Examination of Witnesses (Questions 20-39)|
WEDNESDAY 12 FEBRUARY 2003
Lord Neill of Bladen
20. With respect, my Lord Chairman, that is
not right. They have been held to be operating functions which
are in the public arena and therefore they are justiciable in
the sense of judicial review so it just is not right to say that
because they are private they escape the scope of that review.
There are other reasons why they have escaped it but not because
they are private.
(Mr Remnant) I hesitate to volunteer any observations
on this in this august company but my understanding is that the
basis of the decision in Datafin back in the 1980s, which has
effectively meant since then that whereas Panel decisions are
subject to judicial review the courts would expect to intervene
only after the event not during the bid, was that the Panel was
a non-statutory body applying a voluntary code which has no legal
force. That would no longer be the case, I think, after the Directive
is implemented because the Panel will be exercising statutory
powers. The Panel itself will remain a private body but it will
be designated by statute and the concern is that thereby rights
of action between the parties could be created and rights of action
against the Panel might be created, both in the way the Directive
has been implemented and the way in which the Panel has interpreted
the Directive. This is why it is so important that the provisions
of Article 4(6) are encapsulated appropriately within the UK implementing
Lord Lester of Herne Hill
21. I also hesitate to say anything in this
august company on this subject but I suppose it is right, is it
not, that the Takeover Panel even now is probably a public authority
which is determining, in some sense, rights of property and therefore
the Human Rights Act, for example, would impose obligations upon
it right now without any move from its present position; and that
would become even more so, would it not, as they are given more
obvious public functions?
(Mr Remnant) Yes. We have taken extensive advice on
the Human Rights Act, and whereas perhaps it is not absolutely
entirely clear that the Panel is subject to it, certainly the
Panel has assumed that it is. Therefore, some of our procedures
have been refined with the result that we have been advised that
the way the Panel operates is in compliance with the Human Rights
22. My Lord Chairman knows quite a bit about
the law as well, but I thought the actual decision in Datafin
was to the effect that it was susceptible to judicial review but
that from a practical point of view the Court of Appeal were saying
that there would simply be an exercise of judicial self-restraint,
an unusual phenomenon but one that would be applied as far as
is practical and I think that has happened. I do not think we
are really in disagreement but what I wanted to ask you in that
context was, since Lord Hoffmann's report we have had the Financial
Services Act passed, the effect of which is, I think, to render
the Takeover Panel liable, so to speak, to be removed from the
picture and replaced by the Financial Services Authority in an
appropriate case. As far as I am aware that has not yet happened
in any case. But also would I be right in thinking that it has
not actually given rise to any more tactical litigation since
then than was the case previously?
(Mr Remnant) I would agree with all that. Yes, there
is now overlapping jurisdiction between what the FSA does and
what we do in the sense that the FSA is responsible for market
abuse and we are responsible for the regulation of takeovers.
To the extent that market abuse falls within the context of a
takeover, both of us have jurisdiction. We have spent a lot of
time with the FSA and they have on more than one occasion made
it clear that, whilst they cannot of course delegate their authority
automatically to us, they would expect only to intervene in takeovers
in exceptional cases and not before the Panel's appeal processes
have been exhausted. That has indeed been the case. As you would
expect, there have been times when parties have gone to the FSA
on particular cases and those parties have been asked whether
they have taken these issues up with the Panel and whether they
have gone through the Panel appeal processes. To date there has
not been a case where the FSA has seen fit to intervene in a takeover.
23. Thank you. I wanted to ask you a question
or two about some of the provisions of the Article 11 override
procedure. In the explanatory memorandum the Government has expressed
concern about two aspects of that: first of all, in relation to
golden shares the Government has been attached to some companies
previously publicly owned and now privately owned; and, secondly,
in relation to contractual arrangements made between shareholders.
These are all capable of being overridden as part of the override
procedure. Do you have any views about the concerns that have
been expressed with regard to those matters?
