Scottish Court of Session Decisions

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URL: http://www.bailii.org/scot/cases/ScotCS/2018/[2018]_CSIH_30.html
Cite as: 2018 GWD 14-190, 2018 SC 459, [2018] CSIH 30, [2018] BCC 390, [2018] ScotCS CSIH_30, 2018 SLT 451

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FIRST DIVISION, INNER HOUSE, COURT OF SESSION

Lord President

Lord Drummond Young

Lord Glennie

OPINION OF THE COURT

[2018] CSIH 30

P341/17

delivered by LORD DRUMMOND YOUNG

in the reclaiming motion

PANEL ON TAKEOVERS AND MERGERS

Petitioner and Respondent

against

DAVID CUNNINGHAM KING

Respondent and Reclaimer

Petitioner and Respondent: Johnston QC, Delibegovic-Broome QC; Dentons UKMEA

Respondent and Reclaimer: Lord Davidson of Glenclova QC; Lindsays

28 February 2018

[1] The respondent, the Panel on Takeovers and Mergers (“the Panel”), is charged with

the administration of the City Code on Takeovers and Mergers (“the Code”), which

regulates company takeovers and certain other matters specified in Chapter 1 of Part 28 of

the Companies Act 2006. The Code applies in particular to takeovers of companies whose

securities are admitted to trading on a regulated market or multilateral trading facility.

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Rangers International Football Club PLC (“Rangers”) is such a company; at the material

time its shares were listed and traded on the Alternative Investment Market, although they

are currently suspended. The present case is concerned with the acquisition on 31 December

2014 and 2 January 2015 of shares in Rangers amounting to 34.05% of the total issued share

capital in the company.

[2] Those transactions were investigated by the Panel. On 7 June 2016 the Executive of

the Panel held that those shares were acquired by a group of persons acting in concert and

that the reclaimer, David King, acting through a company called New Oasis Asset

Management Ltd (“NOAL”), was one of those persons. Because the reclaimer was the

person whose acquisition of shares (through NOAL) took the total holding of the concert

party above 30%, the Executive held that he was obliged to make a mandatory offer in

accordance with rule 9 of the Code for all of Rangers’ issued share capital not already owned

by him or by the other members of the concert party. It further ruled that, in accordance

with rule 9.5(c) of the Code, the offer price should be 20p per Rangers share.

[3] The reclaimer requested that the Executive’s decision should be reviewed by the

Panel’s Hearings Committee, but on 5 December 2016 that Committee upheld the

Executive’s ruling and directed the reclaimer that within 30 days he should announce an

offer for the shares in Rangers not already owned by himself or the concert party pursuant

to rule 9 of the Code. The reclaimer appealed against that ruling to the Takeover Appeal

Board, which is a tribunal independent of the Panel constituted under rules promulgated

pursuant to section 951(3) of the Companies Act 2006; those rules confer a right of appeal to

the Board. On 30 March 2017 the Board dismissed the appeal and affirmed the ruling of the

Hearings Committee, only varying the date by which the reclaimer should comply with the

order.

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[4] The Panel thereafter applied to the Court for an order under section 955 of the

Companies Act 2006 ordaining the reclaimer to announce a mandatory offer in accordance

with the Code within 30 days of the date of the Court’s order and thereafter to make such an

offer at a price of 20p per share for all of the issued ordinary share capital of Rangers not

already controlled by the reclaimer or the three other members of the concert party. On

22 December 2017 the Lord Ordinary made such an order, and the present reclaiming

motion has been enrolled against his decision.

[5] Two principal arguments are now presented on behalf of the reclaimer. First, it is

contended that the funds that were used to purchase the shares were not those of the

reclaimer but were trust funds held by NOAL for the purposes of a Guernsey trust.

Consequently it is submitted that the reclaimer is unable to access the funds, and will

therefore be unable to pay the requisite price if his offer should be accepted by any

shareholders. This amounts in effect to an argument of impecuniosity. Secondly, it is

contended that the orders made by the Hearings Committee and the Takeover Appeal Board

would not serve any practical purpose. Such an offer was to be made at a price of 20p per

share, but the shares in Rangers were currently trading at approximately 25p per share. We

will consider those arguments in due course. First, however, we will discuss the relevant

provisions of the City Code and the statutory mechanism provided in section 955 of the

Companies Act 2006 for enforcement of the Code. Secondly, we will set out the factual

background and certain important findings that were made by the Hearings Committee and

the Takeover Appeal Board. Thereafter we will consider each of the foregoing arguments.

The City Code on Takeovers and Mergers

[6] The City Code has existed since 1968. Its present form is largely based on the

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Directive on Takeover Bids (2004/25/EC) of the European Parliament and of the Council,

which took effect in 21 April 2004, although that Directive is substantially in accordance

with the Code as it has been developed since 1968. The Code is now promulgated by the

Panel pursuant to section 943 of the Companies Act 2006.

