Clause 596: Report to members on outcome of investigation

1110.     This clause re-enacts section 215 of the 1985 Act. It specifies that on the conclusion of an investigation carried out by the company in pursuance of a members' request, it is the duty of the company to prepare a report of the information received. The report must be available at the company's registered office within a reasonable period (not exceeding 15 days) after the conclusion of the investigation. Where the company's investigation exceeds three months, it must make interim reports available at three monthly intervals. The requisitionists must be notified of reports being available.

Clause 597: Report to members: offences

1111.     This clause re-enacts section 215(8) of the 1985 Act. It specifies the criminal penalties arising if the company fails to report as required on the outcome of the investigation under clause 596.

Clause 598: Right to inspect and request copy of reports

1112.     This clause re-enacts provisions in section 219 of the 1985 Act. It requires the company to make any report prepared as a result of a requisition under clause 594 to be open to inspection by anyone without charge. Any person can request a copy of the report, on payment of the prescribed fee. Subsections (3) to (5) specify the criminal penalties arising if the company fails to disclose the report as required and make provision for the courts to compel disclosure.

Clause 599: Register of interests disclosed

1113.     The register currently required to be kept by section 211 of the 1985 Act covers all interests notified, whether under the automatic disclosure rules or in response to a notice served under section 212 of that Act (company investigations). The latter are currently kept as a separate part of the register of interests in shares. In future it will be for regulations made under the Financial Services and Markets Act 2000 (as amended by clause 861) to make provision as to how interests notified under the automatic disclosure rules will be made public.

1114.     This clause provides that if, as a result of a clause 590 inquiry, the company receives information relating to the present interests held by any person in relevant shares, it must enter in a register of interests disclosed:

• the fact that the requirement (to disclose information under the notice) was imposed and the date on which it was imposed; and

• the information received in response to the notice under clause 590.

1115.     The clause provides that the information must be entered either against the name of the present holder of the shares in question (as under the current law), or if the present holder is not known or there is no present holder, then against the name of the person holding the interest.

1116.     The company is not required to enter on the register the historical information it has received about interests in shares.

1117.     Subsections (6) and (7) provide for criminal penalties for any default in complying with this clause. Subsection (8) makes clear that information that a company receives under this Part is not concerned with the existence of any trust over the shares.

Clauses 600 and 601: Register to be kept available for inspection; and associated index

1118.     These clauses re-enact section 211 of the 1985 Act. Clause 600 provides that the register of interests disclosed must be kept available for inspection at the company's registered office or at the place where the company's register of members is kept. The company must advise the registrar where the register is kept (unless it has always been kept at the registered office). Subsections (4) and (5) provide for criminal penalties for any default in complying with this clause.

1119.     Clause 601 provides that the register should have an index unless it is in a form that itself constitutes an index, (for example a searchable database).

Clause 602: Right to inspect and request copy of entries

1120.     This clause re-enacts section 219 of the 1985 Act. It provides that the register and index must be open to inspection by any person without charge. For a prescribed fee, any person is entitled to a copy of any entry on the register. Subsections (4) and (5) provide for court enforcement and criminal penalties for any default in complying with this clause.

Clause 603: Entries not to be removed from register

1121.     This clause re-enacts section 218 of the 1985 Act. It provides that entries can only be removed from the register in accordance with clauses 604 and 605, and if wrongly deleted must be restored as soon as reasonably practicable. Subsections (3) and (4) provide for criminal penalties for any default in complying with this clause.

Clause 604: Removal of entries from register: old entries

1122.     Section 217(1) of the 1985 Act currently provides that a company may remove an entry against a person's name from the register of interests in shares if more than 6 years have elapsed since the date of the entry being made, and either:

• the entry recorded the fact that the person in question had ceased to have an interest notifiable under Part 6 in the company's relevant share capital (in which case the person's name may also be removed from the register); or

• the entry has been superseded by a later entry against the same person's name.

1123.      This clause provides that a company is not required to keep information on the register if more than 6 years have elapsed since the entry was made.

Clause 605: Removal of entries from register: incorrect entry relating to third party

1124.     This clause re-enacts section 217 of the 1985 Act but removes the requirement for the company to verify information relating to third parties supplied in response to a clause 590 notice. The third party can apply to have his name removed from the register if the information is incorrect. Subsection (4) provides for the courts to enforce removal of incorrect information.

Clause 606: Adjustment of entry relating to share acquisition agreement

1125.     This clause re-enacts section 217(4) and (5) of the 1985 Act. It provides that a person identified in the register as being party to a clause 613 share acquisition agreement (a concert party agreement) may when he ceases to be party to the agreement, request that the register should be amended to record that information. Such entries may appear in several places on the register, as each member of the concert party is required in their individual notification to identify the other members of the concert party. If the company refuses an application, the court may order the company to comply if it thinks fit.

