TAKEOVERS LAW AND STRATEGY. 9780455500386, 045550038X

Table of contents :
Chapters_FM.pdf
Chapters_ch-01.pdf
Chapters_ch-02.pdf
Chapters_ch-03.pdf
Chapters_ch-04.pdf
Chapters_ch-05.pdf
Chapters_ch-06.pdf
Chapters_ch-07.pdf
Chapters_ch-08.pdf
Chapters_ch-09.pdf
Chapters_ch-10.pdf
Chapters_ch-11.pdf
Chapters_ch-12.pdf
Chapters_ch-13.pdf
Chapters_ch-14.pdf
Chapters_ch-15.pdf
Chapters_ch-16.pdf
Chapters_ch-17.pdf
Chapters_ch-18.pdf
Chapters_ch-19.pdf
Chapters_ch-20.pdf
Chapters_ch-21.pdf
Chapters_ch-22.pdf
Chapters_ch-23.pdf
Chapters_Index.pdf

Citation preview

Takeovers Law & Strategy

Thomson Reuters (Professional) Australia Limited 19 Harris Street Pyrmont NSW 2009 Tel: (02) 8587 7000 Fax: (02) 8587 7100 [email protected] http://legal.thomsonreuters.com.au For all customer inquiries please ring 1300 304 195 (for calls within Australia only)

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Takeovers Law & Strategy

Rodd Levy BA, LLB (Hons) Partner Herbert Smith Freehills, Melbourne Member Takeovers Panel

FIFTH EDITION

LAWBOOK CO. 2017

Published in Sydney by Thomson Reuters (Professional) Australia Limited ABN 64 058 914 668 100 Harris Street, Pyrmont, NSW 2009 First edition by Rodd Levy — 1995 Second edition by Rodd Levy — 2002 Third edition by Rodd Levy and Neil Pathak — 2009 Fourth edition by Rodd Levy — 2012 National Library of Australia Cataloguing-in-Publication entry Levy, Rodd. Takeovers law & strategy / Rodd Levy. 5th ed. ISBN: 9780455500263 (pbk) Includes index. Consolidation and merger of corporations — Law and legislation — Australia. 346.9406626 © 2017 Thomson Reuters (Professional) Australia Limited This publication is copyright. Other than for the purposes of and subject to the conditions prescribed under the Copyright Act 1968, no part of it may in any form or by any means (electronic, mechanical, microcopying, photocopying, recording or otherwise) be reproduced, stored in a retrieval system or transmitted without prior written permission. Inquiries should be addressed to the publishers. All legislative material herein is reproduced by permission but does not purport to be the official or authorised version. It is subject to Commonwealth of Australia copyright. The Copyright Act 1968 permits certain reproduction and publication of Commonwealth legislation. In particular, s 182A of the Act enables a complete copy to be made by or on behalf of a particular person. For reproduction or publication beyond that permitted by the Act, permission should be sought in writing. Requests should be submitted online at http://www.ag.gov.au/cca, faxed to (02) 6250 5989 or mailed to Commonwealth Copyright Administration, Attorney-General’s Department, Robert Garran Offices, National Circuit, Barton ACT 2600. Product Developer: Paul Gye Publisher: Robert Wilson Edited and typeset by Newgen KnowledgeWorks Printed by Ligare Pty Ltd, Riverwood, NSW, Australia

Preface Mark Twain is reported as saying “Reports of my death have been greatly exaggerated.” The same can be said for company takeovers. Whilst the last 15 years has seen the inexorable rise of schemes of arrangement as a popular mechanism (perhaps the most popular mechanism) to acquire public companies in Australia, the use of the company takeover mechanism, often on a hostile or unsolicited basis, is far from over. In fact, the last few years has seen a number of very high-profile hostile company takeovers, including the trilogy of bids made by CIMIC and the bid made by Downer EDI for Spotless Group. A quick survey of statistics about public company transactions shows that, by number, takeover bids remain the most common form of transaction. Since July 2015, there have been 54 acquisitions effected by takeover bid, compared to 48 acquisitions undertaken by scheme of arrangement. It is true that schemes of arrangement have been the dominant form of transaction for larger value transactions, but, like Mark Twain’s reported death, reports of the end of company takeovers have been greatly exaggerated. In fact, whether driven by emboldened boards enforcing their gatekeeper role more strictly or empowered bidders more confident in directly appealing to shareholders, the significance of takeover law appears to be on the rise once more. Since the last edition of this book five years ago, there have been significant changes and revisions to the law and practice of company takeovers in Australia. However, the Federal Government has largely given up making any new laws relating to company takeovers (despite repeated calls for refinements and reforms). This has left the Takeovers Panel as being not only the primary dispute resolution body for takeovers, but also the most important body for establishing new rules and norms for how company takeovers should be effected. In my view, we should build on this success in order to further improve the regulatory landscape to enable the market for corporate control to operate efficiently and without undue legal impediments or uncertainty. In 1999, the late Mr G F K Santow, a superb lawyer and judge and mentor to many (including giving me the original opportunity to write about company takeovers, which ultimately became the basis for this book), said that one of the factors that was crucial to the success of the Takeovers Panels in the UK, South Africa and Ireland had been the power to make rules. Currently, section 658C enables the President of the Panel to make rules, not inconsistent with the legislation, to “clarify or supplement” the operation of the legislation. However, it has never been used. I consider that the Panel should exercise its rule-making power to deal with issues that are not susceptible to being clarified merely by the issuance of a guidance note. The two obvious starting points would be disclosure requirements for equity derivatives and uncertainties under the “truth in takeovers” rule, such as for how long must a bidder wait before it can bid again having declared its bid

vi Preface

“final”. Exercising the rule-making power would be a welcome step towards the Panel fulfilling the role originally contemplated for it in the late 1990s. I would like to thank my partners and colleagues at Herbert Smith Freehills for the many discussions I have had concerning takeover law and practice. I would also like to specifically thank Chris Jose, Nick Baker, Kam Jamshidi and Toby Eggleston for help in revising some of the specialist parts of the book. My biggest thanks must go to George Durbridge. George has painstakingly revised the book to not only deal with changes arising from developments from the Panel, ASIC and the courts, but also has added a great deal of original thought into some of the more subtle points of the legislation and how it does or should operate. Without George’s efforts, the book would be a work of much lesser quality. Thank you, George. The law is as available to me on 15 May 2017.

RODD LEVY Herbert Smith Freehills Melbourne 1 June 2017

Table of Contents Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v Table of Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Table of Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxxvii 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23.

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 The 20% Prohibition and When It Applies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Voting Power, Relevant Interests and Associations . . . . . . . . . . . . . . . . . . . . . . 21 Foreign Bidders, Anti-competitive Bids and Acquisitions in Regulated Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Strategic Planning and Structural Considerations . . . . . . . . . . . . . . . . . . . . . . . . 91 Involvement of Insiders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 Pre-bid Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 Terms of the Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 Bidder’s Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 Procedures During the Offer Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233 Bidder’s Strategy During Offer Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243 Market Bids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279 Long-Term Defensive Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291 Responding to a Bid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319 Substantial Holding Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 367 Tracing Beneficial Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383 Compulsory Acquisition Following a Takeover . . . . . . . . . . . . . . . . . . . . . . . . . 393 Other Methods of Mopping Up Minorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411 Exempt Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 431 The Role of ASIC in Takeovers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 459 The Takeovers Panel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 473 After the Offer Closes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 503 Stamp Duty and Tax Aspects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 515

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 525

TABLE OF CASES A A Company, Re [1986] BCLC 382 . . . . . . . . . . . . . . . . . . . . . . . . . 14.40, 14.50.60, 14.80.20 AAPT v Cable & Wireless Optus (1999) NSWSC 454 . . . . . . . . . . . . . . . . . . . 9.30, 9.30.30 AAPT v Cable & Wireless Optus (1999) NSWSC 509 . . . . . . . . . . . . . 9.20, 9.30, 9.30.30, 9.30.130 AAPT v Cable & Wireless Optus Ltd (1999) 32 ACSR 63 . . . . . . . . . . . . . . . . . . . 9.30.130 ABB Grain Ltd [2010] FCA 1309 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.60 ABN AMRO Private Equity Ltd v Forward Technology Industries plc (unreported, Eng HC/Ch Div, Patten J, 24 October 2000) . . . . . . . . . . . . . . . . . 14.70.10 ACCC v Metcash [2011] FCA 967 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.20.50 ACCC v Metcash Trading Limited [2011] FCAFC 151; 198 FCR 297 . 4.20.10, 4.20.40A ACI Operations Pty Ltd, Re (1991) ATPR (Com) 50-108 . . . . . . . . . . . . . . . . . . . . 4.20.40C ACM Gold Ltd, Re; Re Mount Leyshon Gold Mines Ltd (1992) 7 ACSR 231 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.40.20 AF & ME Pty Ltd v Aveling (1994) 14 ACSR 499 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.40 AL Campbell & Co Pty Ltd v Federal Commissioner of Taxation (1951) 82 CLR 452 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.70 AMP Capital Funds Management Ltd, In the matter of [2016] NSWSC 986 . . . . . . . 3.70 AMP Life Ltd v AMP Capital Funds Management Ltd [2016] NSWCA 176 . . . . . . . 3.70 AMP Shopping Centre Trust 01 [2003] ATP 21 . . . . . . . . . . . . . . . . . . 5.30.50, 13.90, 21.30 AMP Shopping Centre Trust 02 [2003] ATP 24 . . . . . . . . . . . . . . . . . . 5.30.50, 13.90, 21.30 ANZ Executors & Trustees Ltd v Humes Ltd [1990] VR 615; 15 ACLR 392 . . . . 17.80, 18.90, 20.30 ANZ Nominees Pty Ltd v Wormald International Limited (1988) 13 ACLR 698 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.90 APA Oceanic Funds Management Ltd v Smith (No 1) (1987) 9 NSWLR 569; 11 ACLR 879 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.30.60 APM Investments Pty Ltd v TPC (1983) 49 ALR 475 . . . . . . . . . . . . . . . . . . . . . . . . 4.20.50 APN News & Media Ltd, Re [2007] FCA 770 . . . . . . . . . . . . . . . . . . . . . . . . 14.70, 14.70.10 ASC v Bank Leumi Le-Israel [1995] FCA 1744 . . . . . . . . . . . . . . . 3.60.20, 3.80.10, 15.10 ASC v Bank Leumi Le-Israel (Switzerland) (1996) 21 ACSR 474 . . . . 2.30, 3.20, 15.40, 16.20, 16.30, 16.50 ASC v Mt Burgess Gold Mining Co Ltd (1994) 15 ACSR 714 . . . . . . . . 7.60.10, 7.60.40, 11.10.10 ASIC v Craigside Company Ltd (No. 2) [2014] FCA 371 . . . . . . . . . . . . . . . . . . . . . . . 16.50 ASIC v DB Management Pty Ltd [2000] HCA 7; 199 CLR 321 . . . . . 8.20, 13.60, 17.20, 17.80, 20.30 ASIC v Lucas (1992) 7 ACSR 676 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.50.30 ASIC v Narain [2008] FCAFC 120 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.60.10 ASIC v National Exchange Pty Ltd [2003] FCA 995 . . . . . . . . . . . . . . . . . . . . . . . . 11.10.10 ASIC v Solution 6 Holdings Ltd (1999) 30 ACSR 605 . . . . . . . . . . . . . . . . . . . . . . 19.60.30 ASIC v Terra Industries Inc [1999] FCA 525 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.10 ASIC v Yandal Gold Pty Ltd (1999) 32 ACSR 317 . . . . . . . . . . . . . . . . . . . . . . 3.20, 3.50.10 ASIC v Yandal Gold Ltd (1999) FCA 799 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.20 ASIC and Wesfi Ltd, Re (1999) 32 ACSR 686 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20.30

x Table of Cases

Aberfoyle Ltd v Western Metals Ltd [1988] FCA 744; 84 FCR 113; 28 ACSR 187 . . . . . . . . 3.20, 3.70.20, 3.70.50, 5.50, 5.60.20, 9.20, 9.30.50, 9.30.130, 11.30, 11.40, 11.40.10, 11.40.30, 11.40.50A, 19.90 ACCC v Prysimian Cavi E Sistemi SRL (No 12) [2016] FCA 822 . . . . . . . . . . . . . 3.70.20 Accent Resources Ltd [2007] ATP 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20.10, 21.20.30 Acre Developments Pty Ltd v NCSC (1987) 12 ACLR 187 . . . . . . . . . . . . . . . 16.10, 16.30 Adelaide Holdings Ltd, Re (1982) 6 ACLR 675 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.50.30 Adler v Australian Securities and Investments Commission [2003] NSWCA 131 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.60.20 Adsteam Building Industries Pty Ltd v Queensland Cement and Lime Co Ltd (1984) 2 ACLC 829 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.30 Adsteam Building Industries Pty Ltd v Queensland Cement and Lime Co Ltd (No 3) (1985) 9 ACLR 46 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.30 Adsteam Building Industries Pty Ltd v Queensland Cement and Lime Co Ltd [No 4] (1985) 14 ACLR 456 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.20 Advance Bank Australia Ltd, Re (1997) 136 FLR 281; 22 ACSR 513 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.60.50, 5.40.20 Advance Bank Australia Ltd v FAI Insurances Ltd (1987) 9 NSWLR 464 . . . . . . . 14.120 Advance Bank of Australia Ltd v FAI Insurances Ltd (1987) 12 ACLR 118 . . . . . . 14.40 Advance Property Fund [2000] ATP 7 . . . . . . 5.30, 7.30, 11.40.50A, 11.40.50C, 21.20.10 Afro-West Mining Ltd v Australian Mining Investments Ltd (1983) 14 ACLR 709 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.20 Ainsworth Game Technology Limited 01 and 02 [2016] ATP 9 . . . . . . . . . 3.70.40, 19.60, 19.60.40 Alan Davis Group v Rivkin Financial Services [2005] NSWSC 369 . . . . . . . . . . . . 3.70.50 Albert v Votraint No 320 Pty Ltd (1987) 13 ACLR 336 . . . . . . . . . . 5.100, 9.80, 11.40.10, 11.40.20, 11.50.30 Alesco Corporation Ltd 03 [2012] ATP 18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.70.50 Alinta Ltd [2006] ATP 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.10.20 Alinta Ltd 01 [2006] ATP 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.50.80 Aliquot Asset Management Ltd [2003] ATP 19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.20 Allegiance Mining NL [2008] ATP 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.20, 11.50.40 Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656 . . . . . . . . . . . . . . . . . . . . . 13.20.10 Allen Taylor and Co Ltd, Re [1971] 1 NSWLR 896 . . . . . . . . . . . . . . . . . . . . . . . . . 17.60.30 Allied Mills Ltd v IEL No 1 Pty Ltd (1985) 9 ACLR 539 . . . . . . . . . . . . . . . . . . . . . . . 9.80 Allstate Explorations NL v Beaconsfield Gold NL (1996) 20 ACSR 165 . . . . . . . 9.30.60, 9.30.130 Alpha Healthcare Ltd [2001] ATP 13 . . . . . . . . . . . . 3.50.30, 5.60.20, 7.30, 8.40.30, 10.20, 11.40.50A, 11.40.50C, 14.50.50, 19.140 Altius Mining Ltd [2012] ATP 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.80 Ambassador Oil and Gas Ltd 01 [2014] ATP 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.40 Ampol Petroleum Ltd v RW Miller (Holdings) Ltd [1972] 2 NSWLR 850; (1972) ACLC 27,336 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.20.10, 13.50.10B Ampolex Ltd v Mobil Exploration & Producing Australia Pty Ltd (1996) 19 ACSR 354 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.30.30, 9.30.130, 11.40.30 Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1996) 20 ACSR 637 . . . . . . . 14.90 Anaconda Nickel Ltd 01–19 [2003] ATP 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.20 Anaconda Nickel Ltd 02–05 [2003] ATP 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.20, 19.90 Anaconda Nickel Ltd 03 [2003] ATP 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.50.60 Anaconda Nickel Ltd 04 [2003] ATP 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.60 Anaconda Nickel Ltd 06–07 [2003] ATP 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.50.10, 11.60 Anaconda Nickel Ltd 08 [2003] ATP 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.20.30

Table of Cases

xi

Anaconda Nickel Ltd 09 [2003] ATP 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.20.30 Anaconda Nickel Ltd 12 [2003] ATP 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.60 Anaconda Nickel Ltd 15 [2003] ATP 17 . . . . . . . . . . . . . . . . . . . . . . . 3.70.20, 3.70.40, 19.70 Anaconda Nickel Ltd 16–17 [2003] ATP 15 . . . . . . . . . 2.10, 3.40, 3.60.20, 3.70.40, 21.30 Anaconda Nickel Ltd 18 [2003] ATP 18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.60.20, 11.70 Anaconda Nickel Ltd 19 [2003] ATP 20 . . . . . . . . . . . . . . . . . . . . . . . 3.60.20, 11.100, 21.30 Andean Resources Ltd [2006] ATP 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.70, 14.50.60 Angas Law Services Pty Ltd (in liq) v Carabelas [2005] HCA 23; 215 ALR 110 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.40.10; 13.20.40 Ansett v Butler Air Transport Ltd (No 2) (1957) 75 WN (NSW) 299 . . . . . . . . . 13.20.20 Anzoil NL 01 [2002] ATP 19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.20, 3.70.40, 21.30 Anzoil NL 02 [2002] ATP 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.20, 3.70.40, 21.30 Application by Sea Swift Pty Ltd [2016] ACT 9 . . . . . . . . . . . . . . . . . . 4.20.40A, 4.20.40C Application for Authorisation of Macquarie Generation by AGL Energy Ltd [2014] ACT 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.20.40A, 4.20.40C Application of Theatre Freeholds Ltd [1996] NSWSC 189 . . . . . . . . . . . . . . . . . . . . . 19.120 Archaean Gold NL, Re (1997) 23 ACSR 143 . . . . . . . . . . . . . . 5.40.20, 5.40.30H, 9.30.50 Arrow Taxi Services Ltd [2007] ATP 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.60.10, 8.20.10 Arrowfield Group Ltd, Re (1995) 17 ACSR 649 . . . . . . . . . . . . . . . . . . . . . . . . 2.60.10, 3.20 Arthur Yates & Co Ltd, Re (2001) 36 ACSR 758 . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.70.10 ASC v AS Nominees Pty Ltd [1995] FCA 1663 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.80.10 Ashton Mining Ltd [2000] ATP 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.10.30, 9.30.60, 9.40 Asia Oil and Minerals Ltd, Re (1986) 5 NSWLR 42 . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.90 Aspar Autobarn Cooperative Society v Dovala Pty Ltd (1987) 74 ALR 550 . . . . . . 16.30 Associated Dairies Ltd v Central Western Dairy Ltd (1993) 11 ACSR 234 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.20, 9.30.30, 9.30.50, 9.30.130 Attorney-General v Davids Holdings Pty Ltd (No 1) (1993) ATPR 41-210 . . . . 4.20.40A Attorney-General (Cth) v Alinta Ltd (2008) 233 CLR 254 . . . . . . . . . . . . . 21.10, 21.20.30 Attorney-General (Vic) v Walsh’s Holdings Ltd [1973] VR 137 . 11.30, 11.40.10, 12.100 Attorney-General for Gambia v N’Jie [1961] AC 617 . . . . . . . . . . . . . . . . . . . . . . . . . . 20.60 Attorney-General’s Reference (No 1 of 1988) [1989] 1 WLR 195 . . . . . . . . . . . . . . . . 3.20 Attorney-General’s Reference (No 1 of 1988) [1989] 2 WLR 729 . . . . . . . . . . . . . . . . 3.20 Attorney General v Breckler (1999) 197 CLR 83 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.10 Audimco Ltd v Euralba Mining Ltd (1985) 13 ACLR 451 . . . . . . . . . . . . . . . . . . . 14.80.20 Augold NL v Yaramin Pty Ltd (1987) 5 ACLC 295 . . . . . . . . . . . . . . . . . . 8.20.40, 9.30.50 Aulron Energy Ltd [2003] ATP 31 . . . . . . . . . . . 3.60.20, 3.60.30, 5.70, 14.80.10, 19.60.30 AurionGold Ltd [2002] ATP 13 . . . . . . . . . . . . . . . . . . . . . . . . . . 9.40, 11.10, 11.90, 14.50.50 Ausdoc Group Ltd [2002] ATP 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.40.30B, 14.70.40 Auspine Ltd [2007] ATP 18 . . . . . . . . . . . . . . . 11.10.10, 11.40.50A, 11.70, 14.50.60, 14.90 Austar United Communications Ltd [2003] ATP 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.110 Austen & Butta Ltd v Shell Australia Ltd (1992) 10 ACSR 556; 10 ACLC 735 . . . 9.20, 9.30.130 Austock Group Ltd [2012] ATP 12 . . . . 4.40, 7.60.10, 7.60.20, 7.60.30, 8.50.10, 8.50.40, 8.50.80, 9.30.50, 14.50.50, 14.60, 14.70.40, 21.20.10, 21.20.50, 21.30 Australasian Memory Pty Ltd v Brien [2000] HCA 30; 200 CLR 270 . . . . . . . . . . . . 20.10 Austral Coal Ltd 01 [2005] ATP 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.30.130 Austral Coal Ltd 02 [2005] ATP 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.20 Austral Coal Ltd 02R [2005] ATP 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.20 Austral Coal Ltd 02RR [2005] ATP 20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.20, 21.30 Austral Coal Ltd 03 [2005] ATP 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20.10 Austral Coal Ltd 03R [2005] ATP 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20.10, 21.40

