Corporate analysis: The Court of Session, in Panel on Takeovers and Mergers v King, has ruled in favour of the Takeover Panel by granting an order to require Mr King to comply with the Panel’s rulings in 2017 that he should make a mandatory offer (rule 9 offer) under the Takeover Code (Code) for all the shares in Rangers International Football Club plc (Rangers) not owned by him or by Messrs Letham, Mr Taylor, and Mr Park (members of his concert party).
Panel on Takeovers and Mergers v King  CSOH 156
What is the background to this case?
On 13 March 2017, the Takeover Appeal Board (TAB) published its decision upholding rulings of the Panel Executive and of the Hearings Committee that Mr King acted in concert with Messrs Letham, Taylor and Park to acquire more than 30% of the voting rights in Rangers and, in consequence, had incurred an obligation under the Code to make a mandatory offer at a price of 20 pence per Rangers share for all of the Rangers shares not already held by Mr King and members of his concert party.
The TAB directed that Mr King announce a rule 9 offer by 12 April 2017. However, Mr King failed to comply and on 13 April 2017 the Takeover Panel commenced proceedings in the Court of Session, Edinburgh under section 955 of the Companies Act 2006 (CA 2006) seeking an order requiring Mr King to comply with its rulings.
CA 2006, s 955 provides, among other things, that if on the application of the Panel, the court is satisfied of the below the court may make any order it thinks fit to secure compliance with the requirement:
- that there is a reasonable likelihood that a person will contravene a rule-based requirement, or
- that a person has contravened a rule-based requirement or a disclosure requirement
What was the order sought?
The Takeover Panel (as petitioner) sought an order under CA 2006, s 955 ordaining Mr King (the respondent) to announce in accordance with the Code, within 30 days of the date of the court’s order, and thereafter make in accordance with the Code, a mandatory offer at a price of 20p per share for all the issued ordinary share capital of Rangers not already controlled by him, Messrs Letham, Taylor, and Park.
What issues were before the court? What did the court decide?
The court had two issues to determine:
- What, on a proper construction of CA 2006, s 955, is the ambit of the court’s discretion?
- If the court has discretion to refuse the order, should the court in the exercise of that discretion refuse the order sought?
In relation to the first issue, the court found in favour of the respondent, that the court had discretion to refuse to grant an order sought in terms of CA 2006, s 955. The court set out several different reasons, including:
- CA 2006, s 955 provides that the court may make an order—where a provision is worded in this way the court has a discretion whether to pronounce or not pronounce the order sought
- if Parliament had intended that the court should not have such a discretion, it would have expressed that intention clearly
- the intent of CA 2006, s 955 is clearly to provide a means whereby the Panel can seek to have its decisions enforced—however, that does not mean that the court’s function is to act as a rubberstamp
In relation to the second issue, the court found in favour of the petitioner and granted the order sought. The court rejected the respondent’s arguments:
- that the acquisitions were made by Mr King’s family trust rather than by him—the court clarified that it was not acting as a court of appeal, and that the Panel was the body responsible for evaluating evidence and making findings of fact
- that Mr King had no funds to comply with the Panel’s ruling requiring him to make a mandatory offer—the court determined this to be irrelevant. The respondent intentionally brought about a situation where 30% of the shares in Rangers were acquired by him and his concert party and he knew that this would require him to comply with rule 9 and there is no evidence of the respondent’s alleged impecuniosity. Further to not make an order on the basis of the respondent’s alleged impecuniosity would materially undermine the working of the Panel, ie, by allowing parties to circumvent rule 9 by arranging their financial affairs in such a way that when they were required to comply with their obligations under rule 9 they could plead insufficient funds to do so and if that were the case, it would not enable the Panel to fulfil one of its principal functions of achieving fairness of treatment amongst shareholders. The court highlighted the observation made by Sir John Donaldson MR in Ex Parte Datafin plc  QB 815 that the public has a very strong interest in the proper operation of the Panel. The court considered that anything which tended to undermine the Panel’s ability to properly police takeovers would be contrary to the public interest
- that the offer price of 20p per share (which is below the current market value for Rangers shares) is so low, it would mean that shareholders in Rangers would not take up any offer in any event, and that there would be no utility in making such an order—the court found this argument irrelevant. The court emphasised that rule 9 requires an offer should be made at a price determined in terms of provisions of the rule to achieve fair treatment and thereafter it is a matter for the shareholders to decide if they wish to accept an offer at that price