NEDs in M&A Oversight

What does Non-Executive Director oversight actually involve across the lifecycle of a UK M&A transaction — from the strategic decision to pursue acquisitions or accept a sale through due diligence, deal negotiation, signing, completion, and post-deal integration — what specific responsibilities does the City Code on Takeovers and Mergers place on Non-Executive Directors of public companies, how should independent directors approach the conflicts of interest that arise in management buyouts and related-party transactions, and when should a board specifically recruit additional Non-Executive Directors with substantive transaction track record rather than relying on existing board composition through a deal?

M&A is among the most consequential board-level activities in any company’s life. A single significant acquisition can transform the strategic position, financial profile, operational footprint, and cultural character of the acquirer in ways that take years to fully manifest. A single sale transaction is, for most private companies, the financial event that determines what shareholders ultimately receive for years or decades of investment and effort. Public M&A transactions are subject to additional regulatory frameworks — the City Code on Takeovers and Mergers, the FCA Listing Rules class tests, schemes of arrangement under Part 26 of the Companies Act 2006 — that materially constrain how transactions can proceed and how the board must engage. And related-party transactions, particularly management buyouts where executive directors are simultaneously selling shareholders or acquiring management teams, raise conflicts of interest that the independent Non-Executive Directors must specifically and visibly manage. Across all of these contexts, NED engagement is consequential, substantively demanding, and personally accountable in ways that ordinary steady-state board work rarely is.

The challenge is that M&A is also relatively episodic for most boards. A growth business may go years between transactions, then face an intense cluster of activity around an acquisition campaign or a sale process, then return to the steady-state cycle. NEDs whose substantive M&A track record extends back many years may find their pattern recognition imperfectly matched to current market practice — locked-box pricing mechanics evolve, warranty and indemnity insurance markets shift, the Takeover Panel’s procedural expectations refine, conflicts standards in PE-backed transactions intensify. NEDs whose substantive M&A track record is entirely absent face the opposite challenge: engaging substantively with one of the most demanding board activities without prior pattern recognition to draw on. The board’s collective M&A capability becomes a genuine governance question that warrants explicit attention, particularly as transactions approach.

This article sets out what NEDs do across the M&A lifecycle, the principal regulatory frameworks that shape NED responsibility in UK transactions, the Takeover Panel framework for public M&A specifically, the independent committee structure that related-party transactions require, the audit committee’s substantive role in M&A oversight, the “Deal NED” archetype that boards sometimes recruit specifically for transaction context, the personal accountability considerations directors should understand, the common mistakes that recur across boards in M&A, and the recruitment considerations for boards anticipating substantial transaction activity. It is written for Non-Executive Directors currently serving on boards with active or anticipated M&A activity, Chairs and CEOs assessing their existing board composition against transaction demands, and senior business leaders considering NED appointments at companies whose strategic plans involve substantial transaction activity.

It is written from the perspective of FD Capital’s team — a specialist senior recruitment firm placing senior finance leaders and Non-Executive Directors into UK growth businesses since 2018, with substantive engagement supporting both buy-side acquisition campaigns and sell-side exit processes including PE buyouts, trade sales, and more recently selective IPO transitions.

Call 020 3287 9501 or email recruitment@fdcapital.co.uk to discuss transaction-experienced NED recruitment for your business.

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Why M&A Engages NEDs So Substantively

The general case for NED contribution to strategic decisions is well established. M&A sharpens that case in five specific ways that make NED engagement materially more consequential than in most other strategic decisions.

The information asymmetry favours management more than usual. Throughout M&A processes, the executive team holds substantially more information than the board — about target companies, about counterparty intent, about advisor assessments, about deal mechanics. The board’s ability to challenge effectively depends on substantive information sharing during the process, and NEDs who allow themselves to be presented with effectively closed deals at the approval stage have failed in their oversight role. The substantive engagement happens through the process, not at the approval meeting.

The cost of executive momentum. Executive teams pursuing M&A typically develop substantial personal commitment to specific transactions. The CEO who has championed an acquisition for six months will not respond well to challenges that might unravel it. The CFO whose financial model demonstrates value creation will defend the model’s assumptions. The investment banking team will reinforce the case for the deal because their fees depend on it. The board’s structural independence from these momentum forces is one of the most valuable contributions NEDs can make to M&A processes.

