Corporate Restructuring & Takovers Flashcards
What is a scheme of reconstruction?
What is the process? (5)
- Scheme of reconstruction = allows a company (transferor) to transfer all or part of its business to another company
- The transferor company is then voluntarily wound up
• S.110 of the IA1986 = Process:
1. Transferor passes a special resolution to voluntarily wind up the company
2. Members’ voluntary winding up = scheme is sanctioned by passing a special resolution to give liquidator authority to proceed with the scheme; or
2. Creditor’s voluntary winding up = scheme is sanctioned by the court or liquidation committee
3. Scheme is put into effect and binds the members of the transferor company and the creditors
4. Transferor company is liquidated and its business transferred to another company
Members usually receive shares in this company in return
Who can dissent from a scheme of reconstruction?
- There may be members who oppose the scheme
- Members who didn’t vote for the scheme can leave a written statement to the liquidator at the company’s RO within 7 days of the resolution passed
- Liquidator will then either abstain the reconstruction or purchase the disapproving member’s shares
- Creditors have no right to dissent from the scheme under IA1986
- Creditors who oppose the scheme may protect themselves by inserting a provision into the loan agreement or petition to the court for a winding up order
What is a scheme of arrangement?
What 5 aims can be achieved?
- S.895 CA2006 = Scheme of arrangement = arrangement between a company and (i) its creditors or any class of them, or (ii) its members or any class of them
- Allows a company to amend the rights of its creditors and members without obtaining unanimous approval
- s.900 CA2006 = Benefit = versatility to achieve a variety of aims:
- To implement a takeover or merger
- To restructure company’s debt
- To rescue a finically struggling company
- To divide or demerge a company
- To restructure share capital
What is the procedure for a scheme of arrangement?
A. who can apply? What must be contained in the application?
B. who is notice given to and what must it explain? How is approval obtained?
C. What will the courts do? (3)
• = burdensome = involves a three-stage process and two court applications
Stage 1: The Application to Summon Meetings
• S.896 CA2006 = Apply for court order to summon a meeting of the relevant creditors or members affected by the proposed scheme
• Section 896 CA2006 = application can be made by:
1 • the company;
2 • any creditor or member of the company;
3 • the liquidator if the company is in liquidation; or
4 • the administrator if the company is in administration
• The application must identify which members and/or creditors (or classes of members/creditors) will be affected by the scheme
Stage 2: Approval of the Scheme
• S.897 CA2006 = affected members/creditors are provided notice of the meetings explaining:
1. the effect of the arrangement; and
2. any material interest of the directors and effect(s) on the arrangement
- Separate meetings must be held for each class of member/creditor to approve the scheme
- Every meeting must approve the scheme for it to proceed to stage 3
- S.899 CA2006 = approval obtained if = a majority and 75% in value of the members/creditors present and voting vote in favour
Stage 3: Court Sanction
• Apply to court to sanction the scheme
• Re Hawk Insurance Co Ltd [2001] = courts will:
1. determine if stage two meetings complied with the stage one court order
2. determine if approved by the required majorities
3. consider if views and interests of those who did not approve should receive impartial consideration
When does a scheme of arrangement have effect?
Who does it bind?
Can it be amended after court sanction?
- Order only has effect once copy is delivered to registrar of companies
- Scheme binds the company and all creditors or members affected by it
- Does not bind 3rd parties
- Once sanctioned by court, scheme cannot be amended simply because members or creditors wish to
- May be amend if scheme itself allows for post-sanction amendment
What is a takeover?
How is a private company taken over?
How is a public company taken over?
- A takeover = one company acquires sufficient shares in another company to take it over
- Private companies takeovers = the offeror acquires majority of company’s shares by entering into a private agreement to purchase shareholder’s shares
- Takeover Code = public companies = control is acquired if person controls an interest in shares carrying 30%+ of company’s voting rights
What is the Takeover Panel’s role and powers?
Who are they empowered to delegate their functions to?
What are their 3 broad functions?
- S.942 CA2006 = The Panel on Takeovers and Mergers (AKA ‘the Takeover Panel’)
- Role = act as a fire brigade to quickly extinguish the flames of unacceptable and unfair practice
- S.942 CA2006 = may do anything it considers necessary for the purpose of its functions
• S.942 CA2006 = Takeover Panel is empowered to delegate its functions creating:
- the Hearings Committee = review rulings of the Panel Executive
- the Code Committee = review and amend the Takeover Code
• 3 broad functions:
1. Make rules and draft the City Code on Takeovers and Mergers
2. Rule on the interpretation and application of the City Code (these rulings are binding)
3. Investigate and enforce compliance with the code
May provide directions in order to restrain a person from acting in breach of the City Code
What is the principal purpose of the City Code on Takeovers and Mergers?
