Takeover Panel consults on narrowing the scope of the Takeover Code

On 24 April 2024, the Takeover Panel published a Public Consultation Paper (PCP 2024/1) (PCP) proposing a new jurisdictional framework which would narrow the scope of companies covered by the Takeover Code (the Code). The aim of the changes is to refocus the application of the Code on companies registered and listed (or recently listed) in the United Kingdom (UK). The changes will also address criticism that the Code’s current jurisdictional rules are too complex and onerous, leaving it difficult for market participants and companies to ascertain whether or not the Code is applicable. The proposed amendments have been put forward by the Takeover Panel following an informal pre-consultation with key stakeholders and should come as a welcome relief to companies facing ever-increasing regulatory burdens.

Which companies will the revised Code apply to?

If implemented as proposed in the PCP, the Code will apply to any company that has its registered office in the UK, the Channel Islands or the Isle of Man, where either of the following requirements applies:

• any of the company’s securities are admitted to trading on a UK regulated market, a UK multilateral trading facility (such as AIM or AQUIS), or a stock exchange in the Channel Islands or the Isle of Man (such as TISE) (i.e. the company is UK-listed); or
• the company was UK-listed at any time during the three years prior to the relevant date (regardless of whether it satisfies the residency test).

For these purposes, 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. A UK-listed company to which the Code currently applies will continue to be within the scope of the Code for so long as it remains UK-listed. Any UK-listed companies which are currently within the scope of the Code and cease to be UK-listed on or after the implementation date of the new framework would continue to be subject to the Code for a run-off period of three years from the date of delisting. This is a big shift from the current 10-year run off period, which has long been considered disproportionate by the market.

Which companies will be out of scope following implementation?

Post-implementation, and subject to transitional arrangements (detailed further below), the following UK-registered companies will fall outside the scope of the Code:

• public and private companies which were UK-listed more than three years prior to the relevant date;
• public or private companies whose securities are, or were previously, traded solely on an overseas market;
• public or private companies whose securities are, or were previously, traded using a matched bargain facility;
• any other public companies that are not UK-listed; and
• private companies which filed a prospectus at any time during the 10 years prior to the relevant date,

unless they have been UK-listed at any time during the three years prior to the relevant date.

What transitional arrangements will be in place?

Transitional arrangements will apply for a period of three years from implementation of the new framework to ensure that a public company or private company to which the Code currently applies and which is not UK-listed (a transition company) will have a period of time to adjust to the new regime. During the transition period, the residency test, will continue to apply to transition companies. The residency test brings companies which are not UK-listed but have their place of central management and control in the UK, the Channel Islands or the Isle of Man within the scope of the Code.

The transition period enables companies and shareholders time to put in place protective provisions equivalent to elements of the Code, for example, a company may include a provision in its articles of association requiring a shareholder that obtains control of a company to make a mandatory offer similar to that required under Rule 9 of the Code. Alternatively, this time allows shareholders to exit their investment should they not wish to continue to hold shares in a company without the protection afforded by the Code.

At the end of the three-year transition period, the Code will cease to apply to any transition companies and the residency test will be abolished. The transitional arrangements in the PCP include two separate appendices to assist in identifying whether a company is a transition company generally and in relation to a specific transaction. It will be interesting to see the responses to the PCP relating to these provisions and whether they are further simplified in the final Code amendments.

What is coming up in the rest of 2024?

The PCP invites interested parties to submit their comments on the proposals by 31 July 2024. The Takeover Panel then intends to publish a Response Statement setting out the final amendments to the Code in the Autumn, with the implementation date falling approximately one month after.