COMPANIES ACT 1985 (the "Act")
The Act regulates the formation and operation of companies and lays down rules and regulations governing for example company reporting and the working relationship between the company, the management, the shareholders and third parties.
The Act applies to four types of company: private companies limited by shares; private companies limited by guarantee; public companies limited by shares; and private unlimited companies with or without share capital.
The Act received Royal Assent on 11 March 1985 and has been amended by the Companies Act 1989 and various subsequent regulations. It is due to be substantially amended/re-stated by the Company Law Reform Act which is currently passing through UK Parliament and is scheduled to come into force in late 2007.
THE FINANCIAL SERVICES AND MARKETS ACT 2000
The Financial Services and Markets Act 2000 ("FSMA") received Royal Assent on 14 June 2000.
FSMA provides the framework within which a single regulator for the financial services industry, the Financial Services Authority ("FSA"), operates. It equips the FSA with a full range of statutory powers and created the Financial Services and Markets Tribunal. FSMA continued the regime for recognised investment exchanges and clearing houses under the Financial Services Act 1986. FSMA also established the framework for a single ombudsman and compensation schemes to provide further protection for consumers.
FSMA makes provision, amongst other things, with respect to:
- the constitution and accountability of the FSA;
- the definition of the scope of regulated activities;
- the control of financial promotion;
- powers of the FSA to authorise, regulate, investigate and discipline authorised persons;
- the recognition of investment exchanges and clearing houses;
- arrangements for the approval of controllers and the performance of regulated activities;
- the oversight of financial services provided by members of the professions;
- regulation and marketing of collective investment schemes;
- certain criminal offences;
- powers to impose penalties for market abuse; and
- the transfer to the FSA of registration functions in respect of building societies, friendly societies, industrial and provident societies and certain other mutual societies.
EU/UK MERGER CONTROL LAWS
Mergers, acquisitions and certain types of joint venture in the UK may need to be notified and/or cleared by the appropriate EU or UK competition authorities, depending on the size and geographical extent of the relevant transaction and/or its parties.
EU Merger Control
If the transaction constitutes a "concentration" which has a "community dimension", it will fall within the scope of the EC Merger Control Regulation 4064/89 ("ECMR") thereby coming within the jurisdiction of the European Commission and not the UK competition authorities. Transactions which fall within the scope of the ECMR must be notified to the European Commission.
A "concentration" will arise if two or more previously independent undertakings merge or if one acquires control of the other. A concentration will have a "community dimension" if a series of turnover threshold tests are satisfied, including the requirement that the combined aggregate world-wide turnover of all the undertakings concerned (including their associated companies) exceeds Euro 2,500 million. The ECMR cannot not apply if there is no concentration or if there is a concentration, but it does not have a community dimension.
UK Merger Control
If the ECMR does not apply e.g. because the parties’ turnover is too small, then UK merger control rules may apply instead to transactions which affect the UK. The UK merger control rules are contained in the Enterprise Act 2002 and apply to asset acquisitions or share purchases where either the UK sales turnover of the target being taken over exceeds £70 million per annum or, if following the acquisition, the merged group will enjoy a market share of 25% or more for the supply or purchase of goods or services of any description, in the UK or in substantial part of it.
Unlike many other EU countries who have compulsory notification systems, the UK’s notification system is voluntary and any proposed or completed merger which satisfies one or both of these tests does not have to be notified to the UK competition authorities. However, a qualifying merger which has not been notified may still be investigated by the UK Office of Fair Trading (within 4 months of the merger) and can be referred to the Competition Commission for further investigation. If the Competition Commission finds that the merger results or is likely to result in a substantial lessening of competition in the UK, it has powers to prohibit the merger or impose conditions, including divestiture if the merger has already been completed. For these reasons, mergers which are or may be likely to qualify for investigation, are very often notified by the parties to the UK Office of Fair Trading for clearance, before they are completed.
THE PROSPECTUS REGULATIONS 2005
These UK Regulations came into force on 1st July 2005. They implement Directive 2003/71/EC of the European Parliament and of the Council of 4th November 2003 on prospectus to be published when securities are offered to the public or admitted to trading on a regulated market (the "Prospectus Directive") and Commission Regulation 809/2004/EC of 29 April 2004 (the "EC Prospectus Regulations"). The UK Regulations implement the Prospectus Directive by introducing new sections into FSMA and giving the FSA power to draw up detailed rules implementing the EC Prospectus Regulations.
The FSA’s detailed rules also came into force on 1 July 2005 and are contained in the Prospectus Rules section of the FSA Handbook. The rules cover the form and content of a prospectus, the period of validity of a prospectus and the ways in which a prospectus may be published. They reiterate the general rule that a person may not make an offer of securities to the public in the UK, or seek admission to trading on a regulated market in the UK, unless a prospectus approved by the FSA has been published. Prospectuses approved by the competent authorities of other EEA States are treated in the same way as those approved by the FSA provided certain conditions are complied with. Certain securities and offers are exempt from the general rule.
The UK Prospectus Regulations lay down the criteria by which the FSA will approve a prospectus and allow the FSA to authorise the omission of information which a prospectus would otherwise have to contain. They specify time limits during which applications need to be processed by the FSA and allow the FSA to seek further information in relation to applications for approval of a prospectus. They describe the procedure to be followed when the FSA approves, proposes not to approve or decides not to approve a prospectus and they allow applications for approval to be transferred between competent authorities within the EEA.
