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15 ECFR 1 (2018)

handle is hein.journals/ecomflr15 and id is 1 raw text is: Non-frustration Rule and Mandatory Bid Rule - Cornerstones of European Takeover Law? by MATHIAs HABERSACK With the non-frustration rule and the mandatory bid rule, the Takeover Bid Directive contains two principles which have strongly influenced British takeover law for approxi- mately 50 years. However, the changes of the economic and legal framework of the market for corporate control which have occurred since the adoption of the Directive call into question the legitimacy of both principles. Although the non-frustration rule is capable of disciplining board members, it generates misguided incentives and is, at the most, suitable as a disciplining tool of last resort. The dominant idea of relying on increasing shareholder activism and of trusting the shareholders to discipline the board (also in a company with dispersed ownership) is compelling in principle; however, as active shareholders often seek the short- term maximisation of returns, misguided incentives cannot be avoided in this context either. In view of these findings, the article explores the ways of structuring NFR optionality. It submits that only the shareholders should be given the possibility to opt out of the strict NFR - which would continue to serve as the default rule and that such an opt out should only be possible for a limited period of time. With respect to the mandatory bid rule, its justification is becoming increasingly difficult since the exploitation of the offeree company by the controlling shareholder is more or less excluded by obligations to disclose information, by shareholder activism and by the reform of the Shareholder Rights Directive. In view of the foregoing, this paper argues for reform of the Directive's mandatory bid rule making it a mere default rule. Table of Contents ECFR 2018, 1-40 I. The status quo............................... . . . . . . . . . . . 2 1. The path to the Takeover Directive..................... . . . . . 2 2. Application report of the Commission............... . . . . . . . . . 6 II. The key issue: Appropriate division of labour between company law and takeover law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1. Non-frustration rule und mandatory bid rule in the light of changed circumstances.............................................. 9 2. Company law or takeover law regulation.............. . . . . . .. 10 Professor Dr., Chair of Private and Business Law, Faculty of Law, Ludwig-Maximilians- University, Munich, Germany. The author wishes to acknowledge helpful comments from David Kershaw (London School of Economics and Political Science). - This article has already been published in German language in 181 Zeitschrift fur das gesamte Handelsrecht und Wirtschaftsrecht (ZHR) (2017), pp. 603 et seqq.

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