Clause 607: Duty of a company ceasing to be a public company

1126.     This clause re-enacts provisions in section 211(76) and (10) of the 1985 Act. It provides that a company ceasing to be a public company must continue to keep any register it has kept under clause 599 and any associated index for 6 years after it ceases to be a public company.

Clause 608: Interest in shares: general

1127.     This clause re-enacts the definition of "interest in shares" currently in section 208 of the 1985 Act for the purposes of Part 21. An "interest in shares" is widely defined as an interest of any kind whatsoever in the shares, and includes beneficial ownership as well as direct ownership. This wide definition is designed "to counter the limitless ingenuity of persons who prefer to conceal their interests behind trusts and corporate entities": re TR Technology Investment Trust plc [1988] BCLC 256 at 261.

Clause 609: Interest in shares: right to subscribe for shares

1128.     This clause re-enacts section 212(6) of the 1985 Act. It provides that a notice under clause 590 applies in relation to rights to subscribe for shares.

Clauses 610 and 611: Interest in shares: family and corporate interests

1129.     These clauses re-enact section 203 of the 1985 Act. They provides for certain family interests to be attributed to persons for the purpose of disclosure, as well as certain interests held indirectly through a corporate body.

Clauses 612: Interest in shares: agreement to acquire interests in a particular company

1130.     This clause re-enacts section 204 of the 1985 Act concerning the obligation to give details of certain share acquisition arrangements in response to a notice under clause 590. It covers any agreement or arrangement, whether or not legally binding, which involves undertakings, expectations or understandings that interests in shares will be acquired and that they will be subject to relevant restrictions while the agreement subsists. It covers groups of persons acting in concert to prepare the way for a takeover offer for the company or to support a pending takeover offer.

Clause 613: Extent of obligation in case of share acquisition agreement

1131.     This clause re-enacts section 205 of the 1985 Act. Subsection (1) provides that one person's interest in a concert party agreement is to be attributed to another. Subsections (2) and (3) explain what an interest apart from the concert party is, and subsection (4) concerns the mechanics of notification of an interest in a concert party agreement.

Clause 614: Information protected from wider disclosure

1132.     This clause re-enacts provisions in section 211(9) and 215(4) of the 1985 Act. Under clause 382 the Secretary of State may make regulations exempting a company from the need to disclose information relating to its holdings in related undertakings in notes to its accounts, where that information would be seriously prejudicial to the business of the undertaking. The Secretary of State must agree that the information need not be disclosed. Where advantage is taken of this exemption, the fact must be stated in the company's annual accounts. This clause provides that this same information must not be included in a clause 596 report, (though its omission must be noted in the report), and must not be available for inspection under clause 602.

Clause 615: Reckoning of periods for fulfilling obligations

1133.     This provision re-enacts the provision of section 220(2) of the 1985 Act concerning the calculation of periods in the Part expressed as a number of days extended to the whole of the UK.

Clause 616: Power to make further provision by regulations

1134.     This clause re-enacts section 210A of the 1985 Act. It confers power on the Secretary of State to make regulations to amend the definition of shares to which this Part applies, (subsection (1)(a) re-enacting section 210A(1)(a). Power is also conferred to amend the provisions in clause 590 as to notice by a company requiring information about interests in its shares, (subsection (1)(b) re-enacting section 210A(1)(e)), and the provisions as to what is to be taken to be an interest in shares, (subsection (1)(c) re-enacting section 210A(1)(d)).

PART 22: TAKEOVERS, ETC

Introduction

1135.     This Part implements the European Directive on Takeover Bids (2004/25/EC, the "Takeovers Directive") which was adopted on 21st April 2004 and must be implemented by 20th May 2006. It also contains a few minor amendments to the existing law not required by the Directive.

Summary and background

1136.     The principal body of draft clauses emerged from the consultation document, "Company Law - Implementation of the European Directive on Takeover Bids" published by the DTI in January 2005. Additionally, the CLR considered issues related to "squeeze-out" and "sell-out" (concerning the problems of, and for, residual minority shareholders following a successful takeover bid) in Chapter 11 and Annex B of Completing the Structure and presented their conclusions in Chapter 13 of the Final Report. Certain provisions in this Part have been developed in the light of these conclusions.

Overview of the Part

1137.     The Part is divided into 3 Chapters:

• Chapter 1 deals with matters related to the Takeover Panel and its takeover regulatory functions;

• Chapter 2 concerns matters related to barriers to takeovers; and

• Chapter 3 contains amendments to the provisions in Part 7 of the 1985 Act about the reports of companies traded on a regulated market, and to Part 13A of the 1985 Act (often known as "squeeze-out and sell-out").

