The Companies Act 2006 (Act) represents the largest reform of company law in the United Kingdom for more than 20 years. It is being implemented in stages, with full implementation expected by October 2008. As it will apply to UK M&A activity, the key implications may be summarised as follows:
The Takeover Panel
Since 1968, takeover regulation in the United Kingdom has been overseen by the Panel on Takeovers and Mergers (Panel) which administered rules and principles contained in the non-statutory City Code on Takeovers and Mergers (Code). In order to bring UK takeover regulation within the requirements in the EU Takeovers Directive (Directive), the Act places the Panel’s powers and the Code on a statutory basis, but in practice the Code and the Panel’s position as a non-statutory body and the regulator of M&A in the United Kingdom will remain largely unchanged.
To date, UK takeovers have rarely been the subject of litigation. Will the statutory framework mean that UK takeovers will be battled out in the courts? This is unlikely to be the case—provisions in the new Act are intended to limit litigation by channelling parties to seek decisions of the Panel (with an escalating procedure) before having recourse to the courts; excluding new rights of action for breach of statutory duty; protecting concluded transactions from challenge for breach of the Panel’s rules; and exempting the Panel, its members and staff from liability in damages in connection with the discharge of the Panel’s functions.
The Act will not affect the availability of judicial review by the courts. However, in the UK case of R v Panel on Takeovers, ex parte Datafin plc (1987), the Court of Appeal generally concluded that courts should limit themselves only to reviewing the Panel’s decision making processes after the bid has been concluded. Accordingly, litigation in the context of UK takeovers has been very rare and is not expected to increase significantly.
Squeeze Outs and Sell Outs
"Squeeze outs" and "sell outs" are designed to address the problems resulting from residual minority shareholders following a successful takeover bid. Squeeze-out rights enable a successful bidder to compulsorily purchase the shares of the remaining minority shareholders who have not accepted the offer. Sell-out rights enable minority shareholders, in the wake of a bid, to require the majority shareholder to purchase their shares. The rules in the Directive are broadly consistent with the existing UK companies legislation. Squeeze- and sell-out rights apply on acquiring 90 per cent of the target’s shares, but the Directive goes further in also requiring those shares to carry 90 per cent of the voting rights. This second test is also included in the new Act. In practice, like in the United States, each share generally has one vote, so in most instances there will be no higher threshold to achieve. However, the time period during which the squeeze out rights may be exercised has been changed to three months following the time allowed for acceptance of the bid, and for sell outs, either three months from the end of the offer or, if later, three months of the notice given to shareholders of their rights to exercise sell-out rights.