The Irish Takeover Panel Bill, 1996, provides for the designation of a takeover panel to monitor and supervise takeovers and certain other transactions in relation to securities in certain companies — mainly public limited companies quoted on the Irish Stock Exchange. The designation of the takeover panel has two main objectives: to protect shareholders in situations where takeovers or other relevant transactions, for example, substantial acquisition of securities, are contemplated and/or put into effect; and to provide support and credibility for the Irish financial markets following the separation of the Irish Stock Exchange from London.
The Stock Exchange Act, 1995, which was promoted by the Minister for Finance, provides for the regulation of stock exchanges and their members. This Act was the first major legislation relating to the stock exchange in almost 200 years — it replaced the Stock Exchange (Dublin) Act, 1799. Essentially, the 1995 Act provides for a new supervisory system under which the Central Bank, as the supervisory authority, will have substantial powers concerning both the initial authorisation of stock exchanges, member firms and their ongoing supervision. With the enactment of this Bill, the Irish Stock Exchange, Dublin, which up until then formed the Irish unit of the International Stock Exchange of the United Kingdom and the Republic of Ireland Ltd., separated from the combined exchange.
When the Dublin stock exchange formed part of the combined Dublin and London exchanges, the takeover code and rules of the takeover panel in London applied, respectively, to takeovers of companies listed on the Dublin, as well as the London, stock exchanges. However, with the separation of the exchanges, the takeover panel indicated it no longer wished to retain responsibility for supervising takeovers in this jurisdiction.
A working party drawn from a cross section of those involved in the Irish financial services industry, established in 1993 under the chairperson of the then president of the Irish Stock Exchange, examined the need for an Irish takeover panel in the new situation following the separation of the exchanges. The working party recommended that such a panel be established. The majority of the working party favoured a statutory backed panel essentially to avoid any uncertainty in the area of takeover and merger activity in Ireland following the separation of both exchanges.
Until now takeovers of companies listed on the Irish Stock Exchange were subject to the UK takeover code and rules governing substantial acquisitions of securities. These rules were operated on a voluntary basis. However, because of the nature of the London market, parties involved in takeovers would generally respect any directions or rulings given. In the new situation arising with the Irish exchange separating from London, there was concern that, if the takeover rules and panel were to operate other than on a statutory basis, there may not be the same respect for the rules and rulings given. Such a situation would be totally unacceptable.
Besides, while neither the UK panel nor its takeover code operate under any statutory or other public legal authority, the operation of the code is recognised and supported by the mechanism of the UK's Financial Services Act, 1986, which provides the regulatory framework for the protection of investors and the conduct of the financial markets in the United Kingdom. The Securities and Investments Board, as well as the Securities and Futures Authority, the Investment Management Regulatory Organisation and other bodies discharging supervisory functions under the 1986 Act have imposed obligations on firms authorised to carry on investment business in the United Kingdom which relate to and support the code and its application by the panel. For example, SIB has imposed the so-called "cold shoulder" rule which, in essence, obliges an authorised firm to which SIB's rules apply not to act for any person in connection with a takeover, merger or relevant acquisition of shares if the authorised person has reason to believe the persons for whom the firm would so act where not likely to comply with the code.
Following consideration of the matter, the then. Minister for Enterprise and Employment accepted the recommendation of the working group and undertook to provide the necessary statutory backing. This Bill is the culmination of this undertaking. The takeover panel will operate principally to ensure fair and equal treatment of all shareholders in the takeovers which fall within its remit. The rules currently being drawn up by the panel will provide an orderly framework within which takeovers will be conducted. As far as possible it is the intention of the panel to replicate the rules of the UK panel.
The code is not concerned with the financial or commercial advantages or disadvantages of any particular takeover. These are matters for the company and its shareholders. Equally, the code is not concerned with issues such as competition, which are the responsibility of the Minister for Enterprise and Employment under the Mergers, Take-overs and Monopolies (Control) Act, 1978, as amended.
Pending the enactment of this Bill, the UK takeover panel has continued to accept responsibility for monitoring, etc., takeovers which fall within the takeover code. This is being done on a grace and favour basis. Also, following the confirmation that the Minister proposed to legislate for a takeover panel, the proposed nominating members of the panel have formed an interim panel and the Governor of the Central Bank has appointed a chairperson designate, Mr. Dan O'Keeffe, SC. An interim director general designate, Mr. Leo Conway, formerly of Ulster Bank Finance, has also been appointed. The preparation of the draft Bill has involved close and protracted discussions and consultations with the interim panel.
