The UK Takeover Panel (Panel) has made its first-ever compensation order under the statutory powers granted to it under the Companies Act 2006 (CA 2006). It has also issued “cold shoulder” orders against 10 individuals, the most extensive use by the Panel of this power.

On 30 July 2024, the Takeover Appeal Board published a statement summarising the outcome of disciplinary proceedings brought before the Hearings Committee of the Panel and the Takeover Appeal Board in respect of MWB Group Holdings plc (MWB Group). The statement confirms that 11 individuals have been sanctioned for their roles in a series of “sham transactions” in respect of shares of the MWB Group in 2010 resulting in breaches of the UK Takeover Code (Code), as well as subsequently seeking to mislead the Panel during its investigation. The sanctions are noteworthy for their severity and for the number of individuals that have been sanctioned.

Three individuals have been ordered to pay compensation of around £33 million (about $42 million) (plus interest from 2010) to the shareholders of the MWB Group at the time of the relevant breach. This is the first time that the Panel has used the powers granted to it under Section 954(1) of the CA 2006 to issue a compensation order.

“Cold-shoulder” orders have also been issued against 10 individuals, meaning that no regulated firm in the UK financial sector can act for those individuals on any transaction governed by the Code for the period specified in the order (and in practice may result in their wider exclusion from access to UK regulated firms). This is only the fifth occasion that the Panel has deemed it appropriate to use the “cold-shoulder” sanction, and more than doubles the number of individuals ever to be so sanctioned.

BACKGROUND

In 2011, following a complaint by the then-largest shareholder in MWB Group, the Panel began looking into the ownership of MWB Group (which at that time was a listed company with shares trading on the London Stock Exchange’s Main Market). A lengthy and complex investigation followed. However, while the investigation was ongoing, MWB Group entered administration and was subsequently dissolved.

The investigation was centred on whether three former managers of MWB Group (Former Managers), together with persons acting in concert with them, had misled shareholders and the Panel regarding a series of transactions from 2009 to 2010 and related breaches of the following two key tenets of the Takeover Code:

• The mandatory takeover obligation under Rule 9 of the Code (Rule 9)
• The requirement in section 9(a) of the Introduction to the Code (Section 9(a)) for persons dealing with the Panel to take all reasonable care not to provide incorrect, incomplete, or misleading information to the Panel.

THE BREACHES

The Former Managers together originally held approximately 29.7% of the shares carrying voting rights in MWB Group. The Hearing Committee ruled the Former Managers breached Rule 9 when they acquired interests in further MWB Group shares, which increased their holdings of shares carrying voting rights in the MWB Group to more than 50%, without making an offer to other shareholders.

The Hearing Committee found that the Former Managers concealed their interests in these additional shares from the other directors of MWB Group and from the market generally. This concealment was effected through a series of “sham transactions” involving offshore entities, which (among other things) led the market and the other directors of MWB Group to understand that shares comprising approximately 15% of the MWB Group’s share capital were independently managed or controlled by an independent firm (the Firm), unrelated to the Former Managers. In fact, these shares were controlled by two of the Former Managers.

The Hearing Committee also ruled that Section 9(a) had been breached by the following parties through their involvement in the “sham transactions” and subsequent conduct during the Panel’s investigation (including findings that certain parties had misled the Panel during the course of the investigation):

• The Former Managers
• The founding partner of the Firm
• Two lawyers at a Swiss law firm
• The chairman of a French investment advisory firm
• The uncle of one of the Former Managers
• The principal of a number of businesses based in London
• The former finance director of MWB Business Exchange plc

THE PENALTIES

The usual remedy for a failure to make a mandatory takeover when required to do so by Rule 9 would be a direction that such an offer should be made at the price and on the terms required by Rule 9. However, since MWB Group had been dissolved prior to the disciplinary proceedings, this was not considered to be a practical remedy in this case. As a result, a decision was taken to use the Panel’s powers to require the Former Managers to pay compensation pursuant to the statutory powers granted to it under it under Section 954(1) of the CA 2006.

The compensation is payable to those persons who were shareholder of MWB Group at the time that the takeover offer should have been made, and the amount has been determined by reference to the purchase price which those shareholders would have been entitled to receive under any such offer. Interest is also payable to reflect the time elapsed since the offer should have been made.

The Panel did consider whether the founding partner of the Firm should also be liable to pay compensation given his conduct. However, the Panel concluded that as he was not himself a principal member of the concert party and he had not himself acquired the interests which triggered the mandatory takeover offer obligation, the Panel did not have the power to require him to pay compensation.

The Hearing Committee also ruled that each of the 10 individuals who had breached of Section 9(a) should be subject to a “cold shoulder” order for periods ranging from one to five years. The Hearing Committee also elected to bring the Swiss lawyers’ “cold shouldering” to the attention of the Geneva Bar Commission.

CONCLUSION

The particular circumstances of the case, and in particular the fact that MWB Group had been dissolved, is the likely reason for the first use by the Panel of its statutory compensation powers, rather than the more usual direction to make a Rule 9 offer.

The number of “cold shoulder” orders issued, and the range of individuals (including professional advisers) to whom they have been issued, should be seen as a timely warning of the need for all of those involved with a transaction to which the Code applies (or may apply) to cooperate with and not mislead the Panel in the course of its investigations.

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