Corporate Law Update: 20 - 26 April 2024

26 April 2024

This week:

Government sets out next steps for UK’s national security and investment regime

The Government has set out its intentions for updating the UK’s national security and investment (NSI) screening regime.

The announcement follows the Government’s call for evidence in November 2023, in which it asked for views on making the regime more business-friendly whilst maintaining and honing essential protections for the UK’s national security.

The NSI regime, which is set out in the National Security and Investment Act 2021 (the NSIA 2021), has been in place since 4 January 2022. It allows the UK government to intervene in and, if necessary, block certain acquisitions and investments where “trigger events” are met, including acquisitions of certain levels of shareholding or voting rights and acquisitions of material influence.

In 17 specified sectors, parties to a proposed transaction involving certain trigger events are required to notify the Government before completing. Failure to do so is a criminal offence and could see the transaction unwound.

The Government’s announcement confirms the following.

  • The Government intends to publish an updated statement on how it intends to use its powers under the NSIA 2021 to call a transaction in (a so-called section 3 statement). This will provide more detail on the factors the Government will consider when deciding whether to call in.
  • It does not intend to create a “fast-track procedure” to clear certain transactions more quickly. The Government intends to reserve the right to screen transactions on a case-by-case basis.
  • The Government intends to publish updated market guidance in May 2024. The market guidance contains broader, non-statutory guidelines on how the Government is likely to exercise its powers under the NSIA 2021, including to outward direct investment.
  • It will launch a formal consultation on the mandatory sectors for notification by the summer of 2024, following comments that the definitions of certain areas (especially AI and advanced materials) could be clearer. This is likely to include new stand-alone sectors for semiconductors and for critical minerals, and possibly also the water sector.
  • The Government intends to create new exemptions from the regime for appointments of liquidators, official receivers and special administrators. It will also carry out a further assessment to decide whether to create exemptions for group reorganisations, Scottish share pledges and public bodies.

Read the Government’s response to its call for evidence on the UK’s national security and investment screening regime

Takeover Panel consults on narrowing scope of UK Takeover Code

The Takeover Panel is consulting on narrowing the range of companies to which the UK’s Takeover Code applies.

The Code, more formally called the “City Code on Takeovers and Mergers”, contains a series of principles and rules that govern the implementation of a public offer for a company in the UK.

These include strict requirements around secrecy and discussions, announcement obligations and disclosure, the bid timetable and equal treatment of shareholders, as well as restrictions on any actions that can frustrate an offer (i.e. so-called poison pill tactics).

The Panel’s proposals would remove certain companies from the scope of the Code. The purpose of this is to remove the burden on non-publicly traded companies that are technically subject to the Code, but where the protection and framework the Code provides are not really relevant.

Under the proposals, the Code would continue to apply to an offer or potential offer for a company registered in the UK, Channel Islands or Isle of Man whose equity or voting securities are traded on:

  • a regulated market (e.g. the London Stock Exchange or Aquis Stock Exchange Main Market);
  • a multilateral trading facility (e.g. AIM or Aquis Growth); or
  • a Channel Islands or Isle of Man securities exchange (e.g. the International Stock Exchange).

The Code would also apply to an offer or potential offer for an unlisted UK-registered company whose equity or voting securities were traded on any of those markets in the three years preceding the offer.

However, the Code would no longer apply to offers or potential offers for other unlisted companies. These include offers or potential offers for:

  • public limited companies (PLCs) that are not traded on any of the markets listed above;
  • companies whose securities were traded on a market more than three years before the offer or which have been traded solely on an overseas market;
  • companies whose securities are or have been traded on a “matched bargain facility” (e.g. JP Jenkins or Asset Match); or
  • a private company that filed a prospectus in the ten years preceding the offer.

In practice, the Takeover Panel usually agrees, on a case-by-case basis, not to apply the Code to these companies. However, the company still needs to formally apply to the Panel for dispensation, which can be burdensome. The proposals would remove this requirement.

The Panel has also confirmed that it does not intend to apply the Code to companies admitted to the forthcoming PISCES platform, to private markets (e.g. TISE Private Markets) or to crowdfunding platforms (e.g. the Seedrs Secondary Market).

The Panel recognises that shareholders may have acquired securities in a company knowing that it is subject to the protections in the Code. It is therefore proposing a three-year transitional period during before a company ceases to be subject to the Code under its proposals. This is designed to give those shareholders and companies time to adjust to the new regime.

The Panel has asked for comments by 31 July 2024.

Read more about the proposed changes to the scope of the UK Takeover Code in this blog by our colleagues

Read the Takeover Panel’s consultation paper (PCP 2024/1) on companies to which the Takeover Code applies (opens PDF)

Read more about the Government’s proposals for a new intermittent trading platform – PISCES – in our separate in-depth piece