Which companies does the Code apply to?
What are the 6 general principles of the Takeover Directive? Why are they broad?
• Principle purpose = ensure that take-over proceedings are conducted fairly with equal treatment of all shareholders
Scope of the Code
• Applies to all offers for shares in companies:
• Which have RO in the UK and have securities trading on UK regulated market; or
• Have RO and central place of management/control in the UK (public and private)
The General Principles
• Art. 3(1) Takeover Directive = 6 General Principles:
1. All shareholders of the same class to be treated equally
2. The shareholders must be given sufficient time to make an informed decision
3. The board of the offeree company must act in the best interests of the company
4. False markets must not be created
5. An offeror must announce they have sufficient cash for a cash bid
6. An offeree company must not be hindered in the conduct of its affairs for longer than is necessary.
• Broad = applied in accordance with their spirit to achieve their underlying purpose
Who can the Takeover Panel impose sanctions on?
Can the panel grant a person a waiver from the application of a rule?
What are the 3 sanctions that can be imposed by the hearing committee?
What is a compensation ruling?
- S.952 CA2006 = Takeover Panel can impose sanctions on people that breach the Takeover Code or refuse to comply with it
- The Panel may 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 be inappropriate
• Sanctions imposed by the Hearings Committee include:
- issuing a public or private statement censuring the offender;
- reporting the offender’s conduct to the FCA who can then take action against the offender; and/or
- ‘cold-shouldering’. = publish a statement to say the offender is not likely to comply with the Code
• The Takeover Panel can issue a compensation ruling = the offender must pay the holders of the offeree company’s securities such amount as the Panel thinks fit
What is the basic process of how a public company is taken over? (8 steps)
• Basic process of how a public company is taken over:
- Offeror announces an offer or possible offer
- Offeror announces a firm (strong) intention to make an offer
- Within 28 days, an offer document is published = this represents Day 1 of the offer timetable
- By Day 14 = the response circular must be sent
- Day 21 = earliest date the offer can close (offer must remain open for at least 21 days)
- Day 60 = the maximum period the offer can be extended to
- Day 74 = if offer became unconditional as to acceptances on Day 60, must remain open for a further 14 days
- Consideration is sent to the accepting shareholders within 14 days: of the first closing date, the date the offer became wholly unconditional, or date acceptance was received (whichever is later)
What 2 ways can minority shareholders be protected from a takeover?
• If change in control of a company occurs, shareholder should be given the ability to exit the company by:
- Requiring the offeror to make a mandatory offer
- Giving shareholders sell-out rights
What is a mandatory offer?
When must one be made?
What will the offer price be?
- Rule 9 Takeover Code = a person who has obtained a controlling interest must make an offer to purchase all the shares in the company = a mandatory offer.
- Rule 9.1 Takeover Code = a mandatory offer must be made where a person on their own or with others acquires 30% or more of the voting rights of the company
- Offer price = highest price the offeror paid in 12-months before the offer
What are sell-out rights?
What 3 conditions must be met to exercise them?
How are they exercised?
- S.983 CA2006 = offeree’s shareholders can exit the company by compelling the offeror to purchase their shares
- Can only exercise this sell-out right if:
- the shareholder has not accepted the takeover offer;
- the offer period has not expired;
- offeror has acquired 90% in value of the target company’s shares and 90% of the voting rights
- Exercise sell-out rights by writing to the offeror and requiring them to purchase their shares
- The offeror then becomes bound to acquire that shareholder’s shares
What are squeeze out rights?
When can they be exercised?
How are they exercised?
- S.979 CA2006 = grants the offeror with the right to ‘squeeze-out’ the remaining shareholders by compelling them to sell their shares to the offeror
- Can only exercise if offeree has acquired or unconditionally contracted to acquire 90% in the value of the shares and 90% of the voting rights
- An offeror can give notice to the remaining shareholders that it desires to acquire their shares
- A shareholder can challenge this notice but only succeed if strong grounds for regarding the scheme unfair
- If no challenge = offeror becomes entitled and bound to acquire the shares
