Partial Offers - Specified Holder Certificates under Rules 14a-14e and Family Trusts

Published 1 October 2014

Rules 14A to 14E of the Code deal with the scaling of excess acceptances of a partial takeover offer where voting securities in the target company are held by a person on behalf of another person or persons. The rules were introduced into the Code on 1 June 2013 and effectively enable the offeror to “look through” the holder of the securities to the beneficial owners for the purposes of scaling acceptances. This means that the scaling occurs at the ‘owner’ level, not at the level of the holder.

A key component of the rules is that a specified holder must provide a certificate that complies with rule 14D to the offeror and the person who administers the target company’s share register. A specified holder is defined by rule 14A as:

…an offeree under a partial offer who holds target securities [i.e., voting securities in the target company] on behalf of more than 1 specified person, regardless of – (a) whether the holdings are direct or indirect: (b) whether the holder is a custodian or not: (c) the particular arrangements between the specified holder and specified persons.

A specified person is a person on whose behalf a specified holder holds target securities.

At first glance, it can appear that these definitions cover even ordinary family trust arrangements. However, they are not captured by the definitions. Trustees of a discretionary family trust who hold target securities in their capacity as trustees do not normally hold particular target securities for particular beneficiaries. A discretionary trust is usually established for the benefit of a class of persons (e.g., the family of the settlor) and the trustees, subject to the terms of the trust deed, retain control over the assets of the trust, such as target securities.

The trustees of a common family trust in respect of which the beneficiaries are discretionary are not required to provide a rule 14D certificate if they accept the offer.

A careful reading of these new requirements shows that the rules are intended to cover nominee and custodian arrangements, such as where an investment manager holds multiple beneficial owners’ share portfolios, and not ordinary discretionary family trusts. For example, rule 14D requires the specified holder to complete a certificate that states the number of specified persons that have accepted the offer along with the number and class of target securities held by the specified holder on behalf of each such specified person.

Guidance by offeror for family trusts

The trustees of a common discretionary family trust are not required to provide a rule 14D certificate when they accept a partial takeover offer. The Panel suggests that guidance along the following lines should be stated in offer documents for partial offers to ensure that offerees are clear about their obligations when they accept:

The trustees of a common family trust in respect of which the beneficiaries are discretionary are not required to provide a rule 14D certificate if they accept the offer. However, if the trust arrangements are such that separate beneficiaries of the trust can direct the trustees as to whether to accept the offer for that beneficiary’s portion of the shares, then a rule 14D certificate must be provided if the offer is accepted.