16 - Corporate restructuring and takeovers - barely comes up!

Question 1

What is scheme of reconstruction process?

Answer 1

• Transferor company passes special resolution to voluntarily wind up
• S.110 scheme is sanctioned
• Members’ or creditors’ winding up
• Members and creditors bound once scheme has been santioned
• Transferor company liquidated, and all or part of business transferred to another company (or companies).
• Members of transferor company will often receive shares in the company to which business has been transferred.

Question 2

What will happen if a member who did note vote for the scheme of reconstruction expresses their dissent?

Answer 2

Liquidator abstains from carrying out reconstruction
or
Liquidator purchases dissenting member’s shares at determined price

Question 3

Two ways in which creditor can oppose/dissent to scheme of reconstruction?

Answer 3

Inserting provision into loan agreement (if there was one)
or
Applying to court for an order winding up the company

Question 4

5 potential aims of scheme of arrangement - showing versatility

Answer 4

• Implement takeover or merger
• Restructure debt
• Attempt to rescue financially struggling company
• Divide or demerge company
• Restructure share capital

Question 5

What is a scheme of arrangement?

Answer 5

‘Compromise or arrangement’ between company and creditors or members, or a class of them, whereby one party gives up rights in exchange for something in return

Question 6

Brief summary of procedure for scheme of arrangement

Answer 6

• Application to summon meetings [stage 1]
• Application accepted
• Approval of the scheme at the meetings [stage 2]
• Application to court to sanction the scheme [stage 3]
• Court sanctions scheme
• Court order sanctioning scheme is delivered to registrar

Question 7

Who can apply to summon meetings? - scheme of arrangement

Answer 7

Company
Creditor
Member
Liquidator
Administrator

Question 8

Who should be included in meetings summoned as part of scheme of arrangement at stage one? Significance?

Answer 8

Only those in classes of creditors/members who will be affected
Otherwise, scheme will nit be sanctioned by court at stage 3

Question 9

Scheme of arrangement - requirement for class meeting to approve scheme

Answer 9

Majority of those voting vote in favour
75% in value of those present vote in favour

Question 10

Sanctioning of scheme of arrangement - Re Hawk Insurance Co Ltd [2001]

Answer 10

Courts will:
- Determine whether the stage two meeting(s) were summoned in accordance with stage on court order
- Determine whether proposed scheme was approved by requisite majorities at stage two
- Considered whether views and interests of those who did not approve proposal should receive impartial consideration

Question 11

Effects of scheme of arrangement

Answer 11

Company is bound (once copy delivered to registrar), and can then not be amended (unless scheme provides for some form of post-sanction amendment, but this is uncommon)

Question 12

What is the new form of scheme of arrangement which came into force through CIGA 2020 known as?

Answer 12

Restructuring plan

Question 13

4 key differences between restructuring plan and scheme of arrangement

Answer 13

• Restructuring plan only available if company encountering financial difficulties and purpose of plan is to eliminate/mitigate these difficulties
• Restructuring plan expressly states that all those with rights being effected must be permitted to attend class meetings
• Re.plan, for approval only 75% in value need to vote in favour
• Re.plan may be sanctioned by court if not all classes vote in favour (known as cross-class cram down)

Question 14

What is a ‘cross-class cram down’?

Answer 14

Courts exercise power to sanction restructuring plan when it has not been approved by all classes

Question 15

Two conditions required for ‘cross-class cram down’

Answer 15

• No members of a dissenting class would be worse off than in the event of the relevant alternative
• At least one class has approved scheme

Question 16

What might takeover company be known as?

Answer 16

Offeree or Target

Question 17

Company seeking to take over another company known as:

Answer 17

Offeror or Bidder

Question 18

How are private companies usually taken over?

Answer 18

Entering into private agreement with the shareholders to purchase their shares

Question 19

Takeover Code provides that company is controlled at which level of shareholding in plc? Why?

Answer 19

30%, because many shareholders will not exercise voting rights

Question 20

Bulk of rules on regulating takeovers are found in?

Answer 20

City Code on Takeovers and Mergers

Question 21

Which body created and updates the City Code?

Answer 21

Panel on Takeovers and Mergers (Takeover Panel)

Question 22

3 broad functions of Takeover Panel

Answer 22

• Make rules on takeovers (City Code)
• Five rulings on interpretation, application or effect of City Code
• Provide directors to restrain persons from acting in breach, doing something that might be in breach, or to otherwise secure compliance with the Code

Question 23

Principal purpose of Takeover Code

Answer 23

Provide orderly framework in which takeovers are conducted, ensuring shareholders in an offeree company are treated fairly, in doing so promoting integrity of financial markets

Question 24

What does the Takeover Code point out it is not concerned with?

Answer 24

Financial or commercial advantages or disadvantages
Competition policy

Question 25

To which companies does the Takeover Code not apply?

Answer 25

Private companies (other than in rare instances)

Question 26

6 General Principles of Code

Answer 26

• All holders of securities in offeree afforded equivalent treatment
• All holders of securities in offeree must have sufficient time and info to make informed decision
• Board of offeree must act in interests of company as a whole
• False markets must not be created in securities of offeree, offeror or other company, in such a way that markets are distorted
• Offeror only announces bid after ensuring they can fulfil any consideration
• Offeree company must not be hindered by conduct of its affairs for longer than is reasonable

Question 27

3 possible sanctions of takeover panel Hearings Committee

Answer 27

• Issuing public or private statement censuring the offender
• Reporting offender’s conduct to a regulator
• Publishing statement that offender is not someone likely to comply with the Code
• Compensation ruling on offender

Question 28

Takeover Code - 3 circumstances where announcement of possible offer must be made

Answer 28

• Offeror notifies offeree’s board that it has firm intention to make offer
• Offeror acquires sufficient shares to trigger mandatory offer rules
• Offeror subject to rumour and speculation, or there is untoward movement in its share price

Question 29

Takeover Code - what must potential offeror do within 28 days of announcement offer

Answer 29

Announce firm intention to make offer
or
Announce that it does not intent to make offer

Question 30

Takeover Code - consequence of potential offeror stating it does not intend to make offer

Answer 30

Cannot make an offer within the six-month period following announcement

Question 31

What is a ‘poison pill’?

Answer 31

A device used (probs by directors) to frustrate takeover bids

Question 32

Two ways in which minority shareholders are offered chance to exit company

Answer 32

• Requiring offeror to make mandatory offer
• Giving shareholders sell-out rights in certain circumstances

Question 33

2 circumstances where mandatory offer is required

Answer 33

• Person acquires interest in shares carrying 30% or more voting rights
• Person with interested in 30%-50% voting rights acquires further interest

Question 34

Mandatory offer offer price must be:

Answer 34

Highest price paid by offeror for shares in last 12 months

Question 35

4 conditions which must be true for shareholder to exercise sell-out right

Answer 35

• Shareholder has not accepted takeover offer
• Offer period has not expired
• Offeror has acquired or is unconditionally contracted to acquire some of the shares to which the offer relates
• Those shares amount to not less than 90% in value of all voting shares & 90% voting rights

Question 36

An offeree can only exercise squeeze-out rights if:

Answer 36

It has acquired or is contracted to acquire 90% value of shares and 90% voting rights