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Section 894: General power to make amendments to this Part

1164. This is a new provision providing the Secretary of State with a power to amend the provisions of Part 25.

PART 26: ARRANGEMENTS AND RECONSTRUCTIONS

1165. The provisions of this Part enable companies to apply to the court for an order sanctioning an arrangement or reconstruction agreed with a majority of members or creditors. They restate sections 425 to 427 of the 1985 Act. In addition to drafting changes resulting from the re-arrangement of the provisions, there are two changes of substance.

1166. Section 899(2) makes clear that the persons who may apply for a court order sanctioning a compromise or arrangement are the same as those who may apply to the court for an order for a meeting (under section 896(2));

1167. Section 901 requires a company to deliver to the registrar a court order that alters the company’s constitution. It also requires that every copy of the company’s articles subsequently issued must be accompanied by a copy of the order, unless the effect of the order has been incorporated into the articles by amendment. These changes are included for consistency with other provisions in the Act concerning such orders.

PART 27: MERGERS AND DIVISIONS OF PUBLIC COMPANIES

1168. The provisions of this Part enable a public company – under certain conditions – to apply to the court for an order under Part 26 sanctioning an arrangement or reconstruction which concerns the merger or division of a public company. They implement the Third Council Directive 78/855/EEC concerning mergers of public limited liability companies and the Sixth Council Directive 82/891/EEC concerning the division of public limited liability companies.

1169. The provisions of this Part restate section 427A and Schedule 15B to the 1985 Act. The opportunity has been taken to put the provisions in a form more closely corresponding to that of the Directives. Chapters 2 and 3 deal separately with mergers and divisions and the provisions within those Chapters broadly follow the order of the provisions of the relevant Directive.

1170. The independence requirements for experts and valuers in sections 936 and 937 are new and correspond to the new independence requirements for a statutory auditor (see section 1214). They include a new power for the Secretary of State to define a disallowed connection for the purposes of determining whether a person is sufficiently independent to be an expert or valuer under this Part. This is consistent with the approach taken in sections 344 and 1151 of the Act.

PART 28: TAKEOVERS ETC

Introduction

1171. This Part implements the European Directive on Takeover Bids (2004/25/EC, the “Takeovers Directive”) which was adopted on 21 April 2004 and had to be implemented by 20 May 2006. It also contains a few minor amendments to the existing law not required by the Directive.

Summary and background

1172. With the exception of Chapter 3 which restates, with amendments, Part 13A of the 1985 Act, the provisions in Part 28 are new. The principal body of provisions emerged from the consultation document, “Company Law – Implementation of the European Directive on Takeover Bids” published by the DTI in January 2005. Additionally, the CLR considered issues related to “squeeze-out” and “sell-out” (concerning the problems of, and for, residual minority shareholders following a successful takeover bid) in Chapter 11 and Annex B of “Completing the Structure” and presented their conclusions in Chapter 13 of the Final Report. Certain provisions in this Part have been developed in the light of these conclusions.

Overview of the Part

1173. The Part is divided into 4 Chapters:

• Chapter 1 deals with matters related to the Takeover Panel and its takeover regulatory functions;

• Chapter 2 concerns matters related to barriers to takeovers;

• Chapter 3 contains provisions relating to “squeeze-out” and “sell-out” (concepts designed to address the problems of, and for, residual minority shareholders following a successful takeover bid); and

• Chapter 4 amends the provisions in Part 7 of the 1985 Act about the content of annual reports of companies traded on a regulated market. Note: It is intended that certain provisions of Part 28 will be extended to unregistered companies with shares traded on a regulated market. This will be achieved by the regulationmaking power at section 1043 of the Act. It is necessary to ensure compliance with the Takeovers Directive.

CHAPTER 1: THE TAKEOVER PANEL

SUMMARY AND BACKGROUND

1174. Since 1968, takeover regulation in the UK has been overseen by the Panel on Takeovers and Mergers (“the Panel”) which administered rules and principles contained in the non-statutory City Code on Takeovers and Mergers. In order to bring UK takeover regulation within the requirements laid down in the Takeovers Directive, Chapter 1 places it within a statutory framework.

1175. The Panel will supervise takeover activity and similar types of transactions. The Panel will retain considerable autonomy to provide for its own constitution and appointment procedures. However, a minimum constitutional structure is laid down, providing for the Panel to make arrangements for carrying out its functions and, in particular, to function through committees, sub-committees, officers and members of staff. It is envisaged that the Panel will continue to carry out its day-to-day activities through its Executive. Provisions underpinning the funding of the Panel’s regulatory activities are also included.

1176. Principally, the Panel is placed under an obligation to make statutory rules giving effect to certain Articles of the Directive. It is also given a statutory rule-making power to make rules in relation to takeover activity and similar types of transactions, reflecting the current field of activity over which the existing Code lays down rules.

1177. Sections 945, 951, 955, 956 and 961 of the Act are intended to limit litigation by: (a) channelling parties to seek decisions of the Panel (including the Panel’s Hearings Committee and the independent Takeover Appeal Board) before having recourse to the courts; (b) excluding new rights of action for breach of statutory duty; (c) protecting concluded transactions from challenge for breach of the Panel’s rules; and (d) exempting the Panel and its individual members, officers and staff from liability in damages for things done in, or in connection with, the discharge of the regulatory functions of the Panel.

1178. The Bill does not affect the availability of judicial review by the courts. In the takeovers field, in the Datafin case (R v Panel on Takeovers, ex parte Datafin plc [1987] QB 815) the Court of Appeal concluded that generally the courts should limit themselves only to reviewing the Panel’s decision-making processes after the bid has been concluded.

179. The Bill confers on the Panel powers to make rulings and directions and to enforce these through the courts, to obtain information and documents from those involved in regulated activities and to impose sanctions on those who transgress its rules.

The Panel and its rules

Section 942: The Panel

1180. This section confers on the Panel the takeover regulatory functions set out in Chapter 1. The Panel is empowered to do anything that it considers necessary or expedient in relation to its prescribed functions and it may also make arrangements for such functions to be carried out on its behalf by a committee or sub-committee of the Panel or an officer or member of staff of the Panel or a person acting as such.

1181. This Chapter does not confer on the Panel the status of a statutory body. The Panel will remain an unincorporated body, as constituted from time to time, and, as such, having rights and obligations under the common law. Those rights and obligations will be supplemented by the specific provisions set out in the Bill.