The scope of the Takeovers Code (Trustees of Family Trusts) Exemption Notice 2012 has been clarified

Published 1 April 2015

The Takeovers Code (Trustees of Family Trusts) Exemption Notice 2012 has been amended. The Exemption exempts any person who becomes a trustee of a family trust from rule 6(1) of the Code in relation to any increase in that person’s voting control as a result of being appointed as a trustee of that trust, subject to conditions. The Exemption is now subject to a new condition in clause 5(e), which states: “the person appointed as a new trustee of the family trust did not hold or control voting rights in the Code company immediately before their appointment as a trustee.”

The Exemption can be found here.

The amendment does not alter the scope of the Exemption, but rather clarifies that a trustee that holds or controls shares in multiple capacities (e.g., as a trustee of more than one trust, or in his/her own right) must still comply with the Code. This was always the intention of the Panel in drafting the Exemption. However, recently the Panel was made aware that the scope of the Exemption was potentially ambiguous. The amendment was intended to clarify this ambiguity.

The following diagrams and explanations demonstrate the situations in which the Exemption can, and cannot, be relied on:

(a)When more than 20% of Code company voting rights are held or controlled by the trustees of a family trust, the Exemption allows for the appointment of a new trustee to the family trust without the need for that new trustee to first obtain shareholder approval or an individual exemption. The Exemption will exempt the increase in the holding or control of Code company voting rights by the proposed new trustee from compliance with the Code, provided the conditions of the Exemption are met. Clause 5(e) of the Exemption requires that the proposed new trustee does not hold or control Code company voting rights immediately before their appointment.

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(b) If a proposed new trustee holds or controls Code company voting rights, and seeks to be appointed as a trustee in a family trust in which the trustees hold or control voting rights in the same Code company, the conditions to the exemption will not be met. In these circumstances the exemption will not apply and any increase in voting rights in excess of 20% by the proposed trustee will either require prior shareholder approval or an individual exemption

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Finally, it should be clear that a proposed new trustee who holds or controls no voting rights, or less than 20% of the voting rights in a Code company, can be appointed to become a trustee of a family trust, if after the appointment the new trustee does not hold or control, in total, more than 20% of the voting rights in the Code company. In these circumstances the fundamental rule of the Code will not be triggered, and the appointment as trustee does not require prior shareholder approval or an exemption.

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It is important that professional trustees understand the scope of the Code and the Exemption. How these individuals and firms structure their business arrangements could determine whether the conditions in the Exemption are met.