Structures and applicable lawTypes of transaction
How may publicly listed businesses combine?
There are three principal methods used to acquire an Irish public company, namely a takeover offer, a scheme of arrangement and a cross-border or domestic merger. A purchaser may pay in cash, securities or a combination of both.
Under a takeover offer, the bidder will make a general offer to the target shareholders to acquire their shares. The offer must be conditional on the bidder acquiring, or having agreed to acquire (pursuant to the offer or otherwise) shares conferring more than 50 per cent of the voting rights of the target. The bidder may compulsorily require any remaining shareholders to transfer their shares on the terms of the offer if it has acquired, pursuant to the offer, not less than a specific percentage of the target shares to which the offer relates. The percentage for companies listed on regulated markets in the European Economic Area (the EEA) is 90 per cent. The percentage for companies listed on other markets (eg, the New York Stock Exchange (NYSE), NASDAQ or AIM) is 80 per cent. Dissenting shareholders have the right to apply to the High Court of Ireland (the High Court) for relief.
The most commonly used structure for the takeover of an Irish target is by way of a scheme of arrangement. This is a statutory procedure which involves the target company putting an acquisition proposal to its shareholders, which can be: (i) a transfer scheme, pursuant to which their shares are transferred to the bidder in return for the relevant consideration; or, more usually, (ii) a cancellation scheme, pursuant to which their shares are cancelled in return for the relevant consideration, with the result in each case that the bidder will become the 100 per cent owner of the target company. A scheme of arrangement requires the approval of a majority in number of the shareholders of each class, representing not less than 75 per cent of the shares of each class, present and voting, in person or by proxy, at a general, or relevant class, meeting of the target company. The scheme also requires the sanction of the High Court. Subject to the requisite shareholder approval and sanction of the High Court, the scheme will be binding on all shareholders. Dissenting shareholders have the right to appear at the High Court hearing and make representations in objection to the scheme.
Publicly listed companies can also combine by way of a cross-border merger or a domestic merger. A cross-border merger is a statutory procedure under the European Communities (Cross-Border Mergers) Regulations 2008 (the Cross-Border Mergers Regulations) whereby a variety of business combinations between Irish companies and other EEA incorporated companies (including mergers) can be effected. Among other matters, a cross-border merger will require the approval of not less than 75 per cent of the votes cast, in person or by proxy, at a general meeting of the target shareholders, together with the sanction of the High Court. A domestic merger is a statutory procedure under the Companies Act 2014, which facilitates business combinations between Irish companies and is based on the Cross-Border Mergers Regulations.Statutes and regulations
What are the main laws and regulations governing business combinations and acquisitions of publicly listed companies?
The main laws and regulations governing business combinations and acquisitions of publicly listed companies include the following.
Irish Takeover Panel Act, the Takeover Regulations and the Takeover Rules
M&A transactions in Ireland involving public companies are primarily regulated by the Irish Takeover Panel Act 1997, as amended (the Takeover Act), the European Communities (Takeover Bids (Directive 2004/25/EC)) Regulations 2006, as amended (the Takeover Regulations), and the Irish Takeover Panel Act 1997, Takeover Rules 2013 made thereunder (the Takeover Rules).
The Takeover Act, the Takeover Regulations and the Takeover Rules primarily apply to change-of-control and certain other M&A transactions involving an Irish registered target with voting shares admitted to trading (or whose voting shares had, in the previous five years, been admitted to trading) on: (i) a market regulated by The Irish Stock Exchange Plc trading as Euronext Dublin (the ISE) (ie, including junior markets such as the Enterprise Securities Market or the Atlantic Securities Market); or (ii) the London Stock Exchange (including AIM), the NYSE or NASDAQ.
The Takeover Regulations and the Takeover Rules also apply to change-of-control transactions involving: (i) an Irish registered target with voting shares admitted to trading on one or more ‘regulated markets’ (within the meaning of article 4(1)(21) of Directive 2014/65/EC of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments) in the EEA (other than Ireland); and (ii) a non-Irish registered target with voting shares admitted to trading on one or more regulated markets in the EEA including Ireland (but not in its country of incorporation). Change-of-control transactions involve the acquisition of shares carrying 30 per cent or more of voting rights of a target company.
The Takeover Rules, which are based on seven general principles set out in the Takeover Act (the General Principles), contain detailed provisions applicable to the conduct of takeovers. The spirit, as well as the strict reading, of the Takeover Rules and the General Principles must be adhered to. Among other matters, the General Principles provide that target shareholders be afforded equivalent treatment and sufficient time and information to reach a properly informed decision on an offer. The Takeover Rules are not concerned with the financial or commercial advantages or disadvantages of a takeover or other relevant transactions and they include mandatory bid rules, share-dealing restrictions, confidentiality and disclosure obligations, and restrictions on frustrating actions.
The Takeover Rules establish timelines within which offers must be conducted and declared unconditional in all respects. There is greater flexibility around the timeline applied to takeovers carried out by way of scheme of arrangement than by way of offer as the Irish High Court’s timetable must also be taken into consideration.
The Takeover Rules are administered and enforced by the Irish Takeover Panel (the Takeover Panel), which is the supervisory body for takeovers in Ireland and the designated competent authority under Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids.
The Takeover Panel has statutory power to make rulings and to give directions to ensure the General Principles and the Takeover Rules are complied with. The Takeover Panel operates principally to ensure fair and equal treatment of all target company shareholders in relation to takeovers (whether structured by way of an offer or a scheme of arrangement) and certain other relevant transactions. The Takeover Panel operates on a day-to-day basis through its executive, the members of which are available for consultation and guidance on the operation of the Takeover Rules. The Takeover Panel is designated as the competent authority for the purposes of article 4(1) of the Takeover Regulations.
The Companies Act
The Companies Act 2014, as amended, (the Companies Act) contains, among other matters, the applicable legislative basis for a scheme of arrangement and a domestic merger. The Companies Act is also the core statute which regulates the governance and internal affairs of an Irish company, including the principal fiduciary duties of directors.
The Substantial Acquisition Rules
The Irish Takeover Panel Act 1997, Substantial Acquisition Rules, 2007 (the SARs) are a separate set of rules issued and administered by the Takeover Panel. The SARs restrict the speed at which a person may increase a holding of voting shares (or rights over voting shares) in a target to an aggregate of between 15 per cent and 30 per cent thereby providing the means by which acquisitions of shares in public limited companies may be made.
The main aim of the SARs is to give target companies adequate warning of stake building. Subject to limited exceptions, a person may not, in any period of seven days, acquire shares (or rights over shares) in a target company, which carry 10 per cent or more of its voting rights, if, following such acquisition, that person would hold shares (or rights over shares) carrying 15 per cent or more, but less than 30 per cent, of the voting rights in the target company.
The Competition Acts
The Competition Acts 2002 to 2017, as amended, (the Competition Acts) govern the regulation of competition law in Ireland. The Competition Acts established the Competition and Consumer Protection Commission (the CCPC), which is primarily responsible for the enforcement of the Irish merger control regime. Depending on the size of the transaction and scale of the parties and their operations in Ireland, a takeover may be required to be notified to and approved by the CCPC under the Competition Acts. Larger transactions, involving multiple jurisdictions, may require notification to and approval by the European Commission under Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation).
