Seminar No. 4
Master Class in English Law
Jeremy Lederman
Julian Mathews
Edward Craft
Wedlake Bell LLP
7 June 2013
#7646576
About Wedlake Bell LLP
• Long-established mid market law firm
• Operating from central London
• Full service
• UK and international work
• Founding member of Telfa
Structure of the morning
Fundamentals of English Law – Jeremy Lederman
How to structure a joint venture agreement in the context of a hotel
joint venture - Julian Mathews
An initial public offering of securities in London – Edward Craft
Fundamentals of English Law
TELFA CONFERENCE AND GLOBAL LAW
FORUM IN CONJUNCTION WITH USLAW
MOSCOW
7 June 2013 – 9:30am to 12 noon
Jeremy Lederman
Wedlake Bell LLP
London
Your speaker
Jeremy is head of commercial litigation at Wedlake Bell.
Jeremy acts and advises on a wide range of international and
UK litigation, arbitration, mediation and alternative dispute
resolution. His work includes acting for creditors and lenders
regarding debt recovery, contractual disputes, disputes arising
from mergers and acquisitions, shareholders and partnership
disputes, professional negligence, fraud, insolvency, IT
disputes, regulatory matters and judicial review, charity
disputes and aviation. Jeremy represents listed multinationals,
national and other businesses of all sizes, religious institutions,
charities
and
individuals.
Jeremy has substantial experience of litigation involving an
international element. He has recently been acting in
multinational litigation brought by a Russian bank against a
guarantor with a freezing order against assets worldwide.
Jeremy Lederman
jlederman@wedlakebell.com 0044
20 67674 0530
1. Scope of Presentation
2. Sources of English Law and court system
3. Key forms of legal personality
4. Law of Contract
5. Law of Trusts
1. Scope of Presentation
•
Large subject in little time
•
Necessarily brief summaries
•
English law only
•
Focus on civil claims and in particular :•
Sources of English Law and court system
•
Key forms of legal personality
•
Law of Contract
•
Law of Trusts
1. Sources of English law
•
Statutes – Specific laws
•
European Union
•
Regulations
•
Directives
•
UK statutes and other legislation
2. Sources of English law continued
Case Precedents
•
Judge made law "the common law “.
•
System of precedent by which Judges follow decisions
in past cases.
•
As at 2007 estimated over 1000 volumes of law reports
containing approximately 400,000 cases. Will have
increased significantly since then.
2. Sources of English law continued
•
Court of Justice of European Union provides
interpretation of EU treaties and legislation which bind
all courts below (but not itself).
•
Supreme Court (formerly the House of Lords -judicial
committee) binds lower courts but not itself.
•
Court of Appeal binds lower courts and itself.
•
High Court binds lower courts (County and Magistrates
courts) but not itself.
2. Sources of English law continued
•
Specialist Courts (for example Chancery, Commercial,
Technology and Construction - 60% of cases in
Commercial Courts have Russian element).
•
In certain cases Judges can find ways around
precedents from previous cases but it is not usual to
do so.
•
Custom.
•
Reports of Law Commission or authoritative articles or
text books may be persuasive.
3. Key forms of legal personality
Natural person - i.e. an individual
Companies
Separate legal personality from shareholders/members or those who control it
and continues to exist regardless of what happens to them.
Main statute Companies Act 2006 largely consolidation but new provisions as
well.
Main types :•
Companies limited by shares
•
Companies limited by guarantee
•
Unlimited companies
3. Key forms of legal personality continued
Unincorporated Associations
Partnerships
•
Definition - a relationship between two or more persons carrying on
business in common with a view to making a profit.
•
No separate legal personality and all partners liable for all debts save as
agreed.
Limited Liability Partnerships (LLPs)
•
Came into force in 2000. Kind of hybrid of partnerships and limited
companies except much more in common with limited company. No
shareholders, directors or shares, but do have members.
•
Separate legal personality.
3. Key forms of legal personality continued
•
LLPs very popular with professionals who could not incorporate also as
vehicles for holding real estate. It has been said they offer more
flexibility than limited companies.
•
Whilst LLPs have been very popular they not widely understood and we
are experiencing the first few cases on what happens when things go
wrong.
Trusts
•
Entities that operate through trustees (see later). No minimum number
but need two to hold real estate.
4. Contract law
Clearest definition :"An agreement between two or more parties intended to have legally
enforceable consequences" .
