Problems Encountered By Bidders in Acquiring A Major Stake in A Listed Company in Pakistan and How the UK Takeover Code in Letter and Spirit Can Provide Solutions

PROBLEMS ENCOUNTERED BY BIDDERS IN PROBLEMS ENCOUNTERED BY BIDDERS IN ACQUIRING A MAJOR STAKE IN A LISTED COMPANY IN PAKISTAN AND HOW THE UK TAKEOVER CODE IN LETTER AND SPIRIT CAN PROVIDE SOLUTIONS By Ayesha Shaikh, Attorney-at-law INTRODUCTION Takeover and merger activity is still in its infancy in Pakistan' due in part to the structure of the corporate sector. Many listed public companies are owner-managed entities with over 51% of the shares being held by sponsor shareholders. Listing on the stock exchanges enables these entities to access funds which may otherwise not be available from commercial banks (particularly after the world financial crisis in 2008) or shareholders, but still retain management control. Big corporations run by professional management teams whose actions are vigilantly scrutinized by independent 'public' shareholders2, to ensure, for example, maximum dividend payouts and increase in share value are the exception in Pakistan and generally (though not always) confined to multinational companies ("MNCs") and major domestic business and industrial groups3. Before promulgation of the Listed Companies (Substantial Acquisition of Voting Shares and Takeovers) Ordinance, 2002 (the "Pakistan Takeover Ordinance"), there was no specific legislative code dealing with takeovers and substantial acquisitions, and transfer of shares of a listed company was primarily regulated under the principal companies legislation, the Pakistan Companies Ordinance, 1984 (the "Pakistan Companies Ordinance")4. The Pakistan Companies Ordinance required shareholders with more than 10% of equity securities in listed companies to disclose any changes in their beneficial ownership in the securities to the regulatory authority empowered by the legislation to administer and enforce its provisions, the Securities and Exchange Commission of Pakistan (the "SEC Pakistan")5. There was no restriction or prohibition on the acquirer purchasing a substantial shareholding percentage or control in a company, so it was possible for an acquirer to build up stakes 'on the quiet' without the existing management being aware that legal control (i.e. over 50% + 1) in the target had passed to another entity or group. The disadvantage from the substantial acquirer's point of view was that there was no legal right for the acquirer to force a new election of directors prior to the expiry of the three year term of the incumbent board of directors of the target if the target board was hostile to the acquisition and was not willing to accommodate the acquirer's representation on the board during the tenure of the existing board6. In the past, hostile target boards had employed various measures to delay or prevent the holding of a general meeting for election of directors where changes in shareholding ownership were likely to result in election of nominee directors of the new group of shareholders. This situation arose in the landmark case of Adamjee Insurance Company Limited (the "target") which is regarded by some commentators to be the catalyst for the promulgation of the Pakistan Takeover Ordinance7. The Mansha business group had gradually acquired nearly 30% shares in the Target indirectly through its subsidiary, Muslim Commercial Bank Ltd. (through proxies this figure was closer to 40%). The incumbent board of directors representing a rival business group, the Adamjee group, had obtained an interim injunction restraining the Mansha group from interfering in management of the target or exercising their rights to elect directors in any manner. The Chairman of the SEC of Pakistan at the time, Dr Tariq Hassan stated that the impasse was caused because there was no law to deal with a 'forceful takeover8. The interim injunction was subsequently vacated upon appeal to a divisional bench of the High Court and later by the Supreme Court (following an appeal by the Adamjee group), with the Supreme Court9 ruling that: "It does not stand to reason that although the respondents [Mansha group] had validly and lawfully acquired the shares, yet they could be restrained from exercising their voting and other rights as shareholders and from taking any part in the affairs of the petitioner [target] company.... The order passed by the [lower court granting the injunction] did not take a correct view of the matter and had resulted in usurpation of office of the Directors of the company by such persons whose term had already expired thereby depriving the shareholders to exercise their vested rights in accordance with law." During the proceedings the Pakistan Takeover Ordinance was passed in 2002 which, in line with the SEC Pakistan's call to address hostile takeovers, imposed an obligation on the target directors to transfer the acquirer's shareholding into its name, and allow such changes on its board so as to give the acquirer proportionate representation or control notwithstanding anything in the Pakistan Companies Ordinance10. In addition, it gave an acquirer who had secured 30% or more of the voting shares the right to serve notice on the target board to hold new election of Directors (if the target board did not comply with this statutory obligation) within 30 days of the notice11. Whilst, this has promoted one of the stated objects of the Pakistan Takeover Ordinance namely, to provide a transparent and efficient system for substantial acquisitions and takeovers, other problems have arisen in implementation. As revealed by past cases decided by the SEC Pakistan and judgments of the superior Courts involving target listed companies who are owner-managed (i.e. where the sponsor shareholders hold more than 5 1 A of voting shares), enforcement measures provided by the law have not proved effective nor have they always been executed in an efficient or consistent manner to protect the equity investment of minority shareholders. This article identifies shortcomings/deficiencies in the Pakistan Takeover Ordinance and regulations issued by the SEC Pakistan and the impact the Pakistan Takeover Ordinance has had on takeover activity in Pakistan since its promulgation. These shortcomings/problem areas are reviewed in the light of the analogous provisions of the UK Takeover Code. As the economies of both countries are poles apart at both the macro and micro levels, this article does not recommend a wholesale adoption of the UK Takeover Code rules in Pakistan which would clearly be at variance with the peculiarities of the Pakistan economy and structure of the corporate sector, but suggests changes in the overall approach to regulation as well as an amendment to provisions governing specific aspects of a takeover/substantial acquisition which have created hurdles in promoting equality and fairness amongst investors in the takeover/acquisition process. Part 1 THE PAKISTAN REGULATORY FRAMEWORK FOR TAKEOVERS AND SUBSTANTIAL ACQUISITIONS A. Key Provisions of the Pakistan Takeover Ordinance. The Pakistan Takeover Ordinance provides the basic regulatory framework for the regulation and control of the substantial acquisition of voting shares and takeovers of listed companies in Pakistan. The Pakistan Takeover Ordinance only applies to substantial acquisitions or takeovers of companies listed on a stock exchange in Pakistan. Section 4 Public Disclosure requirements The Pakistan Takeover Ordinance requires anyone acquiring voting shares which result in them holding more than 100/0 in a' public listed company (the "Target") to make a disclosure of the acquisition to the Target and the stock exchanges no later than 2 working days from the acquisition, Section 5 and 6 Public Offer Requirements Under section 5, a public offer is required to be made if any person (the "Acquirer") acquires shares in the Target which exceed 25% of its voting interest or "control' of the Target12. The expression 'control' is defined to include the right to appoint majority of directors or to control management or policy decisions13. An Acquirer may be an individual (natural person, incorporated body or other legal entity, including another company), including a foreign national or corporation. Control or acquisition of more than 25 /o of the voting shares may be acquired by the Acquirer independently or by "acting in concert" with other persons or entities14, An Acquirer will be deemed to be acting in concert with a person if the latter "co-operates" with the Acquirer to acquire voting shares or control of the Target. Section 6 also requires a public offer to be made if an Acquirer, who