[7] Certain features of the Directive are of importance for present purposes. In

particular, recital (9) requires member states to take necessary steps to protect the holders of

securities, in particular those with minority holdings, when control of their companies has

been acquired. Such protection should be ensured by obliging the person who has acquired

control to make an offer to all the holders of the company’s securities for all of their holdings

at an equitable price. Article 3 states a number of general principles that apply to takeover

bids; these are substantially reproduced in the general principles that apply to the Code

(section B of the Introduction to the Code, discussed at paragraph [9] below). Article 5

requires member states to ensure that, where a person or concert party comes to hold

securities in excess of a specified percentage of voting rights, such a person should be

required to make a bid for the remaining securities, “as a means of protecting the minority

shareholders of that company”. The price offered to the remaining shareholders is to be the

highest price for the same securities paid by the offeror or by the offeror’s concert party over

a period of between six and twelve months prior to the bid, although that is subject to

variation in some circumstances.

[8] The Code now implements the Directive. Its purpose is set out in paragraph 2(a) of

the Introduction. This provides as follows:

“The Code is designed principally to ensure that shareholders in an offeree company

are treated fairly and are not denied an opportunity to decide on the merits of a

takeover and that shareholders in the offeree company of the same class are afforded

equivalent treatment by an offeror. The Code also provides an orderly framework

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within which takeovers are conducted. In addition, it is designed to promote, in

conjunction with other regulatory regimes, the integrity of the financial markets.

The Code is not concerned with the financial or commercial advantages or

disadvantages of a takeover. These are matters for the offeree company and its

shareholders”.

[9] The Introduction also states the general principles on which the Code is based.

These essentially represent standards of commercial behaviour, and correspond to those

found in article 3 of the Directive. They apply to takeovers and other matters to which the

Code applies. The Introduction further indicates, in paragraph 2(b), that the rules in the

Code are not framed in technical language and “are to be interpreted to achieve their

underlying purpose. Therefore, their spirit must be observed as well as their letter”. Two of

the general principles (stated in section B of the Introduction) are material for present

purposes:

“1. All holders of the securities of an offeree company of the same class must be

afforded equivalent treatment; moreover, if a person acquires control of a company,

the other holders of securities must be protected …

5. An offeror must announce a bid only after ensuring that he/she can fulfil in

full any cash consideration, if such is offered, and after taking all reasonable

measures to secure the implementation of any other type of consideration”.

These principles represent elementary standards of commercial fairness. When a bid is

made for a class of shares in a company, all holders of shares in that class should be treated

equally; and a bid should only be made if the offeror has adequate resources to implement

it.

[10] The provision of the Code that is material for present purposes is Rule 9. Rule 9.1

provides as follows:

“Except with the consent of the Panel, when:…

(b) any person, together with persons acting in concert with him, is interested in

shares which in the aggregate carry not less than 30% of the voting rights of a

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company but does not hold shares carrying more than 50% of such voting rights and

such person, or any person acting in concert with him, acquires an interest in any

other shares which increases the percentage of shares carrying voting rights in which

he is interested,

such person shall extend offers, on the basis set out in the Rules 9.3, 9.4 and 9.5, to

the holders of any class of equity share capital whether voting or non-voting…”.

Rule 9.5 requires that an offer made under rule 9 should be in cash or be accompanied by a

cash alternative “at not less than the highest price paid by the offeror or any person acting in

concert with it for any interest in shares of that class during the 12 months prior to the

announcement of that offer”. The policy considerations that underlie rule 9 are discussed

subsequently, but for present purposes, two features of the rule are important. First, it

applies both to the acquisition of shares by a single person and to the acquisition of shares

by persons acting in concert (commonly referred to as a “concert party”). Secondly, it

applies in terms to the member of a concert party whose acquisition of shares in the

company takes the total holding of the concert party above the 30% threshold. The

expression “acting in concert” is defined in section C1 of the Code. This gives a general

definition, and then continues:

“Without prejudice to the general application of this definition, the following

persons will be presumed to be persons acting in concert with other persons in the

same category unless the contrary is established:

…

(5) a person, the person’s close relatives, and the related trusts of any of them, all

with each other…”.

[11] Rule 9 is of central importance to the Code, essentially for the reasons set out in

section B of the Introduction. The Code is designed to ensure that all shareholders in a

company are accorded equivalent treatment. If that is not done there is the obvious danger

that those in control of a company will favour some shareholders at the expense of others,

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which is quite contrary to elementary conceptions of commercial morality. Rule 9 is

intended to achieve equal treatment of shareholders in a takeover. Moreover, it enables

existing shareholders who are not supporters of the takeover to realize their shareholdings;

in this way the rule protects dissenting shareholders from the consequences of a takeover.

