The UK Non-Frustration Rule: Should it be Replaced with a US-inspired Approach?

Ma Huanyang(Durham University)

Abstract

Recently, Arm Holdings, the most successful semiconductor and software design company in the UK, has agreed to be sold to SoftBank, a Japanese company. This takeover case, along with the case that Cadbury was acquired by Kraft in 2010, has led to questions about the openness to foreign mergers and acquisitions.^[1] The non-frustration rule plays an important role in the openness of the UK’s market for corporate control.^[2] Therefore, it is time to rethink about the non-frustration rule. One of the most heated questions is whether the rule should be replaced with the US-inspired approach. This article argues that the US-inspired approach will not function as well in the UK as it does in the US. After all, the UK and the US differ a lot in corporate structures and company regulations which make the background of the non-frustration rule different in two countries.

 

Keywords

UK Takeover Code; Non-Frustration Rule; “Poison Pill”; Takeover Defense

References

Georgina Tsagas, ‘All Companies are Equal, But Some Companies are More Equal than Others | University Of Bristol Law School Blog’(Legalresearch.blogs.bris.ac.uk, 2017) accessed 15 April 2017.

David Kershaw, ‘Hostile Takeovers and the Non-Frustration Rule: Time for a Re-Evaluation’ (Papers.ssrn.com, 2017) accessed 15 April 2017.

David Kershaw, ‘Hostile Takeovers and the Non-Frustration Rule: Time for a Re-Evaluation’ (Papers.ssrn.com, 2017) accessed 15 April 2017.

Paul Davies, ‘The Regulation of Defensive Tactics in the United Kingdom and the United States’ in KJ Hopt and E Wynmeersch (eds), European Takeovers: Law and Practice (Butterworths, London, 1992) 200.

Aurelio Gurrea-Martínez, ‘New Agency Problems, New Legal Rules: Rethinking Takeover Regulation in the US and Europe’ (Papers.ssrn.com, 2016) accessed 15 April 2017.

Notes on Amalgamations of British Businesses.

Takeover code general principle 3.

Takeover code.

Paul Davies, Gower & Davies Principles Of Modern Company Law (7th edn, Sweet & Maxwell Ltd 2003) 716.

Han-Wei Liu, ‘The Non-Frustration Rule Of The UK City Code On Takeover And Mergers And Related Agency Problems: What Are The Implications For The EC Takeover Directive?’ (Papers.ssrn.com, 2017) accessed 18 April 2017.

Paul Davies, Gower & Davies Principles Of Modern Company Law (7th edn, Sweet & Maxwell Ltd 2003)717.

Paul Davies, Gower & Davies Principles Of Modern Company Law (7th edn, Sweet & Maxwell Ltd 2003)717 note 13.

David Kershaw, ‘Hostile Takeovers and the Non-Frustration Rule: Time for a Re-Evaluation’ (Papers.ssrn.com, 2017) accessed 15 April 2017.

John Plender, ‘Europe Feels the Toxic Effect of Corporate Nationalism’ (Financial Times, 2017) accessed 18 April 2017.

David Kershaw, ‘The Illusion of Importance: Reconsidering The UK's Takeover Defence Prohibition’ (2007) 56 International and Comparative Law Quarterly 269.

Unitrin v American General Corp 651 A.2d 1361 (Delaware, 1995).

David Kershaw, ‘The Illusion of Importance: Reconsidering The UK's Takeover Defence Prohibition’ (2007) 56 International and Comparative Law Quarterly 270.

Marcel Kahan and Edward B. Rock, ‘Corporate Constitutionalism: Antitakeover Charter Provisions as Precommitment’ (2003) 152 University of Pennsylvania Law Review 270.

Unitrin v American General Corp 651 A.2d 1361 (n10).

David Kershaw, ‘The Illusion Of Importance: Reconsidering The UK's Takeover Defence Prohibition’ (2007) 56 International and Comparative Law Quarterly 270.

Paul Davies, Gower & Davies Principles Of Modern Company Law (7th edn, Sweet & Maxwell Ltd 2003).

David Kershaw, ‘The Illusion Of Importance: Reconsidering The UK's Takeover Defence Prohibition’(2007) 56 International and Comparative Law Quarterly 271.

David Kershaw, ‘The Illusion Of Importance: Reconsidering The UK's Takeover Defence Prohibition’ (2007) 56 International and Comparative Law Quarterly 271.

JP Lowry, “Poison Pill” in US Corporations - A Re-Examination’ [May 1992] Journal of Business Law 337.