The CCPC shares responsibility for media mergers with the Minister for Communications, Climate Action and Environment (the Minister). The Irish courts have jurisdiction to adjudicate on any allegation of breach of the Competition Acts and on any appeal against a merger decision by the CCPC.
The Market Abuse Regulation
Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2004 on market abuse (MAR) and the European Union (Market Abuse) Regulations 2016 (MAR Regulations) regulate insider dealing and market manipulation by imposing significant obligations on issuers.
The Cross-Border Mergers Regulations
The Cross-Border Mergers Regulations apply where the transaction involves a merger of an Irish incorporated entity with at least one other EEA company.
The Irish Prospectus Regulations, the Prospectus Directive and the New Prospectus Regulation
The EU prospectus regime harmonises requirements for the drafting, approval and distribution of the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market situate or operating within a member state. It is designed to reinforce investor protection by ensuring that all prospectuses, wherever issued in the EU, provide clear and comprehensive information while at the same time making it easier for companies to raise capital throughout the EU on the basis of approval from a single competent authority.
Currently in Ireland, the Prospectus (Directive 2003/71/EC) Regulations 2005, as amended, (the Irish Prospectus Regulations) regulate public offers of securities. The Irish Prospectus Regulations derive from Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the prospectus to be published when securities are offered to the public or admitted to trading (the Prospectus Directive).
The Prospectus Directive is soon to be repealed by Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC (the New Prospectus Regulation). The New Prospectus Regulation was published in the Official Journal on 30 June 2017 and it has been designed to repeal and replace the existing body of prospectus law. It will apply on a rolling basis, with full application from 21 July 2019 and will be directly effective in EU member states, meaning that it does not strictly need any national transposing measures to take effect.
The Transparency Regulations and the Transparency Rules
The Transparency (Directive 2004/109/EC) Regulations 2007, as amended, (the Transparency Regulations) seek to enhance the transparency of information provided by issuers on a regulated market by containing certain disclosure requirements for public companies. Further guidance and procedural and administrative requirements were issued by the Central Bank of Ireland (the Central Bank) when it, pursuant to the Companies Act, issued the Irish transparency rules in November 2016 (the Transparency Rules).
The listing rules of the relevant stock exchange or market
Companies whose shares are listed on the Main Securities Market (the MSM) of the ISE must comply with the Euronext Dublin listing rules (the Listing Rules). The ISE website (www.ise.ie) contains market and regulatory information applicable to listed companies. It also provides access to the Listing Rules and the Irish Corporate Governance Annex published by the ISE (the Irish Annex). The UK Corporate Governance Code (the Code), as supplemented by the Irish Annex, is also applicable to these companies.
There are a number of Irish publicly listed companies listed on markets outside Ireland, such as the NASDAQ, the NYSE and the London Stock Exchange (main and AIM markets), and these companies are subject to additional rules applicable to those markets.
Some sectors have special rules and additional regulators may be required to get involved. In particular, regulated financial services businesses are subject to rules which require change-of-control consent from the Central Bank; media mergers are subject to the approval of the CCPC and the Minister; and Irish airlines are subject to foreign control restrictions.
Memorandum and articles of association
An Irish incorporated company is also subject to its memorandum and articles of association (forming a contract between the company and its shareholders). The memorandum of association sets out the principal objects of the company, while the articles of association set out the internal regulations of the company regarding matters such as shareholder meetings, voting rights, powers and duties of directors, the composition of the board of directors and communications between the company and its shareholders.Cross-border transactions
How are cross-border transactions structured? Do specific laws and regulations apply to cross-border transactions?
Directive 2005/56/EC of the European Parliament and of the Council of 26 October 2005 on cross-border mergers of limited liability companies (implemented in Ireland by the Cross-Border Mergers Regulations) facilitates cross-borders transactions in Ireland.
A cross-border merger may be effected in one of three ways, namely by:
- acquisition: a company acquires the assets and liabilities of one or more companies which are dissolved without going into liquidation. The acquiring company issues shares to the members of the dissolved companies in consideration of the transaction;
- absorption: a parent company absorbs the assets and liabilities of a wholly owned subsidiary, which is dissolved without going into liquidation; and
- formation of a new company: a newly incorporated company acquires the assets and liabilities of one or more companies, which are dissolved without going into liquidation. The acquiring company issues shares to the members of the dissolved companies in consideration of the transaction.
The procedures for a cross-border merger vary depending on the type of merger undertaken, but each involves the preparation of common draft terms of the merger between the companies involved (the contents of which are prescribed by the Cross-Border Mergers Regulations), the drafting of an explanatory report by the directors that must be made available to the Irish company’s shareholders and an advertisement of the proposed merger.
The High Court must also review and approve both outbound and inbound mergers involving Irish companies. Where applicable, employee protection provisions involving employee participation must also be observed. In certain cases, an auditor’s report on the merger will be required.Sector-specific rules
Are companies in specific industries subject to additional regulations and statutes?
There is a special regime for media mergers contained in the Competition Acts to protect the plurality of the media and to ensure the ‘diversity of ownership and diversity of content’.
The Competition Acts provide for additional steps ‘where two or more undertakings involved carry on a media business in Ireland or one or more of the undertakings involved carry on a media business in Ireland and one or more undertakings carry on a media business elsewhere’. The term ‘media business’ is defined in the Competition Acts and has been expanded to include online news sources and online broadcast of certain audio-visual material.
To carry on a media business in Ireland requires an undertaking to have either a physical presence in Ireland and make sales to customers located in Ireland or to have made sales in Ireland of at least €2 million in the most recent financial year.
In addition to the requirement to notify the CCPC, the Competition Acts require a separate notification to the Minister who has an additional responsibility for consideration of media mergers. The Minister has 30 working days, commencing 10 days after the determination of the CCPC, to consider the media merger. If the Minister is concerned that the merger is contrary to the public interest in protecting the plurality of the media, the Minister will request that the Broadcasting Authority of Ireland (the BAI) carry out a Phase II examination. Within 80 working days of receipt of the request, the BAI must prepare a report for the Minister outlining its view on the merger with regard to media plurality and recommending whether the merger should be put into effect (with or without conditions). An advisory panel may be set up to assist the BAI in its review. The Minister will make the ultimate decision, taking into account the BAI report and, if applicable, the view of the advisory panel. The Minister’s final determination must be made within 20 working days of receipt of the BAI report.
See also question 11 and question 10.Transaction agreements
Are transaction agreements typically concluded when publicly listed companies are acquired? What law typically governs the agreements?
It is typical for transaction agreements to be entered into when publicly listed companies are acquired. Such transaction agreements are usually governed by Irish law.
Filings and disclosureFilings and fees
Which government or stock exchange filings are necessary in connection with a business combination or acquisition of a public company? Are there stamp taxes or other government fees in connection with completing these transactions?