has already more than 25% voting shares in the target but less than 51% or control, acquirers any additional voting shares or control of the Target. The Pakistan Takeover Ordinance exempts a person from making a public offer for acquisitions to which section 5 or 6 would otherwise apply. This includes allotment of shares pursuant to an underwriting agreement, a scheme of arrangement, sale of shares in consequence of privatisation, and gifts of shares to the transferee's relatives (i.e. without monetary consideration). Disclosure of such transactions to the target and stock exchange is still required to be made under section 4. The Pakistan Takeover Ordinance together with the Regulations framed thereunder sets out the Acquirer's obligations during the takeover process. The takeover process is essentially divided into two phases; in the first phase the Acquirer is required to issue a public announcement of intention to acquire voting shares in excess of the thresholds in section 5 and section 6 (the "Public Announcement of Intention"). The second phase involves the making of a public offer for a prescribed percentage of the remaining shares in the Target (the "Public Offer"), which can be accepted by the Target shareholders to whom it is addressed (the "Target Shareholders") in the prescribed manner. The offer period commences from making of a public announcement of the Public offer (the "Public Announcement of Offer") in the newspapers in the prescribed manner (the "Publication Date"), and will end on the date of closure of the prescribed acceptance period (or earlier withdrawal of the Public Offer), which cannot be more than 60 days from the date of the Publication Date. The Public Announcement of Offer must be made no later than 180 days after the issue of the Public Announcement of Intention by the Acquirer. First Phase: Public Announcement of Intention 1. The Public Announcement of Intention should contain the information prescribed in the Pakistan Takeover Ordinance and only be made after the 'most careful and responsible consideration' by the Acquirer15. Two (2) days before publication in the newspapers, the Public Announcement of Intention should be sent to all the stock exchanges on which the Target's securities are listed, so that it can be notified on the notice board and on the automated system thereof, and to the Target at its registered office for being placed before its board of directors16. 2. Restrictions on the Target conducting certain business transactions are imposed from the date the Public Announcement of Intention is published in the newspapers17. These restrictions are fairly onerous and designed to prevent the Target, in case the Acquirer or its bid is not viewed favourably, to either prevent a takeover from being possible (for example by issuing and allotting new shares) or making the Target of less value to the Acquirer (disposal of certain business assets which the Acquirer may be interested in)18 The SEC Pakistan has no power to grant a dispensation from these restrictions. Regulation 7 contains the same restrictions imposed on Target Under section 14 of Pakistan Takeover Ordinance. Whilst the section 14 restrictions are binding on the Target from the Publication Date (i.e. during the Offer Period), the restrictions under Regulation 7 start much earlier, namely, from the date of the Public Announcement of Intention. Second Phase: Public Announcement of Offer 3. Before the Publication Date, the Acquirer must appoint a bank, financial institution, or a member of a. stock exchange (who is not an associate, or part of the same group as the Acquirer or the Target), as the manager to the offer (the "Manager") and furnish security to the Manager in the prescribed manner19. The Manager's role20 is to ensure the Acquirer has financing in place and is otherwise able and willing to implement the Public Offer21. These responsibilities are crystallized by the issue of a due diligence certificate by the Manager to the SEC Pakistan before the Public Offer. 4. At least two (2) days before the Publication Date, the Public Announcement of Offer must be sent by the Manager to the SEC Pakistan. The Public Announcement of Offer should also be sent by the Acquirer to the stock exchange(s) on which the Target is listed for being notified on the notice board and on the automated system thereof, and to the Target at its registered office for being placed before its board of directors22. Notice to the Commission will give it an opportunity to examine its contents to ensure that it discloses all required information regarding the proposed public offer to the Target Shareholders and the market in general, and that the Public Offer will be in conformity with the earlier Public Announcement of Intention. 5. The Public Announcement of Offer must contain prescribed information23. This involves making extensive disclosures by the Acquirer relating to proposed public offer (including price), and the Acquirer's future plans for the Target. Financial information relating to the Acquirer and every material contract executed in the last 2 years must also be included. Any arrangements it may have with the Target's directors regarding compensation for loss of office should also be disclosed. Under section 1 3(6) if the Public Offer is conditional upon a minimum level of acceptances, such minimum level shall not be more than thirty-five per cent of the remaining voting shares. The share price and size of the Public Offer are to be fixed at levels prescribed by the 2008 Takeover Regulations as amended24. 6. Before amendments to the 2008 Takeover Regulations the Public Offer had to be for at least 90cY0 of the remaining voting shares of the Target (excluding shares acquired through separate agreement)25. This was revised downwards by amendments made in 2009 to 50 /0 of the remaining voting shares26 (excluding shares acquired by Acquirer through separate agreement). 7. As regards the offer price, amendments in 2009 to the 2008 Takeover Regulations were reportedly made by the SECP in light of feedback from the corporate sector following stakeholder consultations organised by the SEC Pakistan "to remove the hurdles faced during the acquisition process and to encourage takeovers of listed companies." Before the 2009 amendments the Acquirer was free to determine the offer price in line with investor demand in the market, for example, through a book-building process provided this was not lower than any of the levels determined in accordance with 5 different formulations set out in the 2008 Takeover Regulations27, which included the- last 6 months average price quoted on the stock exchange. After the 2009 amendments, the offer price could only be set at the level which was highest amongst those same 5 different formulations. 8. Within two (2) working days after the Publication Date, the Acquirer must send the draft offer letter through the Manager to the SEC Pakistan in the form prescribed by regulations28 which should be accompanied by the Due Diligence Certificate issued by the Manager29. The draft offer letter should be simultaneously sent to the stock exchange(s) and Target board. The actual offer letter is required to be sent to the Target Shareholders no later than the 39th day after the Publication Date30. The Offer Letter is not required to contain any of the information relating to the Target or the Acquirer which is to be in the Public Announcement of Intention. Accordingly for a shareholder to obtain a full picture of the offer terms it is important for him to have access to the contents of the Public Announcement. 9. The Target's Shareholders may only accept the Public Offer during the 'acceptance period' by tendering their shares physically to the manager (or into a designated CDC account)31 The acceptance period commences on the 54th day after the Publication Date, and closes on the 60th day after the Publication Date (the "Closing Date"). Acceptance of a public offer cannot take place after the 60th day32. 10. Any competing bid, including first or subsequent competing bids must be made no later than 21 days after the Publication Date of the initial offer33. A bid is deemed to be "competitive" if the purchase price for Target shares is higher than the initial offer. In response, the initial Acquirer can revise its earlier offer or withdraw its bid altogether, provided that in case of a withdrawal, the Acquirer must obtain the prior consent of the SEC Pakistan34. The acceptance period for the initial public offer defaults to that of the subsequent bid, so that the acceptance periods for both start and end on the same dates (or if more than two Public offers have been made, acceptance periods for all the offers will start and end on the Closing Date of the latest competitive offer)35. 