Notification of Changes in
the Nature of Interests
Any change in the nature of
an interest already notified is required to be disclosed.
The situations in which there is considered to be such a
change are extensive and include a change in the nature of a
person's title to shares, any of the person's interest
whether legal or equitable or any of the person's interest
in the underlying shares of equity derivatives on the
exercise of rights thereunder (whether by or against him).
Common situations requiring notification of a change
in interest will include:
(i) the exercise of rights
(by or against a person) under options and other
derivatives;
(ii) the lending of shares under a
securities borrowing and lending agreement (unless the
Securities Borrowing and Lending Exemption applies - see
below); and
(iii) the giving of shares as security
to another person.
There is not considered to be a
change in the nature of an interest:
(i) where a
purchaser takes delivery of shares, if he has previously
disclosed his equitable interest arising on contracting to
buy the shares;
(ii) where there is a change in the
terms on which rights under equity derivatives may be
exercised which results from a change in the number of
underlying shares in issue;
(iii) on the exercise of
rights to subscribe for or on delivery of shares under a
rights issue;
(iv) where a 'qualified lender' comes
to have a security interest in a person's shares (see
'Exempt Security Interests' below); and
(v) where
the person is a holding company and the transfer is of
shares from one wholly owned subsidiary to another (see
'Wholly Owned Group Exemption' below).
What
constitutes an interest in shares?
The definition of
an 'interest in shares' is extremely broad and includes the
situations set out in Schedule 3 hereto.
Buying and
Selling Shares
A buyer of shares acquires an
interest in shares at the time when he contracts to buy and
therefore is required to give notification within 3 business
days of the contract. Whereas the seller only ceases to have
an interest when he actually transfers the shares to the
buyer and is therefore required to notify the cessation of
his interest within 3 business days of the actual transfer.
Deemed Interests
There are a number of
circumstances where the interests and derivative interests
(including short positions) of others in a listed company's
shares must be added to a person's own interest in
calculating the number of shares in which they are
interested.
Family and Controlled Company Interests
As under the previous legislation the interests of a
person's spouse and children under 18 are attributable to
him.
Also, as previously, a person will be deemed to
be interested in the interests of any company which he
'controls' (ie. a company of which he controls, either
directly or indirectly, one third or more of the voting
power at general meetings or if the company or its directors
are accustomed to act in accordance with that person's
directions).
Trusts
The interests of a trust
of which a person is a trustee must also be aggregated with
his own interests (with the exception of a trust of which he
is a bare trustee (ie. his only powers or duties are to
transfer the underlying shares according to the directions
of the beneficial owner - see 'Exemptions' below).
A
beneficiary of a trust must include the interests of the
trust in calculating his own interest. The interest of a
beneficiary under a discretionary trust is however
disregarded provided that he is not also a director of the
relevant listed company or a 'founder' of the trust (see
below).
'Founders' of Discretionary Trusts
The SFO has introduced new provisions so that the
interests of a 'discretionary trust' will be attributed to
the 'founder' of such trust. The term 'founder' is very
widely defined and essentially will catch anyone who has
procured the creation of the trust and (i) whose consent is
a condition of a trustee's exercise of his discretion or
(ii) in accordance with whose wishes a trustee is accustomed
or expected to act (whether, in either case, legally
enforceable or not).
Concert Party Agreements
The SFO broadens the previous provisions relating to
concert party agreements. In essence, those provisions apply
where two or more persons agree to acquire shares in a
target company and the agreement dictates the manner in
which any one or more of the parties may exercise the rights
attached to those shares or dispose of them. Each party to
the agreement must include the interests of all other
parties to the agreement in determining whether they
together hold 5% or more of the listed company. If so, each
party will be considered to be a substantial shareholder
whose interests must be disclosed.
Under the SFO
those provisions are extended to any arrangement whereby a
'controlling person' or director of a listed company makes a
loan to a person on the understanding that the money will be
used to acquire interests in shares in that company and
shares are in fact acquired. A 'controlling person' for
these purposes is any person who, either alone or with
associates, controls at least 30% of the voting power at
general meetings, can nominate any of its directors or veto
or modify any resolution of a general meeting.
The
effect of extending the provisions to the borrower and
controlling shareholder is to create an irrebutable
presumption that the loan or funding will be provided
pursuant to an agreement dictating how the borrower may deal
with his shares.
There is an exemption where a
'controlling person' or director makes the loan in the
ordinary course of his business as a qualified lender.
Where 2 or more persons are interested in the same
shares they must each make separate disclosure of their
interests. Hence if X controls Y Ltd. which holds 6% of a
listed company and Y Limited acquires a further 1%, then X,
his spouse and Y Limited must each file a separate notice.
Cessation of Interests
A person is regarded
as having ceased to be interested in shares if:
(i)
he delivers them to another person (or to his order)
pursuant to a contract for sale, in fulfilment of his
obligations under a call option, or on exercising his rights
under a put option;
(ii) his right to subscribe for
or call for the delivery of shares lapses or he assigns such
right to another;
(iii) his obligation to take
shares lapses or he assigns that obligation to another;
(iv) he receives an amount from another person, or
avoids or reduces a loss, on the assignment or settlement of
any cash settled equity derivatives.