Under the Irish merger control regime, a transaction may require a notification to be made to the CCPC. Each ‘undertaking involved’ in the transaction must submit a merger filing. In practice, joint filings are submitted and the purchaser tends to take the lead on drafting the filing. A filing fee of €8,000 (for each filing) currently applies.
As of 1 January 2019, mergers where each undertaking generates turnover of €10 million or more in Ireland and the undertakings together generate turnover of €60 million or more in Ireland must be notified to the CCPC prior to completion. There are criminal penalties for a failure to notify prior to completion of a transaction that meets these financial thresholds. The Phase 1 notification period typically takes 20 to 30 working days for mergers that do not give rise to potential competition concerns.
Certain documents relating to public offers governed by the Takeover Rules require the Takeover Panel’s approval. The Takeover Act gives the Takeover Panel the power to impose charges for the purpose of defraying expenses incurred by it in performing its functions.
A prospectus, if required, has to be submitted to and approved by the Central Bank prior to being published, together with the appropriate filing fee.
Additionally, certain filings may be required to be made to the Irish Companies Registration Office under the Companies Act.
See question 18 for information in relation to stamp taxes.Information to be disclosed
What information needs to be made public in a business combination or an acquisition of a public company? Does this depend on what type of structure is used?
Before a public announcement concerning an offer or possible offer of an Irish incorporated listed public company to which the Takeover Rules apply, the fundamental obligation is that all persons with confidential information (including the bidder and target, their respective directors and other persons acting in concert with them and their respective advisers) must maintain strict confidentiality in respect of the offer or contemplated offer. Every person who is privy to confidential information, and particularly price sensitive information, concerning an offer or contemplated offer is obliged to treat the information as secret and may only pass it to another person if it is necessary to do so and if that person accepts the need for secrecy. All relevant persons must conduct themselves so as to minimise the possibility of an accidental leak of information. If, prior to an announcement, the target is the subject of rumour and speculation or there is an anomalous movement in its share price, unless the Takeover Panel consents otherwise, an appropriate announcement must be made to the market. Prior to an approach, the responsibility for making such an announcement lies with the bidder; following an approach, the responsibility shifts to the target.
The MAR extends the application of the market abuse and inside information regime beyond issuers with shares admitted to trading on regulated markets (such as the MSM) to include issuers of securities traded on multilateral trading facilities (such as the ESM). The MAR requires companies with traded securities within the scope of the regulation to disclose inside information directly concerning them to the public as soon as possible. An issuer may delay an announcement pertaining to inside information so as not to prejudice its ‘legitimate interests’, provided that certain conditions are met (including that the information can be kept confidential and that delayed disclosure would not be likely to mislead the market). Where an issuer chooses to delay its disclosure of inside information so as not to prejudice its legitimate interests, the issuer will be required to inform its regulator in writing, and immediately after the information is disclosed to the public, of its decision to delay the announcement. The MAR also requires an issuer to provide its regulator with a written explanation of how the conditions for the delay were satisfied.
A prospectus, to the extent required, must contain all information necessary to enable investors to make an informed assessment of the assets and liabilities, the financial position, the profits and losses, and the prospects of the issuer, as well as the rights attaching to the securities in question. In addition to this overriding requirement, there are detailed rules as to content, including a description of the business, audited financial information for the latest three financial years, an operating and financial review of that period and a confirmation that the issuer has sufficient working capital for its present requirements (the next 12 months). There is an exemption from the requirement to produce a prospectus in connection with securities offered in connection with a takeover or merger. However, a document containing information equivalent to that in a prospectus will generally still be required. One disadvantage of an ‘equivalent’ document is that, unlike a prospectus, it cannot be passported into other EU jurisdictions.
The preparation of a circular will be required for certain categories of information to be provided by a listed company to its shareholders. If applicable, the applicable listing rules set out the content and approval requirements for circulars to shareholders, and also the circumstances in which they must be prepared.
The principal documents required for a takeover offer are:
- an announcement containing the bidder’s firm intention to make an offer (setting out the consideration to be offered and the other terms and conditions of the offer);
- an offer document (containing the formal offer, the other terms and conditions of the offer and prescribed additional disclosure (including financial and other information on the bidder and the target, which in the case of historical financial information, may be incorporated by reference));
- a form of acceptance (by which the offer can be accepted); and
- a response circular from the target board to its shareholders (setting out, among other matters, the target board’s opinion on the offer and the substance and source of the competent independent financial advice it is required to obtain) - this would, in a recommended offer, commonly form part of the offer document.
If the transaction is undertaken by way of a scheme of arrangement, the documentation is almost identical in terms of content, but in place of the offer document, there is a circular to target shareholders and a notice convening meetings of shareholders with proxy forms in place of the form of acceptance. Separately, court, competition/antitrust or regulatory filings may be required.
If, after an approach has been made, the target (and in a securities exchange offer, the bidder) issues a profit forecast or a statement that includes an estimate of the anticipated financial effects of a takeover (eg, as to resulting change in profit of earnings per share), it is required to obtain and publish reports from accountants and financial advisers concerned regarding the preparation of the forecast or statement. Save with the consent of the Panel, profit forecasts made before an approach must similarly be reported upon.
No valuation of any assets may be given by or on behalf of a bidder or a target during an offer period unless supported by the opinion of a named independent valuer.
All documents, announcements, press releases, advertisement (save for certain excluded categories) and statements issued by or on behalf of a bidder or target are required to satisfy the same standards of accuracy as a prospectus. Furthermore, all such documents as well as statements despatched or published by a bidder or a target during an offer period are required, as soon as possible following despatch or publication (and, in any event, by no later than 12 noon on the following business day), to be published on a website or designated microsite. Information that is incorporated by reference to another source must be published on a website or microsite by no later than the date on which the relevant document incorporating such information is despatched or published.Disclosure of substantial shareholdings
What are the disclosure requirements for owners of large shareholdings in a public company? Are the requirements affected if the company is a party to a business combination?
Up to the time of announcement of a firm intention by a bidder to make an offer under the Takeover Rules, the SARs apply to a person acquiring shares. The SARs restrict the speed with which a person may increase a holding of shares in the target. SAR 6 provides that, subject to limited exceptions, an acquirer is obliged to disclose to the target and the Takeover Panel any acquisition of voting rights in a target which when aggregated with its existing holding exceeds 15 per cent of the target’s voting rights, or if the acquirer already holds between 15 per cent and 30 per cent of the voting rights of the target, any acquisition that increases their percentage holding. Where any such notification obligation arises, it must be discharged no later than 12 noon on the day following the relevant acquisition.
SARs 3 and 4 also restrict the timing of acquisitions. They provide that a person may not, in any period of seven days, acquire shares (or rights over shares) in the target carrying 10 per cent or more of its voting rights if, following the acquisition, that person would hold shares (or rights over shares) carrying 15 per cent or more, but less than 30 per cent, of the voting rights in the target.
Stake-building will also be totally prohibited if it constitutes insider dealing.