Enforcement of the Code

[12] The Code has force of law by virtue of Part 28 of the Companies Act 2006. The Panel

is responsible for the administration of the Code, and through its Executive it issues rulings

on the conduct of those involved in takeover bids. That occurs in the manner found in the

present case: the initial ruling is by the Panel’s Executive, and there is a right on the part of

any person subject to the Panel’s ruling to seek review by the Hearings Committee. That is

followed by a right of appeal to the Takeover Appeal Board. The resulting ruling is binding

on all persons who are subject to it. If any such person does not comply with the ruling,

however, further enforcement is necessary. The mechanism for such enforcement is

provided in section 955 of the Companies Act 2006, which so far as material is in the

following terms:

“Enforcement by the court

(1) If, on the application of the Panel, the court is satisfied –

(a) that there is a reasonable likelihood that a person will contravene a

rule-based requirement, or

(b) that a person has contravened a rule-based requirement or a

disclosure requirement,

the court may make any order it thinks fit to secure compliance with the

requirement.

(2) In subsection (1) ‘the court’ means … in Scotland, the Court of Session

…”

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[13] The function of section 955 is to provide a mechanism for the enforcement of rulings

by the Panel. It is not concerned with review of those rulings or with a system of appeal

against the rulings. Review of the Panel’s rulings is entrusted to the Hearings Committee by

section 951(1) of the Companies Act 2006 and by Appendix 9 to the Code. From the

Hearings Committee there is a right of appeal to the Takeover Appeal Board in accordance

with section 951(3) of the same Act. Both review and the right of appeal are subject to the

Rules of the Takeover Panel; these are set out in the Code. The Takeover Appeal Board is

independent of the Panel, and its Chairman and Deputy Chairman have usually held high

judicial office, and are appointed by the Master of the Rolls. Other members of the Board

usually have knowledge and experience of takeovers and the Code, and are appointed by

the Chairman. The Board is entrusted, according to its Rules, with ensuring that appeals in

respect of rulings, on the interpretation, application or effect of the Code are conducted

according to law. Such hearings take the form of rehearings; thus there is an opportunity for

full review of the decisions of the Panel and the Hearings Committee on questions of both

law and fact. That right of appeal, to an expert tribunal, provides an obvious justification for

the restriction of the Court’s power of enforcement.

[14] Nevertheless, any power to enforce rulings is likely to involve an element of

discretion in the body charged with enforcement. Section 955(1) empowers the court to

“make any order it thinks fit” to secure compliance with a requirement of the Panel. That

clearly involves an element of discretion as to the form of order that is made. Before the

Lord Ordinary the reclaimer contended that the Court’s discretion extended to refusing to

grant any remedy. That was disputed by the Panel. The Lord Ordinary held that such a

discretion existed; in so holding he followed observations by Sir John Donaldson MR in R v

Page 9 ⇓

Panel on Takeovers and Mergers, Ex parte Datafin PLC, [1987] QB 815, at 840. In the hearing

before us the Panel conceded that the Lord Ordinary was correct on this matter.

[15] In our opinion that concession was correctly made. We consider that the Court’s

discretion under section 955 extends not merely to the form of the order that is made but

whether to make any order to secure compliance with a requirement of the Panel. As was

pointed out in Datafin, in dealing with public law decisions the Court must have an ultimate

discretion as to whether it should set them aside, and might refuse to do so in the public

interest, even if the decision itself were ultra vires. That approach seems directly applicable

to the Court’s function under section 955. Nevertheless, in the application of that section we

would expect that cases where the Court decides not to enforce a ruling by the Panel would

be rare, especially where the Panel’s ruling has been upheld by the Hearings Committee and

the Takeover Appeal Board. The most obvious case where enforcement might be refused is

where material changes in circumstances have occurred subsequently to the last decision by

those bodies. For example, subsequently to the relevant decisions, the offeror might have

become insolvent, or an offer by a third party for the relevant shares might have been made.

It is only in such relatively exceptional cases that the discretion to refuse a remedy is likely

to be relevant. Otherwise, the Court’s function is to enforce the rulings of the Panel.

Events giving rise to the present proceedings

[16] The following facts were found by the Panel’s Executive, whose findings were

upheld by the Hearings Committee and the Takeover Appeal Board. The Board, in

particular, provided a helpful and succinct account of the facts found, and in what follows

we have relied largely on its decision.

Page 10 ⇓

[17] The reclaimer was born in Scotland but for many years has been resident in South

Africa. The contention made against him by the Panel is that on 2 January 2015 he acquired

shares amounting to 14.57% of the issued share capital in Rangers. The shares purchased on

that date were acquired by NOAL which is, as indicated above, a company registered in the

British Virgin Islands. NOAL was incorporated in October 2013 and is wholly owned by

Sovereign Trust International Ltd (“Sovereign Trust”), a company incorporated in Gibraltar.

The sole director of NOAL is Sovereign Management Ltd, another Gibraltar company.

Sovereign Trust is the trustee of a Guernsey trust known as the Glencoe Investments Trust

(“Glencoe”). Glencoe was established in September 1996 by the reclaimer for the benefit of

himself and members of his family. The assets of Glencoe include the single issued share in

NOAL.

