Redefining the rules: which companies now fall under the takeover code?

The UK Takeover Panel, which oversees corporate takeovers under the City Code on Takeovers and Mergers (the “Code”), has recently confirmed changes which will reduce the range of companies to which the Code applies.

This blog is not providing advice.

The changes follow extensive consultation and reflect the changing corporate environment.

What has changed? 

The main change is the introduction of a more focused jurisdictional framework to determine whether the Code applies to a particular company. Traditionally, the Code applied to public companies incorporated in the UK, Channel Islands, or Isle of Man, irrespective of whether their securities were traded. The new rules reflect a clearer connection to the UK’s economic and legal landscape.

A narrowed jurisdictional scope  

Under the new framework, the Code will only apply to companies: 

  • with a registered office in the UK, Channel Islands, or Isle of Man; and  

  • with securities admitted to trading on a UK-regulated market (such as the London Stock Exchange’s (LSE) Main Market), UK multilateral trading facility (e.g. Alternative Investment Market (AIM) operated by the LSE, or certain other exchanges in the Channel Islands or the Isle of Man (the Code also applies to such companies for two years after their public quoting ceases). 

Removal of the Residency Test  

The requirement for companies to have their central management and control / residency in the UK, the Channel Islands, or the Isle of Man is removed. The “Residency Test,” which captures companies based on the personal residence of a majority of their directors, created uncertainty for companies, as it depends on board composition rather than business operations.

Out of scope companies  

The following companies will no longer fall within the Panel’s jurisdiction:

  • public or private companies whose securities are or were previously traded using matched bargain facilities (e.g. JP Jenkins), crowdfunding platforms (e.g. Seedrs) a private market (e.g. TISE Private Markets) and proposed platforms like the Private Intermittent Securities and Capital Exchange System (PISCES); and 

  • public or private companies whose securities are, or were previously, traded solely on an overseas market (e.g. NYSE or NASDAQ). 

Rationale   

The revised Code  better aligns with the Panel’s primary focus: regulating UK-listed companies.  Under the current rules, the Code applies to companies listed on markets like NYSE or NASDAQ if their registered office is in the UK, Channel Islands, or Isle of Man and their central management / control is in one of these jurisdictions, and to certain unlisted public companies and private companies that are traded on private trading platforms.

Most unlisted public companies and private companies consider the cost of complying with the Code onerous and that they can afford adequate shareholder protections by incorporating ‘Code like’ provisions, ‘drag and tag’ rights, or other structures into their articles of association.

Restricting the Panel’s jurisdiction to companies registered and traded on a public trading venue in the UK, Channel Islands, or Isle of Man removes unlisted public companies and private companies traded on private trading platforms and companies traded solely overseas from the ambit of the Code.

In narrowing its scope, the Panel intends to:

  • Ensure regulatory clarity: Companies now have a better understanding of when the Code will apply.

  • Reduce unnecessary regulatory burden: Companies with minor UK connections or private companies traded on private trading platforms are no longer in scope, optimising compliance efforts for businesses better aligned with regulations in other jurisdictions.

UK Finance’s Perspective   

UK Finance’s Corporate Finance Committee, which consists of senior investment bankers who lead the M&A advisory practices at our members’ investment banks, welcomes the changes and consider that they enhance clarity and efficiency in the takeover process. 

Next steps  

The new regime will come into force on 3 February 2025, accompanied by a two-year transition period until 3 February 2027. 

The transition period broadly reflects UK Finance’s advocacy for a shorter transition period and aims to provide sufficient time for companies to adapt without prolonging uncertainty. 

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