Dealings in the securities of a target company that is in an offer period under the Takeover Rules (and in certain circumstances, dealings in the securities of a bidder) may trigger a disclosure requirement. The Takeover Rules require that a bidder and its concert parties publicly disclose any acquisition of target securities or derivatives referenced to such securities, including those that are purely cash-settled contracts for difference. Other persons interested in 1 per cent or more of the target’s securities are also required to publicly disclose their dealings during an offer period. Complex rules apply to exempt fund managers and exempt principal traders, particularly when they are members of a group that includes the bidder or a financial adviser to the bidder.
The Transparency Rules, which may apply depending on which market the target is listed upon, require a stakeholder to notify a listed company once the percentage of voting rights acquired by that stakeholder reaches, exceeds or falls below 3 per cent; and then each 1 per cent thereafter.
The Companies Act introduced a statutory disclosure regime (replacing the regime existing under previous legislation) requiring notification within a prescribed time frame where there is a change in the percentage of shares held by a person in a public limited company resulting in:
- an increase from below to above the 3 per cent threshold;
- a decrease from above to below the 3 per cent threshold; or
- where the 3 per cent threshold is exceeded both before and after the transaction, but the percentage level, in whole numbers, changes (fractions of a percentage being rounded down).
The European Union (Anti-Money Laundering: Beneficial Ownership of Corporate Entities) Regulations 2016 (the 2016 Regulations) came into operation on 15 November 2016. The 2016 Regulations require Irish companies to gather and maintain information on individuals described as their ‘ultimate beneficial owner’. The 2016 Regulations do not apply to certain listed companies. Broadly speaking, a shareholding or ownership interest (direct or indirect) above 25 per cent is indicative of beneficial ownership. It is expected that legislation to be introduced in 2019 will require beneficial ownership information to be submitted to a publicly accessible central register.
Directors’ and shareholders’ duties and rightsDuties of directors and controlling shareholders
What duties do the directors or managers of a publicly traded company owe to the company’s shareholders, creditors and other stakeholders in connection with a business combination or sale? Do controlling shareholders have similar duties?
Each director of an Irish incorporated company has a duty to ensure that the company complies with the Companies Act. Upon their appointment, a director is required to acknowledge that, as a director, he or she has legal duties and obligations imposed by the Companies Act, other statutes and common law.
Previously, directors’ duties were contained in a range of statutes and common law. The Companies Act contains a non-exhaustive list of fiduciary duties owed by a director to a company. The relevant provisions essentially codify the duties that apply to directors under common law and equity, as well as amending and restating the applicable statutory obligations under existing company legislation. The eight primary fiduciary duties set out in the Companies Act are as follows:
- a director must act in good faith in what the director considers to be the interests of the company;
- a director shall act honestly and responsibly in relation to the conduct of the affairs of the company;
- a director shall act in accordance with the company’s constitution and exercise his or her powers only for the purposes allowed by law;
- a director shall not use the company’s property, information or opportunities for his or her own or anyone else’s benefit unless that is expressly permitted by the company’s constitution or the use has been approved by a resolution of the company in general meeting;
- a director shall not agree to restrict the director’s power to exercise an independent judgement unless this is expressly permitted by the company’s constitution or approved by the company’s members in general meeting;
- a director shall avoid any conflict between his or her duties to the company and to his or her other (including personal) interests, unless that director is released from this duty in accordance with the company’s constitution or by a resolution of the company’s members;
- a director shall exercise the care, skill and diligence that would be exercised in the same circumstances by a reasonable person having both the knowledge and experience that may reasonably be expected of a person in the same position as the director and the knowledge and experience that the director has; and
- a director shall have regard to members’ interests (in addition to the duty to have regard to the interests of the company’s employees in general).
If an offer has been received by the company, its board of directors has a duty to obtain competent independent advice on the terms of the offer and any revised offer. In this event, the board is required to send a circular to its shareholders setting out the substance and source of the advice, together with the considered views of the board. Any director of the company with a conflict of interest in respect of the offer (and any revised offer) should be excluded from the formulation and communication of advice to the shareholders. Furthermore, any such director should not make any announcement or statement in respect of the offer, unless the full nature of the conflict of interest is disclosed clearly and prominently in the announcement or statement.
The board of directors of a company will also be required to obtain competent independent advice if (i) the directors of an offeror company are faced with a conflict of interest in respect of the offer; or (ii) the board of a company proposes to enter into a reverse takeover, and the same obligation to issue a circular to shareholders as set out above applies.
A director’s additional statutory duties include various duties of disclosure, as well as duties to ensure that the company keeps adequate accounting records and that it meets various company secretarial compliance obligations.
Directors’ duties are owed to the company and, in considering the interests of the company, the courts have equated these interests to mean the interests of shareholders as a whole.
Directors of all public limited companies (excluding certain investment companies) are required to prepare a compliance statement (which will be included in the Directors’ Report). The compliance statement must:
- acknowledge that the directors are responsible for securing the company’s compliance with certain Irish company law obligations and Irish tax law (referred to as ‘relevant obligations’); and
- confirm that each of the following has been done (or, if it has not been done, specifying the reasons why it has not been done):
- a statement setting out the company’s policies (that in the directors’ opinion, are appropriate to the company) respecting compliance by the company with its relevant obligations has been drawn up;
- appropriate arrangements or structures, that are, in the directors’ opinion, designed to secure material compliance with the company’s relevant obligations have been put in place; and
- during the financial year to which the relevant statutory directors’ report relates, a review of the arrangements or structures referred to above has been conducted.
Individuals who are not formally appointed to the board of directors but act as directors and occupy the position of director, known as de facto directors, are bound by the same duties and obligations and are subject to the same liabilities as formally appointed directors.
A shadow director is an individual who has not been formally appointed to the board of directors but is a person in accordance with whose directions or instructions the directors of the company are accustomed to act. In most respects, Irish company law treats such a person as a director and holds him or her to the same duties and liabilities.
Controlling shareholders are not subject to the above duties in their capacity as shareholders.Approval and appraisal rights
What approval rights do shareholders have over business combinations or sales of a public company? Do shareholders have appraisal or similar rights in these transactions?
The acceptance condition for a takeover offer must be set at a level that would result in the bidder acquiring more than 50 per cent of the voting rights in the target, although in practice, it is typically set at either 80 per cent or 90 per cent. These are the thresholds for invoking the statutory ‘squeeze-out’ procedure, pursuant to which persons who do not accept the offer may have their holdings compulsorily acquired. The threshold for a target listed on a regulated market is 90 per cent; 80 per cent is the threshold for all other targets.
A scheme of arrangement requires the approval of a majority in number of the shareholders of each class, representing not less than 75 per cent of the shares of each class, present and voting, in person or by proxy, at a general, or relevant class, meeting of the target company. The scheme of arrangement also requires the sanction of the High Court. Subject to the requisite shareholder approval and sanction of the High Court, the scheme will be binding on all shareholders.
For companies listed on the MSM, the Listing Rules provide that acquisitions of a certain size (broadly, at least 25 per cent of the size of the bidder), or with parties connected to the company (for example, a director or substantial shareholder), must be approved by a general meeting of the company’s shareholders.
