Squeeze-outs & Mergers UK: Shareholder Rights Guide

Overview

A squeeze-out is the mechanism that allows a majority shareholder, typically one that has acquired 90% or more of a company's shares through a takeover offer, to compel the remaining minority to sell on the same terms. It exists because drawn-out standoffs between a dominant owner and a handful of holdouts can paralyse a business.

A merger of convenience, by contrast, is a corporate reorganisation structured so that one company absorbs another, often between entities under common control or as the final step in a takeover. Both sit within the wider framework of the Companies Act 2006.

The Act sets out strict notice requirements, thresholds that must be met, and rights for minorities to apply to court. Schemes of arrangement offer a parallel route, giving companies a court-sanctioned method of reorganising share capital or effecting a takeover with the approval of a specified majority of each class of shareholder.

The common thread is that judicial oversight sits behind every major move, and fairness is the test the court applies.

Key steps

1. Check the threshold that triggers a squeeze-out. Under Part 28 of the Companies Act 2006, a bidder that has acquired or unconditionally contracted to acquire at least 90% in value and voting rights of the shares to which the offer relates can serve a compulsory acquisition notice. Confirm the exact percentage reached before anything else, because falling short changes the whole strategy.
2. Serve or respond to the statutory notice promptly. Once the threshold is hit, the bidder must give notice to outstanding shareholders within a set window after the offer closes. If you are a minority shareholder receiving one of these notices, the clock starts on your right to apply to the court. Diarise the deadline carefully because missing it narrows your options significantly.
3. Consider a scheme of arrangement as an alternative route. For deals where 90% acceptance is unlikely, promoters often use a scheme under Part 26 of the Companies Act. This needs approval by a majority in number representing 75% in value of each class voting, plus sanction from the court. Schemes can be slower but bind every shareholder in the class once approved.
4. Weigh up court applications if the terms look unfair. Minority shareholders who believe the offer price is inadequate, or that the process has been skewed, can apply to the court for relief. The judge will look at the fairness of the offer, how it was marketed, whether the acceptance figure was genuine, and whether minority interests have been properly weighed. Evidence matters, so gather valuations and correspondence early.
5. Think about unfair prejudice as a parallel remedy. Section 994 of the Companies Act allows a shareholder to petition the court where the company's affairs are being conducted in a way that unfairly prejudices their interests. This can run alongside or instead of challenging the squeeze-out itself, particularly in private company disputes where the line between a legitimate restructure and a manoeuvre to push someone out is blurry.

Common questions