Companies Act 2006 – Sections 969

Sections 969 and 972: Power of offeror to require general meeting to be called;
Transitory provision

1241. Section 969 provides the bidder with the special right to require the directors of an
opted-in company to call a general meeting of the company when he holds 75% in value of
all the voting shares in the company (excluding debentures and shares that do not normally
carry rights to vote at a general meeting (such as preference shares)). Section 969(3) applies
sections 303 to 305 of the Act, which deal with the calling of meetings, to such a request
(with the necessary modifications). But as those sections may not be in force at the time when
section 969 comes into force, section 972 makes the same sort of adaptations in relation to
the equivalent provisions of the 1985 Act. In particular, section 972(3) alters the application
of section 378(2) so that a special resolution may still be passed at a general meeting called at
only 14 days’ notice (normally at least 21 days’ notice would have to be given of the meeting
for it to be able to pass a special resolution).

CHAPTER 3: “SQUEEZE-OUT” AND “SELL-OUT”

Summary and background

1242. The concepts of “squeeze-out” and “sell-out” are designed to address the problems of,
and for, residual minority shareholders following a successful takeover bid. Squeeze-out
rights enable a successful bidder to compulsorily purchase the shares of remaining minority
shareholders who have not accepted the bid. Sell-out rights enable minority shareholders, in
the wake of such a bid, to require the majority shareholder to purchase their shares. Because
they involve the compulsory purchase or acquisition of shares against the will of the holder of
the shares or the acquirer, high thresholds apply to the exercising of such rights and there are
protective rules on the price that must be paid for the shares concerned.

1243. Squeeze-out and sell-out provisions have been a feature of national company law for
many years (and were previously contained in Part 13A (Takeover Offers) of the 1985 Act).
Articles 15 and 16 of the Takeovers Directive, however, introduce EU-wide rules requiring
all Member States to put appropriate provisions in place for the first time. The provisions at
sections 974 to 991 of the Act restate Part 13A of the 1985 Act in a clearer form. However, in
doing so they also make important changes to reflect the need to ensure compliance with the
Directive and the decision to accept some recommendations of the CLR. These are described
below.

Detail of changes made to the operation of provisions previously contained in Part 13A of
the 1985 Act

1244. The rules laid down in the Directive in relation to squeeze-out and sell-out are broadly
consistent with provisions of Part 13A (sections 428 to 430F) of the 1985 Act. The restated
and amended provisions will apply equally to all companies and all bids within the ambit of
Part 13A of the 1985 Act, regardless of whether or not the Directive is required to be applied
to such companies and bids.

1245. The following changes are made in implementation of the Directive:

• Calculation of Squeeze-out Threshold (section 979) – there is a dual test imposed: in
order to acquire the minority shareholder’s shares, the bidder must have acquired both
90% of the shares to which the offer relates, and 90% of the voting rights carried by
those shares. Where the offer relates to shares of different classes, then, in order to
acquire the remaining shares in a class, the bidder must have acquired 90% of the
shares of that class to which the offer relates, and 90% of the voting rights carried by
those shares. Under section 429 of the 1985 Act, in each case only the first limb of
that test applied.

• Calculation of Sell-out Threshold (section 983) – mirroring the change to be made in
relation to the squeeze-out threshold, a dual test is similarly imposed in relation to the
sell-out threshold, so that a minority shareholder may force a bidder to acquire his
shares (i) when the bidder holds 90% of the shares in the company, and 90% of the
voting rights attached to those shares, or (ii) when the bidder holds 90% of the shares
in the class to which the minority shareholder’s shares belong, and 90% of the voting
rights attached to those shares. Under section 430A of the 1985 Act, the test was that
the bidder should have acquired 90% of all shares in the company (or in the class
concerned).

• Revised Period during which Squeeze-Out and Sell-Out Rights may be Exercised
(section 980(2)) – the Directive provides (Articles 15.4 and 16.3) that squeeze-out and
sell-out rights must be exercisable within a three month period following the time
allowed for acceptance of the bid. Section 429(3) of the 1985 Act provided that
squeeze-out could be exercised within a period of four months beginning with the
date of the offer and had to be exercised within two months of reaching the 90%
threshold. Accordingly, the rule provided by the Directive is substituted for the rule in
the 1985 Act. An exception to this rule is provided where takeover bids are not
subject to the Directive, for instance takeovers of most private companies. In these
cases, the squeeze-out notices must be given within six months of the date of the offer
if this is earlier than the period ending three months after the end of the offer. This is
intended to prevent offerors in such circumstances continually extending the offer
period. A change is also made as regards the period during which sell-out may be
exercisable so that this period is to be either three months from the end of the offer or,
if later, three months from the notice given to the shareholder of his right to exercise
sell-out rights (section 984(2)). An extended period during which the sell-out right
can be exercised where notice of such a right is only given after the end of the offer
period is consistent with provisions of the Directive allowing more stringent
provisions to be put in place (in this case to ensure the proper protection of minority
shareholders).

• The court will no longer be able to reduce the consideration in relation to squeeze-out
or sell-out following a takeover bid to below the consideration offered in the bid
(which the Takeovers Directive presumes to be fair in all cases). Again utilising
provisions of the Directive which allow more stringent provisions to be included to
protect minority shareholders, minority shareholders will continue to be able to apply
to the court to request that consideration higher than that offered in the bid be paid in
exceptional circumstances (section 986(4)).

1246. In most instances, it is considered that the first and second changes above will make
no practical difference as the percentage of total capital carrying voting rights in a company
(or class of shares) and the percentage of voting rights will normally be the same. The
provisions about voting rights will not apply where the shares being squeezed out or sold out
are non-voting shares.

1247. The CLR also considered the issue of squeeze-out and sell-out and the scope for
improving the provisions in the 1985 Act. Its Final Report (chapter 13, pages 282 – 300),
made a number of recommendations in relation to the reform of the squeeze-out and sell-out
regime. Some of these recommendations are closely related to implementation of the
Takeovers Directive. For instance, the CLR questioned whether, in calculating the relevant
squeeze-out and sell-out thresholds, only shares that had been unconditionally acquired
should be taken into account or whether shares acquired subject to contract should also be
included.

1248. In implementing the Takeovers Directive, the opportunity is being taken to adopt
recommendations of the CLR, whether or not related to implementation of the Directive,
except to the extent that they are not consistent with Articles 15 and 16 of the Directive or are
no longer appropriate as a consequence of the Directive. The recommendations made by the
CLR implemented by Chapter 3 of Part 28 are set out: