Today marks the beginning of a significant jurisdictional change for the Takeover Code.
From today, the Takeover Code will only apply to a UK registered company (and a company registered in the Channel Islands and the Isle of Man) if either:
- any of its securities are UK quoted (meaning admitted to trading on a UK regulated market, multilateral trading facility (such as AIM) or a stock exchange in the Channel Islands or the Isle of Man); or
- its securities ceased to be UK quoted within the last two years,
in each case regardless of whether the company is UK resident.
However, for the next two years (from today until 2 February 2027) there will be a transitional period so that the Takeover Code will also apply to “transition companies”, giving companies that will no longer be subject to the Takeover Code’s jurisdiction in 2027 time to consider any action they want to take. A “transition company” is a company to which:
- the Takeover Code applied before today; or
- the Takeover Code would have applied immediately before today but for the fact that the company does not satisfy the residency test at that time. The residency test is the test as to whether the company has its place of central management and control in the UK, the Channel Islands or the Isle of Man – this is generally considered to be where the majority of the company’s board of directors is located.
These flow diagrams from the Takeover Panel will help companies assess whether they are transition companies and then, if so, whether the Takeover Code will apply to that transition company in relation to a specific transaction.
These changes are significant for a number of reasons including:
- The Takeover Code previously caught private companies that had been UK quoted in the last 10 years. This period has been significantly shrunk down to two years (reduced from three years following the Takeover Panel’s consultation last year).
- Public companies that have never been UK quoted will no longer be subject to the Takeover Code. It is often a surprise to such companies when they come to be sold that the sale is subject to the Takeover Code and a waiver from the Takeover Panel is often sought – the removal of these companies from the jurisdiction of the Takeover Code is a welcome removal of regulatory burden and costs.
- The residency test has been removed. The residency test had created an anomalous position whereby a UK quoted company could delist, move the majority of its directors overseas and immediately come out of the jurisdiction of the Takeover Code. The transitional provisions retain the current position for companies that have already followed this route but from 2 February 2027 any UK quoted and registered company that delists will be subject to the Takeover Code for two years post delisting regardless of where its directors are resident.
- There will be some companies that benefit from the protections of the Takeover Code but stand to lose them such as public companies that have never been UK quoted or UK private companies that were UK quoted within the last 10 years and whose securities are now traded on a matched bargain facility. Such companies could consider amending their articles of association to incorporate provisions equivalent to the Takeover Code or, if they have shareholders who require the protections of the Takeover Code, making arrangements for such shareholders to exit.
- Overall, the changes provide a narrower scope of application of the Takeover Code and much greater clarity for companies as to whether they fall within the Takeover Panel’s jurisdiction.
These changes result from the Takeover Panel’s consultation (PCP 2024/1, see our article on this here) and response statement (RS 2024/1) published in 2024.
If you have any questions or would like to discuss this article further, please contact Tessa Trevelyan Thomas or David Robinson from our Capital Markets team.
