#3348 - Related Party Transactions Crib Sheet - Public Companies and Equity Finance

Related Party Transactions

1. Is the company premium-listed?

   1. LR 11.1.1R Chapter 11 applies to a company that has a premium listing

      1. LR 11.1.2G(1) & (2) Chapter 11 applies safeguards to transactions and arrangements between a listed company on the one hand and related parties on the other to prevent the related party taking advantage of its position
         

2. Is there a transaction?

   1. LR 11.1.3R A transaction is a reference to the entering into the agreement for the transaction

      1. APPLY TO THE FACTS

3. Is there a related party?

   1. A related party is

      1. LR 11.1.4R(1) A substantial shareholder?

         1. Appendix 1.1 LR a substantial shareholder man a person with more than 10% voting shares in the listing company

            1. A company is a legal person

      2. LR 11.1.4R(2) Director or Shadow Director?

         1. Equitable Life Director includes a non-executive director

      3. LR 11.1.4R(4) A person exercising significant influence

      4. LR 11.1.4R(5) An associate of a related party (Is there an associate of a person? Is that person a related party?)

         1. Appendix 1.1 an associate of a director means a director’s

            1. Spouse, civil partner or child

            2. Trustee of any trust of which the director is a beneficiary or their family are

            3. Any company in whose shares the director and member of his family are able to exercise or control 30% or more of the votes at a GM or appoint/remove directors

         2. Appendix 1.1 an associate in relation to a substantial shareholder means

            1. Any other company which is its subsidiary or parent or fellow subsidiary or parent

            2. Any company whose directors are accustomed to act in accordance with the substantial shareholder’s directors

            3. Any company in the capital of which the substantial shareholder and the first company taken together would be a substantial shareholder

4. Is there a related party transaction?

   1. LR 11.1.5R(1) A transaction between a listed company and a related party

   2. LR 11.1.5R(2) An arrangement pursuant to which a listed company and a related party each invests in, or provides finance to, another undertaking or asset

   3. LR 11.1.5R(3) A transaction between a listed company and any person, the purpose and effect of which is to benefit a related party

5. Class Tests

   1. LR 10, Annex 1, Para 8 The latest published accounts should be used, but in the absence of these the preliminary statement of annual results can be used

      1. APPLY TO FACTS

   2. LR 10 Annex 1, Para 2R Gross Asset Test

      1. (Gross assets which are transaction subject/Gross assets of listed company) X 100

   3. LR 10 Annex 1, Para 4R Profits Test

      1. (Profits attributable to assets which are transaction subject/Profits of listed company) X 100

   4. LR 10 Annex 1, Para 5R Consideration Test

      1. (Consideration for transaction/Aggregate market value of listed company’s ordinary shares) X 100

   5. LR 10 Annex 1, Para 7R Gross Capital Test

      1. (Gross capital of the company or business being acquired/gross capital of listed company) X 100

         1. Para 7R(2) This test does not apply where there has been a disposal

   6. LR 10 Annex 1, Para 10G The FSA can modify the class tests

6. Classification

   1. Class 3

      1. LR 10.2.2R(1) If all of the percentage ratios are less than 5%

   2. Class 2

      1. LR 10.2.2R(2) If any of the percentage ratios is 5% or more, but each percentage ratio is less than 25%

         1. information to the RIS

   3. Class 1

      1. LR 10.2.2R(3) If any of the percentage ratios is 25% or more

   4. Reverse Takeover

      1. LR 10.2.2R(4) If a listed company acquires a business, an unlisted company or assets, and either any percentage ratio is 100% or more, or the transaction will result in a fundamental change in the business or a change in the board, or in voting control of the listed company, the transaction will be a reverse takeover

7. Do any Exemptions apply?

   1. Full Exemptions – LR 11.1.6R Related party rules will not apply if the transaction is:

      1. A small transaction

         1. LR 11, Annex 1R, para 1 any transaction where each of the percentage ratio are equal to or less than 0.25%

      2. A transaction of a kind referred to in LR 11, Annex 1R, para 2-10 provided it does not have any unusual features including,

         1. LR 11, Annex 1R , para 2 any issue of new securities to a related party pursuant to a pre-emptive offering or pursuant to the exercise of conversion or subscription rights attaching to listed securities

         2. LR 11, Annex 1R, para 3 various awards made pursuant to an employees’ share scheme

         3. LR 11, Annex 1R, para 5 grant of an indemnity to a director of a listed company or any of its subsidiaries, if the terms of the indemnity are in accordance with those permitted under the CA 2006

         4. LR 11, Annex 1R, para 6 underwriting by a related party of certain share issues by the listed company or subsidiaries provided the consideration to be paid to the underwriter is no more than the usual commercial underwriting consideration and is the same as will be paid to any other underwriters

         5. LR 11, Annex 1R, para 9 The related party is only a related party through being a substantial shareholder, director or shadow director of an insignificant subsidiary of the listed company

            1. Insignificant subsidiary is a subsidiary which has contributed less than 10% of the assets of the listed company for each of the 3 financial years preceding the date of the transaction for which accounts have been published

            2. The subsidiary must have been part of the group for at least 1 year

            3. If the subsidiary itself is party to the transaction then the ratio of consideration to market capitalisation must be less than 10%

   2. Limited Exemption – the rules will be relaxed in relation to any transaction where each of the class tests result in percentage ratios which are less than 5%, but where one or more exceeds 0.25%

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