Introduction
Changes to the UK Takeover Code (“Code") rules will be implemented on 3 February 2025 that reduce the number of companies subject to the Code. The new rules will reduce the regulatory burden on companies that have de-listed and will provide greater certainty to market participants as to whether or not the Code applies by introducing a more objective approach.
New scope of the Code
The Code will continue to apply to companies registered in the UK, the Channel Islands and the Isle of Man (“UK Registered Companies”) and whose securities are admitted to trading on any UK regulated market, any UK multilateral trading facility (such as AIM), or any stock exchange in the Channel Islands or the Isle of Man (“UK Quoted”).
With effect from 3 February 2025, however, the Code will only apply to other companies whose securities were UK Quoted within the two year period prior to the “relevant date” (i.e. when an offer is made).
The Code will cease to apply, therefore, to the following companies:
- a public or private company which ceased to be UK Quoted more than two years prior to the relevant date;
- a public or private company whose securities are, or were previously, admitted to trading solely on an overseas market;
- a public or private company whose securities are, or were previously, traded using a matched bargain facility;
- any other public company which is not UK Quoted; and
- a private company which filed a prospectus at any time during the 10 years prior to the relevant date;
unless, in each case, they have been UK Quoted in the previous two years.
Residency Test
The new rules remove the “residency test”, which examines whether the company’s place of central management and control is in the United Kingdom, the Channel Islands or the Isle of Man. If a majority of the board is resident in the UK, the Channel Islands, or the Isle of Man, then the company is subject to the Code. Residency, however, can shift with a change to the board and so the new rules provide greater clarity and certainty.
UK Registered Companies that de-list prior to 3 February 2025 and which are not UK resident are not subject to the Code. Following the abolition of the residency test however, if the same company de-lists on or after 3 February 2025 then it will be automatically subject to the Code for two years.
Transition Period
A two year transition period applies from 3 February 2025 to 2 February 2027, so that the “residency test” will continue to apply for companies that on 2 February 2025 are not UK Quoted but are either (a) subject to the Code or (b) would be subject to the Code but for the fact they do not meet the residency test at that time (Transition Companies). During the two year transition period Transition Companies can therefore become subject to the Code if they meet the residency test. Transition Companies also have an opportunity during this time to incorporate into their articles of association minority shareholder protections, if they wish, and to provide shareholders time to exit their investment.
