The Takeover Panel narrows the scope of the companies subject to the Code

On 24 April 2024, in Public Consultation Paper 2024/1 (“PCP 2024/1”) the Code Committee of the Takeover Panel (the “Code Committee”) proposed to narrow the scope of the companies to which the Takeover Code (the “Code”) applies.

On 6 November 2024, the Takeover Panel published Response Statement 2024/1 (“RS 2024/1”), which broadly implements the amendments proposed in PCP 2024/1 and so will narrow the scope of the companies to which the Code applies under section 3 of the Introduction of the Code (“Section 3 of the Introduction”). The amendments will take effect on 3 February 2025 (the “Implementation Date”).

Current Position

The Code currently applies to offers for companies which have their registered offices in the UK, the Channel Islands or the Isle of Man if any of their securities are admitted to trading on a UK regulated market (such as the Main Market of the London Stock Exchange or the AQSE Main Market), or a UK multilateral trading facility such (as AIM or the AQSE Growth Market), or on any stock exchange in the Channel Islands or the Isle of Man (“UK Quoted”).

The Code also currently applies by virtue of section 3(a)(ii) of the Introduction of the Code (the “Current Section 3(a)(ii) of the Introduction”) to all offers (which are not offers for UK Quoted companies) for public and private companies (and, where appropriate, statutory and chartered companies and UK Societas) which have their registered offices in the UK, the Channel Islands or the Isle of Man and are considered to have their place of central management and control in the UK, the Channel Islands or the Isle of Man (i.e., pass the Panel’s “Residency Test”) and in relation to private companies only when:

• they have been UK Quoted at any time during the ten years prior to the relevant date; or
• dealings and/or prices at which persons were willing to deal in any of the company’s securities have been published on a regular basis for a continuous period of at least six months in the 10 years prior to the relevant date, whether via a newspaper, electronic price quotation system or otherwise; or
• any of their securities have been subject to a marketing arrangement as described in section 693(3)(b) of the Company’s Act 2006 at any time during the ten years prior to the relevant date; or
• have filed a prospectus for the offer, admission to trading or issue of securities with the registrar of companies or any other relevant authority in the UK, the Channel Islands or the Isle of Man (but in the case of any other such authority only if the filing is on a public record) at any time during the ten years prior to the relevant date.

In each case, the relevant date is the date on which an announcement is made of a proposed or possible offer for the company or the date on which some other event occurs in relation to the company which has significance under the Code.

What’s definitely in? – the position from the Implementation Date

From the Implementation Date, the scope of the companies to which the Code applies will narrow.  From that date, the Code will apply to a company registered in the UK, the Channel Islands or the Isle of Man if:

• any of the company’s securities are UK Quoted; or
• the company’s securities have been UK Quoted at any time during the two years prior to the date of announcement of an offer or possible offer for the company or other event with Code significance (the “Relevant Date”), such period of two years being a “Run-Off Period” (under the “New Section 3(a)(ii) of the Introduction”).

The Residency Test will be abolished and the Code will apply to companies based on their registered office and trading status, regardless of the residency of their directors. However the Code will also apply to transition companies (see “What may be in? Transition Period Arrangements, Transition Companies and the Residency Test” below)

Other points to note

The Code Committee considers that:

• if a company ceases to be UK Quoted then it should remain subject to the Code for the duration of the Run-Off Period and the Code will apply to that company regardless of (a) whether that company’s securities remain or are admitted to trading on an overseas exchange and (b) the residency of its directors; and
• the Run-Off Period should be the same for all companies which cease to be UK Quoted and that the Panel should have no discretion to shorten it for any particular company.

What’s out? UK registered companies to which the Code will no longer apply (subject to the transitional arrangements)

Subject to the transitional arrangements summarised below, and provided that the company had not been UK Quoted at any time during the two years prior to the Relevant Date (in which case it would be subject to the Code under the New Section 3(a)(ii) of the Introduction), the UK registered companies to which the Code will no longer apply include:

1. a public or private company which ceased to be UK quoted more than two years prior to the Relevant Date;
2. a public or private company whose securities are, or were previously, admitted to trading solely on an overseas market;
3. a public or private company whose securities are, or were previously, traded using a matched bargain facility, such as Asset Match or JP Jenkins;
4. any other public company which is not UK Quoted; and
5. a private company which filed a prospectus at any time during the 10 years prior to the Relevant Date.

RS2024/1 adds:

“In addition, following the implementation of the proposals, it will be clear that the Code does not apply to a UK registered company which is not UK quoted (and which has not recently been UK quoted) solely by virtue of its securities or other interests being traded using another platform, such as:

1. a Private Intermittent Securities and Capital Exchange System (or PISCES);
2. a private market, such as TISE Private Markets; or
3. a secondary market of a crowdfunding platform, such as the Seedrs Secondary Market.”

What may be in? Transition Period Arrangements, Transition Companies and the Residency Test

During the period starting on 3 February 2025 and ending at 11.59 pm on 2 February 2027 (the “Transition Period”)  the Code will continue to apply to “a company to which the current section 3(a)(ii) of the Introduction applies (or potentially applies) immediately prior to the Implementation Date (i.e. a public company which is not UK quoted or aprivate company to which one of paragraphs (A) to (D) of the Current Section 3(a)(ii) of the Introduction applies)”, a “Transition Company”) (See “Current Position” above).

