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E-MailEduardo Gallardo is a partner focusing on mergers and acquisitions at Gibson, Dunn & Crutcher LLP. This post is based on the introduction to Gibson Dunn’s guide to the City Code, which is available in full here. The guide was authored by Selina Sagayam, Jeff Roberts, and James Barabas.
The City Code is a set of general principles and rules governing the conduct of takeovers and mergers of companies with registered offices in the UK, the Channel Islands and the Isle of Man. It also applies to a limited extent to companies in other European Economic Area (EEA) countries. The Code is designed principally to ensure that shareholders are treated fairly and provides an orderly framework within which takeovers are conducted. It is issued and administered by the Takeover Panel (the Panel), which has been designated as the supervisory authority to carry out certain regulatory functions in relation to takeovers under the EU Takeover Directive. The Panel is an independent body made up of representatives from UK financial institutions and professional associations and other members appointed by the Panel. The Panel‘s day-to-day business is carried out by an Executive comprising full-time employees and secondees from the investment banking community, accountancy firms, law firms and the civil service. It is headed by a Director General who is usually a director of an investment bank seconded for generally a two year period.
Legal status
Following implementation of Part 28 of the Companies Act 2006, the Panel is a statutory body and the City Code has statutory effect. The Panel enforces the City Code and can give any direction that, for example, appears to it to be necessary to restrain any person form acting (or continuing to act) in breach of the City Code or otherwise to secure compliance with it. It can also order compensation to be paid in certain cases and can seek enforcement of the City Code and its rulings by the UK courts. The Panel also has other various disciplinary powers. It can ask the Financial Services Authority (FSA) to take enforcement action and involve the FSA if a party‘s behaviour during an offer amounts to market abuse for the purposes of FSMA. Sanctions available to the FSA for market abuse include unlimited fines. Compliance with the City Code may also be relevant in determining whether criminal or civil liabilities will arise.
It is important to realise that it is the spirit as well as the letter of the City Code that must be observed. The general principles are expressed in broad general terms and the Code does not define the precise extent of, or the limitations on, their application. The great strength of the City Code is its flexibility. The application of the general principles and rules may vary from case to case since the facts of each individual case may be different or new. For this reason, the Executive is available to give guidance and rulings on points of interpretation. Accordingly, legal or other professional advice is not generally an appropriate alternative to obtaining a view or ruling from the Executive.
Application of the City Code
The City Code applies to all types of takeover and merger transactions relating to relevant companies, including offers for only part of the share capital.
The City Code applies to all offers:
- for companies that have their registered office in the UK, the Channel Islands or the Isle of Man if any of their securities are admitted to trading on a regulated market in the UK or on any stock exchange in the Channel Islands or the Isle of Man; and
- for other companies that have their registered offices in the UK, the Channel Islands or the Isle of Man and that are considered by the Panel to have their place of central management and control in those jurisdictions (note that it only applies to private companies if their shares were previously listed on the London Stock Exchange or where these have been the subject of certain types of public offering or trading in the past).
Where a company has its registered office in the UK but its securities are admitted to trading on a regulated market in one or more EEA member states but not in the UK, the Panel will share jurisdiction over the offer with the takeover regulator in the other relevant state and only certain City Code provisions will apply. This will also be the case if a company has securities admitted to trading only on a UK regulated market but its registered office is in another EU member state where it does not have securities admitted to trading. Shared jurisdiction may also apply where a company has its securities admitted to trading on regulated markets in more than one EEA member state (including the UK) but not if the company has securities admitted to trading on a regulated market in its own country.
The complete guide is available for download here.
