Examination of Witnesses (Questions 60-79)|
WEDNESDAY 12 MARCH 2003
60. There is a provision, I think, in the proposal
which will allow individual Member States to take action to try
to prevent excessive tactical litigation.
(Miss Johnson) Yes.
61. Has the Government got any plans in that
(Miss Johnson) We certainly recognise the value of
Article 4(6), which I think is what you are referring to, which
is taken from the text. The Department can be assisted by the
Panel and have taken considerable steps to ensure that as good
a text as could be was negotiated on Article 4(6). As a result
of our work together on Article 4(6), I think it is very important
that we have that provision in there. We think 4(6) is as good
as we possibly could have arrived at and it is intended to make
the maximum use of the flexibility provided by Article 4(6).
62. Are there any formulated plans as to how
this is going to be done?
(Miss Johnson) We will want to make maximum use of
it in order to maintain as far as is possible the present legal
position which has been established by the courts in respect of
takeover bids and obviously we would look at consulting widely
on draft implementing legislation but we are some way off that,
as you will appreciate, because all of the discussions and negotiations
are still very much ongoing.
63. Yes. What benefits do you think are likely
to be derived from these proposals so far as British companies
(Miss Johnson) In terms of having the Directive itself,
I think there is quite a number of potential benefits. First of
all, there is a possible increase in European takeover activity
itself. As I have said, that has got to be seen in the context
of the financial services' action plan and I think there are clear
gains there to be had in terms of the Cross-borders Mergers Directive
and the potential for a vigorous business environment within Europe
in which UK companies can plan an energetic part. Secondly, the
enhanced shareholder protections which will come across Europe,
most importantly the extension of the mandatory bid and the improved
rule on equitable pricing, are going to be a big assistance, I
think, from a UK point of view and indeed we also like the impact
generally on good corporate governance and the practice there
and the increased investor confidence which should flow from that.
64. The Directive of course lays down minimum
standards which each Member State must introduce in this area.
Is the Government content with the level of the minimum standards
the Directive proposes?
(Miss Johnson) We think the standards do not replicate
the sophistication of our own takeover regime and we wish they
went further but I think, especially in the light of what happened
to the earlier conciliation text, one has to be realistic about
what can be achieved on a European front here. For example, there
have been long drawn out fruitless discussions in the past on
the issue of a common threshold. I think that setting the mandatory
bid threshold is of key importance. It is where the balance is
actually to be struck in the Directive between facilitating the
Takeover Directive and the need to protect shareholders. So I
think we are realistic about it and, as I said, it is always going
to be a balance about the attractions of having it but we do think
that there are certainly things here which do not go as far as
our own takeover provision does.
65. Are there any sensitive points here that
you are going to be pressing for in the negotiations for improvement?
The obligations on the board of directors, for example: are you
content with those, Article 9?
(Miss Johnson) On Article 9, the management provisions,
as a basic position on the Takeovers Directive, first of all,
as I said, we agree with the EU's position that we need a genuine
contribution to a single market which does make a difference to
the way the single market works and also improved protections
for shareholders. I think that is difficult to express in terms
of specific Articles. We certainly would not want to give up Article
4(6), which we were talking about a moment ago. Article 9 is also
clearly very important, as you mentioned, and we recognise that
that is a highly important Article simply because it does enshrine
the principle of management not interfering in the process of
a bid and gives shareholders the right ultimately to decide on
the merits of a bid at any given time. We recognise the importance
that the City and business attach to that. We rate that as a very
high priority in terms of Article 9.
66. What about Article 5, in particular in regard
to the cash consideration, the last sentence of Article 5(5).
It is one of the new provisions. It says "Member States may
provide that a cash consideration should be offered".
