Following the publication of the new UK Listing Rules on 11 July (see UK Listing Regime: new UKLR published: key points for premium listed companies) we have continued to look at how the changes will impact existing companies with a premium listing. This update considers the new rules for related party transactions (RPTs) which will appear in UKLR 8.
The new rules broadly reflect the position outlined in CP23/31: Primary Markets Effectiveness Review: Feedback to CP23/10 and detailed proposals for listing rules reforms (fca.org.uk) which we covered in our previous update in December 2023: UK Listing Regime: removal of compulsory shareholder vote and circular for related party transactions. No prior independent shareholder approval or a shareholder circular will be required for a related party transaction.
Instead an issuer with shares listed in the ESCC category will need to run the class tests to establish whether any of the percentage ratios is 5% or more.
No UKLR requirements for smaller RPTs
The new rules on RPTs only apply if a listed company enters into a related party transaction where any percentage ratio is 5% or more. If the transaction falls below that threshold no action is required under UKLR. The contrasts with the current regime for smaller RPTs and small RPTs set out in LR 11.1.10R and Annex 1 to LR 11.
Disclosure obligations under UK MAR will continue to apply.
Requirements for RPTs where class tests are 5% or more
If a listed company enters into a related party transaction where any percentage ratio is 5% or more, the listed company must:
- obtain board approval for the transaction before it is entered into;
- ensure that any conflicted director does not take part in the board’s consideration of the transaction and does not vote;
- before entering into the transaction, obtain written confirmation from a sponsor that the terms of the proposed transaction with the related party are fair and reasonable as far as the shareholders of the listed company are concerned; and
- notify a RIS as soon as possible after the terms of the transaction are agreed.
What needs to be in the announcement?
The RIS announcement must include:
- details of the related party transaction;
- the fact that the transaction is a related party transaction;
- details of the nature and extent of the related party’s interest in the transaction;
- a statement by the board that the transaction is fair and reasonable as far as the shareholders of the company are concerned and that the directors have been so advised by a sponsor;
- the name of the sponsor; and
- any further information which the company considers relevant, having regard to the purpose of the RPT rules in UKLR 8.
Substantial shareholder threshold increased from 10% to 20%
Under the listing rules a substantial shareholder in the issuer is treated as a related party. Under the current LR the threshold is set at 10% or more of the votes able to be cast on all or substantially all matters at general meetings of the company (or of any company which is its subsidiary undertaking or parent undertaking or a fellow subsidiary undertaking of its parent undertaking).
UKLR 8 increases that threshold to 20% (see UKLR 8.1.12R) which should reduce the number of RPTs within the scope of the new rules.
DTR 7.3 “switched off”
An issuer which is required to comply with the requirements in UKLR 8 (Equity shares (commercial companies): related party transactions) does not need to comply with DTR 7.3 (Related party transactions) .
Further information
If you would like to discuss the new regime for related party transactions or the changes to the UK Listing Regime more generally, please speak to your usual contact at Burges Salmon or Nick Graves, head of the firm's Corporate Department.
"We consider that the impact of our proposals would place more emphasis on boards to manage potential conflicts of interest effectively and make decisions that preserve or increase (rather than erode) shareholder value, in accordance with their general duties under applicable law and within the company’s own internal governance arrangements." FCA in PS24/6