CHAPTER 1: THE TAKEOVER PANEL

SUMMARY AND BACKGROUND

1138.     Since 1968, takeover regulation in the UK has been overseen by the Panel on Takeovers and Mergers which administers rules and principles contained in the non-statutory City Code on Takeovers and Mergers and Rules Governing Substantial Acquisition of Shares. In order to bring UK takeover regulation within the requirements laid down in the Takeovers Directive, Chapter 1, for the first time, places it within a statutory framework.

1139.     The Panel will supervise takeover activity and similar types of transactions. The Panel will retain considerable autonomy to provide for its own constitution and appointment procedures. However, a minimum constitutional structure is laid down, providing for the Panel to make arrangements for carrying out its functions and, in particular, to function through committees, sub-committees, officers and members of staff. It is envisaged that the Panel will continue to carry out its day-to-day activities through its Executive. Provisions underpinning the funding of the Panel's regulatory activities are also included.

1140.     Additionally, the Panel is placed under an obligation to make statutory rules giving effect to certain Articles of the Directive and is given a statutory rule-making power to make rules in relation to takeover activity and similar types of transactions, reflecting the current field of activity over which the existing Code lays down rules.

1141.     Clauses 620, 626, 630, 631 and 636 of the Bill are intended to limit litigation by: (a) channelling parties to seek decisions of the Panel (including the Panel's Hearings Committee and the independent Takeover Appeal Board) before having recourse to the courts; (b) excluding new rights of action for breach of statutory duty; (c) protecting concluded transactions from challenge for breach of the Panel's rules; and (d) exempting the Panel and its individual members, officers and staff from liability in damages for things done in, or in connection with, the discharge of the regulatory functions of the Panel.

1142.     The Bill does not affect the availability of judicial review by the courts. In the takeovers field, in the Datafin case (R v Panel on Takeovers, ex parte Datafin plc [1987] QB 815) the Court of Appeal concluded that generally the courts should limit themselves only to reviewing the Panel's decision-making processes after the bid has been concluded.

1143.     The Bill confers on the Panel powers to make rulings and directions and to enforce these through the courts, to obtain information and documents from those involved in regulated activities and to impose sanctions on those who transgress its rules.

The Panel and its rules

Clause 617: The Panel

1144.     This clause confers on the Panel the takeover regulatory functions set out in Chapter 1. The Panel is empowered to do anything that it considers necessary or expedient in relation to its prescribed functions and it may also make arrangements for such functions to be carried out on its behalf by a committee or sub-committee of the Panel or an officer or member of staff of the Panel or a person acting as such.

1145.     The Panel will remain an unincorporated body, as constituted from time to time, and, as such, having rights and obligations under the common law. Those rights and obligations will be supplemented by the specific provisions set out in the Bill.

Clauses 618 and 619: Rules; and Further provisions about rules

1146.     The Panel is given the power to make rules in relation to takeover regulation. The rule-making power is broadly drawn to ensure that the Panel can continue to make rules on the range of matters presently regulated by the City Code on Takeovers and Mergers and Rules Governing Substantial Acquisition of Shares. The following provisions are included:

a)     The Panel is placed under an obligation to make rules as required by specified articles of the Takeovers Directive. These are the general principles (Article 3.1 of the Directive), jurisdictional rules (Article 4.2), matters related to the protection of minority shareholders, mandatory bid and equitable price (Article 5), contents of the bid documentation (Article 6.1 to 6.3), time allowed for acceptance of a bid and publication of a bid (Articles 7 and 8), obligations of the management of the target company (Article 9) and other rules applicable to the conduct of bids (Article 13). In making rules in relation to these articles, the Panel will be entitled to exercise Member State options where these are provided for in the Directive. The Panel's rules will not, however, deal with certain matters contained in the Directive such as squeeze-out and sell-out (Articles 15 and 16), information to be published by companies in their annual reports (Article 10) and barriers to takeovers (Article 11) which are more appropriately dealt with in company legislation (and are the subject of further provision at Chapters 2 and 3 of this Part).

b)     The Panel is permitted to make rules on takeover bids (including, but not limited to, those which are the subject of the Directive), mergers and other transactions affecting the ownership or control of companies. The power is designed to be broad enough to cover the existing scope of the Code and sufficiently flexible to take account of future market developments. Types of matters currently covered by the Code but not covered by the Directive include the takeovers of companies not traded on a regulated market and transactions involving a change of control of a like nature to takeovers.

1147.     When making rules under this clause (but not when making rules for fees and charges under clause 632), the Panel must do so by a committee of the Panel.

1148.     The further provisions about rules that may be made by the Panel under clause 619 include the power to grant derogations and waivers, which by virtue of clause 618(1) must respect the general principles laid down in Article 3.1 of the Directive.

1149.     Clause 619(2) to (7) makes provision as to the form, public availability and verification of rules made by the Panel.

