Rangers chairman ordered to make £11m share offer after judge rules in favour of Takeover Panel

A judge in the Court of Session found in favour of the Panel on Takeovers and Mergers and ruled that David King was required to make an offer having already obtained a 30% shareholding, adding that there was “no merit” in his claim that he could not afford to finance the offer because he was allegedly “penniless”.

Lord Bannatyne heard that the proceedings arose out of a series of rulings made in respect of the respondent by the Panel’s Executive, the Hearings Committee and the Takeover Appeal Board (TAB).

Mr King was found to have acted in concert with George Letham, George Taylor and Douglas Park in his acquisition of shares in Rangers, and therefore obliged to make a mandatory offer, in accordance with Rule 9 of the City Code on Takeovers and Mergers, for all of the Rangers issued share capital not already owned by him or the concert parties.

The TAB decision required the respondent to announce the making of a mandatory offer by 12 April 2017, but Mr King failed to comply with the decision and the panel therefore sought an order under section 955 of the Companies Act 2006 ordaining the respondent to announce in accordance with Code, within 30 days of the date of the court’s order, a mandatory offer at a price of 20p per share – amounting to £11 million.

The issues for the court’s determination were the ambit of the court’s discretion on a proper construction of section 995 of the 2006 Act, and whether the court should refuse the order sought if it had the discretion to do so.

On behalf of the panel, James McNeill QC submitted that on a “sound construction” of the provision, which states that “the court may make any order it thinks fit to secure compliance with the requirement”, the court could not as sought by the respondent exercise its discretion and make no order.

He also argued that the suggestion that the respondent did not have personal funds to finance the offer was “irrelevant”.

It was not open to the respondent to rely on his supposed “impecuniosity” as a reason for not having to comply with the Code, as he had decided to buy the above amount of shares in Rangers, which would take him over the 30% limit, in the “full knowledge of the consequences” of such a course of action with respect to a mandatory offer.

In reply, for the respondent Lord Davidson of Glen Clova submitted that it was “axiomatic” that where a statute provided that the court “may make an order” such as in section 995 of the Act, the court had a “discretion” as to whether it did or did not pronounce an order – and in this case the court had a discretion not to make an order.

It was also argued that the pronouncing of an order in this case would serve ”no practical purpose” as respondent did not have “free personal funds” to finance it.

In any event, it was submitted that an offer at 20p would achieve ”no practical result”, given the price at which Rangers shares were currently trading, as no Rangers shareholder would accept an offer at 20p.

In respect of the first issue the judge found in favour of the respondent, but in respect to the second issue he found in favour of the panel and granted the order.

In a written opinion, Lord Bannatyne said: “He made the decision to obtain 30% shareholding in full knowledge of his financial position and how his financial affairs were structured and in full knowledge of the effect of Rule 9. In these circumstances the issue of his alleged inability due to his financial circumstances to make the offer required in terms of Rule 9 is nothing to the point, it is an irrelevant consideration.”

The judge also held that the respondent’s argument that the offer price of 20p was so far below the market price of the shares in Rangers that the shareholders would not accept it was also an “irrelevant consideration”.

He explained: “Rule 9 requires an offer should be made at a price determined in terms of provisions of the rule in order to achieve fair treatment. Thereafter it is a matter for the shareholders to decide if they wish to accept an offer at that price. It is for the shareholders to decide on the merits of the offer, not for the respondent to seek to make that decision for them and thus avoid having to make the offer in terms of Rule 9.

“If this were a relevant factor it appeared to me to turn the rule on its head. It allowed the party in breach of the rule to decide at what level the offer should be made and beyond that to usurp the position of the shareholders as to whether that offer should be accepted. That in my judgment clearly showed the irrelevancy of the respondent’s argument.”