Key requirements for a valid contract :a) there is an offer by one party.
b) the offer is accepted by the other(s).
c) the parties intend to create a legal relationship (intention to create legal
relations).
d) there is consideration, i.e. a price is paid for the performance of the
contract.
e) where required, formalities are complied with.
f) the parties have legal capacity to enter into the contract.
g) the wish to enter into the contract is genuine i.e. there has been no
mistake, fraud or duress.
h) the purpose of the contract is legal.
a) Offer
An offer can be verbal, in writing or by conduct.
Example of making offer by conduct would be taking goods from shelf in a
supermarket to a cashier and asking to pay.
An offer ends :- when it is not accepted within the time specified or within a reasonable
time (more arguable).
- it is withdrawn before acceptance.
- it is rejected by the person to whom the offer was made ("the offeree").
Rejection can be a simple rejection or by making of a counter offer or setting a
condition.
b) Acceptance
Can be written, oral or by conduct.
If a method of acceptance is stipulated one should follow that.
Must be complete, unqualified and unconditional.
Offer or acceptance "Subject to contract" or Subject to Formal Agreement"
means the parties are not bound until a formal contract is entered into. Such
wording is often used at the beginning of a transaction where the parties want to
put forward an offer but it is intended a fuller agreement is entered into.
Tenders
An invitation to tender is for parties to offer to supply goods or services on
specific terms. A party who submits a tender is making the offer and once
accepted a contract is formed.
c) Intention to create legal relations
Not always easy to ascertain.
Not usually for social or domestic purposes, for example an offer to take
someone out to dinner would not normally be viewed as intending to create a
contract.
In a commercial and business context it will be assumed there is an intention to
create legal relations unless it can be shown otherwise for example by use of the
wording subject to contract or other wording.
d) Consideration
Any benefit or detriment. Money or foregoing an opportunity.
Must be :-
Real
-
Legal
-
Possible
It need not be a good bargain.
Usually consideration cannot be in the past, except for bills of exchange and in
some circumstances for services provided in the past.
Another exception to the need for consideration is where a party has in reliance
on the promise of a person acted to their detriment, known as promissory
estoppel.
e) Formalities
Many contracts do not have to be in writing. People put them in writing
because:
i)
There are some types of contracts that must be in writing to be valid or
enforceable; or
ii)
it is easier to prove the terms rather than rely on parties' memories of
what was said and done.
Culture of English courts is to give greater weight to documents than oral
accounts . Documents do not have memories that can fade or be mistaken.
Contracts with specific formalities :Contracts that must be signed and made by deed (a special type of contract) :-
certain real estate transactions.
-
contracts where there is no payment or consideration e.g. a gift.
-
transfers of British ships or shares in them.
e) Formalities continued
Certain contracts must be in writing for example :-
- transfer of shares in a UK company
- bills of exchange, cheques and promissory notes
- assignment of copyright
- marine insurance
Certain contracts must have written evidence they have been made (by a note or
otherwise) examples of which are :- guarantees (Statute of Frauds 1677)
- contracts for sale of land
- contracts of employment
To avoid any difficulty those contracts are usually made in writing.
f) Capacity to enter into contracts
The parties must have capacity to enter into a contract.
Contracts with those under the age of 18 or insane or drunk/intoxicated might be
unenforceable.
In large contracts with corporate bodies it is worth checking that there is proper
authority to enter into the contracts.
Terms of a Contract
The terms set out the parties rights and obligations
Two types of terms
•
Express
•
Implied
Terms of a Contract continued
Express terms
Terms that are set out in the contract.
If the terms are not certain the contract will not be enforceable. So generally
one cannot have a contract to enter into another contract ("an agreement to
agree"). This is different from at least some US jurisdictions.
The contract must have terms which if not certain, must be capable of being
ascertained without further agreement of the parties. In a number of
agreements there is a mechanism or procedure by which the terms become
definite for example a valuer, expert or arbitrator makes a decision which binds
the parties.
Terms of a Contract continued
Implied terms
Parties are free to agree whatever they wish (save for example illegal matters)
In some cases the court may imply terms into a contract :-
to give the contract business efficacy (to achieve the purpose of the
contract)
-
example - where anticipated that use of port facilities would be
provided but they could not and party making offer had not checked
they could be
-
to reflect custom of a particular geographical area or trade
-
on grounds of public policy e.g. sale of goods for example that goods
are of satisfactory quality
Terms of a Contract continued
Clauses limiting or excluding liability
Parties free to include such clauses in contracts but this is subject to public policy.
