Code Word
IN THIS ISSUE
  • Explanation of the anti-avoidance provisions of the Takeovers Code
    • Part 1 Control and Associates under Rule 6(1)
    • Part 2 The Deeming Provisions in Rule 6(2)
    		•  
    ANTI-AVOIDANCE
    PROVISIONS OF THE
    TAKEOVERS CODE

    OVERVIEW

    THE TAKEOVERS CODE IS CONCERNED WITH REGULATING THE CHANGE OF CONTROL OF “CODE COMPANIES”, THAT IS, LISTED COMPANIES AND CERTAIN LARGER NON-LISTED COMPANIES. THE MECHANISMS OF THE CODE ARE CENTERED AROUND THE “FUNDAMENTAL RULE” CONTAINED IN RULE 6(1) AND A NUMBER OF ANTI-AVOIDANCE MEASURES CONTAINED IN RULES 6(1) AND 6(2)

    THAT ARE DESIGNED TO ENSURE THE EFFECTIVENESS OF THE CODE.
    THIS ISSUE OF CODE WORD EXPLAINS THE FUNDAMENTAL RULE AND SETS OUT THE PRINCIPAL ANTI-AVOIDANCE MEASURES ASSOCIATED WITH RULES 6(1) AND 6(2). THESE MEASURES INCLUDE THE CONTROL AND ASSOCIATES ELEMENTS OF RULE 6(1), AND THE THREE DEEMING PROVISIONS IN RULE 6(2).

    THIS EXPLANATION PRESENTS A “LAYERED” EXAMINATION OF ANTI-AVOIDANCE. THE DISCUSSION COMMENCES WITH THE MOST ELEMENTAL ANTI-AVOIDANCE FEATURES OF THE FUNDAMENTAL RULE AS APPLIED TO SIMPLE TRANSACTIONS AND PROCEEDS TO THE MORE ARCANE FEATURES AS THEY RELATE TO INCREASINGLY COMPLEX TRANSACTIONS.

    Part 1 - Control and
    Associates
    Under Rule 6(1)

    THE FUNDAMENTAL RULE

    Except as permitted by rule 7, fundamental rule 6(1) generally prohibits a person becoming the holder or controller of an increased percentage of the voting rights in a Code company where that interest would be greater than 20%. Taken together, rules 6 and 7 allow a person to become the holder or controller of an increased percentage only by specific methods. The permissible methods vary according to the person’s position before and after the increase.

    Fundamental rule 6(1) was formulated with a view to possible avoidance strategies as found in local and overseas practice. Of particular significance in this regard are the control limb of rule 6(1), the aggregation of associates’ holding under rule 6(1)(a), as well as the definitions of control and associates.

    		  
       Range Method of Increase

       0% to 20%

    By any means, provided that after the increase the increasing party and its associates hold or control not more than 20% of the voting rights.

       20% to 50%

    Only in the manner provided by rule 7(a) -7(d), i.e. through a Code offer or with shareholder approval.

       50% to 90%

    In addition to those methods available in the 20% to 50% range, creeping increases at a maximum rate of 5% (of the company’s total voting rights) per annum where more than 50% of the voting rights are held or controlled by the acquiring shareholder (holdings of associates do not count in reaching the 50% level).

       90% to 100%

    By any means, subject to compulsory acquisition rules 50-63.
     
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