The Takeover Code in Jersey

Introduction

Following consultation in early 2024, the City Code on Takeovers and Mergers (the Code) has been amended to narrow the scope of companies to which it will apply with effect from 3 February 2025 (the Implementation Date).

The amendments seek to refocus the application of the Code to any company which has its registered office in the UK, the Channel Islands or the Isle of Man and whose securities are or were recently admitted to trading on a regulated market or multilateral trading facility in the UK or a stock exchange in the Channel Islands or the Isle of Man. This guide provides an overview of these changes and the principal elements of the Code.

Purpose and overview of the Code

The Code is designed to ensure that shareholders in target companies are treated fairly and are not denied an opportunity to decide on the merits of a takeover and that shareholders of the same class are afforded equivalent treatment by a bidder.  The Code also provides an orderly framework within which such takeovers are conducted. The offer timetable is strictly regulated by the Code which seeks to ensure that target shareholders are given sufficient information, time and advice to enable them to reach a properly informed decision, while preventing a target company from having a bid hanging over it indefinitely.

The EU Takeover Directive (2004/25/EU) (the Takeovers Directive) established the legal framework through which company takeovers were regulated in the EEA. The Takeovers Directive required Member States of the EU to designate an authority to supervise takeover bids. In the UK the UK Panel on Takeovers and Mergers (the Panel) was designated for this purpose. Post-Brexit, Part 28 of the UK Companies Act 2006 (the Companies Act) was amended to effect the changes required to separate the UK domestic takeover regime from the European takeover regime. Schedule 1C to the Companies Act has equivalent provisions to those set out in the Takeovers Directive.

The Companies (Takeovers and Mergers Panel) (Jersey) Law 2009

To align the Panel's functions and powers under Jersey law with those under UK law, Jersey adopted the Companies (Takeovers and Mergers Panel) (Jersey) Law 2009 (the Law) with effect from 1 July 2009. This Law closely mirrors Chapter 1 of Part 28 of the UK's Companies Act 2006.

The Law empowers the relevant Minister in Jersey to appoint a body to oversee takeovers and mergers. The Minister has appointed the Panel as the appropriate overseer, but the Minister does have the power to appoint another body should the need arise. The Law requires the Panel to make rules to give effect to the general principles in Part 1 of Schedule 1C to the Companies Act, giving the Code the same statutory basis in Jersey as in the UK.

The Law confers on the Panel the power to issue directions and give binding rulings on the application of its rules, the power to require the production of documents and information and the power to impose sanctions for the breach of its rules. The Panel can secure compliance with its rules through the Royal Court of Jersey. The Panel can order those found to be in breach of its rules to pay compensation. The Panel can also impose fees or charges in connection with the discharge of its duties under the Law.

It should also be noted that the Law states that it shall not affect the operation of any provision of the Companies (Jersey) Law 1991 (the Companies Law) or the Competition (Jersey) Law 2005. Should a bidder making a takeover offer wish to avail itself of the statutory mechanism to squeeze out minority shareholders, its bid will need to comply with the requirements of the Companies Law relative to takeovers. Similarly, a takeover effected by way of a scheme of arrangement will have to comply with the Companies Law requirements relative to schemes of arrangement if it is to bind all shareholders. Early consideration will also need to be given by bidders as to whether a competition clearance will be required in Jersey. Failure to obtain such a clearance where required would prevent title to shares in a Jersey target company or property in Jersey passing in accordance with the terms of the bid.

To what transactions does the Code apply?

The Code regulates (amongst other things):

• takeover bids and merger transactions of companies to which the Code applies, however effected, including by means of statutory merger or scheme of arrangement; and
• other transactions which have as their objective or potential effect (directly or indirectly) obtaining or consolidating control of companies to which the Code applies.

Control, for these purposes, means an interest in shares carrying in aggregate 30 per cent or more of the voting rights of a company.

The Code did not and, after the Implementation Date, continues not to apply to:

• offers for open-ended investment companies;
• limited liability companies registered in Jersey under the Limited Liability Companies (Jersey) Law 2018.

To which companies did the Code apply prior to the Implementation Date?

Prior to the Implementation Date, the Code applied to all offers for:

• Jersey companies if any of their securities were admitted to trading on a regulated market or a multilateral trading facility in the UK or any stock exchange in the Channel Islands or the Isle of Man; and
• Jersey public and private companies which were considered by the Panel to have their place of central management and control in the UK, the Channel Islands or the Isle of Man, but in relation to private companies when, amongst other things:
  • any of their securities had been admitted to trading on a regulated market or a multilateral trading facility in the UK or on any stock exchange in the Channel Islands or the Isle of Man in the last 10 years; or
  • they had filed a prospectus for the issue of securities with the registrar of companies in Jersey or any other relevant authority in the UK in the last 10 years.

