---

Company Law Reform Bill [HL]

moved Amendment No. A162C:"Page 310, line 37, after ““2004”” insert ““other than an agreement intended to secure that the holder will accept a takeover bid for the company””" The noble Lord said: We are still on Clause 643. This amendment inserts some additional wording into subsection (3)(a). As required by Article 11 of the takeovers directive, this clause allows contractual restrictions entered into either between two shareholders of a company or between the company and a shareholder to be broken through if a bid is made from an opted-in company. A bidder will often seek in advance what are known as irrevocable undertakings to accept its offer from shareholders in the target company. The shareholders undertake that they will accept the bid, usually so long as specified conditions have been met. In some cases shareholders are permitted to withdraw their undertaking to accept if a higher offer is made. That is obviously a matter for commercial negotiation between the parties to the undertaking. This is what is known in the trade as a ““hard irrevocable”” and a ““soft irrevocable””, the hard irrevocable being, as its name implies, an irrevocable irrevocable, while a soft irrevocable means that if you have a bid more than 25 per cent above the level at which the irrevocable has been given, the accepter can withdraw his acceptance and transfer his acceptance to the higher bid. Where a bidder has also bought shares in the target company, the clause would permit such undertakings, which are likely to satisfy the provisions of Clause 643(2), to be broken through so that they would effectively become meaningless. Such agreements should clearly be allowed to stand, provided they do not fall foul of the mischief that Article 11 is trying to prevent; namely, that a bidder is put at a disadvantage in trying to take control of the target company because of agreements between shareholders that impose restrictions on share transfers or the exercise of voting rights. That clearly cannot be the case if the bidder is a party to such an agreement, and such agreements should be carved out of this clause. That is what this amendment seeks to do. I beg to move.