Editor’s note: this is general educational information about a UK company law mechanism, not investment advice. It is based on the statutes and the Takeover Code text listed at the end.
Analysis: the structure decides who has to be persuaded
Read against each other, the two routes allocate the risk of a stubborn minority differently. Under section 899 the dissenting holder is bound because the court sanctioned the arrangement, and the check on that outcome is judicial, exercised once, at a hearing whose date the circular must disclose in advance. Under section 979 the dissenting holder is bought out because enough other holders accepted, and the check is the arithmetic of acceptances plus a shareholder’s own right to go to court under section 986. One structure asks a judge whether the process was proper; the other asks the register whether the offeror got there.
That is also why the scheme is a cooperative instrument by construction rather than by convention. Part 26 puts the application to convene the meeting in the hands of the company, a member or a creditor, and Appendix 7 hangs its central deadline, the 28 day circular obligation, on the offeree board agreeing to a recommendation statement and drops the obligation if that recommendation is withdrawn. The Code accounts for hostile use in a separate section rather than in the main timetable.
What the documents do not settle is which route is faster or more certain in any given deal, and none of the cited sources measures completion rates or elapsed time. The variables a careful reader can actually check are on the page: whether the announcement of a firm intention includes the backstop conditions permitted by Appendix 7 Section 3(b), and with what prominence; whether the published timetable has moved and whether that change was announced; whether the offeree company’s post-meeting announcement shows the dual test in section 899 satisfied on both heads and value; and, in a contractual offer, whether acceptances are approaching the section 979 level within the window that section 980 leaves open.
What the documents say
A take-private of a UK company is settled in two places that have nothing to do with each other in law: a shareholder meeting convened by order of a court, and a courtroom. Neither is a market process. The structure decides who is bound, when, and on what evidence, and it is chosen at the point the offeror announces a firm intention to make an offer. The alternative route, a contractual offer accepted share by share, reaches the same destination through a different door and a different threshold.
What Part 26 requires
The scheme sits in Part 26 of the Companies Act 2006. Section 895 applies wherever a compromise or arrangement is proposed between a company and its members, or any class of them, and defines arrangement to include a reorganisation of the company’s share capital by consolidating shares of different classes, dividing shares into different classes, or both. Nothing in the Part mentions takeovers. The mechanism is generic, and a take-private is one use of it.
The process starts with an application to the court. Under section 896 the court may order a meeting of the members, or of a class of members, to be summoned in such manner as the court directs, on an application by the company, by any creditor or member, or by a liquidator or administrator. Section 897 attaches an information duty to that meeting: every notice summoning it must be accompanied by a statement explaining the effect of the arrangement and stating any material interests of the directors and the effect of the arrangement on those interests, in so far as that effect differs from the effect on the like interests of other persons. Failure is an offence by the company and by every officer in default. Section 898 puts a matching duty on directors and debenture trustees to give the company the information the statement needs.
The vote itself carries the threshold that defines the structure. Section 899(1) requires a majority in number representing 75% in value of the members or class of members present and voting in person or by proxy at the meeting summoned under section 896. That is a dual test, heads and value, and it is measured against those who vote rather than against the register. Approval does not complete anything. The court may then sanction the arrangement, and a sanctioned scheme is binding on all members or the relevant class and on the company. Section 899(4) adds the step that makes the timing concrete: the court order has no effect until a copy of it has been delivered to the registrar. The Takeover Code takes that same act as its definition of the effective date, being the date on which the order sanctioning the scheme is delivered to the registrar of companies for registration.
The other route and its 90% threshold
A contractual offer is governed by Part 28 of the same Act. Acceptance is individual, and the offeror deals with dissenters afterwards through compulsory acquisition. Section 979 gives the offeror the right to buy out a minority shareholder where it has acquired or unconditionally contracted to acquire not less than 90% in value of the shares to which the offer relates and, where those are voting shares, not less than 90% of the voting rights they carry. In calculating that 90%, shares held by the company as treasury shares are treated as having been acquired by the offeror.
The right is not open ended. Section 980(2) bars a notice under section 979 after the end of the period of three months beginning with the day after the last day on which the offer can be accepted. The traffic runs both ways: minority shareholders have their own rights under the sell-out provisions, exercisable for a period of three months, and a shareholder given a section 979 notice may apply to the court under section 986.
The comparison that matters is what each threshold is measured against. The scheme percentage is a fraction of votes cast at a court convened meeting. The squeeze-out percentage is a fraction of the shares to which the offer relates, and it has to be assembled from actual acceptances by actual holders. A register full of dormant nominee positions changes the difficulty of the second without touching the first.
What the Takeover Code adds on top
The Code applies to both structures. Appendix 7 states that the provisions of the Code apply to an offer effected by means of a scheme in the same way as to an offer effected by a contractual offer, except as set out in that appendix. The Panel on Takeovers and Mergers, established in 1968, administers it, and its statutory functions sit in Chapter 1 of Part 28 of the Companies Act 2006.
Appendix 7 then regulates the calendar that Part 26 leaves open. Where an offeror announces a firm intention to make an offer to be implemented by a scheme and the offeree board agrees to a statement of its intention to recommend it, the offeree company must ensure the scheme circular is sent to shareholders and persons with information rights within 28 days of that announcement, unless the Panel consents otherwise, and that obligation ceases if the board later withdraws its recommendation. Shareholder meetings must normally be convened for a date at least 21 days after the date of the circular. Where the parties write in a backstop date for the meetings or for the court sanction hearing, the date specified must be more than 21 days after the expected date set out in the circular, and such conditions cannot be invoked or waived after the specified date without agreement.
Disclosure is tied to those events. The circular must set out the expected timetable, including the record dates, the proxy deadline, the dates of the shareholder meetings and the court sanction hearing, any proposed suspension of trading, the effective date and the long-stop date. The offeree company must announce publication of the circular with that timetable, and must implement the scheme in accordance with it unless the recommendation is withdrawn, an adjournment is proposed or occurs, or a condition is invoked. After the meetings, the offeree company must announce by no later than 8.00 am on the following business day whether the resolutions were passed by the requisite majorities, whether the scheme has lapsed, and the voting results. Where a rival is in the field, the Panel will normally require a potential competing offeror to clarify its position by no later than 5.00 pm on the seventh day prior to the date of the shareholder meetings, though it may allow that to run to before the court sanction hearing.
Two provisions mark the limits of the scheme as a takeover tool. A mandatory offer obligation under Rule 9, triggered by an interest in shares carrying 30% or more of the voting rights, may not be satisfied by a scheme except with the Panel’s prior consent, and if such a scheme lapses for a reason that would not have caused a contractual offer to lapse, the Panel will require an immediate new contractual offer. Separately, an offeror may switch between the two structures only with the Panel’s consent, and the Panel then determines the timetable that applies, taking into account matters including the time shareholders need to reach a properly informed decision and the likely effect on any competing offeror.
