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Combined View / LR / 11 / 1

Click here to view amending instruments for this sectionLR 11.1 Related party transactions

Application

LR 11.1.1
06/04/2010
FCA
2This chapter applies to a company that has a1 premium listing1.1
LR 11.1.1A
16/05/2014
FCA
3Where a company has a premium listing and:
(1) it is not in compliance with:
(a) the provisions inLR 9.2.2AR (2)(a) ; or
(b) LR 9.2.2G R; or
(2) it becomes aware that a controlling shareholder or any of its associates is not in compliance with an independence provision contained in an agreement entered into under LR 6.1.4BR (1) or LR 9.2.2AR (2)(a);
(3) it becomes aware that a procurement obligation (as set out in LR 6.1.4CR (2)(a) or LR 9.2.2BR (2)(a) contained in an agreement entered into under LR 6.1.4BR (1) or LR 9.2.2AR (2)(a) has not been complied with by a controlling shareholder; or
(4) an independent director declines to support a statement made under LR 9.8.4R (14)(a) or LR 9.8.4R (14)(c);
LR 11.1.1C R applies.
LR 11.1.1B
16/05/2014
FCA
3In exceptional circumstances, the FCA may consider dispensing with or modifying the application of LR 11.1.1A R, in accordance with LR 1.2.1 R.
LR 11.1.1C
16/05/2014
FCA
3The company cannot rely on any of the following provisions in relation to a transaction or arrangement with or for the benefit of the relevant controlling shareholder or any associate of that controlling shareholder:
(1) the concessions specified in LR 11.1.5R (1), LR 11.1.5R (2) and LR 11.1.5R (3) in relation to transactions or arrangements in the ordinary course of business;
(2) LR 11.1.6 R; and
LR 11.1.1D
16/05/2014
FCA
3If the FCA considers that it would be appropriate to do so, the FCA may dispense with or modify the application of LR 11.1.1CR (1), in accordance with LR 1.2.1 R.
LR 11.1.1E
16/05/2014
FCA
3Where a company that has a premium listing has been subject to the provisions of LR 11.1.1A R, LR 11.1.1C R will continue to apply to the company until the publication of an annual financial report which:
(1) contains the statements required under LR 9.8.4R (14)(a) and LR 9.8.4R (14)(c); and
(2) does not contain a statement made under LR 9.8.4A R.

Purpose

LR 11.1.2
01/07/2005
FCA
(1) This chapter sets out safeguards that apply to:
(a) transactions and arrangements between a listed company and a related party; and
(b) transactions and arrangements between a listed company and any other person that may benefit a related party.
(2) The safeguards are intended to prevent a related party from taking advantage of its position and also to prevent any perception that it may have done so.

Transaction

LR 11.1.3
01/07/2005
FCA
A reference in this chapter:
(1) to a transaction or arrangement by a listed company includes a transaction or arrangement by its subsidiary undertaking; and
(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.

Definition of "related party"

LR 11.1.4
06/08/2007
FCA
In LR, a "related party" means:
(1) a person who is (or was within the 12 months before the date of the transaction or arrangement) a substantial shareholder; or
(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) 4[deleted]4
(5) an associate of a related party referred to in paragraph (1), (2)4 or (4).

Definition of "substantial shareholder"

LR 11.1.4A
01/08/2012
FCA
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) 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) 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:
(a) underwriting the issue or sale of securities; or
(b) placing securities, where the person provides a firm commitment to acquire any securities which it does not place; or
(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:
(i) the activities set out in (2)(a) to (c) are performed in the ordinary course of business;
(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;
(iii) the voting rights are not exercised within the period the securities are held; and
(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.

Definition of "related party transaction"

LR 11.1.5
31/12/2012
FCA
In LR, a "related party transaction" means:
(1) a transaction (other than a transaction 6in the ordinary course of business) between a listed company and a related party; or
(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) any other similar transaction or arrangement (other than a transaction 6in 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 11.1.5A
01/04/2013
FCA
4In assessing whether a transaction is in the ordinary course of business under this chapter, the FCA will have regard to the size and incidence of the transaction and also whether the terms and conditions of the transaction are unusual.

Transactions to which this chapter does not apply

LR 11.1.6
06/06/2011
FCA
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) of a kind referred to in paragraph 1 or 1A7 of LR 11 Annex 1 (a small transaction or a transaction the terms of which were agreed before a person became a related party); or7
(2) of a kind referred to in7 paragraphs 2 to 97 of LR 11 Annex 1 and does not have any unusual features.
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.

Requirements for related party transactions

LR 11.1.7
01/07/2005
FCA
If a listed company enters into a related party transaction, the listed company must:
(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:
(a) the name of the related party; and
(b) details of the nature and extent of the related party's interest in the transaction or arrangement;
(2) send a circular to its shareholders containing the information required by LR 13.3 and LR 13.6;
(3) obtain the approval of its shareholders for the transaction or arrangement either:
(a) before it is entered into; or
(b) if the transaction or arrangement is expressed to be conditional on that approval, before it is completed; and
(4) ensure that the related party:
(a) does not vote on the relevant resolution; and
(b) takes all reasonable steps to ensure that the related party's associates do not vote on the relevant resolution.
LR 11.1.7A
01/10/2012
FCA
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.
LR 11.1.7B
01/04/2013
FCA
6The FCA would (amongst other things) generally consider an increase of 10% or more in the consideration payable to be a material change to the terms of the transaction.
LR 11.1.7C
01/10/2012
FCA
6A listed company must comply with LR 10.5.4 R in relation to a related party transaction.
LR 11.1.8
01/07/2005
FCA
If a meeting of the listed company has been called to approve a transaction or arrangement and, after the date of the notice of meeting but before the meeting itself, a party to that transaction or arrangement has become a related party, then to comply with LR 11.1.7 R the listed company should:
(1) ensure that the related party concerned does not vote on the relevant resolution and that the related party takes all reasonable steps to ensure that its associates do not vote on the relevant resolution; and
(2) send a further circular, for receipt by shareholders at least one clear business day before the last time for lodging proxies for the meeting, containing any information required by LR 13.3 (Contents of all circulars) and LR 13.6 (Related party circulars) that was not contained in the original circular with the notice of meeting.
LR 11.1.9
01/07/2005
FCA
LR 11.1.7 R and LR 11.1.8 G will apply to the variation or novation of an existing agreement between the listed company and a related party whether or not, at the time the original agreement was entered into, that party was a related party.

Modified requirements for smaller related party transactions

LR 11.1.10
16/05/2014
FCA
(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) Where this rule applies, LR 11.1.7 R does not apply but instead the listed company must3:
(a) 3[deleted]3
(b) 3before entering into the transaction or arrangement, obtain3 written confirmation from8 a sponsor8 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
(c) 3as soon as possible upon entering into the transaction or arrangement, make an RIS announcement which sets out:3
(i) the identity of the related party;
(ii) the value of the consideration for the transaction or arrangement;
(iii) a brief description of the transaction or arrangement;
(iv) the fact that the transaction or arrangement fell within LR 11.1.10 R; and
(v) any other relevant circumstances.

Aggregation of transactions in any 12 month period

LR 11.1.11
01/10/2012
FCA
(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), 6 must be aggregated.
(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 13.6.1 R (8) requires details of each of the transactions or arrangements being aggregated to be included in the circular.
(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:
(a) LR 11.1.10R (2)(b) in respect of the latest small transaction; and
(b) LR 11.1.10R (2)(a) and LR 11.1.10R (2)(c) in respect of the aggregated small transactions.
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