For example clauses excluding or limiting liability for death and personal injury
and as regards consumers are heavily restricted.
Note where dealing on a party's standard terms they might be challenged as not
being "reasonable" (Unfair Contract Terms Act 1977).
Must do all that is reasonably necessary to bring such clauses to attention of
other party. If in signed agreement likely to satisfy this test.
Clauses will need to be clear and will be interpreted against the party seeking to
rely on exclusion or limitation of liability.
Terms of a Contract continued
Further distinction between two types of terms - conditions and warranties.
Condition - a term that is so important to the contract that if breached, the other
party can treat the contract as at an end. The innocent party does not then have
to do anything further under the contract.
Example sale of a car - the car does not work at all or is not provided by the
seller - clearly that is a condition and the purchaser is entitled to treat contract
at end.
Warranty - a term that is not central to the to the main purpose of the contract.
Breach of warranty only entitles the other party to damages and he cannot treat
the contract as at an end.
Example the sale of the car - there is a small fault in the paintwork of a car or the
wrong kind of music system is installed. Buyer is entitled to damages only and
the contract continues. The damages would be the difference between what the
buyer intended and what was received. Thus hard to calculate for smaller faults.
g) Genuine consent to enter into a contract.
A requirement for a valid contract.
A contract can be attacked on grounds of :-
Mistake
-
Misrepresentation
-
Duress
-
Undue influence
-
Illegality
Mistake
Where nature of contract is not what was intended, including identity of parties,
terms, and subject matter.
One asks the Court to either correct the contract or treat it as unenforceable.
General rule, mistake as to quality does not affect validity of contract. Example
sale of a piece of land by me to you for £1million. If I did not know that land was
in fact worth £20 million because of development potential, the contract is still
binding.
Misrepresentation
A material false statement of fact that induces the other party to enter into the
contract.
Example - on sale of residential land, when the seller was asked whether he had
notice of any applications to develop neighbouring land and he answered “no”
when he did. Buyer relied on that and refused to perform contract when found
out true position.
Misrepresentation must be made by party or his agent.
Innocent party must have relied on the representation.
Statement can be made dishonestly or negligently.
Remedies are damages and/or rescission (cancellation) of the contract.
General rule that silence does not amount to a misrepresentation. A key
exception to that rule is contracts of utmost good faith where failure to disclose
material facts whether asked for them or not, give other party option to treat the
contract as void.
Example - contracts of insurance - although steps started to limit this rule as
regards individual consumers.
Duress
Duress means violence or threatened violence or imprisonment - unusual.
Undue influence
Where influence is applied preventing a party from making an independent
judgment for example where special relationship, for example husband and wife
or lawyer and client or an elderly or otherwise vulnerable person.
Illegality
Where the purpose of the contract is in breach of the civil or criminal law.
Examples
•
Bribery and corruption.
•
Penalties.
•
Contracts in restraint of trade and restrictive covenants following sale of
business or following termination of employment needing to be
reasonable.
Remedies
Refusing to perform the contract.
Damages to restore claimant to position would have been if contract had been
performed.
Claim for quantum meruit ( reasonable fee for work done).
Order for performance of contract (injunction for specific performance).
Privity of contract
General rule has been that only parties to a contract can sue on it.
However since the Contracts (Rights of Third Parties) Act 1999 a contract can
impose an obligation on someone who is not party to a contract (a non- party)
and give a benefit to a non-party. In both cases the non-party can sue/be sued.
This is frequently excluded in agreements but could be potentially useful.
Example Collateral Warranties for non parties to contracts in construction still
sought by lenders.
There are other exceptions to the general rule of privity of contract including :•
Actions by beneficiaries under trusts.
•
Certain insurance contracts to confer benefit on non-parties (eg motor
insurance).
•
Negotiable instruments e.g. cheques/ bills of exchange.
•
Where a contract has been assigned or novated.
Assignments (transfers) and novation
Rights under a contract can normally be assigned unless where personal service
is essential to a performance and then consent of the other party will be
required.
Liabilities under a contract can only be assigned with agreement of the other
party. So this means that will often be a new contract with transferee who takes
over the liabilities – a novation agreement.
Notice of assignment should be given in writing. If not there are risks :- that defences relating to the party transferring can be raised;
- of loss of priority over a later transferee who was not aware of the earlier
assignment.