xii Table of Cases

Australia Meat Holdings Pty Ltd v TPC (1989) ATPR 40-932 . . . . . . . . . . . . . . . . . 4.20.10 Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd [2007] HCA 38 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.50.30 Australian Consolidated Investments Ltd v Rossington Holdings Pty Ltd (1992) 7 ACSR 515 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.20 Australian Consolidated Investments Ltd v Rossington Holdings Pty Ltd (1992) 35 FCR 226; 7 ACSR 341; 7 ACSR 515; 10 ACLC 561 . . . . . . . . . . . . . 9.20, 9.30.50, 9.30.130 Australian Consolidated Press Ltd v Australian Newsprint Mills Holdings Ltd [1960] HCA 53; 105 CLR 473 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.60 Australian Development Ltd, Re (1973) 6 SASR 197 . . . . . . . . . . . . . . . . . . . . . 5.70, 19.40 Australian Electoral Commission, Re; ex parte Kelly [2003] HCA 37 . . . . . . . . . . . . 10.30 Australian Gas Light Company v ACCC (No 3) [2003] FCA 1525 . . . . . . . . . . . 4.20.40A Australian Industrial REIT [2015] ATP 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.80.30 Australian Leisure & Hospitality Group Ltd 01 [2004] ATP 19 . . . . . . . . 9.10.30, 9.30.30, 9.30.130, 14.80.10 Australian Leisure & Hospitality Group Ltd 02 [2004] ATP 21 . . . . . . . . 5.30.50, 8.50.60, 8.50.80, 14.80.10, 14.90 Australian Leisure & Hospitality Group Ltd 03 [2004] ATP 25 . . . . . . . 8.40.40, 11.50.50, 11.70, 21.20.30 Australian Liquor Group Ltd 01 [2001] ATP 18 . . . . . . . . . . . . . . . . . 8.50.40, 11.60, 21.30 Australian Liquor Group Ltd 02 [2001] ATP 19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.60 Australian Meat Employees Union v Meat and Allied Trades Federation of Australia [1991] FCA 524 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.30 Australian Metals Holdings Pty Ltd, Re (1995) 15 ACSR 573 . . . . . . . . . . . 19.140, 20.10 Australian Metropolitan Life Assurance Co Ltd v Ure [1923] HCA 29; 33 CLR 199 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.20.10, 13.20.50 Australian Pipeline Ltd v Alinta Ltd [2006] FCA 1378 . . . . . . . . . . . . . . . . . . 2.10, 3.60.70 Australian Pipeline Ltd v Alinta Ltd (2007) 62 ACSR 196 . . . . . . . . . . . . . . . . 21.10, 21.40 Australian Pipeline Ltd v Alinta Ltd [2007] FCAFC 55 . . . . . . . . . . . . . . . . . . . . . . . . . 22.10 Australian Pipeline Trust 01 [2006] ATP 27 . . . . . . . . . . . . . . . . . . . . . . . . . 3.50.10, 3.60.70, 19.60.10, 19.110 Australian Pipeline Trust 01R [2006] ATP 29 . . . . . . . . . . . . . . . . . 2.10, 3.60.70, 19.60.10, 19.110, 20.30, 21.30 Australian Securities & Investments Commission see ASIC Australian Securities Commission see ASC Australian Securities and Investments Commission v DB Management Pty Ltd . . . 20.10, 20.30 Australian Securities and Investments Commission v Mariner Corporation Ltd [2015] FCA 589 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.60.10, 9.30.50 Austrim Nylex Ltd v Kroll (No 2) [2002] VSC 193; 42 ACSR 18 . . . . . . 17.60.20, 18.20 Avalon Minerals Ltd [2013] ATP 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20.10, 21.20.20 Avondale Motors (Parts) Pty Ltd v FCT 71 ATC 4101 . . . . . . . . . . . . . . . . . . . . . . . . . . 23.40 Axiom Properties Ltd 01 [2006] ATP 1 . . . . . . . . . . . . . . . . . . . . . 14.70.40, 19.60.30, 21.30 Aztec Resources Ltd 01 [2006] ATP 28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.30.60, 14.50.50 Aztec Resources Ltd 02 [2006] ATP 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.50.50 Azumah Resources Ltd [2006] ATP 34 . . . . . . . . . . . . . . . . . . . 3.50.10, 15.80, 16.50, 21.30

B BC Iron Ltd [2011] ATP 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.60.20 BDC Investments Ltd (No 2), Re (1988) 13 ACLR 201 . . . . . . . . . . . . . . . . . . . . . . . . 18.90 BNQ Sugar Pty Ltd, Re (1994) 12 ACSR 695 . . . . . . . . . . . . . . . . . . . . . . . . 14.80.10, 14.90

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xiii

BT Australia Ltd v Bell Brothers Pty Ltd (1981) 6 ACLR 138 . . . . . . . . 7.60.10, 7.60.20, 7.60.30 BTR plc v Westinghouse Brake & Signal Co (Aust) Ltd (1992) 7 ACSR 122 . . . . . 2.30, 19.110, 19.160, 20.10, 20.60, 21.20.30 Babcock & Brown Communities Group [2008] ATP 25 . . . . . . . . . . . . . . . . 14.50.70, 14.60 Babcock & Brown Communities Group 02 [2008] ATP 26 . . . . . . . . . . . . . . . . . . . 14.70.40 Baden Pacific Ltd v Portreeve Pty Ltd (1988) 14 ACLR 677 . . . . . . . . . . . . . . . . . . 3.60.70 Ballarat Goldfields NL [2001] ATP 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.70.40 Bamford v Bamford [1970] Ch 212 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.70 Bancorp Investments Ltd v Primac Holdings Ltd (1984) 9 ACLR 264 . . . . . . . . . . . 13.30 Bank of New South Wales v Commonwealth (Bank Nationalisation Case) (1948) 76 CLR 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.50.10 Bank of Western Australia Ltd v Ocean Trawlers Pty Ltd (1995) 16 ACSR 501 . 3.70.20, 3.80.10 Barkan v Amsted Industries Inc 567 A 2d 1279 (1989, Del Supr) . . . . . . . . . . . . . . . . 14.40 Basic Inc v Levinson 485 US 224 (1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.20 Bateman v Newhaven Park Stud Ltd [2004] NSWSC 566; 49 ACSR 597 . . . . . . 3.70.20, 3.70.40, 3.70.50, 19.60.40 Batoka Pty Ltd v ConocoPhillips WA – 248 Pty Ltd (2006) 54 ACSR 646 . . . . . . . 18.30 Batoka Pty Ltd v Jackson (1998) 30 ACSR 67 . . . . . . . . . . . . . . . . . . . . . 22.60.20, 22.60.30 Becker Group Ltd 01 [2007] ATP 13 . . . 5.60.10, 5.60.20, 5.60.30A, 8.40.30, 11.40.50A, 11.40.50D, 14.70.40, 14.80.10 Becker Group Ltd 02 [2007] ATP 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.60.10 Bell Resources Ltd v Broken Hill Proprietary Company Ltd (1986) 8 ATPR 40-702 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.50.20 Berlei Hestia (NZ) Ltd v Fernyhough (1980) 2 NZLR 150 . . . . . . . . . . . . . . . . . . . . 6.20.30 Bhagat v Royal & Sun Alliance Life Assurance Australia Ltd (2000) 33 ACSR 472 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.70 Big Air Group Ltd [2008] ATP 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.40, 3.70.50 Bigshop.com.au Ltd 01 [2001] ATP 20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.50.10, 14.60 Bigshop.com.au Ltd 02 [2001] ATP 24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.30.40, 14.60 BigShop.com.au Ltd 03 [2001] ATP 22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.70 Billabong International Ltd [2013] ATP 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.30.50 BioProspect Ltd 01 [2008] ATP 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.60.10 Biotech International Ltd v Peptech Ltd (2000) 34 ACSR 443 . . . . . . . . . . . . . . . . 11.50.40 Birks v FCT (1953) 10 ATD 266 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.20 Birmingham County Council v O [1983] AC 578 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.20.30 Bisalloy Steel Group Ltd [2008] ATP 29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.90 Blackham Resources Ltd [2014] ATP 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.20 Blaze Asset Pty Ltd v Target Energy Ltd [2009] FCA 698 . . . . . . . . . . . . . . . . . . . . . . 21.60 Blossomtree Pty Ltd v Brunswick NL (1991) 4 ACSR 677 . . . . . . . . . . . . . . . . . . . . . 16.30 Blue Energy Ltd [2009] ATP 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20.10 Blue Metal Industries Ltd v Dilley [1969] UKPCHCA 2 . . . . . . . . . . . . . . . . . . . . . . . . . 5.50 Blue Metal Industries Ltd v Dilley [1969] UKPCHCA 2; [1970] AC 827; 117 CLR 651 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.20, 18.70 Boland v Yates Property Corp Pty Ltd (2000) 167 ALR 575; 74 ALJR 209 . . . . 17.60.20 Bolnisi Gold NL (No 2), Re [2007] FCA 2078 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.70.40 Bond Corporation Ltd v Grace Bros Holdings Ltd (1983) 7 ACLR 61 . . . 9.80, 11.10.10 Boral Energy Resources Ltd v TU Australia (Queensland) Pty Ltd (1998) 28 ACSR 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.60.20, 8.50.20, 11.40.10, 11.40.50A Boulder Steel Ltd [2008] ATP 24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.20, 3.70.40 Bowen Energy Ltd [2007] ATP 22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.50, 21.20.10

xiv Table of Cases

Bowen Energy Ltd 02 [2009] ATP 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.40.30 Bowen Energy Ltd 02R [2009] ATP 19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.90, 21.30 Bradken Consolidated Ltd v Broken Hill Proprietary Company Ltd (1979) 145 CLR 107 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.50.20, 2.50.30 BreakFree Ltd 01 [2003] ATP 29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.60 BreakFree Ltd 02 [2003] ATP 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.70, 10.20, 14.50.50 BreakFree Ltd 03 [2003] ATP 38 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.60.20 BreakFree Ltd 04 [2003] ATP 39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.60.30, 7.60.40, 11.70 BreakFree Ltd 04R [2003] ATP 42 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.40, 7.60.30, 7.60.40, 11.70, 21.40 Breen v Williams (1996) 186 CLR 71 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.40.10 Brickworks Ltd 01 [2000] ATP 6 . . . . . . . . . . . . . . . . . . . . . . . 5.60, 9.30.60, 14.90, 21.20.10 Brickworks Ltd 02 [2000] ATP 8 . . . . . . . . . . . . . 8.20.40, 8.40, 8.50.10, 9.30.50, 9.30.60, 9.30.130, 9.70, 17.20, 22.20 Bridge Oil Ltd v Parker & Parsley Petroleum (Australia) Pty Ltd (1994) 15 ACSR 240 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.30.50, 9.30.60, 13.60 Bridgewater Lake Estate Ltd [2006] ATP 3 . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.20, 3.70.40 Brierley v Dextran Pty Ltd (1990) 3 ACSR 455 . . . . . . . . . . . . 17.20, 17.30, 17.40, 20.20 Brierley Investments Ltd v ASC (1997) 24 ACSR 629 . . . . . . . . . . . . . . . . . . . . . . . 21.20.30 Brisbane Broncos Ltd 01 [2002] ATP 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.60.30 Brisbane Broncos Ltd 01 and 02 [2002] ATP 1 . . . . . . . . . 3.10, 7.60.20, 7.60.30, 8.50.10 Brisbane Broncos Ltd 03 [2002] ATP 3 . . . . . 7.60.10, 7.60.20, 7.60.30, 7.60.40, 8.50.10, 21.30, 21.60 Brisbane Broncos Ltd 04 [2002] ATP 04 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.50, 20.60 British American Nickel Co Ltd v O’Brien [1927] AC 369 . . . . . . . . . . . . . . 18.90, 18.100 British and American Trustee and Finance Corp v Couper [1894] AC 399 . . . . . . . . 18.80 Brockbank, Re [1948] Ch 206 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.60.20 Brockman Resources Ltd [2011] ATP 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.40 Broken Hill Proprietary Co Ltd v NCSC (1986) 10 ACLR 470 . . . . . . . . . . 8.50, 9.30.50, 9.30.130, 20.60 Broken Hill Proprietary Company Ltd, The v Bell Resources Ltd (1984) 8 ACLR 609 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.100 Bropho v Western Australia (1990) 171 CLR 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.50.30 Brown v British Abrasive Wheel Co Ltd [1919] 1 Ch 290 . . . . . . . . . . . . 13.30.30, 18.100 Brown v Heffer (1967) 116 CLR 344 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10.40, 8.50, 8.70 Bruning v MMAL Rentals Pty Ltd; Bruning v Kingmill (Australia) Pty Ltd [2004] NSWSC 60 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.90, 17.60.20 Brunswick NL v Blossomtree Pty Ltd (1992) 7 WAR 226; 10 ACLC 658 . . . . . . . . 16.10 Bugle Press Ltd, Re [1960] Ch 270 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.20, 18.70 Bulfin v Bebarfalds Ltd (1938) 38 SR (NSW) 423 . . . . . . . . . . . . . . . . . . . . 13.30, 19.60.30 Bullabulling Gold Ltd [2014] ATP 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.30 Burmine Ltd v Mount Edon Gold Mines (Aust) Ltd (1994) 13 ACSR 60 . . . . . . . . . 20.20 Burton, Re; Wily v Burton [1994] FCA 1146; 126 ALR 557 . . . . . . . . . . . . . . . . . . 3.50.20 Bushell v Faith [1970] AC 1099 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.30 Business Capital Ltd v Lorinv Pty Ltd (1988) 12 ACLR 677 . . . . . . . . . . . . . . . . . . . . 12.40 Buzzle Operations Pty Ltd v Apple Computer Australia Pty Ltd [2011] NSWCA 109 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.20 Byrne v Van Tienhoven (1880) 5 CPD 344 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.50

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xv

C CAC v Guardian Investments Pty Ltd [1984] VR 1019 . . . . . . . . . . . . . . . . . . . . . . 20.50.20 CAC v Industrial Equity Ltd [1972] 2 NSWLR 120 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.100 CAC v Yuill (1991) 172 CLR 319 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.50.20 CCPI Holdings Pty Ltd v Hose [2011] VSC 34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.60.20 CEMEX Australia Pty Ltd v Takeovers Panel [2008] FCA 1572 . . . . . . . . . . . . . . 11.70.50 CEMEX Australia Pty Ltd v Takeovers Panel [2009] FCAFC 78 . . . . . . . . . . . . . 11.70.50 CMI Limited [2011] ATP 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.40 CMI Ltd 01R [2011] ATP 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.40 Cabcharge Australia Ltd, Re [2007] FCA 421 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.60 Cackett v Keswick [1902] 2 Ch 456 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.30.130 Campaign Holdings Ltd, Re (1989) 15 ACLR 762 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.80 Campbell Investment (Aust) Pty Ltd v Arnotts Ltd (1992) 9 ACSR 675 . . . . . . . 13.50.20 Canary Wharf Group Plc (London Panel 2003/25) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.50 Canterbury Frozen Meat Company Limited v Waitaki Farmers’ Freezing Company Limited [1972] NZLR 806 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.120 Cape Lambert MinSec Pty Ltd [2009] ATP 12 . . . . . . . . . 19.110, 19.120, 20.60, 21.20.10 Capricorn Diamonds Investments Pty Ltd v Catto [2002] VSC 105; 41 ACSR 376 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.60.20, 18.30 Careers Australia Group Ltd [2012] ATP 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.170 Careers Australia Group Ltd 02 [2013] ATP 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20.10 Careers Australia Group Ltd 02R [2013] ATP 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20.10 Careers Australia Group Ltd 03 [2015] ATP 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20.10 Careers Australia Group Ltd 03R [2015] ATP 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20.10 Carlton Holdings Ltd, Re [1971] 1 WLR 918; [1971] 2 All ER 1082 . . . . . . . . . . . . 17.40 Carr Boyd Minerals Ltd v Queen Margaret Gold Mines NL (1987) 7 ACLC 1029 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.10.10 Catto v Ampol Ltd (1989) 15 ACLR 307; 16 NSWLR 342 . . . . 2.60.10, 17.10, 17.60.20, 18.100 Cayne v Global Natural Resources PLC (unreported, Chancery Division, Megarry V-C, 12 August 1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.20.50 Cayne v Global Natural Resources PLC [1984] 1 All ER 225 . . . . . . . . . . . . . . . . 13.20.50 Celamin Holdings NL [2014] ATP 22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.20 Cemex Australia Pty Ltd v Takeovers Panel [2008] FCA 1572 . . . . . . . . . . . . . . . . . . . 2.10 Cemex Australia Pty Ltd v Takeovers Panel [2009] FCAFC 78 . . . . . . . . . . . . 2.10, 21.30 Centennial Coal Co Ltd, Re [2006] NSWSC 62 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.20 Centro Properties Ltd, Re [2011] NSWSC 1171 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.60.40 Centro Properties Ltd, Re [2011] NSWSC 1465 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.40.30A Certicom Corp v Research In Motion Ltd (2009) CanLII 1651 . . . . . . . . . . . . . . . . . . . 5.30 Chan v Zacharia (1984) 154 CLR 178 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.40.10 Charles v Federal Commissioner of Taxation (1954) 90 CLR 598 . . . . . . . . . . . . . . . 18.20 Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1981] Ch 105 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.50.10B Chase Securities Ltd v GSH Finance Ltd [1989] 1 NZLR 481 . . . . . . . . . . . . . . . . . . . . 7.30 Chaudhri v Takeovers Panel [2011] FCA 1488 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20.30 Chequepoint Securities Ltd v Claremont Petroleum NL (1986) 4 ACLC 711 . . . . . . 14.90 Chez Nico (Restaurants) Ltd, Re [1992] BCLC 192 . . . . . . . . . . . . . . . . . . . . . . 17.30, 18.70 Chief Executive Officer of Customs v AMI Toyota Ltd (2000) 102 FCR 578 . . . 3.70.30 Citect Corporation Ltd, Re (2006) 56 ACSR 663 . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.40.30D Citect Corporation Ltd [2006] ATP 6 . . . . . 11.40.10, 11.40.40, 11.50.10, 15.80, 21.20.10, 21.30

