Magic circle firm Freshfields and international firm HFW have been publicly censured by the takeover regulator over advice in forming a London-listed coal group that led to a ‘serious breach’ of conduct.
The UK Takeover Panel ruled that the firms' conduct was serious enough to merit a ‘statement of public censure’ as it led to a number of separate breaches. According to the Financial Times this is the first time the panel has censured a law firm since it was set up almost 50 years ago.
The takeover in question dates from 2010, when shell company Vallar bought stakes in two Indonesian mining companies for a combination of cash and new Vallar shares, to create the coal group Bumi.
Freshfields advised Vallar in the deal, while HFW advised the mining companies the Bakrie Group and PT Bukit Mutiara.
The panel found that HFW did not disclose connections between the two Indonesian companies to the Takeover Panel, and did not consult it on whether the panel might regard the two parties as acting in concert when they acquired stakes totalling more than 30% in Vallar.
If the parties were acting in concert this would have triggered a requirement for a mandatory offer to buy all the remaining shares in the target company.
The panel also found that Freshfields ‘could have done more regarding the concert party issue’.
In December 2012 the panel ruled that the Bakrie Group and Bukit Mutiara were acting in concert, ruling that their shares Bumi be reduced to under 30%.
In a statement published on Thursday, the Takeover Panel said that in dealing with the agreements Freshfields and HFW ‘did not take all reasonable care to ensure that the commercial background to the forward-sale agreements, and their purpose, was fairly presented to the panel’.
It added: ‘Freshfields and HFW did not ensure that the direct causative connection between the collateral requirements under the jumbo loan and forward-sale arrangements, of which they were aware, was properly explained to the panel.’
Financial services company Credit Suisse was also censured. The panel acknowledged that there was no intention by any of law firms to mislead.
A Freshfields spokesperson said: ’We note the statement issued today by the Takeover Panel in relation to events in 2010 and 2011 concerning Bumi plc (now Asia Resource Minerals plc). Bumi was a client of Freshfields at the time.
‘Among its conclusions, the panel criticises Freshfields for its part in helping to prepare and present a submission made to it in 2011 on behalf of the Bakrie Group of companies. The panel concludes that Freshfields (and other advisers) failed to provide the Takeover Panel with some information that was relevant in considering the submission, but accepted that there was no intention on the part of any of the advisers to mislead the panel. Freshfields has accepted the panel’s conclusions.’
HWF said that it takes ’due note’ of the statement. It added: ’The public statement was issued with the consent of all parties involved and, as such, it is not appropriate for us to make further comment.’
An SRA spokesperson said: 'We are aware of the situation and will look at the necessary information before deciding on an appropriate course of action.'
* In a separate development, Freshfields has been put in the spotlight by public spending watchdogs over the cost of its legal work during the sale of the government’s stake in Eurostar.
The National Audit Office reported that the Treasury considered retendering for legal advice over ‘concerns’ that the magic circle firm’s £2.8m legal bill was ‘more costly than expected’.
About £500,000 of the costs related to an internal transfer of shares from the Department for Transport to the Treasury.
The NAO said: ‘Although the legal adviser’s fees were at a discount to scale rates, some of the fees were high relative to the costs of the civil service staff working on the same sale project team.'
However, it added that the Treasury decided a change of legal team midway through the process would have been ‘inefficient and problematic’.