(Mr Remnant) I do not think golden shares are covered
by Article 11 and I do not think there is at the moment any move
to include them within that Article. That is principally because
golden shares have been the subject of a number of ECJ decisions
recently and broadly those who have an interest in the Takeover
Directive and an interest in the scope of Article 11 believe they
are being adequately dealt with in terms of when they should be
allowed to operate and when they should not. As far as contractual
arrangements between shareholders, which are encompassed within
the scope of Article 11, are concerned, we do have concerns and
actually do not believe they should be included, for two reasons
really: one, as a matter of principle the Commission says that
Article 11 is designed to stop management entrenching their position
and it is difficult to see what is offensive about contractual
agreements between shareholders to which neither management nor
the company are a party and, secondly, the scope is so wide that
it will also encompass certain arrangements which actually facilitate
takeovers. For instance, if an offeror who is also a shareholder
wants to make a takeover offer and goes to another shareholder
and gets him to give him an irrevocable undertaking to accept
an offer, which is quite a common occurrence, and as part of that
arrangement the person giving the irrevocable undertaking agrees
not to sell his shares to another bidder, not to vote them or
to vote them in a particular way, then that is an agreement which
falls within the scope of Article 11 and which would be rendered
unenforceable. So the Article would be achieving precisely the
opposite objective to that intended.
24. Unless the other bidder comes along, in
which case it would be impeding his bid?
(Mr Remnant) It would, but in many cases the original
bidder would never have made the bid in the first place if there
is a significant shareholder out there with say 30 per cent of
the company unless he knows that he will agree to the bid.
25. Then is this particular provision in Article
11 something which you think deserves attention and objection?
(Mr Remnant) It is, and it is one of the things we
have been addressing. I know that the DTI are also addressing
it and we believe that contractual arrangements between shareholders
should be excluded from the scope of Article 11.
(Mr Armitage) Yes, we agree with the Takeover Panel
on that. It is entirely right to say that these arrangements between
shareholders can be quite conducive to at least the start of the
bidding process. It is entirely up to shareholders as to what
protection they put in. It is quite common to negotiate an opt
out at a higher price, above a certain amount, etcetera. So we
agree entirely with the Takeover Panel on this. We think it requires
26. Thank you. You have already mentioned problems
which might arise with regard to dual or multiple voting shares.
Is there anything else that is necessary to be said about those
or the extent to which defensive measures and the creation of
poison pills are to be made ineffective?
(Mr Remnant) I would like to make one further point,
if I may, and that is I think it is going to be very difficult
to get agreement between all sides on whether multiple voting
rights should be included or not because the views which are held
on both sides of the debate are strongly heldand I am talking
about in a wider context than the UK because these are shares
which by and large are not very common in the UK but in certain
countries, for instance Scandinavian countries, are extremely
prevalentand I do not think there is a chance of one side
ever being able to convince the other side of to its point of
view. So my concern is that it will be impossible to reach agreement
on the scope of Article 11 and that if it is not possible to reach
agreement on what certain countries, especially Germany, regard
as a fundamental provision of the level playing field, they will
make the suggestion that they would be happy to dispense with
Article 11 completely if Article 9 (which is the provision which
prevents management taking frustrating action without shareholder
approval) is also deleted. We have always felt that Article 9
is absolutely fundamental to investor protection and is fundamental
therefore to the protection of UK investors if they are investing
in European companies.
27. So you would go to the extent, would you,
of saying that if those defensive measure provisions in Article
9 are to go you would rather not have the Directive at all and
that would be a ground for opposing it totally?
(Mr Remnant) Certainly to date we have always said
that those provisions are absolutely fundamental.
(Mr Armitage) We would agree entirely with the Panel
on that aspect. I think on multiple voting rights, as Jaap Winter,
the head of the experts' report, put it the other day, most Member
States want to go to Heaven but they do not want to die first
and this is one of the illustrations of that. I thought the experts'
report was very brave and courageous in suggesting that breakthrough
should apply to multiple voting rights but with no compensation.
Whether there is a possibility of negotiation between the Member
States on that point I do not know. It is worth pointing out that
multiple voting rights are a fairly common feature of many large
28. Has that particular suggestion been raised
with Government to your knowledge?
(Mr Armitage) The UK Government has of course sided
with Germany on this now. They are supporting, as I understand
it, the German position in return for Germany supporting the UK
on the Directive on rights for temporary agency workers.
29. But a compromise would come if necessary
because, say, Sweden refuses to agree to the proposal on that
(Mr Armitage) I think it would be difficult. I would
not take entirely a no view on this. I think it is quite likely
that it could result in no Directive but I think we have not seen
the end of negotiations on compensation yet.