xvi Table of Cases

Clements Marshall Consolidated Ltd v ENT Ltd (1988) 13 ACLR 90 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.50.10, 3.60.90, 8.20.10 Cobb & Co Ltd v Kropp [1967] 1 AC 141 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.10 Coles Group Ltd, Re (2007) 65 ACSR 494 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.40.20 Coles Myer Ltd v Commissioner of State Revenue [1998] 4 VR 728, [1998] VSC 288 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.20, 3.50.30, 3.60.40 Collins Marrickville Pty Ltd v Henjo Investments Pty Ltd (1988) 79 ALR 83 . . 11.10.10 Colonial First State Ltd 03 [2002] ATP 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.60.10, 21.60 Colonial First State Property Trust Group 01 [2002] ATP 15 . . . . . . . . . . 5.40.40, 9.30.50 Colonial First State Trust Group [2002] ATP 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.60.40 Colonial Sugar Refining Co Ltd v Dilley [1967] HCA 34; 116 CLR 445 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.20, 18.70 Colortone Holdings Ltd v Calsil Ltd [1965] VR 129 . . . . . . . . . . 7.60.20, 8.50, 8.80, 9.20 Commissioner of Taxation v Bruton Holdings Pty Ltd [2008] FCAFC 184 . . . . . 3.60.20 Commonwealth Bank of Australia v Kojic [2016] FCAFC 186 . . . . . . . 6.20.20, 9.30.130 Commonwealth v Frost (1982) 41 ALR 626 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.50.20 Commonwealth v Milledge (1953) 90 CLR 157 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.60.20 Compania De Electricidad de la Provincia de Buenos Aires, Re [1980] 1 Ch 146 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.90 Condor Blanco Mines Ltd [2016] ATP 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.20 ConocoPhillips WA 248 Pty Ltd v Batoka Pty Ltd [2005] WASC 184 . . . . . . . . . 3.70.20, 3.70.50 Consolidated Gold Mining Areas NL v Southern Goldfields NL (1985) 13 ACLR 456 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.70 Consolidated Minerals Ltd 01 [2007] ATP 20 . . . . . . . . . . . . . . . . . . . 11.10, 11.10.10, 21.30 Consolidated Minerals Ltd 02R [2007] ATP 28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.10.10 Consolidated Minerals Ltd 03 [2007] ATP 25 . . . . . . 7.60.20, 8.40.10, 9.10.20, 11.10.10, 11.70.20, 14.50.30 Consolidated Minerals Ltd 03R [2007] ATP 28 . . . . . . . . . . . . . . 7.60.20, 8.40.10, 11.70.20 Cook v Deeks [1916] 1 AC 554 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.20.50 Coopers Brewery Ltd 01 [2005] ATP 18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.30.30, 13.30.30 Coopers Brewery Ltd 02 [2005] ATP 19 . . . . . . . . . . . . 5.30.30, 13.30.30, 14.30, 14.50.10 Coopers Brewery Ltd 03 [2005] ATP 22 . . . . . . . . . . . . 5.30.30, 11.10.10, 13.30.30, 13.70, 14.60, 21.30 Coopers Brewery Ltd 03R [2005] ATP 23 . . . . . . . 5.30.30, 13.30.30, 14.60, 21.30, 21.40 Coopers Brewery Ltd 04 [2005] ATP 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.30.30, 13.30.30 Coopers Brewery Ltd 04R [2005] ATP 24 . . . . . . . . . . . . . . . . . . . . 5.30.30, 13.30.30, 21.30 Coppermoly Ltd [2013] ATP 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.60.30 Corebell Pty Ltd v New Zealand Insurance Co Ltd (1988) 13 ACLR 349 . . . . . . 3.50.30, 3.70.40, 7.40, 11.40.10, 11.50.10 Corporate Affairs Commission v Engelbrecht (1989) 15 ACLR 13 . . . . . . . . . . . . . . . 15.10 Corporate Affairs Commission v Orlit Holdings Ltd (1983) 8 ACLR 164 . . . 2.30, 15.10, 15.40 Corporations and Securities Panel v Bristile Investments Pty Ltd (1999) 32 ACSR 677 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20.20 Corumo Holdings Pty Ltd v C Itoh Ltd (1991) 5 ACSR 720 . . . . . . . . . . . . . . . . . . 3.60.20 Country Distributors Ltd, Re [1974] 2 NSWLR 135 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.20 Cox Moore v Peruvian Corporation [1908] 1 Ch 604 . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.90 Crescent Gold Ltd 02 [2011] ATP 14 . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.20, 3.80.30, 8.70 Criterion Properties PLC v Stratford UK Properties LLC [2002] EWCA Civ 1783 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.20.50 Criterion Properties Plc v Stratford UK Properties LLC [2002] EWHC 496 . . . . . . 13.90

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xvii

Crosley Ltd v North Broken Hill Holdings Ltd [1987] VR 119 . . . . . . . . . . . . . . . . . . 16.20 Crowley v Murphy (1981) 34 ALR 496 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.50.10 Crusader Ltd, Re (1995) 17 ACSR 336 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.80, 18.90 Cultus Petroleum NL v OMV Australia Pty Ltd (1999) NSWSC 422; (1999) 32 ACSR 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.20.20, 9.20, 9.30.130 Cumberland Credit Corporation Ltd v TNT Australia Pty Ltd (1988) 13 ACLR 371 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.30.30 Cumberland Holdings Ltd, Re (1976) 1 ACLR 361 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.30 Cumbrian Newspapers Group Ltd v Cumberland & Westmorland Herald Newspaper & Printing Co Ltd [1987] Ch 1; [1986] 3 WLR 26 . . . . . . . . . . . . . . . . . . . . . 2.60.10, 3.40 Cuming Smith & Co Ltd v Westralian Farmers Co-Operative Ltd [1979] VR 129 . 11.30 Cytopia Ltd [2009] VSC 560 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.70.40

D DVT Holdings Ltd v Bigshop.com.au Ltd (2002) 42 ACSR 378 . . . . . . . . . . . . . . . . . 22.30 Dafen Tin Plate Company v Llanelly Steel Company (1907) Ltd [1920] 2 Ch 124 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.30.30 Dalkeith Resources Pty Ltd v Regis Resources Ltd [2012] VSC 288 . . . . . . . . . . . . . 22.30 Daniels v Anderson (1995) 16 ACSR 607 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.40 Darling Downs Co-operative Bacon Association Ltd, Re (1988) 12 ACLR 709 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.60.10 Darvall v North Sydney Brick & Tile Co Ltd (1987) 12 ACLR 537 . . . . . . . . . . 13.20.10, 14.80.20 Darvall v North Sydney Brick & Tile Co Ltd (1989) 15 ACLR 230 . . . . 14.40, 14.50.60 DataDot Technology Ltd [2009] ATP 13 . . . . . . . . . . . . . . . . . . 3.70.40, 15.50, 19.90, 21.30 David Mitchell Ltd, Re (unreported, Fed Ct Aust, Finkelstein J, Nos 3173, 3174 and 3175 of 2002, 19 November 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.40.20 Dawson International Ltd v Coats Patons plc (1988) 4 BCC 305 . . . . . . . . . . . . . 14.50.60 Dawson International plc v Coats Patons plc [1990] BCLC 560 . . . . . 14.70.40, 14.80.20 Deans, Re [1986] 2 NZLR 271 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.60 Deniliquin Corporation Ltd, Re (1994) 13 ACSR 623 . . . . . . . . . . . . . . . . . . . . . . . . . . 18.80 Devereaux Holdings Pty Ltd v Pelsart Resources NL (1985) 9 ACLR 879 . . . . . 19.60.30 Devereaux Holdings Pty Ltd v Pelsart Resources NL (No 2) (1985) 9 ACLR 956 . 13.30 Dey v Victorian Railways Commissioners (1949) 78 CLR 62 . . . . . . . . . . . . . . . . . . . 16.30 Diamond Rose NL v Striker Resources NL [1998] FCA 1169; 28 ACSR 749 . . . . 10.20, 11.50.20, 11.50.40, 21.60 Direct Share Purchasing Corporation Pty Ltd v AXA Asia Pacific Holdings Ltd [2008] FCA 935 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.30.60, 16.40 Dolby Australia Pty Ltd v Catto (2004) 52 ACSR 204 . . . . . . . . . . . . . . . . . . . . . . . . . . 18.30 Dolby Australia Pty Ltd v Catto [2004] NSWSC 1222 . . . . . . . . . . . . . . . . . . . . . . . . . . 18.40 DoloMatrix International Ltd [2008] ATP 10 . . . . . . . . . . . . . . . . . 8.50.10, 8.50.80, 9.30.60 Donald v Australian Securities and Investments Commission [2000] FCA 1142 . . 11.100 Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577 . . . . . . . . 20.60 Drake v Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 . . 21.40 Dromana Estate Ltd 01 [2006] ATP 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.80, 19.90 Dromana Estate Ltd 01R [2006] ATP 8 . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.40, 19.80, 19.90 Dumoine Holdings Pty Ltd v United & Commercial Holdings Ltd (1985) 13 ACLR 448 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.80 Duncan v Independent Commission Against Corruption [2016] NSWCA 143 . . . 6.20.10 Dunford and Elliott Ltd v Johnson and Firth Brown Ltd [1977] 1 Lloyd’s Rep 505 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.30.130

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Dunlop Pneumatic Tyre Company Ltd v New Garage and Motor Company Ltd [1915] AC 79 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.70.30 Duomatic Ltd, Re [1969] 2 Ch 365 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.40 Dworkin Furs (Pembroke) v Minister of National Revenue [1966] ExCR 228; 67 DTC 5035 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.50.10

E ENT Pty Ltd v Sunraysia Television Ltd [2007] NSWSC 270 . . . . . . . . . . . 5.30, 5.60.30B EPHS Ltd [2002] ATP 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.50.50, 14.90 Eddy v W R Carpenter Holdings Ltd (1985) 10 ACLR 316 . . . . . . . . . . . . . . . . . . . . . 18.70 Edensor Nominees Pty Ltd v Australian Securities and Investments Commission [2002] FCA 307; 41 ACSR 325 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.50.10, 5.50 Edensor Nominees Pty Ltd v Australian Securities and Investments Commission [2002] FCAFC 72 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.20 Edman v Ross (1922) 22 SR (NSW) 351 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.20.30 Egan v Ross (1928) 29 SR (NSW) 382 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10.40, 8.50 Eircom Holdings Ltd, Re [2009] FCA 1418 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.70.40 El-Fahkri v Arrow Taxi Services Ltd (unreported, Sup Ct Vic, no 67 of 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.60.10 El Ajou v Dollar Land Holdings plc [1993] 3 All ER 717 . . . . . . . . . . . . 6.20.20, 9.30.130 Elders IXL Ltd v NCSC [1987] VR 1 . . . . . . . . . . . . . . . . . . . . . . 3.70.20, 3.70.40, 21.20.30 Elders IXL Ltd, Re (1984) 9 ACLR 280 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.80 Elders Mining Pty Ltd, Re (1986) 5 ACLC 116 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.90 Elkington v CostaExchange Ltd [2011] VSC 501 . . . . . . . . . . . . . . . 14.90, 17.60.20, 18.80 Elkington v Moore Business Systems Australia Ltd (1994) 15 ACSR 292 . . . . . . . . . 2.40 Elkington v Shell Australia Ltd (1993) 32 NSWLR 11 . . . . . . . . . . 17.10, 17.60.30, 18.70 Elkington v Vockbay Pty Ltd (1993) 10 ACSR 785; 11 ACLC 591 . . . . . . . 17.60, 18.70, 20.20, 20.30 Email Ltd 01 [2000] ATP 03 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.60 Email Ltd 02 [2000] ATP 4 . . . . . . . . . . . . . . . . . . . . . . . . 8.50.70, 9.30.130, 14.50.50, 21.40 Email Ltd 03 [2000] ATP 5 . . . . . . . . . . . . . 5.60, 8.40, 8.40.30, 9.20, 11.40.50A, 21.20.20 Emperor Mines Ltd 01 [2004] ATP 24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.80, 19.90, 21.30 Emperor Mines Ltd 01R [2004] ATP 27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.90 Endresz v Whitehouse (1997) 24 ACSR 208 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.20 Equiticorp Industries Ltd v ACI International Ltd [1987] VR 485 . . . . . 2.60.10, 3.50.20, 4.10.30, 13.30.30 Espasia Pty Ltd v Farm By Nature Pty Ltd [2009] FCA 1559 . . . . . . . . . . . . . . . . . . . 17.80 Espasia Pty Ltd; in the matter of Farm by Nature Pty Ltd [2009] FCA 1599 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.20, 18.30 Esso Australia Resources Ltd v Commissioner of Taxation (1999) 201 CLR 49 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.50.20 Etrade Australia Ltd [1999] NSWSC 254 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.80 Evans Deakin Industries Ltd [No 2], Re (1980) 5 ACLR 322 . . . . 8.40.50, 9.30, 9.30.60 Everest Capital Ltd v Trust Company Ltd [2010] NSWSC 231 . . . . . . . . . . . 3.70, 3.80.10 Evertite Locknuts Ltd, Re [1945] Ch 220 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.60.30, 18.70 Excel Coal Ltd (No 3), Re (2006) 60 ACSR 184 . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.40.30D

F FAI Insurances Ltd v Pioneer Concrete Services Ltd (1986) 13 ACLR 492 . . 13.50.10B, 13.50.20

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FAI Investments Pty Ltd v Mercantile Mutual Holdings Ltd [1982] 2 NSWLR 206; (1982) 1 ACLC 434 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.30.60, 9.30.80, 14.80.20 FCT v Janmor Nominees Pty Ltd 87 ATC 4813 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.20.10 FCT v Patcorp Investments Ltd (1976) 140 CLR 247 . . . . . . . . . . . . . . . . . . . . . . . . . . 10.40 FCT v Total Holdings (Australia) Pty Ltd 79 ATC 4279 . . . . . . . . . . . . . . . . . . . . . 23.20.10 Famel Pty Ltd v Burswood Management Ltd (1989) ATPR 40–962 . . . . . . . . . . . 11.10.10 Fantastic Holdings Ltd [2016] FCA 1302 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.70.40 Felix Hadley & Co v Hadley [1898] 2 Ch 670 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.30 Financial Resources Ltd [2007] ATP 27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.50.50 Firestone Energy Ltd [2013] ATP 4 . . . . . . . . . . . . . . . . . . . . . . . 3.60.70, 19.60.20, 19.60.30 Fletcher v FCT 91 ATC 4950 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.20.10 Flinders Diamonds Ltd v Tiger International Resources Inc [2003] SASC 158 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.20, 15.80 Flinders Diamonds Ltd v Tiger International Resources Inc [2004] SASC 119 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.60.50, 3.70.20, 3.70.50, 15.80 Focus Technologies Ltd [2002] ATP 08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20.10 Foodland Associated Ltd v Garina Pty Ltd (1989) 14 ACLR 739 . . . . . . . . . . . . . . 3.50.10 Foodland Associated Ltd v Garina Pty Ltd (1989) 15 ACLR 530 . . . . . . . . . . . . . . 3.50.10 Forest Place Group Ltd [2004] ATP 3 . . . . . . . . . . . . . . . . . . . . . . . . . . 11.40.50A, 11.40.50C Forge v ASIC (2004) 213 ALR 574 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.40.10 Foss v Harbottle (1843) 2 Hare 461 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.80.20 Foster’s Group Ltd [2011] ATP 15 . . . . . . . . . . . . . . . . . . . . . 9.30.30, 9.30.60, 11.10, 14.50, 14.50.10, 14.50.20, 14.80.30 Franmarine Services (WA) Pty Ltd v Commissioner of State Taxation (1990) 90 ATC 4,207 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.20 Fraser v NRMA Holdings Ltd (1995) 15 ACSR 590 . . . . . . . . . . . . . . . . . . . . 9.30.30, 13.30 Freeland (Singapore) Private Ltd v Consolidated Home Industries Ltd (1977) CLC 29,891 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.60, 18.30 Frontier Oil Corp v Holly Corp WL 1039027 (2005 Del Ch) . . . . . . . . . . . . . . . . . . 8.50.40 Fulham Football Club Ltd v Cabra Estates plc [1992] BCC 863 . . . . . . . . . . . . . . 14.80.20 Furs Ltd v Tomkies (1936) 54 CLR 583 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.40.10

G GIA (Nominees) Pty Ltd v Bacdilet Pty Ltd (1989) 15 ACLR 501 . . . . . . . . . . . . . . 10.40, 12.110, 15.60 GIO Australia Holdings Ltd v AMP Insurance Investment Holdings Pty Ltd (1998) 29 ACSR 584 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.40, 9.10.10, 9.30.60 Gambotto v WCP Ltd [1995] HCA 12; 182 CLR 432; 16 ACSR 1 . . . . . . . . . . . 13.20.10, 13.20.40, 13.20.50, 13.30.30, 13.70, 18.60, 18.70, 18.80, 18.100 Gantry Acquisition Corporation v Parker & Parsley Petroleum Australia Pty Ltd (1994) 14 ACSR 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.20, 9.30.30, 11.40.30 Garden City Shopping Centre Pty Ltd v Woolworths Ltd (1982) 7 ACLR 803 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.50.40 Garina Pty Ltd v Foodland Associated Ltd (1989) 15 ACLR 745 . . . . . . . . . . . . . . 3.50.10 GasNet Australia Ltd [2006] ATP 22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.50, 8.40.30 General Property Trust [2004] ATP 30 . . . . . . . . . . . . . . . . . . . . 9.10.20, 11.10.10, 14.50.50 Genesco, Inc v Finish Line, Inc No 07–2137–II(III) (2007 Tenn Ch Ct) . . . . . . . . 8.50.40 Geneva Finance Ltd, Re (1992) 7 ACSR 415 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.20.30 George Hudson Holdings Limited v Rudder (1973) 128 CLR 387 . . . . . . . 9.30.50, 10.40 Gerrard Co of A/asia Ltd v Johns Perry Ltd (1982) 7 ACLR 699 . . . . . . . . . . . . . . . . 11.60 Gething v Kilner [1972] 1 WLR 337 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.80.20, 18.70

xx Table of Cases

Giris Pty Ltd v Federal Commissioner of Taxation (1969) 119 CLR 356 . . . . . . . . . 20.10 Gjergja v Cooper [1987] VR 167 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.30, 21.60 Gladstone Pacific Nickel Ltd 01 [2010] ATP 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.80.20 Glencore International AG v Takeovers Panel (2005) 54 ACSR 708 . . . . 21.20.30, 21.30, 21.40 Glencore International AG v Takeovers Panel (2006) 56 ACSR 753 . . . . 21.20.30, 21.30 Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82 . . . . . . . . 11.10.10 Gloucester Coal Ltd 01 [2009] ATP 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.70, 19.40 Gloucester Coal Ltd 01R [2009] ATP 9 . . . . . . . . . . . . . . . . . . . . . . . . . . 5.70, 8.50.10, 19.40 GoldLink Growthplus Ltd [2007] ATP 23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.60, 21.20.10 GoldLink Income Plus Ltd 02 [2008] ATP 19 . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.30, 8.40.30 GoldLink Income Plus Ltd 03 [2008] ATP 21 . . . . . . . . . . . . . . . . 9.30.30, 9.30.50, 9.30.60 GoldLink Income Plus Ltd 04 [2009] ATP 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.20.40 GoldLink Income Plus Ltd 04R [2009] ATP 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.20.40 Golden Circle Ltd 02 [2007] ATP 24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.60, 19.60.30 Golden West Resources Ltd 01 [2007] ATP 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.30 Golden West Resources Ltd 03 and 04 [2008] ATP 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.80 Golden West Resources Ltd 04R [2008] ATP 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.80 Goodman Fielder Ltd 01 [2003] ATP 1 . . . . 6.40.30B, 7.60.10, 8.50.10, 8.50.40, 8.50.50, 8.50.60, 8.80, 9.30.50, 9.30.130, 9.70, 21.30 Goodman Fielder Ltd 02 [2003] ATP 5 . . . 6.40.20, 8.50.60, 9.30.60, 11.10.10, 14.50.20, 14.50.60, 14.90, 21.30 Goodman Fielder Ltd 03 [2003] ATP 14 . . . . . . . . . . . . . . . . . . . . 7.60.20, 9.30.50, 14.80.10 Goodman Fielder Ltd, Re [2014] FCA 1449 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.40.20 Goodyear Australia Ltd, Re; Kelly-Springfield Australia Pty Ltd v Green [2002] NSWSC 53; 20 ACLC 983 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.60.20 Gorton v FCT (1965) 113 CLR 640 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.20 Gosford Quarry Holdings Ltd 01 [2008] ATP 11 . . . . . 10.30, 11.50.20, 12.50, 12.120.20 Gosford Quarry Holdings Ltd 01R [2008] ATP 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.50 GrainCorp Ltd, Re [2008] FCA 996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.50.70, 21.60 Grand Hotel Group [2003] ATP 34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.60, 21.20.10 Gray Eisdell Timms Pty Ltd v Combined Auctions Pty Ltd (1995) 17 ACSR 303 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.100 Great Mines Ltd [2004] ATP 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.40, 14.90 Great Southern Managers Australia Ltd, Re [2009] VSC 557 . . . . . . . . . . . . . . . . . . 3.70.10 Green v Crusader Oil NL (1985) 10 ACLR 120 . . . . . . . . . . . . . . . . . . . . 3.20, 11.30, 19.30 Greenhalgh v Arderne Cinemas Ltd [1951] Ch 286 . . . . . . . . . . . . . . . . . . . . . . . . . . 13.20.10 Grierson, Oldham & Adams Ltd, Re [1968] Ch 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.70 Grimwade v FCT (1949) 78 CLR 199 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.20 Guinness plc v Saunders [1990] 2 AC 663 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.80, 22.40

