Connected transactions curbs could come into play at reduced level under expected reforms

Lowering the takeover trigger to 30 per cent could result in some existing business agreements being deemed connected transactions, according to a corporate finance expert.

Connected transactions are often between companies where one has a controlling stake in another. They also occur when a director has a controlling stake in another firm with which his employer does business.

Due to the potential conflict of interest for company directors, connected transactions require the approval of independent shareholders.

The Securities and Futures Commission announced on Thursday that the takeover trigger above which an investor has to make a general offer for all the shares in the company would be lowered to 30 per cent from 35 per cent with immediate effect. The changes followed on from an April consultation paper.

The Listing Rules of the stock exchange cite the takeover trigger as the point where a shareholder is deemed to control a firm. Firms that have already entered into contracts with associates in which they hold between 30 per cent and 35 per cent could therefore now have these viewed as connected transactions.

'The lowering of the general offer threshold from 35 to 30 per cent may automatically result in certain on-going business arrangements entered into by listed companies - which currently are not deemed connected transactions - becoming connected transactions,' said Ernst & Young Corporate Finance managing director John Maguire.

Publicly listed companies should examine whether they have such arrangements that may be affected by the new takeover trigger, according to Mr Maguire. The stock exchange should consider issuing an announcement to alert companies to the issue and provide guidance to prevent inadvertent breaches of the listing rules.