Court enforces Takeover Panel ruling
29 / 01 / 2018
In the recent Court of Session case of The Panel on Takeovers and Mergers v David Cunningham King, the Takeover Panel for the first time applied to court under section 955 of the Companies Act 2006 (the Act) to enforce one of its rulings.
In particular, the Panel made an application for an order requiring Mr King, the chairman of Rangers International Football Club PLC (Rangers), to announce and make a mandatory offer of 20p per share for all the issued ordinary share capital of the Rangers not already controlled by himself or his concert parties. This announcement and offer was required to be made within 30 days of the date of the Court’s order.
The Takeover Code (the Code) applies to takeover and merger transactions of public companies with registered offices in the UK, if any of their securities are admitted to trading on a regulated market or multilateral trading facility such as AIM. The Rangers shares are admitted to trading on AIM.
The proceedings before the Takeover Panel concerned Rule 9.1 of the Code which requires any person, acting alone or in concert, who acquires 30% or more of the voting rights of a company to make an offer to acquire all of the remaining shares.
The proceedings arose out of a series of rulings made by the Executive, the Hearings Committee and the Takeover Appeal Board (TAB), all of which found that Mr King had acted in concert with his partners Mr Latham, Mr Taylor and Mr Park in respect of his acquisition of shares in the Rangers which took him over the 30% limit set out in Rule 9.1 of the Code. This meant that the respondent was obliged to make a mandatory offer.
However, the respondent failed to comply with the final TAB decision and did not make the required mandatory offer. As such, the Panel sought a court order under section 995 of the Act to enforce its final ruling.
Questions for the Court
The Court had to consider the following issues:
- On a proper construction of Section 955 of the Act, what is the ambit of the Court’s discretion?
- If the Court has discretion to refuse an order, should the Court in the exercise of that discretion refuse the order sought by the Panel?
Construction of section 955 of the Act
Counsel for both parties provided differing interpretations of Section 955 of the Act. Counsel for the Panel was of the view that the section did not give the Court discretion as to whether to make an order but instead only provided limited discretion as to what type of order to grant. Counsel for the respondent however was of the view that the Court has discretion as to whether it does or does not pronounce an order.
Based primarily on the wording of the section (in particular, the words ‘may make an order’), the Court found in favour of the respondent on this issue and made it clear that the Court has discretion to refuse to grant an order sought under section 955 of the Act. The Court emphasised the fact that the purpose of section 955 is to give the Panel the ability to seek to have its decision enforced but that this does not mean that the Court’s role is simply to act as ‘a rubber-stamp.’
Should the Court refuse the order sought by the Panel?
Having decided that the Court does have the discretion to refuse to grant an order, the Court next had to decide whether it should exercise such discretion in the circumstances and refuse to grant the order sought by the Panel.
Counsel for the respondent made two submissions to support the argument that the order should be refused:
- Impecuniosity – It was submitted that the respondent had insufficient funds to make the offer required under Rule 9 of the Code.
- Rangers current share price – It was submitted on behalf of the respondent that if the offer was made at 20p per share, the current Rangers shareholders would not accept it given that this offer was far below the market price of the shares at that time. It was therefore submitted that making an offer would be futile.
With regards to the impecuniosity argument, the Court decided that this argument was irrelevant. The respondent was aware that the purchase of the Rangers shares would result in the need to make a mandatory offer in compliance with the Code but proceeded with the purchase in any event. The respondent made the decision to obtain the 30% shareholding in full knowledge of this fact and in full knowledge of his own financial position and how his financial affairs were structured.
The Court emphasised the fact that to accept such an argument would ‘materially undermine the working of the Panel’ as it would in effect allow parties to circumvent Rule 9 of the Code by arranging their financial affairs in such a way so as to enable them to submit that they did not have available funds to comply with Rule 9 if called upon to make a mandatory offer. In any event, the Court also found that, if it was wrong on this point and the impecuniosity argument was relevant, the respondent had, nevertheless, failed to prove his impecuniosity on the evidence submitted.
Rangers share price
With regards to the current Rangers share price argument, the Court found that this was also an irrelevant consideration. In reaching this conclusion, the Court stated that the purpose of the Code was to ensure that shareholders in an offeree company are fairly treated. On this basis, it is not for the respondent to argue at what price an offer should be made nor is it for him to state whether or not the shareholders would accept such an offer. The Court stated that Rule 9 simply requires an offer to be made at a price determined by the provisions of that rule. To accept the relevance of the respondent’s arguments would in effect allow ‘the party in breach of the rule to decide at what level the offer should be made and beyond that to usurp the position of the shareholders as to whether that offer should be accepted.’ This goes against the fundamental nature of the Code itself.
In summary, the Court therefore found in favour of the respondent on the first issue but in respect to the second issue, in favour of the Panel and granted the order sought.
This case is important as it is the first time the Panel has reverted to the court in order to enforce its rulings rather than rely on the reputational impact of its public censure regime and other traditional sanctions.
It emphasises the courts’ powers in enforcing the Panel’s decisions but also highlights the fact that the court has the ultimate discretion and the power not to grant an order. Albeit it should be noted that the decision made it clear that the court ‘in nearly all cases, if asked by the Panel to enforce its decision by granting an order will do so’.