11. Consideration to the Target Shareholders who accepted the Public offer should be made no later than 30 days of Closing Date of the Public Offer. The SEC Pakistan can grant an extension if delay is due to non-receipt of any required statutory approval (for example, Competition Commission pre-merger clearance) provided the failure to secure regulatory approvals is not due to the willful default, neglect or failure of the Acquirer. 12. The Manager is required to send a report to the SEC Pakistan no later than 45 days after the Closing Date 'certifying compliance by the Acquirer of all provisions of the Pakistan Takeover Ordinance and its rules and regulations. From this period onwards, the focus shifts to the Target board who must now register the transfer of all securities acquired by the Acquirer in its name (whether under an agreement, open market or pursuant to the public offer), and allow such changes on the Target board as would give Acquirer proportionate representation or contro136. 13. The 2008 Takeover Regulations contain a detailed offer timetable in Schedule 8 which is binding on all the parties involved. B. Enforcement Powers of SEC Pakistan Penalties and disciplinary proceedings of the SEC Pakistan The SEC Pakistan has broad and extensive powers under the Pakistan Takeover Ordinance to deal proactively (suo moto) or upon receipt of complaints with contraventions of its provisions by appointing an enquiry officer under section 21 to investigate any suspected breach of Pakistan Takeover Ordinance or ascertain whether its provisions are being complied with. An enquiry officer appointed by the SEC Pakistan can investigate any party involved in a takeover/substantial acquisition, including the Target, its books, accounts, securities records, and other documents and require any such participant to provide reasonable access to their premises and facilities which are relevant in opinion of inquiry officer for conducting the enquiry37. If anyone refuses to comply with such directions or provide requested information, they can be fined upto Rs. 50 million38. After considering the findings of the enquiry officer, and communications from the Acquirer, Target, seller or Manager as appropriate on the said enquiry report, the Commission may under section 24 "direct them to take such measures as it deems to be in the interests of the securities market and for due compliance with the Takeover Ordinance and rules made thereunder"39. Section 25 of the Takeover Ordinance empowers the Commission, regardless of whether an enquiry has first been held, to direct; (a) any person not to further deal in any securities, (b) prohibit any person from disposing of any shares acquired in violation of the Takeover Ordinance, (c) any person to sell voting shares acquired in violation of the Ordinance, or (d) taking any action against any person as it may deem necessary. Section 26 empowers the SEC Pakistan to debarr any Acquirer or any persons acting in concert with it from acting as acquirers in any other takeovers for the next three years, disqualify the board or management of the Target for the next 2 years or impose a penalty upto fifty million rupees if anyone contravenes or the Pakistan Takeover Ordinance. Appeals against the orders of the SEC Pakistan in the first instance may be filed with the Appellate Bench of the Commission under section 33 of the SEC Pakistan Act. An aggrieved party may appeal against any order of the Appellate Bench comprising of two (2) Commissioners to High Court no later than sixty days from the Appellate Bench order40. The Commission has acknowledged in its decisions/speaking orders the breadth of its powers under sections 24 to 26 observing that they are to be applied to promote the main objective of the law which is the fair and equitable treatment of all investors and a transparent and efficient system for substantial acquisition of voting shares and control of listed companies41. Notwithstanding the Commission's recognition of its wide enforcement powers (which appears to have been endorsed by the superior Courts in the few judicial precedents which are available42), the Commission has adopted a conservative approach, advocating that its powers should be exercised sparingly keeping in view the specific circumstances of the entities involved, the possible adverse repercussions on the share price of the Target, and more generally investor confidence and inflow of capital into the securities markets in Pakistan43. In the leading case of United Sugar Mills44, a single Commissioner defended the wide scope of the SEC Pakistan's powers and observed they are needed to regulate a speculative market like Pakistan. The Indian case of Securities and Exchange Board of India ("SEBI") v. Alka Synthetics Ltd. AIR 1999 Gujarat 221 was cited in which the Gujarat High Court observed in relation to the SEBI's powers under the: "the SEBI has to regulate a speculative market wherein varied situation may arise and that all exigencies and situations cannot be contemplated in advance. Therefore, SEBI has been entrusted with the duty and function to take such measures as it thinks fit. Since measures cannot be laid down as a one-time exercise to be followed in defined cases, SEBI has to rise to the occasion for taking appropriate measures to combat the situations in the speculative market, which may or may not be conceived in advance. The Commissioner stated that the [Indian] Court held that "the power of SEBI under sections 11 and 11-B [equivalent to section 20 of SEC Pakistan Act] should be considered and interpreted in a way so as to see that the objects sought to be achieved by the Securities and Exchange Board of India Act are fully served rather than being defeated on the basis of any technicality". In coming to this conclusion, the Commissioner asserted that the Indian Court in the Alka Synthetics case (above) distinguished between penal and fiscal statutes and 'regulatory statutes' such as the Securities and Exchange Board of India Act stating that the latter is a comprehensive legislation which was enacted to give effect to reformed economic policy of the government. The Commissioner concluded that as the SEC Pakistan has to perform functions similar to SEBI [in respect of a speculative market] and has similar powers under Section 20 of the SEC Pakistan Act, "this decision is extremely instructive as to the powers that may be exercised by the (SEC Pakistan]. The dicta laid down in Securities and Exchange Board of India v. Alka Synthetics Ltd. AIR Gujarat 221 must be applied in order to protect investors in Pakistan as well." It is arguable that the Alka Synthetics case of the Gujrat High Court is distinguishable for several reasons. The case involved allegations of serious criminal conduct such as market rigging and market manipulation and the impugned measures were interim measures to preserve the subject-matter of the dispute until a final decision was taken, It remains debatable whether the SEBI could have adopted a similar approach involving contraventions of takeover laws. With regard to the imposition of the draconian remedy of impounding gain, the Gujrat High Court stated this was necessary in the public interest to send a signal to investors; "it shored up confidence of investors and maintained the integrity of the capital markets". Whilst such an approach is understandable in clear cases of fraud and mala fide conduct, exercise of such wide discretionary powers may be challenged as being arbitrary and lacking transparency by the Courts or even held to be violative of certain fundamental rights granted by the Constitution45 unless the regulator is equipped and perceived to be equipped with the capacity and In addition to the foregoing concerns arising from adoption of the approach of the Gujrat High Court by the SEC Pakistan in the United Sugar Mills case, it is also pointed out that the term 'speculative market' was considered by the Gujrat High Court to include all capital markets around the globe including the more developed markets of the UK, USA and the Far East because capital markets are by their nature 'speculative'. This, therefore, begs the question, that if specific punitive and regulatory measures can be prescribed and given statutory cover in these more advanced jurisdictions (see discussion below on the enforcement powers of the UK regulator of Takeovers, the Panel on Takeover and Mergers), there is no reason why this is not feasible in India and Pakistan. Rule-making powers of the SEC Pakistan Section 