[18] On 31 December 2014 three individuals, Mr George Letham, a Scottish businessman,

Mr George Taylor, a businessman in Hong Kong where there exists a Rangers Supporters

Club, and Mr Douglas Park, another Scottish businessman, acquired interests in shares in

Rangers which amounted to 19.48% of the issued shares, taking account of certain shares

which Mr Taylor held already. The reclaimer had held shares in the old Rangers club before

it went into administration in 2012, and was in touch with Mr Letham from the summer of

2014 onwards about possible acquisition of further shares. Proposals for the acquisition of

shares were discussed by the two men, but came to nothing. Nevertheless both Mr Letham

and the reclaimer remained in touch with each other. In December 2014 an opportunity

arose to acquire Rangers shares from a major existing shareholder, Laxey Partners Ltd.

Laxey was unwilling to sell its shares to the reclaimer, but was willing to sell the shares to

Mr Letham, Mr Taylor and Mr Park. It was Laxey’s shares that were acquired by those three

individuals on 31 December 2014.

Page 11 ⇓

[19] On 31 December 2014 the reclaimer instructed Cantor Fitzgerald, an investment

bank, in connection with the purchase of Rangers shares. Cantor Fitzgerald negotiated the

purchase of shares from three institutional fund managers in the United Kingdom at a price

of 20p per share. Emails of 27 and 31 December 2014 passed between the reclaimer and

Mr Letham; these indicated that the reclaimer was aware of Mr Letham’s intention to

acquire Rangers shares from the institutional investors at the same time. As already noted,

NOAL acquired 14.57 % of the shares in Rangers on 2 January 2015, at a price of 20p per

share. The Takeover Appeal Board held that the transfer of the shares to NOAL was

achieved by Cantor Fitzgerald in accordance with instructions that the reclaimer had given

them. The result was that, if the acquisitions by Messrs Letham, Taylor and Park and the

acquisition by NOAL were taken together, an aggregate holding of 34.05% of the issued

shares in Rangers had resulted. In March 2015 an extraordinary general meeting of Rangers

took place, at which the existing directors were removed and were replaced by nominees of

the reclaimer. In May 2015 the reclaimer was appointed chairman of the company.

Investigation by the Panel and proceedings before the Hearings Committee and Takeover

Appeal Board

[20] Thereafter the Panel Executive investigated allegations that the reclaimer had acted

in concert with Messrs Letham, Taylor and Park, and that those acting in concert had

acquired more than 30% of the voting rights in Rangers, thereby triggering rule 9 of the

Code. The background to the acquisition of shares on 31 December 2014 and 2 January 2015

was investigated at length. The investigation was primarily concerned with establishing

that the reclaimer had acted in concert with Messrs Letham, Taylor and Park, but certain of

the findings are relevant to the two questions that are now live before the Court.

Page 12 ⇓

[21] So far as NOAL is concerned, the only ruling made by the Executive was that the

reclaimer had through NOAL submitted a requisition notice on 16 January 2015 requiring

Rangers to convene a general meeting to consider resolutions proposing the removal of the

four existing directors and the appointment of the reclaimer and two others as directors.

That ultimately occurred in 2015. At no point prior to the ruling by the Executive did the

reclaimer raise any issues relating to the role or status of NOAL; nor did he produce any

evidence that, in the acquisition of Rangers shares, NOAL had exercised judgment

independently of him or had acted otherwise than as a corporate vehicle under his control.

On the contrary, contemporaneous emails from the reclaimer in relation to the acquisitions

referred to the reclaimer himself and not to any trust established by him. The status of

NOAL was raised for the first time by the reclaimer on 21 October 2016. By that time the

Executive had given its ruling and the reclaimer had requested a review of the ruling by the

Hearings Committee. The reclaimer was informed that NOAL was entitled to apply to the

Committee to be heard on the review, but no such application was ever made. The

significant point for present purposes is that at the time when matters were considered by

the Panel’s Executive the reclaimer did not suggest that he had no control over the shares

because they were under the control of NOAL as an independent entity.

[22] In the proceedings before the Takeover Appeal Board the reclaimer did assert that

NOAL was a vitally interested party and that it should be invited to attend the hearing; he

submitted that the whole process was absurd and meaningless if NOAL continued to be

excluded. The reclaimer was invited to liaise with NOAL to have it contact the Board at the

earliest opportunity if he wished to pursue its attendance. The reclaimer maintained that he

had no standing to represent NOAL and that NOAL did not want to be represented by him.

The hearing nevertheless took place. In its decision the Board considered the status of NOAL

Page 13 ⇓

and its interest in shares and voting rights in Rangers. The Board noted that NOAL had not

sought to make any application to be heard or made any submissions. The reclaimer had

submitted to both the Hearings Committee and the Board that the shares were owned by

NOAL; that he had never been a director of NOAL; and that he was not in a position to

advance its interests. The Board concluded that NOAL’s holding of the shares in Rangers

did not assist the reclaimer in his appeal against the ruling of the Panel Executive that he

was acting in concert with Messrs Letham, Taylor and Park in the acquisition of the shares.

