Pursuant to the Companies (Guernsey) Law, 2008 (Amendment) Ordinance, 2015 (the Ordinance), which is expected to be approved by the States of Guernsey on 29 July 2015, The Companies (Guernsey) Law, 2008 (the Law) will be amended. The minority squeeze-out provisions under the Law will be modified by the Ordinance so as to implement changes arising from industry experience and consultation and, also, to align more closely with the position in the UK.
These changes are an improvement to the current position and will be more familiar to those who use squeeze-out provisions in, for example, the UK as well sitting more comfortably alongside the Takeover Code. Whilst the date on which the amendments will come into force is not certain, we expect these changes to be effective in the second half of 2015 or early in 2016.
Companies which wish to avail themselves of the squeeze-out provisions prior to the commencement of the amendments should prepare documents which adequately anticipate the modified regime. We expect transitional provisions will be enacted clarifying how this might work in practice.
The Current Squeeze-out Regime
The Companies (Guernsey) Law, 2008 provides a simple framework for the compulsory acquisition of minority shareholdings in a takeover scenario.
The current process is set out in Part XVIII of the Law:
- A bidder whose offer is approved by shareholders comprising 90 per cent in value of the shares affected may exercise minority squeeze-out rights.
- Squeeze-out rights are exercised within the period of four to six months following an offer, by notice to any shareholder who initially declined the offer.
- Where such a notice to acquire is given, the bidder is entitled and bound to acquire those shares on the same terms of the initial offer.
- Within one month after the date of the notice to acquire, the bidder must send a copy of the notice to the company, and pay/transfer to the company the consideration required. The company will then register the bidder as the holder of those shares and must pay the consideration into a separate bank account to be held on trust for the relevant shareholders.
- Any dissenting shareholder has the right to apply to the Court to prevent the compulsory acquisition. The Court has the power to cancel a notice to acquire and/or make such order as it sees fit.
Structuring the takeover as an amalgamation or a scheme of arrangement are alternative solutions that are sometimes used to squeeze out minority shareholders.
The Amended Squeeze-out Regime
The law on squeeze-out rights will be clarified, and the process expedited, when the Ordinance comes into force. The following changes will be made:
- A bidder will no longer have to wait until four months after the offer to issue a notice to acquire. The notice can be issued immediately after the last day on which the offer can be accepted, ie on confirmation of approval by shareholders comprising 90 per cent of the value of the shares affected. In practice, subject to having achieved the minimum threshold of 90 per cent shareholder approval, a notice to acquire could be issued within days of an offer being made. This could significantly decrease the timescale to carry out and complete the takeover
- The Law is currently silent in respect of shareholders being given the option of accepting shares or cash or a combination of both. The amendments require a non-accepting shareholder to be given the same options as applied under the original offer and for there also to be a default option in cases where the non-accepting shareholder does not notify the bidder of its choice.
- The amended Law will provide assistance where any shareholders are resident outside Guernsey in jurisdictions whose laws might prohibit or restrict the making of an offer or the giving of a notice to acquire (such as, for example, the US). If that is the case, the offer or notice to acquire can be given by notice in La Gazette Officielle (or in any other manner allowed by the company's articles), instead of being sent to the shareholder.
- When calculating the 90 per cent threshold, certain shares will be deemed not to be "shares affected". These include treasury shares, any shares held by the bidder or its associates and any shares which the bidder is already contracted to acquire.
Guernsey's squeeze-out provisions were in need of modification and the amendments are an improvement on the current regime. Many advisers and their clients will recognise the amendments as more closely reflecting the position in their own jurisdiction and will find the Guernsey regime now provides greater certainty and familiarity.