The Companies Act 2006 section 172 framework. Section 172 requires directors to act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, having regard to specified factors including the long-term consequences of decisions, employee interests, supplier and customer relationships, community and environmental impact, and the desirability of maintaining a reputation for high standards of business conduct. M&A decisions engage all of these factors substantively, and the documented consideration of them is one of the practical disciplines the board must own.

Personal accountability under section 174. The duty of reasonable care, skill and diligence is calibrated to the individual director’s actual capabilities. NEDs with substantive M&A track record are held to a higher standard on transaction matters than NEDs without that background. The duty does not require directors to become experts in everything; it does require substantive engagement on matters within their professional competence, and it does require sensible challenge across the full board.

The asymmetric outcomes. M&A outcomes are statistically asymmetric — good acquisitions create modest value, bad acquisitions destroy substantial value. The downside risks of poorly executed M&A are typically larger than the upside benefits of well-executed M&A, which makes the boardroom-level challenge function particularly valuable. NEDs who are willing to slow down a deal, demand additional due diligence, push back on pricing, or ultimately decline to approve a transaction provide one of the most valuable functions in corporate governance.

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The Seven Stages of M&A and the NED Role at Each

Stage One: Strategic Review and the “Should We Do M&A” Decision

The most consequential NED engagement in M&A often happens before any specific transaction is on the table — at the strategic review stage where the board considers whether and how M&A should feature in the company’s growth strategy. The questions the board should engage substantively at this stage include: what specific strategic objectives would M&A advance that organic growth cannot? What categories of target would be appropriate? What price discipline would the board apply? What integration capability does the company actually possess? What financing capacity supports the strategy? What management bandwidth is available?

NED contribution at this stage focuses on independent challenge to executive enthusiasm — particularly challenge to the assumption that M&A will be additive without substantive supporting analysis. Many failed acquisition campaigns can be traced back to inadequate strategic review at this stage, where boards approved general M&A authority without genuinely engaging with the specific strategic logic.

Stage Two: Target Identification and Approach

Specific target consideration brings the strategic decisions to operational focus. NED contribution at this stage typically includes: review of the target shortlist and the criteria used to develop it; engagement on the early-stage assessment of the most promising targets; consideration of the approach strategy; and engagement with the executive team on the resourcing of the transaction process.

For listed companies, this stage also engages early consideration of the FCA Listing Rules class tests (which determine whether transactions are class 1, class 2, or class 3 based on size relative to the listed company), the disclosure obligations under MAR (Market Abuse Regulation), and the timing considerations around announcements and pre-announcement market sensitivity.

Stage Three: Due Diligence

Due diligence is where NED contribution becomes most operationally substantive. The board cannot conduct due diligence itself — that is appropriately an executive activity supported by external advisors — but the board must oversee the diligence programme, ensure its scope is appropriate, engage with the findings, and make judgements about the implications.

The audit committee typically has primary responsibility for financial due diligence oversight including review of the Quality of Earnings analysis, the working capital position, the debt and debt-like items, the tax position, and the accounting policy alignment between buyer and target. NEDs more broadly should engage with commercial diligence findings, legal diligence findings (particularly material litigation, regulatory issues, and contractual risk), HR and pension diligence findings (particularly in unionised sectors and businesses with material defined benefit pension exposures), IT and cyber diligence findings, and ESG and sustainability diligence findings. Read more on the substantive content of UK financial due diligence in our Financial Due Diligence Guide and on vendor due diligence in Vendor Due Diligence: A Complete UK Guide.

The substantive board judgement at the diligence stage includes whether the findings warrant proceeding, repricing, restructuring the transaction, or walking away. NEDs willing to push back at this stage — including escalating to walk-away decisions where findings warrant — provide one of the most valuable contributions to M&A governance.

Stage Four: Pricing, Negotiation, and Deal Terms

The pricing decision is where executive momentum and board oversight most often come into productive tension. NEDs should engage substantively with the pricing analysis: the valuation methodology, the comparable transactions, the synergy assumptions, the discount rate sensitivity, the stress-tested downside scenarios. The audit committee chair frequently leads NED engagement at this stage given the technical financial dimension.