Rule 21 of the Takeover Rules (which applies to Irish companies listed on the ISE, the London Stock Exchange, NASDAQ and NYSE) prohibits a target board from taking any of the following actions (except pursuant to a contract previously entered into) without shareholder approval or the consent of the Takeover Panel or both, either in the course of an offer, or if the target board has reason to believe that a bona fide offer may be imminent:
- the issue of any share;
- the grant of share options;
- the creation or issue of any convertible securities;
- the sale, disposal or acquisition of material assets of a material amount;
- the entry into of contracts otherwise than in the ordinary course of business; or
- any other action, other than seeking alternative bids, which may result in frustration of an offer or shareholders being denied the opportunity to consider it.
Completing the transactionHostile transactions
What are the special considerations for unsolicited transactions for public companies?
A number of provisions in the Takeover Rules (although technically applying to all public offers, whether hostile or recommended) should be given special consideration in hostile transactions. The following are particularly noteworthy:
- the offer must first be disclosed to the board of the target company or its advisers before making any announcement concerning the offer. In practice, an approach is frequently, although not always, made in writing from the potential bidder to the chairman or chief executive of the target. Such correspondence is often preceded by a telephone call giving basic details of the bidders’ proposal;
- all target shareholders of the same class must be treated equally;
- there are a range of restrictions and obligations on persons dealing with target stock;
- a target board is prohibited from taking certain actions (except pursuant to a contract previously entered into) without shareholder approval or the consent of the Takeover Panel or both, either in the course of an offer, or if the target board has reason to believe that a bona fide offer may be imminent; and
- with limited exceptions, information given by a target to one bidder must be made available to all bidders. A second or subsequent bidder will have to request specific information; it is not entitled, by asking in general terms, to receive all information supplied to the first bidder.
The Takeover Rules provide that the board of the target must obtain competent independent advice on every offer in respect of the target and must dispatch to its shareholders a circular setting out the substance and source of such advice, together with the considered views and opinion of the board of the target on the offer. An independent committee may need to be established to consider the offer in the event that any directors have a conflict of interest. As an Irish company, the fiduciary duties and other obligations of target directors will be governed by Irish law. These duties and other obligations will apply to the target directors in deciding whether to engage in a process with a potential bidder, which may result in an offer for the target, and ultimately in deciding whether to recommend, or not recommend, an offer.
As noted above, prior to an announcement concerning an offer or possible offer, the bidder, the target and their respective advisers are required to maintain strict confidentiality in respect of the contemplated offer, and negotiation discussions concerning the offer or possible offer must be kept to a very restricted number of people. If, prior to an announcement, the target is the subject of rumour and speculation or there is an anomalous movement in its share price, unless the Takeover Panel consents otherwise, an appropriate announcement must be made to the market. Prior to an approach, the responsibility for making such an announcement lies with the bidder; following an approach, the responsibility shifts to the target.
In the case of an unwelcome approach, the target may, at any time following the identity of the bidder being made public, apply to the Takeover Panel to impose a time limit within which the bidder must either announce a firm intention to make an offer or that it does not intend to do so. This is commonly referred to as a ‘put-up or shut-up’ direction. Where the bidder announces that it does not intend to make an offer, subject to certain exceptions, that bidder will, among other matters, be precluded from announcing an offer or possible offer, or making an offer for the target for a period of 12 months.
A transaction cannot practically proceed by way of a scheme of arrangement without support from the target board (notwithstanding some commentary on how a target could perhaps be legally compelled to do so). As a result, a hostile transaction will begin as a takeover offer. It would not be unusual, however, for a recommendation to be obtained after the launch of an offer (possibly following a revision to terms) and, in that case, it would be possible, with Takeover Panel consent, to switch from a takeover offer to a scheme of arrangement to implement the transaction.Break-up fees – frustration of additional bidders
Which types of break-up and reverse break-up fees are allowed? What are the limitations on a public company’s ability to protect deals from third-party bidders?
Break fees are permissible under the Takeover Rules provided that the Takeover Panel has expressly consented to them, pursuant to rule 21.2 of the Takeover Rules. The Takeover Panel customarily grants consent to break-fee arrangements that are (i) limited to specific quantifiable third-party costs; (ii) subject to a cap of 1 per cent of the value of the offer; and (iii) subject to receiving confirmation in writing from the target board and its financial adviser that they consider the break or inducement fee to be in the best interests of the target shareholders.
The offer document is required to contain details of any break fee agreed to by the target company.
The target may enter into an exclusivity agreement, however, this is subject to the Takeover Rules and to the directors’ fiduciary duties. The directors of the target company may also agree to non-solicitation requirements. It is also common, in a recommended transaction, for a bidder to receive irrevocable commitments or letters of intent to accept the offer from the directors of the target and some shareholders.Government influence
Other than through relevant competition regulations, or in specific industries in which business combinations or acquisitions are regulated, may government agencies influence or restrict the completion of such transactions, including for reasons of national security?
In addition to the Irish merger control regime, several industries are subject to additional regulations, such as financial institutions, insurance undertakings, pharmaceutical companies, airlines and telecommunications operators.
See also question 16 and question 17.Conditional offers
What conditions to a tender offer, exchange offer, mergers, plans or schemes of arrangements or other form of business combination are allowed? In a cash transaction, may the financing be conditional? Can the commencement of a tender offer or exchange offer for a public company be subject to conditions?
Although it is common for bidders in a public offer to include wide-ranging conditions in the terms of an offer, the practical effect of these is limited by the Takeover Rules and the Takeover Panel’s approach to the application of the Takeover Rules. Save with the consent of the Takeover Panel, or in the case of Competition Acts or EC Merger Regulation conditions, an offer may not be made subject to any condition the satisfaction of which depends solely on subjective judgements of the bidder, or which is within its control. A bidder may not invoke a condition to lapse an offer unless the circumstances giving rise to the right to invoke are of material significance to the bidder in the context of the offer and the Takeover Panel (being satisfied that in the prevailing circumstances it would be reasonable to do so) consents to the condition being invoked. In practice it is very difficult for a bidder to invoke a condition, other than a material regulatory condition, acceptance condition or a condition that is required in order to implement the transaction (such as bidder shareholder approval).
In 2017, the Takeover Panel, noting that it had become customary for bidder and target companies to enter into an implementation agreement, issued a practice statement (the Practice Statement) in relation to the circumstances in which the parties may lapse an offer by invoking conditions to the effect that: (i) the implementation agreement has been terminated (that is, that it ceased to remain in effect); or (ii) the other party had not complied with specified terms of the implementation agreement. In the Practice Statement, the Takeover Panel noted that the Takeover Rules do not prohibit parties to an offer agreeing contractual arrangements regulating the conduct of the offer. The Takeover Panel’s practice had been to permit parties to an offer to enter into an implementation agreement including terms under which the parties reserved the ability, in a wide range of circumstances, to terminate the agreement. The Takeover Panel also noted that the Takeover Rules do not prohibit the inclusion of conditions to an offer that the implementation agreement had not been terminated, or that parties have complied with specified terms of the implementation agreement, unless the satisfaction of any such condition depends solely on subjective judgments by the directors of the party for whose benefit the condition is expressed or is within the control of the party. Having regard to the desirability for clarity and consistency, and to ensure that there is a high degree of certainty, the Takeover Panel stated in the Practice Statement that it expects that implementation agreement termination events will be expressly included as conditions to the offer and stated in terms compliance with the Takeover Rules. The Takeover Panel further emphasised that the invocation of a condition to an offer, including any such condition, is subject to the consent of the Takeover Panel and falls to be assessed against the ‘material significance’ and ‘reasonableness’ tests prescribed by the Takeover Rules. The Takeover Panel also noted that the fact that it allows or approves the entry into by parties to an offer of an implementation agreement shall not be taken into account in any determination of the Takeover Panel under the Takeover Rules as to whether, in the prevailing circumstances, it would be reasonable for a party to invoke a condition to the offer to lapse or withdraw the offer.