The requirement for such companies to have had their place of central management and control in the UK, the Channel Islands or the Isle of Man is referred to as the residency test or being UK resident.

Summary of changes to the Code effective from 3 February 2025

The amended Code applies to any company that has its registered office in the UK, the Channel Islands or the Isle of Man, if, either:

• any of its securities are admitted to trading on a regulated market or multilateral trading facility in the UK, or a stock exchange in the Channel Islands or the Isle of Man (collectively referred to as UK quoted), or
• it was a UK quoted company at any time during the two years prior to the relevant date.

The relevant date is the date of announcement of an offer or possible offer for the company or some other event in relation to the company which has significance under the Code.

This means that as the residency test has been removed companies will no longer fall in or out of the Code's jurisdiction based on board composition and director residency.

Accordingly, subject to the transitional arrangements summarised below, the amended Code no longer applies to the following categories of company, provided that the company has not been UK quoted at any time within the two years prior to the relevant date:

• a private or public company:
  • which was UK quoted more than two years prior to the relevant date;
  • whose securities are, or were previously, traded solely on an overseas market;
  • whose securities are, or were previously traded using a "matched bargain facility";
• any other unlisted public company; and
• a private company which has filed a prospectus at any time during the 10 years prior to the relevant date.

Further, where a company wishes to cancel the listing of its securities so that it ceases to be UK quoted, it is required to make appropriate disclosures to its shareholders about the implications of the loss of the protections afforded by the Code and that, as a result, the company will enter into a two year run-off period following which the Code will cease to apply. It is recommended that the company consult the Panel at an early stage so that the Panel can provide guidance on the appropriate disclosures.

Under the amended Code, the Panel may, where it considers it appropriate, grant a waiver from the application or some or all of the Code provisions.

The amended Code does not apply to a company with a sole beneficial owner.

Transitional arrangements

The amended Code provides for a two-year transitional period ending on 2 February 2027 for companies that cease to be subject to the Code as a result of the foregoing changes.

A Jersey company is considered a transition company if on 2 February 2025:

• it was a UK resident public company;
• it was a UK resident private company that was UK quoted at any time in the 10 years before the Implementation Date (listing 10 year run-off period);
• it was a UK resident private company that filed a prospectus at any time in the 10 years before the Implementation Date (prospectus 10 year run-off period);
• it was a company that would have fallen into any of the previous three categories but for the fact that it was not UK resident,

but excluding (i) a company that falls within the scope of the amended Code, (ii) an open-ended investment company or (iii) a company with a sole beneficial owner.

Whether or not the Code applies to a transition company in respect of a specific transaction during the transitional period depends on the circumstances at the relevant date as follows:

• the Code applies to a public company until the end of the transitional period provided it is UK resident on the relevant date;
• the Code applies to a private company that was UK quoted at any time in the 10 years before the Implementation Date until the earlier of the end of (i) the transitional period; or (ii) the listing 10 year run-off period, provided the company is UK resident on the relevant date;
• the Code applies to a private company that filed a prospectus at any time in the 10 years before the Implementation Date until the earlier of the end of (i) the transitional period; or (ii) the prospectus 10 year run-off period, provided the company is UK resident on the relevant date.

A transition company will not, therefore, fall outside the scope of the Code on the Implementation Date as a result of the introduction of the new regime. The Code continues to apply to a transition company on the same basis until the end of the transitional period provided that, in the case of a private company only, it is UK resident and the listing 10 year run-off period or the prospectus 10 year run-off period have not expired. This is to provide transition companies an opportunity to put in place alternative arrangements such as making appropriate amendments to their articles of association or enabling shareholders to exit their investment if they do not wish to be shareholders in the company without the protections afforded by the Code.

Conclusion

Consideration should be given to whether the amended Code, including the transitional arrangements, applies to a Jersey company. Where a target company is subject to the Code, potential bidders must undertake their bid in accordance with the requirements of the Code. Companies to which the Code applies will have to ensure, amongst other things, that any transactions involving their shares (eg a redemption or purchase of own shares) do not inadvertently result in a shareholder holding a controlling interest which would result in such shareholder being obliged to make a mandatory offer to acquire the other shares in issue.

Contacts

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