Stmnt re Chesterfield Prop
LONDON STOCK EXCHANGE
6 September 1999
CHESTERFIELD PROPERTIES PLC
1. A hearing of the Quotations Appeals Committee of the London Stock
Exchange took place on 2 September 1999 to consider an appeal by
Chesterfield Properties Plc ('the Company') against the Decision of the
Quotations Committee dated 23 July 1999 by which it directed that the
Company be censured and that its Decision and its reasons be published.
2. The Appeals Committee has upheld the decision of the Quotations
Committee, the text of which is set out below. The reasons for the
Appeals Committee's decision are, subject to the clarification in
paragraph 4. below, the same as those given by the Quotations Committee.
3. The fact that the breach of paragraph 14.2 of the Listing Rules was
deliberate and the factors set out in paragraphs 15-17 of the Decision of
the Quotations Committee, make it appropriate that the censure be made
public. At the same time the Appeals Committee considers it right to
record that the breach was an honest misjudgment made in what the
Company's directors genuinely believed to be the best interests of its
shareholders after obtaining professional advice. The decision is not a
reflection on the integrity of the directors or their professional
advisers.
4. Although the Appeals Committee accepts the Quotations Committee's
view expressed in paragraph 14.1 of its Decision that 'the position in
which Chesterfield found itself in the week beginning 19 April 1999 was
foreseeable', having heard further evidence from the Company and its
advisers it takes a different view of the facts but reaches the same
overall conclusion. The view of the Quotations Committee was however an
understandable one bearing in mind that its finding was based on evidence
given by the Company which the latter has now itself corrected. In the
view of the Appeals Committee it was clear by no later than 16 April that
there was a significant risk that a sale would not be completed by 29
April. By 16 April the Company should have been able to determine that
it was unlikely to be in a position to post a circular to its
shareholders giving definitive advice as to how they should exercise
their voting rights at the forthcoming Extraordinary General Meeting.
Nevertheless the Company did not submit a draft circular to the Exchange
until 21 April in spite of its own belief that it was essential to post
the circular by not later than 22 April. Had the Exchange been given a
little more time, what the Company saw as its dilemma would have been
satisfactorily resolved.
Decision of the Quotations Committee
1. A hearing of the Quotations Committee of the London Stock Exchange
('The Stock Exchange') took place on 9 July 1999 to consider a reference
from the Listing Department under Paragraph 1.8 of The Stock Exchange's
Listing Rules of the circumstances of the issue by Chesterfield
Properties PLC ('Chesterfield') of a circular to its shareholders dated
22 April 1999.
2. The circular gave information about the proposed sale by
Chesterfield of 14 of its properties, representing over one quarter of
its property portfolio, to GE Capital Corporation (Estates) Limited ('GE
Capital'). Under the Listing Rules of The Stock Exchange, and in view of
its size, shareholders' approval was required for this transaction. This
was recognised in the contractual arrangements with GE Capital which,
amongst a number of matters, required Chesterfield to use reasonable
endeavours to procure the passing of an ordinary resolution to approve
the transaction before 30 April 1999. This obligation fell away if any
offer was made to acquire Chesterfield that was recommended by the
directors.
3. Following the announcement of the proposed disposal to GE Capital on
1 March 1999, Chesterfield received a number of approaches from companies
considering making an offer for the whole of the issued share capital of
Chesterfield. One such approach was from Quintain Estates & Development
plc ('Quintain'). That approach was announced on 19 March 1999. A
condition of any offer by Quintain was that Chesterfield's shareholders
did not approve the disposal of properties to GE Capital.
4. Thereafter, Chesterfield provided prospective bidders with
information with a view to one or more of them making an indicative bid
by 14 April 1999. In the meantime, and in accordance with the terms of
the contract with GE Capital, Chesterfield adjourned its Extraordinary
General Meeting (originally convened for 22 March 1999 by means of an
initial circular to shareholders posted on 5 March 1999) first until 9
April 1999 and then until 29 April 1999.
5. In anticipation of the forthcoming Extraordinary General Meeting on
29 April 1999, Chesterfield needed to issue a further circular to
shareholders to enable them to take a decision in the light of all
material information against the background of the continuing discussions
with Quintain.
6. By 19 April 1999, the directors of Chesterfield believed that a
recommendable offer for the company was likely to be made by Quintain.