Preconditions may be included whereby the offer does not have to be made (that is, the offer document does not have to be posted) unless each precondition is satisfied. The Takeover Panel must be consulted in advance in order to employ the use of preconditions. Preconditions may only be used where they relate to material official authorisations or regulatory clearances, and the Takeover Panel is satisfied that it is likely to prove impossible to obtain the authorisation or clearance within the offer timetable.Financing
If a buyer needs to obtain financing for a transaction involving a public company, how is this dealt with in the transaction documents? What are the typical obligations of the seller to assist in the buyer’s financing?
In financing a transaction, consideration offered by a bidder may take the form of any combination of cash or securities or both. The securities offered may be securities of the bidder or of another company.
A bidder may only announce a firm intention to make an offer under the Takeover Rules (a Rule 2.5 Announcement) when it and its financial adviser are satisfied, after careful and responsible consideration, that the bidder is in a position to implement the offer. Where the offer is a cash offer or there is a cash alternative, the Rule 2.5 Announcement must include a confirmation from the bidder’s financial adviser (or another appropriate person) that cash resources are available sufficient to satisfy full acceptance of the offer. Any required debt and equity funding for the offer must be fully and, save with respect to conditions relating to closing of the offer, unconditionally committed prior to the Rule 2.5 Announcement. If the confirmation proves to be inaccurate, the Takeover Panel may direct the person who gave the confirmation to provide the necessary resources unless the Takeover Panel is satisfied that the person acted responsibly and took all reasonable steps to ensure the cash was available. A bidder that makes a Rule 2.5 Announcement is bound to proceed with a formal offer. A Rule 2.5 Announcement must contain all the terms and conditions of the offer; these terms cannot subsequently be altered without the Takeover Panel’s consent.
An offer document issued under the Takeover Rules must include a description of how the offer is being financed and the source of finance (including the repayment terms and names of lenders).
In the event that the offer of consideration includes securities of a company, the offer document must include additional financial and other information in relation to that company and dealings in its securities under the Takeover Rules. A valuation report must also be provided in the case of an offer structured as a scheme of arrangement.
If transferable securities are to be offered, the bidder must publish either a prospectus or a document containing equivalent information. A prospectus or equivalent document must be approved by the Central Bank or the competent authority of another EEA member state and passported into Ireland.Minority squeeze-out
May minority stockholders of a public company be squeezed out? If so, what steps must be taken and what is the time frame for the process?
When an offer is made in order to gain 100 per cent control of the target, the buyer may use a statutory procedure to compulsorily acquire the shares of dissenting shareholders (the squeeze-out procedure).
Under regulation 23 of the Takeover Regulations, the relevant threshold for triggering the squeeze out procedure where the target is fully listed on a regulated market in any EU or EEA member state (such as the MSM or the London Stock Exchange) is the acquisition of 90 per cent of the issued share capital. A bidder has three months from the last closing date of the offer to give notice to dissenting shareholders that it wishes to exercise its rights under regulation 23. Once a notice has been served, a dissenting shareholder has 21 days to apply to the High Court for relief.
The relevant threshold for triggering the squeeze-out procedure where the target is listed on ESM or AIM of the London Stock Exchange, NASDAQ or NYSE, is set out in the Companies Act. A bidder must receive 80 per cent acceptances in value within four months of the publication of the offer in order to trigger the squeeze-out procedure. If the bidder already holds 20 per cent or more of the shares in the target, it must receive acceptances from shareholders holding 80 per cent in value of the remaining target shares and receive acceptances from at least 50 per cent in number of the holders of the target shares which are the subject of the offer. Once a notice has been served, a dissenting shareholder has one calendar month to apply to the High Court for relief.
In addition to the squeeze-out procedure, once the relevant threshold is achieved, the remaining minority shareholders can exercise buyout rights requiring the bidder to purchase their shares.
In the case of schemes of arrangement, approval of a majority of the shareholders of each class, representing not less than 75 per cent of the shares of each class, present and voting, in person or by proxy, at a general, or relevant class, meeting of the target company is required. The scheme of arrangement also requires the sanction of the High Court. Subject to the requisite shareholder approval and sanction of the High Court, the scheme will be binding on all shareholders.Waiting or notification periods
Other than as set forth in the competition laws, what are the relevant waiting or notification periods for completing business combinations or acquisitions involving public companies?
In 2009, the European Communities (Assessment of Acquisitions in the Financial Sector) Regulations 2009 (the Assessment of Acquisitions in the Financial Sector Regulations) came into effect in Ireland, implementing Directive 2007/44/EC of the European Parliament and of the Council of 5 September 2007 into domestic law. The main objectives of these regulations were to do the following:
- create greater transparency in the financial services sector;
- assist the local financial services regulators in their supervisory roles over the sector;
- harmonise information provided by relevant firms on the notification and assessment procedures to be followed with regard to acquiring and disposing transactions in the financial services sector; and
- enhance the existing anti-money laundering regime in Europe.
The Central Bank is the body designated to supervise acquiring or disposing transactions in the Irish financial sector and has issued a notification form to notify of a proposed acquisition of, or increase in, a direct or indirect qualifying holding in respect of any of the prescribed categories of Irish authorised entities under these regulations. The Central Bank uses the information provided in the form to examine whether there are prudential grounds upon which it should object to the transaction and if it ought to impose any conditions on an approval of the acquisition.
The Assessment of Acquisitions in the Financial Sector Regulations apply to the following categories of entities:
- credit institutions;
- insurance or assurance undertakings;
- reinsurance undertakings;
- investment firms or a market operators of regulated markets (MIFID firms); and
- UCITS management companies.
The Assessment of Acquisitions in the Financial Sector Regulations apply to transactions involving the acquisition, directly or indirectly, of a ‘qualifying holding’ in a target entity. They also apply to the direct or indirect increase in a ‘qualifying holding’, whereby the resulting holding would reach, or exceed, 20, 33 or 50 per cent of the capital of, or voting rights in, a target entity, or a target entity would become the proposed acquirer’s subsidiary.
A ‘qualifying holding’ means 10 per cent or more of the capital of, or voting rights in, a target entity or a holding that makes it possible to exercise a ‘significant influence’ over the management of a target entity.
