In only the third case of its kind in the history of the Takeover Panel, the Panel has used its disciplinary power to declare a person to be someone who, in its opinion, is not likely to comply with the Code. This has the consequence of triggering “cold-shouldering” i.e. professional members are obliged in certain circumstances not to act for the person in a transaction subject to the Code while the sanction remains effective.`

In this case, the Hearings Committee ruled that Mr Morton and Mr Garner be cold-shouldered for six and two years respectively. The facts of the case are quite unusual, but essentially there were flagrant and sustained breaches of section 9(a) of the Introduction to The City Code on Takeovers and Mergers – i.e. to deal with the Panel in an open and co-operative way and not to provide incorrect, incomplete or misleading information to the Panel.

On the facts, Mr Morton thought that, on an acquisition of shares, he had breached Rule 9 in that he should have made a mandatory offer for the remaining shares. He and Mr Garner then concocted a series of lies trying to establish that Mr Morton’s purchase had actually been for Mr Garner so no Rule 9 obligation arose. They went so far as to create a dishonestly back-dated promissory note which was proffered to the Executive of the Takeover Panel in an attempt to mislead it into thinking the purchase was for Mr Garner. The bitter irony of the case is that, on a proper construction of Mr Morton’s various concert holdings, the initial purchase could have been made without triggering a Rule 9 obligation!

The moral of the story is to be open and honest with statutory regulators.