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Takeover Panel proposes changes to its rules on frustrating action

Posted on 4 July 2023

The Takeover Panel recently published a consultation paper (PCP 2023/1) setting out a number of amendments it proposes to make to Rule 21 of the UK Takeover Code. Rule 21 deals with restrictions on the actions of an offeree board that could frustrate an offer or potential offer. The proposed amendments are intended to clarify some areas of the Code that are overly burdensome and provide greater protection to various stakeholders before, during and after an offer period.

Ordinary course exemptions

Rule 21.1 prevents, without the prior approval of its shareholders at a general meeting, the board of an offeree company from taking any action which could result in an offer or bona fide possible offer being frustrated or the shareholders of the offeree being deprived of the offer and certain other specified actions. These restrictions apply during an offer and from the moment the board of an offeree company has reason to believe a bona fide offer is imminent.

Although the Panel acknowledges that Rule 21.1 is generally fit for purpose and 'operates satisfactorily' it ultimately concludes that a few minor amendments to the Rule and its Notes are required to allow offeree companies to carry on ordinary course activities during a restricted period. The Panel proposes to amend Rule 21.1 to allow the board of an offeree company to take actions that are either not material or are in the ordinary course of the offeree's business. The rationale for this is that such actions are unlikely to frustrate an offer but could unnecessarily frustrate the operations of an offeree.

Where, however, the proposed action by the offeree board relates to the offeree's share capital, this will continue to be restricted unless such changes are in the ordinary course of the offeree's business prior to the start of a 'relevant period' (see "Time period during which the restrictions apply" below). The Panel's rationale for this is that a proposed action that relates to an offeree's share capital could have an impact on an offer, even where the action does not have a material effect on the offeree's share capital.

Offer-related employee retention arrangements

The Panel proposes to give itself the ability to restrict offer-related employee retention arrangements (whether in cash or options over, or awards in respect of, offeree company shares), in respect of a period prior to the end of the offer period and that relate to directors or senior management or are significant in value. This amendment should provide further protection to the shareholders of offeree companies by reducing conflicts of interest at senior management/board level.

Time period during which the restrictions apply

The Panel proposes to redefine the period during which restrictions on frustrating action apply. The 'relevant period' will be the period from the earlier of: (a) the beginning of an offer period; and (b) the board receiving an approach about a potential offer from an offeror and ending at the end of the offer period, or 5pm on the seventh day after the proposed offer is rejected by the board (compared to two business days currently).

Reverse takeovers

The Panel has proposed a new Note 8 which would provide that when an offer is a reverse takeover, the restrictions in Rule 21.1 will also apply to the board of the offeror during the relevant period as if the offeror were the offeree. This addition has been suggested to address situations where a larger offeree is unable to impose restrictions on a smaller offeree. Under the current Rules, it would be possible for the offeree to impose restrictions on the offeror but not without separate contractual arrangements.

Scheme of arrangement

A new Note 10 on Rule 21.1 is proposed which will mean that, other than in exceptional circumstances, the Panel will agree that an offeree board seeking to sanction a scheme of arrangement in a competitive situation will not be a restricted action. It is also proposed that the Panel will have the authority to extend 'mini-long-stop dates' (the dates upon which the shareholder meeting and the court sanction hearing must be held as specified within the conditions to a scheme of arrangement) in competitive situations.

Equality of information

Rule 21.3(a) is proposed to be amended to ensure that offerors or bona fide potential offerors who make a request for information are promptly provided with: (i) all information that has been provided to other offerors at the time of the request; and (ii) any future information provided to the other offeror(s) in the seven days following the request, regardless of what information was specifically requested. Currently, other offerors have to make specific information requests which can be administratively burdensome when offeree boards are dealing with multiple requests from competing offerors on a near daily basis.  

The Panel has also made suggestions about the disclosure of information in the context of management buyouts to address the imbalance of interests that can often arise in an MBO situation.


Although the general principles of the Code remain unchanged, the amends suggested by the Panel are not insignificant because they acknowledge that the original drafting of Rule 21.1 goes above and beyond what is required to achieve the desired outcomes. The proposed amends will ease much of the administrative burden of complying with Rule 21.1 and will reduce uncertainty and allow offeree boards to more easily determine when and how they are restricted at any given time.

The Panel is inviting comments on their proposals up until 21 July 2023 and we expect the changes to come into effect in the Autumn.

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