Company Law Reform Bill [HL]

House of Commons

Session 2005 - 06
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Company Law Reform Bill [HL]

Company Law Reform Bill [HL]
Part 24 — Takeovers etc
Chapter 2 — Impediments to takeovers
326

(3)
The second condition is that—
(a)
the company’s articles of association—
(i)
do not contain any such restrictions as are mentioned in Article
11 of the Takeovers Directive, or
(ii)
if they do contain any such restrictions, provide for the
5
restrictions not to apply at a time when, or in circumstances in
which, they would be disapplied by that Article,

and
(b)
those articles do not contain any other provision which would be
incompatible with that Article.
10
(4)
The third condition is that—
(a)
no shares conferring special rights in the company are held by—
(i)
a minister,
(ii)
a nominee of, or any other person acting on behalf of, a minister,
or
15
(iii)
a company directly or indirectly controlled by a minister,

and
(b)
no such rights are exercisable by or on behalf of a minister under any
enactment.
(5)
A company may revoke an opting-in resolution by a further special resolution
20
(an “opting-out resolution”).
(6)
For the purposes of subsection (3), a reference in Article 11 of the Takeovers
Directive to Article 7(1) or 9 of that Directive is to be read as referring to rules
under section 643(1) giving effect to the relevant Article.
(7)
In subsection (4) “minister” means—
25
(a)
the holder of an office in Her Majesty’s Government in the United
Kingdom;
(b)
the Scottish Ministers;
(c)
a Minister within the meaning given by section 7(3) of the Northern
Ireland Act 1998 (c. 47);
30

and for the purposes of that subsection “minister” also includes the Treasury,
the Board of Trade, the Defence Council and the National Assembly for Wales.
(8)
The Secretary of State may by order subject to negative resolution procedure
provide that subsection (4) applies in relation to a specified person or body that
exercises functions of a public nature as it applies in relation to a minister.
35
“Specified” means specified in the order.
667
Further provision about opting-in and opting-out resolutions
(1)
An opting-in resolution or an opting-out resolution must specify the date from
which it is to have effect (the “effective date”).
(2)
The effective date of an opting-in resolution may not be earlier than the date on
40
which the resolution is passed.
(3)
The second and third conditions in section 666 must be met at the time when
an opting-in resolution is passed, but the first one does not need to be met until
the effective date.

Company Law Reform Bill [HL]
Part 24 — Takeovers etc
Chapter 2 — Impediments to takeovers
327

(4)
An opting-in resolution passed before the time when voting shares of the
company are admitted to trading on a regulated market complies with the
requirement in subsection (1) if, instead of specifying a particular date, it
provides for the resolution to have effect from that time.
(5)
An opting-in resolution passed before the commencement of this section
5
complies with the requirement in subsection (1) if, instead of specifying a
particular date, it provides for the resolution to have effect from that
commencement.
(6)
The effective date of an opting-out resolution may not be earlier than the first
anniversary of the date on which a copy of the opting-in resolution was
10
forwarded to the registrar.
(7)
Where a company has passed an opting-in resolution, any alteration of its
articles of association that would prevent the second condition in section 666
from being met is of no effect until the effective date of an opting-out resolution
passed by the company.
15
Consequences of opting in
668
Effect on contractual restrictions
(1)
The following provisions have effect where a takeover bid is made for an
opted-in company.
(2)
An agreement to which this section applies is invalid in so far as it places any
20
restriction—
(a)
on the transfer to the offeror, or at his direction to another person, of
shares in the company during the offer period;
(b)
on the transfer to any person of shares in the company at a time during
the offer period when the offeror holds shares amounting to not less
25
than 75% in value of all the voting shares in the company;
(c)
on rights to vote at a general meeting of the company that decides
whether to take any action which might result in the frustration of the
bid;
(d)
on rights to vote at a general meeting of the company that—
30
(i)
is the first such meeting to be held after the end of the offer
period, and
(ii)
is held at a time when the offeror holds shares amounting to not
less than 75% in value of all the voting shares in the company.
(3)
This section applies to an agreement—
35
(a)
entered into between a person holding shares in the company and
another such person on or after 21st April 2004, or
(b)
entered into at any time between such a person and the company,

and it applies to such an agreement even if the law applicable to the agreement
(apart from this section) is not the law of a part of the United Kingdom.
40
(4)
The reference in subsection (2)(c) to rights to vote at a general meeting of the
company that decides whether to take any action which might result in the
frustration of the bid includes a reference to rights to vote on a written
resolution concerned with that question.

