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Takeovers (Review)

Volume 116: debated on Monday 11 May 1987

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asked the Secretary of State for Trade and Industry when he expects the review of the regulation of takeovers that he announced on 28 January to be concluded.

The review has now been concluded. It was carried out by officials from my Department, the Treasury and the Bank of England, together with representatives of the Securities and Investments Boards, the stock exchange and the panel on takeovers and mergers. The review group identified a number of measures which will strengthen the regulation of takeovers. These are listed below. The measures will improve the monitoring and investigative capabilities of the takeover panel, adding further to the arrangements already made with the Stock Exchange to use the latter's new information systems. The measures will make available the sanctions of the Securities and Investments Board and recognised self-regulating organisations, and they will require authorised investment businesses to co-operate with inquiries and investigations carried out by the panel. In addition, they will facilitate and improve co-operation between regulators, and we have today made an order under section 180 of the Financial Services Act and section 449 of the Companies Act designating the panel to receive regulatory information whose disclosure is restricted by statute.A consultative document will be published shortly about changes to law proposed by the review group.The appointments of a new chairman and two new deputy chairmen of the panel have already been announced and further appointments will be made when the new regulatory regime under the Financial Services Act is in place.These steps bring the panel into a closer relationship with the regulatory arrangements established by the Financial Services Act. I believe this provides for effective and flexible regulation of takeovers.MEASURES IDENTIFIED IN THE REVIEW

Integration with the financial services regulatory structure: sanctions for breaches qt. the Take-over Code

1. The Securities and Investments Board, if designated, and recognised self-regulating organisations will be able to use their sanctions against investment businesses that breach the code.

2. The SIB, if designated, should encourage recognised investment exchanges to adopt rules requiring member firms to comply with the rules and rulings of the panel, or enabling disciplinary action to be taken against a firm on the basis of a panel finding alone.

3. The stock exchange should consider whether there is scope, in its role as "competent authority for listing", for supporting the panel further than it does already through the listing rules applying to issuers under section 153 of the Financial Services Act.

4. The SIB, if designated, and relevant SROs should adopt "cold-shoulder" rules requiring investment businesses not to act for persons who the businesses have reason to believe will not comply with United Kingdom practice and standards in takeovers.

Integration with the financial services regulatory structure: investigative powers

5. The SIB, if designated, and relevant SROs should adopt rules requiring investment businesses to co-operate with the panel in inquiries and investigations.

6. The Secretary of State and the SIB, if designated, will where appropriate use their statutory investigative powers in relation to breaches of the code.

7. The panel should be designated under financial services and companies legislation to receive regulatory information whose disclosure is restricted by statute.

8. The existing machinery for co-operation between regulators will be extended to include the panel and will keep under review the development of co-operation on the regulation of takeovers.

Member of the panel

9. In addition to the recent appointments of a new chairman and two new deputy chairmen, the Governor of the Bank of England and the panel intend to change the panel's composition in the following ways:

  • (a) The Securities Association and the Investment Management Regulatory Organisation, if recognised as SROs, are to become member organisations.
  • (b) One more named individual (in addition to the chairman and deputy chairmen) is to be appointed by the Governor as a further non-representative member.
  • (c) When appointing named individuals, including the chairman and deputy chairmen, the Governor will bear in mind the desirability of maintaining the present cross-membership with SIB.
  • The Companies Act, the Takeover Code and the Stock Exchange listing rules

    10. The stock exchange and the Department are to undertake further work to establish ways in which companies could be permitted to prevent the voting at general meetings of shareholdings of which the ultimate voting control is not disclosed. The panel is considering ways in which it might prevent such shareholdings from influencing the outcome of an offer.

    11. The five-day deadline allowed by the Companies Act for disclosure of interests of 5 per cent. or more should be reduced if consultation confirms it is practicable. The panel is examining whether the disclosure deadline in the code should be amended to require parties to the offer and their close associates to disclose dealings immediately in normal circumstances and, in any event, by 9 am the following business day, instead of noon the following business day as at present.

    12. A number of improvements might be made to the powers enabling restrictions to be imposed on the exercise of rights attached to shares (including voting and transfer rights) when inquiries by a company into the ownership of the shares under section 212 of the Companies Act prove unsuccessful. These include any necessary clarification of the circumstances in which a company may apply to the court for an order restricting the rights, and the possible inclusion in the Act of a specific deadline for responses to inquiries. For those companies that have taken the power through their articles to restrict rights themselves (without the need to apply to the court) when section 212 inquiries are unsuccessful, the stock exchange might reduce the 28-day period of notice that is required before the rights may be restricted.

    13. The Companies Act provisions on concert parties should be clarified and steps should be taken to ensure that the law is better understood. The panel proposes to amend the code to make it clear that its provisions are different from those of the Act and that panel rulings on the code do not constitute legal guidance on the interpretation of the Companies Act.

    14. The Department is considering whether the Companies Act prohibition of the giving of financial assistance for the purchase of own shares needs to be strengthened or clarified.

    15. The Department and the panel are examining, in co-operation with the Bank of England and the stock exchange whether dealings by those associated with parties to a takeover, even when disclosed as required by the code, can distort the market, whether any additional restrictions should be imposed on such dealings and the effect of any such restrictions.

    16. The panel proposes to amend the code to include a reference to the application of section 47(1) of the Financial Services Act to takeover documents and to include a more prominent reference to the provision of legislation on insider dealing.