The Bill is essentially concerned with giving statutory backing to a company to be known as the Irish Takeover Panel to monitor and supervise takeover activity here with a view to ensuring fair and equal treatment of all shareholders in takeovers which fall within its remit — in the main, these will involve companies currently quoted on the Irish Stock Exchange.
The Minister will designate this company to discharge this task subject to certain conditions being met. The company must be incorporated under the Companies Acts as a public company limited by guarantee and the Minister must be satisfied that the company's memorandum and articles of association are consistent with the provisions of the Act.
There will be five members of the panel drawn from the various interests in the Irish financial markets. The Minister can, by regulation, alter the membership if circumstances so require in the future. The board of the panel will have seven directors. Each of the members will nominate and appoint one director each.
The Governor of the Central Bank nominates and appoints the chairman and vice-chairman and he will take account of the general public interest in making these appointments. The directors so appointed can co-opt three further directors as required. There is provision for alternate directors to be appointed where conflicts of interest arise. The directors will be independent of the members in the discharge of their monitoring and supervisory functions.
The panel will operate for this purpose through the medium of detailed rules which the panel will draw up. However, in a number of key areas the Bill specifies what these rules must contain and provides, in relation to some of this number, that the Minister be consulted or approve them.
The rules, which will be modelled where possible on the UK rules, must reflect the general principles set out in the Schedule to the Bill. The Minister can amend the Schedule, by regulation, after consultation with the panel. The panel can give rulings, directions, etc., as required in each case arising. It can apply to the courts to have these rulings enforced, if necessary, and an aggrieved party can seek a judicial review in the courts in relation to specific rulings or directions etc., of the panel. The panel will be self-financing and required to submit an annual report which will be laid before the Houses of the Oireachtas. I now propose to deal with the detailed provisions of the Bill.
As the title of the Bill makes clear, the task of the takeover panel will be to monitor and supervise takeovers and other relevant transactions, terms which are defined in section 1 of the Bill. The reference to other transactions would include all matters that are incidental to takeovers, including work on the preparation of a takeover offer. It also includes substantial acquisitions of securities. These involve ways in which parties acquire shares in a company which falls within the remit of the panel but can only do so at a predetermined rate within specified timeframes.
Other terms defined in section 1 which are also fundamental to the Bill are the definitions of "acting in concert" and "control". "Acting in concert" is a concept that is very important in the context of activities in which the takeover panel will be interested. Essentially, it deals with circumstances where two or more parties act together. It would be quite easy to avoid the provisions of the Bill if parties were able to so organise their affairs that no one of them fell within the size criteria laid down. That would enable interested parties to drive a coach and four through the requirements of the Bill and the rules made by the takeover panel. "Control", as defined in the Bill, will arise where a party holds, in aggregate, not less than 30 per cent of the voting rights of the company. This is also central to the activities of the takeover panel in that, when somebody acquires control, the party or parties acting in concert will have to make a mandatory offer to the remainder of the shareholders.
In terms of the scope of the Bill, section 2 defines the companies to which the Act will apply — that is public limited companies or other bodies corporate incorporated in the State, whose securities are currently listed on the Stock Exchange or have been traded there within the previous two years. It also enables the Minister to provide, by regulation, that the Act should apply to the securities of other public limited companies in the future if the need arises. Specifically excluded from the remit of the panel will be UCITS and investment companies under Part XIII of the Companies Act, 1990. The former are excluded because of the particular manner and purpose for which the shareholding of such companies are brought together, namely, investors with a common purpose. The same consideration essentially applies to investment companies within the meaning of Part XIII of the 1990 Act.