Company Law Reform Bill [HL]
Part 24 — Takeovers etc
Chapter 2 — Impediments to takeovers
328

(5)
For the purposes of subsection (2)(c), action which might result in the
frustration of a bid is any action of that kind specified in rules under section
643(1) giving effect to Article 9 of the Takeovers Directive.
(6)
If a person suffers loss as a result of any act or omission that would (but for this
section) be a breach of an agreement to which this section applies, he is entitled
5
to compensation, of such amount as the court considers just and equitable,
from any person who would (but for this section) be liable to him for
committing or inducing the breach.
(7)
In subsection (6) “the court” means the High Court or, in Scotland, the Court of
Session.
10
(8)
A reference in this section to voting shares in the company does not include—
(a)
debentures, or
(b)
shares that, under the company’s articles of association, do not
normally carry rights to vote at its general meetings (for example,
shares carrying rights to vote that, under those articles, arise only
15
where specified pecuniary advantages are not provided).
669
Power of offeror to require general meeting to be called
(1)
Where a takeover bid is made for an opted-in company, the offeror may by
making a request to the directors of the company require them to call a general
meeting of the company if, at the date at which the request is made, he holds
20
shares amounting to not less than 75% in value of all the voting shares in the
company.
(2)
The reference in subsection (1) to voting shares in the company does not
include—
(a)
debentures, or
25
(b)
shares that, under the company’s articles of association, do not
normally carry rights to vote at its general meetings (for example,
shares carrying rights to vote that, under those articles, arise only
where specified pecuniary advantages are not provided).
(3)
Sections 286 to 288 (members’ power to require general meetings to be called)
30
apply as they would do if subsection (1) above were substituted for subsections
(1) and (2) of section 286, and with any other necessary modifications.
Supplementary
670
Communication of decisions
(1)
A company that has passed an opting-in resolution or an opting-out resolution
35
must notify—
(a)
the Panel on Takeovers and Mergers, and
(b)
where the company—
(i)
has voting shares admitted to trading on a regulated market in
an EEA State other than the United Kingdom, or
40
(ii)
has requested such admission,

the authority designated by that state as the supervisory authority for
the purposes of Article 4.1 of the Takeovers Directive.

Company Law Reform Bill [HL]
Part 24 — Takeovers etc
Chapter 2 — Impediments to takeovers
329

(2)
Notification must be given within 15 days after the resolution is passed and, if
any admission or request such as is mentioned in subsection (1)(b) occurs at a
later time, within 15 days after that time.
(3)
If a company fails to comply with this section, an offence is committed by—
(a)
the company, and
5
(b)
every officer of it who is in default.
(4)
A person guilty of an offence under this section is liable on summary
conviction to a fine not exceeding level 3 on the standard scale and, for
continued contravention, a daily default fine not exceeding one-tenth of level
3 on the standard scale.
10
671
Interpretation of Chapter
(1)
In this Chapter—
“company” means—
(a)
a company within the meaning of this Act, or
(b)
an unregistered company within the meaning of section 718 of
15
the Companies Act 1985 (c. 6);
“offeror” and “takeover bid” have the same meaning as in the Takeovers
Directive;
“offer period”, in relation to a takeover bid, means the time allowed for
acceptance of the bid by—
20
(a)
rules under section 643(1) giving effect to Article 7(1) of the
Takeovers Directive, or
(b)
where the rules giving effect to that Article which apply to the
bid are those of an EEA State other than the United Kingdom,
those rules;
25
“opted-in company” means a company in relation to which—
(a)
an opting-in resolution has effect, and
(b)
the conditions in section 666(2) and (4) continue to be met;
“opting-in resolution” has the meaning given by section 666(1);
“opting-out resolution” has the meaning given by section 666(5);
30
“the Takeovers Directive” means Directive 2004/25/EC of the European
Parliament and of the Council;
“voting rights” means rights to vote at general meetings of the company
in question, including rights that arise only in certain circumstances;
“voting shares” means shares carrying voting rights.
35
(2)
For the purposes of this Chapter—
(a)
securities of a company are treated as shares in the company if they are
convertible into or entitle the holder to subscribe for such shares;
(b)
debentures issued by a company are treated as shares in the company
if they carry voting rights.
40
672
Transitory provision
(1)
Where a takeover bid is made for an opted-in company, section 368 of the
Companies Act 1985 (extraordinary general meeting on members’ requisition)
and section 378 of that Act (extraordinary and special resolutions) have effect
as follows until their repeal by this Act.
45

Company Law Reform Bill [HL]
Part 24 — Takeovers etc
Chapter 3 — Amendments to Companies Act 1985
330

(2)
Section 368 has effect as if a members’ requisition included a requisition of a
person who—
(a)
is the offeror in relation to the takeover bid, and
(b)
holds at the date of the deposit of the requisition shares amounting to
not less than 75% in value of all the voting shares in the company.
5
(3)
In relation to a general meeting of the company that—
(a)
is the first such meeting to be held after the end of the offer period, and
(b)
is held at a time when the offeror holds shares amounting to not less
than 75% in value of all the voting shares in the company,