H HIH Insurance Ltd, Re; ASIC v Adler (2002) 41 ACSR 72 . . . . . . . . . . . . . . . . . . 22.60.20 HL Bolton (Engineering) Co Ltd v TJ Graham & Sons Ltd [1957] 1 QB 159 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.20.20, 9.30.130 HR Harmer Ltd, Re [1958] 3 All ER 689 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.20 Hamilton v Property Investments Ltd (1983) 7 ACLR 932 . . . . . . . . . . . . . . . . . . . 19.60.10 Handlen v The Queen; Paddison v The Queen [2011] HCA 51 . . . . . . . . . . . . . . . . 3.70.30 Hanson Trust plc v ML SCM Acquisition Inc 781 F 2d 264 (1986) . . . . . . . . . . . 14.70.40 Harkness v Commonwealth Bank of Australia Ltd (1993) 32 NSWLR 543 . . . . . . . 15.40

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Harlowe’s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL [1968] HCA 37; 121 CLR 483 . . . . . . . . . . . . . . . . . . . . . . . . . 13.20.10, 13.20.30, 13.50.10B, 14.40, 22.50 Hastings Diversified Utilities Fund 01 [2012] ATP 1 . . . . . . . . . 9.10.20, 9.30.60, 14.50.50 Haughton Properties Pty Ltd (Receiver and Manager Appointed) v Sandridge City Development Company Pty Ltd (1994) 13 ACLC 1 . . . . . . . . . . . 3.60.10, 19.10, 19.50 Hawker de Havilland Ltd v Australian Securities Commission (1991) 6 ACSR 579 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.40, 20.60 Hawks v McArthur [1951] 1 All ER 22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.60.20, 10.40 Heine Management Ltd v Australian Securities Commission (1992) 12 ACSR 578 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.80.10 Hellenic & General Trust Ltd, Re [1976] 1 WLR 123 . . . . . . . . . . . . . . . . . . 5.40.20, 18.90 Henderson’s Industries Ltd, Re (1986) 13 ACLR 506 . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.20 Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 27 . . . . . 3.60.20, 3.60.30 Heron International Ltd v Lord Grade [1983] BCLC 244 . . . . . . 7.50, 14.50.60, 14.80.20 Hespe v Surfers Paradise Forests Ltd (1985) 10 ACLR 182 . . . . . . . . . . . . . . . . . . . . . 17.50 Hills Motorway Ltd [2002] NSWSC 897 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.60 Hoare & Co Ltd, Re (1933) 150 LT 374; [1933] All ER Rep 105 . . . . . . 17.60.10, 18.70 Hogg v Cramphorn Ltd [1967] Ch 254 . . . . . . . . . . . . . . . . . . . . . 13.20.20, 13.40, 13.50.20 Holmes v Life Funds of Australia Ltd [1971] 1 NSWLR 860 . . . . . . . . . . . . . . . . . . . 22.30 Holt v Cox (1994) 15 ACSR 313 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.60.20 Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Pty Ltd (1978) 140 CLR 216 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.10.10 Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 . . . . . . . 6.40.10 House of Fraser plc v ACGE Investments Ltd [1987] 1 AC 387 . . . . . . . . . . . . . . . . . 18.80 Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821 . . . . . . . . . 13.20.10, 13.20.20, 13.20.50, 13.50.10B, 14.50.60, 14.80.20 Hudson Conway Ltd, Re (2000) 22 ACSR 657 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.40.20 Hunter Resources Ltd, Re (1992) 7 ACSR 436 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.80

I IBP Inc v Tyson Foods Inc Del Ch LEXIS 81 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . 8.50.40 ICAL Ltd v County Natwest Securities Australia Ltd (1988) 13 ACLR 129 . . . . . . . . . . 7.40, 9.20, 9.30.30, 9.30.50, 9.30.130, 11.30, 12.80, 12.100, 14.40, 14.50.60 ICAL Ltd v McCaughan Dyson & Co Ltd (1987) 12 ACLR 319 . . . . . . . . . 12.90, 12.110 ICAL Ltd v McCaughan Dyson & Co Ltd (No 2) (1987) 12 ACLR 436 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.30.30, 12.10 iP3 Systems Ltd [2005] ATP 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.20.20, 19.90, 21.20.10 IPT Systems Ltd v MTIC Corporate Pty Ltd (Administrator Appointed) [2000] WASC 316 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.50 Idameneo (No 123) Pty Ltd v Symbion Health Ltd (2007) 64 ACSR 680 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.70.10, 18.80 Immobilari Pty Ltd v Opes Prime Stockbroking Ltd [2008] FCA 1920 . . . . . . . . . . . 15.70 Indophil Resources NL [2008] ATP 18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.60.10 Industrial Equity Ltd v CCA (1989) 1 ACSR 153 . . . . . . . . . . . . . . 3.70.30, 3.70.40, 15.10 Infratil Australia Ltd [2000] ATP 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.70 Infratil Australia Ltd 01 [2000] ATP 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.60 Infratil Australia Ltd 02 [2000] ATP 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.30.60, 9.30.130 Innate Immunotherapies Ltd [2017] ATP 2 . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.40, 21.20.10 InterMet Resources Ltd [2008] ATP 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.60.20, 11.10.10 Intercapital Holdings Ltd v NCSC (1987) 12 ACLR 684 . . . . . . . . . . . . . . . . . . . . . . 8.40.30

xxii Table of Cases

Intercapital Holdings Ltd v National Companies & Securities Commission (1987) 12 ACLR 684 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.10, 21.20.30 International All Sports Ltd 01 [2009] ATP 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.30, 8.50.60 International All Sports Ltd 01R [2009] ATP 5 . . . . . . . . . . . . . . . . . . . . . . . . . . 5.30, 8.50.60 Investa Office Fund [2016] ATP 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.50 InvestorInfo Ltd [2004] ATP 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.80, 19.90

J J Sainsbury plc v O’Connor [1991] 1 WLR 963 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.40 John Crowther Group plc v Carpets International plc [1990] BCLC 460 . . . . . . . 14.80.20 John Fairfax Holdings Ltd [1997] ATP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.70 Johns v Australian Securities Commission [1993] HCA 56; 178 CLR 408 . . . . . . . 20.40, 20.50.10, 20.50.20, 20.50.50 Jones v Dunkel (1959) 101 CLR 298 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.40 Juniper Pty Ltd v Grausom (1984) 8 ACLR 212 . . . . . . . . . . . . . . . . . . . . . . . 8.40.20, 22.60

K KAZ Group Ltd, Re [2004] FCA 738 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.90 KBL Mining Ltd [2015] ATP 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.50.30, 15.50 KBL Mining Ltd v Kidman Resources Ltd [2015] NSWSC 515 . . . . . . . . . . . . . . . . . 15.50 KD Morris & Sons Pty Ltd v Bank of Queensland (1980) 146 CLR 165 . . . . . . . 3.60.10 Kaefer Technologies Ltd 02 [2004] ATP 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20.10 Kargat Pty Ltd, Re (1989) 15 ACLR 527; 7 ACLC 839 . . . . . . . . . . . . . . . . . . 10.20, 10.30 Kern Corporation Ltd, Re (1988) 15 ACLR 302 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.10 Keygrowth Ltd v Mitchell (1990) 3 ACSR 476 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20.30 Keygrowth Ltd v Mitchell [1990] VicSC 593 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.40.20 Kidner, Re [1929] 2 Ch 121 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.70 Kingston v Keprose Pty Ltd (No 2) (1987) 12 ACLR 599 . . . . . . . . . . . . . . . . . . . . . . 17.90 Kingston v Keprose Pty Ltd (No 3) (1987) 12 ACLR 609 . . . . . . 3.50.10, 10.40, 12.110, 16.20, 17.30, 17.70 Kinwat Holdings Pty Ltd v Platform Pty Ltd [1982] Qd R 370 . . . . . . . . . . . . . . . 9.30.130 Kioa v West (1985) 159 CLR 550 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.40 Knights Capital Group Ltd [2012] ATP 22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.60.20 Kolbach Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 . . . . . . . . . 13.50.10B Kornblums Furnishings Ltd, Re; Blair v Wade [1982] VR 123; 6 ACLR 25 . . . . 3.50.10, 3.60.50, 20.20 Krakowski v Eurolynx Properties Ltd [1995] HCA 68; 183 CLR 563 . . . . . . . . . . . . 15.40 Kraus v JG Lloyd Pty Ltd [1965] VR 232 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.30 Kresta Holdings Ltd v CHKP Capital Pty Ltd (1998) 26 ASCR 486 . . . . . . . . . . . . . . 9.20

L LV Living Ltd [2005] ATP 5 . . . . . . . . . . . . . . . . 3.10, 3.60.20, 3.70.20, 19.60.40, 21.20.10 Lachlan Farming Ltd [2004] ATP 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.90 Lachlan Farming Ltd 02 [2005] ATP 02 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.80 Lake Technology Ltd [2004] ATP 18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.10 Lantern Hotel Group Ltd [2014] ATP 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.130, 21.20.10 Law Society of New South Wales v Milios (1999) 33 ACSR 396 . . . . . 5.60.50, 22.60.10 Leighton Holdings Ltd 01, 02 and 03 [2010] ATP 13 . . . . . . . . . . . . . . . . . . . 19.110, 20.60 Leighton Holdings Ltd 02R [2010] ATP 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.110

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xxiii

Leisure & Entertainment Pty Ltd v Willis (1996) 14 ACLC 379 . . . . . . . . . . . . . . . 4.10.30 Lewis, in the matter of Diverse Barrel Solutions Pty Ltd (Subject to a Deed of Company Arrangement) [2014] FCA 53 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.120 Lifecare International plc, Re [1990] BCLC 222 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.70 Lindholm, in the matter of Munday Group Pty Limited (Receivers and Managers Appointed) (In Liquidation) v Tsourlinis Distributors Pty Ltd [2010] FCA 1488 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.120 Lion-Asia Resources Pte Ltd [2009] ATP 25 . . . . . . . . . . . . . . . . . . . . 5.50, 20.60, 21.20.10 Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2005) 55 ASCR 583 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.30.30 Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2005) 56 ACSR 263 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.30.30 Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2005) 59 ACSR 444 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.30.30 Lion Selection Ltd 02 [2008] ATP 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.60, 21.20.10 Lionsgate Australia Pty Ltd v Macquarie Private Portfolio Management Ltd [2007] NSWSC 318; 62 ACSR 178 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.30, 13.50.20, 21.60 Lionsgate Australia Pty Ltd v Macquarie Private Portfolio Management Ltd (2007) 62 ACSR 522 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.30 London Founders Association Ltd v Clarke (1988) 20 QBD 576 . . . . . . . . . . . . . . . 3.60.20 Ludowici Ltd 01 [2012] ATP 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20.10 Ludowici Ltd 01R [2012] ATP 4 . . . . . . . . . . . . . . . 11.70.10, 11.70.20, 11.70.50, 21.20.10 Lyondell Chemical Company v Ryan 970 A 2d 235 (2009, Del Supr) . . . . . . . . . . . . 14.40 Lysaght v Edwards (1877) 2 Ch D 499 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.20

M MIA Group Ltd, Re [2004] NSWSC 712 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.90 MIM Holdings Ltd, Re (2003) 45 ACSR 554 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.40.20 MMAL Rentals Pty Ltd v Bruning [2004] NSWCA 451 . . . . . . . . . . . . . . . 14.90, 17.60.20 MYOB Ltd [2008] ATP 27 . . . . . . . . . . . . . . . . . . . . 3.50.30, 3.70.40, 7.40, 9.30.130, 21.30 MacMahon Holdings Ltd, Re [2008] FCA 1079 . . . . . . . . . . . . . . . . . . . . . . . . 8.50.70, 21.60 Macarthur Coal Ltd [2010] ATP 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.50, 19.60.30 MacarthurCook Ltd [2008] ATP 20 . . . . . . . . . . . . . . . . . . 7.50, 13.50.10C, 13.50.20, 14.60 MacarthurCook Property Securities Fund 01 & 02 [2012] ATP 7 . . . . . . . . . . . . . . . . 19.90 Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.40.40 Macquarie Capital Alliance Ltd, Re (2008) 67 ACSR 484 . . . . . . . . . . . . . . . . . . . . . 5.40.40 Macquarie Private Capital A Ltd, Re [2008] NSWSC 323 . . . . . . . . . . . . . . . . . . . . . 5.40.20 Maddocks v DJE Constructions Pty Ltd (1982) 148 CLR 104 . . . . . . . . . . . . . . . . . . . 10.60 Magellan Petroleum Australia Ltd v ASC (1993) 11 ACSR 306; 11 ACLC 811 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.110, 20.30, 20.40 Magellan Petroleum Australia Ltd v Sagasco Amadeus Pty Ltd (1992) 9 ACSR 162 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.40.10 Magna Pacific (Holdings) Ltd [2007] ATP 02 . . . . . . . . . . . . . . . . . 9.30.60, 9.30.130, 21.30 Magna Pacific (Holdings) Ltd 02 [2007] ATP 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.70.40 Magna Pacific (Holdings) Ltd 04 [2007] ATP 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.50.50 Magna Pacific (Holdings) Ltd 05 [2007] ATP 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20.10 Magnacrete Ltd v Douglas-Hill (1988) 15 ACLR 325 . . . . . . . . . . . . . . . . . . . . . . . . . 3.60.70 Manning River Co-Operative Dairy Company Ltd v Shoesmith (1915) 19 CLR 714 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.40

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Table of Cases

Marathon Resources Ltd [2006] ATP 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.80.10 Marcel v Commissioner of Police [1992] Ch 225 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.50.50 Martin Marietta Materials Inc v Vulcan Materials Company (unreported, Sup Ct Delaware, 31 May 2012) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.30 Maynard v Goode (1926) 37 CLR 529 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.50.90 McAuliffe v The Queen [1995] HCA 37; 183 CLR 108 . . . . . . . . . . . . . . . 3.70.30, 3.70.40 McCann v Pendant Software Pty Ltd [2006] FCA 1129; 235 ALR 566 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.30.30, 21.20.30, 21.20.40 McConnell Dowell Corporation Ltd, Re (unreported, Fed Ct Aust, Giles J, 1 August 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.40.30D McGirr v Dextran Pty Ltd (1990) 3 ACSR 471 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.40 McGuire v Ralph McKay Ltd (1987) 12 ACLR 107 . . . . . . . . . . . . . . . . . . . . . . . . . 13.50.20 McLachlan v Cooper’s Creek Mining and Exploration NL [1973] VR 517 . . . . . . 2.60.10 McMahon Holdings Ltd, In the matter of [2008] FCA 1079 . . . . . . . . . . . . . . . . . . . 8.50.70 McMillan Properties Pty Ltd v WC Penfold Ltd [2001] NSWSC 1173; 40 ACSR 319 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.60.40, 21.60 McWilliam v McWilliams Wines Pty Ltd (1964) 114 CLR 656 . . . . . 4.10.40, 8.50, 8.70 Melcann Ltd v Super John Pty Ltd (1995) 13 ACLC 92 . . . . . . . . . . . . . . . . . . . . . 17.60.20 Melewar Steel Ventures Ltd v Opes Prime Stockbroking Ltd [2009] NSWSC 22 . . 15.70 Memtec Ltd v Australian Securities Commission (1997) 15 ACLC 1,784 . . . . . . . . . 20.30 Memtec Ltd and Australian Securities Commission USFC Acquisition Inc (Party Joined) [1997] AATA 479 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.40.10 Mendes v Commissioner of Probate Duties (Vic) (1967) 122 CLR 152 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.50.20, 3.70.20 Menier v Hooper’s Telegraph Works (1874) LR 9 Ch 350 . . . . . . . . . . . . . . . . . . . 13.20.50 Mercantile Mutual Life Insurance Co Ltd v Actraint No 85 Pty Ltd (1989) 1 ACSR 73 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.90 Mercantile Mutual Life Insurance Co Ltd v Actraint No 85 Pty Ltd (No 2) (1990) 1 ACSR 569 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.70, 17.90 Meridian Global Funds Management Asia Limited v Securities Commission [1995] UKPC 5; [1995] 2 AC 500 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.20.20, 13.20.10, 15.40 Merlin Diamonds Ltd [2016] ATP 18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.40 Mesa Minerals Ltd v Mighty River International Ltd [2016] FCAFC 16 . . . . . . . . . . . 5.30 Metal Manufacturers Ltd v Marsh Electrical Pty Ltd (1998) 29 ACSR 245 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.20, 9.30.30 Metals Explorations Ltd v Samic Ltd (1994) 191 CLR 109 . . . . . . . . . . . . . . . . . . . . 12.100 Midwest Corporation Ltd [2007] ATP 33 . . . . . . . . . . . . . . . . . . . . . . 9.30.30, 9.30.60, 14.90 Midwest Corporation Ltd 02 [2008] ATP 15 . . . . . . . . . . . . . . . . 4.10.30, 4.10.80, 21.20.10, 21.20.30, 21.30 Mildura Co-operative Fruit Company Ltd [2004] ATP 5 . . . . . . . . . . . . . 9.30.30, 9.30.130, 9.40, 9.70, 11.10.10, 11.40.30, 13.30.30, 14.80.10, 14.80.30 Mills v Mills [1938] HCA 4; 60 CLR 150 . . . . . . . . . . . . . . . . . . . . . . . 13.20.10, 13.50.10B Mills Acquisition Co v Macmillan Inc 559 A 2d 1261 (1988, Del Supr) . . . . . . . . . . 14.40 Mincom Ltd [No 3], Re (2007) 64 ACSR 387 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.40.20 Minemakers Ltd [2012] ATP 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.10, 9.30.50, 21.30 Mirabela Nickel Ltd [2014] NSWSC 836 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.120 Mirvac Ltd, Re [1999] NSWSC 457 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.40.40 Mitsui & Co Ltd v Hanwha (HK) Co Ltd (2007) 65 ACSR 409 . . . . . . . . . . . . . . . . . 18.30 Mitsui & Co Ltd v Hanwha (HK) Co Ltd [No 2] [2007] FCA 2071 . . . . . . . . . . . . . 18.20 Molomby v Whitehead (1985) 63 ALR 282 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.20.30 Molopo Energy Ltd [2014] NSWSC 1864 . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.40.30A, 18.80 Mordecai v Mordecai (1988) 12 ACLR 751 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.60.20

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Moreton Resources Ltd [2013] ATP 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.30.50, 19.60.30 Mortimer v Proto Resources & Investments Ltd [2015] FCA 654 . . . . . . . 13.30.10, 22.30 Mount Edon Gold Mines (Aust) Ltd v Burmine Ltd (1993) 12 ACSR 417 . . . . 11.10.10, 14.80.20 Mount Gibson Iron Limited [2009] ATP 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.40 Mucelli v Government of Albania [2009] UKHL 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.30 Multiplex Prime Property Fund 01 and 02 [2009] ATP 18 . . . . . 9.30.30, 9.30.50, 12.130, 14.50.50, 21.30 Multiplex Prime Property Fund 03 [2009] ATP 22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.90 Multiplex Prime Property Fund 04 [2009] ATP 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20.10 Munday Group Pty Ltd [2010] FCA 1488 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.120 Murchison Holdings Ltd, Re [2009] VSC 528 . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.20, 16.30 MYOB Ltd [2008] ATP 27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.30 Myer Retail Investments Pty Ltd, Re (1983) 8 ACLR 102 . . . . . . . . . . . . . . . . . . . . . 8.40.20