Section 3 provides for the designation by the Minister of the Irish Takeover Panel as the body to undertake the functions of the panel as set out in the Bill. Certain conditions must be complied with before the designation can take place. The specific conditions are that the panel be registered under the Companies Acts, 1963 to 1990, as a public company limited by guarantee, to be known as the Irish Takeover Panel, and that the memorandum and articles of association of the company be approved by the Minister. Section 3 also specifies the provisions of existing Companies Acts that are disapplied in respect of the panel, and who will be the members of the panel. There will be five members of the panel and these are the bodies specified in section 6, namely the Consultative Committee of Accountancy Bodies -Ireland, the Law Society of Ireland, the Irish Association of Investment Managers, the Irish Bankers' Federation, and the Irish Stock Exchange. In the case of any of these bodies not being a body corporate, section 3 provides that an individual or body corporate nominated by the unincorporated body will be the member of the Irish Takeover Panel. The membership of the panel is representative of the various interests involved in the Irish financial markets.
Sections 4 and 5 deal with the other matters relating to the memorandum and articles of association of the panel. Section 4 is designed to ensure that, following the incorporation and designation of the panel, the members will not be able to alter either the memorandum or articles of association without the prior approval of the Minister. As already indicated, section 3 provides that the memorandum and articles have to be approved by the Minister prior to the designation of the company. The particular section 4 provision will now ensure that no changes are made without the Minister being made aware of and agreeing to them.
Section 5 sets out the principal objects that must be included in the memorandum of association of the Irish Takeover Panel. These are the monitoring and supervision of takeovers and other relevant transactions to ensure that the provisions of the Act, including the scheduled principles and any rules made by the panel under section 8 of the Bill, are complied with as respects each such transaction. It further provides that the panel can include in its memorandum such other objects and powers as are reasonably necessary or proper to enable it to discharge its functions, provided these are consistent with the provisions of the Bill.
Section 6, already referred to, makes provision for the directors of the panel. Effectively, the directors of the panel will monitor takeovers and issue any directions and rulings pursuant to the rules which they make under section 8. Accordingly, it is vitally important that the panel and its directors should be able to discharge their functions without hindrance or other improper direction from the members who have nominated the directors. The panel will have seven directors who will be nominated by the five specified bodies already referred to, representing the various interests in the financial industry. In addition, the Governor of the Central Bank will appoint the chairperson and deputy chairperson. While not stipulated in the Bill, the Governor will have regard to the general public interest in making these appointments.
In particular cases, conflicts of interest could arise, and it is accordingly proposed that the directors should be able to have alternates nominated to take their place in such circumstances. In addition, particular takeovers may arise where the expertise available to the panel may be wanting in some respects. In such circumstances, it will be possible to co-opt up to three additional directors to the panel whose term of office may relate to the individual takeovers, but is not so limited. Because the provisions of section 182 of the 1963 Act override any provision in the articles of a company, and provide that the members of a company may remove a director, it is necessary to disapply that particular provision in respect of the panel, given that we want the panel directors to be totally independent of the members who nominated them. Provision is made for the Minister to either add to or remove any of the nominating bodies in the future, if circumstances arise where this proves necessary or desirable. The consequence of such a removal is that the director, nominated by such a member who is removed, should automatically relinquish his position and this is provided for in this section.
Section 7 sets out the general duty on the panel to monitor and supervise takeovers to ensure compliance with the provisions of the Act, including the scheduled principles. However, to avoid circumstances where parties try to encourage the panel to undertake activities that are not within its remit, subsection (2) provides that the panel cannot be compelled to act in circumstances where it would not otherwise be required to. The section also provides that the Minister may amend the scheduled principles following consultation with the panel. This will require a positive resolution of the Oireachtas.
Section 8 is a key provision of the Bill and will enable the panel to make rules to set out the various requirements to be complied with by parties engaging in takeover activity. In general, the approach is that it will be the panel's responsibility to draw up the rules in accordance and compliance with the Act. However, in three specific areas, section 8 lays down requirements that must be included in the rules. Subsection (2) provides that the Minister must be consulted in regard to the determination of what will amount to a "substantial acquisition of securities". The reason this is proposed is that the rules in this instance will determine percentage limits and time limits within which acquisitions can only take place, but which will not result in actual control of a company arising. For instance, under the present UK substantial acquisition rules, no party may acquire 10 per cent in any company in a seven day period if, as a result of the acquisition plus what he already holds, a person would end up holding between 15 and 30 per cent. This follows the same approach as in the case of a takeover in that it is the Minister who will determine the percentage limit as to when control arises.