29 of the Pakistan Takeover Ordinance empowers the SEC Pakistan in consultation with the Federal Government to frame rules for carrying out the purposes of the Pakistan Takeover Ordinance. In addition, the regulator is empowered under section 29A to make regulations by notification in the official Gazette, without approval or consultation with the Federal Government46, provided these are not inconsistent with the Pakistan Takeover Ordinance and the rules framed under section 29 thereof47, and a draft of such regulations is published for eliciting public opinion not less than 15 days from publication48. The 2008 Takeover Regulations which prescribes the detailed provisions governing certain aspects of the takeover process (including setting out disclosures to be made to the Target shareholders by the acquirer, the Public offer timetable, and prescribing the terms of the public offer as to consideration, acceptance levels and offer size) were framed under section 29A according to the SEC Pakistan, after extensive stakeholder and general public consultation were elicited through publication of the draft regulations49. Section 29A provides that such regulations may provide for a contravention to be punishable with a fine. The regulatory scope of rules on the one hand which require prior consultation with the government and regulations under section 29A on the other hand which only require general public consultation have not been demarcated at all in the statute, so SEC Pakistan can potentially regulate entirely through regulations without seeking concurrence or approval of the government50. The SEC Pakistan may also from time to time issue such directives, codes, guidelines, circulars or notifications as are necessary to carry out the purposes of the Pakistan Takeover Ordinance, and the rules and regulations framed thereunder51. Section 29B does not provide that a violation of a directive, etc. under section 29B may be punishable with any penalties or sanctions. C. Compliance History under the Pakistan Takeover Code The compliance history of MNCs and other targets with a large public and institutional shareholder base has been very good notwithstanding there have only been a few takeovers of listed companies in recent years52. In 2012 to 2013 the writer is aware of only three acquisitions which were subject to the public offer requirements of the Pakistan Takeover Ordinance53. In all these cases the objective was to acquire more than 50% of the voting shares and management control of the target and bids for controlling stake were solicited by the Target's selling shareholders. Problems of compliance, and complaints from investors as to the harshness and even the unsuitability of the public offer requirement has arisen in cases where the objective of the acquisition was not to transfer management control of the target to the acquirer, but usually where acquisitions had been effected incrementally over a period of time by the acquirer54. PART 2 Comparisons with Takeovers in the UK 1. The UK Takeover Code on Takeovers and Mergers - Introduction 1.1 The UK Takeover Code on Takeovers and Mergers (Eleventh Edition) (the "UK Code") is made and administered by the Panel on Takeovers and Mergers (the "UK Panel"). The UK Code was given statutory basis and the UK Panel designated as its supervisory authority in 2004 after the EC Directive on Takeover Bids (2004/ 25/EC) ("EC Directive") came into force55. The rules of the UK Code and the UK Panel's enforcement powers under the UK Code were given statutory force under Chapter 1 of Part 28 of the Companies Act, 200656 ("UK Companies Act") after the UK Companies Act, 2006 was enacted. 2. The Regulatory Authority 2.1 In contrast to the SEC Pakistan, the UK Panel's main function is to supervise the conduct of takeovers and this supervisory authority is to be exercised under one primary legislative code, the UK Code. The UK Code was issued in 1968 through the aegis of the Takeover Panel (which was at the time a wholly non-statutory body) to reflect the collective opinion of those professionally involved in the field of takeovers57. It has been incrementally amended and developed by the UK Panel since then and continues to be to the present day. 2.2 The SEC Pakistan on the other hand is a relatively nascent regulatory body whose statutory powers have been enhanced greatly since its establishment to new areas of law (such as takeovers of listed companies) and sectors of the economy, for example financial services industry (non-banking finance sector and insurance). Arguably it had not been given sufficient time to build up its capacity both in terms of the manpower and the technical expertise to understand the exigencies of wide ranging sectors it has been authorized to regulate. This has had an adverse effect on its ability to monitor implementation of the takeover law on a day to day basis. 3. The scheme of the law 3.1 The stated objects of the UK Code are to (i) ensure fair and equal treatment of all shareholders of Target in relation to takeovers, (ii) provide an orderly framework within which takeovers are conducted, and (iii) promote integrity of financial markets. The Introduction to the UK Code expressly provides that it is not concerned with the financial or commercial advantages of a takeover which are matters for the offered and its shareholders. In addition it is not the purpose of the UK Code to facilitate or to impede takeovers. 3.2 The UK Code comprises of 6 General Principles (the "General Principles"), 38 Rules (the "Rule(s)"), based on these Principles (which are also to be read in conjunction with accompanying Notes to Rule), and 7 Appendices. 3.3 The Rules are effectively an expansion of the General Principles. The General Principles ensure there is sufficient clarity of expression of the underlying purpose/spirit of the UK Code as a whole and the detailed Rules themselves. The essence of each General Principle, which are essentially statements of standards of behavior expressed in broad general terms, may be summarized as follows: GP1: Shareholders of the same class of the Target should be treated equally GP2: Sufficient information should be made available to shareholders of the Target in a timely fashion, to enable them to decide whether to accept or reject the offer. GP3: Directors of the Target have duties of fairness to Target and its shareholders in relation to the takeover. In addition, they must not take any action which would frustrate an offer without the consent of the Target shareholders GP4: A false market must not be created in securities of the Target or Acquirer, or other company involved, nor must any of the participants commit or their representatives commit other forms of market abuse GP5: The Acquirer musty only make public announcement if he is in position to pay for Target's shares GP6: The Target must not be hindered from running its business for longer if than reasonable for completion of offer timetable58 3.4 By way of contrast, the Pakistan Takeover Ordinance barely mentions the standards of behavior expected from the players involved. As a consequence, the interests intended to be protected by specific statutory provisions become obfuscated making it more difficult to interpret the law uniformly and with its underlying objects in mind. Accusations of a lack of transparency and uniformity have been leveled against the SEC Pakistan59, even though the real reason for the dearth of judicial precedents elucidating the scope and applicability various provisions of the Pakistan Takeover Ordinance, may be due to the law not containing sufficient expression of regulatory purpose. 3.5 As the General Principles are enforceable in their own right, they assist the UK Panel in preventing an abuse of the UK Code during the takeover process where no specific Rules are applicable. In the case of the Pakistan Takeover Ordinance, the regulator has no power to act where the letter of the law has been complied with (for example by making a public offer for a specified percentage of the remaining shares in a Target) but the takeover has still resulted in discriminatory treatment of minority shareholders60. 