UK: Consultation Paper PCP 2024/1: Proposed amendments to the application of the Takeover Code

On 24 April 2024, the Takeover Panel released a consultation paper, PCP 2024/1, to refocus the scope of companies subject to the Takeover Code (the Code). This move follows a public consultation by the Takeover Code Committee. 

Currently, the Code applies to companies if their registered office is in the UK, Channel Islands, or the Isle of Man, and they are either:

1. UK-Listed, meaning their securities are admitted to trading on a UK-regulated market (such as the Main Market or AQUIS Stock Exchange), a UK multilateral trading facility (such as AIM or AQUIS Growth Market), or a stock exchange in the Channel Islands or the Isle of Man (UK-listed);
   
2. not UK-listed but satisfy the “residency” test meaning their place of central management or control is in UK, Channel Islands or the Isle of Man (residency test); or 
   
3. a private company that satisfies the residency test and one of the four Section 3(a)(ii) applies, including if the company’s securities have been ‘UK-listed’ in the previous 10 years.
   

The proposed amendments to the Code will result in the Code applying to a reduced selection of companies, being UK-registered companies if their registered office is in the UK, Channel Islands, or the Isle of Man, and:

1. are UK-listed, or;
   
2. were UK-listed at any time during the three years prior to the relevant date (being the date of an announcement of an offer or a possible offer or other event which has significance under the Code).

If these proposals are adopted, the residency test will no longer be applicable and UK-registered companies that were UK-listed more than three years before the relevant date or whose securities were traded solely on an overseas market will no longer be subject to the Code.

For companies ceasing to be subject to the Code following the proposed changes, transitional arrangements will apply for three years from the implementation date of the rule changes. It is also worth noting that companies which subsequently fall within the Code’s scope due to meeting the residency test during the three-year transitional period at the relevant time may become subject to the transitional arrangements. 

Interested parties can comment on the proposals until 31 July 2024. The Response Statement is expected in Autumn 2024, and the new framework will take effect one month later.

That the Panel is contemplating reducing the range of companies that fall within its jurisdiction is a timely recognition that the Panel cannot (and in our view should not) seek to regulate takeovers of companies that are not genuinely public in nature. The proposed abolition of the residency test also seeks to address the uncomfortable position under the existing rules that a target may be a code company one day and then not the next, simply turning on where its place of management and control has changed. In our view, these changes are to be welcomed as they will create additional certainty and remove from scope certain companies that should not really have been within scope at all.