The Takeovers Directive (Interim Implementation) Regulations 2006

Explanatory Note

(This note is not part of the Regulations)

These Regulations, which are made under section 2(2) of the European Communities Act 1972, implement Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on Takeover Bids (“the Directive”).

Part 2 makes provision for the operation of regulatory activities of the Panel on Takeovers and Mergers, the body designated to supervise takeover bids. It gives effect to the rules in the City Code on Takeovers and Mergers and the Rules of Procedure of the Panel’s Hearings Committee that implement the Directive. It confers powers on the Panel including the power to require information (regulation 6) and to apply to the court to secure compliance with certain requirements (regulation 11). The provisions contain new offences at regulation 8 (the disclosure offence) and regulation 10 (failure to comply with rules about bid documentation).

Part 3 provides for defensive devices that may be adopted by a company prior to a takeover bid, to be overridden in certain circumstances. Such provisions are optional and regulations 20 and 21 set out the basis on which companies can opt-in and opt-out should they choose to do so. Regulation 22 deals with consequences of opting in.

Part 4 supplements section 234 of the Companies Act 1985 (“the 1985 Act”)(1) (or in the case of Northern Ireland, Article 243 of the Companies (Northern Ireland) Order 1986 (“the 1986 Order”)(2), by setting out the additional information that must be contained in the directors' report of certain companies (regulation 26). Regulation 27 amends section 251 of the 1985 Act (or Article 259 of the 1986 Order) on summary financial statements to provide for the explanatory material either to be included in any summary financial statement or to accompany it.

Part 5 and Schedule 2 contain provisions designed to address the problem of and for residual minority shareholders following a successful takeover bid. Known as “squeeze out” and “sell out”, these provisions enable a successful bidder to compulsorily purchase the shares of remaining minority shareholders and for those shareholders to require the majority shareholder to purchase their shares. Regulation 30 disapplies the existing provisions for “squeeze out” and “sell out” in the 1985 Act and 1986 Order where a takeover offer is made for a company with securities admitted to trading on a regulated market and instead applies Schedule 2. This is a consolidation of the existing provisions and the amendments required to implement the Directive or arising out of or related to obligations in the Directive.

Part 2 applies to takeover bids covered by the Directive for all companies with securities traded on a regulated market in the United Kingdom or for companies registered in the United Kingdom whose securities are traded on a regulated market in one or more member states of the European Economic Area (other than the United Kingdom). Parts 3 to 5 apply only to companies registered under the Companies Act 1985 (or in the case of Northern Ireland, the Companies (Northern Ireland) Order 1986) and to unregistered companies.

Copies of the City Code on Takeovers and Mergers and the Rules of Procedure of the Panel’s Hearings Committee are available from The Panel on Takeovers and Mergers, 10 Paternoster Square, London, EC4M 7DY.

A Transposition Note and a full Regulatory Impact Assessment of the effect that this instrument will have on the costs to business are available from the Company Law and Governance Directorate, Department of Trade and Industry, Bay V565, 1 Victoria Street, London, SW1H 0ET. Copies have also been placed in the libraries of both Houses of Parliament.

(1)

1985 c. 6.

(2)

S.I. 1986/1032 (N.I.6).