Board neutrality
M&A / Merger ModelThe UK rule preventing a target board from taking defensive action during a bid without shareholder approval.
Also written: Rule 21, frustrating action rule
Rule 21 of the UK Takeover Code stops a target board taking frustrating action once an offer is imminent or has been made, unless shareholders approve it in a general meeting.
The effect is that the decision belongs to shareholders rather than to directors. The board advises, but it cannot deploy defences unilaterally to keep a bid away from the people who own the company.
That is why the US defensive playbook does not travel. A poison pill adopted after an approach, a crown jewel disposal, or a large issue of shares to a friendly party would all be frustrating action.
The underlying philosophy differs from Delaware, where boards have far greater latitude to just say no on the basis that they are better placed to judge long term value. Knowing that contrast is the point of the comparison in an interview.
Worked example
A UK listed target receives an unsolicited approach. The board wants to issue 15% of its share capital to a friendly institution.
Rule 21 makes that frustrating action, so it requires shareholder approval in a general meeting, which in practice means it will not happen.
The same defence in Delaware would likely be within the board's authority. That contrast is the substance of the comparison, not the list of defence names.