The reference to “or potentially applies” is important. It is a consequence of the fact that the Residency Test will continue to apply to a Transition Company on the “Relevant Date”. The response statement includes the following, with our emphasis:

“For example, while a transition company which is not UK resident will not be a Code company for so long as it does not satisfy the residency test, it will nonetheless be a company to which the Code potentially applies, and to which the Code will apply if the company satisfies the residency test on the “relevant date.”

The Transition Period will permit Transition Companies to adopt any desired alternative arrangements before the end of the Transition Period on 2 February 2027, such as amendments to their constitutional documents or governance arrangements in order to mirror provisions in the Code that would otherwise no longer apply at the conclusion of the Transition Period.

For Transition Companies which are private companies and within or potentially within the Code as a result of the operation of the Current Section 3 (a)(ii) of the Introduction, the Code will apply to such companies:

• only if they satisfy the Residency Test on the Relevant Date; and
• only until the expiry of any 10 year run-off period under paragraphs (A) to (D) of Current Section 3(a)(ii) of the Introduction if that occurs during the Transition Period.

So the Code will apply to such companies until the earlier of the end of (a) the Transition Period and (b) the 10 year run-off period.

As a result, with effect from 3 February 2027, the end of the Transition Period,  the only companies to which the Code will apply will be:

• companies which at that time are UK Quoted companies; or
• companies which ceased to be UK Quoted within the preceding two years.

Additional points to note:

Responding to comments received during the consultation process, the Code Committee stated that:

1. “As regards informing transition companies of their status as such, the two principal platforms which provide matched bargain facilities, i.e. Asset Match and JP Jenkins, have agreed to write to the UK registered companies whose securities are traded via their platforms to draw to their attention the implications of the amendments to the Code set out in this Response Statement.”;
2. “As regards the options available to transition companies, it will be for each individual transition company, and its advisers, to consider what, if any, alternative arrangements to put in place once the Code no longer applies to the company.”;
3. it would not expect the Executive to grant a waiver from the application of some or all of the provisions of the Code in the absence of transaction or event to which the Code would otherwise apply;
4. it considered it unlikely that the Executive would grant a waiver of the Code simply as a result of it ceasing to be UK Quoted but its securities remained, or became admitted, to trading on an overseas exchange;
5. the Code does not apply to an open-ended investment company or to a company with a sole beneficial owner;
6. the Code will only apply to a company which was UK Quoted and becomes 100% owned by an offeror (so with a sole beneficial owner) if that company both (a)  issues news securities (so that it ceases to have a sole beneficial owner) and (b) becomes UK Quoted again.

Re-registration and cancellation of admission to trading

Where a company wishes to cease being UK Quoted, the revised version of the Code will advise early consultation with the Panel “so that guidance can be given on the appropriate level of disclosure to be made to shareholders about the fact that, as a result of the cancellation of the admission of its securities to trading, the company will fall within the Code for two years, following which the Code will cease to apply.”

The Code Committee understands that the Executive intends to (i) update its Note to Advisers in relation to re-registering a public company as a private company and (ii) to publish a similar note in relation to the cancellation of admission to trading.

Overseas registered companies which are UK quoted

In response to a comment received, the Code Committee confirmed the Panel’s current position that the Code should be applied “only to offeree companies which are registered in jurisdictions in which it is acknowledged to be the regulator of takeover bids, i.e. the UK, Jersey, Guernsey and the Isle of Man” primarily on the basis that “asserting jurisdiction over overseas registered companies would be likely to result in compatibility of laws issues, given that the companies would be subject to the laws and regulations of the jurisdictions in which they are registered.”

Current Takeover Panel Resources – Companies to which the Takeover Code applies

Please also see the following link to the Takeover Panel’s website Companies to which the Takeover Code applies – The Takeover Panel.

The page describes the amendments in more detail (including the shortened run-off and transition periods) and also contains click throughs to diagrams summarising whether:

1. a company will be a Transition Company on the Implementation Date; and
2. a Transition Company will be a Code company in respect of a specific transaction.

The page also includes a click through to a table summarising the application of Code:

1. before the Implementation Date (i.e. before 3 February 2025);
2. during the Transition Period (i.e. from 3 February 2025 to 2 February 2027); and
3. following the end of the Transition Period (i.e. from 3 February 2027).

Recent Code Transactions

Memery Crystal regularly advises on Code transactions. Recent transactions include:

• November 2024: Memery Crystal advised Lease Operators Ltd, a Trinidad and Tobago based oil and gas operating company, on its successful £26.4m cash offer for Trinity Exploration & Production PLC, an AIM listed oil producer, by way of a scheme of arrangement.
• July 2024: Memery Crystal advised the Independent Director of Global Ports Holding PLC (“GPH”) on Global Ports Holding B.V.’s unconditional recommended cash offer for GPH which valued the entire issued and to be issued share capital of GPH at approximately US$310 million.
• May 2024: Memery Crystal advised Shanta Gold Limited, an East Africa-focused gold producer, on its acquisition by Saturn Resources Limited, a subsidiary of ETC Holdings (Mauritius) Limited, through a court-approved scheme of arrangement under Guernsey Law. The Scheme valued Shanta’s issued share capital at £156.1 million.
• May 2024: Memery Crystal advised SmartSpace Software PLC, a SaaS-based technology business, on the £28.4 million recommended cash offer by Welcome UK Bidco Limited, a wholly-owned subsidiary of Sign In Solutions Inc.

Authors

Should you have any questions, please contact the authors of this article: Corporate Partner, Edward Baker, or Corporate Senior Associate, David McClellan.