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Lord Goldsmith: The answer is that it is not. The Bill does not provide for the power for the appeal board to make rules. We take the view that that simply follows from common law and that it is not necessary to deal with it in the Bill. There are two points: first, should it be for the panel to make the rules for the appeal board? The answer that I was given was no. Secondly, where does the appeal board get its power to do it? The answer is, from common law; it does not need any additional authority in this Bill.
Lord Hodgson of Astley Abbotts: We thought that there was a danger in the panel providing the rules for the Takeover Appeal Board. That was how we saw it, because the panel had general rule-making powers. We may wish to return to that narrower, specific point, but in the mean time I beg leave to withdraw the amendment.
The noble Lord said: This group of amendments all work around the same pointthat is, the penalties for failure to comply with bid documentation. In moving Amendment No. A147B, I shall also speak to Amendments Nos. A149A, A150A, A151A, A151B, A151C and A151D, which relate to Clause 627 on "Sanctions" and Clause 628 on "Failure to comply with rules about bid documentation".
The amendments deal with the proposed offence created by Clause 628. We have received a number of representations that this should not be a criminal
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offence. We understand that there is no compulsion on the Government as a consequence of the directive to make this a criminal offence. The argument is that the attempt by the Government to do so is unnecessary and the case for doing so has not so far been sufficiently made out. We are therefore inclined to oppose the criminalisation of the failures contemplated by Clause 628, and we argue that this piece of gold-plating should go.
The panel has a range of sanctions that it can impose for breaches. The first amendment in this group would add a failure to comply with rules about bid documentation into the remit of the Takeover Panel and allow it to deal with it as it sees fit. That would prevent the unnecessary consequence that the Bill, as currently drafted, could lead to, of the case being taken out of the panel's hands and being dealt with by unconnected prosecuting authorities. The remaining amendments in this group change a failure, as contemplated by Clause 628, into a breach rather than a criminal offence. I beg to move.
Lord Goldsmith: I need to explain why the Government are taking the view that it is necessary to create a new offence in relation to bid documentation. The starting point is Article 17 of the takeovers directive, which requires member states to put in place sanctions which are "effective, proportionate and dissuasive". That is to ensure the rules of the directive are complied with.
The Government produced a consultative document on implementation of the takeovers directive and have had subsequent discussions on the issue of sanctions. In the light of these discussions, it was decided to underpin the implementation of the directive by proceeding with the current new offence. Strictly speaking, there are two new offencesone in relation to the contents of the offer document and the other concerning the contents of the response document of the target company.
The duties as to how draw up and make public offer and response documents are contained in Articles 6 and 9.5 of the takeovers directive. That says what needs to be set out in the documents. As well as matters relating to the terms of the bid, the directive requires other information concerning issues such as the strategic plans of the offer for the business and their likely repercussion on employment and the locations of the companies' places of business, and so on.
The panel already has substantive rules relating to the contents of offer and response documents. The panel proposes a small number of changes to those to bring them entirely into line with the requirements of the directive. What the noble Lord says is that we should just leave it to the panel to enforce the rules about bid documentation. No doubt, if the offer response document was clearly unfit for purpose, the panel could issue directions to those responsible to put the matter right. But the panel does not propose under its rule-making power to extend its sanctions beyond those already available to it. In summary, those amount to public and private censure or reporting of conduct to another regulatory body to take action, as
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well as action to issue directions to those responsible to put the matter right, if it is seen at that earlier moment. The problem is that the true facts may come to light at a later stage, when it is too late for the panel actually to issue directions in the way that I have identifiedand, as I have said, the panel does not propose to extend its sanctions beyond those that it has.
Our concern is that the range of sanctions that the panel has available for those purposes does not satisfy the requirements of the directive, which I read out and quoted at the beginning of my response. We therefore thought that we had toas it is our responsibility as a government of a member stateintroduce a carefully targeted offence aimed specifically at those who fail to comply with the bid documentation rules. Following consultation, that is something that we regard as an important part of the implementation package.
The panel will have its existing rules and those that it chooses to make. We have not wanted to require the panel, as the amendment could, to go beyond the rules and sanctions that it presently wants to have, but to meet the directive we need to satisfy Article 17 in the way that I have indicated. That is why the offence is there, so I cannot accept the amendments to remove those offences.
