6.4.1 Practice concerning change of ownership provisions across PFI/PF2 sectors has developed so that a lock-in period (usually up to the Service Commencement Date plus the defects liability period) is provided for, during which no Change of Ownership is permitted. In limited circumstances, however, transfers will be permitted during such lock-in period.
6.4.2 Circumstances where transfers are permitted during a lock-in period are usually restricted to: (i) transfers that arise as a consequence of the enforcement by Senior Lenders of security over or in connection with shares to which the Change of Ownership provisions apply, (ii) any shares that are dealt in a recognised investment exchange, and (iii) intra-Affiliate transfers (although in such cases the Authority should be careful to ensure that where an Affiliate that has had shares transferred to it subsequently leaves the group, the shares are transferred back to a member of that group). In addition, where the public sector holds shares or any other ownership interest in the Contractor or Holdco (as will normally be the case), the restriction in change of ownership should not apply to it.
6.4.3 Required drafting is set out below:
(a) No Change of Ownership may occur during the [lock-in period].3
(b) Any Change of Ownership arising as a consequence of:
(i) the grant or enforcement of security in favour of the Senior Lenders over or in relation to any of the shares of the Contractor [or Holdco], provided that any document conferring security over any shares has been approved by the Authority (such approval not to be unreasonably withheld or delayed); or
(ii) any change in legal or beneficial ownership of any shares that are listed on a recognised investment exchange (as defined in [Section 285 of the Financial Services and Markets Act 2000]); [or]
(iii) any transfer of shares in the Contractor [or Holdco] by [here insert name of parent company ("Parentco") of group of which Contractor or Holdco or relevant shareholder of Contractor or Holdco is a member] and/or an Affiliate of [Parentco] to [Parentco] and/or an Affiliate of [Parentco],4
(iv) where the Change of Ownership arises as a consequence of any change in legal or beneficial ownership of any interest in shares owned at the date of this Contract by [here insert the relevant public entity] shall be disregarded for the purpose of paragraph (a) above.
Where, during the Lock-in Period, the holder of any shares in the Contractor [or Holdco] is an Affiliate of [Parentco] and that holder ceases to be an Affiliate of [Parentco] it shall be a breach of this Clause 6.4 if the shares held by that holder are not within 20 Business Days of that holder ceasing to be an Affiliate of [Parentco] transferred to [Parentco] or an Affiliate of [Parentco].
6.4.4 It is important to ensure that the flexibility afforded above should not operate so as to disapply the notification provisions set out in Section 6.1.2 or to circumvent any provisions preventing transfers to any particular category of shareholder (as envisaged in Section 6.4.5 (Transfer of Interests: Flexibility and Restrictions)).
6.4.5 As well as restrictions on transfers during the lock-in period an Authority may wish to impose some wider restriction on the transfer of ownership or investment in a Contractor (and the precise restrictions will depend on the financing structure of the Project). Restrictions should address specific concerns and not be blanket restrictions, and legal advice should be sought. For example, in certain defence projects, the Authority may be concerned that national security may be threatened by unsuitable shareholders and for that reason restrictions will exist. Similar public interest concerns will exist in prison projects. Other considerations may also apply - for example, an Authority may not wish to have tobacco companies holding shares in schools. The Authority should ensure bidders are made aware of such concerns and restrictions as early as possible.
6.4.6 In such cases the Contract should either seek to set out in an objective manner the grounds on which a transfer is not permitted or, if necessary and practical, set out a list of unacceptable holders of equity. A less attractive option for all concerned is to include a provision requiring the investor to seek the prior written consent of the Authority before transferring its shareholding (or other investment). If this latter course of action is taken, it should be made clear in the Contract that any such consent should not be unreasonably withheld (nor a response delayed). The Authority should be obliged, unless there are public policy reasons to withhold reasons, to specify the reason for any refusal.
6.4.7 Required drafting is set out below.
Restricted Share Transfer
The Contractor shall obtain the Authority's prior written consent (which may be given subject to conditions) to any [Restricted Share Transfer].5
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3 This is usually defined by reference to the Service Commencement Date plus the defects liability period.
4 Reference should be made to the owner of each entity to which the lock-in provisions apply. See definition of Change in Ownership at paragraph (a). See also Section 6.1.4.
5 This term will need to be defined in the Contract but should generally relate to any proposed share transfer to any party on a restricted (or not on a permitted) list (see Section 6.4.5 (Transfer of Interests: Flexibility and Restrictions) above).