Clause 620: Rulings

1150.     This clause enables the Panel, including (by virtue of clause 617(3)) its Executive, to make rulings on the interpretation, application or effect of the rules made by the Panel.

1151.     To the extent and in the circumstances specified in the rules, a ruling of the Panel has binding effect unless reviewed by the Hearings Committee or successfully appealed to the Appeal Board in accordance with rules made under clause 626. It is envisaged that rules made under clauses 618 and 619 will address matters such as notice to parties and right of representation of persons who might be bound by a Panel ruling.

Clause 621: Directions

1152.     This clause allows the Panel to make provision in its rules for it to give a direction preventing a person from breaching the rules (including on an interim basis whilst a matter is awaiting determination by the Panel) or otherwise to ensure compliance with the rules.

Information

Clause 622: Power to require documents and information

1153.     The Panel currently has no formal power to require those involved in takeover activity to provide it with the information the Panel requires to carry out its functions. Persons authorised under the Financial Services and Markets Act 2000 are required by the rules of the Financial Services Authority to provide information and assistance to the Panel. In relation to others, the Panel has relied on the voluntary co-operation of market participants to provide explanations and documents which are not publicly available.

1154.     This clause enables the Panel to require the production of such documents and information as it may reasonably require in the exercise of its functions. The Panel may also authorise a person to exercise the powers under the clause on its behalf, for example, if the Panel were to appoint a law or accountancy firm to help it collect and analyse documents.

1155.     Clause 622(7) provides that a lien on a document is not affected by the production of that document in compliance with a requirement imposed by the Panel or someone authorised on its behalf. A lien is a legal right to keep possession of a document belonging to someone else until a claim is satisfied - for example, a claim for payment of professional fees. This subsection does not entitle a professional to refuse to hand over a document to the Panel but preserves his rights over those documents.

1156.     The clause provides that, where information is recorded other than in legible form (for example, electronically), the Panel can require a copy of it to be produced in legible form (for example in "hard copy") or in a form from which it can readily be produced in visible and legible form (for example, on a floppy disk).

1157.     The Panel may not compel the production of documents which would be protected from disclosure in legal proceedings on the grounds of legal professional privilege or confidentiality of communications.

Clauses 623 and 624: Restrictions on disclosure; Offence of disclosure in contravention of clause 623

1158.     These clauses provide that information obtained by the Panel in the course of its functions will be subject to restrictions on onward disclosure. Aside from the desirability of such provisions so that those providing information to the Panel can do so knowing that it will not be subject to improper further disclosure, these provisions also meet a requirement under Article 4.3 of the Directive that Member States shall ensure that information provided to those employed, or formerly employed, by takeover supervisory authorities shall not be further divulged: "to any person or authority except under provisions laid down by law." Clause 623, accordingly, prescribes the conditions under which such information can be released.

1159.     Information concerning the private affairs of an individual or a business provided to the Panel in connection with its functions may not be disclosed during the individual's lifetime or while the business is carried on without the consent of the individual or business in question except for the purposes of carrying out the Panel's functions or unless it is disclosed to a person or for a purpose set out in Schedule 2.

1160.     Schedule 2 sets out the "gateways" for disclosure of information obtained by the Panel in the exercise of its functions which are permitted under clause 623, including the circumstances in which a disclosure to an overseas regulatory authority is permitted. Under clause 623(4) and (5), the Secretary of State has the power to amend the Schedule, but only to specify persons exercising functions of a public nature or descriptions of disclosure where the purpose for which the disclosure is permitted is likely to assist in the exercise of a function of a public nature.

1161.     Clause 624 makes it an offence to disclose information in contravention of clause 623. A person guilty of such an offence is liable on conviction on indictment to two years' imprisonment or a fine or both; and on summary conviction to twelve months' imprisonment (six months in Scotland and Northern Ireland) or a fine or both. Clause 624(1) provides a person with a defence if he can prove that he did not know, and had no reason to suspect, that the information in question had been provided to the Panel in the exercise of its functions; or that he took reasonable steps to prevent wrongful disclosure.

Co-operation

Clause 625: Panel's duty of co-operation

1162.     Article 4.4 of the Directive requires that takeover supervisory authorities and financial services regulators provide reasonable assistance to other such authorities within the EEA for the purposes of the Directive. This clause is designed to give effect to this requirement by obliging the Panel to co-operate with overseas takeover and financial services regulatory authorities.

1163.     The form and manner of co-operation will be as the Panel considers appropriate in the light of the circumstances (in particular, its power to require documents and information may be exercised to support such an authority) and may include sharing information which the Panel is not prevented from disclosing. The clause mirrors similar co-operation obligations imposed on the Financial Services Authority by section 354 of the Financial Services and Markets Act 2000.