Takeover Panel gives guidance on Rule 20.1 and Representative Directors

Rule 20.1 could mean that information relating to a takeover offer which is passed by a representative director to their appointing shareholder might need to be made equally available to all shareholders of the target.  

What is Rule 20.1?

Rule 20.1 of the Takeover Code plays a crucial role in ensuring a level playing field for target company shareholders. It mandates equal access to information and opinions relating to a takeover offer.

If any material new information or significant new opinion relating to a takeover offer is provided to a shareholder (or certain other persons), it must be publicly announced.

What are representative directors?

A representative director is a director who has been appointed by (or who otherwise represents the interests of) a shareholder (appointing shareholder). In some cases, a representative director will routinely share information they receive by virtue of their position as director, with their appointing shareholder.   

What is the issue?

Rule 20.1 could mean that information relating to a takeover offer which is passed by a representative director to their appointing shareholder might need to be publicly announced so that it is equally available to all shareholders of the target. 

What is the advice from the Panel?

1. Early awareness is key: Advisers should draw the potential application of Rule 20.1 to the provision of information relating to the takeover offer to the attention of the target board and, in particular, the representative director(s) at the earliest possible opportunity, including where information is shared in the ordinary course in accordance with established practice.
2. Proactive consideration: In any event, Rule 20.1 should be considered before any information relating to a takeover offer is provided by a representative director to an appointing shareholder.
3. Seek guidance: The Panel encourages advisers to consult directly. This allows for open discussion about the specific information involved and whether it might trigger Rule 20.1. The Panel can even grant a "derogation" from the Rule's requirements in certain circumstances.

Conclusion

The new Panel bulletin does not represent any change in regulation or interpretation. However, it is a salient reminder of the potential application of Rule 20.1 to information which is passed by representative directors to appointing shareholders and the need for advisers to consider this at the very earliest opportunity. 

Further resources

Panel Bulletin 6