(Miss Johnson) Yes. We thought that the October 2002
proposal had two weaknesses. It would not have ensured that all
Member States required liquid securities consideration in all
cases and that was a step backwards from the conciliation text
and also the higher standards imposed by the UK of cash consideration
in all mandatory bid cases would have been prohibited. We have
pursued both those matters vigorously in the working groups and
that has taken time but we now think that they are satisfactorily
resolved in the latest presidency compromise proposal
67. This proposal simply says that Member States
may provide that there be a cash consideration, as opposed to
making it compulsory that there should be a cash consideration
offered. I am looking at the 7th March version.
(Miss Johnson) Yes. I have not got the text in front
of me. In our view, the matter has been satisfactorily resolved.
The higher standard of shareholder protection offered by Member
States such as our own, which actually requires a cash alternative
in all cases, would not have been permitted under the February
compromise, as I understand it, and that has long been a safeguard
that we wanted to see. It has taken rather longer but in our view
it is now satisfactorily embodied in the March compromise.
68. Minister, may I press you on this. The March
version says "Member States may provide". The corollary
of that is that they need not provide. Is there not a very strong
case for saying it is essential that shareholders who want an
out should be able to have an out in cash terms?
(Miss Johnson) This at the moment has been the best
that I think we can achieve. It is a marked improvement over the
March presidency compromise text. It may not be perfect and we
would certainly continue to work if we thought that there was
more to be gained on it but we have worked very hard to achieve
the position that we have currently achieved.
69. Although there need not be a cash consideration
on offer on takeovers in some Member States?
(Miss Johnson) That is one of the sorts of difficulties
for the level playing field question and for the question which
we believe is important, of transparency and treatment of shareholders,
but from our point of view obviously it would be the case in the
UK, as it always has been the case in the UK, and it would be
permitted to be continued in the UK, as our existing provision
is under the proposals.
70. When we have implementing legislation in
this country, as we will need to have, presumably this will require
a cash consideration to be offered?
(Miss Johnson) I do not think we would want to get
away from our long-held position on this and indeed we have supported
this and pursued it vigorously in the negotiations but, as I said
earlier on, one has to be realistic about what can be achieved.
As I opened up by saying on this point, it is the case that we
wish there was more sophistication in aspects of the proposals
but we recognise that our own regime is more sophisticated and
we are certainly planning to maintain our existing regime.
Baroness Thomas of Walliswood
71. I was actually going to raise the subject
of subsequent legislation. Your responses indicate that in many
areas you think, and indeed it is clear from the papers before
us that that is the case, that our regime is already, as it were,
of a higher level, so what are the areas in which you think subsequent
legislation will need to be carried forward in this country to
implement these proposals?
(Miss Johnson) I do not think that we have got in
any detail to that stage in things. This is before
you the current, and indeed very current, as
you know, state of the negotiations. We would have to look and
see the detail and there is obviously a lot of implementing work
to be done but we are still in a stage of the negotiations where
our resource, which is not large, is devoted actually to those
negotiations rather than to the implementation necessary.
72. You would wish, perhaps, to designate an
organisation or an authority to oversee the process?
(Miss Johnson) You are inviting me to speculate. I
do not think I wish to be drawn into speculation at this stage
given the importance of getting it right, as it were. As I said
earlier, there would be discussion and certainly full consultation
on anything which required any legislation for implementation
purposes and it would be at that stage that we would expect an
extensive dialogue with interested parties and indeed would obviously
be seeking the views particularly of key parties in the City.
Baroness Thomas of Walliswood: Thank you.
73. Minister, could I ask you about the jurisdictional
problem which arises under Article 4? As I read Article 4, which
is intended to identify the Member States who have to take responsibility
in a particular case, 4(2) says: "(a) The authority competent
for supervising the bid shall be that of the Member State in which
the offeree company has its registered office if the securities
of that company are admitted to trading on a regulated market
in that Member State. (b) If the securities of the offeree company
are not admitted to trading on a regulated market in the Member
State in which the company has its registered office, the authority
competent for supervising the bid shall be that of the Member
State on whose regulated market the securities of the company
are admitted to trading." It is going to be rather unsatisfactory,
is it not, for a country which is not the country of the company,
where the company is incorporated, to have the responsibility
of regulating the duties of directors? How is this going to work?