Subsection (3) of section 8 provides that the panel must make rules for the making of a mandatory offer where a person acquires control of a company, whether acting alone or in concert with other parties. The takeover panel rules may also apply to companies that are subject to the Mergers, Take-overs and Monopolies (Control) Act, 1978, as amended, and this section provides that the rule must make specific provision for what happens if the Minister makes a reference under the said 1978 Act to the Competition Authority. The possibilities that would arise include the suspension of the take-over offer while the matter is considered by the Competition Authority and the Minister, through to the lapsing of an offer where a reference is made. However, the detailed rules will be subject to the approval of the Minister.
The section also provides that the panel may grant derogations or waive rules in the particular circumstances of an individual case. However, this can only be done by reference to the scheduled principles.
Section 9 deals with the power of the panel to make rulings, give directions, etc. As already indicated, there was concern that, if the Take-over Rules and Panel were to operate here other than on a statutory basis, there might not be the same respect, as applies in London, for the rules and rulings given.
Consequently, section 9 is one of the central pillars of the activities of the panel, in that it underpins rulings and directions that will be given by the panel. In addition, the provision provides that where the panel issues rulings and directions, it may publish these. This will ensure that all market participants are aware of the decisions given and taken by the panel.
To enable the panel to operate effectively, it must also be able to obtain information, this section will ensure that the panel can seek information and the parties who are asked for the information will be obliged to provide it.
Section 10 is designed to ensure that, following appropriate inquiry or examination on the matter, the panel may, if it thinks fit, advise, admonish or censure parties in relation to their conduct in a take-over. The section further provides that the panel can publish its advice, admonition or censure. As a protection for parties the subject of the sanction imposed by the panel, such parties will be empowered to apply to the court, and the court, following a hearing on the matter, can either confirm the decision of the panel or annul the decision and make certain orders.
Section 11 is essentially a procedural section, and makes provision for a number of practical matters that will enable the panel to exercise its powers. In the first instance, it provides for the power of the panel to conduct hearings. Secondly, it provides that these hearings can be held otherwise than in public. The panel is given the power to ensure the attendance of witnesses and the production of documents by such witnesses. It also provides for the position of a witness appearing before the panel. Finally, it creates an offence for a person who fails to obey a summons of the panel.
Section 12 provides that the panel can apply to the court to have its rulings or directions enforced. One major difference between the preexisting code dealing with take-overs and the new regime proposed under the present legislation is the involvement of the court.
As mentioned earlier, the respect of parties involved in take-overs for the code and rulings of the London Takeover Panel derived in many respects from the international standing of the UK market. The same could not be said to apply in the case of the Irish market.
Accordingly, it is possible that some parties the subject of rulings or directions might, for their own reasons, be prepared to defy the panel. Section 12 is designed to enable the panel to go into court to get the court to enforce a ruling or direction where this is being ignored by the party in question.
When an application is made to the court, the court can make interim or interlocutory orders as it deems necessary. However, the panel cannot apply to the court earlier than seven days from the making of the ruling or giving of the direction. This is designed to allow the party against whom the ruling or direction was made to consider its position and, in particular, to consider whether or not it wants to make an application to the court under section 13.
In fact, the court is specifically precluded from making an order where such an application has been made. However, the panel may apply and the court may grant interim or interlocutory relief as is considered appropriate by the court under section 13(8). This would ensure that in particular cases, where urgency was involved, and this is likely to be the case in some take-overs, the panel would not be debarred from going into court at an early stage.
While respect for the rulings and directions is a very important feature of the take-over code, inevitably circumstances will arise where a party will feel aggrieved at the rules, ruling or direction given by the panel.
Section 13 is designed to provide a mechanism which will enable such parties to have their concerns examined by the court and, where necessary, obtain relief. However, it is designed that applications to the court will not be entertained otherwise than on substantial grounds.
In addition, the timeframe within which applications to the court must be made is extremely tight. However, the court can extend the time limit in certain cases but, inter alia, must bear in mind the nature of the relief that can ultimately be granted.
Moreover, where the High Court gives its decision, any appeal to the Supreme Court will only be possible where the High Court certifies that its decision involves a point of law of exceptional public importance. Of course, the right of appeal on constitutional grounds is preserved.