First, it was not correct to suggest that NOAL had been excluded from proceedings. If

NOAL wished to give evidence or makes admissions about the acquisition of the Rangers

shares, either the company or the reclaimer could take the necessary steps or make

applications which would enable NOAL to make submissions.

[23] Secondly, so far as the substantive position was concerned, it was clear from the

evidence accepted by the Panel Executive, the Committee and the Board that it was the

reclaimer who communicated with Mr Letham, decided on the price for the share purchases,

contacted Cantor Fitzgerald to effect purchases and, within a day of the decision to

purchase, caused his family trust to pay for the shares and put them into the name of NOAL.

In those circumstances

“[t]he presumption usually applied in practice by the Takeover Panel and now

codified in point (5) of the definition of ‘Acting in Concert’ is that a person and a

related trust are acting in concert with each other. The same definition deems a

person to be acting in concert with an ‘affiliated person’ which, in turn, is defined to

include an undertaking over which the person exercises dominant influence or

control. In this case, over and above the presumption and the deeming, the

contemporaneous evidence makes it plain that neither NOAL nor the family trust

had any active role in the acquisition of the shares” (paragraph 84; and see

paragraph [10] above).

Page 14 ⇓

Thirdly, the reclaimer had not produced any evidence, documentary or otherwise, to

establish that NOAL, rather than the reclaimer himself, was the party who had been

ultimately responsible for the acquisition of the shares.

[24] The foregoing evidence relates to the existence or otherwise of a concert party, but it

is significant for present purposes because it amounts to a clear holding by the Takeover

Appeal Board that NOAL was not truly independent of the reclaimer but was rather under

his control, at least at a practical level. That is a matter of considerable importance in

relation to the first of the grounds of appeal that are now advanced.

[25] The Takeover Appeal Board concluded that it was the reclaimer who acted in concert

with Messrs Letham, Taylor and Park in the acquisition of shares in Rangers on

31 December 2014 and 2 January 2015 (paragraph 102). Reasons were given for this

conclusion which are in part material to the present appeal (paragraph 103). The material

provisions are as follows:

“(1) There are a number of ways in which persons may act in concert … [T]he

nature of ‘acting in concert’ called for a wide definition to cover, for example, tacit

understandings or ‘nods and winks’ between persons co-operating to purchase

shares in a company in order to obtain control of it.

(2) Direct evidence of what has passed between those alleged to have acted in

concert is rare. The existence and nature of an understanding between persons and

whether their actions were concerted or co-incidental are often matters calling for the

use of common sense and relevant experience in making reasonable inferences from

all the surrounding circumstances in evidence in the case. Those circumstances

include the personal and working relationships between those who deny that they

were acting in concert and their conduct.

(3) In this case there are in fact in evidence contemporaneous documents, mostly

emails, passing between Mr King and Mr Letham. Those documents, when read in

the context of their earlier cooperation in activities concerning Rangers … are

material to the key issue of whether those acquisitions were (a) concerted or (b)

coincidental.

…

(9) We agree with the Committee that ‘it is clear from Mr Letham’s emails to

Mr King of 27 and 31 December 2014 that the two of them were co-operating directly

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with a view to purchasing a block of shares which would affect a change of control’

and that, when placed in the context of the consortium funding and blocking stake

proposals in October 2014, ‘the case for concluding that Messrs Letham and King, at

least, were acting in concert in purchasing the relevant shares becomes

overwhelming’.

(10) In the process of purchasing shares in Rangers from three selling institutions

[the sellers to NOAL] down to and including 2 January 2015 … Mr King acted and

gave instructions as the acquirer of the shares. In emails of 31 December 2014 to

Cantor Fitzgerald he informed them that funds were freely available and he first

introduced NOAL in connection with the purchase with the words ‘we now need to

get an account opened on behalf of NOAL with Cantors and provide the various

KYC docs etc …’. The completed internal Cantor Fitzgerald KYC (Know Your

Client) document produced to the Board at the hearing of the appeal named NOAL

as the client, but described the ‘deemed purpose of the business as to buy shares in

RANGERS INTERNATIONAL FOOTBALL CLUB PLC for Mr Dave King.’ On the

same day Mr King sent an email to Sovereign Trust … about the shares being held by

NOAL.

(11) In negotiating for the shares and instructing that the shares be put into the

name of NOAL Mr King communicated with others and acted as if NOAL, Sovereign

Trust and the Glencoe Investments Trust were under his control in relation to the

Rangers shares and so he was acting in concert with them and they with him.

(12) In any event, by virtue of the operation of the presumption previously

applied [as set out at paragraph [23] above] and now included in the Code, NOAL,

Sovereign Trust and Glencoe Investments Trust are either presumed or deemed to

have acted in concert with Mr King and, via Mr King, with those other persons with

whom he had an understanding and was acting in concert ie Messrs Letham, Taylor

and Park”.

