UKLA Reduces Burden Of Joint Venture Rules

The UK Listing Authority has announced that significant changes are to be made to the Listing Rules that relate to joint ventures with effect from 6 August 2007. These changes will make it much easier for listed companies and their subsidiaries to be involved in joint venture transactions.

The main changes are:

Where the JV agreement includes exit provisions where the price is uncapped (generally because it is to be market value at the time of exit), this will only be treated as a Class 1 transaction (and therefore needing shareholder approval) if any of the other class tests indicate that it should be Class 1 or 2. If all the other Class Tests indicate that it should be Class 3, then the uncapped exit provisions will mean it is treated as a Class 2 transaction (and therefore requiring only to be announced in sufficient detail in accordance with specific requirements in chapter 10 of the Listing Rules).

Confirmation that some listed companies may be able to treat entering into JVs as "ordinary course" business, and so not subject to the Class Tests at all - although this will be a difficult test to satisfy.

In JVs that are deadlocked (that is, both parties or their nominees need to agree on any proposed decisions), the JV and JV partner will no longer be automatically treated as related parties. This will save significant time and effort for many smaller transactions with or relating to the joint venture.

The relaxation of the uncapped consideration rule has general application to all transactions (and so might, for example, enable the listed company or one of its subsidiaries to enter into uncapped earn-out arrangements without having to seek shareholder approval).

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The UK Listing Authority has announced that significant changes are to be made to the Listing Rules that relate to joint ventures with effect from 6 August 2007. These changes will make it much easier for listed companies and their subsidiaries to be involved in joint venture transactions.

What Issues Have Come Up For Listed Companies Wanting To Enter Into Joint Ventures?

Since the new Listing Rules were introduced in July 2005, two key issues have become wearyingly familiar when we have been dealing with joint ventures with listed companies.

Exit provisions and the Class 1 problem

When signing up for a joint venture, the parties often want to agree certain situations that will result in the joint venture being brought to an end. These may include inability to agree on certain issues, breaches of the...