4. Jurisdiction and types of acquisitions which are subject to Public offer requirement 4.1 The UK Code applies to acquisitions whose aim is to obtain control (or consolidate control) of the Target. The UK Panel has two types of jurisdiction:- (i) Jurisdiction under the EC Directive which is confined to takeover offers (i.e. offers to acquire 'control'61) of a company listed on the Main Market. Takeovers of unlisted public companies or companies quoted on AIM, or takeovers made by way of a scheme of arrangement which does not involve an offer62 do not fall within jurisdiction of the UK Code under the EC Directive; and (ii) Jurisdiction under the UK Code outside the EC Directive which covers all public companies (including companies whose shares are quoted on AIM or unlisted), and certain private companies.63 Transactions which are covered under UK Code's jurisdiction under sub-clause (ii) above include takeover bids and merger transactions however effected, including by way of statutory merger or scheme of arrangement. 4.2 Under the Pakistan Takeover Ordinance, the Target can only be a public company whose securities are currently listed on any one (1) of the country's three (3) stock exchanges. Unlike the UK Code, the Pakistan Takeover Ordinance applies to acquisitions which do not necessarily result in control of the Target (acquisitions between 26% - 50% of voting interest in the Target). Acquisitions of unlisted public companies or private companies fall outside the law even though they may have been de-listed just before the acquisition, which may prejudice minority shareholders who had picked up their shares from the stock markets whilst it was listed. 4.3 The UK Takeover Code expressly distinguishes between a 'voluntary' offer and a mandatory offer. The requirement to make a Public Offer is triggered in the case of mandatory offer through stake-building or incremental purchases by the Acquirer or 'persons acting in concert' with him64, which exceed a 30% stake in the Target. The forced or mandatory offer differs from the 'voluntary' Public Offer in the sense that the Acquirer cannot choose the terms of the offer as to consideration, which must be in cash or there must be a cash alternative. The level of consideration must be equal to the highest price paid by the Acquirer (or persons acting on concert with him) for any shares of same class purchased 12 months preceding announcement of the Public Offer, There is no attempt under the Pakistan law to differentiate between an offer which is triggered because the Acquirer whilst building up a stake in the Target exceeds the thresholds prescribed in section 5 or 6 of the Pakistan Takeover Ordinance or an intentional attempt to acquire legal control of the Target . The law applies to all acquisitions which exceed the 25% threshold. The same terms as to consideration, offer size and minimum level of acceptances apply regardless of whether the Acquirer intends to acquire legal or management control or merely increase his stake above 25%. 4.4 The UK Takeover Code distinguishes a 'Recommended' Offer approved by the Target's board and a 'Hostile' Offer opposed by the Target board. Regardless of whether the offer is recommended, General Principle 2 provides that the board of the Target must give its views on the effects of the implementation of all Public Offers on employment, conditions of employment and locations of Target's places of business. This differentiation leads to differences in the offer timetable and the documentation/information that must be disclosed to the Target Shareholders. If the Public Offer is recommended, the Offer Document must be issued jointly by the Acquirer and Target and include a section giving the Target board's views on offer (usually in form of a letter from the Chairman). If the Target board opposes the Public Offer, the Offer Document will be prepared by the Acquirer only. However, the Target board must communicate by way of a Circular under Rule 25.1 (known as a 'Defence Document') to the Target Shareholders the substance of advice received from its financial advisers65, and the board's views of the effects on (i) Target's interests (including employment), (ii) Acquirer's strategic plans for Target and likely repercussions on employment and locations, and (iii) an opinion from its employee representative(s) in line with Rule 25 and General Principles 2 and 3. 4.5 The Pakistan Takeover Ordinance makes no attempt to differentiate between a forceful or 'hostile' bid from a bid which is considered favorably or solicited (for example, through competitive bidding) or where the Target board may have no view. In fact the Target board does not have to communicate its views at all on the Public offer or share any information concerning it or the Target's financial/commercial position with the Target Shareholders. If it does66 choose to give its views, it will be held liable to a penalty if there is any misstatement or concealment of material facts. Where there is no mandatory disclosure requirements, penalties for inaccurate or misleading disclosures will discourage the target board from circulating information regarding the potential acquisition to Target Shareholders and thereby impede transparency in the takeover process and hinder the Target Shareholders from reaching an informed decision. A statutory obligation similar to that imposed on the Target board under the UK Takeover Code will ensure that all Target Shareholders have access to the same information when evaluating the public offer, and the Target's directors' discharge their fiduciary duties to the Target and its shareholders (to act in best interests of the company and its shareholders) and obtain and share financial information on Target's financial position with its shareholders. Independent financial advice obtained from a third party adviser should be a key feature of any communications made. 4.6 Where a bid is viewed un-favorably by the Target board, the offer timetable may be revised in a manner similar to the UK Code so that communications by the Target board, and any negative statements and opinions communicated to the shareholders can be rebutted by the Acquirer in sufficient time before the acceptance period begins. 5. Role of Financial Adviser 5.1 In line with General Principal 2 and Rule 3, the Target must appoint an independent financial adviser to the offer under the UK Code. Rule 3 provides that the Target's board must obtain competent independent advice on any offer and the substance of such advice must be made known to its shareholders. The UK Panel must be consulted in cases where the adviser considers it impossible to express an opinion on the merits of the offer or give his recommendation (Note 3). 5.2 The requirement for the Target under the UK Code to appoint financial adviser is rational as the control of the Board of the Target is at stake and this will have a direct impact on the Target Shareholders' investment in the Target. In addition, as the substance of such advice must be made known to Target Shareholders, the adviser's role also furthers General Principle 2 which' provides that the shareholders must have sufficient time and information to enable them to reach a properly informed decision on the public offer. By way of contrast, the role of the Manager under the Pakistan Takeover Ordinance is focused on ensuring the Acquirer has the necessary financial means and will otherwise implement all applicable statutory requirements67 Whilst this may promote one of the purposes of the Takeover Ordinance, namely to ensure a transparent and efficient system for takeovers/ substantial acquisitions, there is no legal right on the Target Shareholders to demand financial information regarding the Target, especially advice or data the Target board has access to when firming up its stance on the Acquirer's bid. 6. The Offer Price 6.1 The UK Code does not generally dictate the type and level of consideration in the Public Offer leaving this to be fixed by the Acquirer .and its advisers in line with market considerations. This is in keeping with the underlying approach of the UK Panel that it is not concerned with the financial or commercial advantages of a takeover. There are exceptions in the case of obligatory takeovers such as mandatory offers under Rule 9 where the price as well as the nature of consideration (cash and cash alternative) is determined by the relevant Rule, and where there have been recent acquisitions as in the case of Rules 11 and 668. 6.2 Following an amendment to the 2008 Takeover Regulations in 2009, the Pakistan Takeover Ordinance fixes the offer price in accordance with the 2008 Regulations69. The problem with the formulation is that where the fixed price is less than the market price at time of the acceptance period, it is not likely to be attractive to the Target Shareholders. 