Background
Last year the Code Committee (the “Committee”) of the Panel on Takeovers and Mergers (the “Panel”) published a consultation proposing amendments to the City Code on Takeovers and Mergers (the “Code”). These proposed amendments were aimed at refocusing the application of the Code to companies which are registered in the U.K., the Channel Islands or the Isle of Man and companies whose securities are (or were recently) admitted to trading on a UK regulated market (such as the main market of the London Stock Exchange’s (LSE) or Aquis Stock Exchange (Aquis)), a U.K. multilateral trading facility (MTF) (such as the LSE’s AIM and Aquis’ Growth Market).
The consultation period closed on 31 July 2024 and the Committee published a Response Statement on 6 November 2024 with a draft Instrument to make the relevant amendments to the Code as detailed in the Response Statement.
How has the Scope of the Code Changed?
Previously the Panel’s jurisdiction was broader and could be applicable to other public or private companies. Prior to the changes some companies which were not UK quoted could be subject to the Code if they satisfied a “residency test” under the Code.
Subject to transitional arrangements (discussed further below), the scope of the Panel’s jurisdiction under the Code has been narrowed so that the Code only applies to any UK registered company if on the “relevant date”:
any of its securities are admitted to trading on a UK regulated market, a UK MTF or any stock exchange in the Channel Islands or the Isle of Man (i.e. if its securities are “UK quoted”); or
if its securities were UK quoted on or after 3 February 2025 and ceased to be UK quoted within the previous two years (this period has been reduced from three years as a result of the consultation),
In each case this is irrespective of whether the company is a ‘UK resident’. The UK residency test, which previously applied to companies that were not UK quoted has been abolished.
Transitional Arrangements
Prior to 3 February 2025, the Code could apply to not only companies which were UK quoted but also to other public companies and certain private companies – which were considered by the Panel to have their central place of management and control in the UK, the Channel Islands or Isle of Man, as these companies could previously be considered “UK residents”.
Following the transitional arrangements, companies that the Code previously applied to but are no longer under the scope of the new regime (to be known as ‘transition companies’), will still be subject to the Code in the same way as they were immediately prior to the changes (including the now abolished residency test). This transition period will last two years and afterwards the Code will cease to apply to all such transition companies.
The reason for a transitional period is to ensure there is an orderly transition to make sure any ‘transition” companies have time to put in alternative arrangements during this period and before they cease to be subject to the Code. For example, these companies may wish to amend their articles of association to put in place “tag along” and “drag along” rights to benefit/protect any minority shareholders (if they don’t have these already).
When did these Changes take Effect?
These Code changes came into effect on 3 February 2025 and the transitional arrangements will therefore end two years from then at 11:59pm on 3 February 2027.
How can Laytons Help
Our Corporate team is able to guide and assist companies through Takeover Code-related issues together with put in place arrangements for “transition” companies such as putting in other protections in their articles of association. If you have any questions regarding the changes to Code or generally, please get in touch with our Corporate team to discuss things further.
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Disclaimer: This publication is provided by Laytons LLP for informational purposes only. The information contained in this publication should not be construed as legal advice. While reasonable care is taken to ensure accuracy, the materials may not reflect the most current legal developments. Any questions or further information regarding the matters discussed in this publication can be directed to Laytons LLP and its Corporate team.