Restrictions on Frustrating Action
Amendments to Rule 21 of the Takeover Code
Restrictions on Frustrating Action - Amendments to Rule 21 of the Takeover Code
Following its earlier consultation in May, the Takeover Panel (the Panel) has published amendments to Rule 21 of the Takeover Code (the Code) with regards to restrictions on frustrating action. These amendments will take effect on 11 December 2023 and will apply to all companies and transactions that are subject to the Code including on-going transactions that straddle this date (provided the changes are not given retrospective effect).
Rule 21 deals with the following aspects:
- restrictions on the board of a target company taking frustrating action in relation to an offer (21.1);
- the obligation to provide equal information to competing bidders (to prevent the directors of a target company from being able to frustrate a competing offer by providing important information only to a ‘preferred’ bidder) (21.3); and
- the requirement to provide the independent directors of a target company (who may be less involved in the day-to-day management of the business) with any information provided to external providers of finance on a management buy-out or similar transaction (21.4).
The main changes amend Rule 21.1 so that the board of a target company would not be restricted from taking an action that either is not material or is in the ordinary course of its business and would not result in an offer or bona fide possible offer being frustrated. The aim of the changes is to increase flexibility for target companies to carry on their ordinary course activities, including where these involve buying and selling assets, and to provide greater clarity as to the actions that will and will not be restricted. A target company will still be required to consult the Panel about any intended action that could be restricted by Rule 21.
A new Practice Statement No. 34 has been published which provides additional guidance on how Rule 21.1 is normally interpreted and applied.
There have also been amendments to Rules 21.3 and 21.4 to ensure that a bidder or bona fide potential bidder is not denied access to the target company’s information on a technicality and to reduce the administrative burden on the parties to an offer where information is requested.
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