Companies Act 2006 – ANNEX A

TRANSPOSITION NOTES

Part 28: Takeovers, etc. – Directive on Takeovers Bids (2004/25/EC)

The Takeovers Directive

1731. Part 28 of the Act implements Directive 2004/25 EC of the European Parliament and
of the Council of 21 April 2004 on Takeover Bids (OJ L142, 30 April 2004).

1732. The Takeovers Directive lays down, for the first time, minimum EU rules concerning
the regulation of takeovers of companies whose shares are traded on a regulated market. The
Directive was one of the measures adopted under the EU Financial Services Action Plan and
aims to strengthen the Single Market in financial services by facilitating cross-border
restructuring and enhancing minority shareholder protection.

1733. The Takeovers Directive contains general principles that Member States must adhere
to in regulating takeover activity and a framework relating to the functions and jurisdiction of
takeover regulatory authorities. It also lays down provisions relating to the mandatory bid (a
requirement whereby a party gaining control of a company must make an offer to all
shareholders at an equitable price), takeover bid documentation, time allowed for acceptance
of the bid, the obligations of the board of the offeree company and other matters related to the
bid.

1734. Additionally, the Takeovers Directive has provisions addressing barriers to takeovers
(such as action that might be taken by a company or its board before or during a bid to
prevent a takeover), requiring disclosure of certain information by companies traded on a
regulated market and dealing with the problems of, and for, residual minority shareholders
following a successful takeover bid (so-called ‘squeeze-out’ and ‘sell-out’ provisions).

The Takeovers Directive (Interim Implementation) Regulations 2006

1735. In view of the fact that the Takeovers Directive was required to be implemented by 20
May 2006, by which date the Act had not completed Parliamentary passage and received
Royal Assent, interim implementation provisions were introduced under section 2(2) of the
European Communities Act 1972 (ECA 1972). These provisions are contained in The
Takeovers Directive (Interim Implementation) Regulations 2006 (S.I. 2006 No.1183). A copy
of those Regulations together with the accompanying Explanatory Memorandum, Regulatory
Impact Assessment and Transposition Notes is available on the website of the Office of
Public Sector Information (http://www.opsi.gov.uk/stat.htm). The Regulations will be
repealed and replaced on commencement of Part 28 of the Act.

Part 28 – Takeovers etc

1736. Since 1968, takeover regulation in the UK has been overseen by the Takeover Panel
administering rules and principles contained in the “City Code on Takeovers and Mergers”.
In order to bring UK takeover regulation within the requirements laid down in the Directive,
Part 28 of the Act is designed to place it within a complete and coherent statutory
framework.

1737. The detailed rules relating to takeover regulation in compliance with the Directive
will be prescribed by the Panel in its Takeover Code, under a statutory rule-making
obligation imposed upon the Panel by the Act (section 943(1)). The Takeover Code has
already been revised with effect from 20 May 2006, on an interim basis under the 2006
Regulations, to make it wholly consistent with the requirements of the Takeovers Directive.

1738. ‘Squeeze-out’ and ‘sell-out’ provisions were previously prescribed by Part 13A of the
1985 Act. Chapter 3 of Part 28 of the Act replaces those provisions in their entirety with
certain amendments which ensure they are wholly consistent with the Takeovers Directive
requirements.

1739. Provisions related to disclosures by companies are contained in Part 7 of the 1985 Act
and amendments to that Part are made in Chapter 4 of Part 28 to give effect to the additional
disclosure requirements imposed by the Takeovers Directive on companies traded on a
regulated market.

1740. Responsibility for the measures, described in this transposition note, taken to
implement the Takeovers Directive lies with the Secretary of State for Trade and Industry.

1741. The table below describes the substantive provisions implementing the Takeovers
Directive.

Part 24: Takeovers etc: Transposition Measures

Article Objective Implementation

1 Defines the scope of Directive in terms of
transactions and types of company to which it
applies (“takeover bids for the securities of
companies governed by the laws of Member
States, where all or some of those securities
are admitted to trading on a regulated
market”).

No specific implementing provision
necessary.

2 Contains key definitions for the purposes of
the Directive (such as, “takeover bid”,
“offeree company”, and “securities”).

No specific implementing provision
necessary.

3.1 Lays down general principles which Member
States shall ensure are adhered to for the
purpose of implementing the Directive.

Section 943(1) requires that the Panel give
effect to the general principles set out at
Article 3.1 of the Directive in the exercise
of their statutory rule-making duty.

3.2 Provides that Member States may, in ensuring
that the minimum requirements laid down by
the Directive are adhered to, lay down
additional conditions and provisions more
stringent than those of the Directive.

No specific implementing provision
necessary.

4.1 Requires Member States to designate
supervisory authorities (which must act
independently of parties to a bid).

This will be achieved by administrative
designation of the Takeover Panel as
supervisory authority for the purposes of
the Directive.

