16. Corporate restructuring and takeovers

Question 1

What is a scheme of reconstruction?

Answer 1

It allows a company (the transferor company) to transfer all or part of its business to another company and the tranferor is voluntarily wound up.

Question 2

What is the process for putting a scheme of reconstruction into effect?

Answer 2

1. The transferor company passes a special resolution to voluntarily wound itself up
2. The scheme of reconstruction must be sanctioned
3. The scheme will be put into effect and will bind the member and creditors of the transferor company
4. The transferor company is liquidated and all or part of its business transferred to another company
5. The members of the transferor company will usually receive some shares in the company to which the business has been transferred.

Question 3

How can a member or creditor dissent from the scheme?

Answer 3

By leaving a written statement to this effect at the co’s registered office within 7 day of resolution being passed. The liquidator will then:

1. abstain from carrying out the reconstruction
2. purchase the dissenting member’s shares at a price determined by arbitration or agreement.

Question 4

What is a scheme of arrangement?

Answer 4

A scheme of arrangement is a compromise between a company and its (1) creditors or any class of them, or (2) its members or any class of them.

Question 5

When can a scheme of arrangement be used?

Answer 5

it can be used for a variety of aims, including:

1. to implement a takeover or a merger;
2. restructure a company’s debt;
3. to attempt to rescue financially struggling (i.e. administrator may propose that the company enter into a scheme of arrangements with its creditors;
4. to divide or demerge a company;
5. to restructure share capital

Question 6

What are the three stages of putting a scheme of arrangement into effect?

Answer 6

• Application to court, if successful, the court will summon meetings of relevant creditors/members
• Approval of the scheme is sought from the relevant members/creditors
• Application is made to court to sanction the scheme

Question 7

What are the effects of scheme of arrangement coming into effect?

Answer 7

The sanctioned scheme will bind the company and the those creditors or members who are affected by it. The scheme will not bind the third parties, although it can indirectly affect third party rights

Question 8

What are the three principles functions of the Takeover panel?

Answer 8

Takeover Panel has 3 broad functions:

1. Makes rules giving effect to certain provisions of the Takeover Directive (CA943), namely the City Code on Takeovers and mergers
2. The takeover Panel may give ruling on the interpretation, application or effect of the City Code. These rules are binding
3. The TP may provide directions in to order:
   - to restrain a person from acting in breach of City Code
   - to restrain a person from doing a particular thingthat would be in breach of the City Code
   - otherwise secure compliance with the City Code (s956)

Question 9

What is the principal purpose of Takeover Code?

Answer 9

To ensure that the shareholders in the offeree company are treated fairly and are not denied opportunity to decide on the merits of the takeover and shareholders in the offeree co of hte same class are afforded equivalent treatment by an offeror. 
The Code also provides an orderly framework within which takeovers are conducted. 
It is also designed to promote the integrity of financial markets.

Question 10

Can the Panel ignore a rule in the Takeover Code?

Answer 10

The Panel may derogate or grant a person a waiver from the application of a rule either:

• in the circumstances set out by the rule, or
• in other circumstances where the Panel considers that the particular rule would operate unduly harshly or in an unnecessary or burdensome or otherwise inappropriate manner

Question 11

What sanctions can be put for breach of the Takeover Code?

Answer 11

The following sanctions can be imposed:

• issuing a public or private statement censuring the offender
• reporting the offenders’ conduct to regulator
• publishing a statement indicating that the offender is not someone who is likely to comply with the Code (“cold-shouldering”)

Question 12

For long the offer must remain open once the offer document has been published?

Answer 12

At least 21 days

Question 13

When will the offeror be required to make a mandatory offer?

Answer 13

Mandatory offer must be made where:

• a person acquires an interest in shares that carry 30% pr more of the co voting rights
• a person is interested in shares which carry 30% and 50% of co’s voting rights, and that person acquires an interest in any other sahres that increases the percentage of shares carrying voting rights in which he is interested.

Question 14

What are squeeze-out and sell-out rights?

Answer 14

Sell-out rights provide the shareholders of the offeree company with the ability to compel the offeror to purchase their shares once certain conditions are met.

Squeeze out empowers the offeror to compel the offeree’s shareholders to sell their shares once certain conditions are met.