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DTR 7.3 Related party transactions

Transaction

DTR 7.3.1R

1A reference in this section:

  1. (1)

    to a transaction or arrangement by an issuer includes a transaction or arrangement by its subsidiary undertaking; and

  2. (2)

    to a transaction is, unless the contrary intention appears, a reference to the entering into of the agreement for the transaction.

[Note: article 9c(7) of the Shareholder Rights Directive]

Definition of related party

DTR 7.3.2R

In DTR, a “related party” has the meaning in IFRS.

[Note: article 2(h) of the Shareholder Rights Directive]

Definition of related party transaction

DTR 7.3.3R

In DTR, a “related party transaction” means:

  1. (1)

    a transaction (other than a transaction in the ordinary course of business and concluded on normal market terms) between an issuer and a related party; or

  2. (2)

    an arrangement (other than an arrangement in the ordinary course of business and concluded on normal market terms) pursuant to which an issuer and a related party each invests in, or provides finance to, another undertaking or asset; or

  3. (3)

    any other similar transaction or arrangement (other than a transaction or arrangement in the ordinary course of business and concluded on normal market terms) between an issuer and any other person the purpose and effect of which is to benefit a related party.

[Note: article 9c(5) of the Shareholder Rights Directive]

DTR 7.3.4R

An issuer must establish and maintain adequate procedures, systems and controls to enable it to assess whether a transaction or arrangement with a related party is in the ordinary course of business and has been concluded on normal market terms. An issuer must ensure that the related party and any person who is an associate, director or employee of the related party does not take part in any such assessment.

[Note: article 9c(5) of the Shareholder Rights Directive]

Transactions to which this section does not apply

DTR 7.3.5R

DTR 7.3.8R does not apply to any related party transaction which is:

  1. (1)

    a transaction or arrangement between the issuer and its subsidiary undertaking provided that:

    1. (a)

      the subsidiary undertaking is wholly owned; or

    2. (b)

      no other related party of the issuer has an interest in the subsidiary undertaking; or

  2. (2)

    a transaction or arrangement regarding remuneration, or certain elements of remuneration, of a director of the issuer, where the remuneration to be awarded or due to the director is in accordance with the issuer’s directors’ remuneration policy as approved by the shareholders of the issuer in accordance with section 439A of the Companies Act 2006 and paid in accordance with section 226B of the Companies Act 2006; or

  3. (3)

    a transaction offered to all shareholders of the issuer on the same terms where equal treatment of all shareholders and protection of the interests of the issuer is ensured.

[Note: article 9c(6) of the Shareholder Rights Directive]

Material related party transactions

DTR 7.3.6G

Whether a related party transaction is a material related party transaction is determined by assessing its size relative to that of the issuer proposing to make it. The comparison of size is made by using the percentage ratios resulting from applying the related party test calculations to a transaction or arrangement. The related party tests are set out in DTR 7 Annex 1.

[Note: article 9c(1) of the Shareholder Rights Directive]

DTR 7.3.7R

In DTR:

  1. (1)

    percentage ratio” means (in relation to a transaction or arrangement) the figure, expressed as a percentage, that results from applying a calculation under a related party test to the transaction or arrangement;

  2. (2)

    related party tests” means the tests set out in DTR 7 Annex 1, which are used to determine whether a transaction or arrangement is a material related party transaction; and

  3. (3)

    material related party transaction” means a related party transaction where any percentage ratio is 5% or more.

[Note: article 9c(1) of the Shareholder Rights Directive]

Requirements for material related party transactions

DTR 7.3.8R

If an issuer enters into a material related party transaction, the issuer must:

  1. (1)

    no later than the time when the terms of the transaction or arrangement are agreed, publish an announcement on a RIS which sets out:

    1. (a)

      the nature of the related party relationship;

    2. (b)

      the name of the related party;

    3. (c)

      the date and the value of the transaction or arrangement; and

    4. (d)

      any other information necessary to assess whether the transaction or arrangement is fair and reasonable from the perspective of the issuer and of the shareholders who are not a related party, including minority shareholders;

  2. (2)

    obtain the approval of its board for the transaction or arrangement before it is entered into; and

  3. (3)

    ensure that any director who is, or an associate of whom is, the related party, or who is a director of the related party, does not take part in the board’s consideration of the transaction or arrangement and does not vote on the relevant board resolution.

[Note: article 9c(2) and 9c(4) of the Shareholder Rights Directive]

DTR 7.3.9R

If, after obtaining board approval but before the completion of a material related party transaction, there is a material change to the terms of the transaction or arrangement, the issuer must comply again separately with DTR 7.3.8R in relation to the transaction or arrangement.

DTR 7.3.10G

The FCA would (amongst other things) generally consider an increase of 10% or more in the consideration payable to be a material change to the terms of the transaction.

DTR 7.3.11G
  1. (1)

    An issuer which complies with LR 11.1.7R (Requirements for related party transactions) in relation to a material related party transaction will satisfy the requirements of DTR 7.3.8R in respect of that transaction or arrangement.

  2. (2)

    An issuer which complies with LR 11.1.10R (Modified requirements for smaller related party transactions) in relation to a material related party transaction will satisfy the requirements of DTR 7.3.8R(1) in respect of that transaction or arrangement.

  3. (3)

    An issuer which complies with LR 11.1.7R as modified by LR 21.5.2R (Transactions with related parties: Equity shares) or LR 21.10.4R (Transactions with related parties: certificates representing shares) in relation to a material related party transaction will satisfy the requirements of DTR 7.3.8R(1) in respect of that transaction or arrangement.

  4. (4)

    An issuer which complies with LR 11.1.10R as modified by LR 21.5.2R or LR 21.10.4R in relation to a material related party transaction will satisfy the requirements of DTR 7.3.8R(1) in respect of that transaction or arrangement.

DTR 7.3.12G

DTR 7.3.8R applies to the variation or novation of an existing agreement between the issuer and a related party whether or not, at the time the original agreement was entered into, that party was a related party.

Aggregation of transactions in any 12-month period

DTR 7.3.13R
  1. (1)

    If an issuer enters into transactions or arrangements with the same related party (and any of its associates) in any 12-month period, and the issuer has not been required to comply with DTR 7.3.8R in respect of the transactions or arrangements, the transactions or arrangements must be aggregated.

  2. (2)

    If any percentage ratio is 5% or more for the aggregated transactions or arrangements, the issuer must comply with DTR 7.3.8R in respect of each of the aggregated transactions or arrangements.

[Note: article 9c(8) of the Shareholder Rights Directive]

Compliance with the disclosure requirements

DTR 7.3.14G

An issuer should consider its obligations under the disclosure requirements in relation to a related party transaction.

[Note: article 9c(9) of the Shareholder Rights Directive]