Enforcement of security over shares may trigger the obligation to make a mandatory offer

Rule 9.1 of the Takeover Code provides that, except with the consent of the Takeover Panel, when any person, together with any concert party, is interested in shares which carry not less than 30 per cent of the voting rights of a company but does not hold shares carrying more than 50 per cent of such voting rights and such person, or any concert party, acquires an interest in any other shares which increases the percentage of shares carrying voting rights in which he is interested, such person must make a mandatory cash offer for the company.

The Takeover Code goes on to provide, in Note 2 of the Notes on Dispensations from Rule 9, that where shares are charged as security for a loan and, as a result of enforcement, the lender would otherwise become obliged to make a mandatory offer under Rule 9, the Takeover Panel will not normally require such an offer if sufficient interests in shares are disposed of within a limited period to persons unconnected with such lender so as to reduce the percentage of shares with voting rights held by the lender and any concert party to the level they were before the enforcement of the loan…

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