The foregoing findings are directed to the existence or otherwise of a concert party including

the reclaimer, but they disclose in very clear terms that NOAL, as well as Sovereign Trust

and Glencoe, was acting under the reclaimer’s directions. That is wholly inconsistent with

the submissions that NOAL, Sovereign Trust and Glencoe were independent of the

reclaimer and that the reclaimer had no power to direct NOAL in relation to the acquisition

of Rangers shares, including the acquisition of shares ordered by the Panel Executive and

confirmed by the Hearings Committee and the Board.

Page 16 ⇓

Directions given by the Panel, the Hearings Committee and the Takeover Appeal Board

[26] On the basis of the foregoing findings the Executive of the Panel decided that the

reclaimer had been part of a concert party, and directed that the reclaimer should make a

mandatory offer for the whole of Rangers’ issued share capital that was not already owned

by him or by the other members of the concert party, at a price of 20p per share. That

decision was issued on 7 June 2016. It was reviewed by the Hearings Committee and in due

course affirmed, by a decision dated by December 2016. The reclaimer appealed to the

Takeover Appeal Board, which also affirmed the decision of the Panel Executive, on

30 March 2017. Proceedings before the Hearings Committee entailed a full review of the

Executive’s decision, and the proceedings before the Takeover Appeal Board amounted to a

full appeal, in the form of a rehearing of the case against the reclaimer.

Proceedings in the Outer House

[27] Following the decision of the Takeover Appeal Board the Panel raised the present

proceedings in the Court of Session. They take the form of a petition, presented in terms of

section 955 of the Companies Act 2006, for an order enforcing the decisions of the Panel, the

Committee and the Board. After hearing submissions the Lord Ordinary on 22 December

2017 pronounced an order ordaining the reclaimer to announce in accordance with the

Code, within 30 days of the date of the Court’s interlocutor, and thereafter to make a

mandatory offer at a price of 20p per share for all of the issued ordinary share capital of

Rangers not already controlled by him or by Messrs Letham, Taylor and Park. He held that

the Court had a discretion to refuse to grant an order sought under section 955 of the 2006

Act, essentially on the basis of the wording of the statutory provision. He then considered

the two substantive arguments advanced on behalf of the reclaimer, which are outlined in

Page 17 ⇓

paragraph [5] above and rejected them. A reclaiming motion has been enrolled against that

decision.

[28] As we have already indicated, the Panel no longer contends that in considering an

application under section 955 the court has no discretion as to whether or not to grant a

remedy. Consequently two arguments remain live. The first of these is the reclaimer’s

contention that the funds used to purchase the Rangers shares were trust monies held by

NOAL for the purposes of a Guernsey trust, with the result that the reclaimer is himself

unable to access sufficient funds to make the mandatory offer. The second argument is that

the orders made by the Hearings Committee and the Takeover Appeal Board would serve

no practical purpose because the price specified in the order was too low to attract interest

from other shareholders. That price was 20p per share, but Rangers shares were currently

trading at a price of approximately 25p per share. For this reason the reclaimer submits that

offering to purchase shares at that price would be a pointless, but costly, exercise, and a

remedy under section 955 should be refused in the exercise of the court’s discretion. We will

consider each of these arguments in turn.

Alleged inability of reclaimer to access funds

[29] In view of the detailed findings in fact made by the Hearings Committee and on

appeal by the Takeover Appeal Board, we are of opinion that the reclaimer’s first argument

should be rejected. Those findings are binding on the court. Proceedings under section 955

are not appellate in nature. They do not involve a rehearing of the issues before the

Hearings Committee and the Takeover Appeal Board. It is possible that, if the reasoning of

the Committee or the Board disclosed serious errors on its face, the court might have power

to interfere with the findings of the Committee and the Board. In the present case, however,

Page 18 ⇓

it was not suggested that there were any such errors; indeed, the reasoning in both the

ruling of the Committee and the decision of the Board appears to us to be fully justified on

the basis of the information disclosed in those documents. Consequently the enforcement

procedures must be conducted on the basis of the findings of fact made by the Committee

and the Board.

[30] Those findings included the following. First, the reclaimer and Mr Letham were co-

operating directly to purchase a block of shares that would effect a change of control over

the Rangers board (Board’s finding (9)). Secondly the reclaimer gave instructions as the

acquirer of the shares; on 31 December 2014 he informed Cantor Fitzgerald that funds were

freely available for the purchase of shares, and NOAL were introduced to Cantor Fitzgerald

on the basis that they would participate in the acquisition of the shares (Board’s

finding (10)). Thirdly, in negotiating for the shares and instructing that they be put in the

name of NOAL the reclaimer communicated with others as if NOAL, Sovereign Trust and

the Glencoe Investments Trust were under his control in relation to the Rangers shares

(Board’s finding (11)). This finding appears to us to be of great importance; it demonstrates

that the reclaimer was in practical charge of NOAL, Sovereign Trust and the Glencoe

Investments Trust. We would add that there is no indication in the findings in fact of either

the Committee or the Board that any person other than the reclaimer was in charge of or

otherwise directing the activities of those three entities. We also note the finding of the

Board (paragraph 84) that “the contemporaneous evidence makes it plain that neither

NOAL nor the family trust had any active role in the acquisition of shares”. That strongly

negatives any argument that the reclaimer did not exercise control over NOAL or Glencoe.

