Schedule 3 SAYE option schemes: Requirements relating to share options: Exercise rights: Change of control
Paragraph 37 contains the only provisions which permit ‘early’ exercise of Schedule 3 SAYE share options by option-holders who are still in scheme related employment. They permit exercise in specified periods after the following events: -
- A change of control of the company whose shares are scheme shares (the ‘scheme company’) as a result of a general offer. The ‘relevant date’ is the date when a person has obtained control and any conditions have been satisfied.
- A scheme of arrangement sanctioned by the court under Section 899 of the Companies Act 2006 applicable to or affecting:-
- all the ordinary share capital of the company whose shares are subject to the options or all the shares of the same class as the shares to which the option relates, or
- all the shares, or all the shares of the same class, which are held by a class of shareholders identified otherwise than by reference to their employment or directorships, or their participation in a Schedule 3 SAYE option scheme.
The ‘relevant date’ is the date of the court sanction of the compromise or arrangement.
- From 6 April 2014, a non-UK company reorganisation arrangement affecting: -
- all the ordinary share capital of the company or all the shares of the same class as the shares to which the option relates; or
- all the shares, or all the shares of same class, which are held by a class of shareholders identified otherwise than by reference to their employment or directorships or their participation in a Schedule 3 SAYE option scheme.
The ‘relevant date’ is the date on which the arrangement becomes binding on the shareholders covered by it.
- The controlling shareholder becoming bound or entitled under sections 979-982 or 983-985 Companies Act 2006, to acquire shares in the scheme company held by a minority of shareholders following a takeover.
- The company whose shares are scheme shares passing a resolution for voluntary winding up. The ‘relevant date’ is the date when the company passes the resolution.
In sub-paragraph 37(3)(a) the reference to the issued ordinary share capital of the company does not include any capital already held by the person making the offer or a person connected with that person and in sub-paragraph 37(3)(b) the reference to the shares in the company does not include any shares already held by the person making the offer or a person connected with that person.
For the purposes of sub-paragraphs 37(3)(a) and (b) it does not matter if the general offer is made to different shareholders by different means.
The specified time limits are:
- for (a), (b), (c) and (e) - within six months of the ‘relevant dates’ (it is acceptable for a scheme to specify an exercise period of less than six months), and
- for (d) - at any time while a person remains bound or entitled to acquire the shares of minority shareholders (see ETASSUM35480).
Although the legislation does not expressly require it, it is acceptable for scheme rules which provide a right of exercise in these circumstances, also to provide that options will lapse at the end of the permitted exercise period. Provisions which lapse in these circumstances must be subject to the mandatory twelve months minimum option exercise period in the case of death.
A non-UK company reorganisation arrangement exercise provision that is conditional upon a change of Control occurring will be compliant with paragraph 37 where exercise could only be triggered(i) in a situation that is covered by paragraph 37(4A) and (ii) under circumstances that include a transaction under paragraph 47A .
Schemes approved by HMRC prior to 6 April 2014 may contain existing provisions similar to those concerning a ‘non-UK company reorganisation arrangement’ (paragraph 37(4A) and 47A of Schedule 3). For example option exercise may be stated to be triggered by “overseas legislation which HMRC accepts is equivalent to UK legislation”, or similar.Schemes previously “approved “which include “equivalent overseas legislation” wording are deemed to meet the requirements of paragraph 37(4A) and (47A) and can continue to operate on their existing terms. The latter includes (i) granting new options (ii) tax-relieved exercise on the occurrence of a relevant event (iii) rollover and the grant of new options and (iv) extension of the life of the plan. Where the option exercise provision for non-UK company reorganisation arrangements authorised by FA 2014 is substituted for one of these existing provisions, HMRC will not consider this to be the creation of a new right. In this circumstance, options can have the benefit of the non-UK reorganisation exercise right whether granted before or after the date of the alteration.
Where however any already notified Schedule 3 SAYE option scheme (whether approved prior to 6 April 2014 or not) which does not contain similar existing provisions is altered to include non-UK company reorganisation arrangements as a new option exercise provision, this alteration will constitute the grant of a new right. Consequently, only options granted after the date of the alteration can have the benefit of this new exercise right.