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Impact of Brexit on the UK takeovers regime

Impact of Brexit on the UK takeovers regime

  • United Kingdom
  • Capital market law

13-11-2018

Background

There have been two key documents published which clarify the impact that Brexit will have on the UK takeovers regime.

The draft Takeovers (Amendment) (EU Exit) Regulations 2019 (Takeovers Regulations) essentially remove all references to the EU Takeovers Directive from UK legislation (Part 28 of the Companies Act 2006) and replace these with references that will work once the UK exits the EU. In general, these changes are not substantive, but are required because, subject to the terms of any withdrawal agreement, the EU Takeovers Directive will cease to apply in the UK when the UK exits the EU.

The Panel Consultation Paper on the United Kingdom’s withdrawal from the European Union (PCP 2018/2) (PCP) was published on 5 November 2018. The Code Committee of the Takeover Panel (Code Committee) proposes certain changes to the Takeover Code (Code), most of which are a consequence of the UK’s exit from the EU and will not materially alter the operation of the Code. There is one key change in relation to shared jurisdiction, which is discussed below.

Shared jurisdiction regime

What is the shared jurisdiction regime?

Under the current regime, shared jurisdiction will apply where the target has its registered office in one EEA Member State and its shares are admitted to trading on a regulated market (such as the main market of London Stock Exchange) in another EEA Member State (but not also in the Member State where it has its registered office).

Shared jurisdiction rules are currently a requirement of the Takeovers Directive. EEA Member States have to maintain rules to deal with the situation where jurisdiction for supervision of  a takeover bid is shared between the authority in the EEA Member State where the regulated market is located and the Member State where the registered office is situated.

What will happen to this when the UK exits the EU?

The Takeovers Regulations do not require the Takeover Panel (Panel) to retain the current rules on shared jurisdiction in the Code. The Code Committee therefore proposes in the PCP that these provisions are deleted from the Code.

What will be the effect of removing the shared jurisdiction regime? 

The Panel has regulated only eight offers under the shared jurisdiction rules since implementation of the Takeovers Directive (20 May 2006).

Appendix C to the PCP identifies 36 companies to which the shared jurisdiction regime would currently apply. The Code Committee discusses in the PCP a number of options for retaining jurisdiction to continue regulation of bids for these companies, but concludes that none of these options are desirable, and that ending the shared jurisdiction regime is a natural consequence of the UK leaving the EU. The Code Committee does, however, recognise that the companies concerned and their shareholders may prefer that the Code continues to apply.

What are the consequences of removal for companies currently subject to the shared jurisdiction regime?

For shared jurisdiction companies with their registered office in another EEA Member State which are listed in the UK, the majority of the relevant supervisory authorities for the states in which such companies have their registered office have confirmed they will not have jurisdiction where the securities are admitted to trading on a UK regulated market once the Takeovers Directive ceases to apply in the UK. Of the relevant authorities, only the Irish Takeover Panel confirmed that it would have full jurisdiction.

As regards shared jurisdiction companies with their registered office in the UK with securities admitted to trading on a regulated market in another EEA member State (but not the UK), if the proposed Code changes are implemented, the Code will apply if the company meets the residency test. This means that the Panel must be satisfied that the company’s place of central management and control is in the UK, the Channel Islands or the Isle of Man. If the residency test is met, all the Code provisions will apply, but if it is not met, the Code will not apply. It is also possible that offers for such companies could be subject to the rules of another supervisory authority in the EEA – so called dual jurisdiction.

Where offers for a shared jurisdiction company straddle the implementation date, the PCP sets out how the Code will apply.

The proposed Code changes are not expected to have a material impact on the way that the Panel operates or on the conduct of takeover bids in the UK.

Timing

The Takeovers Directive will cease to apply and the Takeovers Regulations and the proposed changes to the Code will come into effect when the UK exits the EU (11 pm on 29 March 2019), or if a transition period is agreed, at the end of such transition period (subject to any other arrangements agreed during the transition period). The consultation on the proposed Code changes set out in the PCP closes on 17 December 2018.

Useful Links

Draft Takeovers (Amendment) (EU Exit) Regulations 2019

Explanatory memorandum

Public Consultation Paper (PCP 2018/2): The United Kingdom’s  Withdrawal from the European Union

For more information contact

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