in the Schedule instead of to the Directive.