5. Trusts
Extremely brief review
Concepts of trusts and beneficial ownership are in the process of development in
Russian law.
A party ("the trustee") holds assets for the benefit of some other party or parties
("the beneficiaries") or other lawful purpose, so that the benefit of the asset is
for the beneficiaries or object of the trust.
Two kinds of owner. The Trustee is the legal owner and holds the property in
their name. The beneficiary is equitable or beneficial owner.
The settlor is the person providing the assets which are to be held on trust.
Several categories of trusts :-
Express
-
Implied
-
Constructive
Express Trusts
Where terms of the trust expressly set out
Can be written or oral
Requirements :•
Certainty of intention - must be clear there is to be a trust.
•
Certainty of subject matter – both assets and how to be held.
•
Certainty of object of the trust – i.e. can the beneficiaries be ascertained.
Implied Trusts
The Court will imply a trust in certain situations based on the intention of the
Settlor. For example if the trusts are void or there is a defect the trustees will
hold the assets on (resulting) trust for the settlor.
Constructive Trusts
The Court will impose a trust without taking account of the parties' intentions.
For example if in breach of the trust, the Trustee (T) transfers assets to another
party (X) who is aware of the breach of trust. X holds the assets on constructive
trust for the proper beneficiary (B).
Following on from this a claim could be made for the assets themselves directly
against X. This has advantages in certain insolvency situations so as to claim that
the assets do not form part of X's assets. Further B could also take advantage of
any increase in value of the assets.
© Wedlake Bell LLP 2013. All rights reserved.
This document is for general information only and does not seek to give legal advice or to be an exhaustive statement of the law. Specific advice should
always be sought for individual cases. This reflects the law as at June 2013.
Thank you for your attention
Any Questions?
How to structure a joint venture agreement in
the context of a hotel joint venture
Julian Mathews – Wedlake Bell LLP
7 June 2013
Your Speaker
Julian is a corporate lawyer who specialises in
private company M&A, private equity and joint
ventures. He has a particular focus on the hotel and
hospitality sector, as well as extensive experience in
acting on corporate real estate transactions.
Julian has acted for both mid-market private equity
institutions and also for management teams. He has
also acted on various cross border joint venture
transactions for real estate institutions and real
estate private equity firms.
Julian leads the hospitality and leisure sector at
Wedlake Bell and has in the past lectured on the
legal process of private equity transactions at the
executive MBA class of London Business School.
.
Julian Mathews
jmathews@wedlakebell.com
0044 20 7395 3174
To Cover
1.
2.
3.
4.
5.
6.
Introduction
Discussion on nature of the JV entity
Touch on tax
The operative documents
Discussion of the structure of a hotel JV
Questions
Introduction
1. Context of presentation
a)
b)
Focus is on UK law implications for joint ventures
Context of deal is a hotel acquisition
2. Assumptions
a)
b)
Assumes a general understanding of JV’s
Assumes little understanding of hotel transactions
3. Local or cross border
a)
Well, let’s cover both
4. Hotel specific factors
Basic Principles – Why a joint venture?
• Varies, and depends on the circumstances of
the parties and the subject of the business.
But can be due to:
• Sharing costs?
• Pooling of expertise?
• Cross border penetration?
• Main point is to ensure 1 + 1 = 3
Preliminary thoughts on structuring – nature of JV
vehicle
• Likely to be determined by:
•
•
•
•
•
•
Nature and size of the subject business
Identity and location of the proposed JV parties
Commercial and financial objectives of the proposed JV parties
Tax considerations
Funding
Extraction of profits
• Potential structures for the JV vehicle are:
•
•
•
•
Limited liability company
Limited liability partnership (LLP)
A partnership or limited partnership
A contractual arrangement with no JV vehicle
Limited liability company
• Generally, for most business joint ventures, a limited liability
company is most appropriate.
• In the UK, that company will be incorporated under the
provisions of the Companies Act 2006.
• As a separate legal entity, a JVCo can:
– Own and deal in its own assets
– Contract in its own right
– Sue and be sued in its own right
• Benefits from a participant’s perspective include:
– Veil of incorporation
– Limitation of liability
Limited liability company
• But note:
• Requirement to file accounts
• Duties of directors, especially conflicts of interest (s.175 of the
Companies Act 2006)
• Accounting issues – is it deemed a subsidiary under:
• The Companies Act 2006 provisions?