N NCSC NCSC NCSC NCSC NCSC

v Alexanders Laing and Cruickshank (1988) 6 ACLC 142 . . . . . . . . . . . . . 21.20.30 v Brierley Investments Ltd (1988) 14 NSWLR 273 . . . . . . . . . . . . . . . 3.20, 3.50.20 v Consolidated Gold Mining Areas NL [1985] 1 NSWLR 454 . . . . . . . . . . 2.60.10 v Consolidated Gold Mining Areas NL (No 2) (1985) 9 ACLR 768 . . . . 19.60.10 v FAI Investments Pty Ltd (1982) 7 ACLR 152 . . . 3.30, 3.60.20, 10.60, 15.30C, 19.70 NCSC v Industrial Equity Ltd (1981) 6 ACLR 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.60 NCSC v Monsoon Nominees Pty Ltd (1990) 3 ACSR 491 . . . . . . . . . . . . . . . . . . . . . . 21.60 NCSC v Sim (No 1) [1987] VR 411 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.50.20 NGM Resources Ltd [2010] ATP 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.50.10, 8.50.40 NRMA Ltd, Re (2000) 156 FLR 412 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.40.20 Namakwa Diamond Company NL 01 [2001] ATP 8 . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.40 Namakwa Diamond Company NL 02 [2001] ATP 9 . . . . . 9.30.60, 11.10.10, 14.90, 21.30 National Can Industries Ltd 01 [2003] ATP 35 . . . . . . . . . . . . . . . 3.60.70, 14.70.40, 15.60, 21.20.10 National Can Industries Ltd 01R [2003] ATP 40 . . . . . . . . . . . . . 14.70.40, 21.20.10, 21.40 National Companies and Securities Commission see NCSC National Foods Ltd 01 [2005] ATP 8 . . . . . . . . . . . . . . . 3.70.20, 3.70.40, 3.70.50, 5.30.50, 5.60.30E, 9.30, 15.50 National Foods Ltd 02 [2005] ATP 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.50 Neilson v Hempston Holdings Pty Ltd (1986) 65 ALR 302 . . . . . . . . . . . . . . . . . . 11.10.10 Neptune (Vehicle Washing Equipment) Ltd v Fitzgerald [1996] Ch 274 . . . . . . . . . . 13.80 Netsmart Technologies, Inc, Re 924 A 2d (2007, Del Ch Crt) . . . . . . . . . . . . . . . . . . . 14.40 New Ashwick Pty Ltd v Wesfarmers Ltd (2000) 35 ACSR 265 . . . . . . . . . . . 15.50, 15.80 New Hampton Goldfields Ltd, Re [2002] FCA 391; 20 ACLC 744 . . . . . . . 17.30, 17.60, 18.30 NewSat Ltd [2009] ATP 20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.60.10, 11.10 News Corporation Ltd, Re (1987) 70 ALR 419 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.50.20 News Corporation Ltd, Re (2004) 51 ACSR 394 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.40.20 News Corporation Ltd, The v NCSC (1983) 8 ACLR 338 . . . . . . . . . . . . . . . . . . . . 20.50.20 Nexus Energy Ltd [2006] ATP 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.10, 14.50, 14.50.20 Nexus Energy Ltd 02 [2006] ATP 25 . . . . . . . . . . . . . . . . . . . . . . . 8.40.10, 9.30.130, 11.100 Nexus Energy Ltd (subject to deed of company arrangement),In the matter of[2014] NSWSC 1910 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.120 Ngurli Ltd v McCann [1953] HCA 39; 90 CLR 425 . . . . . . . . . . . . . . . . 13.20.10, 13.20.40

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Niagara Mining Ltd, Re [2002] FCA 1651; 47 ACSR 364 . . . . . . . . . . . . . . . . . . . . . . 18.90 Nicholas Paspaley Properties Pty Ltd v Commissioner of Taxes (1991) 91 ATC 4,171 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.20 Nicron Resources Ltd v Catto (1992) 8 ACSR 219 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.80 Nine Entertainment Group Ltd (No. 1) [2012] FCA 1464 . . . . . . . . . . . . . . . . . . . . . . . 18.80 Niord Pty Ltd v Adelaide Petroleum NL (1990) 2 ACSR 347; 8 ACLC 694 . . . . 3.60.70, 21.60 Norcast v Bradken (No. 2) [2013] FCA 235 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.30 Normandy v Ind, Coope & Ltd [1908] 1 Ch 84 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.30 Normandy Mining Ltd 01 [2001] ATP 27 . . . . . . . . . 11.10.10, 14.80.10, 14.80.30, 14.110 Normandy Mining Ltd 02 [2001] ATP 28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.50, 15.80 Normandy Mining Ltd 03 [2001] ATP 30 . . . . . . . . . . . . . . . . . . . . . . . . . . 14.70.10, 14.70.40 Normandy Mining Ltd 04 [2001] ATP 31 . . . . . . . . . . . . . . . . . . . . 7.30, 8.50.10, 11.40.50A Normandy Mining Ltd 05 [2001] ATP 29 . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.40.50D, 11.90 Normandy Mining Ltd 06 [2001] ATP 32 . . . . . . . . . . . . . . . . . . . . . . 5.60.20, 7.20, 8.40.30, 11.40.50A, 11.40.50C Normandy Mining Ltd 07 [2002] ATP 02 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.70 North Broken Hill Holdings Ltd, Re (1986) 10 ACLR 270 . . . . 2.30, 3.20, 15.10, 15.40, 16.20 North Sydney Brick & Tile Co Ltd v Darvall (1986) 5 NSWLR 662 . . . . . . . . . . . . . . . . . . . . . . . . 3.50.10, 3.60.80, 3.70.40, 9.30.50, 13.30.30 North Sydney Brick & Tile Co Ltd v Darvall (No 2) (1986) 5 NSWLR 681 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.30, 3.50.10 Northern Assurance Ltd v Farnham United Breweries [1912] 2 Ch 125 . . . . . . . . . . 18.90 Northern Energy Corporation Ltd [2011] ATP 2 . . . . . 8.50.60, 11.10.10, 14.80.10, 14.90 Northern Iron Ltd [2014] ATP 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.80, 19.70 Novus Petroleum Ltd 01 [2004] ATP 2 . . . . . . . . . . . . . . . . . . . . . 5.30.50, 8.50.10, 8.50.40, 11.60, 13.90, 14.80.10, 14.90 Novus Petroleum Ltd 02 [2004] ATP 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.70

O O’Grady v Northern Queensland Co Ltd [1990] HCA 16; 169 CLR 356 . . . . . . . . 3.70.30 Old Papa’s Franchise Systems Pty Ltd v Camisa Nominees Pty Ltd [2003] WASCA 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.60.20 oOh!media Group Limited [2011] ATP 9 . . . . . . . . . . . . . . . . . . . . . . . . . 3.40, 3.60.70, 15.10 Opal Group Holdings (Aust) Pty Ltd v Franklins Ltd [2002] NSWCA 169 . . . . . 3.80.60 OPSM Industries Ltd v NCSC (1982) 7 ACLR 192 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.10 O’Reilly v State Bank of Victoria (1983) 153 CLR 1 . . . . . . . . . . . . . . . . . . . . . . . . 20.50.10 Online Advantage Ltd [2002] ATP 14 . . . . . . . . . . . . . . . . . . . . . . 3.70.20, 3.70.40, 21.20.50 Origin Energy Ltd 02 [2008] ATP 23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.80.10 Orion Telecommunications Ltd [2006] ATP 23 . . . . . . . . . . 3.70.20, 3.70.40, 19.70, 21.30 Osland v Secretary to the Department of Justice [2008] HCA 37 . . . . . . . . . . . . . 20.50.20 Osland v The Queen [1998] HCA 75; 197 CLR 316 . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.30

P Pacific Energy Ltd [2004] ATP 23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.30.30, 9.30.130 Palazzo Corporation Pty Ltd v Hooper Bailie Industries Ltd (1988) 14 ACLR 684 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.30.30 Palmer v Commissioner of State Taxation [1976] WAR 37 . . . . . . . . . . . . . . . . . . . . . . . 3.20

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Palmer Leisure Coolum Pty Ltd v Takeovers Panel [2015] FCA 1498 (The President’s Club) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20.30 Pan Am Corp v Delta Airlines 175 BR 438 (SDNY 1994) . . . . . . . . . . . . . . . . . . . . 8.50.40 Pancontinental Mining Ltd v Goldfields Ltd (1995) 16 ACSR 463 . 9.20, 9.30.30, 9.30.60, 9.30.130 Pancontinental Mining Ltd v Posgold Investments Pty Ltd (1994) 13 ACSR 117 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.30 Panfida Ltd v Hartogen Energy Ltd (1988) 14 ACLR 601 . . . . . . . . . . . . . . . . . . . . . . . 21.60 Papua New Guinea Dockyard Limited v Adams [2005] FCA 413 . . . . . . . . . . . . . . 3.70.50 Paramount Communications Inc v QVC Network Inc 637 A 2d 34 (1993, Del Supr) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.40 Parker & Parsley Petroleum Australia Pty Ltd v Gantry Acquisition Corporation (1994) 13 ACSR 689 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.30.50, 9.30.130 Paros plc v Worldlink Group plc [2012] EWHC 294 . . . . . . . . . . . . . . . . . . . . . . . . 14.70.20 Pasminco Ltd (Administrators Appointed) [2002] ATP 6 . . . . . . . . . . 2.20, 18.120, 19.120, 20.60, 21.20.30 Patrick Corporation Ltd 01 [2005] ATP 17 . . . . . . . . . . . . . 7.60.20, 8.40, 9.30.50, 9.30.60 Patrick Corporation Ltd 02 [2006] ATP 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.70 Patrick Corporation Ltd 03 [2006] ATP 12 . . . . . . . . . . . . . . . . . . . . . . . . . . 11.40.50D, 11.80 Patrick Corporation Ltd 04 [2006] ATP 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.110 Pauls Ltd v Dwyer [2001] QSC 67; 19 ACLC 959 . . . . . . . . . . . . . . . . . . . . . . . . . . 17.60.20 Pauls Ltd v Dwyer [2002] QCA 545 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.20 Payne v The Adelaide Steamship Co Ltd (1976) 14 ACLR 252 . . . . . . . . . . . . . . . 14.80.20 Peninsula Gold Pty Ltd v Australian Securities Commission (1996) 19 ACSR 703 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.20, 20.30 Peninsula Gold Pty Ltd v Australian Securities Commission (1996) 21 ACSR 246 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.20 Performing Right Society Ltd, Re [1978] 1 WLR 1197 . . . . . . . . . . . . . . . . . . . . . . . 5.30.60 Perilya Ltd [2008] ATP 28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.30.60, 11.10.10, 14.50.50 Perilya Ltd 02 [2009] ATP 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.50.70, 14.60, 14.70.40 Permanent Building Society (in liq) v Wheeler (1994) 14 ACSR 109 . . . . . . . . . . . 6.20.10 Perpetual Custodians Ltd v IOOF Investment Management Pty Ltd [2013] NSWCA 231 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70, 3.70.20 Perpetual Custodians Ltd v IOOF Investment Management Ltd [2013] NSWSC 1318 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.20, 3.70.40, 3.80.30, 5.70 Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 . . . . . . . . . . . . . . . . . 8.50.10 Peters (WA) Ltd v National Companies & Securities Commission (1986) 13 ACLR 487 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.30.50 Peters’ American Delicacy Co Ltd v Heath [1939] HCA 2; 61 CLR 457 . . . . . . 13.20.10, 13.20.20, 18.100 Petty v The Queen (1991) 173 CLR 95 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.50.10 Phillips v Manufacturers Securities Ltd (1917) 116 LT 290 . . . . . . . . . . . . . . . . . . . . 18.100 Phipps v Boardman [1967] 2 AC 46 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.40.10 Phosphate Co-operative Co of Australia Ltd v Shears (No 3) (1988) 14 ACLR 323 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.90 Phosphate Resources Ltd [2003] ATP 03 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.90 Piercy v S Mills & Co Ltd [1920] 1 Ch 77 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.20.20 Pine Vale Investments Ltd v McDonnell & East Ltd (1983) 8 ACLR 199 . . . . . 13.20.10, 13.20.30, 13.50.10B, 13.50.20 Pine Vale Investments Ltd, Re (1989) 13 ACLR 757 . . . . . . . . . . . . . . . . . . . . . . . . 11.10.10 Pinnacle VRB Ltd v Reliable Power Inc [2001] VSC 262; 39 ACSR 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.20, 11.50.20, 21.60

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Table of Cases

Pinnacle VRB Ltd 03 [2001] ATP 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.60 Pinnacle VRB Ltd 04 [2001] ATP 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.60.10, 9.30.50 Pinnacle VRB Ltd 05 [2001] ATP 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.60 Pinnacle VRB Ltd 06 [2001] ATP 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10, 7.60.10, 9.30.50 Pinnacle VRB Ltd 07 [2001] ATP 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20.10 Pinnacle VRB Ltd 08 [2001] ATP 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.60, 21.20.40 Pinnacle VRB Ltd 09 [2001] ATP 25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.70 Pinnacle VRB Ltd 09B [2001] ATP 26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.50.70, 21.20.10 Pinnacle VRB Ltd 10 [2001] ATP 21a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.80 Pinnacle VRB Ltd 11 [2001] ATP 23 . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.80, 21.20.30, 21.30 Pinnacle VRB Ltd 04 [2002] ATP 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.30 Pinnacle VRB Ltd 06 [2002] ATP 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.30 Plaza Fabrics (Tauranga) Ltd v National Airlines Co Ltd [1992] 1 NZLR 584 . . . . 17.60 PowerTel Ltd 02 [2003] ATP 27 . . . . . . . . . . . . . . . . . . . . 9.30.60, 14.50.20, 14.80.10, 19.60 PowerTel Ltd 03 [2003] ATP 28 . . . . . . . . . . . . . . . . . . . . . . . . . 5.60.20, 8.40.30, 11.40.50A Powerlan Ltd [2010] ATP 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.60, 19.80, 19.90 Precious Metals Australia Ltd [2002] ATP 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20.10 Precision Data Holdings Ltd v Titan Hills Australia Ltd (1990) 2 ACSR 707 . . . . . 5.100 Precision Data Holdings Ltd v Wills (1991) 173 CLR 167 . . . . . . . . . . . . . . . . . . . . . . 21.10 Premium Income Fund [2011] ATP 10 . . . . . . . . . . . . . . . . . . . . . . . . 2.10, 8.50.70, 11.50.20 President’s Club Ltd, The [2012] ATP 10 . . . 3.20, 3.40, 3.50, 3.50.10, 11.40.50A, 19.70, 19.150, 21.20.10, 21.30 Press Caps Ltd, Re [1949] Ch 434 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.70 Primac Holdings Ltd, Re (1996) 22 ACSR 212 . . . . . . . . . . . . . . . . . . . . . 9.30.60, 9.30.130 Primac Holdings Pty Ltd v IAMA (1996) 22 ACSR 454 . . . . . . . . . . . . . 9.30.60, 11.40.10 Prime Infrastructure Holdings Ltd [2010] NSWSC 1104 . . . . . . . . . . . . . . . . . . . . . . . . . 8.60 Prime Wheat Association Ltd v Chief Commissioner of Stamp Duties [1997] NSWSC 546 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.60.10 Primelife Corporation Ltd v Aevum Ltd (2005) 53 ACSR 283, . . . . . . . . . . . . . . . . . . 21.60 Programmed Maintenance Services Ltd 01 [2008] ATP 7 . . . . . . . . . . . . . . . . . . . . . . 9.10.20 Programmed Maintenance Services Ltd 02 [2008] ATP 9 . . . . . . 9.10.20, 11.10, 11.10.10, 14.50, 14.50.50, 14.80.30 Project Blue Sky v Australian Broadcasting Authority [1998] HCA 28 . . . . . . . . . 3.70.30 Prudential Investment Company of Australia Ltd [2003] ATP 36 . . . . . . . . 5.50, 11.70.10, 20.60 Punt v Symons & Co Ltd [1903] 2 Ch 506 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.20.20

Q QIW Retailers Ltd v Davids Holdings Pty Ltd (unreported, Sup Ct Qld, White J, No 848 of 1992, 12 & 16 June 1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.30.30, 9.30.50 QIW Retailers Ltd v Davids Holdings Pty Ltd (No 1) (1992) 8 ACSR 245 . . . . . . . . . . . . . . . . . . . . . . . . . . 4.20.50, 9.10, 9.20, 9.30, 9.30.30, 9.30.130 QR Sciences Ltd [2003] ATP 37 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.80, 19.90 Qantas Airways Ltd 01 [2007] ATP 1 . . . . . . 9.10.30, 11.10.10, 14.50.50, 21.20.10, 21.30 Qantas Airways Ltd 02 [2007] ATP 6 . . . . . . . . . . . . . . . . . 8.80, 11.50.10, 11.50.20, 11.100 Qantas Airways Ltd 02R [2007] ATP 7 . . . . . . . . . 8.80, 11.50.10, 11.50.20, 11.100, 20.30 Qantas Airways Ltd, Re [2004]ACT 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.20.40C Quancorp Pty Ltd v MacDonald (1997) 15 ACLC 1415 . . . . . . . . . . . . . . . . . . . . . . . 7.60.30 Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 . . . . . . . . . . . . . . . . . . . . . 20.50.20 Queensland Co-operative Milling Association Ltd, Re (1976) 25 FLR 169 . . . . . . 4.20.10 Queensland Cotton Holdings Ltd [2007] ATP 05 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.70.40

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Queensland Mines v Hudson (1978) 18 ALR 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.40.10 Queensland North Australia Pty Ltd v Takeovers Panel [2014] FCA 591 . . . . . . 21.20.10 Queensland North Australia Pty Ltd v Takeovers Panel [2015] FCAFC 68, (2015) FCR 150 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20.10 Queensland Ores Ltd [2009] ATP 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.10.20 Queensland Wire Industries Pty Ltd v The Broken Hill Proprietary Company Ltd (1989) 167 CLR 177 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.20.10

R R v Associated Northern Collieries (1914) 14 CLR 387 . . . . . . . . . . . . . . . . . . . . . . . 3.70.40 R v Board of Trade; Ex parte St Martin’s Preserving Co Ltd [1965] 1 QB 603 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.20 R v Ditfort (1987) 19 ATR 60 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.20 R v Ditfort (1991) 22 ATR 73 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.20 R v International Stock Exchange of the United Kingdom and Republic of Ireland Ltd, ex parte Else (1992) Ltd [1993] QB 534 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.50 R v Ireland (1970) 126 CLR 321 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.50.10 R v Staples (1940) 2 WWR 627 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.50.10 RACV Investment Co Ltd v Silbury Pty Ltd (1986) 13 ACLR 555 . . . . . . . . . . . . . . . 7.30 RCL Group Ltd [2012] ATP 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.20, 5.30.50, 13.90 Radiant Shipping Company Ltd v Sea Containers Ltd [1995] BCLC 976 . . . . . . 14.70.30 Radio 2UE Sydney Pty Ltd v Stereo FM Pty Ltd (1982) 44 ALR 557 . . . . . . . . . . 4.20.20 Ramsay Health Care Ltd v Elkington (1992) 7 ACSR 73 . . . . . . . . . . . . . . . . . . . . . . . 18.80 Ranger Minerals Ltd, Re (2002) 42 ACSR 582 . . . . . . . . . . . 5.40.20, 5.40.30B, 5.40.30H Real Estate Capital Partners Managed Investments Limited as Responsible Entity of the Real Estate Capital Partners USA Property Trust, Re [2013] NSWSC 190 . . . . . . . . . . . . . . . . . . . . . . . . . 2.40, 3.20, 3.50.10, 3.50.30, 3.60.40, 3.70.20, 19.130 Real Estate Capital Partners USA Property Trust [2012] ATP 6 . . . . . . . . . . . . . . . . . . 19.90 Realestate.com.au Ltd [2001] ATP 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.30, 7.60.10, 8.50.10 Redflex Holdings Ltd [2009] ATP 17 . . . . . . . . . . . . . . . . . . . . . . . . . . 19.80, 19.90, 21.20.10 Rees’ Application, Re [1972] QWN 47 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.70 Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.40.10 Regal Resources Ltd [2016] ATP 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.80 Regis Resources Ltd [2009] ATP 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.40, 21.30 Rendoel Pty Ltd v Campbell Investments Company (1985) 1 NSWLR 435 . . . . 3.50.10, 3.70.20 Rendoel Pty Ltd v Campbell Investment Co (1985) 9 ACLR 659 . . . . . . . . . . . . . . . . 15.20 Residues Treatment and Trading Co Ltd v Southern Resources Ltd (1988) 14 ACLR 375 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.50 Residues Treatment & Trading Co Ltd v Southern Resources Ltd (1989) 15 ACLR 770 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.70 Resource Pacific Holdings Ltd [2007] ATP 26 . . . . . . . . . . . . 13.50.10B, 13.50.10C, 14.60 Resource Surveys Pty Ltd v Harmony Gold (Australia) Pty Ltd [2002] FCA 391 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.40 Revlon Inc v MacAndrews & Forbes Holdings Inc 506 A 2d 173 (1985, Del Supr) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.40, 14.70.40 Rey Resources Ltd [2009] ATP 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.60 RHG Ltd [2013] ATP 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20.10 Richard Brady Franks Ltd v Price (1937) 58 CLR 112 . . . . . . . . . . . . . . . . . . . . . 13.50.10B Richfield Group Ltd [2003] ATP 41 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20.10 Ridley MI Pty Ltd v Joe White Maltings Ltd (1996) 22 ACSR 319 . . . . . . . . . . . . . . 14.90

xxx Table of Cases

Rinker Group Ltd 01 [2006] ATP 35 . . . . . . . . . . . . . . . . . . . 8.40.10, 8.40.30, 11.20, 20.60 Rinker Group Ltd 02 [2007] ATP 17 . . . . . . . . . . . . . . . . . . . . . 8.70, 11.70, 11.70.50, 21.30 Rinker Group Ltd 02R [2007] ATP 19 . . . . . . . . . . . . . . . . . . . . 8.70, 11.70, 11.70.50, 21.30 Rio Tinto Alcan Inc. v. The Queen (2016 TCC 172) . . . . . . . . . . . . . . . . . . . . . . . . . 23.20.10 Rivkin Financial Services Ltd [2004] ATP 14 . . . . . . . . . . . . . . . . . . . . . 14.60, 15.80, 16.50 Rivkin Financial Services Ltd 02 [2005] ATP 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.90 Robert Stephen Holdings Ltd, Re [1968] 1 WLR 522 . . . . . . . . . . . . . . . . . . . . . . . . . . 18.80 Ross Human Directions Ltd [2010] ATP 8 . . . . . . . . . . . . . . . . . . . . . . . . . 14.70.40, 21.20.10 Rossfield Group Operations Pty Ltd v Austral Group Ltd [1981] Qd R 279; 5 ACLR 290 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.70, 13.20.20, 19.40, 22.60.20 Rossfield Group Operations Pty Ltd, Re [1981] Qd R 372; 5 ACLR 237 . . . . . . . 6.20.20, 9.30.130 Runciman v Walter Runciman plc [1992] BCLC 1084 . . . . . . . . . . . . . . . . . . . 13.80, 22.40 Rural Press Limited v Australian Competition and Consumer Commission [2003] HCA 75 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.20.20 Rural and Agricultural Management Ltd v West Merchant Bank (1996) 20 ACSR 563 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.40 Rusina Mining NL [2006] ATP 13 . . . . . . . . . . . . . . . . . . . . . . . 3.70.40, 15.80, 16.30, 16.50 Russell Kinsela Pty Ltd v Kinsela (1983) 8 ACLR 384 . . . . . . . . . . . . . . . . . . . . . . 13.20.10 Ryan v Rounsevell [1910] HCA 2; (1910) 10 CLR 176 . . . . . . . . . . . . . . . . . . . . . . . . . 10.30

