Judges publish reasons for rejecting Rangers chairman’s appeal against court order to make £11m share offer

A judge had found in favour of the Panel on Takeovers and Mergers and ruled that Dave King was required to make a “mandatory offer” having already obtained a 30% shareholding - a ruling which has been upheld by the Inner House of the Court of Session.

‘Mandatory offer’

The Lord President, Lord Carloway, sitting with Lord Drummond Young andLord Glennie, heard that the case concerned the acquisition on 31 December 2014 and 2 January 2015 of shares in Rangers amounting to 34.05% of the total issued share capital in the company.

The transactions were investigated by the Panel, which held that the shares were acquired by a group of persons acting in concert and that the reclaimer, Mr King, acting through a company called New Oasis Asset Management Ltd (NOAL), was one of those persons.

Because Mr King was the person whose acquisition of shares (through NOAL) took the total holding of the concert party above 30%, the Panel’s Executive held that he was obliged to make a mandatory offer in accordance with rule 9 of the City Code on Takeovers and Mergers for all of Rangers’ issued share capital not already owned by him or by the other members of the concert party and that, in accordance with rule 9.5(c) of the Code, the offer price should be 20p per Rangers share - which amounted to £11 million.

Mr King challenged the decision but the ruling was affirmed by the Panel’s Hearings Committee and the Takeover Appeal Board, following which the Panel applied to the court for an order under section 955 of the Companies Act 2006 ordaining the reclaimer to announce a mandatory offer in accordance with the Code within 30 days.

The Lord Ordinary granted the order, but Mr King appealed against the decision on two principal grounds.

‘Impecuniosity’

First, it was contended that the funds that were used to purchase the shares were not those of the reclaimer but were trust funds held by NOAL for the purposes of a Guernsey trust known as the Glencoe Investments Trust.

Consequently it was submitted that the reclaimer was unable to access the funds, and will therefore be unable to pay the requisite price if his offer should be accepted by any shareholders, which amounted in effect to an argument of “impecuniosity”.

Secondly, it was argued that the orders made would not serve any practical purpose, given that the offer was to be made at a price of 20p per share, when the shares in Rangers were currently trading at approximately 25p per share.

Refusing the appeal, the judges observed that in order to discover the reality of a transaction, in particular whether it was concerted, and the availability and source of funds, “common sense and experience” must be used in making reasonable inferences from the facts and circumstances that emerge in evidence.

‘True control’

Delivering the opinion of the court, Lord Drummond Young said: “In the present case, the findings in fact demonstrate clearly in our opinion that it was the reclaimer who had true control over the funds used to acquire the Rangers shares that were placed in the name of NOAL. On that basis, it is probable that the reclaimer will continue to have control over the funds of NOAL, and indeed other assets of the Glencoe Investments Trust.

“We accordingly reject the contentions that the reclaimer is unable to access funds held by NOAL or Glencoe and that he is accordingly unable to pay the requisite price if the offer ordered by the Panel should be accepted by shareholders. On this basis the first argument for the reclaimer must fail.”

The court also rejected the reclaimer‘ second argument that the order of the Panel, affirmed by the Hearings Committee and the Takeover Appeal Board, would not serve any practical purpose.

Lord Drummond Young said: “The primary reason is that the Code in general, and rule 9 in particular, is of great importance in the practical operation of the system of corporate governance. The Panel is charged with the administration of the Code. Consequently, if an order is made by the Panel for the acquisition of shares, the court should enforce it in the absence of exceptional circumstances. We consider below the sort of circumstances that might be exceptional. Nevertheless, the norm is enforcement.

“‘Exceptional circumstances’ will, we think, almost invariably result from developments that have occurred after the 30% shareholding has been acquired. The situation that existed when the initial offer was made, and any developments prior to the time when 30% was acquired, should be reflected in the offer, and it is that offer that must be extended to other shareholders.

“Apart from the importance of enforcing the Code, it cannot in our opinion be said in the circumstances of the present case that the price offered to minority shareholders will necessarily be decisive. The reclaimer’s argument on this point was considered by the Takeover Appeal Board and rejected, and weight must be placed on their view.”

“Moreover,” he added, “the difference in price between the 20p specified in the offer and what is said to be the current price of 25p is not great, and some shareholders may be anxious to realise their shares quickly and easily. Furthermore, shareholders in a football club are frequently driven by non-economic considerations. In these circumstances we do not think that it could be said that the offer ordered by the Panel will serve no practical purpose.”