Great Britain

The current British corporate statute, the Companies Act 1985, as amended by the Companies Act 1989, only contains few provisions of im­

portance for contested takeovers.21

Most of the rules that are relevant for contested takeovers are found in The City Code of Take-overs and Mergers (the “City Code”) and The Rules Governing Substantial Acquisitions of Shares (”SAR”). Both these

21 British com pany law acknow ledges public as well as private com panies. W hile public com panies – known as public lim ited com panies (pic) – must have an au­

thorized minimum allotted nominal capital o f £ 50,000 and must have a m ini­

mum o f two directors, no minimum capital requirem ent applies to private com ­ panies (where the limited liability is indicated with the word “lim ited” at the end o f the name). M oreover, private com panies must only have one director. There are a number o f other distinctions between the public and the private com pany that will not be addressed here. Since private com panies cannot offer shares to the public for subscription according to Section 81 o f the Com panies Act, the use o f the word “com pany” in the following is restricted to public com panies.

VI. Sources of takeover regulation

sets of rules have been issued and are administered by The Panel of Take­

overs and Mergers (’’The Take-over Panel”)22.

The City Code contains 10 general principles that have the nature o f standards for good business practice, and 38 rules which partly serve to explain the con­

tents o f the general principles and partly stipulate in detail the takeover proce­

dure. In the event that the use o f the general principles and the use o f the rules w ould lead to different results, the general principles m ust be applied.

Form er versions o f the tw o sets o f rules were issued by the Council for the Se­

curities Industry, which, how ever, was dissolved on M arch 31, 1986. Revised versions o f both sets o f rules w ere published in January 1988, but since then additional revisions have been made.

The Take-over Panel is headed by a chairman and a deputy chairm an who are appointed by the G overnor o f the Bank o f England, who also appoints a further non-representative member. In addition, mem bership o f The Take-over Panel com prises representatives o f a variety o f bodies that all have an interest in a proper regulation o f takeovers. The following bodies are represented on The Take-over Panel: The A ssociation o f British Insurers, The A ssociation o f Invest­

ment Trust Com panies, The British M erchant Banking and Securities Houses A ssociation, The C om m ittee o f London and Scottish Bankers, The C onfedera­

tion o f British Industry, The Financial Interm ediaries, M anagers and Brokers Regulatory Association, The Institute o f Chartered A ccountants in England and W ales, The International Stock Exchange, The Investm ent M anagem ent Regu­

latory Organization, The National Association o f Pension Funds, The Securities A ssociation, and The U nit Trust Association, cf. the introduction to the City Code, 2(a).

The Take-over P anel’s day-to-day operations are m anaged by its executive, headed by the Director General, see the introduction to the City Code, 2(b).

Neither the City Code nor the SAR are statutes. Rather, they are rules vol­

untarily accepted and adopted by the business community. The powers that have been vested in The Take-over Panel are based on a cooperation and acceptance from the parties that constitute The City of London. Due to this lack of statutory basis, the panel has only limited means by which to sanction violations of the City Code and the SAR. However limited The Take-over Panel’s possible sanctions may seem, they have proven quite efficient. At various occasions where it was deemed necessary, the panel has issued public statements or expressed criticism in connection with takeover battles. The parties subject to criticism virtually always follow the panel’s views.

22 For an exposition o f the background for the creation o f The Take-over Panel, see Peter Frazer, The Regulation o f Takeovers in G reat B ritain, in Knights, Raiders, and Targets p. 436 ff.

VI. Sources of takeover regulation

In this connection it should be noted that the Bank of England, The In­

ternational Stock Exchange and other British associations as well as gov­

ernmental authorities assist The Take-over Panel in policing the rules. One of the means by which The International Stock Exchange may sanction violations of e.g. the City Code is by delisting the shares of a company.

The extralegal sanctions include denial of the use of facilities of British brokerage houses. This support that the panel receives from associations and authorities is reflected in the introduction to the City Code where under 1(c) it reads:

“The Code has not, and does not seek to have, the force o f law. It has, however, been acknow ledged by both governm ent and other regulatory authorities that those who seek to take advantage o f the facilities o f the securities markets in the United Kingdom should conduct them selves in m atters relating to takeovers in accordance with best business standard and so according to the Code.