7. Acceptance by Target Shareholders 7.1 Rule 31 of the Takeover Code regulates the acceptance of the Public Offer by the Target Shareholders. They will be urged to accept in the Form of Acceptance by the 'first closing date, i.e. minimum of 21 days after the Offer is published (Rule 31.1), when the Acquirer must announce level of acceptances by 8am on business day after first closing date (Rule 17.1). If conditions of Public Offer, including as to acceptances have not been met by first closing date, Acquirer can withdraw Public Offer; though under Rule 31.1 it is not obliged to extend offer. Acquirer can also improve terms of offer. Any revisions to the Public Offer must be published in same way as original Public Offer. The revised offer must be open for at least 14 days following the publication (Rule 32.1(c)). Once Offer is declared wholly unconditional (i.e. it has secured at least 50% of the Target shares), Rule 31.4 provides Offer must still remain open for acceptance by the remaining Target Shareholders for at least another 14 days. This affords Target Shareholders the opportunity to accept the offer once they know that the Acquirer will have management control of the Target. 7.2 Under the Pakistan Takeover Ordinance, the level of acceptances are not announced to the Target Shareholders at any stage of the offer timetable so the Target Shareholders who had not accepted the Public Offer during the Acceptance Period, cannot re-consider selling their shareholding to the Acquirer once they know it has won control or a lesser but significant percentage of voting shares of the Target. The fact that the level of acceptances are only communicated to the Acquirer after the takeover time period has closed is also a disadvantage for the Acquirer as it will not have an opportunity to ascertain the level of acceptances and improve the terms of his offer (unless a competing bid has been made, and even then he will not have any idea of the number of acceptances). 8. Competing offers 8.1 In both the UK and Pakistan, competing offers will result in the timetable for the original offer being extended by running from the publication of the competing offeror's Public Offer. However the Pakistan Takeover Ordinance imposes an additional statutory obligation on both the first and competing Acquirer through their Managers. Their Managers (who are considered their agents but have separate duties which are enforceable by the SECP under the Pakistan Code) are required to jointly publish one (1) day before the Acceptance Per IPA for the competing offer begins, a comparative statement containing details of the offer and subsequent competing offer. Presumably regulatory proceedings may be initiated against the Managers if they fail in their duty to produce such a Report within the required time frame, though this is not expressly stated. No guideline or prescribed pro forma are set out in the Pakistan Takeover Ordinance detailing the contents and statements to be made in such joint report. In addition there is no mechanism for resolving any disagreements between the two Managers. 9. Permissible Actions by Target to frustrate the Public Offer 9.1 Under the UK Takeover Code, the Target board is entitled to take what is known as 'frustrating action' against a Public Offer which will make the Target either more difficult to acquire or less attractive to the Acquirer PROVIDED they obtain the approval of the Target's Shareholders in a general meeting. Such actions may well be contemplated in the case of a hostile takeover. Examples listed in the UK Code include issue of or- granting of options over unissued shares, sale, disposal of acquisition of other assets, or entering of contracts other than in the ordinary course of business. Such action however is qualified by the Target directors' statutory duties to the Target. This reflects in part General Principle 3 which provides that the Target must not be hindered for longer than is reasonable in the conduct of its affairs. 9.2 There is no such right given to the Target's Board or Target Shareholders under the Pakistan Takeover Ordinance. A blanket prohibition is imposed on the Target effectively from the date of the Public Announcement of Intention. This includes such routine business transactions as encumbering any asset, entering into 'material contract(s)' (which is not defined). This could restrain the Target for as long as 105 days or 3 and a half months (where a rival bid is made this prohibition on 'business as usual' by the Target may continue for up to 126 days or more than 4 months). Even if the rationale of this prohibition is to protect the Acquirer's security, this should be balanced with the possible disruption to the Target's business particularly if the acquisition does not appear to be supported by the Target's Board/ Shareholders and the Public Offer is not competitively priced. 10. Statutory powers of Enforcement and Imposition of Penalties 10.1 The UK Code has force of law in relation to all takeovers to which it applies. The UK Panel Executive is the body which has responsibility for monitoring compliance with the UK Code, and in this regard under section 947 of the UK Companies Act, the UK Panel can call upon any person dealing with the UK Panel to produce any documents and information which are reasonably required by the UK Panel in connection with the exercise of its function (this requirement is reiterated in Para. 9(b) to the Introduction to UK Code)70. 10.2 The "Takeover Panel Executive Note: Disciplinary Proceedings", sets out the factors which the UK Panel will take into account when considering whether to initiate disciplinary action and proposing the appropriate sanction to the Hearings Committee71. 10.3 Under the UK Code, all the penalties or regulatory actions which can be taken by the UK Panel are set out in the UK Code along with guidelines as to when the UK Panel is likely to impose them. In most cases, the offender will have an opportunity to present a defence. The Panel Executive can award compensation in exceptional circumstances only if the Rules dealing with compensation such as Rules 9, 6 and 11 have been breached72. Specific guidance in the form of previous Panel rulings, and Practice Statements and Panel Statements are posted on the Panel's website. 10.4 The UK Panel's most invasive enforcement powers are reserved to the Hearings Committee of the UK Panel. This ensures that the initial investigation of offences under the Code is conducted by a separate body within the Panel, i.e. the Panel Executive. The case is then referred to the Hearings Committee who will conduct a hearing and review the evidence collected by the Panel Executive and submitted by the alleged offender to determine if the UK Code has been breached. 10.5 This differs from the approach of the SEC Pakistan, where the initial order imposing sanctions or penalties for contravention of the law is passed by the administrative head, the Commissioner or Executive Director of the Division which conducts the initial investigation/enquiry (currently this is the Enforcement Department of Company Law Division). Even though the aggrieved party has a right to appeal the order of the Commissioner/Executive Director to the Appellate Bench (headed by 2 other Commissioners) within 60 days under the SEC Pakistan Act, appellate jurisdiction may not consider evidence which was not submitted at the time of the proceedings before the concerned Division. 10.6 Most of the penalties or sanctions imposed by' the Hearings Committee or Panel Executive relate to public reputation of the offender rather than any penal action. These can have very serious impact on the offender's involvement in future takeover activity (for example the 'cold shoulder' statement), but are not in themselves invasive of the offender's property rights. In contrast to the SEC Pakistan, the UK Panel does not have a power to impose a financial penalty on the offender though it can award compensation in limited circumstances73. 11. Rule-making powers and power of interpretation 11.1 The Code Committee of the UK Panel is responsible for issuing, revising and making amendments to the UK Code. Section 945 of the UK Companies Act confers on the Panel the power to give rulings on the interpretation, application or effect of the Rules, to the extent and in circumstances specified in the Rules. 11.2 The Rules empower the Panel Executive to issue clarifications and guidelines on the interpretation of the UK Code in the form of Practice Statements (which are non-binding) and notify specific instances of non compliance by parties involved in a particular takeover which are binding on the parties involved which are known as Panel Statements. The UK Panel in its Annual Report or the year ended 31 March 2002 emphasized the importance of prior consultation with the Panel Executive74. In "Takeover Panel Statement 1996/16 Knights wood (Property and investments) Co. Ltd", the Panel Executive stated that "in any circumstances of doubt or uncertainty about the application or interpretation of the UK Code in respect of a completed or prospective transaction, the Panel Executive must be consulted. 