The Irish Takeover Panel Bill, 1996, provides for the designation of a takeover panel to monitor and supervise takeovers and certain other related activity with a view to ensuring fair and equal treatment of all shareholders in such situations and to provide support and credibility for the Irish financial markets. The companies which will fall within the panel's remit will be mainly those currently listed on the Irish Stock Exchange.
The need for an Irish takeover panel came about as a result of the separation of the Stock Exchange here from being part of the London stock exchange in December 1995 and the decision of the London takeover panel that it no longer wished to have responsibility for takeovers here consequent on that separation.
The question of what form the Irish takeover panel should take was the subject of detailed consideration by a working group representative of the Irish financial markets. The majority view of the working group was that the panel should have statutory backing and the group recommended accordingly to the then Minister for Enterprise and Employment. There was concern on the part of the group that if the Irish takeover panel were to operate other than on a statutory basis, there may not be the same respect for the rules and rulings given, as compared with the London panel. Because of the stature of the London market, parties involved in takeovers there would generally be respectful of any directions or rulings. The ultimate sanction for disobeying of a ruling or direction of the London panel is ostracism from the financial services of the City of London but the panel can rely on the pro-active support of the relevant regulatory authorities in the UK in the achievement of this objective.
For example, the Securities Investment Board (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 would not be likely to comply with the takeover code. Therefore, given the manner in which the support is rendered by the regulatory authorities it could be said to amount to indirect statutory backing in a key area of the UK panel's activity. However, the industry view here was that limited statutory backing of this nature would not work in Ireland. The main reason therefore for putting in place an Irish takeover panel with statutory backing is to provide support and credibility for the Irish financial market, thereby avoiding any uncertainty arising from the separation of the Irish Stock Exchange from London.
As stated at the outset, the primary task of the panel will be to monitor and supervise takeover activity falling within its remit with a view to ensuring fair and equal treatment of all shareholders. The panel will not be concerned with the financial or commercial advantages or disadvantages of any particular takeover. These are matters for the company and its shareholders. Equally, the panel will not be concerned with issues such as competition, which are the responsibility of the Minister for Enterprise and Employment under the Mergers, Takeovers and Monopolies (Control) Act, 1978, as amended.
Pending the enactment of the present Bill, the UK takeover panel has continued to accept responsibility for monitoring takeovers and related matters which fall within the takeover code. 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.
Against this background I would now like to deal with the provisions of the Bill itself. Essentially, this Bill is concerned with giving statutory backing to a company to be known as the Irish Takeover Panel for the purposes already referred to. The Minister will designate the company for these purposes 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 regulations, 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 chairperson and vice-chairperson 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 primarily to cater for conflicts of interest arising.
The directors will be independent of the members in the discharge of its monitoring and supervisory functions. The panel will operate for this purpose through the medium of detailed rules which the panel itself 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 regulations after consultation with the panel. The panel can give rulings and directions as required in each case arising. It can apply to the courts to have these rulings enforced, if necessary. An aggrieved party can seek a judicial review in the courts in relation to specific rulings or directions of the panel. The panel will be self-financing and will be required to submit an annual report which will be laid before both Houses of the Oireachtas.
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 "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 that are 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" 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 authorised to trade there within the previous five years. It also enables the Minister to provide, by regulations, that the Act should apply to the securities of other public limited companies in 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, that is, 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 the members of the panel will be.
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 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 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 so as 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 also provides that the panel can include in its memorandum such other objects and powers as are reasonably necessary or proper for it 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. Essentially, 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. They 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. 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 have nominated them.
Finally, 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, of course, 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 that the provisions of the Act, including the scheduled principles, are complied with. However, to avoid circumstances where parties try to get the panel to undertake activities that are not within their 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, by regulations, following consultation with the panel. However, these regulations will require the approval of the Oireachtas by way of a resolution.
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 own responsibility to draw up the rules in accordance, and in 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 with the approval of the Oireachtas who will determine the percentage limit as to when control arises.
Section 8(3) 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 find themselves subject to the Mergers, Takeovers and Monopolies (Control) Act, 1978, as amended. This section provides that the rules must make specific provision for what happens if the Minister, for example, makes a reference under the said 1978 Act to the Competition Authority.
The possibilities that would arise include the actual suspension of the takeover offer while the matter is considered by the Competition Authority and the Minister, through to the actual 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 and give directions. As already indicated, there was concern that, if the takeover rules and panel were to operate here other than on a statutory basis, there may not be the same respect, as in the London situation, 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, it provides that where the panel issues rulings and directions, it may publish them. This will ensure that all market participants are aware of the decisions given and taken by the panel. To enable the panel operate effectively it has also to be able to obtain information and 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 in the matter, the panel may, if it thinks fit, advise, admonish or censure parties in relation to their conduct in a takeover situation. The section further provides that the panel can publish their advice, admonition or censure.
