The Takeover Panel (the Panel) has published a consultation paper (PCP 2015/2) proposing amendments to the definition of “voting rights” in the Takeover Code (the Code) in relation to restrictions on, and suspensions of, voting rights attaching to shares. Responses should be received by the Panel by 11 September 2015.

“Voting rights” are currently defined in the Code as “all the voting rights attributable to the share capital of a company which are currently exercisable at a general meeting”. The Panel is proposing that this definition be amended so that it includes shares which are subject to voting restrictions or suspended voting rights.

The definition of voting rights is important within the Code as it determines whether or not a mandatory offer for a company must be made (a Rule 9 offer). Broadly, a person must make a mandatory offer if it acquires or consolidates control of a company. Control is acquired when a person becomes interested in shares which carry more than 30% of the voting rights in a company, and is consolidated when an interest in shares carrying more than 30% of voting rights increases to between 30% and 50%. As an alternative to making a mandatory offer, the acquisition of an interest in shares which would otherwise give rise to control being acquired or consolidated may be "whitewashed" by seeking the approval of independent shareholders.

Consequently, if a person who would otherwise acquire or consolidate control of a company by becoming interested in additional shares carrying voting rights was to have voting rights suspended or restricted, it could avoid having to make a mandatory offer or seek a whitewash. Even if this is not the intention, restricted or suspended voting rights can make applying the Code more difficult, as it is not always easy to understand when such restrictions or suspensions apply.
Notwithstanding the current definition, the Panel notes that, in practice, it applies the term on the basis that it is not a reference to whether a particular shareholder can exercise the voting rights attaching to particular shares but to the rights attaching to the shares themselves. In other words, if the rights attaching to shares currently include the right to vote at a general meeting, the shares should be treated as shares carrying voting rights, irrespective of whether the voting rights are in practice exercisable by the current shareholder.

For the above reasons, the Panel believes that the definition of “voting rights” should be amended to provide that any shares which are subject to a restriction on the exercise of voting rights or to a suspension of voting rights should, in each case, normally be regarded as having voting rights which are currently exercisable at a general meeting. This would be subject to the following exceptions.

Non-voting shares and convertible shares

It is not proposed that any class of shares which does not carry voting rights in any circumstances (or in the hands of any person), such as a class of non-voting ordinary shares (even where such shares are convertible at any time on a one-for-one basis into voting ordinary shares) be caught by the definition. This is on the basis that the rights attaching to such shares do not include the right to vote prior to any conversion. Additionally, the Panel believes that the Code already contains a clear and well-understood framework in relation to convertible shares. In particular, the Panel points out that the Code provides that the acquisition of non-voting convertible securities does not trigger an obligation for a mandatory offer to be made, but that a subsequent conversion of such securities into securities carrying voting rights will trigger a mandatory offer obligation unless a whitewash was obtained at the time of issue of the convertible securities. The Panel considers that this approach is correct and is not proposing to amend it.

Treasury shares

The Code's definition of “treasury shares” provides that “all percentages of voting rights, share capital and relevant securities are to be calculated by reference to the relevant percentage held and in issue outside treasury”. This wording will remain unchanged, and it is not the Panel's intention that treasury shares be caught by the proposed new definition of "voting shares". It is therefore proposed that treasury shares will be expressly excluded from the revised definition.

The revised definition

The Panel proposes to delete the current definition of “voting rights” and replace it with:
“Voting rights of a company means all the voting rights attributable to its share capital which are currently exercisable at a general meeting.

Except for treasury shares, any shares which are subject to:

  1. a restriction on the exercise of voting rights:
    1. in an undertaking or agreement by or between a shareholder and the company or a third party; or
    2. arising by law or regulation; or
  2. a suspension of voting rights implemented by means of the company’s articles of association or otherwise, will normally be regarded as having voting rights which are currently exercisable at a general meeting.”.


The Panel understands that there may be a small number of companies with suspended voting shares in issue. It advises that, if its proposals are adopted, such companies should consult the Panel to obtain a ruling regarding the application of the Code, taking into account the facts of the particular case.

If adopted, the proposals will require companies which issue shares with suspended voting rights to obtain a whitewash where this would cause the person to whom the shares are issued (together with anyone acting in concert with it), to be interested in 30% or more of the company’s shares carrying voting rights. This is likely to lead to additional advisory and other costs for the company. However, the Panel does not consider that this factor should carry much weight on the basis that its objective is to remove the scope for a company to issue suspended voting shares as a means of avoiding the normal application of Rule 9.

To view a copy of the consultation paper click here. Responses should be received by the Panel by 11 September 2015.