11.3 Whilst the SEC Pakistan has statutory power to issue clarifications and guidelines in the form of ad hoc circulars or notifications75, the purpose and extent of such directives, etc. is not clearly stated. Part 3 Conclusions and recommendations Whilst the objective of the Pakistan Takeover Ordinance are two-fold, namely (i) to promote a transparent and efficient system for takeovers and substantial acquisition of share, and (ii) to provide for fair and equal treatment to all investors, based on the review of the law in the light of the regulatory regime under the UK Code, it appears that the Pakistan Takeover Ordinance falls short in promoting and facilitating the fair and equal treatment of investors, particularly the Target Shareholders. This is all the more glaring in the context of acquisitions involving targets who are owner-managed listed companies where the free float constitutes a relatively small percentage of the voting shares. The following amendments to (A) specific substantive aspects of the takeover process and (B) the enforcement mechanism, made in the spirit of the corresponding provisions of the UK Code discussed above, can facilitate better and timely disclosures to shareholders and promote equivalent treatment of Target Shareholders during the takeover process: (A) The Takeover Process (1) The Pakistan Takeover Ordinance should differentiate between different types of acquisition transactions and their purpose, so that public offers in respect of an acquisition which does not involve acquiring shares above 51% legal control threshold or management control (through shareholders agreement) may be subject to more flexible terms as to pricing, offer size, or may be dispensed with altogether. (2) The Target board should have a positive obligation to disclose all relevant information relating to the Target (particularly relating to Target's financial position) to all their shareholders so the latter can make an informed decision regarding the Public Offer (3) The Acquirer should have option to fix offer price through book-building or other market driven price-setting processes, subject to minimum floor price. (4) The disclosures in the Public Announcement of Offer should be communicated directly to each Target Shareholder preferably as part of the Offer Letter. (5) the Acquirer should have the express right to withdraw Public Announcement of Intention without liability (including appropriation of security) if any material statutory approvals (including pre-merger clearance of the CC of Pakistan) are denied or granted subject to onerous conditions. (6) Transactions by the Target currently prohibited after the Public announcement of Intention should be permissible with the approval of majority of the Target Shareholders. (B) Regulatory Framework (7) The Pakistan Takeover Ordinance is a regulatory statute and significance of this should be referred to in the Preamble and main body of the law76. This will give degree of statutory protection to any reasonable proactive regulatory measures SEC Pakistan takes under sections 24 to 26 which may otherwise be challenged as unconstitutional or volatile of principles of natural justice. (8) The standards of behavior expected from all stakeholders involved in the takeover process should be delineated in the statute in the form of general principles which further the main objects of the legislation. These should be enforceable whether as an aid to construction of the statutory provisions/regulations or, where no specific rule exists, directly to prevent unfair or discriminatory treatment of the Target Shareholders during a takeover. (9) The wide discretionary enforcement and disciplinary powers available to SEC Pakistan should be accompanied by policy guidelines which are provided statutory cover under section 29B, to ensure the regulates are well informed as to conduct which is most likely to attract invasive regulatory measures such as the restrictions on dealings in securities or disqualifications under section 26. The content of the said guidelines should be informed by the general principles. (10) The purpose and subject matter of Rules, Regulations and directives which may be issued by the SEC Pakistan under section 29B should be clearly demarcated. (11) Important concepts such as 'acting in concert', 'control', 'material contracts', and other definitions which have or may in future give rise to complaints and regulatory actions under the law should be clearly and comprehensively defined and explained. 1. Hussain, D; "Corporates raise Rs. 4.2bn in IPOs", "Dawn" newspaper 5 December 2013 edition. As a barometer of the current state of activity in Pakistan capital markets, interest of listed companies to mobilize funds through listings has actually decreased since the 2008 world financial crisis. Since 2008 an average of four new companies have offered shares every year (excluding right shares) to public, which compares unfavorably with an overwhelming number of 30 IPOs a year in 1990s and 7 every year between 2000 and 2007. (See also Khan, M.H; "Pakistan: Deals in Tough Times" (Khan arid Associates) published in the International Financial Law Review www.ifIr.com/Article/2793547/Pakistan-Deals-in-tough-times.html) 2. Including institutional investors like hedge funds and pension funds. 3. Nazir, K; "Why Pakistan Needs a Takeover Law" (Director, AKD Securities and Safe Deposit Company), Nov 16-22, 1996 published in Pakistan Economist (www.pakistaneconomist.com/database2/coveric96-91.asp). 4. Successor to the Companies Act, 1956 5. Section 222 of Pakistan Companies Ordinance 6. Sections 177 and 178 of the Pakistan Companies Ordinance. 7. See Nazir, K.; "Why Pakistan Needs a takeover Law" (Director, AKD Securities and Safe Deposit Company), Nov 16-22, 1996 published in Pakistan Economist (www.pakistaneconomist.com/database2/cover/c96 91.asp). Although a final decision in the case was pending in the highest court of appeal in Pakistan, the Supreme Court when the Pakistan Takeover Ordinance was promulgated in 2002. 8. Daily Times; "Marsha Group set to take over AICL" www.dailytimes.com.pk/2004 \ 05 \ 30 \ story 30-5-2004 pg5 5. See also Kazim, S.H: 'The Tussle between Adamjee and Mansha Group" (Pakistan Economist (April 08-14 2002) http.//www.pakistaneconomist/ issue2002/issue14/f&m.html, and a post in Business Recorder 29 May 2004 appearing at http: / / forum. pakistandefence.com/index. php?showtopic=28432 9. Adamjee Insurance Company Ltd and others v. Muslim Commercial Bank Ltd 2005 CLD 224 10. Section 15 of Pakistan Takeover Ordinance 11. The Pakistan Companies Ordinance by a 2007 amendment conferred a separate statutory right on an acquirer who had acquired 12.5% or more of voting shares in listed company. Section 178A of Pakistan Companies Ordinance provides that such a shareholder can apply to SEC Pakistan to direct the target board to hold fresh election of directors in the forthcoming annual general meeting of the target, subject to the condition that the acquirer would not dispose of his shares in the target for at least one year from the election of directors 12. Section 5 13. Section 2(c ) control can be exercisable by a person individually or through any person acting in concert, directly or indirectly, whether by virtue of his shareholding, management right, shareholders agreement, voting agreement or otherwise. 14. "Person acting in concert" is defined in Section 2(j) of the Takeover Ordinance to mean "a person who co-operates with the acquirer to acquire voting shares or control of the target company" 15. Schedule III to the 2008 Regulations and Regulation 6 of the 2008 Pakistan Takeover Regulations 16. The public announcement of intention is required to be published by advertisement in a daily newspaper in Urdu and English languages having circulation in the province(s) in which the relevant stock exchange(s) are listed. 17. Regulation 7 contains the same restrictions imposed on Target under Section 14 of Pakistan Takeover Ordinance. Whilst the section 14 restrictions are binding in the Target from the Publication Date (i.e. during the Offer Period), the restrictions under Regulation 7 apply much earlier from the date of the Public Announcement of Intention, which is to be made no later than 180 days before the Publication-Date 18. Section 14 also prohibits the Target board from (a) selling, transferring, or otherwise disposing of or entering into any arrangement for sale, disposal or transfer of the undertaking or sizable part thereof, not being sale or disposal of assets in the ordinary course of business of the Target or its subsidiaries; (c) encumbering any asset of the Target or its subsidiary; (d) Issuing any right or bonus voting shares; or (e) entering into any material contract. 