Listing Rules: Key Continuing Obligations .1 Pre-emption

A listed company proposing to issue equity shares for cash must first offer those securities to its existing shareholders in proportion to their existing shareholding.

10.7.2 Meetings of shareholders

A listed company is required to inform all its shareholders of the holding of meetings which they are entitled to attend. The company must also ensure that shareholders are given the opportunity to vote in person or by proxy.

Any information or facilities necessary to enable shareholders to exercise any other rights, including those in respect of the payment of dividends and the issue, exchange or repayment of securities, must also be made available by the company.

10.7.3 Requirement to carry on an independent business A listed company must carry on an independent business as its main activity at all times. As part of this requirement, where the company has a controlling shareholder, it must have in place at all times a legally binding agreement with that shareholder which contains a number of “independence provisions” designed to ensure that the company can operate independently of its controlling

Section 10: Continuing obligations for listed companies

Transitional provisions apply to existing companies with a premium listing as at 16 May 2014. Such companies have until 16 November 2014 to ensure that a compliant “controlling shareholder agreement” is put in place or that any existing arrangements with a controlling shareholder are amended to comply with the requirements of Chapter 9.

Where, after admission, a person acquires a controlling stake in a company, the company will have a period of not more than six months to put in place a controlling shareholder agreement.

A premium listed company is required to notify the FCA without delay if it no longer complies with the independence provisions set out in the controlling shareholder agreement, or if it becomes aware that the controlling shareholder is not complying with the

independence provisions in that agreement.

The company must also include a statement in its annual report from the board confirming that, where required, the company has entered into a controlling shareholder agreement. Where no such agreement has been entered into, the annual report will need to contain a statement that the FCA has been notified of the non-compliance, together with a brief description of the reasons for the company’s failure to enter into such an agreement. Where an agreement is in place, the board will also need to confirm that the independence provisions in the agreement have been complied with or, if this is not the case, include a description of the reasons for non-compliance and a statement that the FCA has been duly notified of it. Where any of the company’s independent directors decline to support any of the relevant statements then this must be stated in the annual report.

Enhanced oversight measures will apply where a company or its controlling shareholder is not in compliance with independence

provisions. In particular, where (i) the company is not in compliance with the independence provisions set out in the controlling shareholder agreement, (ii) the company becomes aware that the controlling shareholder is not complying with such provisions, or (iii) any independent director fails to support the statement in relation to such arrangements required to be included in the company’s annual report, then all transactions with the controlling shareholder will become subject to prior independent shareholder approval, regardless of the size of the transaction. In other words, the concessions in Chapter 11 (related party transactions) regarding transactions in the ordinary course of business, small transactions and smaller related party transactions will be suspended (see section 10.7.5).

Where a company has a controlling shareholder, it will also need to ensure that the election and re-election of any independent director is approved by both the shareholders of the company and the independent shareholders of the company (i.e. excluding the controlling shareholder). If such approvals are not obtained then the company cannot propose a further resolution to elect or re-elect the proposed independent director until 90 days after the date of the original vote. Any such further resolution must be voted on within 30 days from the end of that 90 day period but may be passed by a single vote of the shareholders of the company (i.e. including the controlling shareholder).

A company having a controlling shareholder as at 16 May 2014 has until the date of its next annual general meeting to comply with the provisions described above regarding the election of independent directors, save where notice of the company’s annual general meeting has already been given or is given within a period of three months from the event that resulted in the company acquiring the controlling shareholder. In this instance, the company will have until its following annual general meeting to ensure compliance. Similar

80 Initial Public Offers: A guide to the UK listing regime, Clifford Chance LLP Section 10: Continuing obligations for listed companies

provisions apply to a company that acquires a controlling shareholder after 16 May 2014.

10.7.4 Significant transactions by listed companies Chapter 10 of the Listing Rules governs the acquisition and disposal of shares and assets by listed companies. It classifies these transactions according to the size of the transaction relative to the company itself, using a number of “percentage ratio tests”.