David Kershaw, 'Hostile Takeovers and the Non-Frustration Rule: Time for a Re-Evaluation' (Papers.ssrn.com, 2017) accessed 15 April 2017.

Company Act 2006, s 547(b).

Company Act 2006, s 549-551.

David Kershaw, ‘The Illusion Of Importance: Reconsidering The UK's Takeover Defence Prohibition’ (2007) 56 International and Comparative Law Quarterly 274.

Delaware General Corporation Law, s 141(k).

Delaware General Corporation Law, s 211(d).

Company Act 2006 s303-305.

David Kershaw, ‘The Illusion Of Importance: Reconsidering The UK's Takeover Defence Prohibition’ (2007) 56 International and Comparative Law Quarterly 274.

Delaware General Corporation Law, s 161.

New York Stock Exchange Listing Manual, para 312.03(c).

Delaware Fraudulent Conveyance Act, s 1305.

G Barboutis, ‘Takeover Defence Tactics II: Specific Defensive Devices’ (1999) 20 Company Lawyer 40.

Company Act 2006, s 561, 570, 571.

David Kershaw, ‘The Illusion Of Importance: Reconsidering The UK's Takeover Defence Prohibition’ (2007) 56 International and Comparative Law Quarterly 278.

UK Listing Authority.

UKLA, Listing Rules, LR 10, Annex 1.

Delaware General Corporation Law, s 271.

Securities Exchange Act 1934, s 13(d).

Chevron Corp v Pennzoil Co 974 F.2d 1165 (9th Cir, 1992).

Moran v Household International, Inc 500 A2d 1346 (Delaware, 1985).

T Ogowewo, ‘Tactical Litigation in Takeover Bids’ [2007] Journal of Business Law.

R v Panel on Take-overs and Mergers, ex p Datafin plc [1987] 2 WLR 699.

David Kershaw, ‘The Illusion Of Importance: Reconsidering The UK's Takeover Defence Prohibition’ (2007) 56 International and Comparative Law Quarterly 280

Company Act 2006, s 955(3).

Luca Enriques and Reinier Kraakman, ‘The Anatomy of Corporate Law: A Comparative and Functional Approach’ (2004) 52 The American Journal of Comparative Law 3.

G. Holderness, ‘The Myth Of Diffuse Ownership In The United States’ (2007) 22 Review of Financial Studies 1377.

Aurelio Gurrea-Martínez, ‘New Agency Problems, New Legal Rules: Rethinking Takeover Regulation in the US and Europe’ (Papers.ssrn.com, 2016) accessed 15 Apr 2017.

Rafael La Porta, Florencio Lopez de Silanes and Andrei Shleifer, ‘Corporate Ownership Around The World’ (1999) 54 Journal of Finance 471.

John Armour and David A. Skeel Jr., ‘Who Writes the Rules for Hostile Takeovers, and Why? The Peculiar Divergence of US and UK Takeover Regulation' (Scholarship.law.upenn.edu, 2017) accessed 18 April 2017.

Aurelio Gurrea-Martínez, ‘New Agency Problems, New Legal Rules: Rethinking Takeover Regulation in the US and Europe’ (Papers.ssrn.com, 2016) accessed 15 Apr 2017.

Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. 506 A.2d 173 (Del. 1986).

William T Allen and Reinier H Kraakman, Commentaries and Cases on The Law of Business Organization (Wolters Kluwer, 5 edn, 2016) 511-573.

David Kershaw, 'Hostile Takeovers and the Non-Frustration Rule: Time for a Re-Evaluation' (Papers.ssrn.com, 2017) accessed 15 April 2017.

Rachel Griffith and Helen Simpson, ‘Characteristics of Foreign-Owned Firms in British Manufacturing’ (NBER, 2017) accessed 18 April 2017.

Lucian Arye Bebchuk, ‘The Case Against Board Veto In Corporate Takeovers’ (2002) 69 The University of Chicago Law Review.

Han-Wei Liu, ‘The Non-Frustration Rule of The UK City Code on Takeover and Mergers and Related Agency Problems: What Are the Implications for the EC Takeover Directive?’ (Papers.ssrn.com, 2017) accessed 18 April 2017.

‘Roger Carr, Cadbury: Hostile Bids and Takeovers | University of Oxford Podcasts - Audio and Video Lectures’ (Podcasts.ox.ac.uk, 2017) accessed 18 April 2017.

David Kershaw, 'Hostile Takeovers and the Non-Frustration Rule: Time for a Re-Evaluation' (Papers.ssrn.com, 2017) accessed 15 April 2017.

DOI: http://dx.doi.org/10.26549/jfr.v4i1.2922