As a protection for parties subject of the sanction imposed by the panel, such parties will be empowered to apply to the court which, 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, in addition to creating an offence for a person who fails to obey a summons of the panel, section 11 also provides that the panel can make application to the court to enforce the compliance of witnesses at hearings.
Section 12 provides that the panel can apply to the courts to have its rulings or directions enforced.
One major difference between the existing code dealing with takeovers and the new regime proposed under the present legislation is the involvement of the court. As mentioned earlier, the respect of parties involved in takeovers for the code and rulings of the London Takeover Panel derived mainly 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 to 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 their position and, in particular, consider whether or not they want to make an application to the court themselves 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 takeovers, 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 takeover 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 courts and where necessary obtain relief. However, it is designed so that applications to the court will not be entertained other than on substantial grounds.
In addition, the timeframe within which applications to the court must be made are 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 takeover 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 takeovers. Accordingly, it is considered appropriate to try to ensure that the courts will be available to deal with matters that arise in particular takeovers 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 takeovers, this section also provides for the courts in particular cases to hear the casein camera.
Section 15 is designed to ensure that where transactions in relation to a takeover have been completed, the provisions of this Bill cannot be used to have them unwound. In very many takeover situations, once the takeover 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 takeover once it has been completed, having regard to such circumstances. Essentially, the only circumstances in which a takeover 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 once the takeover has been carried out, no other party other than the panel could seek to have the takeover unwound.
Even where a takeover has been carried out in accordance with a rule, ruling or direction, although this is subsequently declared invalid or quashed, it cannot result in the unwinding of the takeover 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 takeover and the fair treatment of all the shareholders involved.
Essentially, the panel is going to be self financing and it is not proposed that central Government funds 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 is for this purpose. For example, 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 takeover. Before agreeing to any charges the Minister will consult with 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 takeovers as such, much preparatory work has been undertaken. This involved extensive consultations with the Department in the preparation of the draft legislation and subsequently the preparation of draft memo and articles for approval by the Minister as well as the preparation of the draft rules and code together with explanatory notes.
The interim panel has also 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 that 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 particular ruling or direction was given or where disclosure is made to certain parties to facilitate their operation — for example, to the Garda or the DPP. This section also provides a penalty for failure to observe confidentiality.
Section 18 will ensure that information of a confidential nature that would not normally be disclosable in legal proceedings will have the same benefit under this legislation. This could be an important stay on 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 the activities of the panel and in turn the Minister should arrange for the publication of the report. Section 19 provides accordingly, but in addition requires the panel to have the report with the Minister not later than four months after the end of the year to which the report refers and the Minister to have the report laid before both Houses of the Oireachtas not later than six months after the end of that year.
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 be operating in a particularly sensitive area and, in that it will be issuing rulings and giving directions, there is always a possibility that certain parties would feel aggrieved. Provided the panel and the members, directors, etc., 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. Finally, the section provides for the inclusion in the Defamation Act, 1961, of a provision that would ensure than any report of the activities of the panel will benefit from qualified privilege as provided for under that Act.
As a result of the interest of the panel in matters that are happening 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 which are carried out under Part II of the Companies Act, 1990, or reports of relevant authorities of a recognised stock exchange under Part V of the Companies Act, 1990, concerning insider dealing. As mentioned, these reports could relate to areas in respect of which the panel would have a particular interest. The primary legislation already provides for the availability of those reports to other interested parties. With the establishment of an Irish Takeover Panel, it is considered appropriate that they equally 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, reference is made to prescribed matters. Prescribed means prescribed by the Minister by regulation. 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 three instances — those in section 1 where the Minister, within the definition of "control", proposes to alter the threshold at which mandatory offers must be made; section 2 (1) (c) where the Minister proposes to extend the companies to which the panel's remit applies; and section 7 (3), where the Minister proposes to change the scheduled principles — it is provided that the Minister's draft regulations must be approved by both Houses of the Oireachtas by way of a resolution. The other circumstances where the Minister would exercise his power to make regulations would involve the prescription of a recognised stock exchange.
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 Irish Takeover Panel will be the issuing of notices, directions and other rulings to parties involved in a takeover.
Section 24 makes provision as to 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. Two sections of the Bill, section 11 (5) and section 17 (3), provide for an offence. Section 25 provides for penalties in respect of persons found guilty of an offence under those sections. It also provides that in the case of offences under section 11 (5) and section 17 (3) the proceedings may be prosecuted by the panel. 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 Bill will be met out of general funds. As mentioned in relation to section 16, it is not proposed that the Minister or 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 Bill can be commenced.
The Schedule to the Bill 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.
That concludes my outline of the Bill. I commend the Bill to the House and I look forward to hearing the contributions of Members.