4.2 Lays down jurisdictional rules in relation to
takeover regulation

Section 943(1) requires that the Panel give
effect to the jurisdictional provisions of the
Directive in the exercise of their statutory
rule-making duty.

4.3 Requires Member States to ensure that
persons employed or formerly employed by
takeover regulatory authorities are bound by
professional secrecy (information covered by
this obligation should not be disclosed other
than under conditions laid down by national
law).

Section 949 makes it a criminal offence to
disclose information provided to the
Takeover Panel other than under the
circumstances and gateways laid down in
section 948 and Schedule 2.

4.4 Lays down cooperation obligations in relation
to EU takeover and financial markets
supervisory authorities.

Section 950 requires the Takeover Panel to
cooperate with EU takeover and financial
services regulators. The existing
cooperation duties of the Financial
Services Authority under section 354 of
the Financial Services and Markets Act
2000 are extended to include relevant
authorities (section 964).

4.5 Requires that takeover supervisory authorities
be provided with all powers necessary for
carrying out their duties and provides that
Member States may, provided that the general
principles are respected, permit derogation
from the rules of the Directive in certain
circumstances and grant supervisory
authorities the power to grant waivers.

In addition to the rule-making duty at
section 943(1) and rule-making powers at
section 943(2), the following powers are
provided to the Takeover Panel:

Section 945 – power to make rulings

Section 946 – power to give directions

Section 947 – power to require documents
and information

Section 952 – power to set down sanctions
by rules

Section 954 – power to order
compensation in certain circumstances

Section 955 – power to apply to the court
for enforcement

Section 960 – power to bring and defend
proceedings.

Section 944(1) authorises the Takeover
Panel to provide for derogations and
waivers in certain circumstances from
rules made under section 943.

4.6 Makes provision for certain Member States’
powers to be unaffected by the Directive (for
instance, designation of judicial or other
authorities responsible for dealing with disputes, the circumstances in which parties
may bring administrative or judicial
proceedings, any capacity of the courts to
decline to hear legal proceedings and the
liability of supervisory authorities).

Section 951 provides for matters relating
to reviews of and appeals from Takeover
Panel decisions to be contained in the rules
made by the Panel.

Section 945(2) provides that a ruling of the
Takeover Panel is to have binding effect
(subject to provisions in the Panel’s rules
and any review or appeal).

Section 956 provides that there shall be no
action for breach of statutory duty, or any
voidness or unenforceability of
transactions, as a result of breach of rules
made by the Panel.

Section 961 provides for exemption of the
Takeover Panel (and those involved in its
functions) from liability in damages in
certain circumstances related to the
regulatory activities of the Panel.

5 Requires that a “mandatory bid rule” is
introduced requiring a person acquiring
“control” of a company to make a bid to all
holders of securities at an equitable price.

Contains rules related to the calculation of the
equitable price.

Section 943(1) requires that the Panel give
effect to the “mandatory bid” and
“equitable price” provisions in the exercise
of their statutory rule-making duty.

6 Requires that the decision to make a takeover
bid is made public.

Contains detailed provision related to the
contents of the takeover offer document.

Requires that the parties to a bid are obliged
to provide supervisory authorities with
information related to the bid.

Section 943(1) requires that the Panel give
effect to the “bid” disclosure and
documentation provisions in the exercise
of its statutory rule-making duty.

Section 947 provides the Takeover Panel
with power to require documents and
information.

7 Lays down rules related to the time allowed
for acceptance of the takeover bid.

Section 943(1) requires that the Panel give
effect to the offer “acceptance” period
provision in the exercise of its statutory
rule-making duty.

8 Requires that takeover bids are made public
so as to ensure market transparency. It also
provides for the disclosure of bid
documentation to shareholders and
employees’ representatives (or, where there
are no such representatives, the employees
directly).

Section 943(1) requires that the Panel give
effect to the bid disclosure provisions in
the exercise of their statutory rule-making
duty.

9 Imposes obligations on the board of the
offeree company, including the obligation not
to take action to frustrate the bid without the
approval of shareholders at the time of the bid
and to draw up and make public a statement
containing their views on the effects of
implementation of the bid.

Section 943(1) requires that the Panel give
effect to the provisions relating to the
obligations of the board of the offeree
company in the exercise of their statutory
rule-making duty.

10 Requires that companies shall publish detailed
information on their share and control
structures, etc. in their annual report and present an explanatory report on such matters
to the annual general meeting of shareholders.

Section 992 (amending Part 7 of the 1985
Act) requires that the relevant information,
including necessary explanatory material, is set out in the annual report of
companies.

11 “Breakthrough” – This provision overrides, in
certain circumstances connected with a
takeover, provisions in the articles of
companies and contractual arrangements
related to restrictions on transfer and voting
rights of shares, etc. It does not apply to
special shares held by Member States or to
cooperatives.

This provision may be made optional by
Member States for companies under the
provisions of article 12.