The Assessment of Acquisitions in the Financial Sector Regulations also apply on the disposal of a qualifying holding or a holding which results in the disposer’s interest in the target entity falling below the thresholds above or results in the target entity ceasing to be a subsidiary of the disposer.
A complete notification must be acknowledged in writing by the Central Bank within two working days of receipt of the notification form and it is required to carry out the assessment of a proposed acquisition within 60 working days of the date of the written acknowledgement. The Central Bank may request additional information in respect of a proposed acquisition no later than the 50th working day. Such a request for additional information will interrupt the assessment period until a response is received or 20 working days have elapsed. In certain circumstances the interruption period may be extended to 30 working days.
The Central Bank may, based on a prudential assessment of the proposed acquisition, decide to oppose or to approve of a proposed acquisition. In assessing a proposed acquisition, the Central Bank will look at:
- the likely influence of the proposed acquirer on the financial institution concerned; and
- the suitability of the proposed acquirer and the financial soundness of the proposed acquisition based on the reputation of the entities, whether the entity can and will continue to comply with financial legislation.
The Central Bank may set a maximum period within which the proposed acquisition is to be completed or may impose additional conditions or requirements to be met in respect of a proposed acquisition. If it decides to oppose an acquisition, it must, within two working days of the decision being made (and before the end of the assessment period), inform the proposed acquirer in writing and outline the reasons for its decision. This decision may be appealed to the High Court.
See also questions 2, 14 and 17.
Other considerationsTax issues
What are the basic tax issues involved in business combinations or acquisitions involving public companies?
Where an Irish public company is to be acquired by a target company by way of a scheme of arrangement structured as a cancellation scheme (rather than a share transfer), no stamp duty arises. This is because no share transfer takes place in circumstances where the old shares are cancelled and the new shares are issued to the acquiring target company. Stamp duty may arise on a takeover offer and a scheme of arrangement structured as a share transfer at a rate of 1 per cent. Stamp duty is payable by the purchaser and is payable on the higher of the consideration or the market value of the shares.
The most significant tax issue for asset or share acquisitions of public companies is stamp duty. As mentioned above, the rate of stamp duty payable on transfers of shares is 1 per cent. The rate of stamp duty payable on the transfer of non-residential property increased from 2 per cent to 6 per cent for transactions on or after 11 October 2017. The 6 per cent rate generally applies to transfers of property that are non-residential property, however, certain exemptions and reliefs can apply. For example, the transfer of intellectual property and loan capital can qualify for exemptions from Irish stamp duty. In addition, relief is available for intragroup transfers or reorganisations.
In recent years, the paper stamping system was abolished and replaced with e-stamping which means that stamp duty returns and stamp duty payments must be made online through Irish Revenue Commissioner’s Online Service (ROS). A full ‘self-assessment’ regime for stamp duty now applies which means that each stamp duty return must contain an assessment of the amount of stamp duty that, to the best of the purchaser’s knowledge, information and belief, ought to be payable. Stamp duty due must be paid within 30 days of the date of execution of the transfer instrument. However, in practice, the Irish Revenue Commissioners allow a further period of 14 days in which to file an e-stamping return and pay the stamp duty.Labour and employee benefits
What is the basic regulatory framework governing labour and employee benefits in a business combination or acquisition involving a public company?
In a public offer governed by the Takeover Rules, a bidder is obliged in its offer document to state its strategic plans for the target company and their likely repercussions on employment and on the locations of the target’s places of business, together with its intentions with regard to safeguarding the employment of the employees and management of the target and of its subsidiaries (including any material change in the conditions of employment).
Simultaneously with the dispatch of the offer document, both the bidder and the target must make the offer document readily available to the representatives of their respective employees or, where there are no such representatives, to the employees themselves.
The board of the target company is required to state in its response circular its opinion on: the effects of implementation of the bid on all the target’s interests including, specifically, employment; the bidder’s strategic plans for the target and their likely repercussions on employment and on the locations of the target’s places of business, as set out in the offer document; and the board’s reasons for forming its opinion.
The response circular, to the extent that it is not incorporated in the offer document, must be made available to the target’s employee representatives or, where there are no such representatives, to the employees themselves. Provided it is received in good time before the dispatch of the circular, the target board must append to the response circular any opinion that it receives from the target company’s employee representatives on the effects of the offer on employment.
Under the Cross-Border Mergers Regulations, an employee’s rights and obligations arising from his or her contract of employment will transfer to the successor company. The Cross-Border Mergers Regulations also specifically protect ‘employee participation rights’ if a system for such employee participation currently exists in any of the merging companies.
Employees will remain employed by the target company, and the transaction will not generally affect the terms of employment of the employees of the target company. In certain circumstances, employees will have negotiated a change of control clause in their contract that may grant additional rights (for example, the right to resign without giving the statutory notice period or the right to be paid a severance sum). In addition, there may be broader obligations to inform and consult with trade unions or other employee representatives bodies (including any works councils that may exist) about a proposed takeover, perhaps under the terms of any separate information and consultation agreement, collective agreement, agreement with a works council or with any other employee representative body. In any event, best practice would be to keep employees informed of the transaction so as to avoid employee relations issues.
Further, subsequent business restructuring or rationalisation measures could trigger a requirement for the relevant employing entity to make redundancies, in turn possible triggering collective redundancy consultation obligations under the Protection of Employment Act 1977, as amended (the Collective Redundancies Legislation), and exposure to potential liability for employment-related claims, including unfair dismissal and discriminatory dismissal. Failure to comply with the appropriate notification and consultation obligations under the Collective Redundancies Legislation (where applicable) may result in a claim against the employer by any one of the employees where an Adjudication Officer of the Workplace Relations Commission can award compensation of up to four weeks’ gross remuneration per employee. Criminal sanctions may also be imposed on an employer for failure to comply with the provisions of the Collective Redundancies Legislation, which include a potential fine of up to €250,000 where collective redundancies are effected by an employer before the expiry of the 30-day period. Where an employer fails to initiate consultations with employee representatives or fails to furnish to them the required information, then there is a potential fine of €5,000 on summary conviction.Restructuring, bankruptcy or receivership
What are the special considerations for business combinations or acquisitions involving a target company that is in bankruptcy or receivership or engaged in a similar restructuring?
Any buyer of a target company (or the assets of a target company) that is in receivership or liquidation will need to satisfy itself that the receiver or liquidator (as appropriate) has been validly appointed. In the context of purchasing assets from a company in receivership, the buyer should request, at the very least, a copy of the deed of appointment and charge documentation. In a liquidation, the buyer will want to satisfy itself that the liquidator was appointed validly by court order or pursuant to a duly executed creditors’ voluntary liquidation process. Searches of the Irish Companies Registration Office should be carried out.Anti-corruption and sanctions
What are the anti-corruption, anti-bribery and economic sanctions considerations in connection with business combinations with, or acquisitions of, a public company?
When considering a business combination, purchasers should consider potential liabilities arising from non-compliance with the Irish anti-corruption and bribery regimes and the sanctions which may result.
