Brexit: impact on UK takeovers regime

​An overview of the final changes proposed to the UK takeovers regime when the UK exits the EU (RS18/2).

The legislation underpinning the UK Takeover Code (Code) and certain provisions of the Code itself are being updated to address the UK leaving the EU. 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 will end.

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

The UK Government had also 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.

These changes are necessary as the EU Takeover Directive (Directive) will cease to apply in the UK when the UK exits the EU (Exit) and are being made to ensure that the UK takeovers regime operates effectively after Exit.

Timing

The UK and the EU have agreed the provisional terms of a draft Withdrawal Agreement which sets out the basis on which the UK will leave the EU and includes a transition period during which EU law would continue to apply in the UK.

If the Withdrawal Agreement is finally agreed and approved by both the UK and EU Parliaments and there is a transition period (as currently proposed in that agreement), it is expected that the changes will come into effect at the end of the transition period on 31 December 2020 (unless extended).

If, however, there is a "no deal" Exit, the changes will take effect at 11.00 pm on 29 March 2019.

Whilst the Code Committee plans to amend the Code to reflect the changes proposed in RS 2018/2 and would normally do so by publishing an amending instrument simultaneously with the publication of a response, on this occasion the relevant rule amending instrument will not be published until later when there is a greater certainty as to the arrangements for the UK’s Exit.

RS 2018/2 makes it clear that parties to an offer should consult the Panel if they are in any doubt as to the consequences of the proposed amendments.

What are the changes in the Regulations?

These changes will remove all references to the Directive, EEA companies and EEA regulatory authorities.

Part 28 of the 2006 Act also currently requires the Panel to make rules which give effect to the Directive. All references to articles of the Directive in Part 28 will be 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 will also set out the General Principles for the Code and replace the ones currently in the Directive.

What are the changes to the Code?

Shared jurisdiction

The Code currently allows for shared jurisdiction of certain takeover offers, so that the Panel regulates certain aspects of a takeover offer and a regulator in another EEA member state regulates other aspects of the takeover offer. The regime currently applies 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 Panel is proposing to remove the shared jurisdiction regime on Exit. The Code will then no longer apply 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 will, however, then 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.

What if a shared jurisdiction offer straddles the implementation date?

If the Code will cease to apply to the offer after the implementation date (see Timing), then the Panel’s regulation of the offer will cease on the implementation date, and the takeover documentation needs to make this clear.

If the Code will apply in full to an offer after the implementation date, the Panel will have full regulatory control over the offer (and the company) from that date other than where to do so would have a retrospective effect. This must be made clear in the takeover documentation. The disclosure of interests and dealings provisions in Rule 8 of the Code will also apply from the implementation date.

Introduction to the Code

Various minor amendments are proposed to be made to the Introduction to the Code including to:

  • amend certain definitions, for example "regulated market" will become "UK regulated market" and "multilateral trading facility" will 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 automatically be converted into a new UK corporate form called a UK Societas when the UK leaves the EU
  • remove all references to cross-border mergers and withdraw Practice Statement No.18 as the Code will no longer apply to EU cross-border mergers as UK companies will no longer be able to do them, and
  • amend the basis on which the Panel must co-operate with other supervisory authorities.
General Principles

The General Principles will be amended to reflect the principles that will be in the Schedule instead of those currently 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 will be made:

  • Phase 2 European Commission proceedings: once the UK has left the EU, it will cease to be subject to the EU competition regime and the Competition and Markets Authority (CMA) will be 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 had decided, therefore, to keep the references to Phase 2 European Commission proceedings in Rules 12 and 13 but will delete references to the EU Commission referring matters back to the CMA as that will not be possible.

  • Breakthrough rule: companies can currently opt-in to provisions in 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 will retain this rule but will amend 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 will be 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 will remain but the Code rules will refer to equivalent provisions in the Schedule instead of to the Directive.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.