LR 11.1 Related party transactions

1This chapter applies to a company that has a premium listing3.

A reference in this chapter:

1. (1)

   to a transaction or arrangement by a listed company includes a transaction or arrangement by its subsidiary undertaking; and

2. (2)

   to a transaction or arrangement is, unless the contrary intention appears, a reference to the entering into of the agreement for the transaction or the entering into of the arrangement.

In LR, a "related party" means:

1. (1)

   a person who is (or was within the 12 months before the date of the transaction or arrangement) a substantial shareholder; or

2. (2)

   a person who is (or was within the 12 months before the date of the transaction or arrangement) a director or shadow director of the listed company or of any other company which is (and, if he has ceased to be such, was while he was a director or shadow director of such other company) its subsidiary undertaking or parent undertaking or a fellow subsidiary undertaking of its parent undertaking; or

3. (3)

   [deleted]2

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4. (4)

   a person exercising significant influence; or

5. (5)

   an associate of a related party referred to in paragraph (1), (2) or (4).

   2

5In LR, a "substantial shareholder” means any person who is entitled to exercise, or to control the exercise of, 10% or more of the votes able to be cast on all or substantially all matters at general meetings of the company (or of any company which is its subsidiary undertaking or parent undertaking or of a fellow subsidiary undertaking of its parent undertaking). For the purposes of calculating voting rights, the following voting rights are to be disregarded:

1. (1)

   any voting rights which such a person exercises (or controls the exercise of) independently in its capacity as bare trustee, investment manager, collective investment undertaking or a long-term insurer in respect of its linked long-term business if no associate of that person interferes by giving direct or indirect instructions, or in any other way, in the exercise of such voting rights (except to the extent any such person confers or collaborates with such an associate which also acts in its capacity as investment manager, collective investment undertaking or long-term insurer); or

2. (2)

   any voting rights which a person may hold (or control the exercise of) solely in relation to the direct performance, by way of business, of:

   1. (a)

      underwriting the issue or sale of securities; or

   2. (b)

      placing securities, where the person provides a firm commitment to acquire any securities which it does not place; or

   3. (c)

      acquiring securities from existing shareholders or the issuer pursuant to an agreement to procure third-party purchases of securities;

      and where the conditions in (i) to (iv) are satisfied:

      1. (i)

         the activities set out in (2)(a) to (c) are performed in the ordinary course of business;

      2. (ii)

         the securities to which the voting rights attach are held for a consecutive period of 5 trading days or less, beginning with the first trading day on which the securities are held;

      3. (iii)

         the voting rights are not exercised within the period the securities are held; and

      4. (iv)

         no attempt is made directly or indirectly by the firm to intervene in (or attempt to intervene in) or exert (or attempt to exert) influence on the management of the issuer within the period the securities are held.

In LR, a "related party transaction" means:

1. (1)

   a transaction (other than a transaction in the ordinary course of business) between a listed company and a related party; or

2. (2)

   an arrangement (other than an arrangement in the ordinary course of business)6 pursuant to which a listed company and a related party each invests in, or provides finance to, another undertaking or asset; or

3. (3)

   any other similar transaction or arrangement (other than a transaction in the ordinary course of business) between a listed company and any other person the purpose and effect of which is to benefit a related party.

LR 11.1.7 R to LR 11.1.10 R do not apply to a related party transaction if it is a transaction or arrangement:

1. (1)

   of a kind referred to in paragraph 1 or 1A4 of LR 11 Annex 1 (a small transaction or a transaction the terms of which were agreed before a person became a related party); or4

2. (2)

   of a kind referred to in paragraphs 2 to 94 of LR 11 Annex 1 and does not have any unusual features.

   4

Note: If an issuer is proposing to enter into a transaction that could be a related party transaction it is required under LR 8 to obtain the guidance of a sponsor to assess the potential application of LR 11.

If a listed company enters into a related party transaction, the listed company must:

1. (1)

   make a notification in accordance with LR 10.4.1 R (Notification of class 2 transactions) that contains the details required by that rule and also:

   1. (a)

      the name of the related party; and

   2. (b)

      details of the nature and extent of the related party's interest in the transaction or arrangement;

2. (2)

   send a circular to its shareholders containing the information required by LR 13.3 and LR 13.6;

3. (3)

   obtain the approval of its shareholders for the transaction or arrangement either:

   1. (a)

      before it is entered into; or

   2. (b)

      if the transaction or arrangement is expressed to be conditional on that approval, before it is completed; and

4. (4)

   ensure that the related party:

   1. (a)

      does not vote on the relevant resolution; and

   2. (b)

      takes all reasonable steps to ensure that the related party's associates do not vote on the relevant resolution.

6If, after obtaining shareholder approval but before the completion of a related party transaction, there is a material change to the terms of the transaction, the listed company must comply again separately with LR 11.1.7 R in relation to the transaction.

6A listed company must comply with LR 10.5.4 R in relation to a related party transaction.

1. (1)

   This rule applies to a related party transaction if each of the percentage ratios is less than 5%, but one or more of the percentage ratios exceeds 0.25%.

2. (2)

   Where this rule applies, LR 11.1.7 R does not apply but instead the listed company must before entering into the transaction or arrangement (as the case may be):

   1. (a)

      inform the FSA in writing of the details of the proposed transaction or arrangement;

   2. (b)

      provide the FSA with written confirmation from an independent adviser acceptable to the FSA that the terms of the proposed transaction or arrangement with the related party are fair and reasonable as far as the shareholders of the listed company are concerned; and

   3. (c)

      undertake in writing to the FSA to include details of the transaction or arrangement in the listed company's next published annual accounts, including, if relevant, the identity of the related party, the value of the consideration for the transaction or arrangement and all other relevant circumstances.

1. (1)

   If a listed company enters into transactions or arrangements with the same related party (and any of its associates) in any 12 month period and the transactions or arrangements have not been approved by shareholders the transactions or arrangements, including transactions or arrangements falling under LR 11.1.10 R, or small related party transactions under LR 11 Annex 1.1R (1),

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   must be aggregated.

2. (2)

   If any percentage ratio is 5% or more for the aggregated transactions or arrangements, the listed company must comply with LR 11.1.7 R in respect of the latest transaction or arrangement.

Note: LR 13.6.1R (8) requires details of each of the transactions or arrangements being aggregated to be included in the circular.

1. (3)

   If transactions or arrangements that are small transactions under LR 11 Annex 1 paragraph 1 are aggregated under paragraph (1) of this rule and for the aggregated small transactions each of the percentage ratios is less than 5%, but one or more of the percentage ratios exceeds 0.25%, the listed company must comply with:

   1. (a)

      LR 11.1.10R (2)(b) in respect of the latest small transaction; and

   2. (b)

      LR 11.1.10R (2)(a) and LR 11.1.10R (2)(c) in respect of the aggregated small transactions.