S SA Liquor Distributors Ltd [2002] ATP 22 . . . . . . . . . 8.50.10, 9.10.30, 9.30.60, 11.40.10, 11.40.30, 11.40.50A, 14.80.10 SGIO Insurance Ltd v Wesfarmers Insurance Investments Pty Ltd (1998) 29 ACSR 207 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.30.30 SS&C Technologies Inc, Re 911 A 2d 816 (2006, Del Ch Crt) . . . . . . . . . . . . . . . . . . 14.40 SSG Investments Pty Ltd v Australian National Industries Ltd [1999] FCA 12; 30 ACSR 325 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.20 SSH Medical Ltd [2003] ATP 32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.60.20, 7.60.30 Sabatica Pty Ltd v Allstate Explorations NL (2000) 33 ACSR 51 . . . . . . . . . . . . . . . 19.110 Sagasco Amadeus Pty Ltd v Magellan Petroleum Australia Ltd [1993] HCA 14; 177 CLR 508 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.30, 11.40.10 St Barbara Mines Ltd v ASIC (2001) 110 FCR 550; 37 ACSR 92 . . . . . . . 3.70.30, 21.60 St Barbara Mines Ltd 01 [2000] ATP 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20.10, 21.60 St Barbara Mines Ltd 02 [2004] ATP 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20.10 Saltdean Estate Co Ltd, Re [1968] 3 All ER 829 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.80 Sam Weller & Sons Ltd, Re (1989) 5 BCC 810 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.50 Samic Ltd v Metals Exploration Ltd (1993) 10 ACSR 652; 60 SASR 300 . 9.20, 9.30.30, 11.30 San Miguel Corporation v ASC (1998) 16 ACLC 1432 . . . . . . . . . . . . . . . . . . . . . . . . . 19.70 Sandra Investments Pty Ltd v Booth (1983) 153 CLR 153 . . . . . . . . . . . . . . . . . . . . 8.50.90 Savage Resources Ltd v Pasminco Investments Pty Ltd (1998) 30 ACSR 1 . . . . . . . 7.30, 9.20, 9.30.30, 9.30.50, 11.40.10 Savoy Corporation Ltd v Development Underwriting Ltd [1963] NSWR 138 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.20.50 Savoy Hotel Ltd, Re [1981] 3 All ER 646 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.40.30A Scott v HS Lawrence & Sons Pty Ltd (1982) 6 ACLR 579 . 3.60.20, 8.50, 8.80, 14.80.20 Scottish & Colonial Ltd v Australian Power & Gas Co Ltd (2007) 25 ACLC 1497 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.30.10, 22.30 Sedgman Ltd [2016] ATP 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.40.30

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Sedimentary Holdings Ltd [2006] ATP 24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.40, 7.40 Selangor United Rubber Estates Ltd v Cradock (No 3) [1968] 1 WLR 1555 . . . . 8.40.20 Selwyn Mines Ltd [2003] ATP 33 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.60.30, 14.60 Shaw v Royce Ltd [1911] 1 Ch 138 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.90 Shears v Phosphate Co-operative Co of Australia Ltd (1988) 14 ACLR 747 . . . 13.30.30 Sheldon, Re (1987) 3 NZCLC 96-152 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.60.30, 18.70 Shepard, in the matter of Quest Minerals Limited v Mutual Holdings Pty Ltd [2016] FCA 1559 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.120 Shine Fisheries Ltd, Re (1994) 12 ACSR 627 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.80 Sidebottom v Kershaw, Leese & Company Ltd [1920] 1 Ch 154 . . . . . . 13.30.30, 18.100 Simo Securities Trust Ltd, Re [1971] 1 WLR 1455 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.60 Sirtex Medical Ltd [2003] ATP 22 . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.30.30, 14.70.40, 14.90 Skywest Ltd 01 [2004] ATP 10 . . . . . . . . . . . . . . . . . . 4.10, 7.50, 7.60.10, 8.40.30, 8.50.10, 9.30.100, 14.50.50 Skywest Ltd 03 [2004] ATP 17 . . . . . . . 5.30, 8.50.60, 9.30.50, 9.30.130, 21.20.10, 21.30 Skywest Ltd 03R [2004] ATP 20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.30, 21.40 Skywest Ltd 04 [2004] ATP 26 . . . . . . . . . . . . . . . . . . . 8.20.20, 11.40.30, 11.40.50A, 21.30 Smartec Capital Pty Ltd v Centro Properties Ltd [2011] NSWSC 495 . . . . . . . . . . . . . 5.30 Sneath v Valley Gold Co Ltd [1893] 1 Ch 477 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.90 Solomon Pacific Resources NL v Acacia Resources Ltd (1996) 19 ACSR 238 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.10.10, 9.30.60 Solomon Pacific Resources NL v Acacia Resources Ltd [No 2] (1996) 19 ACSR 677 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.30.60, 9.30.130 Southcorp Ltd [2005] ATP 4 . . . . . . . . . . . . . . . . . . . . . . . . . . 8.50.10, 8.50.80, 9.10.10, 9.40 Southcorp Wines Pty Ltd v DB Management Pty Ltd [2000] HCA 7; 199 CLR 32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.10, 20.30 Sovereign Life Assurance Co v Dodd [1892] 2 QB 573 . . . . . . . . . . . . . . . . . . . . . . . . 18.90 Specialty Press Ltd v Industrial Equity Ltd [1977] ACLC 40-399 . . . . . . . . . . . . . . 2.60.10 Spencer v Commonwealth (1907) 5 CLR 418 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.60.20 SteriCorp Ltd [2005] ATP 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.90 STI-Global Ltd [2013] ATP 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.60.30 Stirling Resources NL v Capital Energy NL (1996) 14 ACLC 1005 . . . 9.30.30, 9.30.50, 9.30.60, 9.30.130 State Street Australia Ltd v Retirement Villages Group Management Pty Ltd [2016] FCA 675 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.30.10, 22.30 Stockbridge Ltd, Re (1993) 9 ACSR 637; 11 ACLC 201 . . . . . . . . . 3.20, 5.40.20, 19.120 Summit Resources Ltd [2007] ATP 9 . . . . . . . . . . . . . . . . . 11.70, 11.70.30, 11.70.50, 21.30 Sussex Brick Co Ltd, Re [1961] Ch 289 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.60.10, 18.70 Sutton v AJ Thompson Pty Ltd (1987) 73 ALR 233 . . . . . . . . . . . . . . . . . . . . . . . . . 11.10.10 Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.50.90 Sydney Gas Ltd [2006] ATP 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.10.30, 9.30.60 Sydney Gas Ltd 01 [2006] ATP 9 . . . . . . . . . . . . 8.70, 8.80, 9.30.60, 9.70, 14.50.50, 21.30 Sydney Gas Ltd 02 [2006] ATP 18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.60 Sylvania Resources Ltd [2009] FCA 955 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.20

T TMOC Resources Ltd, Re (1989) 15 ACLR 368 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.90 TNT Australia Pty Ltd v Normandy Resources NL (1989) 1 ACSR 1 . . . . . . . . . . 2.60.10, 7.60.10, 7.60.20, 11.50 TNT Australia Pty Ltd v Normandy Resources NL (1989) 53 SASR 156; 15 ACLR 99 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.20.20, 8.20.10, 10.40, 15.60

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TNT Australia Pty Ltd v Poseidon Ltd (No 2) (1989) 7 ACLC 303 . . . . . . . . . . . . 3.70.50 TNT Ltd v NCSC (1986) 11 ACLR 59 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.30 TPC v Arnotts Ltd (1990) 93 ALR 657 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.20.10 TPC v Australian Iron and Steel Pty Ltd (1990) FCR 305 . . . . . . . . . . . . . . . . . . . . . 4.20.30 TPC v Australia Meat Holdings Pty Ltd (1988) 83 ALR 299 . . . . . . . . . . . . . . . . . . 4.20.50 TPC v BTR Nylex Ltd (1991) ATPR 40-075 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.20.10 TPC v Santos Ltd (1992) 110 ALR 517 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.20.40A, 4.20.50 TPC v Santos Ltd (1992) 14 ATPR 41-194 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.20.50 TSC Industries, Inc v Northway, Inc 426 US 438 (1976) . . . . . . . . . . . . . 9.30.30, 9.30.130 TVW Enterprises Pty Ltd v Queensland Press Ltd [1983] 2 VR 529; 7 ACLR 821 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.50.10 Tai-Ao Aluminium (Australia) Pty Ltd,Re [2004] FCA 1488 . . . . . . . . . . . . . . . . . . 6.20.30 Taipan Resources NL 01 [2000] ATP 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20.30 Taipan Resources NL 02 [2000] ATP 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20.10 Taipan Resources NL 03 [2000] ATP 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.50.50, 21.20.20 Taipan Resources NL 04 [2000] ATP 16 . . . . . . . . . . . 7.60.10, 9.30.30, 13.50.10C, 14.60, 21.20.10, 21.30 Taipan Resources NL 06 [2000] ATP 15 . . . . . . . . 11.70, 11.70.10, 11.70.40, 20.60, 22.20 Taipan Resources NL 07 [2001] ATP 18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.20.30, 21.20.10 Taipan Resources NL 08 [2001] ATP 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.40.30, 10.20 Taipan Resources NL 09 [2001] ATP 4 . . . . . . . . . . . . . . 3.50.20, 8.40.30, 21.20.10, 21.30 Taipan Resources NL 10 [2001] ATP 5 . . . . 7.60.20, 8.50.70, 9.30.50, 9.30.60, 11.10.10, 11.40.50D Taipan Resources NL 11 [2001] ATP 16 . . . . . . . . . . . 8.20.10, 9.30.50, 9.30.60, 11.10.10, 11.40.50D, 21.30 Takeovers Panel, in the matter of [2002] FCA 1120(Online Advantage) . . . . . . . 21.20.30 Takeovers Panel v Glencore International AG [2005] FCA 1628 (Austral Coal) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20.30, 21.40 Tallglen Pty Ltd v Optus Communications Pty Ltd (1998) 28 ASCR 610; 16 ACLC 1526 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.60.50, 22.60, 22.60.10 Target Petroleum NL v Petroz NL (1987) 12 ACLR 11; 5 ACLC 687 . . . . 8.50.10, 9.20, 9.30.50 Taupo Totara Timber Co Ltd v Rowe [1978] AC 537 . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.80 Taxation, Commissioner of v AXA Asia Pacific Ltd [2010] FCAFC 134 . . . . . . . 3.70.20, 3.70.50 Taxation (Cth), Commissioner of v Lutovi Investments Pty Ltd (1978) 140 CLR 434 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.20 Taxation (Cth), Commissioner of v Patcorp Investments Ltd (1976) 140 CLR 247 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.60 Teck Corporation Ltd v Millar (1972) 33 DLR (3d) 288 . . . . . . . . . . . . 13.20.20, 13.20.50 Teh v Ramsay Centauri Pty Ltd [2002] NSWSC 456 . . . . . . . . . . . . . . 17.60.10, 17.60.20, 17.60.30, 18.70 Television New England Ltd v Northern Rivers Television Ltd (1971) CLC 27,128 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.70, 19.40 Tesco Supermarkets Ltd v Nattrass [1972] AC 153 . . . . . . . . . . . . 3.70.20, 9.30.130, 15.40 Theatre Freeholds Ltd, Application of [1996] NSWSC 189 . . . . . . . . . . . . . . . . . . . . 18.110 Thiess Holdings Ltd v CSR Limited (unreported, Sup Ct Qld, No 3189 of 1979) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.60.20, 11.40.10 Thorby v Goldberg (1964) 112 CLR 597 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.80.20 Thornett v FCT (1938) 59 CLR 787 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.80 347883 Alberta Ltd v Producers Pipeline Inc (1991) 80 DLR (4d) 359 . . . . . . . . 13.20.50 Tiger Investment Co Ltd, Re (1999) 33 ACSR 438 . . . . . . . . . . . . . . . . . . . . 18.80, 19.60.40

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Tigers Realm Coal Ltd [2014] ATP 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.60.120A, 3.70.40 Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees Union (1979) 42 FLR 331 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.20, 11.10.10 Tinkerbell Enterprises Pty Ltd v Takeovers Panel [2012] FCA 1272 . . . . . . . . . . . . 3.70.40 Titan Hills Australia Ltd [1991] ATP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.70 Tonville Pty Ltd v Stokes (Australasia) Ltd (1985) 10 ACLR 449 . . . . . . . . . . . . . 11.10.10 Tooheys Ltd v Commissioner of Stamp Duties (NSW) (1961) 105 CLR 602 . . . . 3.70.30 Touch Holdings Ltd [2013] ATP 3 . . . . . . . . . . . . . . . . . . . . . 3.40, 3.70.20, 3.70.40, 3.70.50 Tournier v National Provincial and Union Bank of England [1924] 1 KB 461 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.50.10 Tower Software Engineering Pty Ltd 01 [2006] ATP 20 . . . . . . . . . . . . . . 5.30.30, 9.30.50, 10.20 Tower Software Engineering Pty Ltd; Pendant Software Pty Ltd v Harwood [2006] FCA 717; 57 ACSR 653 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.30.30, 21.60 Trade Practices Commission v Rank Commercial Ltd (1994) 53 FCR 303 . . . . . . 4.20.50 Transurban Group [2010] ATP 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.50, 14.60 Trevor v Whitworth (1887) 12 AC 409 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.70.20 Trounce and Wakefield v NCF Kaiapori Ltd (1985) 2 NZCLC 99,422 . . . . . . . . . . 6.20.30 Troy Resources NL v Taipan Resources NL (2000) 35 ACSR 663 . . . . . . . . . . . . . . . 21.60 Troy Resources NL v Taipan Resources NL (2000) 36 ACSR 197 . . . . . . . . . . . . 19.60.30 Trysoft Corporation Ltd [2003] ATP 26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.50.10, 21.30 Tully Sugar Ltd 01 [2009] ATP 26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.80.10, 14.80.20 Tully Sugar Ltd 01R [2010] ATP 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.80.10, 14.80.20 Tyndall Pacific Ltd v ANZ Nominees Ltd (1991) 4 ACSR 535 . . . . . . . . . . . . . 8.70, 10.40

U United Dairies Ltd v Ord Minnett Ltd (1987) 12 ACLR 198 . . . . . . . . . . . . . . . . . . . . 5.100 Unity APA Ltd v Humes Ltd (1986) 13 ACLR 501 . . . . . . . . . . . . . . . . . . . . . . . . . . 14.80.10 Unity APA Ltd v Humes Ltd (No 2) (1987) 5 ACLC 64 . . . . . . . . . . . . . . . . . . . . . . . . . 5.30 Universal Resources Ltd [2005] ATP 6 . . . . . . . . . . . . . 9.30.60, 11.10, 11.10.10, 14.50.10, 14.80.30, 14.90

V VGM Holdings Ltd, Re [1942] Ch 235 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.40.30 Venturex Resources Ltd; in the matter of Venturex Resources Ltd [2009] FCA 677 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.50.70, 21.60 Viento Group Limited [2011] ATP 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.40, 16.20, 16.50 Village Roadshow Broadcasting Pty Ltd v Austereo Ltd (1997) 24 ACSR 185 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.40 Village Roadshow Ltd v Boswell Film GmbH [2004] VSCA 16; 49 ACSR 27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.80, 19.60.40 Village Roadshow Ltd 01 [2004] ATP 4 . . . . . . . . . . . . . . . 2.10, 2.30, 3.20, 3.50.20, 15.40, 15.80, 16.20, 16.30, 16.50, 21.30 Village Roadshow Ltd 02 [2004] ATP 12 . . . . . . . . . . . . . . . . . . . . . 13.50.20, 18.80, 19.130, 21.20.30 Village Roadshow Ltd 03 [2004] ATP 22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.80, 19.130 Vincorp Wineries Ltd [2001] ATP 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.50.40, 9.30.60 Virgin Australia Holdings Ltd [2013] ATP 15 . . . . . . . . . . . . . . . . . . . . . 19.70, 19.80, 19.90, 21.20.10 Vision Systems Ltd 01 [2006] ATP 32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.30, 11.50.10

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Volante Group Ltd 01 [2006] ATP 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.60.20, 8.50.60, 9.40, 9.70 Volante Group Ltd 02 [2006] ATP 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.80.10, 14.90

