Draft Takeovers (Amendment) (EU Exit) Regulations 2019

Nigel Mills Excerpts

Tuesday 11th December 2018 General Committees

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kelly Tolhurst)]

I beg to move,

That the Committee has considered the draft Takeovers (Amendment) (EU Exit) Regulations 2019.

It is a pleasure to serve under your chairmanship, Mr Austin. The regulations will be made under powers in the European Union (Withdrawal) Act 2018. They amend part 28 of the Companies Act 2006, so that the United Kingdom’s corporate takeovers regime can operate independently in the event that the UK exits from the EU without a withdrawal agreement.

If the UK leaves the EU without an agreement in place, the instrument will provide legal clarity and certainty. The takeovers regime seeks to ensure that shareholders receive fair and equal treatment when the company in which they have invested is subject to a takeover bid. The effective operation of the takeovers regime is vital to business confidence.

Part 28 of the 2006 Act transposes the takeover directive 2004/25/EC into UK law. The directive was intended to harmonise certain aspects of takeover supervision across the European economic area. It created expectations of reasonable behaviour to which company shareholders could hold bidders. It also created a system of co-operation, in which member states’ regulators shared jurisdiction over a small number of cross-border takeover cases.

The 2006 Act requires the Takeover Panel to make rules to give effect to the directive in the UK. The panel has done so in the City code on takeovers and mergers. The regulations preserve the statutory underpinning of the code, and make only minimal changes to the way in which the UK regime functions. In developing the regulations, we worked closely with the UK’s supervisory authority, the Takeover Panel. The panel has published a consultation document on the changes that it will need to make the takeover code reflect the regulations.

The regulations make only three substantive changes to the way in which the UK takeovers regime functions. The rest of the regulations import and correct provisions from the directive that are necessary for the independent operation of the UK regime, but do not change how the domestic regime operates.

First, the EEA takeovers regime includes a system of shared jurisdiction for company headquarters that are listed in different countries. The supervision of a company captured by the shared jurisdiction system is usually done by two regulatory authorities: one in the country where the company has its registered office, and the other in the country where the company is listed. The shared jurisdiction regime ensures that there is clarity about which national takeover rules apply in such cases.

The shared jurisdiction regime works on a reciprocal basis. Since the UK will be outside that framework, the reciprocal arrangements will no longer apply after EU exit. The regulation will remove shared jurisdiction from the UK takeovers regime. The Act requires the panel to supervise UK companies with securities admitted to trading on a UK-regulated market. The panel may also choose to supervise companies that do not fall within that definition. The panel is currently consulting on the application of the takeover code in the light of the loss of the shared jurisdiction regime.

[Nigel Mills (Amber Valley) (Con)]

Will the Minister clarify what would happen if a takeover started before exit day, but had not been completed, and there was a co-operation arrangement, with two jurisdictions reviewing the proposed takeover? Presumably, after exit day, only one would be allowed to review it. Would a whole new process have to be started, or would one authority effectively just give up its scrutiny of the takeover?

[Kelly Tolhurst]

I thank my hon. Friend for his intervention; he raises a very good point. Although the statutory instrument will remove the shared jurisdiction, part 28 of the 2006 Act still places a duty on the UK to co-operate with any country or territory on mergers. While the SI will remove the reference to the EEA, we will not remove the continued co-operation of the UK regime with other countries and territories.

The panel is currently consulting on the application of the takeover code in the light of the loss of the shared jurisdiction regime. It proposes to supervise takeovers concerning only companies that meet the residency criteria set out in the takeover code.

The second feature of the draft regulations relates to the duty to co-operate. Section 950 of the Companies Act places a general duty on the Takeover Panel to co-operate with its counterparts and certain other regulatory agencies in any country or territory outside the UK. It also imposes a specific duty to co-operate with supervisory authorities in the EEA, which is derived from the takeovers directive 2004. After our exit, EEA member states will no longer be bound to co-operate with the UK under the directive. The draft regulations will therefore remove the specific obligation to co-operate with EEA supervisory authorities, as it will no longer be reciprocal. However, the Takeover Panel will still be required to co-operate with the authorities of EEA member states under the broader duty to co-operate with any international supervisory authority with an equivalent role. This change will not, in practice, constrain the panel’s ability to co-operate.

The final feature of the draft regulation relates to restrictions on the disclosure of confidential information. Section 948 of the Companies Act restricts the disclosure of confidential information obtained by the Takeover Panel during its duties and sets the conditions under which information can be shared. It applies to both the panel and the organisations with which information is shared. Breaching the section 948 restriction is a criminal offence.

The Companies Act provides an exemption from the section 948 restriction for EEA public bodies using confidential information disclosed by the panel for the purpose of pursuing an EU obligation. These EEA public bodies are bound by their own national laws and by EU law to prevent the inappropriate disclosure of information passed to them by UK authorities. After our EU exit, these reciprocal protections will no longer apply to the UK. The draft regulation will remove the specific exemption from the section 948 offence for EEA public bodies and ensure that there is a sanction to deter inappropriate onward disclosure of sensitive information.