Beyond the headline price, the deal terms engage substantial NED attention: the pricing mechanism (locked box versus completion accounts — see our Locked Box vs Completion Accounts Guide); the warranty and indemnity package; the W&I insurance arrangements (see our W&I Insurance Guide); any earn-out structure (see our Earn-Outs and Deferred Consideration); the conditions precedent; the regulatory clearances required; the management retention and lock-up arrangements; and the dispute resolution mechanism.

Stage Five: Approval

The formal approval decision brings the full board to substantive review of the proposed transaction. The board paper for approval typically runs to several hundred pages including the strategic rationale, the diligence findings, the financial analysis, the legal documents, the advisor reports, and the executive recommendation. The approval meeting is the visible expression of NED oversight, but as noted earlier, the substantive engagement has happened through the process, not at the approval meeting itself.

Where NEDs find themselves uncomfortable at approval — but the executive team has substantial momentum and external advisors have endorsed the transaction — the choices are difficult. Voting against approval is a substantial step that has wider governance implications. Abstention is generally considered inadequate. Conditions of approval — requiring specific actions before signing — can be appropriate. Walking away from a board appointment over a specific transaction is the most extreme step but is occasionally the right one. The general principle is that NEDs should not approve transactions they do not believe are in the company’s interests, regardless of the difficulty of the position.

Stage Six: Execution and Signing

Between approval and completion, transactions can change. Conditions precedent require execution; regulatory clearances may produce remediation obligations; market conditions may shift; counterparty positions may evolve. The board’s continuing engagement through this period varies by transaction but typically includes status updates from the executive team and ad hoc engagement on specific issues that emerge.

Stage Seven: Integration and Post-Completion

The most consistent finding from post-deal reviews is that integration determines whether transactions create value, and that integration is substantially more demanding than executive teams initially anticipate. NED engagement post-completion typically intensifies, with structured integration governance often including: a dedicated integration committee or audit committee oversight of integration progress; periodic detailed integration reviews; engagement with the integration leadership team; oversight of the synergy realisation and the cultural integration; and ultimately a formal post-deal review (typically twelve to twenty-four months post-completion) assessing whether the transaction has performed against the case made at approval.

Many boards underinvest in post-deal integration governance — the executive team has moved on to the next priority, the deal team has dispersed, and the integration becomes a routine operational matter. The discipline of structured post-deal review and accountability for outcomes against approved cases is one of the practices that distinguishes mature boards from less mature ones.

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The Takeover Panel Framework for Public M&A

For UK public companies, the City Code on Takeovers and Mergers — administered by the Panel on Takeovers and Mergers (the “Takeover Panel”) — establishes a substantial regulatory framework that materially shapes how directors must engage with public M&A. The Code is non-statutory but operates with effective compulsion through Panel powers and supplementary regulatory backing under the Companies Act 2006.

Code application. The Code applies to offers for companies that have their registered office in the UK, the Channel Islands, or the Isle of Man, and whose securities are admitted to trading on a UK regulated market or multilateral trading facility. The Code also applies in some circumstances to private companies meeting specific criteria including ten-year residency thresholds and prior public market history.

Director duties under the Code. The Code places specific duties on directors of offeree companies including: providing competent independent advice on the offer; not taking action that could frustrate the offer without shareholder approval (the Rule 21 frustrating action prohibition); ensuring information given to shareholders is sufficient and accurate; and engaging with offerors on equal information terms. Directors of offeror companies face parallel duties.

The Rule 3 advisor. Rule 3 of the Code requires offeree boards to obtain competent independent advice on the offer and to communicate the substance of that advice to shareholders. The Rule 3 advisor (typically a regulated investment bank acting in this specific capacity) provides the formal independent opinion that supports the board’s recommendation. NEDs engage with the Rule 3 process substantively, particularly through the audit committee chair and the Senior Independent Director.

The fairness opinion in private equity contexts. Outside the Code itself, transactions involving private equity buyers — particularly take-private transactions and PE buyouts of listed targets — frequently engage parallel concepts of independent advice. The Independent Committee of NEDs typically obtains its own independent financial advice (sometimes a “fairness opinion”) to support its recommendation, distinct from the advice the broader board receives.