Consistent with their fiduciary duties, the directors of Chesterfield did
not believe that they could continue to recommend the transaction with GE
Capital to the company's shareholders. However, having regard to the
contract with GE Capital, the directors of Chesterfield could not
recommend shareholders to vote against the disposal.
7. A draft of the circular to be sent to shareholders in advance of the
Extraordinary General Meeting on 29 April 1999 was first circulated to
Chesterfield's advisers on 20 April 1999 and to the Stock Exchange on 21
April 1999.
8. After discussion with Chesterfield's advisers, The Stock Exchange
agreed that the circular could be dispatched without a recommendation
from the company's directors. However, it did not approve the draft
circular and requested the inclusion of some further information.
9. Following further conversations between Chesterfield's advisors and
The Stock Exchange, but without either the inclusion of the information
requested by The Stock Exchange or The Stock Exchange's approval of the
circular without that information, Chesterfield printed and dispatched
its circular to shareholders on the evening of 22 April 1999. That The
Stock Exchange had not approved the circular was known to the directors
of Chesterfield and its advisors at the time that the decision to post
the circular was taken.
10. In the event, and after further subsequent discussions, The Stock
Exchange agreed that Chesterfield did not have to issue a further
circular including the information that had been requested by it.
11. Against this background, the matters referred by the Listing
Department for consideration by the Quotations Committee were:-
an alleged breach of paragraph 14.2 of the Listing Rules by
Chesterfield by failing to obtain formal approval from The
Stock Exchange for its circular dated 22 April 1999 before the
circular was circulated to the Company's shareholders and made
available publicly.
12. At the hearing before the Quotations Committee on 9 July 1999,
Chesterfield admitted its breach of paragraph 14.2 of the Listing Rules.
13. However, Chesterfield sought to persuade the Committee that it had
acted reasonably in all the circumstances in posting the circular without
including either the information requested by The Stock Exchange or
securing its approval to the draft circular. It argued, first, that
there was a conflict between, on the one hand, its contractual
obligations to GE Capital and, on the other, the fiduciary duties of the
directors not to recommend the proposed transaction to shareholders in
circumstances where a recommendable offer from Quintain was in prospect.
Secondly, it argued that it was essential to dispatch the circular on
22 April 1999 so that shareholders had the information necessary to
consider the proposed transaction with GE Capital prior to the latest time
for lodging proxies before the forthcoming Extraordinary General Meeting.
Thirdly, they drew attention to the fact that, subsequently, The Stock
Exchange accepted the Company's view that no further information was
required.
14. In the Committee's view, Chesterfield had no proper grounds for
failing to obtain approval of the circular prior to its posting to
shareholders. This is because
i) the position in which Chesterfield found itself in the week
beginning 19 April 1999 was foreseeable. It was within
Chesterfield's contemplation that a bid might be received on or
about 14 April 1999, the date by when indicative offers were to be
made, which might in due course be capable of recommendation to
shareholders. However, as those offers were to be indicative only,
it was unlikely that the company would (whether at that time or
shortly thereafter) be in a position to post a circular to
shareholders giving definitive advice as to how they should exercise
their voting rights at the forthcoming Extraordinary General
Meeting.
ii) Discussions with The Stock Exchange about the information that
it had requested be included could and should have been pursued to a
conclusion.
15. It is the Committee's decision that Chesterfield was in clear breach
of paragraph 14.2 of the Listing Rules in posting a circular to
shareholders without obtaining The Stock Exchange's prior approval of it.
16. Observance of paragraph 14.2 of the Listing Rules is, in the
Committee's view, of great importance because it is the primary means by
which The Stock Exchange can seek to ensure observance of the standards
of disclosure required by the Listing Rules in a circular to shareholders
of a non-routine nature. It is, in the Committee's view, unacceptable
for issuers to disregard the Listing Rules on the basis that they either
disagree with The Stock Exchange's views, or consider that they are under
commercial or other pressure to do so.
17. The Committee, therefore, censures Chesterfield for its failure to
obtain the Listing Department's prior approval to the issue of the
circular to shareholders dated 22 April 1999. As the Committee takes a
very serious view of this breach, the Committee considers it appropriate
that its decision and the reasons for it be published.
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