Effective September 30, 2013, the UK’s City Code on Takeovers and Mergers will be extended to apply to all Channel Islands, Isle of Man (British Crown Dependencies) and UK incorporated companies that have securities admitted to trading on the London Stock Exchange’s Alternative Investment Market or any other multilateral trading facility (MTF) in the UK, irrespective of whether their central management and control is in the UK, or the British Crown Dependencies (the residency test).
In other words, the Code will remove the current residency test for such companies that have their registered office in the UK, Channel Islands or the Isle of Man. Thus, companies incorporated in those jurisdictions that may not have been subject to the Code due to their directors being located overseas will now be subject to the Code.
The residency test will, however, continue to apply to: (a) non-traded public companies; (b) private companies potentially subject to the Code because they have had securities admitted to trading on a regulated market or MTF in the UK or a British Crown Dependency within the previous ten years; and (c) public companies whose securities are admitted to trading on any market that is not either: (i) a regulated market in the UK (such as the Main Board of the London stock Exchange) or in another EEA member state; (ii) an MTF in the UK; or (ii) a British Crown Dependency stock exchange.
The Code will only apply to UK and British Crown Dependency companies with securities admitted to trading outside the EEA where such companies satisfy the residence test by having their central management and control in the UK, the Channel Islands or the Isle of Man. UK and British Crown Dependency companies with securities admitted to trade on the Main Board of the London Stock Exchange, any other regulated market in the UK or on any stock exchange in the British Crown Dependencies, are already subject to the Code regardless of where their central management and control is located.
There are no transitional arrangements or grandfathering regime associated with this change to the Code. Any companies (or transactions) to which this change applies will become subject to the revised Code on September 30. As a result, this could mean that an offer for a company could begin as a non-Code governed offer but become Code-governed if the offer subsists on September 30. This implementation date is thought by the Panel on Takeovers and Mergers to allow for adequate lead-time for companies to address any issues that may arise from this change. The Panel has indicated that it should be consulted if any companies have cause for concern prior the implementation date.
A number of companies that have not been subject to the Code, particularly ones admitted to trading on AIM, have incorporated certain Code principles into their constitutions. Where, in September, such companies will now become companies subject to the Code, they will need to amend any provisions of their constitution that may conflict with the Code.
In addition, companies that will become subject to the Code as a result of this change but that are also subject to other takeover regimes (such as the Canadian rules as a result of having Canadian shareholders) should review their internal procedures to ensure they are aware of and can comply with the additional and potentially conflicting requirements of the Code.