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Company Law Reform Bill [HL]

The amendment raises an important question about the operation of irrevocable undertakings. We recognise that such agreements are commonplace, and that they can help a bidder to act with confidence, knowing that his bid has a stronger chance of success because he knows that support for the bid can be guaranteed from those who have entered into such agreements. We understand that the amendment is designed to test whether the operation of these agreements will be undermined by the operation of breakthrough provisions in respect of a company which has chosen to opt in to the provisions. We cannot exclude agreements which aim to secure that the holder will accept a takeover bid in the way proposed by the amendment. That would not be in accordance with the directive’s provisions. Where does that leave irrevocable undertakings? I recognise that that question remains. In the case where only one bid is made, irrevocable undertakings between an offeror and a shareholder would not operate any differently than at present. A more difficult situation arises when a rival bidder has entered the marketplace. Irrevocable undertakings could place some restriction on transfer of shares to a rival bidder. Where they do, the opt-in provisions would invalidate such agreements. If the original offeror had suffered a loss in that case, he would have the right to apply to the court for compensation, because, in accordance with the requirements of the directive, we have made provision for compensation at Clause 643(5). Shareholders can consider the effect on the operation of irrevocable undertakings when they are contemplating whether or not to opt in. I have tried to give the noble Lord some comfort in respect of how irrevocable undertakings would operate, but to accept the amendment would be inconsistent with Article 11.