18.1.1 Having formed a relationship with bidders in the procurement phase, an Authority may be concerned about changes in the Contractor's shareholders thereafter. If this is the case then it may seek to impose restrictions on the ability of shareholders to transfer their shareholdings in the Contractor. Shareholders will usually object to such restrictions other than restrictions on transfers of equity prior to the end of the defects liability period (at the end of the construction phase). As a general rule, it should not be necessary for the Contract to contain other restrictions on the transferability of equity, other than a need to inform the Authority, except perhaps where the Authority would object to particular classes of shareholder being involved in the Project for particular reasons.251
18.1.2 Suitable drafting is set out below:
18.1 Ownership Information
(a) The Contractor represents and warrants to the Authority that at the date of the Contract the legal and beneficial ownership of the Contractor [and Holdco] is as set out in Schedule [ ] and that, [other than any Shareholder pre-emption rights,] no arrangements are in place that have or may have or result in any sale, transfer or disposal of any legal, beneficial, equitable or other interest in any or all of the shares in the Contractor [or Holdco].
(b) The Contractor shall inform the Authority as soon as reasonably practicable (and in any event, within [30] days) of any Change of Ownership occurring.
(c) The Authority may, not more than [twice] in any Contract Year, or at any time when a Contractor Default is outstanding, require the Contractor to inform it, as soon as reasonably practicable and in any event within 30 days of receipt of the Authority's request for details, of any Change of Ownership.
(d) The Contractor's obligations under (b) and (c) above shall, except where a legal transfer of shares has occurred, be limited to the extent of the Contractor's awareness having made all reasonable enquiry.
18.1.3 Authorities will wish to adopt a suitable definition of change of ownership to use with the above provisions and to apply where restrictions on changes of ownership are required in the Contract. Any such definition should cover any transfers (whether by sale or otherwise) of any interest (legal, beneficial or equitable) in shares, and transfers of economic interest in shares (such as dividend or voting rights) should also be covered. Furthermore, Authorities should consider whether subordinated debt has characteristics that would usually be associated solely with shares (e.g. voting rights) or whether the subordinated debt may be converted to equity in certain circumstances. Where this is the case then the transfer of subordinated debt should also be restricted.252 Suitable drafting is set out below:
"Change of Ownership"
means
(a) any sale, transfer or disposal of any legal, beneficial or equitable interest in any or all of the shares253 in the Contractor and/or [Holdco] [and/or [ ]] (including the control over exercise of voting rights conferred on those shares, control over the right to appoint or remove directors or the rights to dividends); and/or
(b) any other arrangements that have or may have or which result in the same effect as paragraph (a) above.
18.1.4 Authorities will need to consider the above definition carefully in the light of each Project's particular ownership structure; issues that should be considered include how far up the ownership chain the Authority would require the change of ownership provisions to extend and whether limited partnerships or other non-corporate entities are used in the Contractor's ownership structure.
18.1.5 Where unincorporated entities form part of the ownership structure, additional considerations will apply. Authorities will want to ensure, for example, that any lock-in requirement covers transfers of relevant interests in any relevant unincorporated entity (e.g. limited partnerships) and Authorities may wish to consider requiring that the unincorporated entity is at all times during the lock-in period managed and advised by a member of the relevant investor's or Sub-Contractor's group (if the identity of the group is important to the Authority).
18.1.6 The Contractor may request that the Authority consent to a change of ownership during the period when restrictions to changes of ownership apply (see Section 18.4). The Authority should consider whether to agree to such a request at its sole discretion. Where the Authority agrees to any such request it should consider whether any amendments to the change of ownership restrictions will need to be made so that they continue to apply to any transferee (for example, amendments should be considered where a non-corporate entity, such as a limited partnership, joins the Contractor's ownership structure).
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251 See section 18.4.5
252 The transfer of shares and subordinated debt are usually "stapled" i.e. the transfer of one would compel the transfer of the other. Where shares and subordinated debt are not stapled it may be appropriate to restrict the transfer of subordinated debt where, for example, shareholder contributions to project costs are to be made at a time other than Contract signature.
253 Where limited partnerships are used then a reference to the general partner and/or manger should be made here. See footnote 2.