W WM Haughton & Co Ltd, Re [1978] VR 233; 2 ACLR 320; (1977) ACLC 29,357 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.10 WMC Resources Ltd [2005] ATP 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.70, 11.10.10, 14.90 WP Keighery v Federal Commissioner of Taxation (1957) 100 CLR 66 . . . . . . . . 3.50.20 Waldron v MG Securities (Australasia) Ltd [1975] VR 508 . . . . . . . . . . . . . . . . . . . . . 21.30 Wallersteiner v Moir [1974] 1 WLR 991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.40.20 Wambo Coal Pty Ltd v Sumiseki Materials Co Ltd [2014] NSWCA 326 . . . . . . . 5.60.40 Warman International Ltd v Dwyer (1995) 182 CLR 544 . . . . . . . . . . . . . . . . . . . . . 6.40.10 Wattyl Ltd [2006] ATP 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.50, 9.30.60, 14.50.70, 14.70.40, 14.80.10 Wattyl Ltd, Re [2010] FCA 854 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.20.10 Wayde v NSW Rugby League Ltd (1985) 180 CLR 459 . . . . . . . . . . . . . . . . . . . . . . . . 22.50 Weaver v Noble Resources Ltd [2010] WASC 182 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.120 Wellington Publishing Company Limited, Re [1973] 1 NZLR 133 . . . . . . . . . . . . 22.60.20 Wesfi Ltd [1999] ATP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.40 Westel Co-operative Ltd v Foodland Associated Ltd (1987) 12 ACLR 60 . . . . . . 2.60.10, 3.40, 9.30.50 Westgold Resources Ltd [2012] WASC 301 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.40.20 Wheeler Grace and Pierucci v Wright (1989) ATPR 40–940 . . . . . . . . . . . . . . . . . . 11.10.10 Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285 . . . . . . . . . . . . . . . . . . . 13.20.10, 13.20.20, 13.20.50, 13.50.10B Wight v Pearce (2007) 157 FCR 485 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10.30 William Haughton & Co Ltd, Re [1978] VR 233 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.50.20 Williams v United Dairies Ltd (1986) 10 ACLR 406 . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.40 Wimbush, Re [1942] Ch 92 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.70 Winepros Ltd [2002] ATP 18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.70.20 Winpar Holdings Ltd v Austrim Nylex Ltd (2005) 54 ACSR 562 . . . . . . . . . . . . . . . . 18.30 Winpar Holdings Pty Ltd v Goldfields Kalgoorlie Ltd [2000] NSWSC 728; 34 ACSR 737 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.60.20, 18.80 Winpar Holdings Pty Ltd v Goldfields Kalgoorlie Ltd [2001] NSWCA 427; (2001) 166 FLR 144; 40 ACSR 221; . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.60.20, 18.80, 18.90 Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666 . . . . . . . . 13.20.40, 13.70, 14.70.10 Winthrop Investments Ltd v Winns Ltd (1979) 4 ACLR 1 . . . . . . . . . . . . . . . . . . . 13.20.30 Wood Preservation Ltd v Prior [1969] 1 WLR 1077 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.40 Woolworths Ltd v Kelly (1991) 4 ACSR 431 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.80, 22.40 Worcester Corsetry Ltd v Witting [1936] 1 Ch 640 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.30 World Oil Resources Ltd [2013] ATP 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.70 Wright Heaton Ltd v PDS Rural Products Ltd [1982] 2 NSWLR 301 . . . . . . . . . . 9.30.50, 9.30.130

Y Yancoal Australia Ltd [2014] ATP 24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20.20 Yorke v Lucas [1985] HCA 65; 158 CLR 661 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.40

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Z ZBB (Australia) Ltd v Allen (1991) 4 ACSR 495 . . . . . . . . . . . . . . . . . . . . . . 6.20.20, 15.40 Zytan Nominees Pty Ltd v Laverton Gold NL (1988) 14 ACLR 524 . . . . . . . . . . . 3.50.20

TABLE OF STATUTES Commonwealth Acts Interpretation Act 1901 s s s s s s s

5: 1.30 5A: 1.30 13(1): 19.160, 20.30 23: 3.70.20, 14.120 29: 10.20, 14.100, 17.30 36(2): 10.20, 11.50.20 46: 20.20

Administrative Appeals Tribunal Act 1975 s 27(1): 20.60

Administrative Decisions (Judicial Review) Act 1977 s 5: 21.40

Air Navigation Act 1920 ss 11A to 11B: 4.10

Airports Act 1996 ss 40 to 43: 4.10

Australian Communications and Media Authority (Consequential and Transitional Provisions) Act 2005: 4.30 Australian Consumer Law see Competition and Consumer Act 2010, Sch 2 Australian Securities and Investments Commission Act 2001: 1.30, 20.50.20, 21.10 s 1(2): 20.10 s 5(1): 20.50.30 s 12DA: 11.10.20 s 13: 20.50.20 ss 17 to 19: 20.40 s 19: 20.50.20 s 21: 20.50.20 s 28: 20.50.30 s 29: 20.50.30 s 32A: 20.50.20 s 33: 20.50.20 s 35: 20.50.30 s 51: 20.50.40 s 63: 20.50.30 s 64: 20.50.20 s 68(1): 20.50.20 s 68(2): 20.50.20 s 68(3): 20.50.20 s 69: 20.50.20 s 92: 20.50.20 s 127: 20.50.10

s 127(1)(a): 20.40 s 127(3): 20.40 s 127(4): 20.50.50 ss 170 to 201A: 21.10 s 184: 21.20.10 s 185: 21.20.10 s 190: 21.20.10 s 190(1): 21.20.20 s 192(1): 21.20.20 s 194: 21.20.20 s 195: 21.20.20, 21.20.30, 21.50 s 195(3)(c): 21.20.30 s 195(4): 21.20.20 s 201A: 21.20.40 Pt 3, Div 2: 20.50.20 Pt 3, Div 3: 20.50.30 Pt 3, Div 4: 20.50.20 Pt 10: 21.10 Pt 10, Div 3: 21.20.20

Australian Securities and Investments Commission Regulations 2001: 21.20.10, 21.20.20 reg 16(1)(d): 21.20.20 reg 16(2): 21.20.20 reg 20: 21.20.10 reg 24(2): 21.20.20 reg 28(1): 21.20.20 reg 35: 21.20.20 Pt 3: 21.20.20

Autonomous Sanctions Act 2011: 8.40.50 Banks (Shareholdings) Act 1972: 4.40 Broadcasting Act 1942: 4.30.30 Broadcasting (Ownership and Control) Act 1987: 4.30.30 Broadcasting (Ownership and Control) Act 1988: 4.30.30 Broadcasting Services Act 1992: 4.10, 4.30, 4.30.10 s 3(c): 4.30.10 s 6: 4.30.20 s 17D: 4.10.10 s 29: 4.30.40 s 30: 4.30.40 s 40: 4.30.40 s 50: 4.30.30 s 53(1): 4.30.40 s 53(2): 4.30.40 ss 53 to 54: 4.30.10 s 54: 4.30.40 s 54A: 4.30.40

xxxviii

Table of Statutes

Broadcasting Services Act 1992 — cont s 54B(1): 4.30.40 s 54B(2): 4.30.40 s 55: 4.30.40 s 56: 4.30.40 s 56A: 4.30.40 s 59: 4.30.50 s 59(1): 4.30.50 s 59(2): 4.30.50 ss 61AB to 61AC: 4.30.50 s 61AEA: 4.30.50 s 61AG: 4.30.50 s 61AH: 4.30.50 s 61AN: 4.30.50 s 61AMA: 4.30.50 s 61AMB: 4.30.50 s 61ANA: 4.30.50 s 61AU: 4.30.50 s 62: 4.30.30 ss 62 to 65: 4.30.10 s 63: 4.30.30 s 64(1): 4.30.30 s 66: 4.30.40 s 67(1): 4.30.40 s 67(4): 4.30.40 s 67(5): 4.30.40 s 67(7): 4.30.40 s 69: 4.30.40 s 70(1): 4.30.40 s 73: 4.30.40 s 74: 4.30.20 Pt 5: 13.30.30 Div 5A: 4.30.50 Sch 1: 4.30.20 Sch 1, cl 1(1): 4.30.20 Sch 1, cl 2(1): 4.30.20 Sch 1, cl 4(1): 4.30.20 Sch 1, cl 4(2): 4.30.20 Sch 1, cl 6(1): 4.30.20 Sch 1, cl 7: 4.30.20 Sch 1, cl 8: 4.30.20 Sch 2: 13.30.30

Broadcasting Services Amendment (Media Ownership) Act 2006: 4.30

Broadcasting Services Amendment (Regional Commercial Radio) Act 2012: 4.30 Charter of the United Nations Act 1945: 8.40.50

Commonwealth Serum Laboratories Act 1961 ss 19C to 19M: 4.10

Commonwealth of Australia Constitution: 21.30, 21.60 s 71: 21.10 s 75(v): 21.40, 21.60

Communications Legislation Amendment (Enforcement Powers) Act 2006: 4.30 Companies (Acquisition of Shares) Act 1980: 3.80.60 s 47: 9.20

Companies (Acquisition of Shares) Code: 1.30

Companies and Securities Legislation Amendment Act 1986: 8.20.40, 8.50.10 Companies and Securities Legislation (Miscellaneous Amendments) Act 1985: 8.50.10 s 5: 3.70.20

Companies Code: 1.30 Competition and Consumer Act 2010: 1.20, 4.20, 4.20.50, 4.30, 14.50.50, 21.60 s 4E: 4.20.10 s 5(1): 4.20.30 s 45: 4.20.20 s 50: 4.20, 4.20.10, 4.20.20, 4.20.30, 4.20.40, 4.20.40A, 4.20.40B, 4.20.40C, 4.20.50, 4.30.50 s 50(3): 4.20.20, 4.20.30, 4.20.40A s 50(4): 4.20.40C s 50(5): 4.20.40C s 50A: 4.20.30, 4.20.50 s 50A(1A): 4.20.30 s 50A(1B): 4.20.30 s 50A(1): 4.20.30 s 50A(3): 4.20.30 s 50A(6): 4.20.30 s 50A(8): 4.20.30 s 76(1A): 4.20.50 s 76(1B): 4.20.50 s 80(1A): 4.20.50 s 80(1AAA): 4.20.50 s 80(1B): 4.20.50 s 81(1): 4.20.50 s 81(1A): 4.20.50 s 81(1C): 4.20.50 s 82: 4.20.50 s 86E: 4.20.50 s 87B: 4.20.40A, 4.20.40B, 4.20.40C s 95AC: 4.20.40B s 95AN: 4.20.40B s 95AO: 4.20.40B s 95AT: 4.20.40C s 95AX: 4.20.40C s 95AY: 4.20.40C s 95AZC: 4.20.40C s 95AZD: 4.20.40C s 95AZEA: 4.20.40C s 95AZH: 4.20.40C s 95AZH(2): 4.20.40C s 95AZI: 4.20.40C s 111: 4.20.40B

Table of Statutes Competition and Consumer Act 2010 — cont s 118: 4.20.40B s 131A: 11.10.20 s 163A: 4.20.50 Sch 2, s 18: 11.10.20

Competition and Consumer Regulations 2010 Form O: 4.20.40B Form S: 4.20.40C

Corporate Law Economic Reform Program Act 1999: 1.20, 3.70, 3.70.30, 20.20, 20.30 Corporations Act 2001: 1.20, 1.30, 2.20, 2.40, 4.10, 4.10.30, 5.90, 5.100, 6.40.10, 6.40.30A, 7.60.10, 8.20, 8.40.10, 8.50.10, 8.60, 11.10, 11.10.30, 11.70, 11.90, 12.10, 12.30, 12.100, 12.120.10, 13.30.20, 13.40, 13.50.10, 13.50.10A, 13.50.10D, 13.50.20, 14.50.70, 14.70.20, 14.90, 18.20, 19.110, 20.20, 20.50.30, 21.10, 21.20.10, 21.20.30, 21.50, 21.60, 23.30 s 5: 2.30, 15.40, 16.10 s 5(7): 3.20 s 5(8): 3.20 s 5A(1): 2.50.20 s 5A(3): 2.50.20 s 5A(3)(b): 3.60.110 s 9: 2.20, 2.40, 2.60.10, 2.60.20, 3.20, 3.30, 3.50.10, 3.60.60, 3.70.10, 3.70.20, 5.30, 5.50, 8.40.30, 8.80, 9.30.130, 9.40, 10.30, 10.60, 11.30, 11.40.10, 11.40.40, 12.100, 13.30, 13.40, 14.90, 15.10, 15.20, 15.30B, 15.30E, 15.50, 16.30, 17.60, 17.80, 18.20, 18.60, 18.80, 18.110, 18.120, 19.20, 19.30, 19.90, 19.160, 21.20.30, 21.30 s 9(k): 8.80 s 9A: 19.80 s 10: 3.70 s 11: 3.70, 3.70.10 s 11(a): 3.50.10 s 11(c): 3.50.10 s 12: 3.70, 3.70.20, 3.70.30, 3.80, 8.50.10, 15.60 s 12(1): 3.70 s 12(1)(b): 3.70 s 12(2): 3.70.20 s 12(2)(a): 3.50.20, 3.70, 3.70.10, 9.30.80 s 12(2)(b): 3.70.10, 3.70.20, 3.70.30, 3.80.60 s 12(2)(c): 3.70, 3.70.20, 3.70.30, 3.80.60 s 12(3): 3.70.20 s 12(3)(a): 3.70.20 s 12(4): 3.70.20, 3.80 s 12(5): 3.70.20 ss 13 to 17: 3.70 s 15: 3.70, 3.70.20 s 16(1): 3.70, 3.80

xxxix

s 16(1)(a): 3.80.10 s 16(1)(b): 3.80.20 s 16(1)(c): 3.80.30 s 16(1)(d): 3.80.40 s 16(2): 3.70 s 50AA: 3.50.20, 3.70.10, 3.70.20, 21.20.30 s 51: 3.20 s 51A: 3.60.10, 8.50.20, 19.50 s 52: 2.10, 3.20, 3.80, 7.60.10, 12.10 s 53: 3.70.20, 3.70.30 s 53(e): 3.70.20 s 53(f): 3.70.20 s 53(h): 3.70.20 s 53(j): 3.70.20 s 64: 2.60.10, 3.20 s 70: 16.70, 20.20 s 92: 2.40 s 92(3): 8.20 s 92(3)(c): 9.30.130 s 105: 10.30, 12.50 s 109: 14.120 s 136: 13.30.40A, 18.100 s 136(2): 13.30 s 136(3): 13.30 s 140: 18.80 s 140(1): 13.30 s 140(2): 13.30.30, 13.30.40A, 13.70, 22.50 s 140(2)(c)(ii): 13.30.40A s 169(5A): 5.30.60 s 170: 5.30.60 s 173: 5.30.60, 10.10 s 173(1): 5.30.60 s 173(3): 5.30.60 s 180(3): 14.40 s 181: 6.10 ss 181 to 183: 6.40.10 s 182: 6.10 s 183: 6.10, 6.20.10, 6.20.20, 9.30.130, 14.50.60 s 184: 6.10, 14.50.60 s 195: 6.20.40, 13.80, 18.80 s 200B: 13.80 s 200G: 13.80 s 200J: 22.40 s 203D: 13.30.10, 22.30 s 205F: 6.20.20, 15.40 s 205G: 15.40 s 208: 13.80 s 211: 13.80 s 224: 3.70, 5.60.30C s 228: 13.80 s 228(7): 5.60.30C s 229: 13.80 s 231: 16.20, 18.80 s 232: 3.70.20, 14.40, 14.50.60, 22.50 s 233: 3.70.20 s 234: 14.40 s 246B: 18.100

xl Table of Statutes Corporations Act 2001 — cont s 247A: 5.30 s 249D: 5.30.30 s 249F: 5.30.30 s 249H(1): 13.30, 13.30.20 s 249HA: 13.30.20 s 249HA(1): 13.30 s 250E(1): 13.40 s 250N: 22.10 s 253C: 2.60.20 s 253E: 2.60.20, 3.70 s 254A(2): 2.60.10 s 254T: 5.60.40, 5.60.50, 22.60.20 s 256B: 5.60.40, 14.70.20, 17.60.20, 18.80 s 256B(1)(a): 18.80 s 256C: 3.70, 5.60.40, 18.80 s 256C(1): 18.80 s 256C(2): 18.80 s 256C(3): 18.80 s 256C(4): 18.80 s 256D: 18.80 s 257A: 3.60.40, 13.70, 19.130 s 257B: 13.70 s 257B(4): 13.70 s 257B(5): 13.70 s 257B(6): 19.130 s 257C: 13.70, 19.130 s 257D: 3.70 s 257D(1)(a): 3.70 s 257F: 13.70 s 257H: 19.130 s 257H(1): 13.70 s 257H(2): 13.70 s 257H(3): 3.60.40, 3.90, 13.70 s 259C: 13.50.10D, 14.50.80, 17.50 s 259C(1)(b): 17.50 s 259D(3): 2.60.10 s 259E: 3.50.20 s 260A: 5.40.20, 5.60.50, 8.40.20, 14.70.20, 22.60, 22.60.10 s 260A(1)(a): 22.60.20 s 260A(2): 8.40.20, 22.60 s 260A(2)(b): 5.60.50, 22.60.20 s 260B: 3.70, 5.40.30G, 5.60.50, 8.40.20, 22.60.30 s 260B(1): 5.60.50, 22.60.30 s 260B(2): 22.60.30 s 260B(3): 22.60.30 s 260C: 22.60.30 s 260C(4): 13.50.20 s 260C(5): 5.60.50, 22.60.30 s 260D: 14.70.20, 22.60.30 s 300(11): 13.80 s 300A: 13.80 s 327H: 22.70 s 350(1)(b): 17.30, 17.70, 17.80, 18.30 s 411: 5.40, 6.40.30B, 18.80, 18.90 s 411(4)(a)(ii)(B): 5.40.10

s s s s s s s s s s s s s s s s s s s s s s s s s s s

s s s s s s s s s s

s s s

411(4)(b): 5.40.20 411(17): 5.40.20, 5.40.40, 19.120 411(17)(b): 5.40.20 412: 5.40.10 413: 18.90 414: 2.60.30, 5.50, 18.10, 18.60, 18.70 414(2): 18.60 414(3): 18.70 414(5): 18.60 414(9) to (10): 18.70 436A: 8.50.20 436B: 8.50.20 436C: 8.50.20 444GA: 18.120, 19.10, 19.120 468: 2.20 482: 18.110 491: 18.110 493: 2.20 494(1): 18.110 501: 18.110 507: 18.110, 19.120, 19.160 507(4): 18.110 601CD: 4.10 601ED(4): 16.20 601FM: 2.40 601GC: 5.40.40 602: 1.20, 5.50, 9.10, 9.20, 9.30.50, 11.40.50, 11.50.50, 11.70, 14.50.50, 16.30, 19.70, 20.10, 20.40, 21.20.30, 22.20 602(a): 9.30.50, 9.30.60, 11.40.50B, 14.60, 21.20.30 602(b): 21.10 602(c): 5.60.20, 8.40.10, 11.40, 11.40.50A, 11.80, 14.60, 21.10 602A: 21.20.30 603: 2.20 604: 2.20, 2.40, 2.60.20, 3.70.20, 19.10, 19.130, 19.150, 21.20.30 604(1): 2.40, 3.70.20 604(2): 3.70.20 605(2): 8.20.10 606: 2.10, 2.20, 2.50.30, 2.60, 2.60.10, 2.60.30, 3.10, 3.20, 3.40, 3.50, 3.50.20, 3.50.30, 3.60.10, 3.60.40, 3.60.50, 3.60.80, 3.60.110, 3.60.120A, 3.70.20, 3.70.40, 3.90, 5.30.70, 5.50, 5.70, 6.40.30A, 6.40.30B,6.40.30C, 7.10, 7.30, 7.40, 8.30, 11.50.10, 12.10, 13.50.10D, 15.20, 15.80, 17.10, 17.30, 19.10, 19.20, 19.30, 19.40, 19.50, 19.60.30, 19.70, 19.80, 19.100, 19.110, 19.120, 19.130, 19.140, 19.150, 21.20.30, 21.30, 21.60 606(1): 2.10, 2.30, 3.20, 3.50, 3.70.40, 5.100, 19.170 606(2): 2.10, 3.20, 3.50, 5.100, 19.170 606(3): 2.10, 19.170

