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Venture Capital

Volume 464: debated on Wednesday 17 October 2007

To ask the Chancellor of the Exchequer what arrangements are in place for directors and elite shareholders of businesses (a) in the process of being and (b) after having been taken over by (i) private equity businesses and (ii) non-private equity businesses to disclose all deals, promises and transactions of personal benefit to themselves, both prior to and subsequent to the takeover; what duties such directors and elite shareholders have to other shareholders and employees of the business being taken over; what proposals he has to change the existing arrangements; and if he will bring forward urgent proposals to legislate to make such disclosure necessary. (152607)

Takeovers are supervised and regulated by the Panel on Takeovers and Mergers in accordance with the rules set out in the Takeover Code. This provides an orderly framework within which takeovers are conducted, contributing to the integrity of financial markets, and ensuring that all shareholders are treated fairly and are not denied an opportunity to decide on the merits of a takeover.

The Code requires:

that all shareholders of the same class be treated equally (general principle 1)

the disclosure of share dealings during the offer period (rule 8)

that an offeror covers its intentions for the future of the business, including likely repercussions on employment (rule 24.1)

the disclosure of details of directors’ interests and dealings in securities of the offeror company (rule 25.3)

the disclosure of details of directors’ remuneration or service contracts (rule 25.4)

In addition, the FSA’s Listing Rules require listed companies to disclose directors’ service contracts, to notify relevant interests in securities by directors and persons connected with them, and also restrict dealings in the company’s securities by directors and persons connected with them. Further obligations in relation to the disclosure of relevant information and of particular transactions in substantial portions of shares in a company whose shares are traded on regulated markets are contained in the FSA’s Disclosure and Transparency Rules.

The Companies Act 2006 imposes statutory duties on directors of all companies, whether before or after a takeover, whether listed on a public market or privately held. These include the duties in chapter 2 of part 10 among other things to promote the success of the company for the benefit of its shareholders as a whole, having regard—among other matters—to the interests of the company’s employees, to exercise reasonable care, skill and diligence, and to avoid conflicts of interest. The Act imposes specific requirements for prior shareholder authorisation in areas likely to give rise to conflicts of interest, such as loans by the company to a director or long-term service contracts for directors. Chapters 4 and 6 of part 15 of the Act also impose disclosure requirements in respect of directors’ remuneration, directors’ service contracts, and advances, credit and guarantees to directors.

The Takeover Panel and FSA are respectively responsible under statute for setting takeover rules and listing and disclosure rules. BERR is responsible for the general corporate disclosure regime. Current rules are kept under review and regularly updated in line with market developments.