Following a consultation commenced last year (PCP 2012/3), the
Panel has amended the "Introduction" to the Code with
effect from 30 September 2013.
Companies which have their registered office in the United
Kingdom, the Channel Islands or the Isle of Man were, and
remain, subject to the Code if their securities are admitted to
trading on a "regulated market" (such as the UK Official
List) in the United Kingdom or on any stock exchange in the Channel
Islands or the Isle of Man.
However, whether a United Kingdom, Channel Islands
or Isle of Man company whose shares were traded on AIM or ISDX
would be subject to the Code depended on whether, in the view of
the Panel, the place of central management and control of the
company was in the United Kingdom, the Channel Islands or the Isle
of Man (the "residency test"). The "residency
test" also applied to United Kingdom, Channel
Islands and Isle of Man companies which were unlisted
public companies or a private company to which the Code
otherwise applied or whose shares were listed only on an exchange
outside the European Economic Area.
In applying the "residency test", the Panel would
typically first look at where the majority of the directors were
resident and, if applicable, at where the chairman was and whether
he had a casting vote. On occasion, other factors, including
the company's history, the directors' functions and
statements made by the company as to the (non-)applicability to it
of the Code, would be taken into account.
The Panel's proposal was to remove the "residency"
test from the Code completely. The Panel gave three principal
reasons for this.
Firstly, given likely investor expectations, it was thought
undesirable for United Kingdom, Channel Islands or Isle of Man
companies not to be subject to the Code.
Secondly, as the "residency test" was based upon
the residence of the directors, board changes, or even directors
relocating, could affect whether a company was subject to Code
protection.
Finally, the Panel felt it was often impossible for third
parties - such as shareholders or potential offerors - to determine
whether or not certain companies were subject to the Code.
The Panel noted some concerns about enforcement of the Code
against companies whose only connection to the United Kingdom was a
stock exchange listing here, but observed that this had not to date
proved to be an issue in other areas of Code compliance.
Accordingly, this was not in its view a reason to retain the
"residency test".
Following feedback from the consultation (RS 2012/3), the Code has
been changed to make clear that United Kingdom, Channel Islands and
Isle of Man companies whose shares are admitted to trading on a
United Kingdom "multilateral trading facility" - which
includes both AIM and ISDX - will always be subject to the Code,
without reference to the "residency test".
Accordingly, a United Kingdom-incorporated public company whose
shares are traded on AIM but whose management are all based in
Canada would now be subject to the Code in addition to any other
takeover regime to which it might be subject. However, the
Panel decided not to make any changes at this point in relation to
United Kingdom, Channel Islands and Isle of Man companies which are
unlisted public companies or private companies to which
the Code otherwise applies or whose shares are listed only on an
exchange outside the European Economic Area, where the
"residency test" continues to apply in each case.
In the 2012 Consultation Paper, the Panel said that it was aware
of concerns that offers for certain United Kingdom-listed companies
would not be subject to the Code because those companies had
re-domiciled, to Bermuda for example. The Panel stated that
it intended to investigate whether it might be feasible and
proportionate to extend some Code protection to shareholders of
such companies. In doing this, the Panel noted that it would
need to look at any issues around enforceability of the Code and
the potential for conflict with local law. In some cases, of
course, these companies attempt to incorporate at least some Code
provisions into their articles of association in order to allay
investor concerns. As yet, the Panel has not published a
further paper on this, and we are watching for further
developments.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
