If the target company, for whatever reason, proposes to pay broker handling fees as indirect inducements to reward brokers whose clients vote against a partial takeover offer, then the Panel would similarly see the cost of such fees as not being recoverable under rule 49(2) as they do not properly fall within any of the above Categories of recoverable expenses.

All code companies face the possibility of takeover offers made under the Code. Accordingly, the additional duties, responsibilities and attendances that arise for directors of code companies on receipt of a takeover notice or offer, are an ordinary risk of holding office.

The Panel recognises that some takeover offers may be of such legal and commercial complexity that directors' attendances may significantly exceed those attendance levels that would normally be expected for a takeover situation. In these circumstances, it may be proper and reasonable for a code company to compensate its directors for the additional attendances involved and these remuneration expenses may be recoverable under rule 49(2). Whether such additional directors' remuneration is properly incurred, and therefore recoverable under rule 49(2), will need to be determined on a case by case basis in the light of the relevant facts.

Rule 49(2) provides that expenses properly incurred by the target company in relation to an offer or a takeover notice are recoverable from the bidder. Canterbury Frozen Meat does not address the issue of recovery of expenses incurred prior to the target company receiving an offer or takeover notice.

It is the Panel's view that, although generally speaking it will be easier for the target company to show that expenses incurred by it, after the target company had received a takeover notice, were incurred in relation to an offer or a takeover notice, this does not preclude the recovery of expenses incurred by the target company prior to receiving a takeover notice, provided that (i) such expenses were properly incurred in relation to an offer or a takeover notice and (ii) a takeover notice is actually sent. The requirement that a takeover notice be will be easier for the target company to show that expenses incurred by it, after the target company had received a takeover notice, were incurred in relation to an offer or a takeover notice, this does not preclude the recovery of expenses incurred by the target company prior to receiving a takeover notice, provided that (i) such expenses were properly incurred in relation to an offer or a takeover notice and (ii) a takeover notice is actually sent.

The requirement that a takeover notice be sent is because rule 49(2) allows recovery of expenses from an "offeror", being a person who makes an "offer" under the Code. No "offer" can be made under the Code without a takeover notice first being sent. Similarly, if a takeover notice has been sent, but no offer was made to shareholders, rule 49(2) allows recovery of expenses incurred in relation to the takeover notice from a prospective offeror (being a party that has sent a takeover notice).²

Regardless of whether the expenses of the target company were incurred prior to, or after, the receipt of the takeover notice by the target company, such expenditure will only be recoverable from the bidder if there is a sufficient nexus between the incurring of the expenditure and the offer or the takeover notice. Such nexus can only be determined on a case by case basis.

Target boards are free to contractually agree with potential bidders that certain pre-bid expenses, such as due diligence costs, will be recoverable from the bidder and also the circumstances in which they will be recoverable. The Panel suggests that by contractually agreeing such matters from the outset, the parties may minimise the risk of a dispute later arising over the recovery of pre-bid expenses.

The Code does not specify what information a target company is required to provide to a bidder in relation to the expenses it is seeking to recover from the bidder.

The Panel would expect the target company to provide the bidder with sufficient details of the nature of the advice provided by advisers and/or the services provided by suppliers in respect of which recovery of expenses is sought, to enable the bidder to be satisfied that the expenses are "properly incurred" for the purpose of rule 49(2).

No two takeovers are alike. For that reason, it is not possible to prescribe which of the expenses which may be incurred by a target company in responding to a takeover offer are payable pursuant to rule 49(2).