6.1.1 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, provided that:
• the Authority may object to particular classes of shareholder being involved in the Project for particular reasons and
• the Authority will wish to have transparency over the ownership of the Contractor and be informed of transfers of ownership interests and price of shares sold.1
6.1.2 Required drafting is set out below:
6.1 Ownership Information
(a) The Contractor represents and warrants [(other than in relation to any shares owned by CGU])] 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, if it becomes aware, of any proposed Change of Ownership prior to its occurrence, or, if it does not have prior information, as soon as reasonably practicable (and in any event, within 10 Days) of any Change of Ownership occurring, and shall provide, with this information, details of the new ownership structure (legal and beneficial) and of the purchase price paid.
(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 confirm, as soon as reasonably practicable and in any event within 10 days of receipt of the Authority's request for details, whether any Change of Ownership has occurred together with the supplementary information specified in Clause 6.1(b) above.
(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 enquiries.
6.1.3 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.2 Required drafting is set out below:
means
(a) any sale, transfer or disposal of any legal, beneficial or equitable interest in any or all of the shares 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.
6.1.4 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. If any of the holders of equity in the Contractor are limited partnerships or other funds, particular attention will need to be given to the Change of Ownership provisions during any lock-in period. To ensure that the intention of any lock-in is achieved, provisions should be considered requiring that the fund/limited partnership is at all times during the lock-in managed and advised by a member of the relevant investor's or Sub-Contractor's group (if they are a part of a bank or Sub-Contractor group and if the identity of this group is important to the Authority).
6.1.5 Where unincorporated entities form part of the ownership structure, similar considerations to those specified in Section 6.1.4 considerations will apply.
6.1.6 The Contractor may request that the Authority consents to a change of ownership during the period when restrictions to changes of ownership apply (see Section 6.4 (Transfer of Interests: Flexibility and Restrictions)). 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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1 See Section 6.4.5 (Transfer of interests: Flexibility and Restrictions.)
2 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 Shareholders' contributions to project costs are to be made at a time other than Contract signature.