Takeover activity in Ireland has entered a new era with the signing by the President of Ireland of the Takeover Panel Act, 1997.
The Act is expected to come fully into force within the next few weeks by way of Ministerial Order and it makes provision for an Irish Takeover Panel to regulate takeovers of Irish companies whose securities are listed on the Irish Stock Exchange.
The Irish Takeover Panel will monitor takeover activity in Ireland, principally to ensure fair and equal treatment of all shareholders.
The formation of an Irish Panel was prompted by the split of the London and Dublin Stock Exchanges in December 1995. Prior to the split of the two exchanges the London Takeover Panel monitored and supervised takeovers of companies listed on the Dublin as well as the London Stock Exchange. However, the London Takeover Panel indicated that it no longer wished to retain responsibility for supervising takeovers in Ireland following the split of the two exchanges. It was felt necessary therefore to provide for an Irish Takeover Panel to ensure fair and equal treatment of all shareholders and to provide support and credibility for the Irish financial markets following the separation of the Irish Stock Exchange from London.
Upon the split of the two exchanges, concern was expressed in a number of quarters that if the Irish Panel was to operate other than on a statutory basis, there would not be the same respect for the Panel's rules and for rulings given by the Panel as has traditionally been the case in relation to the rules of, and rulings by, the London Panel. Therefore, in contrast to the London Panel, the Irish Panel is established by statute and its rules, when made, will have statutory force. The London Panel has no statutory basis but its operation is effectively, if indirectly, supported by rules imposed by UK regulatory organisations such as the Securities and Investments Board and the Securities and Futures Authority.
As referred to above, the Panel's powers will be supplemented by further rules which are currently being drafted and which are expected to be published this month. The Panel's new rules will be similar to the London City Code on Takeovers and Mergers ("City Code").
TAKEOVERS
For the purposes of the Act, a "takeover" means any agreement or transaction whereby 30% or more of voting rights are or may be acquired, and includes invitations, offers or proposals which are made with a view to bringing about such an agreement or transaction. The Act will apply (at a minimum) to takeovers of Irish public companies and other Irish bodies corporate whose securities are traded on stock exchanges to be prescribed for the purposes of the Act. It is anticipated that the Irish Stock Exchange will be a prescribed stock exchange for the purposes of the Act. The Act will apply in the case of an Irish company quoted in both Dublin and London.
The Act applies to all parties involved in such a takeover, to parties who intend or contemplate making an offer for a relevant company, and to the parties' advisers.
The Act does not apply to UCITS and investment companies formed under Part XIII of the Companies Act, 1990.
DUTY OF THE PANEL
The Panel's principal duty is to monitor and supervise takeovers so as to ensure that takeovers comply with the provisions of the Act and the Panel's rules. The Panel's new rules will be based on the "scheduled principles" relating to takeover activity set out in the Act.
The fundamental objectives underlying the scheduled principles can be summarised as follows:-
- to ensure equal treatment of shareholders of the same class;
- to provide accurate, adequate and timely information and advice upon which shareholders can reach a properly informed decision on the merits of an offer;
- to ensure a fair market in the shares of companies which are involved in takeovers;
- to prevent the boards of directors of target companies from taking action without shareholder approval, which would frustrate an offer;
- to ensure that target companies will not be disrupted in the conduct of their affairs beyond a reasonable time by an offer for their securities.
Although the scheduled principles are largely based on the general principles in the City Code, in certain instances they differ. For example, the City Code general principles require directors to act in the best interests of shareholders, employees and creditors, but the Irish principles make no reference to the interests of employees and creditors. Also, the scheduled principles do not include a principle that the directors are to act in the interests of the company as a whole which principle is set out in the proposed EU Takeovers Directive (O.J. No C 162 of 6th June, 1996).
It is expected that the Panel's rules will include rules governing substantial acquisitions of shares which will be similar to the Rules Governing Substantial Acquisitions of Shares issued and administered by the London Panel.
POWERS OF THE PANEL
The Panel may on its own initiative or upon the application of any interested person make a ruling as to whether any activity complies with the scheduled principles or the Panel's rules.
"Interested person" is not defined in the Act and could include any member of the public with an identifiable interest in the takeover.
The Panel may give directions to any party to a takeover to do or to refrain from doing anything specified by the Panel in the direction. It may also enquire into the conduct of persons involved in a takeover and may advise, censure or admonish such persons.
For the purposes of exercising its powers, the Panel may conduct public or private hearings and compel attendance of witnesses and the production of documents. Refusal to comply is an offence and in addition the High Court has power, on application being made by the Panel, to order compliance by the defaulter.
The Panel also has the power to impose charges on parties involved in takeover activity in order to defray operating expenses.
ENFORCEMENT
As previously stated, the City Code itself does not have the force of law and instead the London Panel relies upon strict adherence to the City Code by its members. The position in relation to the Irish Panel is significantly different. The Irish Panel may apply to the High Court to enforce its rulings and directions, including the following:
- an order requiring any party to refrain from doing anything specified in the order;
- an order to annul a transaction;
- an order providing for consequential or restitutionary relief.
The Act also provides for criminal penalties for non-attendance and for the provision of false evidence at hearings of the Panel. The maximum penalty for these and other offences upon summary conviction is a fine not exceeding o1,500 or imprisonment for a maximum of 12 months (or both).
REVIEW OF THE PANEL'S DECISIONS
It is not possible under the Act for a person other than the Panel to apply for the recision of a transaction which has completed and which is subsequently found to be in breach of the Act or the Panel's rules, rulings or directions.
It is also important to note that there is limited scope to apply to the Irish High Court for review of the rules, derogations, rulings and directions of the Panel. An application for review of the Panel's decision must be made within 7 days (subject to any permitted extension by the court) of the relevant ruling, derogation, or direction and the application will only be heard by the High Court on the grounds that the actions of the Panel are invalid or ought to be quashed.
CONCLUSION
The passing of the Irish Takeover Panel Act is an important milestone in the regulation of takeover activity in Ireland. Together with the existing paraphernalia of mergers and competition legislation, it will, when brought fully into force, require careful consideration by all those contemplating takeovers of Irish quoted companies, as well as by those quoted companies which may have reason to believe that they are, or may become, likely targets for takeovers in 1997 and subsequent years. The new legislation may now bring into sharper focus than before the prospect of litigation in relation to takeovers of quoted companies, and the implications of this for takeover activity generally.
David Widger
Member of the Securities Unit of A & L Goodbody Solicitors
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