Cayman Islands: The City Code, The Takeover Panel And Their Application In Jersey

Introduction

Currently, the City Code on Takeovers and Mergers (the "Code"), which is issued by the Panel on Takeovers and Mergers of the UK (the "Panel"), applies to offers made for public companies incorporated in Jersey if either their shares are listed on a regulated market in the UK or on any stock exchange in the Channel Islands or the Isle of Man or if they are considered by the Panel to have their place of central management and control in the UK, the Channel Islands or the Isle of Man (and application to private companies is also possible in limited circumstances).

Since the creation of the Panel in 1968, it has acted in a non-statutory capacity and has developed the Code to reflect the collective opinion of those professionally involved in the field of takeovers and mergers as to appropriate business standards and how to achieve fairness for shareholders and an orderly framework for takeovers and mergers.

The European Union's Directive On Takeover Bids (2004/25/EC)

Following the implementation in the UK of the European Union's Directive on Takeover Bids (2004/25/EC) (the "Directive") by the enactment of Chapter 1 of Part 28 of the UK's Companies Act 2006 on 6 April 2007, the rules set out in the Code, which are derived from the Directive, now have a statutory basis in the UK.

From 6 April 2007, therefore, the Panel was granted statutory powers of enforcement in relation to all offers and other statutory mergers to which the Code applies, apart from those relating to Channel Islands and Isle of Man companies.

Jersey's Approach To The Directive

Whilst the Panel still has non-statutory powers in relation to offers made for certain Jersey companies, the States of Jersey has proposed that it is necessary, in order for Jersey companies and shareholders in such companies to continue to benefit from the protections provided by the Panel, to enact a law that closely follows Chapter 1 of Part 28 of the UK's Companies Act 2006. It is envisaged that this will have the effect of formalising the existing arrangement that the Panel has for applying the Code to Jersey companies and will also allow Jersey to show compatibility with the Directive and thus to show compliance with international standards.

Now that the Panel has been placed within a statutory framework in the UK, the Panel does not consider it appropriate to continue to administer takeovers in Jersey unless an equivalent framework exists in Jersey. The UK legislation made provision for Chapter 1 of Part 28 of the UK's Companies Act 2006 to be extended to Jersey by Order-in-Council. However, Jersey has decided, following consultation, to introduce its own legislation to give the Panel statutory power in Jersey.

Companies (Takeovers and Mergers Panel) (Jersey) Law 200-

To ensure the Panel's functions and powers under Jersey law are equivalent to those under UK law, the States of Jersey adopted the Companies (Takeovers and Mergers Panel) (Jersey) Law 200- (the "Takeovers Law") on 16 July 2008.

Following receipt of Royal Assent, the Takeovers Law will closely follow Chapter 1 of Part 28 of the UK's Companies Act 2006. In particular, the Takeovers Law will empower the Minister for Economic Development in Jersey to appoint a body to oversee takeovers and mergers. This body is intended to be the Panel although it will be possible to appoint another body should the need ever arise.

The Takeovers Law requires the Panel to make rules giving effect to the relevant articles of the Directive and it is expected that the Code will constitute such rules, thereby becoming of statutory effect in Jersey. The Takeovers Law also gives the Panel power to give rulings on the interpretation of the rules, provide directions and require disclosure of information.

Furthermore, the States of Jersey are given the power to amend the schedule to the Takeovers Law which sets out specific permitted disclosures of information by the Panel, which should be treated in confidence unless disclosed in accordance with the schedule. The schedule will need to be amended following any future introduction by Guernsey and the Isle of Man of similar legislation to the Takeovers Law so as to refer to such legislation.

The Jersey Financial Services Commission and the Panel have mutual duties of cooperation under the Takeovers Law which also requires the Panel to cooperate with equivalent overseas authorities.

Provision is also made in the Takeovers Law for review and appeals of the Panel's decisions, sanctions for non-compliance with the rules, compensation and enforcement by the Royal Court in Jersey.

Summary

The Takeovers Law is expected to be enacted before the end of the year and, once enacted, will put the Panel's authority in Jersey on a statutory footing, equivalent to their powers in the UK. Whilst acquirers of public Jersey companies which have their shares listed on a regulated market or which are managed and controlled in Jersey will no doubt continue to observe the Code, they should be aware of the soon to be statutory powers of the Panel, and application of the Code, in Jersey.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.