THE CITY CODE ON TAKEOVERS AND MERGERS
The City Code on Takeovers and Mergers ("City Code") is a set of rules and principles that govern the way takeovers and mergers of public companies are carried out in the UK. As such, it applies to all UK resident companies trading on the Alternative Investment Market. The City Code does not specifically concern itself with commercial aspects of a takeover or merger, or with the way a company conducts its business. Rather, it is concerned broadly to ensure the protection and equal treatment of shareholders in certain takeover and merger situations, and where there are changes in the individuals and groups that control that company. The City Code also sets out a detailed timetable under which all such takeovers and mergers are conducted. The City Code is enforced in the UK by the Takeover Panel. All mergers and takeovers governed by the City Code must be notified to and discussed with the Takeover Panel.
THE LISTING RULES AND THE DISCLOSURE RULES
Both the Listing Rules and the Disclosure Rules are published by the FSA as part of the FSA Handbook.
The Listing Rules lay down the requirements for maintaining a listing of securities on the UK Official List, including the continuing obligations of issuers after admission.
The Disclosure Rules deal with the publication of price sensitive information and market abuse (such as insider dealing).
Together the Listing Rules and the Disclosure Rules set out to protect investors by ensuring an orderly market and that everyone has access to the same information at the same time.
Any acquisition or disposal of shares or assets by a UK listed public company (or one of its subsidiary undertakings) will be affected in various ways by the application of the Listing Rules and/or the Disclosure Rules regarding:
- classification of the transaction by size and the consequences for the listed company of that classification (i.e. the need for notification to shareholders or shareholders prior consent);
- disclosure of unpublished information to the market;
- restrictions on directors dealing in the shares of the listed company; and
- regulation of any connected share issue by the listed company as buyer.
AIM RULES
The Alternative Investment Market ("AIM") opened on 19 June 1995. Unlike the Official List of the London Stock Exchange, AIM is not a "regulated market" for the purposes of the Prospectus Directive. Accordingly in most cases admission to AIM can be achieved without requiring compliance with the UK Prospectus Regulations or the FSA’s Prospectus Rules. AIM is regulated by the London Stock Exchange and by the nominated advisers who advise companies on their applications to AIM and to whom the London Stock Exchange has delegated certain regulatory responsibilities. All companies admitted to AIM and their nominated advisers are governed by the AIM Rules (the "Rules").
The Rules specify that a company seeking admission of its securities to trading on AIM must satisfy on admission and continue to satisfy the London Stock Exchange that it meets the following conditions:
- it must be duly incorporated or otherwise validly established according to the relevant laws of its place of incorporation or establishment. An issuer which is a company incorporated in the UK must be a public company, while issuers incorporated or established outside the UK must be permitted to offer securities to the public;
- the securities for which admission to AIM is sought must be freely transferable although any shares held by a shareholder which are subject to the restrictions imposed by section 212 of the Companies Act 1985 may be discounted;
- where any securities are admitted to trading on AIM, all the securities of that type issued by the company must be admitted to trading on AIM (i.e. there can be no "restricted stock" as is common in the USA); and
- the issuer of AIM securities must have a nominated adviser and a nominated broker, although these roles may be performed by the same firm.
There are a number of continuing obligations following admission. In particular, directors must:
(a) issue accounts within six months of the year end;
(b) publish a half-yearly report within four months of the period end;
(c) advise the London Stock Exchange without delay of the resignation, dismissal or change of any nominated adviser or nominated broker;
(d) obtain shareholders' consent before:
(i) making a reverse takeover, that is broadly, acquiring a business which is larger than the AIM company itself (measured on the basis of certain tests set out in the Rules); or
(ii) disposing of a business or assets which broadly exceeds 75% of the company’s business or assets; and
(e) notify the market without delay of any new developments which are not public knowledge concerning a change in the company’s financial condition, sphere of activity, performance or expectations of performance which, if made public, could lead to a substantial movement in the price of its AIM securities.
The Rules were recently updated to introduce a streamlined admissions procedure to AIM. Companies already quoted on one of nine overseas exchanges, including the Australian Stock Exchange, Deutsche Börse, Nasdaq and NYSE, will now be able to use their existing annual report and accounts as a basis for a quotation on AIM. Companies using this new route must appoint and maintain a London Stock Exchange-approved nominated adviser who will play an important role in maintaining AIM’s well-respected standards of regulation.
A company using this new admission route is now required to:
- have been traded on one of the nine AIM Designated Markets for at least 18 months;
- give a minimum of 20 business days’ notice to the market of its intention to join, instead of the usual 10 business days notice. The notice should include any further information required under the AIM Disclosure Rules which has not already been disclosed in the company’s home market;
- abide by AIM’s ongoing disclosure obligations once on the market; and
- have an address or website address where any public announcements which the company has made, as a consequence of its securities being traded, during the last two years are available.
PUBLIC OFFERS OF SECURITIES REGULATIONS
Before 1 July 2005, these regulations (widely known as the POS Regulations) applied whenever unlisted securities were offered to the public in the UK for the first time. They have now been replaced by the Prospectus Rules (see the section above entitled "The Prospectus Regulations 2005") .