The right to make these provisions
optional for companies is exercised in the
implementing provisions.

Sections 966 and 967 define the types of
companies, circumstances and
mechanisms by which a company may
opt-in to “breakthrough”.

Section 968 lays down the effect on
contractual restrictions overridden by
“breakthrough”.

12.1 Provides that Member States may make
optional the provisions of articles 9(2) and (3)
and/or Article 11.

Exercise of this option has been taken only
in relation to the provisions of Article 11
(the relevant implementing provisions of
which are described above).

12.2
(and
12.4) Requires, where optional arrangements are in
place, that companies have the right to
voluntarily opt-in to the provisions of the
relevant articles. Such a decision must be
communicated to the supervisory authorities
and be disclosed.

Section 970 requires that any opting-in
decision be communicated to the Takeover
Panel without delay.

The opting-in resolution passed by the
company must be filed with the Registrar
of Companies under section 30.

12.3
(and
12.5) Permits Member States to provide that the
effects of Articles 9(2) and (3) and/or Article
11 only apply on a “reciprocal” basis, i.e.
where the takeover bid is made by a company
also subject to the effects of the relevant
articles. Such restrictions on the application of
Articles 9(2) and (3) and Article 11 shall be
subject to the authorisation of the general
meeting of shareholders of the offeree
company.

The Member State option to provide for
“reciprocity” has not been exercised.

13 Requires that rules relating to the lapsing or
revision of bids, competing bids, disclosure of
results of bids and irrevocability of bids be put
in place.

Section 943(1) requires that the Panel give
effect to the requirement that such rules be
put in place in the exercise of its statutory
rule-making duty.

14 Provides that the Directive shall be without
prejudice to various provisions relating to
information and consultation of employees
and their representatives.

No specific implementing provision
necessary.

15 Requires Member States to put in place rules
enabling a bidder to compulsorily purchase
the shares of minority shareholders following
a successful takeover bid (“squeeze-out”
rights).

The circumstances in which such a right must
apply (including time periods and relevant
thresholds) and relating to the price that must be paid are set out.

“Squeeze-out” rights were previously
contained in the 1985 Act (Part 13A
(sections 428-430F)).

These have been replaced by Chapter 3 of
Part 28 of the Act (necessary amendments
to ensure these provisions are consistent
with Article 15 have been made).

16 Requires Member States to put in place rules
enabling minority shareholders to require a
bidder to compulsorily purchase their shares
following a successful takeover bid (“sell-out”
rights).

The circumstances in which such a rule must
apply (including time periods and relevant
thresholds) and relating to the price that must
be paid are set out.

“Sell-out” rights were previously
contained in the 1985 Act (Part 13A).

These have been replaced by Chapter 3 of
Part 28 of the Act (necessary amendments
to ensure these provisions are consistent
with article 16 have been made).

17 Requires that effective, proportionate and
dissuasive sanctions be put in place.

Sections 952 and 954 provide that the rules
made by the Takeover Panel may confer
power on the Panel to impose sanctions on
those who transgress its rules or order
compensation in certain circumstances.

Section 949 makes it an offence to
contravene the provisions of section 948
(relating to the restrictions on disclosure of
information provided to the Takeover
Panel).

Section 953 provides an offence where
takeover bid documentation does not
comply with Panel rules giving effect to
Articles 6.3 and 9.5 of the Directive.

Misconduct in relation to takeover activity
also needs to be viewed in the wider
context of the overall regulatory
framework and the protections available to
shareholders and others.

A robust market regulatory regime and
company law framework is in place in the
UK to investigate and pursue misconduct
in relation to takeover activity (for
instance, sanctions with stringent sanctions
are already in place to deter fraudulent
misrepresentation or market abuse).

18 Lays down a Committee procedure whereby
the Commission may adopt rules related to the
application of Article 6.3 (contents of
takeover bid documentation).

No implementing provision necessary (no
such rules have been adopted).

19 Requires the EU Commission to establish a
Contact Committee to facilitate the
harmonised application of the Directive and
advise the Commission, if necessary, on any
additions or amendments to the Directive.

No implementing provision necessary.

20 Provides for the review of the Directive by the
EU Commission five years after its entry into
force.

No implementing provision necessary

Requires that Member States provide the Commission annually with certain information related to takeover bids

Such information will be provided to the
EU Commission as an administrative
process.

21 Requires that the relevant provisions of the
Directive be transposed no later than 20 May
2006. Details of transposition measures shall
be communicated to the Commission.

No specific implementing provision necessary (NB paragraph 5 above
regarding the Takeovers Directive (Interim
Implementation) Regulations 2006 which
came into force on 20th May 2006). Details of the transposition measures will
be communicated to the EU Commission
by administrative process.

22 Provides that the Directive enters into force
on 20 May 2004

No implementing provision necessary.

23 Addresses the Directive to the Member States.

No implementing provision necessary.

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