Preface

This briefing is intended to provide only a summary of the main legal requirements and general principles applicable to a listed Guernsey company and is not intended to be comprehensive in its scope. It is recommended that a client seeks legal advice on any proposed transaction prior to taking steps to implement it.

A series of briefings on other aspects of Guernsey law have been produced by Ogier and are available on request.

This briefing has been prepared on the basis of the law and practice as at 15 June 2009

Introduction

Currently, the City Code on Takeovers and Mergers (the “Code”), which is issued by the Panel on Takeovers and Mergers of the UK (the “Panel”), applies to offers made for “public” companies which have their registered office in Guernsey if either their shares are listed on a regulated market in the UK or on any stock exchange in the Channel Islands or the Isle of Man or if they are considered by the Panel to have their place of central management and control in the UK, the Channel Islands or the Isle of Man. Application to “private” companies is also possible in limited circumstances. (Guernsey companies law does not distinguish between “public” and “private” companies).

Since the creation of the Panel in 1968, it has acted in a non-statutory capacity and has developed the Code to reflect the collective opinion of those professionally involved in the field of takeovers and mergers as to appropriate business standards and how to achieve fairness for shareholders and an orderly framework for takeovers and mergers.

The European Union’s Directive on Takeover Bids (2004/25/EC)

Following the implementation in the UK of the European Union’s Directive on Takeover Bids (2004/25/EC) (the “Directive”) by the enactment of Chapter 1 of Part 28 of the UK’s Companies Act 2006 on 6 April 2007, the rules set out in the Code, which are derived from the Directive, now have a statutory basis in the UK.

From 6 April 2007, therefore, the Panel was granted statutory powers of enforcement in relation to all offers and other statutory mergers to which the Code applies, apart from those relating to Channel Islands and Isle of Man companies.

Guernsey’s approach to the Directive

Whilst the Panel still has non-statutory powers in relation to offers made for certain Guernsey companies, the Commerce and Employment Department of Guernsey (the “Department”) has proposed, in order for Guernsey companies and shareholders in such companies to continue to benefit from the protections provided by the Panel, to enact a law that will allow Guernsey to appoint a panel on takeovers and mergers and adopt a code in relation to takeovers and mergers. It is envisaged that this will have the effect of formalising the existing arrangement that the Panel has for applying the Code to Guernsey companies and will also allow Guernsey to show compatibility with the Directive and thus to show compliance with international standards.

The Code does not apply to offers for “open-ended investment companies”. However, it should be noted that the definition is different from “open-ended investment companies” under the Protection of Investors Law (Bailiwick of Guernsey) Law, 1987 (as amended).

The Companies (Panel on Takeovers and Mergers) Ordinance, 2009

To ensure the Panel’s functions and powers under Guernsey law are equivalent to those under UK law, the States of Guernsey resolved to approve the Companies (Panel on Takeovers and Mergers) Ordinance, 2009 on 29 April 2009. The Ordinance will amend the Companies (Guernsey) Law, 2008 (as amended) (“Companies Law”) with effect from 1 July 2009.

Following the amendment of the Companies Law on 1 July 2009, the Department is expected to, by regulation, appoint a body to oversee takeovers and mergers. This body is intended to be the Panel although it will be possible to appoint another body should the need ever arise.

The Companies Law will require the Panel to make rules giving effect to the relevant articles of the Directive and it is expected that the Code will constitute such rules, thereby becoming of statutory effect in Guernsey. The Companies Law will also gives the Panel power to give rulings on the interpretation of the rules, provide directions and require disclosure of information.

There are obligations for mutual co-operation between the Guernsey Financial Services Commission and the Panel. Provision is also made in the Companies Law for review and appeals of the Panel’s decisions, sanctions for non-compliance with the rules, compensation and enforcement by the Royal Court in Guernsey.

This initiative is separate to the commencement of The Competition (Enabling Provisions) Law 2009, which came into force on 10 June 2009 and which empowers the Sates of Guernsey by Ordinance to make provision in relation to the abuse of a dominant position by undertakings, anti-competitive practices by undertakings and the merger and acquisition of undertakings.

Summary

The appointment by the Department of the Panel is expected to be made shortly after the Companies Law is amended by the Ordinance (i.e. after 1 July 2009) and, once appointed, it will put the Panel’s authority in Guernsey on a statutory footing, equivalent to their powers in the UK. Whilst acquirers of Guernsey companies which have their shares listed on a regulated market or which are managed and controlled in Guernsey will no doubt continue to observe the Code, they should be aware of the soon to be statutory powers of the Panel, and application of the Code, in Guernsey. These changes are in line with similar initiatives in Jersey and the Isle of Man.