• IAS 28 and 31 – significant control?
Limited liability partnership (LLP)
• An LLP formed under Limited Liability Partnerships Act 2000 can
most be applicable for ventures between individuals such as
professional partnerships.
• An LLP is a body corporate with legal personality separate from its
members.
• An LLP:
•
•
•
Must publish accounts like a limited liability company
Have at least two members
Is generally taxed as a partnership despite being a
separate legal entity
• But note:
•
•
No transferable shareholding
Each member is an agent of the LLP
A partnership or limited partnership
• If a separate legal entity is not chosen, then distinction under
UK law is whether the vehicle is a “legal partnership” or not.
• If a partnership, then the Partnership Act 1890 applies.
• S.1 of Partnership Act 1890 defines a partnership as the
“relationship which subsists between persons carrying on a
business in common with a view of profit” – see s. 2 for rules
of determination.
• Characteristics of a partnership under the Act:
–
–
–
Each partner deemed to be the agent of the other partners.
As such, each partner jointly liable without limit for
debts and obligations of the partnership.
Further, each partner jointly and severally
liable for wrongful acts and omissions of his
co-partners.
A partnership or limited partnership
• Also possible to form a limited partnership under the Limited
Partnerships Act 1907.
• At least one member must be a general partner with
unlimited liability, but the GP can be a company.
• Note that limited partners cannot participate in the
management of the partnership without losing the right to
limited liability.
• Consequently limited partnerships most suitable for a
business where the majority of participants are
passive investors, such as a private equity fund.
A contractual arrangement with no JV vehicle
• Generally where parties agree to operate as independent
contractors in their own right, rather than shareholders or partners.
• The form of the agreement often known as a consortium or cooperation agreement.
• Note:
• Each party will not have a statutory responsibility for:
• the liabilities and obligations of the venture
• The acts or omissions of the other parties
• But each party has potentially unlimited liability for:
• own actions
• Other parties, if expressly assumed
responsibility or deemed to be vicariously
liable under the agreement.
Tax Considerations
• s
Overview of key documents
• Main documents for a corporate JVCo are:
• joint venture or shareholders agreement
• Articles of association of the joint venture
• Ancillary documents may include:
•
•
•
•
•
An asset or business purchase agreement
A management agreement
Loan note instrument
Service or secondment agreements
Licence agreements such as for IPR
• For an LLP or LP, then the partnership agreement
will be the main operative document.
Joint venture agreement
• The purpose of the JV agreement is to establish:
•
•
•
•
•
•
Rights and obligations of the parties
To establish the corporate entity
To provide how the JVCo will be operated
To provide what happens if there are difficulties
To provide methodology for exit, or termination, once venture aims
achieved.
JVCo articles of association
General Structure of a basic Corporate JV for a hotel
venture
JV Agreement
Party A
(Land/Hotel Owner
(Loan
Agreement?)
Loan
Agreement
Management Agreement
JVCo
Sale
Agreement
Franchise Agreement
(Hotel HoldCo?)
Hotel
Party B
(Operator)
Hotel Brand Co?
Thank you for your attention
Any Questions?
© Wedlake Bell LLP 2013. All rights reserved.
This document is for general information only and does not seek to give legal advice or to be an exhaustive statement of the law. Specific advice
should always be sought for individual cases. This reflects the law as at June 2013.
Julian Mathews
jmathews@wedlakebell.com
0044 20 7395 3174
How to structure a joint venture agreement in the
context of a hotel joint venture
Julian Mathews – Wedlake Bell LLP
7 June 2013
An initial public offering of securities in London
Edward Craft – Wedlake Bell LLP
7 June 2013
#7613951
Your Speaker
Edward is a specialist in corporate governance for
both private and public companies. Edward had
advised on many debt and equity capital markets
transactions.
Edward is Chairman of the Corporate Governance
Expert Group of the Quoted Companies Alliance,
the independent membership organisation that
champions the interests of small to mid-size quoted
companies.
Edward has recently been responsible for the new
Corporate Governance Code for Small and Mid-Size
Quoted Companies.
Edward is a member of the corporate governance
group of European Issuers.
Edward Craft
ecraft@wedlakebell.com
0044 20 7395 3099
Outline
1.
2.
3.
4.
5.
6.
IPO Options and the London Markets
Preparing for IPO
Documentation
Fundraising
Corporate Governance
On-going Obligations
1. IPO Options and the London Markets
• Why issue securities to the public at all?