Therefore, those who do not so conduct them selves may find that, by way of sanction, the facilities o f those markets are w ithheld.” .

If a party is in doubt about the interpretation or construction of the City Code or the SAR, he may – and according to the Code he should – consult the executive of The Take-over Panel in advance.

The Code encourages both principals and their advisors to make full use o f this service. It is even stated that taking legal or other professional advice on the in­

terpretation or application o f the Code is not an appropriate alternative to obtain­

ing a view or ruling from the executive.23

A party that does not agree to the ruling or statement made by the execu­

tive may ask for the matter to be reviewed by the panel.24 In practice, this is very rarely seen. If the executive of The Take-over Panel deems that a matter is particularly unusual, important or difficult, he may refer such matter to the panel for decision without giving a ruling.25 In special cases where the panel e.g. finds a breach of the Code and proposes to take dis­

ciplinary action, or where it is alleged that the panel has acted outside its jurisdiction, the matter may be appealed to a special Appeal Committee.26

Recently it was established that rulings by The Take-over Panel are subject to review by the courts, cf. R. v. Panel on Take-overs and mergers,

23 The introduction to the City Code, 3(b).

24 The introduction to the City Code, 3(c).

25 See the introduction to the City Code, 3(b).

26 See the introduction to the City Code, 3(f). The Take-over Panel’s day-to-day op­

erations are described by Peter Frazer, The Regulation o f Take-overs in Great Britain, in Knights, Raiders, and Targets p. 436 ff. at 438 ff.

VI. Sources o f takeover regulation

Ex Parte, Datafin pic.21 However, the courts have taken the stand that, unless the position of the panel is clearly wrong or unfair, the courts will not intervene in concrete matters that are before the panel. Ordinarily, the role to be played by the courts will be limited to a subsequent review of the panel’s rulings in order to avoid repetition of doubtful or wrong deci­

sions. Moreover, the courts will review disciplinary sanctions imposed by the panel.

In short, the courts generally prefer to cooperate with The Take-over Panel rather than intervening in matters pending before the panel.

In R.v. Panel on Take-overs and mergers, Ex Parte, Datafin pic, the court o f ap­

peal, inter alia, stated28: “ I should expect the court to allow contem porary deci­

sions to take their course, considering the com plaint and intervening, if at all, later and in retrospect by declaratory orders w hich would enable the panel not to repeat any error and would relieve individuals o f the disciplinary consequences o f any erroneous finding o f breach o f the rules. This would provide a workable and valuable partnership between the courts and the panel in the public interest

Generally, the British regime governing takeovers is considered to operate smoothly and satisfactorily.29

As is the case in Denmark, Great Britain only has one stock exchange, The International Stock Exchange.30 The International Stock Exchange has issued what is known as the “Yellow Book”, officially referred to as the “Admission of Securities to Listing”. The Yellow Book contains rules for listing of shares as well as trade on the Exchange. With respect to the takeover process itself, the Yellow Book chiefly implements the City Code and the SAR by reference.

The principles laid down in and the background for the City Code and the SAR are described by M.A. W einberg, M.V. Blank and A.L. Greystoke, On Take­

overs and M ergers. See also Sir Alexander Johnston, The City Take-over Code.

27 (1987) 2 W .L.R. 699 (C.A.).

28 (1987) 2 W .L.R. 699 at 718 (C.A.).

29 See, for exam ple, Peter Frazer, The Regulation o f Takeovers in Great Britain, in Knights, Raiders, and Targets p. 436 ff. at 440. For a criticism o f the use o f non- statutory rather than statutory regulation, see Robert Falkner, N on-statutory Takeover Panel: Advantage or Anachronism ?, International Financial Law R e­

view, p. 15 ff. (February 1990).

30 However, The International Stock Exchange has a number o f departm ents at dif­

ferent locations in G reat Britain.

VI. Sources of takeover regulation