Timing and announcement disciplines. The Code’s timing rules — the “put up or shut up” deadline, the offer timetable, the dispatch of offer documents, the response document timing — create operational disciplines that the board must navigate. NED engagement during a public offer is typically materially intensified, with frequent meetings (sometimes daily during the most intensive periods) and substantial engagement with the company’s lawyers, financial advisors, and Rule 3 advisor.

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Related-Party M&A and the Independent Committee

Related-party M&A transactions create specific governance challenges that the independent NEDs must own. The most common related-party context is the management buyout — where the existing executive team (typically the CEO and CFO, sometimes with broader management participation) is acquiring the business, often in partnership with a private equity sponsor, from the existing shareholders. The conflict is structural: the executives are simultaneously fiduciaries for the selling shareholders and economic beneficiaries of the lowest possible purchase price as buyers.

The standard governance response is the establishment of an Independent Committee of the board — typically composed of all NEDs who are not participating in the buyer consortium — with delegated authority to manage the sale process on behalf of the company. The Independent Committee typically: appoints its own financial advisor (separately from the company’s other advisors who may have relationships with management); engages its own legal counsel where appropriate; reviews and tests management projections used in the sale process (recognising that management has incentives to be conservative in projections used in a sale they are participating in); engages with potential buyers on the company’s behalf; and ultimately recommends to shareholders whether to accept or reject any offer that emerges.

The conflicts management discipline extends throughout the process. Management cannot have access to confidential information about competing bids that is not available to all bidders on equal terms. Management cannot direct the sale process toward their preferred outcome. Management cannot make commitments to their PE partner that constrain the company’s ability to engage with alternative buyers. The Independent Committee must actively manage these dimensions rather than relying on management’s good faith.

For NEDs serving on Independent Committees in MBO contexts, the role is genuinely substantial — typically requiring 30-60 days of engagement during the active sale process, with the committee chair often committing materially more. Compensation arrangements should reflect the engagement, and Independent Committee members typically receive specific committee fees in addition to ordinary NED fees. Read more on the broader MBO context in our Management Buyouts: The Complete UK Guide.

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The Audit Committee’s Substantive Role in M&A

The audit committee carries specific responsibilities in M&A oversight that go beyond ordinary board engagement. These responsibilities engage substantively at multiple stages of the transaction.

Pre-transaction. The audit committee reviews the financial position of the company in light of contemplated transactions, considers the financial capacity for proposed acquisitions, and engages with the financing strategy.

During due diligence. The committee oversees financial due diligence on targets — engaging with the Quality of Earnings analysis, the working capital position, the financial reporting risks, the accounting policy alignment, the tax position, and the going concern implications of the post-transaction structure. The committee engages directly with the financial diligence advisors and reviews their reports.

Pricing and accounting treatment. The committee engages with the technical accounting treatment of contemplated transactions including the business combinations accounting under IFRS 3, any potential impairment implications, the going concern assessment for the enlarged group, and any disclosure implications.

Completion accounts. Where transactions use completion accounts pricing, the committee oversees the completion accounts process — typically supported by the external auditor — including the agreement of completion accounts methodology, the resolution of disputes between buyer and seller, and the final settlement of the price adjustment. Locked box transactions raise different but parallel issues around leakage and permitted leakage.

Post-completion accounting. The committee engages with the post-completion accounting integration including the purchase price allocation, the goodwill recognition, the integration of accounting policies between buyer and target, and the ongoing financial reporting integration.

For larger transactions or transactions raising particular financial complexity, the audit committee chair frequently becomes the most operationally engaged NED, with very substantial time commitment during the active deal period and ongoing engagement post-completion.

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The Deal NED Archetype

For boards anticipating substantial M&A activity — whether a campaign of acquisitions over a multi-year period, a specific contemplated sale process, or a known transaction context — the targeted addition of a Deal NED with substantive transaction track record can materially strengthen board capability. The Deal NED is not a different category of director with different fiduciary duties, but is a specialist NED appointment focused specifically on transaction contribution.