• Decision to IPO is one of the most important a
board can ever make
• Admission to trading distinct from Listing
• Presumption that the securities being offered are
ordinary shares or depositary interests/receipts
– Can also have other securities listed/admitted to
trading, including:
• Non-voting ordinary shares
• Preference shares
• Debt securities
Depositary Interests
• A security in its own right
• Need to have appointed a depositary (and possibly a
custodian)
• Depositary/custodian regulated under UK financial
services legislation
• capable of electronic settlement through CREST
• Additional documentation:
– Trust Deed
– Depositary Agreement
– Legal Opinions
The London markets
Officially Listed Securities (UK Listing
Authority as the EU Authority)
Other traded securities
Main Board
Standard Listing – Premium Listing super equivalent
ESMA compliant
Growth Market
Equity Capital Markets: the global context
The Rules
Rule
Responsibility
Listing Rules
EU with FCA as UKLA
DTRs under Transparency Directive
EU with FCA as UKLA
AIM Rules
London Stock Exchange
High Growth Segment Rules
London Stock Exchange
ISDX Growth Market Rules
ICAP Securities and Derivatives Exchange
Company Law
EU and UK parliament
Securities Law
EU and UK parliament
UK Corporate Governance Code
Financial Reporting Council
Stewardship Code
Financial Reporting Council
Corporate Governance Code for Small and MidSize Quoted Companies
Quoted Companies Alliance
Takeover Code
Panel on Take-Overs and Mergers/UK
parliament
Prospectus Directive
EU
Market Abuse Directive
EU
MiFID/MiFID II
EU
2. Preparing for IPO
Q: Why move to a public market at all?
liquidity/
extended base
of shareholders
trading/kudos/
staff incentives/
stock for acq.fin.
exit/
valuation
to raise funds for
growth
businesses
Internal Matters
Directors –
executive and
NEDs
Board
Structure
Independence
Independence: directors
• Independence from both the issuer and major shareholders
• Independence criteria set out in provision B.1.1 of the UK Code
• Independence in character and judgement, as well as circumstances or
relationships
• Risk of impairing (or appearing to impair) the judgement of the director
• Where independence likely to be compromised:
–
–
–
–
–
–
–
–
former employee
material business relationship with the issuer, whether direct or indirect
receives additional remuneration from the issuer apart from a director’s fee
participates in the issuer’s share option or a performance-related pay scheme,
or is a member of the issuer’s pension scheme
close familial ties with any of the issuer’s advisers, directors or senior
employees
holds cross-directorships or has significant links with other directors
represents a significant shareholder
has served on the board for more than nine years
Independence: major shareholders
• Links between directors with major shareholders represents a
significant issue, particularly preparing for IPO
• Issue linked with marketability of issuer’s stock: free float
• There may be an alignment of interests between long term
institutional investors and well managed, significant and
stable family holdings
• Boards should clearly and regularly explain the position to
shareholders
• May be need for relationship agreements
Shares/Depositary Interests
Structure for
listing
Shares
Major
shareholders –
founders,
dilution and
relationship
agreements
Reorganisation
Need to put in place the correct share structure
•
•
•
•
Marketability
Free transfer to comply with listing requirements
Authority to allot shares/ability to raise new funds
Is the proposed issuer a vehicle capable of
admission:
– must be able to issue shares to the public in place
of incorporation
– Ltd. to PLC conversion problems
Advisory Team
• Corporate finance advisor:
– sponsor (Listed) – transaction specific
– nominated advisor (AIM)
retained
– ISDX corporate advisor
• Broker
• Depositary (and Custodian if UCITS or AIF)
• Reporting Accountant
• Lawyers
• Registrar
• Financial PR
• Security Printer
3. Documentation: Three Stages
…but before you start
• Will the issuer be suitable for a listing?
• Major board decisions:
–
–
–
–
–
–
when to IPO
what to IPO
which market
where to fundraise, from and through whom
price indicators
where the equity growth will come from
• Risk of markets
–
–
–
–
–
lots of moving pieces
volatility of markets
investor appetite may evaporate through the process
multiple parties
generally more risky that exiting to private equity
Stage One: commencing the process
Key Message: write your equity growth story
•
•
•
•
•
•
•
•
Strategy
Board evaluation
Business Plan
Engagement terms of advisors
Market assessment
Pre-preparation
Share structure and constitutional matters
Checking of contractual model etc.
