CODEWORD

The Panel has recently published a new Guidance Note on Compulsory Acquisition, as well as updated its guidance on:

• Defensive Tactics; and
• Schemes of Arrangement.

Compulsory Acquisition

The Panel has recently received a number of queries relating to the compulsory acquisition process. Accordingly, the Panel has published a new Guidance Note on Compulsory Acquisition. This guidance note will help explain the compulsory acquisition process during a Code regulated takeover offer. In particular, the Guidance Note sets out:

• information regarding the notices that must be sent by the dominant owner to various parties after a person becomes a dominant owner;
• how the consideration payable on compulsory acquisition is determined; and
• shareholders’ ability to challenge the consideration payable on compulsory acquisition.

Schemes of Arrangement

The Panel has approved changes to the Guidance Note on Schemes of Arrangement for schemes of arrangement that involve only immaterial changes in the holding or control of voting rights in a Code company. For example, this may be the case with pro-rata returns of capital where there are very minor changes as a result of rounding or corporate restructures, where a new holding company is inserted at the top of the corporate group.

The Panel is conscious that its process for issuing no-objection statements and letters of intention (which is primarily designed to apply to schemes that materially affect the voting control of a Code company) can be streamlined for transactions of this nature. Accordingly, the Panel may, on a case-by-case basis, consider dispensing with some of the disclosure requirements which would otherwise be expected by the Panel before issuing a no-objection statement or letter of intention.

Defensive Tactics

The Panel is aware that offerors, at times, have faced difficulties and delays in obtaining information from targets in order to determine whether consent will be required under the Overseas Investment Act 2005, and/or to apply for such consent.

The Panel confirms that the target’s failure to provide this information may constitute defensive tactics under the Code. The Guidance Note on Defensive Tactics has been updated to clarify when the failure of a target to provide such information may be a prohibited defensive tactic.

In addition, the Guidance Note has been updated by the deletion of paragraph 3.13, which sets out examples of actions which may be unrelated to an offer (and which accordingly could potentially be actions approved by the Panel under rule 39(c)). The guidance in this paragraph was outdated. For example, rule 25(1A) has come into force since this guidance was first prepared. The Panel will exercise its discretion under rule 39(c) on a case by case basis.

Recently, the Panel was presented with a situation where it had to consider how an incorrect statement should be addressed once it had been made publicly. This article is a reminder as to the Panel’s expectations when this situation arises.

First, the Panel expects public documents and statements to be accurate. If any issues of accuracy are identified, the Panel recommends market participants engage with the Panel executive as soon as possible. If an error occurs in a public document, the Panel’s priority is to ensure that the error is corrected by the provision of corrected information in a prompt, pro-active and thorough manner to ensure the disclosure is equivalent to what should have been provided.

After the Panel is satisfied that shareholders have accurate information, the Panel will consider whether further enforcement action is appropriate.

Market participants should be aware that when the Panel considers what (if any) enforcement action to take in relation to an error, the Panel will consider the effect of the error, the approach already taken in correcting the error, and whether further corrective action is appropriate in the circumstances. The factors that the Panel will consider may vary on the circumstances, but are likely to include:

• the significance of the error and its effect on shareholders (this may include consideration of the complexity of the issue and how best to communicate the relevant information to shareholders);
• how quickly the corrective disclosure was provided to shareholders after the error was identified;
• the manner in which the corrective disclosure was provided – i.e., was it appropriately drawn to shareholders’ (or other relevant parties’) attention in an accessible way;
• how long shareholders (or other relevant parties) have to consider the corrective information;
• the approach taken in relation to shareholders that may have voted on or accepted an offer prior to the error being corrected.

Finally, the Panel understands that transactions may require large quantities of information to be gathered, collated and presented. Inadvertent errors can occur even where parties have undertaken due diligence and verification procedures. The circumstances giving rise to an inadvertent error, including due diligence and verification procedures followed by a party, may be a factor the Panel considers when deciding what (if any) enforcement action is appropriate.

The Panel executive is available to review and comment on corrective disclosure and the steps taken to rectify an issue.

The Panel has approved a new class exemption in relation to registered charitable trusts. It exempts from rule 6(1) of the Code:

• every person appointed as a trustee of a registered charitable trust, in relation to any increase in their voting control in a Code company as a result of the appointment; and
• every trustee of a registered charitable trust, in relation to any increase in their voting control in a Code company as a result of a reduction in the number of trustees of the trust.

The exemption is subject to certain conditions, including that the trust is registered under the Charities Act 2005. It is designed to eliminate the need for individual exemptions from rule 6(1) for routine changes to trustees of registered charitable trusts. However, changes of trustees that fall outside the scope of the class exemption may still require an individual exemption.

The class exemption came into effect on 23 August 2019.