Serial AIM Investor Cold Shouldered by the Panel

In only the third case of its kind in the 49-year history of the Takeover Panel (the Panel), the Hearing Committee of the Panel (Committee) announced on 10 January 2017 that on 21 December 2016 it had exercised its most serious disciplinary power by "cold-shouldering” veteran financier Bob Morton and John Garner who operated an online retail business in which Mr Morton or his family companies have been substantial investors.  This was because the Committee viewed them as persons who are not likely to comply with the provisions of the City Code on Takeovers and Mergers (the Code). This sanction means that no FCA-regulated entity may act for these individuals, or their principals, on any transactions to which the Code applies during the span in which the sanction remains in force.


The decision relates to events that took place over several years and concerned the holdings of Bob Morton in Hubco Investments plc (Hubco), then listed on the ISDX Growth Market, via various family trusts and investment vehicles. On 17 July 2013, Groundlinks Limited, an investment vehicle controlled by Mr Morton, acquired an additional 300,000 shares in Hubco thereby taking the combined holdings of related entities to Mr Morton (that were deemed to be acting in concert) to more than 30% of Hubco's issued share capital. The effect of this acquisition was an inadvertent triggering of the obligation to make a mandatory bid for the issued shares of Hubco under Rule 9 of the Code.

The Hearings Committee determined that Mr Morton, in an attempt to circumvent his Rule 9 obligations, had systematically presented false and misleading information in order to persuade the Panel that the relevant shares in Hubco were purchased for and on behalf of Mr Garner as beneficiary, to be held by the purchasing company only as nominee. The Hearings Committee found that Mr Morton had back-dated a promissory note which had been prepared for the sole purpose of falsely presenting Mr Garner as the beneficial holder of the relevant shares.

In reaching their decision, the Hearings Committee noted that the attempted deception was ‘so serious and so prolonged’ as to merit cold-shouldering of Messrs Morton and Garner. Mr Morton, who had on three previous occasions been censured for serious breaches of the Code, was disbarred from taking part in takeover activities for a period of six years whilst Mr Garner, whose role in the deception was deemed equally prominent and sustained, received a two-year sanction.

In an interesting turn of events, during its investigation the Hearings Committee uncovered that the Morton related entities owned in aggregate more than 50% of Hubco’s issued share capital. Groundlinks Limited was therefore in fact entitled to acquire the additional shares in Hubco without triggering an obligation to make a mandatory offer for the remaining shares, pursuant to Rule 9. Whilst this indicated that no detriment had been suffered by shareholders of Hubco, the Panel considered the misconduct of Messrs Morton and Garner sufficient so as to hinder the ability of the Panel to perform its statutory duties, therefore warranting the giving of the cold-shoulder.


The decision to give the cold-shoulder in this case demonstrates the Panel Executive’s lack of tolerance for those that flout the Takeover Panel Rules. Mr Morton had twice been privately censured by the Panel and also received a public censure on 23 February 2015 and so had a less than exemplary record of Code compliance and so the severity of sanction is of no surprise.

Since 6 April 2007, the Panel has had a full statutory basis for the purpose of making and enforcing the Code Rules (apart from in relation to the Channel Islands and the Isle of Man) and has power to sanction companies and their advisers. The Hearing Committee in the Morton/Garner case were particularly scathing of false representations made to the Panel.  The Code introduction makes clear that Panel expects any person dealing with it to do so in an open and co-operative way including disclosure of any information known to them and relevant to the matter being considered by the Panel (as well as a requirement on the person making the disclosure to correct or update it if it changes). There is also an obligation to take all reasonable care not to provide incorrect, incomplete or misleading information to the Panel. This is a test that Morton and Garner clearly failed.

Advisers on Code transactions should take note of the Panel statement on 5 November 2015 which publically criticised a number of the advisers in respect of Vallar plc's acquisition of various Indonesian coal companies for failing to fairly present the commercial background and purpose of certain forward sale arrangements to the Panel and also for not disclosing the connections between the parties despite there being no intention on the part of any of the advisers to mislead the Panel.

It is worth noting that contemporaneously with the announcement of the Hearing Committee’s findings regarding Mr Morton and Mr Garner, the FCA released a statement in respect of the Panel's decision that sought to remind regulated firms that under MAR 4.3 they have to cease or refuse to act for any person or principal in connection with a transaction to which Takeover Code applies if the firm has  reasonable grounds for believing that the person in question, or his principal, is not complying or is not likely to comply with the Code.  The FCA noted that given the Committee’s decision no regulated firms should act for Morton or Garner or their principals, on any transactions to which the Takeover Code applies and that regulated firms should inform all approved persons at their firms that they should not deal with these individuals on such transactions.

MAR 4.3.4(2) also provides that, whilst authorised professional firms are required to act in the best interests of their clients, this duty cannot override the provisions of the Code so as to require the firm to provide services in breach of, or enable breach of, the Code.

In this case Investec acted as broker for Mr Morton and his family companies and following the Panel’s public statement of censure of Mr Morton on 23 February 2015 they chose to undertake a review of previous transactions in which they had acted for Mr Morton. Two days later they telephoned Mr Morton to alert him that he may have, triggered a Rule 9 obligation in respect of Hubco and to advise him to consult with the Panel.  By 16 April 2015 it became clear Mr Morton was not going to report the matter himself to the Panel and therefore they did so.  Their conduct received no public criticism from the Hearing Committee and firms would be well advised to review transactions where they acted for Mr Morton to determine if any similar issues have arisen and also ensure they cease to act for him and Mr Garner.


For further information regarding Takeover Code issues please contact Jonathan Morris on a partner in our London Corporate Team.

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