[31] Furthermore, it is obvious that funds were made available to achieve the acquisition

of 14.57% of the issued shares in Rangers on or immediately after to January 2015, at a price

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of 20p per share; that followed the discussions referred to by the Board between the

reclaimer and Mr Letham. That of itself indicates that funds were readily available to

achieve the reclaimer’s purposes. Finally, the Takeover Appeal Board notes

(paragraph 103(14)) that the reclaimer had had ample opportunity to disclose documents

and provide other evidence to rebut any inference that he was acting in concert with the

other members of the concert party, but he did not do so. Evidence that the funds used to

acquire the shares were not under the reclaimer’s control but were rather controlled by other

entities, in particular NOAL, would plainly be relevant to rebut the inference that the

reclaimer was a member of the concert party; effective control over the funds used to acquire

shares is clearly a vital element in the acquisition. Nevertheless no such evidence was

produced. That supports the view that the reclaimer is the person who had effective control

over the funds used to acquire the shares.

[32] In applying the Code, it is in our opinion important that the Panel, and likewise the

Hearings Committee, the Takeover Appeal Board, and ultimately the court, should have

regard to the reality and the substance of any takeover transaction. The need for such an

approach is apparent from the Introduction to the Code (see paragraph [9] above), where it

is stated that the rules in the Code are not expressed in technical language and are to be

interpreted to achieve their underlying purpose; their spirit is to be observed as well as their

letter. The Introduction further stresses the fundamental purpose of the Code in relation to

takeovers; all shareholders of the same class of shares must be treated equally, and in the

event that a person acquires control of a company the other shareholders must be protected.

[33] The foregoing considerations are of particular importance in cases such as the

present. A range of legal entities, including trusts and companies, may be used to acquire

and hold shares in a company and to provide the funds for such acquisition. Complex

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arrangements may be set up that are intended to disguise who has true ownership and

control, and who has truly provided the funds used to acquire shares. If the Code is to be

properly administered, it is in our view essential that the Panel should be able to pierce

through the structures that are used to hold shares and to finance their purchase in order to

discover the person or persons who are truly in control of an offer to acquire shares and to

identify the true source of and control over the funds that are used in making the purchase.

If structures involving trusts, companies and other intermediaries are used, the Panel, and

likewise the Committee and the Board, should be able to have regard to the substance of the

transaction rather than formal structures that have the effect of concealing the reality. This

is reflected in section C1 of the Code, which provides that a person, the person’s close

relatives, and the “related trusts” of any of them are presumed to be persons acting in

concert. While that provision is not directly relevant to the issues before the Court, it

illustrates a point of more general application: in applying the Code the Panel, together with

the Committee, the Board and the courts, should have regard to the true structure and

purpose of a transaction, disregarding the interposition of trusts and similar entities to

conceal the reality of control and funding.

[34] In this connection, the Takeover Appeal Board observed (paragraph 103 of its

decision) that persons may act in concert in a range of different ways, including tacit

understandings or “nods and winks” between persons who cooperate to purchase shares in

order to obtain control of a company. Direct evidence of what has passed among those

alleged to have acted in concert is rare. To discover the reality of a transaction, and in

particular whether it was concerted, common sense and experience must be used in making

reasonable inferences from the surrounding circumstances that emerge in evidence. In our

opinion exactly the same considerations apply when the availability and source of funds

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must be determined. In the present case, the findings in fact demonstrate clearly in our

opinion that it was the reclaimer who had true control over the funds used to acquire the

Rangers shares that were placed in the name of NOAL. On that basis, it is probable that the

reclaimer will continue to have control over the funds of NOAL, and indeed other assets of

the Glencoe Investments Trust. We accordingly reject the contentions that the reclaimer is

unable to access funds held by NOAL or Glencoe and that he is accordingly unable to pay

the requisite price if the offer ordered by the Panel should be accepted by shareholders. On

this basis the first argument for the reclaimer must fail.

Whether the order would serve a practical purpose

[35] The second argument for the reclaimer is that the order of the Panel, affirmed by the

Hearings Committee and the Takeover Appeal Board, would not serve any practical

purpose because it requires an offer at a price of 20p per share, when Rangers shares are

currently trading at approximately 25p per share. In our opinion that argument must also

be rejected.

