Content Options

View Options

Status: You are viewing the version of the handbook as on 2009-03-31.

LR 11.1 Related party transactions

Application

LR 11.1.1RRP

1This chapter applies to a company that has a primary listing of equity securities.

Purpose

LR 11.1.2GRP
  1. (1)

    This chapter sets out safeguards that apply to:

    1. (a)

      transactions and arrangements between a listed company and a related party; and

    2. (b)

      transactions and arrangements between a listed company and any other person that may benefit a related party.

  2. (2)

    The safeguards are intended to prevent a related party from taking advantage of its position and also to prevent any perception that it may have done so.

Transaction

LR 11.1.3RRP

A reference in this chapter:

  1. (1)

    to a transaction or arrangement by a listed company includes a transaction or arrangement by its subsidiary undertaking; and

  2. (2)

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

Definition of “related party”

LR 11.1.4RRP

In LR, a "related party" means:

  1. (1)

    a person who is (or was within the 12 months before the date of the transaction or arrangement) a substantial shareholder; or

  2. (2)

    a person who is (or was within the 12 months before the date of the transaction or arrangement) a director or shadow director of the listed company or of any other company which is (and, if he has ceased to be such, was while he was a director or shadow director of such other company) its subsidiary undertaking or parent undertaking or a fellow subsidiary undertaking of its parent undertaking; or

  3. (3)

    [deleted]2

    2
  4. (4)

    a person exercising significant influence; or

  5. (5)

    an associate of a related party referred to in paragraph (1), (2) or (4).

    2

Definition of “related party transaction”

LR 11.1.5RRP

In LR, a "related party transaction" means:

  1. (1)

    a transaction (other than a transaction of a revenue naturein the ordinary course of business) between a listed company and a related party; or

  2. (2)

    an arrangement pursuant to which a listed company 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 of a revenue nature in the ordinary course of business) between a listed company and any other person the purpose and effect of which is to benefit a related party.

LR 11.1.5AGRP

2In assessing whether a transaction is in the ordinary course of business under this chapter, the FSA will have regard to the size and incidence of the transaction and also whether the terms and conditions of the transaction are unusual.

Transactions to which this chapter does not apply

LR 11.1.6RRP

LR 11.1.7 R to LR 11.1.10 R do not apply to a related party transaction if it is a transaction or arrangement:

  1. (1)

    of a kind referred to in paragraph 1 of LR 11 Annex 1 (a small transaction); or

  2. (2)

    of a kind referred to in paragraph 2 to 10 of LR 11 Annex 1 and does not have any unusual features.

Note: If an issuer is proposing to enter into a transaction that could be a related party transaction it is required under LR 8 to obtain the guidance of a sponsor to assess the potential application of LR 11.

Requirements for related party transactions

LR 11.1.7RRP

If a listed company enters into a related party transaction, the listed company must:

  1. (1)

    make a notification in accordance with LR 10.4.1 R (Notification of class 2 transactions) that contains the details required by that rule and also:

    1. (a)

      the name of the related party; and

    2. (b)

      details of the nature and extent of the related party's interest in the transaction or arrangement;

  2. (2)

    send a circular to its shareholders containing the information required by LR 13.3 and LR 13.6;

  3. (3)

    obtain the approval of its shareholders for the transaction or arrangement either:

    1. (a)

      before it is entered into; or

    2. (b)

      if the transaction or arrangement is expressed to be conditional on that approval, before it is completed; and

  4. (4)

    ensure that the related party:

    1. (a)

      does not vote on the relevant resolution; and

    2. (b)

      takes all reasonable steps to ensure that the related party's associates do not vote on the relevant resolution.

LR 11.1.8GRP

If a meeting of the listed company has been called to approve a transaction or arrangement and, after the date of the notice of meeting but before the meeting itself, a party to that transaction or arrangement has become a related party, then to comply with LR 11.1.7 R the listed company should:

  1. (1)

    ensure that the related party concerned does not vote on the relevant resolution and that the related party takes all reasonable steps to ensure that its associates do not vote on the relevant resolution; and

  2. (2)

    send a further circular, for receipt by shareholders at least one clear business day before the last time for lodging proxies for the meeting, containing any information required by LR 13.3 (Contents of all circulars) and LR 13.6 (Related party circulars) that was not contained in the original circular with the notice of meeting.

LR 11.1.9GRP

LR 11.1.7 R and LR 11.1.8 G will apply to the variation or novation of an existing agreement between the listed company and a related party whether or not, at the time the original agreement was entered into, that party was a related party.

Modified requirements for smaller related party transactions

LR 11.1.10RRP
  1. (1)

    This rule applies to a related party transaction if each of the percentage ratios is less than 5%, but one or more of the percentage ratios exceeds 0.25%.

  2. (2)

    Where this rule applies, LR 11.1.7 R does not apply but instead the listed company must before entering into the transaction or arrangement (as the case may be):

    1. (a)

      inform the FSA in writing of the details of the proposed transaction or arrangement;

    2. (b)

      provide the FSA with written confirmation from an independent adviser acceptable to the FSA that the terms of the proposed transaction or arrangement with the related party are fair and reasonable as far as the shareholders of the listed company are concerned; and

    3. (c)

      undertake in writing to the FSA to include details of the transaction or arrangement in the listed company's next published annual accounts, including, if relevant, the identity of the related party, the value of the consideration for the transaction or arrangement and all other relevant circumstances.

Aggregation of transactions in any 12 month period

LR 11.1.11RRP
  1. (1)

    If a listed company enters into transactions or arrangements with the same related party (and any of its associates) in any 12 month period and the transactions or arrangements have not been approved by shareholders the transactions or arrangements

    must be aggregated.

  2. (2)

    If any percentage ratio is 5% or more for the aggregated transactions or arrangements, the listed company must comply with LR 11.1.7 R in respect of the latest transaction or arrangement.

Note: LR 13.6.1R (8) requires details of each of the transactions or arrangements being aggregated to be included in the circular.

  1. (3)

    If transactions or arrangements that are small transactions under LR 11 Annex 1 paragraph 1 are aggregated under paragraph (1) of this rule and for the aggregated small transactions each of the percentage ratios is less than 5%, but one or more of the percentage ratios exceeds 0.25%, the listed company must comply with:

    1. (a)

      LR 11.1.10R (2)(b) in respect of the latest small transaction; and

    2. (b)

      LR 11.1.10R (2)(a) and LR 11.1.10R (2)(c) in respect of the aggregated small transactions.

2