With this it will be convenient to discuss that schedule 3 be the Third schedule to the Bill and the following: Government new clause 352—Meaning of “takeover offer”.
Government new clause 353—Shares already held by the offeror etc.
Government new clause 354—Cases where offer treated as being on same terms.
Government new clause 355—Shares to which an offer relates.
Government new clause 356—Effect of impossibility etc of communicating or accepting offer.
Government new clause 357—Right of offeror to buy out minority shareholder.
Government new clause 358—Further provision about notices given under section (Right of offeror to buy out minority shareholder).
Government new clause 359—Effect of notice under section (Right of offeror to buy out minority shareholder).
Government new clause 360—Further provision about consideration held on trust under section (Effect of notice under section (Right of offeror to buy out minority shareholder))(9).
Government new clause 361—Right of minority shareholder to be bought out by offeror.
Government new clause 362—Further provision about rights conferred by section (Right of minority shareholder to be bought out by offeror).
Government new clause 363—Effect of requirement under section (Right of minority shareholder to be bought out by offeror).
Government new clause 364—Applications to the court.
Government new clause 365—Joint offers.
Government new clause 366—Associates.
Government new clause 367—Convertible securities.
Government new clause 368—Debentures carrying voting rights.
Government new clause 369—Interpretation.
I am speaking to these Government new clauses on the basis with which I am sure hon. Members are familiar. I shall wait to respond to any claims, wishes or questions that they have in relation to clause stand part.
I put the Opposition’s position on the Government new clauses on the record this morning and I will not make the point again. We simply have not had time to consider them and, along with everyone else who has been consulted on them, we will not do so in reality until the summer. I think that we are all clear on that, so there will be a bit of summer reading to be done.
On clause 675, which ties in closely to schedule 3, the concept of the squeeze-out and sell-out is very important to the bidder gaining complete control of the target and not having residual minority shareholders. It is also important to minority shareholders being able to receive value for their shares. The main changes are set out in the notes:
“Calculation of squeeze-out threshold (new section 429(1), (1A), (2A) and ((2B)) - there is a dual test imposed: in order to require the minority shareholder’s shares, the bidder must have acquired both 90 per cent. of the shares to which the offer relates, and 90 per cent. of the voting rights carried by those shares. Where the offer relates to shares in different classes, then, in order to acquire the remaining shares in a class, the bidder must have acquired 90 per cent. of the shares of that class to which the offer relates, and 90 per cent. of the voting rights carried by those shares. Currently, in each case only the first limb of that test applies”.
Does the Minister not consider that that new dual test could inhibit the use of the squeeze-out with the impact that more minority shareholders would be caught in the target company, possibly against their will? Will the Solicitor-General explain how this European provision came about and whether he is considering reviewing how this works in practice?
My second concern is more about timing. Section 429(3)(a) states that the squeeze-out notice cannot be given after the end
“of three months beginning with the day after the last day on which the offer can be accepted;”.
That period seems to be open-ended. The Government suggested in Grand Committee that that should be clarified by the panel. However, it has recently been pointed out to us that the panel does not appear to have taken advantage of that opportunity in finalising its new rules, and therefore that the drafting is still unclear for practitioners. The position might have changed since I received that advice, so I would be grateful for the Solicitor-General’s comments.
Modifications are required to bring existing provisions of the 1985 Act dealing with the problems of residual shareholders following the successful takeover bid into line with directive requirements. Clause 675 and schedule 3, which introduce the amendments to replace those provisions, are important. They are concerned with squeeze-out and sell-out rights. As the hon. Gentleman described, they are designed to address the problems of the residual minority shareholders.
The clause and the schedule have two main purposes in amending part 13A of the 1985 Act. The first is to bring existing squeeze-out and sell-out rights into line with articles 15 and 16 of the takeovers directive, which introduced EU-wide laws on those matters for the first time. Secondly, we wish to implement a number of company law review recommendations that relate to those matters.
I will not set out in any great detail the points raised by the various provisions. They are important, but also complex. We think that the dual test to be imposed would seldom make any difference. In practice, 90 per cent. of capital and 90 per cent. of voting rights will usually mean much the same thing. Only in those companies that have restructured themselves so that the voting rights and the shares do not always conjoin is that likely to produce an issue. The period during which a bid can remain open is a matter for the panel to consider in amending its own code.
That may be relevant to unlisted public companies because unusual share structures are more likely to exist in them. People often do not realise that the code applies or they are less likely to apply it in a way that they might in a larger company in a listed context. In practice, this may be a tricky area. Such companies are most likely to have minority shareholders who will not want to get left behind.
I hear what the hon. Gentleman says, but even in those companies it is likely that if minority shareholders are concerned about the circumstances they face, they will seek appropriate legal advice in relation to what rights they might have. In those circumstances, they will obviously be made aware of the provisions in the legislation.
We do not want to create a dual squeeze-out regime applying differently to listed and unlisted companies. It is better to have clear legislation, so that when lawyers come to advise those who might feel aggrieved in some way, those people can be given clear advice. There should not be constraints in terms of the company’s perspective on whether the advice applies. On that basis, we have taken the view that it is better to cover both listed and unlisted companies.
For ease of reference, I have not been able to identify from the helpful information that the Minister for Industry and the Regions sent to us when we received the new clauses whether these proposals contain any change to the 1985 Act wording. Can the Solicitor-General assist us and say whether the new clauses alter the wording?
There will be some changes in the wording to ensure that it fits in with particular clauses, but the aim is that the impact of the legislation and how it affects the law should be the same.
Will the Solicitor-General also address my second point, which is about the squeeze-out notice not being given after three months? I made a timing point as well.
I thought I had dealt with that. The period during which a bid can remain open is a matter for the panel to consider within its code. The panel will deal with that.