On 24 April 2024, the Takeover Panel published a consultation paper, PCP 2024/1, which proposes to narrow the scope of the companies to which the Takeover Code (Code) applies. The changes would have the effect of removing UK companies that do not have a UK listing from the Code’s jurisdiction, including companies with an overseas listing and companies whose securities are traded on alternative platforms such as the Government’s planned Private Intermittent Securities and Capital Exchange System (PISCES). However, by abolishing the UK residency test, the revised Code broadens the Panel’s jurisdiction by continuing to apply the Code for three years to UK companies that move their listing overseas (e.g. to the US) even if their central management and control is no longer in the UK.
1. Which companies will the Code apply to?
The Panel is proposing that the revised Code would apply to companies with registered offices in UK, Channel Islands or Isle of Man (UK-registered companies) if:
- any of their securities are admitted to trading on a UK regulated market, a UK multilateral trading facility (MTF) such as AIM or a stock exchange in the Channel Islands or the Isle of Man (UK-listed companies), or
- any of their securities were admitted to trading on a UK regulated market, a UK MTF or a stock exchange in the Channel Islands or Isle of Man during the three years before the relevant date (i.e. the date of the announcement of an offer or possible offer or some other significant Code event)
2. Which companies will the Code cease to apply to?
Unless they were UK-listed during the three years before the relevant date, the Code will cease to apply to the following UK-registered companies, subject to transitional arrangements:
- public or private companies which were UK-listed more than three years before the relevant date
- public or private companies whose securities were only traded on an overseas market
- public or private companies whose securities were previously traded using a matched bargain facility
- any other unlisted public companies
- private companies that filed a prospectus in the last ten years
The Panel is also codifying its existing practice of not applying the Code to companies with a sole beneficial owner (e.g. wholly-owned subsidiaries).
3. Panel scales back Code application to take account of PISCES and other trading facilities
The Government is currently consulting on a new platform, PISCES, which will allow securities in private companies to be traded. The Panel recognises that growth phase companies might be deterred from having their shares traded on PISCES if this meant they fell within the Code’s jurisdiction.
Under the proposed rules it will be clear that the Code will not apply to these companies, given that PISCES will not be a UK regulated market or MTF. For the same reason the revised Code will also not apply to companies whose securities are trading using other platforms such as TISE Private Markets and secondary markets of crowdfunding platforms.
For further details on PISCES, see:
- White & Case supports UK Finance and AFME on response to HM Treasury’s PICSES consultation
- HM Treasury publishes consultation on private intermittent securities exchange platform
4. What transitional arrangements will apply?
If the proposals are adopted, transitional arrangements will apply for a period of three years in relation to companies to which the Code applies immediately before the implementation date but which will fall outside the scope of the new regime.
The intention here is to provide “transition companies” with an opportunity to put in place alternative arrangements, such as amending their articles to include minority shareholder protections and/or giving shareholders time to exit their investment.
5. What if a company delists?
If a UK-listed company (which is also UK-registered) delists following the new Code coming into effect, the Code would apply for three years from delisting regardless of whether the company satisfies the residency test. In this respect the revised Code would be wider than the current regime, which only applies where the residency test is satisfied (albeit for the longer period of ten years). For example a company that moved its listing to the US would remain subject to the Code for three years from delisting even if its central management and control also moved to the US.
Companies that delist will have to make an appropriate disclosure to their shareholders about the fact that, as a result of the delisting, the company will enter a three-year run-off period, following which the Code will cease to apply. This will be the case even if the company’s securities will instead be admitted to trading on an overseas market.
The consultation closes on 31 July 2024 and the Panel anticipates publishing a response statement in Autumn 2024, with the changes coming into effect approximately one month after publication of the response statement.
Darius Lewington (Senior Professional Support Lawyer, White & Case, London) co-authored this publication.
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