Associates – Aggregation of Holdings – Designer Textiles and Rutherford Family
Published 1 September 2003
The question of association between the Rutherford family and Mr Gould did arise in connection with various acquisitions of shares in DTL itself by members of the family.
Several family members had acquired direct investments in DTL and by February 2003 these holdings amounted to some 8.8% of the total voting rights in DTL. They were in addition to the 24.69% held by GHL.
The issue was that if the Rutherford family were associates of Mr Gould or GIL at the time they had acquired these parcels of shares then the acquisitions would have been in breach of the Code.
The Code defines “associate” in rule 4 as follows:
For the purposes of this Code, a person is an associate of another person if—
(a) the persons are acting jointly or in concert; or
(b) the first person acts, or is accustomed to act, in accordance with the wishes of the other person; or
(c) the persons are related companies; or
(d) the persons have a business relationship, personal relationship, or an ownership relationship such that they should, under the circumstances, be regarded as associates; or
(e) the first person is an associate of a third person who is an associate of the other person (in both cases under any of paragraphs (a) to (d)) and the nature of the relationships between the first person, the third person, and the other person (or any of them) is such that, under the circumstances, the first person should be regarded as an associate of the other person.
The Panel considered a number of factors, including: ·
- the historical business relationship through companies in which both the Rutherfords and Mr Gould had an involvement;
- the Rutherfords had previously contracted Mr Gould to manage certain investments in ASL on their behalf; · the Rutherford investment in GHL was very informal with minimum documentation and was characterised by a high degree of trust on the part of the Rutherford family;
- the Rutherford family agreed not to take part in the governance of GHL; and
- the relevant investment monies of the Rutherfords were kept together over many years, and they adopted a common approach to the investment in GHL.
The Panel was satisfied that the strands of all three elements (business, personal and ownership relationships) of the extended definition of “associate” in rule 4(1)(d) satisfied the requirements for association between Mr Gould and the Rutherford family. The rule 4(1)(d) relationships did not need to exhibit any agreement over control or any particular form of undertaking relating to the voting rights attached to shareholdings in the company. In particular, the expression “in the circumstances” enabled all factors to be considered in assessing the relationship, taking into account the importance of the associate status.
The Panel determined that the associate status crystallized on 11 September 2002 and that consequently all acquisitions of DTL securities by Rutherford family members after that date were in breach of rule 6(1)(a). The parties at fault were required to divest those holdings that had been acquired in breach of the Code.
The family members gave enforceable undertakings that the relevant shares would be sold within six months of the Panel’s decision and subsequently confirmed that this had been done.
Even small acquisitions of voting rights in a Code company can be in breach of the Code if an associate of the person acquiring the voting rights already holds more than 20% of the voting rights in the company. The provision is designed to ensure that controlling shareholders cannot increase their level of control in a Code company through associates when they would be unable to acquire the additional voting rights themselves.