A little-known but important provision of the Companies Act ……
This article deals with the sale of shares in private companies and the possible involvement of the Takeover Regulation Panel (the “TRP”).
Sections 117 to 127 and the Takeover Regulations apply only to a company which is a “regulated company” as defined in Sections 118(1) and (2). It identifies a private company as being a “regulated company” if 10% or more of the issued securities of such company have been transferred between persons other than related or inter-related persons, during the immediately preceding period of 24 months.
- 1. “Securities” in this sense means shares, debentures or other instruments which either has the right to vote generally at a general shareholders’ meeting, or is convertible into an instrument which has such rights;
- 2. “Related persons” refer to persons who are either married or live together or are separated by no more than 2 degrees of consanguinity;
- 3. “Regulated company” means that any transaction involving 5% or more of its issued securities during the period that it is and remains a regulated company, needs to be reported to the TRP.
The practical implication of these provisions is enormous: it is likely that hundreds of share transactions which fall within the ambit of these provisions at the private company level, occur daily and needs to be reported to the TRP!
It is doubtful if more than a handful of these, if any, are actually reported to the TRP as set out in the Takeover Regulations.
The TRP may partially or in full and with / without conditions, exempt an offer to acquire securities from the provisions of the said sections.
A further complication can be found in the purchase of a dormant “shelf company” from an incorporator – which has been standard procedure for new businesses to commence operations – where such shelf company is then defined as a regulated company.
The TRP has, through Guideline 03/2011 exempted such transaction, but the shelf company remains classified as a regulated company for a period of 24 months after is was incorporated.