The UK Takeover Panel (the Panel) has published a consultation paper (PCP 2024/1), proposing changes to when the Takeover Code (the Code) applies. The changes will narrow the scope of the Code so that it will apply to fewer companies and will make the application of the Code clearer.
In summary, the Code will only apply to companies with their registered office in the UK, Channel Islands or the Isle of Man who either have their securities admitted to trading on a UK regulated market or multi-lateral trading facility or a stock exchange in the Channel Islands or the Isle of Man (UK-listed) or the company was UK-listed at any point in the three years before an offer for the company.
The deadline for comments on PCP 2024/1 is 31 July 2024. The Code Committee will publish a response statement in autumn 2024 and expects the changes to come into force one month after publication of the response document.
When does the Code currently apply?
The Code currently applies to offers for companies with their registered offices in the UK, the Channel Islands and the Isle of Man in the following circumstances:
(a) if any of their securities are admitted to trading on a UK regulated market or multi-lateral trading facility (MTF), or any stock exchange in the Channel Islands or the Isle of Man. This means that, for example, UK companies with shares traded on the Main Market of the London Stock Exchange or on AIM will be subject to the Code
(b) if the company is a public company which is considered by the Panel to have its place of central management and control in the UK, Channel Islands or the Isle of Man (the residency test)
(c) if the company is a private company which is considered by the Panel to have its place of central management and control in the UK, Channel Islands or the Isle of Man and one of four conditions is met, for example, it has its securities admitted to trading on a UK regulated market or MTF or on any stock exchange in the Channel Islands or the Isle of Man in the last ten years or it has had dealings and or prices for dealing published on a regular basis for a continuous period of at least six months in the last ten years.
When will the Code apply if the proposals come into effect?
As set out above, subject to the transitional provisions set out below, the Code will only apply to companies with their registered office in the UK, Channel Islands or the Isle of Man who either have their securities admitted to trading on a UK regulated market or multi-lateral trading facility or a stock exchange in the Channel Islands or the Isle of Man (UK-listed) or the company was UK listed at any point in the three years before an offer for the company.
This means that, subject to the transitional provisions:
- the residency test will be abolished. In practice, the Panel has interpreted the residency test to be satisfied if a majority of the directors of the company are resident in the UK, Channel Islands or Isle of Man which has meant that some companies have deliberately avoided the application of the Code by making sure that the majority of their directors are resident outside those jurisdictions
- the Code will no longer apply to UK registered and resident companies whose shares are admitted to trading solely on an overseas market and will not apply to any public company unless it is UK-listed
- public or private companies whose shares are currently traded (or have been traded) on matched bargain facilities such as JP Jenkin and Asset Match will not be subject to the Code
- companies whose shares will be traded on the new PISCES platforms (an intermittent trading venue) will not be subject to the Code
- as is the case now, the Code will not apply to a private company traded on a private market (such as TISE Private Markets) if no information in relation to share dealings or share prices is published
- as is the case now, the Code will not apply to a private company whose "shares" are traded using the secondary market of a crowdfunding platform such as Seedrs Secondary Market (as the instruments traded are not shares or securities comprised in the company's equity share capital nor transferable securities carrying voting rights).
Transitional provisions
The Panel is proposing to introduce transitional arrangements which will apply from the implementation date of the changes so that a public or private company to which the Code currently applies and which is not UK-listed will have a period of time, being a maximum of three years, to adjust to the new regime. This will allow such companies to put in place alternative arrangements if they wish, such as making appropriate amendments to articles of association.
Comment
The PCP states that the proposals are intended to refocus the application of the Code on those companies which might be expected to be subject to takeover regulation and to provide clarity and certainty as to the companies which fall within the Panel's jurisdiction. We agree that clarity is needed as currently it is not always clear when the Code applies, particularly if the residency test is relevant. As set out in the PCP, this has sometimes meant that companies are not aware that they are subject to the Code and when they do become aware, have then sought to find a way in which they can cease to be subject to the Code. We also agree that the Code should not apply to companies whose shares are traded on the new PISCES platforms as it would be a considerable disincentive to adoption of these new platforms if the Code were to apply.