[36] The primary reason is that the Code in general, and rule 9 in particular, is of great

importance in the practical operation of the system of corporate governance. The Panel is

charged with the administration of the Code. Consequently, if an order is made by the

Panel for the acquisition of shares, the court should enforce it in the absence of exceptional

circumstances. We consider below the sort of circumstances that might be exceptional.

Nevertheless, the norm is enforcement. In this connection it is significant that the Code is

not concerned merely with regulatory disputes between the Panel and those attempting to

take over a listed company. It is concerned with the protection of the whole of the existing

shareholders in such a company, and ensuring that in the event of a takeover offer the

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interests of all shareholders are protected. That is clear from the terms of the Directive on

Takeover Bids, which are summarized at paragraph [7] above. In particular, recital (9) of the

Directive emphasizes the importance of protecting shareholders, in particular those with

minority holdings, when control of a company has been acquired, and article 5 of the

Directive is to similar effect. The Code itself provides in paragraph 2(a) that its principal

purpose is to ensure the fair treatment of shareholders in an offeree company, so that such

shareholders may decide on the merits of a takeover and may be afforded equivalent

treatment by an offeror. As that paragraph indicates, a fundamental consideration is

preserving “the integrity of the financial markets”. These considerations are discussed in

paragraph [8] above; they appear to us to be of fundamental importance to the need for strict

enforcement of article 9 of the Code. This is an elementary matter of fairness; otherwise a

takeover offer might benefit a selected group of shareholders. Moreover, when a company

is taken over and new management is put in place, individual shareholders may not care for

the new management and may wish to realize their shareholdings. The Code ensures that

they are able to do so, at the same price as that offered to the shareholders who have already

accepted the takeover offer.

[37] We have suggested that in exceptional circumstances the court might decline to

enforce an order made by the Panel. “Exceptional circumstances” will, we think, almost

invariably result from developments that have occurred after the 30% shareholding has been

acquired. The situation that existed when the initial offer was made, and any developments

prior to the time when 30% was acquired, should be reflected in the offer, and it is that offer

that must be extended to other shareholders. Examples of exceptional circumstances might

include the appointment of liquidators or the imposition of some other insolvency regime.

In general, however, it is only events after the acquisition of 30% of the shares that could

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justify non-enforcement. In the present case no such events were suggested on behalf of the

reclaimer.

[38] Apart from the importance of enforcing the Code, it cannot in our opinion be said in

the circumstances of the present case that the price offered to minority shareholders will

necessarily be decisive. The reclaimer’s argument on this point was considered by the

Takeover Appeal Board and rejected, and weight must be placed on their view. Moreover,

the difference in price between the 20p specified in the offer and what is said to be the

current price of 25p is not great, and some shareholders may be anxious to realize their

shares quickly and easily. Furthermore, shareholders in a football club are frequently driven

by non-economic considerations. In these circumstances we do not think that it could be

said that the offer ordered by the Panel will serve no practical purpose.

Form of order

[39] The Panel’s Executive ruled on 7 June 2016 that the reclaimer must make a

mandatory offer in accordance with rule 9 of the Code for all of Rangers’ issued share capital

not already owned by him or by Messrs Letham, Taylor and Park; and that the mandatory

offer at 20p per share should be announced after 4 July 2016 and no later than 1 August

2016. That ruling was of course reviewed by the Hearings Committee, which on 5 December

2016 affirmed the decision of the Panel Executive, subject to the qualification that the offer

for Rangers shares was to be announced within 30 days of the Committee’s ruling (by

4 January 2017). That decision was appealed to the Takeover Appeal Board, which on

30 March 2017 affirmed the Executive’s decision and directed an offer for shares within

30 days of the Board’s decision (by 12 April 2017). It is that decision that the Panel seeks to

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enforce in the Court, subject to an extension of the time within which a mandatory offer

must be made. As we have already noted, the Lord Ordinary on 22 December 2017

pronounced an order in similar terms to the order of the Takeover Appeal Board, except that

the time for making an order was extended to a period of 30 days from the Court’s

interlocutor and the shares were designed as all the issued ordinary share capital of Rangers

“not already controlled” by the reclaimer and the other members of the concert party.

[40] At the hearing before us counsel for the reclaimer pointed out that a substantial

number of shares, amounting to 14.57% of the total, are held by NOAL, and that in view of

the various rulings that are under consideration it would not be appropriate for the

reclaimer to make an offer for these shares. We agree with that contention, although we

think that the problem is technically dealt with by the form of interlocutor pronounced by

the Lord Ordinary, which referred to control rather than ownership. Nevertheless, to put

matters beyond doubt, we propose to amend the operative ruling in such a way that the

reclaimer is obliged to make a mandatory offer for the whole of the shares in Rangers not

held by himself, by NOAL, by Mr Letham, Mr Taylor or Mr Park. Such an offer is to be

made prior to a date 30 days after the date of the interlocutor to which this opinion relates.

[41] Subject to the foregoing modification in the order, we will refuse the reclaiming

motion and pronounce an order in the terms indicated.