(Miss Johnson) We would certainly prefer it if the
supervisory body was that of the country of incorporation in all
cases. That will be our preferred position on the question of
jurisdiction. But in fact the provisions have not altered since
the former proposal, which failed, and that arrived at a consensus
which we felt we could live with even though it was not ideal,
and I think you have just sketched out what that was.
74. Could you explain how we can live with this?
(Miss Johnson) It is less than ideal, I entirely accept
that. It has to be viewed in the context that most UK companies
of course are listed in London so the jurisdiction will remain
entirely in the UK but it would at least lay down a rule, albeit
one that we would not prefer, where there is presently no EU wide
rule on jurisdiction at all. So we would have a rule to refer
to. Matters of company law and information to employees would
remain with the state of incorporation. In the case of companies
listed and incorporated in different Member States, as I said,
there is currently no rule. We would end up with basic principles
out of this by which issues related to the overlap of regulatory
authorities could be dealt with, albeit not, as you say, based
entirely upon the incorporation status, as we would prefer.
75. Going back to Article 9, that is speaking
of obligations of the board of the offeree company, so we are
looking at the directors, what they must do and what they must
not do. One is also, I imagine, looking at what remedies there
may be against directors, and so on. These are company law matters
in respect of which ordinarily speaking one would be applying
the law of the place of incorporation. For my part, I find it
very difficult to see how these proposals can work when you are
going to have the law of some other country imposed upon the directors
who are subject to the law of the country of incorporation.
(Miss Johnson) First of all, we are talking about
listed companies here. This provision obviously only relates to
those which are listed or quoted and in the case of most UK companies
they are actually listed in London so it would be a distinct minority
of cases where there was any kind of issue in any event. That
is my understanding of it. Also there are practical provisions
in the Directive which we think will help with some of the difficulties
which you are identifying, first of all about cooperation and
the exchange of information but more relevantly the re-establishment
of a contact committee to promote discussion of the practical
issues between Member States and also a review provision, but
the UK will press for this to be reduced to three years (as it
is in the conciliation text).
76. You have told us that the Government did
press for the jurisdiction to be based upon the authority in the
country of incorporation. What reasons were put forward which
led to the failure of this to obtain general approval?
(Miss Johnson) I could perhaps ask Mike Edbury to
answer that because he was present at the discussions.
77. I find it very difficult to see what sensible
arguments could be advanced against that.
(Mr Edbury) Yes. Thank you, my Lord Chairman. We also
find it extremely difficult to find any reasonable arguments as
to why we should not just stick with a law of incorporation. I
think it is a wider question that is going on within this Directive
about whether this is really a financial markets instrument or
a company law instrument and that is going on in a number of contexts,
for instance, the comitology provisions within the Directive.
The same argument is being had, is this about financial supervision
or is it really about company law? The UK's position is that it
should be about company law. Company law is the basis and that
is in fact what we have intensively lobbied other Member States
and the Commission about. Ministers have raised it directly with
high officials in the Commission but sadly the result of those
bilaterals is that we do not feel at the moment that we would
be able to change this text. Aside from those Member States who
are actually against us on this point, there is a number who,
for fairly understandable reasons, are reluctant to unpick the
text of the conciliation Directive after all those years of negotiation.
78. Yes, I follow that last point. It is a sort
of practical point, I guess, but I must say as a lawyer I would
have thought that provisions of this sort would be good for lawyers
but not for many other people?
(Mr Edbury) I agree entirely.
79. Is this now, a fait accompli? Has
the Government got no scope for still pushing for a more sensible
(Miss Johnson) I think one has to judge these things
all the time when you are negotiating, what there is scope for
opening up and what there is not scope for opening up, but I think
much of the Directive has proved so very difficult that actually
opening up things, albeit which are slightly uncomfortable and
which we might regard as less than ideal a compromise has been
reached, is something where you do have to think carefully about
the attractions of opening it up with the danger always that you
get something less attractive than what you have got at the moment
as a result.