Such tests are based on the gross assets, profits, consideration and gross capital of the company. Modified tests exist for

transactions by certain types of listed companies such as property companies, mineral companies and scientific research based companies to reflect the specialist nature of their businesses. For further information on specialist issuers, see section 13.

Depending on the ratio, the company may have to send a circular to shareholders to convene a meeting to obtain shareholder approval or issue an announcement. Where an acquisition amounts to a reverse takeover of another company (i.e. the ratio amounts to 100 per cent. or more or the transaction otherwise results in a fundamental change in the company’s business, board or voting control), trading in the company’s securities will be cancelled and, following shareholder approval of the transaction, the company will need to re-apply for listing if the shares are to be re-listed.

10.7.5 Related party transactions

Chapter 11 of the Listing Rules governs transactions with related parties. A related party is:

(a) a person who controls or controlled within the last 12 months the exercise of 10 per cent. or more of the votes able to be cast on all or substantially all matters at general meetings of the company (“substantial shareholder”);

(c) a person exercising significant influence over the company; or (d) an associate of (a) to (c).

In relation to a director, substantial shareholder or person exercising significant influence who (in each such case) is an individual, “associate” covers (i) family members; (ii) the trustees of any trust of which that individual or his family members are beneficiaries; and (iii) any company in which such individual or his family are able to exercise 30 per cent. or more of the voting rights at a general meeting or have the ability to appoint or remove directors holding a majority of voting rights at board meetings.

In relation to a substantial shareholder or person exercising significant influence which is a company, “associate” covers subsidiary and holding companies and any company whose directors are accustomed to act in accordance with the relevant entity’s directions.

A “transaction with a related party” for these purposes includes:

(a) a transaction (other than a transaction in the ordinary course of business) between a company (or any member of its group) and a related party;

(b) an arrangement (other than a transaction in the ordinary course of business) where the company (or any member of its group) and a related party each invests in, or provides finance to, another undertaking or asset; or

(c) any other similar transaction or arrangement (other than a transaction in the ordinary course of business) between the company (or any member of its group) and another person the purpose and effect of which is to benefit a related party.

If a company (or any member of its group) proposes to enter into

Section 10: Continuing obligations for listed companies

approval of its shareholders prior to entering into the transaction (or if it is expressed to be conditional on such approval, prior to completion of the transaction) and ensure that the related party abstains from voting on the relevant transaction.

Exemptions to the requirement to obtain the prior approval of shareholders in general meeting for a related party transaction apply where the transaction is classified as a small transaction or smaller related party transaction.

10.7.5 Dealings by PDMRs

The Model Code is annexed to Chapter 9 of the Listing Rules and constrains the freedom of certain individuals to deal in the company’s shares (or other securities whose price is determined by reference to the company’s shares).

The Model Code applies to PDMRs (see section 10.4) within the company.

The Model Code gives guidance for the establishment of an agreed procedure for share dealings by PDMRs. It provides a minimum standard of good practice against which companies should measure their own dealing codes. It goes beyond the constraints imposed by both the criminal legislation prohibiting insider dealing contained in Part V of the Criminal Justice Act 1993 and the civil legislation prohibiting market abuse contained in FSMA. A company must require that its PDMRs comply with a code of dealing no less exacting than the Model Code.

Under the Model Code, PDMRs are prohibited from dealing for a minimum period prior to an announcement of regularly disclosed information, whether or not the information constitutes inside information (e.g. the financial results of a company) (a “close period”). Dealing is also prohibited at any time when any matter exists which constitutes inside information in relation to the

company. PDMRs should also seek to prohibit dealings by persons connected with them and by investment managers acting on their behalf when the company is in a close period.

10.7.6 Cancellation of listing

A company that wishes the FCA to cancel its Premium listing must first issue a circular to shareholders and obtain the approval in general meeting of not less than 75 per cent. of the votes of those shareholders voting on the resolution.

Where a company has a controlling shareholder (see section 4.1.8), cancellation also requires the approval of a majority of the votes of the independent shareholders voting on the resolution.