Scope of Takeover Code to be narrowed

The scope of the companies subject to the Takeover Code is being narrowed from 3 February 2025 to focus solely on companies which are registered in the UK, the Channel Islands, or the Isle of Man and whose securities are (or were recently) admitted to trading in one of those jurisdictions. 

In order to allow companies that will cease to be subject to the Takeover Code as a result of these changes to make appropriate adjustments, there will be a two-year transition period.

The final rules have changed little from the draft proposals published for consultation by the Takeover Panel earlier this year except that the length of each of the transition period and the run-off period following delisting will now be two years (rather than the three years originally proposed). 

The Takeover Panel has also published a new page on its website to clarify further the companies to which the Takeover Code does and does not apply. This page includes diagrams to show the operation of the transitional arrangements for companies caught by them.

Summary of changes

The key aspects of the new regime include:

• Fewer companies will be subject to the Takeover Code: a UK, Channel Islands, or Isle of Man registered company will be subject to the Takeover Code only if: (a) it is listed in such a jurisdiction; or (b) the company was listed in such a jurisdiction at any time during the two years prior to the relevant date.

This means that, from 3 February 2025 and subject to the transitional arrangements (see below), the UK, Channel Islands, or Isle of Man registered companies to which the Takeover Code will no longer apply include: 

• a public or private company which was listed in such a jurisdiction more than two years prior to the relevant date;
• a public or private company whose securities are, or were previously, traded solely on an overseas market;
• a public or private company whose securities are, or were previously, traded using a “matched bargain facility” such as Asset Match or JP Jenkins;
• any other “unlisted” public company; and
• a private company which filed a prospectus at any time during the ten years prior to the relevant date,

unless the company has been listed in such a jurisdiction at any time during the two years prior to the relevant date.

• Transitional arrangements apply for two years: transitional arrangements will be introduced for companies which are subject to the Takeover Code immediately prior to 3 February 2025 but which will fall outside the scope of the new regime. These transition companies will cease to be subject to the Takeover Code by no later than the end of the transition period which will be 3 February 2027.

This transition period will allow such companies to adjust to the new regime and, if desired, to put in place alternative arrangements e.g. amendments to Articles of Association to introduce provisions analogous to certain Takeover Code provisions, or to provide exit opportunities to shareholders if they do not want to be shareholders in a company with no Takeover Code protections. 

The transitional arrangements do not apply to UK, Channel Islands, and Isle of Man registered companies which are admitted to trading on a UK regulated market, a UK multilateral trading facility, or a stock exchange in the Channel Islands or the Isle of Man. This is because any such company will continue to be a Takeover Code company under the new regime.

The two principal platforms which provide matched bargain facilities (Asset Match and JP Jenkins) have agreed to write to the UK registered companies whose securities are traded via their platforms to inform them that they will be transition companies and flag the implications of these Takeover Code amendments.

• Residency test is abolished: the current residency test will be abolished except that it will continue to apply to companies subject to the transitional arrangements. The residency test means that certain companies are only subject to the Takeover Code if they have their place of central management and control in the UK, Channel Islands, or Isle of Man.
• Takeover Code to apply for two years after delisting: under the new regime, where a UK, Channel Islands, or Isle of Man registered company cancels the admission of its securities to trading on a UK regulated market, a UK multilateral trading facility, or a stock exchange in the Channel Islands or the Isle of Man, it will continue to be subject to the Takeover Code for two years (whereas the Takeover Code currently only applies to such a company if it meets the residency test). This will be the case even if the company’s securities will instead be admitted to trading on an overseas market. As described below, this will not apply to companies which become wholly-owned subsidiaries on delisting.

In addition, the company which is delisting will be required to consult the Takeover Panel to seek guidance as to an appropriate disclosure to its shareholders about the fact that, as a result of the delisting, the company will enter a two-year run-off period, following which the Takeover Code will cease to apply. The Takeover Panel also intends to publish, prior to 3 February 2025, a note to advisers on the cancellation of admission to trading.

• Wholly-owned subsidiaries not subject to the Takeover Code: the changes also codify the Takeover Panel’s existing practice of not applying the Takeover Code to companies with a sole beneficial owner (e.g. wholly-owned subsidiaries).
• Enhanced ability to waive application of Takeover Code: the changes provide for the Takeover Panel to be able to grant a waiver from the application of some or all of the provisions of the Takeover Code in respect of a company which is not UK-quoted (rather than, currently, solely in respect of statutory, chartered, and private companies). This will apply to transition companies and also to companies in their two-year run-off period after delisting. However, in relation to the latter, the Takeover Panel states that it is unlikely that it would grant a waiver to a company simply as a result of its having ceased to be UK quoted within the previous two years.

Next steps

The changes will take effect on 3 February 2025. 

Click here for the Takeover Panel’s response to its consultation.

Click here for the Takeover Panel’s original consultation paper.

Comment

The Takeover Code’s current jurisdictional rules can be complex and it is not always clear, even to companies themselves, whether the Takeover Code applies. The introduction of streamlined and clearer rules is therefore welcomed.