Mishcon Deals - Issue 1

Recent changes have been made to the notification of significant shareholdings (i.e. 3% or above) in publicly-traded companies. With effect from 20 April 2007, a new chapter 5 was added to the Disclosure and Transparency Rules (“DTRs”). This chapter replaces the shareholding notification requirements which existed under sections 198 to 210 of the Companies Act 1985.

The new law, however, is similar in many respects to the old law. It still remains the case that a shareholder has an obligation to make a notification when its shareholding in a UK company traded on the Official List, AIM or PLUS reaches, exceeds or falls below 3%, and each time it exceeds or falls below a percentage point thereafter (i.e. reaching or passing through 4%, 5% etc).

Notable features of the new regime are that:

Notification may be required in respect of an indirect interest in shares, not just a direct shareholding in the publicly- traded company. In addition, the new law requires notification of “voting rights”, and it is possible for someone to hold voting rights even where they do not own the underlying shares. Examples of notifiable interests in relation to shares/voting rights include: (a) through a financial instrument (e.g. a derivative contract, option or stock lending agreement), which gives control over voting rights in shares, or an option to acquire shares, to one of the parties, or (b) a life interest under a trust which holds shares as part of the trust property, or (c) through signing of a proxy voting form which gives a company chairman discretion to vote shares at a general meeting, or (d) where shares are held by a subsidiary company. Indirect holdings may be aggregated together with direct holdings for the purposes of calculating whether a notification threshold has been reached. The FSA is currently reviewing the way in which the new rules apply to contracts for difference (CfDs), and has indicated that it favours measures designed to achieve greater disclosure of CfD positions in certain situation
There are certain exemptions from the obligation to make a notification, e.g. where the voting rights are held by a bare nominee or custodian, then the nominee/custodian may not be obliged to make a notification (note that the beneficial holder of the voting rights is not exempt from the need to notify
A shareholder may become obliged to make a notification, even if it has not bought or sold any shares (or voting rights). This may occur where the company issues more shares (and thereby dilutes a shareholder down to, or through, a percentage point), or where the company buys back its own shares (thereby increasing the voting rights of a shareholder up to, or through, a new percentage point). In these situations, the notification obligation arises as soon as the shareholder becomes aware that its voting rights have passed through a percentage point. Publicly-traded companies are required to make a public announcement as to the total number of voting rights in existence at the end of each calendar month during which an increase or decrease has occurred
The notification must be made as soon as practicable, but not later than two trading days from the date that the obligation to make the notification arose. The notification must be made to the publicly-traded company and also, in the case of companies the Official List, to the FSA
Upon receipt of a notification, the publicly-traded company comes under an obligation to make public announcement
The notification requirements are different for non-UK companies which are traded on the Official List, AIM or PLUS.

DTRs – Notification of significant shareholdings