Common Deal NED archetype profiles include: former Group CFO of an acquisitive listed company with substantial buy-side track record; former senior corporate finance partner from a major investment bank with subsequent NED portfolio; former senior partner at a private equity firm with substantive transaction track record; former senior M&A partner at a magic circle or major US law firm; or former senior partner at a transaction services firm (typically EY-Parthenon, McKinsey, BCG, or Bain transaction practices) with subsequent NED engagement.

Deal NED appointments differ from ordinary NED recruitment in several practical respects. The candidate pool is genuinely smaller given the specific transaction track record requirement. Time availability matters more — Deal NEDs need to be available for materially intensified engagement during active transactions. Specific reference depth on transaction work matters — references from prior board colleagues from comparable transactions are particularly valuable. Compensation typically runs above standard NED rates given the operational nature of the contribution.

Boards considering Deal NED appointments should be specific about the transaction context. A buy-side acquisition campaign benefits from candidates with prior buy-side track record. A contemplated sale process benefits from candidates with prior sell-side experience. A take-private context benefits from candidates with prior public-to-private transaction experience and Takeover Panel familiarity. An MBO context benefits from candidates with prior Independent Committee experience. Generic “M&A experience” is less valuable than specific category match.

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Personal Accountability Considerations

NEDs serving on boards through M&A processes face heightened personal accountability that warrants explicit attention. The principal frameworks include the following — though individual NEDs facing transaction-related liability concerns should obtain personal legal advice rather than relying on summary guidance.

Companies Act 2006 directors’ duties. The seven general duties under sections 171-177 apply throughout, with particular operational force around section 172 (promoting success while having regard to specified factors), section 174 (reasonable care, skill and diligence), and sections 175-177 (conflicts of interest, particularly relevant in related-party M&A).

Section 172 documented consideration. The board’s consideration of the section 172 factors — long-term consequences, employee interests, supplier and customer relationships, community and environmental impact, reputation for high standards — should be documented in board minutes. This is particularly important for transactions where the section 172 considerations are material to the decision (for example, a sale to a buyer whose intent toward employees or suppliers is uncertain).

Conflicts of interest under sections 175-177. In MBO contexts and other related-party transactions, the conflicts of interest regime requires substantial attention. Conflicted directors must declare interests, withdraw from decisions where appropriate, and not vote on matters in which they are conflicted. The independent committee structure operationalises these requirements in practice.

Securities law obligations for listed companies. The FCA Listing Rules class tests, the Market Abuse Regulation insider list and announcement obligations, and the Takeover Panel rules collectively create substantial regulatory obligations during public M&A. NEDs of listed companies should understand these frameworks at sufficient depth to engage meaningfully with the executive team and external advisors.

D&O insurance during transactions. Boards should ensure D&O cover is reviewed early in transaction processes. Some policies have specific exclusions or notification requirements for transaction-related claims, and engagement with insurers early prevents subsequent coverage disputes. For target companies in public takeovers, the D&O cover is typically extended into a “run-off” arrangement covering directors for a period (typically six years) after completion against claims relating to the pre-completion period.

The general principle is that personal exposure is meaningfully greater during M&A than in steady-state operation, but is generally manageable through substantive engagement, proper documentation, professional advice, and appropriate insurance. NEDs who attempt to defer or step back from substantive engagement during M&A often increase rather than reduce their exposure.

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Common Mistakes in NED M&A Oversight

Mistake one: Engaging only at the approval stage. NEDs who first engage substantively with a transaction at the formal approval meeting have failed in their oversight role regardless of how careful the approval meeting itself is. Substantive engagement happens through the process — the strategic review, the target selection, the diligence findings, the pricing decisions — not at the approval meeting.

Mistake two: Inadequate challenge to executive momentum. Executive teams pursuing M&A develop substantial commitment to specific transactions. NEDs whose challenge function fails under the weight of that commitment provide little governance value. The willingness to push back, slow processes down, demand additional analysis, and ultimately decline to approve transactions is what justifies the NED role.

Mistake three: Inadequate documentation of section 172 consideration. Where section 172 factors are material to the decision, the board’s consideration should be documented in minutes. Many boards minute the decision without minuting the substantive consideration, creating governance weakness and personal exposure.