30. Yes. Mr Remnant, you mentioned right at
the beginning that there were certain matters on which you had
concerns about the contents of the proposed Directive. I am sure
we have mentioned some of them in the course of the questions
you have been helping us with. Are there any that we have not
(Mr Remnant) We had three principal ones, I think
two of which we have mentioned, which were changes made to the
nature of the consideration offered in a mandatory bid and the
scope and potential implications of the override procedure in
Article 11. I do not think we have talked about the unchanged
provisions relating to shared jurisdiction, which is another major
concern of ours.
31. Yes. I think we touched on that but did
not go into it in any depth. That is the possible split jurisdiction
(Mr Remnant) Jurisdiction is split where you have
the target company incorporated in one Member State but its shares
are traded only in another Member State. What the Directive says
is that the supervisory authority in the Member State where the
company is registered is responsible for the company law issues
of the bid and the supervisory authority in the country where
the shares are traded is responsible for issues relating to the
procedure of the bid. Although there are some examples given in
the Directive as to which falls into which category, they are
only examples and there are many issues on which it would be unclear
as to whether they fell into one category or the other. Further,
there is no mechanism for resolving jurisdictional disputes between
supervisory authorities and we think it is inevitable that this
will cause delay, potential litigation and frankly is a recipe
for regulatory chaos.
32. In the cases where there is a split between
the country where the shares are traded and the country where
the company is incorporated, as I understand it you would opt
for the country of incorporation as having jurisdiction?
(Mr Remnant) That is our preferred view. The reason
why this arose in the first place was because certain Member States
wanted country of incorporation and other Member States wanted
country of trading, so in a typical European compromise it was
decided to give responsibility for some issues to one and some
to the other, but that is the worst solution of all. Our preference
would certainly be incorporation, which I think last time the
majority of Member States wanted but there were certainly some
who elected for trading.
33. What happens at the moment with whatever
soft harmonisation there is where you have the split between country
of trading and country of incorporation? What does the Takeover
Panel do in that case?
(Mr Remnant) It does not happen at the moment because
trading is not an issue. Our jurisdiction relates to offeree companies
which are incorporated within the UK and have their place of central
management within the UK.
34. Where companies are listed here but are
managed elsewhere, you do not cover them at all?
(Mr Remnant) It is rare but there are those instances
and they do not come within our jurisdiction.
Lord Lester of Herne Hill
35. With regard to the countries which prefer
country of trading to country of incorporation, what arguments
do they put forward to explain why that is a better solution?
(Mr Hinton) The simple argument has been that in a
takeover you are buying shares and the shares are being traded
on a particular exchange and because they are being traded on
that exchange they should be the regulatory body which is responsible
for the acquisition of all the shares. As I understand it, that
has been the very simple and straightforward argument all along.
36. What is the contrary argument for place
of incorporation over that? Why is that a better solution?
(Mr Hinton) I think in our experience company law
is the foundation of the company and takeover regulations tend
to deal with company law matters, in particular about how the
company is taken over. Whether it is traded or not in some ways
is irrelevant because you are actually speaking to the shareholders
directly, inviting them to accept your offer. Obviously in the
UK we deal with both listed and unlisted public companies.
37. Company law deals with the duties of directors
and these become an issue sometimes in takeover matters and it
would be quite awkward, would it not, if the country of trading
imposed on the directors' sanctions or requirements which the
country of incorporation did not recognise?
(Mr Hinton) Yes.
Lord Plant of Highfield
38. I am sure this is going to be a terribly
naive question but are there circumstances in which a company
would be incorporated outside the Union and therefore not part
of a Member State and yet the shares are traded on an exchange
within the Union. What would happen then?
(Mr Remnant) It is quite possible that that would
happen and that would not be governed by the Takeover Directive.
39. But would it if we went for the trading
option of jurisdiction rather than the incorporation?
(Mr Remnant) No, because you have to consider whether
the Directive applies at all if the offeree company is both incorporated
and traded within the EU.
1 Note by witness: The chairman asked me about
golden shares in the context of Article ll and I replied that
golden shares are not covered by Article ll. In actual fact, whilst
the Commission's intention was to exclude all golden shares from
the scope of this Article and whilst golden shares established
by statute are indeed excluded, the wording of the Directive is
not, I believe, effective in excluding from its scope those golden
shares whose rights are established through the articles of association
of the relevant company. Most UK golden shares are established
in this way. This is something of which the DTI are well aware
and are addressing with the Commission. Back