As mentioned in relation to the previous paragraph, this section also ensures that, in particular cases, while awaiting the outcome of a judicial review, the court may grant interim or interlocutory relief as it considers appropriate.
Overall, section 13 is designed to provide a balanced approach to ensure that parties can protect their interests while at the same time ensuring that take-over activity is not unduly impeded.
Section 14 deals with provisions with respect to appeals, applications, etc., to the court. Time is a huge factor in most take-overs. Accordingly, it is considered appropriate to try to ensure that the court will be available to deal with matters that arise, in particular take-overs, and deal with them as speedily as possible.
Furthermore, it is desirable that as far as possible, one judge should deal with all applications. This would enable the judge to become familiar with the rules, rulings and directions of the panel and should assist the process of ensuring speedy decisions from the court.
Moreover, having regard to the confidential nature of some of the information in relation to take-overs, this section also provides for the court, in particular cases, to hear the case in camera.
Section 15 is designed to ensure that where transactions in relation to a take-over have been completed, the provisions of this Bill cannot be used to have them unwound. In many cases when the take-over is concluded, the offeror will immediately move to introduce new arrangements in the company which has been taken over. This could involve the sale of property, the rearrangement of existing facilities, the redeployment of management and so on. It would be invidious to allow for the unscrambling of a take-over when it has been completed, having regard to such circumstances.
Essentially, the only circumstances in which a take-over can be unscrambled will be on the basis of an application by the takeover panel itself under section 12. It will be recalled that under that section, where the panel considered that parties were likely to ignore their rulings, they can go into court immediately to have the ruling or direction, etc. confirmed.
This would thus become all the more important having regard to section 15(a) where a party could seek to ignore a ruling or direction of the panel in the knowledge that when the take-over has been carried out, no other party other than the panel could seek to have the take-over unwound.
Even where a take-over has been carried out in accordance with a rule, ruling or direction, even though this is subsequently declared invalid or quashed, it cannot result in the unwinding of the take-over, again, save for the action that can be taken by the panel. For the panel to take such action, it would be of the view that the circumstances justified the unscrambling of the take-over, and the fair treatment of all the shareholders involved.
Essentially, the panel will be self-financing and it is not proposed that Central Government funds will be used to meet any of the expenses of the panel. In the circumstances, it is necessary to give the panel the power to defray the expenses incurred in performing its functions and section 16 does this.
It is proposed that, subject to the consent of the Minister, the panel will impose a levy on relevant companies and other parties which are involved in a take-over. Before agreeing to any charges, the Minister will consult any persons or parties considered appropriate.
Since the Minister's announcement of his intention to legislate for a takeover panel, an interim panel has been in operation. While it is not yet involved in vetting any take-overs, much preparatory work has been undertaken. This involved extensive consultations with the Department in the preparation of the draft legislation, and then the preparation of draft memorandum and articles for approval by the Minister as well as the preparation of the draft rules and code with explanatory notes.
The interim panel also has close contact with the UK panel and has benefited from training and other information provided by the UK panel. It is intended that the expenses incurred by the interim panel can be defrayed by the panel when it becomes operational.
Section 17 is designed to ensure information obtained by parties directly or indirectly involved in the work of the takeover panel will be regarded as confidential and will not be disclosed other than in accordance with the provisions of the Bill. In this regard, it is provided that: disclosure can be made where this is necessary to explain why a ruling or direction was given or where disclosures are made to certain parties to facilitate their operation, e.g., to the Garda or the Director of Public Prosecutions. This section also provides a penalty for failure to observe confidentiality.
Section 18 will ensure that confidential information that would not normally be disclosable in legal proceedings will have the same benefit under this legislation. This could be important in ensuring the privacy of confidential communications between the client and his legal adviser in particular.
Given that it is now proposed to legislate for the operation of the panel, it is considered appropriate that an annual report should be submitted on its activities and in turn the Minister should arrange for the publication of the report. Section 19 provides accordingly. It also provides that the Minister can prescribe the matters and information that he wants to see addressed in the report but there is the proviso that information which could materially injure or unfairly prejudice the legitimate interests of any person should not be disclosed in the annual report.