Lord Hodgson of Astley Abbotts: I am grateful to the noble and learned Lord for his explanation. Leaving aside Article 17 and the penalties that we are required to impose, which we will reflect on, the panel has enormous powers. As he and all of us who work in the City are aware, public censure is an enormously powerful weapon. No one who wishes to operate in the City wishes to have a public censure from the Takeover Panel. The noble and learned Lord may play that down and say, "I am not sure that that is strong enough", but it is an extremely powerful weapon.
The noble and learned Lord referred to the issue of direction, but not to the new position in Clause 629 whereby the panel will have power to require compensation. Pace the interpretation of the directiveon which point I shall reflect furtherI am not sure that I buy the strength of his argument. We may wish to come back and have another crack at a later stage, but meanwhile I beg leave to withdraw the amendment.
"(2) Subsection (3) applies where rules made by virtue of subsection (1) confer power on the Panel to impose a sanction of a kind not provided for by the City Code on Takeovers and Mergers as it had effect immediately before the passing of this Act.
(3) The Panel must prepare a statement (a "policy statement") of its policy with respect to
(a) the imposition of the sanction in question, and
(b) where the sanction is in the nature of a financial penalty, the amount of the penalty that may be imposed.
An element of the policy must be that, in making a decision about any such matter, the Panel has regard to the factors mentioned in subsection (4).
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(4) The factors are
(a) the seriousness of the breach or failure in question in relation to the nature of the rule or direction contravened;
(b) the extent to which the breach or failure was deliberate or reckless;
(c) whether the person on whom the sanction is to be imposed is an individual.
(5) The Panel may at any time revise a policy statement.
(6) The Panel must prepare a draft of any proposed policy statement (or revised policy statement) and consult such persons about the draft as the Panel considers appropriate.
(7) The Panel must publish, in whatever way it considers appropriate, any policy statement (or revised policy statement) that it prepares.
(8) In exercising, or deciding whether to exercise, its power to impose a sanction within subsection (2) in the case of any particular breach or failure, the Panel must have regard to any relevant policy statement published and in force at the time when the breach or failure occurred."
The noble and learned Lord said: This is the opportunity for me to turn to the second recommendation of the Delegated Powers and Regulatory Reform Committee. That concerned the proposed power in Clause 627 for the panel to include sanctions within its rules. Paragraph 15 of the committee's report stated:
"We recommend that the bill should include some restraint on the penalties for which rules of the Panel may provide under clause 627, whether they be specific limits or procedural constraints (such as those in sections 92 to 94 and 124 to 127 of the Financial Services and Markets Act 2000 in relation to Part 6 rules and to market abuse)".
The Government accept that recommendation and propose to deal with it by means of the amendment. That will impose procedural constraints based on the Financial Services and Markets Act model, as the committee suggested, with certain adaptations.
I shall explain: the FSMA model contains two such constraints. First, it includes specific procedural requirements for the imposition of a sanction in individual cases. Those include the service of a warning notice on the person on whom it is intended to impose the sanction and the right for that person to have the matter referred to a tribunal. It is not proposed that such procedural matters be included in relation to panel sanctions. The Bill seeks to allow the existing quasi-judicial processes of the panel to continue. That includes hearings by the panel and the right of appeal to an appeal bodycurrently the Appeal Committee but, in future, the Takeover Appeal Board. Judicial review procedure remains available when the panel has acted unreasonably or outside its powers. The Bill does no more than lay down minimum provisions, such as to require clear separation of rule-making and judicial functions of the panel, in relation to the panel's decision-making processes. It would be a fundamental departure from that to lay down rules of procedure in the Bill in relation to sanctions.
Secondly, there will be a requirement that the regulatory authority publish a policy statement after suitable consultation with regard to the imposition and amount of monetary penalties. We intend that a parallel requirement be imposed on the panel, but in
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respect of all types of sanction not provided for by the Takeover Code immediately before the Bill is passed. The panel would be required to produce a policy statement in relation to proposed new types of sanction.
The panel's current sanctions regime extends to private reprimand, public censure, reporting the offender's conduct to another regulatory authority, and taking action for the purposes of the requirements of the Financial Services Authority and certain professional bodies which oblige their members, in certain circumstances, not to act for the offender in a transaction to which the code appliesso-called cold-shouldering. The panel may also remove "exempt market-maker" status following breaches of the code.
We are requiring the production of a policy statement in respect of any new proposed sanction. That represents a proportionate and balanced response to the concerns raised by the Delegated Powers and Regulatory Reform Committee. I beg to move.
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