Proposed Changes to the Jurisdiction of the UK Takeover Code

On 24 April 2024, the UK Takeover Panel published a consultation paper (PCP 2024/1).  The PCP proposes a new jurisdictional framework which would narrow the scope of the companies which are subject to the UK Takeover Code.  Code jurisdiction was last reviewed by the Panel in 2012 (PCP & RS 2012/3) and then again as part of the Brexit review (PCP & RS 2018/2).  The Panel's review of Code jurisdiction is being driven principally by the growth of private trading platforms, which may result in a larger number of otherwise private entities being caught in the Panel's net.

So what do you need to know?

Set out below are the key takeaways from PCP 2024/1.

1. Narrowing scope … The proposals would narrow the scope of Code jurisdiction so that it would apply only to those companies registered in the UK, the Channel Islands or the Isle of Man (“UK-registered” companies) whose shares are admitted to trading on a UK regulated market or UK MTF, or a stock exchange in the Channel Islands or the Isle of Man ("UK-listed" companies), or were so listed in the previous three years (the "three year rule").
2. Private trading platforms not captured … Companies whose shares can be traded on private trading platforms and matched bargaining facilities, including the LSEG's proposed Private Intermittent Securities and Capital Exchange System (PISCES) and The International Stock Exchange's recently launched private markets platform (TISE Private Markets), would not be captured by the revised scope. The Panel has assumed that companies who want their shares to trade on these sorts of platforms, but who do not want to be formally UK-listed, would not want to be subject to the jurisdiction of the Code. We would agree with this assessment.
3. Central management test removed … The proposals would remove the troublesome central management test which currently applies to UK-registered PLCs which are not UK-listed and to certain UK-registered private companies. The principle of testing the place of central management of the target company has been around, subject to certain adaptations, since the inception of the Panel in 1968. The test has always been seen as opaque and apt to change in circumstances outside the reasonable control of the relevant company, since it principally operates by reference to the place of personal residence of a majority of a company's directors (hence it is often referred to as the "residency test"). We support its proposed removal from the Code.
4. "10 year rule" reduced to three years … The PCP also proposes reducing the application of the so-called 10 year rule so that UK-registered companies whose shares have been UK-listed would cease to be subject to the jurisdiction of the Code three years after delisting. Again, we support this change but question whether three years might be shortened further (e.g. to one year) or whether this period could be curtailed altogether by way of shareholder approval of the relevant company.
5. Transitional arrangements … For those companies who would fall outside of the Code's jurisdiction following the proposed changes, transitional arrangements would apply for a period of three years. These will be set out in a Transitional Appendix to the Code. This would provide such companies with the opportunity to put in place alternative arrangements, including making appropriate amendments to articles of association or enabling shareholders to exit their investments.

The consultation period runs until 31 July 2024.  The Panel expects to publish its Response Statement in Autumn 2024 and for the amendments to come into effect approximately one month after the publication.