Anti-corruption legislation in Ireland generally prohibits bribery of both public officials and private individuals committed in Ireland and, in certain circumstances (where the donor has a connection with Ireland), committed abroad. In contrast with other jurisdictions, the offences under Irish legislation do not generally distinguish between the bribery of persons working in a public or private body with limited exceptions (for example, the presumption of corruption only applies to public officials).
The principal statutory source of bribery law in Ireland is the Criminal Justice (Corruption Offences) Act 2018 (the Corruption Offences Act). The Act that commenced on 30 July 2018 consolidated the existing anti-corruption laws and introduced a number of new offences. The Corruption Offences Act prohibits both ‘active’ bribery (making a bribe) and ‘passive’ bribery (receiving a bribe). A person is guilty of passive bribery if he or she corruptly accepts, agrees to accept or agrees to obtain a gift, consideration or advantage, for himself or any other person, as an inducement, reward or on account of the agent doing any act, or making any omission, in relation to the agent’s position, or his or her principal’s affairs or business. A person is guilty of active bribery if he or she corruptly gives, agrees to give or offers a gift, consideration or advantage to an agent or any other person, as an inducement to, or reward for, or otherwise on account of the agent doing any act, or making any omission, in relation to his or her office or his or her principal’s affairs or business.
One of the most important developments in the Corruption Offences Act is the new corporate liability offence which allows for a corporate body to be held liable for the corrupt actions committed for its benefit by any director, manager, secretary, employee, agent or subsidiary. The single defence available to corporates for this offence is demonstrating that the company took ‘all reasonable steps and exercised all due diligence’ to avoid the offence being committed. In practice, therefore, companies need to ensure that they have robust anti-bribery and corruption policies and procedures in place.
A company can also be found liable under common law for the criminal acts carried out by its officers and employees by way of vicarious liability. Vicarious liability deems the company liable for the acts of its employees, but those acts remain the acts of the employees and not of the company. The company can also be directly liable where crimes of the company’s controlling officers are viewed as those of the company. This ‘identification’ doctrine has been accepted by the Irish courts in a civil context, although there are no reported decisions of the Irish courts in a criminal context.
Extraterritorial jurisdiction exists under the Corruption Offences Act in relation to corruption occurring outside Ireland where the acts are committed by Irish persons or entities or take place at least partially in Ireland.
Under the Corruption Offences Act, an officer of a company that commits an offence under the legislation will also be guilty of an offence, if the offence is proved to have been committed with the consent, connivance or approval of the officer, or is attributable to the neglect of the company’s officers. However, to date, there are currently no recorded prosecutions of companies or their officers under Irish anti-corruption legislation.
The Corruption Offences Act also provides for various presumptions of corruption in respect of certain corruption offences where, for example, a gift has been given to a public official or a connected person of a public official by a person who has an interest in the discharge by the official of any of a number of prescribed functions.
Depending on the nature of the transaction, a successor entity can be held liable for a prior offence committed by the target entity of bribery or corruption. Therefore, it is very important that a company’s anti-bribery and corruption policies and procedures are reviewed and analysed in advance of any business merger or acquisition.
There are a number of criminal and civil sanctions open to companies if found guilty of an offence under Irish anti-bribery and anti-corruption law.
Under the Corruption Offences Act, a person or business guilty of either a corruption offence or the discrete offence of corruption in office, is liable on summary conviction to a minor fine or imprisonment for a term not exceeding 12 months. A person convicted on indictment is liable to an unlimited fine or imprisonment for a term not exceeding 10 years or both.
There are restrictions on tendering for public contracts at both Irish and EU level following a conviction for an offence under anti-bribery or anti-corruption law. Where a breach of Irish bribery law is committed by a company in connection with a project funded by the World Bank and other international financial institutions, such companies may be debarred from bidding on contracts funded by the World Bank, International Monetary Fund and other international financial institutions, and publicly named.
Update and trendsKey Developments
What are the current trends in public mergers and acquisitions in your jurisdiction? What can we expect in the near future? Are there current proposals to change the regulatory or statutory framework governing M&A or the financial sector in a way that could affect business combinations with, or acquisitions of, a public company?
Takeover activity during the year to 30 June 2018 was at its lowest level since 2014 with the Takeover Panel supervising just one takeover. However, notwithstanding the very low number of takeovers supervised, the Takeover Panel reported that it was engaged in a number of regulatory issues that did not result in an offer being made. In its Annual Report 2018, the Takeover Panel noted that, following Brexit, certain Irish registered companies whose securities are listed only on a regulated market in the UK, and that are currently regulated on a split basis between the Takeover Panel and the UK Takeover Panel under the Takeover Regulations, will no longer be subject to the jurisdiction of the UK Takeover Panel in the event of their being the subject of a takeover offer. Instead, they will be regulated solely by the Takeover Panel under the Takeover Panel Act. The Takeover Panel has confirmed that it is currently reviewing the regulatory situation with regard to these companies in order to ensure, insofar as practicable, that transactions involving them are not adversely affected by such changes in the regulatory regime.
A question that currently presents itself in the context of Brexit is whether or not it is possible for an Irish company to enter into a cross-border merger into the UK in the event of a hard or no-deal Brexit (and indeed, the possibility of a UK company merging into an Irish company in such a scenario). Part of the prescribed procedure as set out in the Cross-Border Mergers Regulations and the relevant UK regulations, the Companies (Cross-Border Mergers) Regulations 2007 (the UK Regulations), involves obtaining a pre-merger certificate from both the High Court in Ireland and the High Court in the UK. Subsequently the merging entities apply to the High Court in the jurisdiction of the successor company for an order confirming the merger and its effective date (a Court Order). For merging companies with no employees, the full process of an Ireland/UK cross-border merger is likely to take in the region of four to six months. As things currently stand, in the event of a hard or no-deal Brexit on 29 March 2019, Irish companies will not be able to complete a cross-border merger into the UK that has not been finally sanctioned by the High Court in the UK pursuant to a Court Order prior to that date. The UK government has proposed draft legislation that would revoke the UK Regulations if the UK leaves the EU without a withdrawal agreement, meaning that there would be no legal framework in the UK to facilitate cross-border mergers post 29 March 2019. In addition, as the Cross-Border Mergers Regulations do not permit a merger into a non-EEA jurisdiction, the relevant legal framework would also not exist to enable the High Court in Ireland to sanction a merger of a UK company into an Irish company in the event of a hard or no-deal Brexit. From a practical perspective, if an Ireland/UK cross-border merger transaction was to commence now or any time before the final outcome of the Brexit negotiations are confirmed, then it would need to be established that both the Irish High Court and the UK High Court would agree to start the process, through the issuance of a pre-merger certificate, without certainty as to its outcome. We are not aware of this point having been tested in Ireland or the UK yet, but our initial view is that the respective High Courts would be minded to allow the process to begin provided the significant uncertainty regarding whether or not the process would be able to complete was made clear in the relevant documents.
Additionally, the European Commission has published a proposal for a directive to amend Directive (EU) 2017/1132 relating to certain aspects of company law. This proposal aims to provide procedures for cross-border conversions, divisions and mergers to foster cross-border mobility and afford adequate protection to company stakeholders.