Takeover Panel consults on narrowing application of the Takeover Code

Who will the Takeover Code apply to?

Pursuant to the proposals, the Takeover Code would apply to any company that has:

• a registered office in the UK, Channel Islands or Isle of Man (for these purposes, a "UK registered" company); and
• its securities admitted to trading on a UK regulated market (for example, the Main Market of the London Stock Exchange), a UK multilateral trading facility (for example, AIM) or a stock exchange in the Channel Islands or Isle of Man (for example, TISE) (for these purposes a "UK listed" company).

The Takeover Code would also apply to any UK registered company where its securities have been admitted to trading at any time in the three years prior to the relevant date (the "relevant date" being the date on which an offer or possible offer is announced, or some other event occurs in relation to the company which has significance under the Takeover Code). This is a significantly reduced run-off period compared to the 10 years currently provided for in the Takeover Code; a welcome change we consider will be well-supported by those companies currently impacted by this 10-year rule.

UK registered and UK listed companies that cancel their UK listing (even if they are instead to be listed on an overseas market) should make appropriate disclosures to their shareholders about the fact that delisting will trigger a three-year run-off period after which the Takeover Code will no longer apply.

Who will the Takeover Code cease to apply to?

If the proposals are adopted, the Takeover Code would no longer apply to:

• a public or private company whose securities are, or were previously, traded solely on an overseas market;
• a public or private company whose securities are, or were previously, traded using a "matched bargain facility";
• any other "unlisted" public company; or
• a private company which filed a prospectus during the 10 years prior to the relevant date,

unless the company had been UK listed at any time during the three years prior to the relevant date. As referred to above, the Takeover Code would no longer apply to a public or private company which was last UK listed more than three years prior to the relevant date.

The Takeover Code would continue not to apply to a company with its registered office outside the UK, Channel Islands or Isle of Man.

Residency test takes flight

Currently, all offers for UK registered companies considered to be UK resident by virtue of having their place of central management and control in the UK, Channel Islands or Isle of Man are subject to the Takeover Code, irrespective of whether the company is UK listed or traded on an overseas market. In the consultation paper, the Code Committee proposes to abolish this residency test, the application of which can mean that a company either is or is not subject to the Takeover Code simply based on any changes to the composition of its board. If adopted, the Takeover Code will no longer apply to a company whose securities are admitted to trading solely on an overseas market even if its place of central management and control is in the UK, Channel Islands or Isle of Man (other than where the company was UK listed at any time during the three years prior to the relevant date).

Clarity for "private market" companies

The consultation paper also proposes that the Takeover Code would not apply to companies whose securities are traded on private markets (for example, the TISE Private Markets), secondary/crowdfunding platforms (for example, Seedrs) or PISCES (the Private Intermittent Securities and Capital Exchange, a new platform to allow securities in private companies to be traded on an intermittent basis currently being consulted on as part of the Government's Edinburgh Reforms to enhance growth and competitiveness in the UK financial services sector).

Three-year transition period

Noting the significantly reduced ambit of the Takeover Code as a result of these proposals, the Code Committee is proposing a three-year transition period for those companies that would fall outside of the Takeover Panel's jurisdiction following these changes, starting on the date the new rules come into force. An appendix setting out the transitional provisions will be added to the Takeover Code.

The transition period is intended to allow those companies the opportunity to consider whether any provisions of the Takeover Code should be voluntarily adopted for the protection of shareholders (for example, through amendments to the companies' constitutional documents), or otherwise to allow shareholders an opportunity to exit their investment if they do not want to continue in a company which is not afforded the protections of the Takeover Code.

Subject to any such steps taken by a company during the transition period, at the end of the three years that company would no longer be subject to the Takeover Code.

Next steps

The consultation closes on 31 July 2024 and a Response Statement is expected to be published in Autumn 2024, with the amendments to the Takeover Code expected to be implemented one month later.

If you have any questions about the proposals set out in the consultation paper and how they may affect you, please feel free to get in touch with a member of our team at: SHCapitalMarkets@shlegal.com.