ETASSUM35490 | Schedule 3 SAYE option schemes: Requirements relating to share options: Exercise rights: Takeovers - period of grace

It may happen as a result of a takeover that the scheme shares no longer satisfy the requirements of paragraphs 18 - 20 and 22 Schedule 3 (for example if the scheme company becomes under the control of a company not listed on a recognised stock exchange). The scheme may provide that in these circumstances the options are capable of being exercised provided they are exercised no later than 20 days after the following “relevant events”:-

1. A change of control of the company whose shares are scheme shares as a result of a general offer;

2. A change of control of the company whose shares are scheme shares as a result of a compromise or 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 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.

1. A change of control as the result of 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 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.

1. A person who is bound or entitled under sections 979-982 or 983-985 Companies Act 2006, to acquire shares in the company whose shares are scheme shares held by a minority of shareholders obtaining control of that company.

Scheme rules may also allow for a ‘conditional exercise’ in the period of 20 days immediately prior to the “relevant date” for the same events (see ETASSUM35460). If the rules include this provision, they must also provide that if no change of control occurs, the exercise is treated as having no effect.

If the option is exercised within the 20 day period, the exercise will have been made “in accordance with the provisions of the Schedule 3 SAYE scheme” (section 519(1)).

Where after the 6 April 2014 the scheme organiser alters a scheme which includes exercise provisions under paragraph 37 (exercise of options: company events) to include the 20 day period of grace provisions under paragraph 37(6B) or the provisions under paragraph 37(6E), HMRC will not consider this to be the creation of a new right. This means that options can have the benefit of the period of grace, whether granted before or after the date of the alteration.

The rules may provide discretion to invoke the 20 day provisions on a particular takeover (provided that the discretion is exercised “fairly and reasonably”).