Stage Two: getting you there
Key Message: refine your equity growth story
• Financial DD:
– long form
– short form
– IFRS integration issues
• Legal DD
– Commercial
– tax structuring
– consider where your investors are going to be drawn from
• Corporate Governance:
–
–
–
–
–
Review
Committee terms of reference
Audit function (risk controls)
What will issuer “look and feel” like with a diversified investor base?
Start to behave like a PLC as soon as is appropriate
• Competent person’s report/valuation report/IP report/specialist reports
Stage Three: Road Show to Impact
Key Message: tell your equity growth story
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Prospectus/Admission Document
Investor Presentation
Placing Agreement
Placing Letter
Placing List
Lock-In Agreements
Irrevocable Undertakings
Board Minutes
Regulatory Announcements
Underwriting Agreements
Timeline
• 9 months from a standing start:
– Stage 1 – 4-5 months
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strategic review
focus on equity growth story
largely internal, but with corporate finance advice
determining points of reference and terms of engagement
– Stage 2 – 3 months
• detailed due diligence and preparation
• significant advisory input
– Stage 3 – Road Show to Impact – 1 month
• “all hands to the pump”
• directors will be busy on road shows with broker
• advisory team will be beavering away on the documents and
funding calls
4. Fundraising
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Key reason for going public
Key role of the broker
– opening up own book of clients
– role of research
Consider both the IPO and the medium to long term investor base a n issuer wants
to develop
Selling shareholders at IPO or shortly thereafter
Creation of investor and consumer demand for both stock and product
Balancing interest of long term investment with ensuring there is sufficient
“product” in the market to allow for a healthy level of share trading
Pricing negotiations between broker and issuer/corporate finance advisor
My advice: buy good advice and follow it!
Financial Promotion
• Issuer must issue a prospectus where:
– issuer is seeking approval to a regulated market
and/or
– an offer is being made to the public
• no prospectus required where seeking admission to AIM/ISDX Growth
Market without public offer
• Need to always consider where funds are being raised and comply with
local law on financial promotion
• A lot of advice revolves around ensuring that a fundraising transaction
does not require a prospectus/is not an offer to the public:
– EU prospectus exemptions now very useful as can offer to up to
200 persons in each EU member state
– UK use of exemptions under Financial Promotion Order 2005
– US use of Securities Act exemptions such as 144A/Regulation S
5. Corporate Governance
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Originally developed by the market
Coming of age
Now greater regulatory footing
EU action plan
The UK Corporate Governance Code: FTSE 350
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The UK Corporate Governance Code is published by the Financial Reporting Council
Began with the 1992 Cadbury Report on Financial Aspects of Corporate Governance
It is a Listing rule that all companies within the FTSE 350 apply to the UK Code on a comply or
explain basis
Five principles around which the detailed provisions are then set out, being:
A – Leadership
B – Effectiveness
C – Accountability
D – Remuneration
E – Relations with Shareholders
Parallel document: the UK Stewardship Code
– sets out standards of behaviours within the investment chain
– most importantly fund managers
Small and Mid-Size Quoted Companies
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The needs of the SME sector are different
SMEs are vital in delivering growth post financial crisis
Governance should not inhibit growth
Good governance lowers the cost of capital
One size does not fit all
The Quoted Companies Alliance Code bridges the gap
between FTSE 350 structures and the rest of the market
• Supporting the ambitions of growth of companies
encouraging:
– proportionate governance
– within an entrepreneurial environment
The Corporate Governance Relationship
6. On-going Obligations
• A requirement of the relevant Listing Rules, DTRs, AIM Rules, ISDX
Rules
• Also need to consider securities laws and compliance with company
law more generally
• Need to keep the market informed “without delay” of all material
developments
• Announcements through a regulatory information service
• Shareholder approval of certain arrangements
– class tests
– related party transactions
– reverse takeover
• Timing for announcement of financial information
• Takeover Code compliance: 30% mandatory bid threshold
• Extended Takeover Code application from 1 September 2013
An initial public offering of securities in London
Edward Craft – Wedlake Bell LLP
ecraft@wedlakebell.com
0044 20 7395 3099
7 June 2013
#7613951
© Wedlake Bell LLP 2013. All rights reserved.
This document is for general information only and does not
seek to give legal advice or to be an exhaustive statement of
the law. Specific advice should always be sought for
individual cases. This reflects the law as at the date of
publication .