Apart from the obvious requirement under Takeover Rules to obtain suitably qualified advice which must come from an independent source, the board of an offeree company has an obligation to exercise its own collective judgment and acumen in formulating its recommendations to shareholders. The board's own decision-making faculties are not subsumed into the functions of the independent adviser.

The adviser's task is to assist the board in arriving at a mature, considered and legitimate recommendation.

So what are the board's legal obligations in this process?

Directors are under a duty to act bona fide and in the best interests of the company as a whole and not in the interests of individual shareholders or any group of shareholders.

The directors must therefore look not only at the short-term interests of the company but also its long-term interests which could, in certain circumstances, mean not necessarily recommending the highest bid in a takeover battle.

Before taking any action, however, or making any recommendation to its shareholders, the board of a public company must first appoint independent advisers to give independent advice on the offer or, where two alternative offers have been made, both offers. This independent advice has to be made known to the shareholders together with the considered views of the board.

Where the board is unable to express a view on the merits of an offer, or to give a firm recommendation on an offer, or if there is a divergence of views among members of the board, the board must draw this to the attention of the shareholders in its circular to them and set out fully the arguments for acceptance and for rejection of any offer. At the same time as the board is briefing the independent adviser, it must also be assiduously informing itself of all relevant factors and features germane to the unfolding scenario.

In simple terms, a board must satisfy itself to the greatest degree possible that those behind an offer have sufficient financial resources to complete the deal.

A board that has recommended an offer, only to find that, whilst the price was acceptable and reasonable, the bidder required a fund-raising operation before being in a position to complete could well be open to criticism. Over the more recent past, certain changes have been made in Irish legislation which, for the first time, imposes a statutory duty on directors to have regard to the interests of their company's employees in general as well as the interests of shareholders.

Unfortunately very little guidance has been given to directors as to how to resolve conflicts between these interests.

Furthermore, the Takeover Rules specifically state that any company that wishes to make an offer must specify its future intentions with regard to the employees' continued employment after the takeover.

Therefore, the position of the employees of the company must be carefully considered in any recommendation of the board.

In relation to the directors' obligations on a takeover bid, the overriding requirement is that any recommendation made be honest and fair.

Therese Rochford is partner, commercial department, at Dublin solicitors Whitney Moore & Keller