The panel will operate in a particularly sensitive area. It will issue rulings and give directions. There is always a possibility that certain parties would feel aggrieved. Provided the panel and the members, directors and so on do not act in bad faith, section 20 will give them protection against being held liable for damages. Separately, the section makes provision that will enable the panel to indemnify any member, director, officer or employee of the panel in respect of their activities on behalf of the panel. The section provides for the inclusion, in the Defamation Act, 1961, of a provision that would ensure that any report of the activities of the panel will benefit from qualified privilege as provided for under that Act.
Because of the interest of the panel in matters in the corporate area, it is considered appropriate that the panel should be specifically identified as a party which has access to reports of investigations carried out under Part 11 of the Companies Act, 1990, or reports of relevant authorities of a recognised stock exchange under Part IV of the Companies Act, 1990, dealing with insider dealing.
These reports could relate to areas in respect of which the panel will have a particular interest. The primary legislation already provides for the availability of those reports to other interested parties. Now that we will have an Irish takeover panel, it is considered appropriate that it should be specified as a party to whom access to the reports should be made available. Section 21 provides accordingly.
In a number of provisions, there is reference to prescribed matters. "Prescribed" means prescribed by the Minister by way of regulations. Section 22 deals with the manner in which such regulations are made. In certain instances, it will be sufficient for the Minister to lay the regulations before the House. However, in two instances — those in section 2 (1) (c), where the Minister could extend the companies to which the panel's remit applies and section 7 (3), where the Minister would effectively change the scheduled principles — it is provided that the regulations made by the Minister should have positive approval by the Oireachtas. The other circumstances where the Minister would exercise his power to make regulations would involve the prescription of a recognised stock exchange or the threshold at which mandatory offers must be made.
Section 23 is a reasonably standard provision included in legislation where reference is made to a particular body, and it simply provides that any document sealed with the seal of the panel will be accepted by a court in evidence unless proof to the contrary is shown.
One of the central features of the activities of the takeover panel will be the issuing of notices, directions and other rulings to parties involved in a takeover.
Section 24 makes provision on the manner in which the information is to be conveyed. It also provides that in the case of a company registered under the Companies Acts, the registered office will be the residence of the company.
Sections 11(5) and 17(3) provide for an offence. Section 25 provides for penalties for persons found guilty of an offence under these sections. It also provides that in the case of offences under-section 11(5) the proceedings may be prosecuted by the panel, while in the case of proceedings for an offence under section 17, these may be prosecuted by the Minister. In addition, the time limit within which proceedings can be brought is two years.
Section 26 is also a standard provision that ensures that any expenses incurred by the Minister in the administration of the Act will be ment out of general funds. As mentioned in relation to section 16, it is not proposed that the Minister or the Central Government funds will be involved in providing any funding to the activities of the Irish takeover panel.
Section 27 contains the short title as well as the manner in which the Act can be commenced. The Schedule to the Act contains the principles which will be applicable to the conduct of takeovers.
Essentially the principles are a general expression of the matters that will govern the activities and rules of the panel in ensuring that all takeovers are operated in a fair and reasonable manner. Principle 1 simply provides that all shareholders of the same class will receive equal treatment. Principle 2 provides that all shareholders of the company which is the subject of the offer will obtain equal information. Principle 3 is designed to ensure that the parties making the offer will be able to implement the offer. Principle 4 is designed to ensure that appropriate information and advice should be made available to the shareholders and in a timely fashion. Principle 5 is designed to prevent the creation of false markets by making misleading statements or engaging in inappropriate conduct which could mislead the market or shareholder. Principle 6 provides that the directors of a company which is likely to be the subject of an offer should refrain from taking any action which could prevent the offeror completing his offer, unless approved by shareholders in a general meeting. Principle 7 provides that the directors of the offeree company should ensure they do not compromise their position by entering into any commitments with an offeror. Principle 8 provides that the directors on all sides should act in the general interests of the shareholders as a whole. Principle 9 is designed to prevent the oppression of minority shareholders. Principle 10 is designed to ensure that the offeror makes certain they will be able to complete an offer. Principle 11 provides that the affairs of the offeree company should not be disrupted by any unreasonable length of time. Principle 12 provides that a substantial acquisition of securities, for example, where control will not result, should only take place at an acceptable speed and that there should be adequate disclosure.
I commend the Bill to the House and look forward to hearing the contributions of my colleagues.