section 378(2) (meaning of “special resolution”) has effect as if “14 days’ notice”
10
were substituted for “21 days’ notice”.
(4)
A reference in this section to voting shares in the company does not include—
(a)
debentures, or
(b)
shares that, under the company’s articles of association, do not
normally carry rights to vote at its general meetings (for example,
15
shares carrying rights to vote that, under those articles, arise only
where specified pecuniary advantages are not provided).
673
Power to extend to Isle of Man and Channel Islands
Her Majesty may by Order in Council direct that any of the provisions of this
Chapter extend, with such modifications as may be specified in the Order, to
20
the Isle of Man or any of the Channel Islands.
Chapter 3
Amendments to Companies Act 1985
674
Matters to be dealt with in directors’ report
(1)
Part 7 of the Companies Act 1985 (c. 6) (accounts and audit) is amended as
25
follows.
(2)
In Schedule 7 (matters to be dealt with in directors’ report), after Part 6 insert—
“Part 7
Disclosure required by certain publicly-traded companies
13    (1)
This Part of this Schedule applies to the directors’ report for a
30
financial year if the company had securities carrying voting rights
admitted to trading on a regulated market at the end of that year.
      (2)
The report shall contain detailed information, by reference to the end
of that year, on the following matters—
(a)
the structure of the company’s capital, including in
35
particular—
(i)
the rights and obligations attaching to the shares or,
as the case may be, to each class of shares in the
company, and

Company Law Reform Bill [HL]
Part 24 — Takeovers etc
Chapter 3 — Amendments to Companies Act 1985
331

(ii)
where there are two or more such classes, the
percentage of the total share capital represented by
each class;
(b)
any restrictions on the transfer of securities in the company,
including in particular—
5
(i)
limitations on the holding of securities, and
(ii)
requirements to obtain the approval of the company,
or of other holders of securities in the company, for a
transfer of securities;
(c)
in the case of each person with a significant direct or indirect
10
holding of securities in the company, such details as are
known to the company of—
(i)
the identity of the person,
(ii)
the size of the holding, and
(iii)
the nature of the holding;
15
(d)
in the case of each person who holds securities carrying
special rights with regard to control of the company—
(i)
the identity of the person, and
(ii)
the nature of the rights;
(e)
where—
20
(i)
the company has an employees’ share scheme, and
(ii)
shares to which the scheme relates have rights with
regard to control of the company that are not
exercisable directly by the employees,

how those rights are exercisable;
25
(f)
any restrictions on voting rights, including in particular—
(i)
limitations on voting rights of holders of a given
percentage or number of votes,
(ii)
deadlines for exercising voting rights, and
(iii)
arrangements by which, with the company’s co-
30
operation, financial rights carried by securities are
held by a person other than the holder of the
securities;
(g)
any agreements between holders of securities that are known
to the company and may result in restrictions on the transfer
35
of securities or on voting rights;
(h)
any rules that the company has about—
(i)
appointment and replacement of directors, or
(ii)
amendment of the company’s articles of association;
(i)
the powers of the company’s directors, including in
40
particular any powers in relation to the issuing or buying
back by the company of its shares;
(j)
any significant agreements to which the company is a party
that take effect, alter or terminate upon a change of control of
the company following a takeover bid, and the effects of any
45
such agreements;
(k)
any agreements between the company and its directors or
employees providing for compensation for loss of office or
employment (whether through resignation, purported
redundancy or otherwise) that occurs because of a takeover
50
bid.

Company Law Reform Bill [HL]
Part 24 — Takeovers etc
Chapter 3 — Amendments to Companies Act 1985
332

      (3)
For the purposes of sub-paragraph (2)(a) a company’s capital
includes any securities in the company that are not admitted to
trading on a regulated market.
      (4)
For the purposes of sub-paragraph (2)(c) a person has an indirect
holding of securities if—
5
(a)
they are held on his behalf, or
(b)
he is able to secure that rights carried by the securities are
exercised in accordance with his wishes.
      (5)
Sub-paragraph (2)(j) does not apply to an agreement if—
(a)
disclosure of the agreement would be seriously prejudicial to
10
the company, and
(b)
the company is not under any other obligation to disclose it.
      (6)
In this paragraph—
“securities” means shares or debentures;
“takeover bid” has the same meaning as in the Takeovers
15
Directive;
“the Takeovers Directive” means Directive 2004/25/EC of the
European Parliament and of the Council;
“voting rights” means rights to vote at general meetings of the
company in question, including rights that arise only in
20
certain circumstances.”.
(3)
In section 234ZZA (requirements of directors’ reports), at the end of subsection
(4) (contents of Schedule 7) insert—
“Part 7 specifies information to be disclosed by certain publicly-
traded companies.”.
25
(4)
After that subsection insert—
“(5)
A directors’ report shall also contain any necessary explanatory
material with regard to information that is required to be included in
the report by Part 7 of Schedule 7.”.
(5)
In section 251 (summary financial statements), after subsection (2ZA) insert—
30
“(2ZB)
A company that sends to an entitled person a summary financial
statement instead of a copy of its directors’ report shall—
(a)
include in the statement the explanatory material required to be
included in the directors’ report by section 234ZZA(5), or
(b)
send that material to the entitled person at the same time as it
35
sends the statement.

For the purposes of paragraph (b), subsections (2A) to (2E) apply in
relation to the material referred to in that paragraph as they apply in
relation to a summary financial statement.”.
(6)
The amendments made by this section apply in relation to directors’ reports for
40
financial years beginning on or after 20th May 2006.
675
Takeover offers
(1)
Schedule 3 (which makes amendments to Part 13A of the Companies Act 1985
(c. 6)) has effect.