Mistake four: Treating Independent Committee work as nominal. In related-party transactions, the Independent Committee structure works only if the independent NEDs operate independently in substance — engaging their own advisors, testing management projections, managing the sale process actively, and ultimately reaching their own judgement. Independent Committees that defer to management defeat the structural purpose of the conflict management.

Mistake five: Underinvestment in post-deal integration governance. The most important phase of any M&A transaction — the integration that determines whether value is created — is often the phase where board engagement weakens. Structured integration governance including periodic detailed reviews and formal post-deal accountability against approved business cases is one of the practices that separates effective boards from less effective ones.

Mistake six: Failing to refresh board composition for contemplated transaction activity. Boards anticipating substantial M&A activity sometimes continue with existing composition where additional Deal NED capability would materially strengthen oversight. The reluctance to add transaction-experienced NEDs is rarely well-founded; the addition typically strengthens both the immediate transaction outcomes and the longer-term board capability.

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How FD Capital Approaches M&A NED Recruitment

FD Capital has placed senior finance leaders and Non-Executive Directors into UK growth businesses since 2018, including substantive engagement with transaction-experienced NED appointments across buy-side acquisition campaigns, sell-side exit processes, MBO situations, and PE-backed transaction contexts. Our network includes Deal NED candidates across the principal archetype profiles — former Group CFOs of acquisitive companies, former corporate finance partners, former PE partners, former senior transaction services partners — across the principal sectors and transaction contexts.

Adrian Lawrence FCA personally leads briefings for transaction-experienced NED mandates given the substantive nature of the contribution and the importance of getting these appointments right. Initial introductions to specific named candidates within 48 hours where the requirement is urgent. Full shortlist within five to ten working days. Appointment typically completing within 35 to 56 days for senior permanent NED roles, with compressed timelines available where transaction context requires it.

Initial consultation is confidential and at no charge. Call 020 3287 9501 for an immediate transaction-experienced NED requirement, or email recruitment@fdcapital.co.uk.

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Related Reading

• First-Time NED Appointments: A Founder’s Guide — when to make the first NED appointment and how to structure the role
• NEDs for International Expansion — internationally-experienced NED appointments for UK businesses expanding overseas
• NEDs on Audit Committees — the most operationally demanding committee responsibility in UK corporate governance
• Charity Trustee Roles for Senior Business Leaders — the trustee role and how it differs from corporate NED appointments
• NEDs in Crisis and Volatile Markets — how NED engagement intensifies in crisis contexts
• Financial Due Diligence: A Complete UK Guide — substantive content on UK FDD that audit committees engage with
• Vendor Due Diligence: A Complete UK Guide — the sell-side parallel discipline
• Management Buyouts: The Complete UK Guide — the MBO context where Independent Committee work becomes critical
• Locked Box vs Completion Accounts — the principal pricing mechanisms in UK M&A
• Warranty & Indemnity Insurance: A UK M&A Guide — the transaction insurance product that shapes warranty packages
• Earn-Outs and Deferred Consideration — earn-out structures and the post-completion governance they create
• Business Exit Preparation — the multi-year process leading up to a sale transaction

FD Capital Recruitment Services

• NED Recruitment — Non-Executive Director recruitment including Deal NED and Independent Committee appointments
• Chairman Recruitment — Chair appointments for UK boards
• Private Equity CFO Recruitment — CFO recruitment for PE-backed businesses through transactions
• Hire an FD or CFO — senior finance recruitment
• Interim CFO and FD Recruitment — interim senior finance for transaction support
• FCA-Regulated Firms Recruitment — specialist FCA-regulated firms practice including regulated transaction contexts

External References

• The Panel on Takeovers and Mergers — administrator of the City Code on Takeovers and Mergers
• The City Code on Takeovers and Mergers — the rules governing UK public M&A
• Companies Act 2006 — including sections 171-177 (directors’ duties) and Part 26 (schemes of arrangement)
• FCA Handbook — Listing Rules — including the class tests and related-party transaction rules for listed companies
• FRC UK Corporate Governance Code — the governance framework for UK boards
• ICAEW Corporate Finance Faculty — professional resources on UK corporate finance and M&A
• Institute of Directors (IoD) — professional body with extensive resources on the role of NEDs
• ICAEW — professional body for Chartered Accountants

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