Proposed amendments to the UK Takeover Code

On 24 April 2024, the UK Takeover Panel released a Public Consultation Paper, outlining its proposals for a revised jurisdictional framework which would narrow the scope of application of the Takeover Code.

The proposed changes aim to focus the application of the Code on those companies that are registered and listed in the UK and resolve some of the challenges faced by UK-registered companies listed on overseas markets that are currently required to comply with the UK takeover regime, as well as that overseas.

The consultation period will run until 31 July 2024, and the Response Statement is expected be published in Autumn 2024.

Narrowing the scope

As a first step, the proposals seek to narrow the application of the Code to those companies with their registered office in the UK, the Channel Islands or the Isle of Man and either:

a) their securities are admitted to trading on a UK regulated market or on AIM, the stock exchanges of the Channel Islands or Isle of Man; or

b) their securities were UK-listed at any time during the previous three years.

The Code will no longer apply to…

If the above proposals are implemented and subject to transitional arrangements outlined below, the Code will no longer apply to:

a) a public or a private company which was UK-listed more than three years ago;

b) a public or private company who securities are traded solely on an overseas market;

c) a public or private company who securities are or were previously traded using a matched bargain facility;

d) any other “unlisted” public company; and

e) a private company which has filed a prospectus in the UK at any time in the last ten years.

The Code will not apply to companies whose securities are traded on crowdfunding platforms, matched bargain facilities or other private markets. This will also extend to the proposed Private Intermittent Securities and Capital Exchange System (PISCES), which if implemented, will not be bound by the Code.

The residency test

The Consultation also recommends abolition of the so-called “residency test”. At present, a company registered in the UK but listed on an overseas market (and in some cases a UK-registered private company) will be required to comply with the Code, if the Panel considers it to have its “place of central management and control” in either the UK, the Channel Islands and the Isle of Man.

As part of this test, the Panel looks at the composition of the board and the residency status of its directors. However, the test has often been criticised, as the company may fall in or out of the Code’s jurisdiction depending on the residency of its directors.

If implemented, this is likely to be seen as a welcome development.

Transitional arrangements

If the above proposals are implemented, there will be a three-year transitional period.

Those companies which fall under the Code’s jurisdiction immediately prior to implementation but which no longer fall within the scope of the new regime will be required to comply with the transitional arrangements for a period of three years.

The transitional period will be a good opportunity for companies to evaluate their options and seek legal advice to determine if further arrangements are required to ensure a smooth transition. This may extend to review and amendment of the company’s articles or further arrangements to help shareholders exit and sell their investments.

If you have any questions about this topic, please do not hesitate to get in touch with Daniel Bellau or any member of our Corporate team.

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