19. Sections 15 and 19. 20. Section 7 21. Section 7 22. The public announcement of intention is required to be published by advertisement in a daily newspaper in Urdu and English languages having circulation in the province(s) in which the relevant stock exchange(s) are listed. 23. Schedule IV to the 2008 Takeover Regulations sets out the content requirements in full. 24. The amendments were made in 2009. 25. Section 14(1) read with Regulation 14 (as amended by SRO 590/(1)/2009 dated 23 June 2009) 26. Regulation 14 (Number of voting shares to be acquired) provides that the acquirer may acquire any number of voting shares through an agreement but where the acquisition attracts the provisions of section 5 or 6, the acquirer shall make a public announcement of offer to acquire such number of voting shares which to ether with the existing voting shares held b the acquirer will oblige the acquirer to acquire at least 50% of the remaining voting shares of the target. 27. These are; (a) the negotiated weighted average price under a share purchase agreement for the acquisition of voting shares of the target company; (b) the highest price paid by the acquirer or persons acting in concert with the acquirer for acquiring the voting shares of target company during six months prior to the date of public announcement of offer; (c ) the average share price of target company as quoted on the stock exchange during the last six months; (d) the average share price of target company as quoted on the stock exchange during four weeks preceding the date of public announcement of intention; or (e) the price per share calculated on the basis of net assets valued by a valuer whose name appears on the list of SBP approved list of valuers. 28. Section 13(2). 29. Section 13(1). 30. Regulation 11(2). Regulation 9. 31. Regulation 21(3). 32. Section 13(4), Regulation 21. 33. Section 16(2). 34. The Manager of the Acquirer and the subsequent bidder must also jointly publish a comparative statement containing details of the initial public offer and competing offer one day before the acceptance period for the competing bid commences. 35. Section 17. 36. Section 14. 37. Section 23. 38. Section 26(3). 39. Section 24. 40. Section 34 of the SECP Act. 41. SEC cases see In the matter of Arif Habib Securities Ltd through Chief Executive reported at 2006 CLD 408, and also cases cited below. 42. See Sh. Abdul Wahid and 7 other reported at 2008 CLD 57 43. See footnote 58 below 44. In the Matter of: acquisitions of shares of United Swar Mills Limited and 12 others reported at 2007 CLD 277 45. For example Article 25, Article 18 , and Article 24 expertise to understand the nature and impact of such complex and sophisticated transactions and culpability of the wrongdoers involved. 46. The Commission's power to frame regulations was inserted through the Finance Act, 2008, more than 5 years after the Takeover Ordinance was promulgated. 47. (sic.) 48. (sic.) 49. 'The draft 2008 Regulations and amendment in 2009 were finalized in light of comments received from stakeholders after circulation among stakeholders and prior publication inviting comments from members of the public. See "Annual Report 20072008" of the SEC Pakistan. 50. This argument was made in relation to the Competition Commission of Pakistan's powers to frame regulations under the Competition Act, 2010 - See Dar, A, Haidermota, K and Akhtar, M: 'The Competition Commission Ordinance, 2007 A Critical Analysis" 37 CLD 2008 3 Journal and Statutes 51. Section 29B inserted through Finance Act, 2008. 52. See articles referred to in Footnote 2 for example. 53. These are ICI Pakistan, American Life Insurance and Clariant Pakistan Ltd. In these cases, the majority shareholders wished to disinvest their controlling stake. 54. See the International Housing Finance case, in which the acquirer, who was a natural person, together with his adult children increased his shareholding in the target, International Housing Finance Ltd, from 9.58% to 28.26% without malting a public announcement of intention under section 8 and mandatory public offer under section 5 and related statutory provisions. The acquirer argued before the Executive Director (Enforcement) that acquisition of his less than 25% shareholding was an independent act by and he was not 'acting in concert' with his children. In the case of Elahi Cotton Mills Limited, the acquirer with other family members had increased their shareholding in the target from 8.92% to 28.54% by acquiring 245/0 from two banks without making a Public Announcement of Intention for these shares or a Public Offer to the other target shareholders for the remaining shares 55. Through UK Statutory Instrument which implemented the EC Directive The Takeovers Directive (Interim Implementation) Regulations 2006 (SI 1183/ 2006). 56. As amended by the Companies Act 2006(Amendment of Schedule 2) (No. 2) Order 2009 (the "UK Companies Act") 57. Introduction to the Code 58. This summary is adapted from the summary of General Principles from page 284 of 'Public Companies and Equity Finance' by Alexis Mavrikakis, 2013 Edition, College of Law Publishing, 2013. 59. In the matter of: Arif Habib Securities Ltd. through Chief Executive 2006 CLD 408 60. See 2007 CLD 306. Enforcement action under Sections 25 and 26 of the Pakistan Takeover Ordinance must be based on a contravention of the substantive provisions of the Pakistan Takeover Ordinance. 61. Paragraph 3(b) of the Introduction, to the Code. 'Control' is defined as 30% or more of the voting rights in the Target. S. 943(7) of CA 2006 defines takeover bids by reference to Art 2.1(a) of Takeover Directive). This refers to an offer to acquire control of Target. 62. Page A-3, City Code 63. which have their registered office in UK. isle of Man or Channel Islands, and whose equity share capital has at any time in last 10 years been to some degree publicly held. 64. Definition of 'persons acting in concert' in Code 65. Rule provides that substance of any financial advise obtained by the Target Board must be made known to its shareholders 66. Section 14(4) 67. Section 15 68. Under Rule 11 cash consideration must be offered in certain circumstances only. In case of Rule 11 if the Acquirer (or concert party) has during offer period or within 12 months of start of offer period, purchased more than 10% of Target's voting shares for cash, then offer must be in cash or accompanied by cash alternative at not less than highest price paid by Acquirer (or concert party) for those shares. Rule 6 provides that the minimum offer price in the Public Offer must not be less than the price at which the Acquirer (or concert party) has acquired voting shares within 3 months of beginning of Offer Period or during period between Offer Period and R. 2.7 Announcement. 69. These formulations are discussed on page 18, Section B (Key Provisions of the Code) above. 70. Under 942 (3) of the UK Companies Act, those dealing with the Panel must do so in cooperative and open way, arid disclose all relevant information (subject to legal professional privilege) (also reiterated in Para 9(a) to the Introduction to UK Code). In a Panel Executive Statement, the Panel stated that it would first make a request to the person concerned with a date by which it expects the information/ documents to be provided. The making of such a request will not preclude the panel Executive from subsequently exercising their statutory power under Section 947 to issue a notice for the production of the documents/information. 71. See p. 26, "PLC Takeover Code Know How: Introduction" 72. Even then the calculation of appropriate level of compensation is circumscribed. 73. See above 74. In doing so, it reported there had been an instance of a party failing to consult the Panel in advance and so had proceeded on the basis of an incorrect interpretation of the UK Code. The Panel said that the appropriate remedy for the breach put the party in a materially worse position than if there had been prior consultation, due to the difficulty of putting matters right after the event". 75. See page 8 above regarding the insertion of 29B by the 2008 Finance Act. 76. For example, it has been enacted to further the overall economic agenda of the government to promote growth and expansion of the capital markets through inculcating investor confidence. ***