Table of Statutes Corporations Act 2001 — cont s 606(4): 2.10, 3.20, 5.100 s 606(5): 2.10 s 606(6): 2.10, 2.60.10, 3.20, 3.50 s 607: 2.10 s 607(7): 5.50 s 608: 3.20, 3.30, 15.60, 17.70 s 608(1): 3.20, 3.50, 3.90 s 608(1) to (3): 3.50.30 s 608(2): 3.20, 3.50.20 s 608(3): 3.50.20, 3.50.30, 3.90, 15.60, 17.20, 19.110 s 608(3)(a): 3.50.20, 3.70, 3.70.20, 3.90, 18.20 s 608(3)(b): 3.50.20, 3.60.90 s 608(3) to (8): 3.50 s 608(4): 3.50.20 s 608(4) to (7): 3.50.20 s 608(5): 3.50.20 s 608(6): 3.50.20 s 608(7): 3.50.20 s 608(8): 3.50.30, 3.60.20, 3.60.60 s 608(8)(a): 3.50.30 s 608(9): 3.50.10 s 609: 2.10, 3.20, 17.70, 19.10 s 609(1): 3.50.30, 3.60.10, 3.60.30, 19.50 s 609(2): 3.60.20, 3.60.30, 5.100, 11.80 s 609(3): 3.60.30 s 609(4): 3.20, 3.50.30, 3.60.40, 3.90, 19.130 s 609(5): 3.60.50, 3.80.40 s 609(6): 2.60.10, 3.50.30, 3.60.60, 15.20, 16.20 s 609(7): 3.50.30, 3.60.70, 5.50, 5.100, 15.20, 16.20, 19.60.20 s 609(8): 3.50, 3.60.80 s 609(9): 3.50.20, 3.60.90 s 609(9A): 3.60.100 s 609(10): 3.60.110 s 610: 2.10, 3.20, 3.70, 3.90, 15.20, 15.100, 18.20 s 610(1): 3.40 s 610(2): 3.40 s 610(3): 2.10, 3.40, 3.50.20 s 610(4): 3.40 s 611: 1.30, 2.10, 3.20, 3.60.40, 5.30.70, 19.10, 19.20, 19.90, 19.110, 19.140, 19.160 s 611, item 1: 12.10, 19.160 s 611, item 2: 8.50.20, 11.20, 12.10, 12.100, 19.20, 19.160 s 611, item 3: 2.60.10, 19.20, 19.30, 19.160 s 611, item 3(b): 19.30 s 611, item 4: 5.70, 19.40 s 611, item 4(b): 19.40

xli

s 611, item 5: 19.40 s 611, item 6: 3.60.10, 19.50, 19.160 s 611, item 7: 3.60.70, 3.70, 3.70.40, 5.40.40, 5.50, 7.30, 13.50.20, 19.60, 19.60.20, 19.60.30, 19.60.40 s 611, item 7(a): 19.60.40 s 611, item 8: 19.150 s 611, item 9: 3.60.70, 5.50, 15.80, 19.70 s 611, item 10: 19.80, 19.90, 19.100, 19.160 s 611, item 11: 19.100, 19.160 s 611, item 12: 19.150 s 611, item 13: 19.90 s 611, item 14: 2.30, 5.30.70, 19.110, 19.160, 20.10 s 611, item 15: 3.20, 19.150, 19.160 s 611, item 16: 19.150, 19.160 s 611, item 17: 19.120, 19.160 s 611, item 18: 19.120, 19.160 s 611, item 19: 3.20, 3.60.40, 19.130, 19.160 s 611, item 20: 2.20, 2.50.10, 2.50.20, 3.60.110, 15.20, 19.150 s 611(a): 19.60.10 s 612: 2.10, 19.20, 19.30, 19.40 s 612(a) to (g): 23.30 s 613: 3.40, 19.20, 19.30 s 615: 8.60, 19.80, 20.10, 21.20.10 s 616: 2.40 s 617: 8.20.30, 12.40 s 617(1)(a): 8.20.10 s 617(1)(b): 8.20.30 s 617(2): 8.20.30, 9.30.100 s 617(3): 8.20.30, 12.40 s 618: 17.20 s 618(1): 8.20.40 s 618(2): 8.20.40 s 618(3): 8.20.40, 8.30, 12.40 s 619(1): 8.40.10, 8.60 s 619(2): 8.20.10, 8.60 s 619(2)(b): 8.70 s 619(3): 8.60, 20.10, 21.20.10 s 620(1): 8.40.50 s 620(1)(b): 10.20 s 620(2): 8.40.10, 22.10 s 620(2)(a): 8.40.50 s 620(2)(b): 8.40.50 s 620(2)(c): 8.40.50 s 621: 3.70, 5.100, 6.40.30A, 8.20.20, 8.40.10, 8.40.30, 11.40.20, 12.100 s 621(2): 8.30, 8.40.10 s 621(3): 5.40.20, 5.40.30H, 5.60.20, 6.40.30B, 7.10, 7.20, 7.30, 8.40.10, 8.40.30, 9.30.80, 11.20, 11.50.10, 12.60, 12.120.30, 22.20 s 621(4)(b): 8.40.10 s 621(5): 8.40.30 s 622: 3.70, 7.30 s 622(1): 8.20.30

xlii Table of Statutes Corporations Act 2001 — cont s 622(2): 7.30 s 623: 3.70, 5.40.20, 5.40.30H, 5.50, 5.60.10, 5.60.20, 6.40.30A, 8.20.20, 8.30, 8.40.10, 9.30.90, 11.20, 11.30, 11.40, 11.40.10, 11.40.20, 11.40.30, 11.40.50, 11.40.50A, 11.40.50C, 11.40.50D, 11.50.10, 11.90, 12.40, 12.100, 17.10, 18.30 s 623(1): 8.20.20, 11.40.20 s 623(1A): 11.40 s 623(2)(a): 11.40.40 s 623(2)(b): 11.40.40 s 623(2)(c): 11.40.40 s 623(3)(b): 8.30 s 623(3)(c): 8.20.20, 8.30 s 624: 11.50.20, 12.50 s 624(1): 10.30, 11.50.20 s 624(2): 11.10.10, 11.50.10, 11.50.20, 11.50.50, 12.50, 12.120.10, 12.120.20 s 625(1): 12.30 s 625(3): 8.50.70, 9.30.60, 11.20, 19.20, 21.60 s 626: 8.40.40, 8.50.10 s 627: 8.50.10 s 628: 8.50.10 s 629: 5.30, 5.40.30H, 8.50.10, 8.50.40, 8.50.50, 9.30.50 s 629(1): 3.70 s 629(1)(a): 8.50.10 s 629(1)(b): 8.50.10 s 630: 8.20.20 s 630(1): 8.70, 11.60 s 630(2): 11.60 s 630(3): 8.50.90, 8.70, 10.70, 11.50.20, 11.60 s 630(4): 11.60 s 630(5): 11.50.40, 11.60 s 631: 1.40, 5.30, 5.40.30H, 6.40.30C, 7.40, 7.50, 7.60, 7.60.10, 7.60.20, 7.60.40, 8.50.40, 9.30.50, 10.20, 21.30 s 631(1): 7.60.20, 7.60.40, 8.50.10 s 631(2): 7.60.10, 7.60.30, 7.60.409.30.50 s 631(2)(a): 7.60.10 s 631(2)(b): 7.60.10 s 631(3): 7.60.40 s 633: 9.10 s 633(1): 9.50, 9.60, 15.30B s 633(1), item 3: 9.50 s 633(1), item 6: 9.60, 10.20, 10.40, 17.30 s 633(1), item 7: 10.20 s 633(1), item 8: 10.20 s 633(1), item 9: 10.20 s 633(1), items 10 to 14: 14.100 s 633(2): 8.20.30, 10.10, 10.40 s 633(6): 9.10.10, 10.20 s 634: 8.30, 10.30

s s s s s s s s s s s s s s s s s s s s s s s s s s s s s s s s s s s s s s s s s s s s s s s s s s s s s

635: 8.30, 10.30, 12.80, 12.90, 17.30 635(1): 15.30B 635, item 7: 12.90 635, item 12: 12.140 635, item 13: 12.140 635, item 14: 12.10, 12.50 636: 6.20.20, 8.20.20, 9.10, 9.20, 9.30.60, 9.70, 12.70 636(1): 9.10, 9.20, 9.30, 9.30.130, 9.40 636(1)(a): 9.30.10 636(1)(b): 9.30.20 636(1)(c): 9.30.30 636(1)(d): 9.30.30 636(1)(e): 9.30.40 636(1)(f): 9.30.50 636(1)(f)(i): 9.30.50 636(1)(f)(ii): 9.30.50 636(1)(f)(iii): 9.30.50 636(1)(g): 9.30.60, 9.30.130 636(1)(ga): 9.30.60, 9.30.70, 9.30.130 636(1)(h): 9.30, 9.30.80, 11.20 636(1)(h)(iii): 8.40.30 636(1)(i): 9.30, 9.30.80, 9.30.90 636(1)(j): 9.30.100 636(1)(k): 9.30.80, 9.30.110 636(1)(k)(ii): 9.30.110 636(1)(l): 9.30, 9.30.80, 9.30.120 636(1)(m): 6.20.20, 9.30, 9.30.60, 9.30.130 636(1)(m)(iii): 9.10, 9.30.130 636(2): 8.40.30, 9.30.80 636(3): 14.80.30 637: 6.20.20 637(1): 9.60, 12.80 638: 6.20.40, 8.50.60, 12.140, 14.80, 14.80.10, 14.110 638(1): 6.20.40, 14.80.10 638(1A): 6.20.40, 14.80.10 638(2): 14.80.10 638(3): 6.40.20, 14.80.20 638(5): 9.30.130, 9.40, 14.80.30 639: 14.100 640: 5.40.30F, 6.40.20, 7.10, 12.20, 12.140, 14.90 640(1): 14.90 640(2): 14.90 641: 5.30.60, 8.20.30, 8.40.30, 10.10, 10.40, 12.90, 14.30 641(1): 10.10 641(3): 10.10 641(6): 10.10 642: 14.120 643: 9.70, 12.140 644: 14.110, 12.140 645: 14.110, 12.140 647: 9.70, 12.140, 14.110 648(1)(d): 3.70 648A: 8.40.30, 14.90

Table of Statutes Corporations Act 2001 — cont s 648A(1): 14.90 s 648A(2): 3.70 s 648C: 10.20, 12.90 s 648D to 648H: 8.20.40 s 648D: 13.30.40, 13.30.40A s 648D(1): 13.30.40B s 648D(1)(c): 13.30.40B s 648D(2): 13.30.40B s 648E: 13.30.40B s 648E(2): 13.30.40B s 648E(3): 13.30.40B s 648F: 13.30.40B s 648G: 13.30.40A s 648G(4): 13.30.40A s 648G(5): 13.30.40A s 648G(5)(f): 13.30.40A s 648G(6): 13.30.40A s 648G(8): 13.30.40A s 648H: 13.30.40A ss 649A to 650D: 11.40.40 s 649B: 12.120.10 s 649C: 12.120.10 s 649C(1): 12.120.10, 12.120.20 s 649C(2): 12.120.20 s 650B: 7.30, 11.50.10 s 650B(1)(g): 8.70, 11.50.10, 11.70.50 s 650B(1)(h): 11.50.10 s 650B(2): 11.50.10 s 650C: 5.40.20, 10.70, 11.50.20 s 650C(1): 11.50.20 s 650D: 10.70, 11.50.40, 17.30 s 650D(1): 9.80, 11.50.40 s 650D(2): 9.80 s 650D(3): 11.50.40 s 650D(4): 11.50.40 s 650E: 8.50, 8.80 s 650E(1): 11.50.20 s 650F: 8.50, 8.50.90, 11.60, 22.10 s 650F(1): 8.50.90, 10.70, 11.60 s 650F(1)(a): 8.40.50, 22.10 s 650F(3): 11.60 s 650G: 8.50.10, 10.50, 11.60, 15.30E, 22.10 s 651A: 8.30, 8.40.10, 11.20, 11.50.40 s 651A(2): 11.20 s 651A(3): 11.20, 11.50.10 s 651A(4): 11.20, 11.50.10 s 651A(4)(d): 11.20 s 652B: 10.50, 12.130, 20.10, 21.20.10 s 652C: 7.60.30, 8.30, 8.50, 8.50.20, 12.130, 14.50.50, 14.60, 19.20 s 652C(1): 11.20, 12.130, 19.140 s 652C(2): 11.20, 12.130, 19.140 s 653A: 10.30, 11.50.10, 11.50.20, 11.80 s 653B: 8.20.40, 10.40, 12.110 s 653B(1): 8.20.40 s 653B(1)(a): 10.40

s s s s s s s s s

xliii

653B(1)(b): 10.40 653B(2): 10.40 654A: 3.30, 8.20.40, 10.60, 21.30, 22.10 654B: 15.30E, 15.110 654C: 15.110 654C(1): 15.100 654C(2): 15.100 654C(3): 15.100 655A: 3.60.70, 8.50.10, 11.50, 11.50.30, 12.120.30, 15.110, 20.10, 20.30, 20.40, 20.60, 21.10, 21.20.10, 21.50 s 655A(1): 21.60 s 655A(1)(a): 20.20 s 655A(1)(b): 20.30 s 655A(4): 20.20, 21.60 s 655A(5): 20.20, 20.30 s 656A: 15.110, 21.20.10, 21.40 s 656A(1): 20.60 s 656A(2): 20.60, 21.20.10 s 656A(3): 20.60 s 656B: 20.60 s 656B(1)(b): 16.70 s 656B(4): 20.60 s 657A: 3.70.30, 8.40.30, 15.50, 21.20.30, 21.40, 21.60 s 657A(1): 21.20.30 s 657A(2): 21.20.30 s 657A(3): 14.60, 21.20.30 s 657A(4): 21.20.20 s 657A(4)(a): 21.20.10 s 657A(4)(c): 20.50.60 ss 657A to 657H: 13.50.20 s 657B: 21.20.10, 21.20.30 s 657C: 21.40 s 657C(1): 21.20.10 s 657C(2): 21.20.10 s 657C(2)(c): 20.50.60 s 657C(3): 21.20.10 s 657C(3)(b): 21.20.10 s 657D: 9.20, 21.30 s 657D(1): 8.80, 21.30 s 657D(1)(c): 20.50.60 s 657D(2): 9.20, 21.30 s 657D(3)(a): 21.20.10 s 657D(4): 21.20.40 s 657D(5): 21.30 s 657D(6): 21.30 s 657E(1): 21.30 s 657EA: 21.40 s 657EA(1)(b): 20.50.60 s 657EA(2): 21.40 s 657EA(3): 21.40 s 657EA(5): 21.40 s 657EB: 21.40 s 657G: 21.30 s 658A: 21.20.10 s 658C: 11.70.50, 21.20.30 s 658C(1): 21.50

xliv Table of Statutes Corporations Act 2001 — cont s 658C(4): 21.50 s 658D: 21.50 s 659A: 21.60 s 659AA: 21.60 s 659B: 8.50.70, 9.30.130, 12.80, 13.50.20, 14.50.50, 20.50.60, 21.10, 21.40, 21.60 s 659B(2): 21.60 s 659B(4): 21.60 s 659B(5): 21.40, 21.60 s 659C(1): 21.60 s 659C(2): 21.60 s 660A: 17.20, 18.20 s 660B: 17.20, 18.20 s 661A: 2.60.30, 3.70, 8.20.20, 8.50.30, 11.50.40, 12.40, 17.20, 18.20, 18.60, 18.90, 19.10, 22.10 s 661A(1): 17.20, 19.10 s 661A(1)(b)(i): 22.20 s 661A(1)(b)(ii): 22.20 s 661A(2): 17.20, 17.70 s 661A(3): 17.20 s 661A(4): 8.20.30, 17.20 s 661A(4)(a): 17.20 s 661A(4)(b): 17.20 s 661A(4)(c): 17.20 s 661B: 10.70, 12.140, 17.20, 17.70, 17.80, 18.40, 18.50 s 661B(1): 8.40.30, 10.70, 12.140, 17.30, 17.70 s 661B(1)(c): 17.20 s 661B(2): 17.30 s 661B(3): 17.30 s 661C: 17.40, 18.40 s 661C(1): 17.10, 17.40 s 661D: 17.30 s 661D(1): 17.70 s 661E: 17.40, 17.60 s 661E(1): 17.60, 17.70 s 661E(2): 17.60, 17.60.10 s 661E(3): 17.60 s 662A: 3.70, 18.60 s 662A(1): 17.70 s 662A(2): 17.70 ss 662A to 662C: 18.70 s 662B: 17.70, 17.80 s 662B(1): 10.70, 17.30, 17.70 s 662B(2): 17.70 s 662C: 17.70, 18.50, 22.20 s 662C(2): 17.70 s 663A: 3.70, 17.80 s 663B: 17.80, 17.90 s 663B(1): 10.70, 17.30, 17.70, 17.80 s 663C: 17.80, 17.90 s 664A(1): 18.20 s 664A(2): 18.20 s 664A(3): 18.20

s 664A(5): 18.20 s 664A(6): 18.30 s 664AA: 18.20 s 664B: 18.50 s 664C: 17.70 s 664C(1): 17.30, 18.30, 18.40 s 664C(2): 17.70, 18.30 s 664C(3): 18.30 s 664C(4): 18.30 s 664C(6): 18.30 s 664D: 3.70 s 664D(1): 18.30 s 664D(2): 18.30 s 664D(3): 18.30 s 664E: 17.70, 18.40 s 664E(1)(a): 17.40 s 664E(2): 18.40 s 664E(3): 17.40, 18.40 s 664F: 17.60.20 s 664F(3): 18.40 s 664F(4): 18.40 s 665A: 18.50 s 665B: 18.50 s 665B(1): 17.30, 17.70 s 665C: 18.50 s 666A: 17.40 s 666A(1): 17.40 s 666A(2)(a): 17.40 s 666A(2)(b): 17.40 s 666A(2)(c): 17.40 s 666A(3): 17.40, 18.30 s 666B: 17.30, 17.40 s 666B(1): 18.30 s 666B(2): 17.50, 18.30 s 666B(3): 17.50 s 667A(3): 17.80 s 667AA: 17.80, 18.30, 20.10, 21.20.10 s 667B: 18.30 s 667B(1): 3.70 s 667B(2): 17.80 s 667C: 8.40.30, 17.60.20, 18.30, 18.80 s 667C(1): 17.60.20 s 667C(1)(b): 17.60.20 s 667C(1)(c): 17.60.20 s 667C(2): 17.60.20 s 669: 20.10, 20.60, 21.20.10 s 670A: 9.20, 9.30.60, 9.80, 14.80.10, 14.90 s 670A(1): 9.10.30, 9.80 s 670A(1)(j): 9.80 s 670A(2): 9.10.30, 9.80, 11.70, 14.50.20 ss 670A to 670D: 11.10.20 s 670B: 9.20, 11.10.20 s 670B(1): 9.40, 9.80 s 670C: 9.80 s 670C(1): 9.70 s 670C(3): 14.90 s 670D: 9.30, 9.80 s 670D(3): 9.40

Table of Statutes Corporations Act 2001 — cont s 670D(6): 9.80 s 670E(2): 7.60.40 s 670F: 7.60.30 s 670F(a): 7.60.30 s 670F(b): 7.60.30 s 671A: 15.10, 16.10 s 671B: 2.30, 3.70.20, 5.30.60, 7.10, 7.20, 12.70, 15.20, 15.30A, 15.30E, 15.50, 15.110, 16.10, 16.20, 19.10, 19.50 s 671B(1): 15.30B s 671B(1)(a): 15.30A, 15.30D s 671B(1)(b): 15.30C s 671B(1)(c): 15.30B, 15.30E s 671B(2): 15.30C s 671B(3): 15.60 s 671B(3)(c): 15.50 s 671B(3)(d): 15.30F s 671B(3)(d)(iii): 15.50 s 671B(4): 15.30B, 15.50 s 671B(4)(a): 15.50 s 671B(4)(b): 15.50 s 671B(5): 15.50 s 671B(6)(a): 15.30E s 671B(6)(b): 15.30E, 22.10 s 671B(7): 3.60.60, 3.60.70, 15.20, 16.20 s 671C: 15.90 s 671C(2): 15.40 s 672A: 5.30.60, 7.10, 14.10, 16.10, 16.20 s 672A(1): 16.20 s 672A(1)(a): 16.20 s 672A(1)(b): 16.20 s 672A(2): 5.30.60, 16.20 s 672B: 2.30, 3.70, 5.30.60, 16.20, 16.50, 16.60 s 672B(1): 16.30 s 672B(1)(a): 16.20 s 672B(1A): 16.30 s 672B(2): 16.30 s 672B(2)(b): 16.30 s 672B(3): 16.30 s 672C: 16.30 s 672D: 16.20 s 672DA: 5.30.60 s 672DA(1): 16.40 s 672DA(2): 16.40 s 672DA(3): 16.40 s 672DA(6): 16.40 s 672DA(7): 16.40 s 672DA(8): 16.40 s 672DA(9): 16.40 s 672E: 15.70, 16.40 s 672F: 16.60 s 673: 15.30E, 15.110, 16.30, 16.70, 20.10, 20.20, 20.60, 21.10, 21.20.10 s 674: 14.50.60 s 675: 14.50.60 s 707(2): 8.20.40, 19.140

s 707(3): 8.20.40 s 707(5): 8.20.40, 19.140 s 708(8): 19.140 s 708(11): 19.140 s 708A(1A): 19.140 s 708A(5)(e): 19.140 s 708A(6): 19.140 s 710: 9.30.60, 9.30.70 ss 710 to 713: 9.30.60 s 711: 9.30.60, 9.30.70 s 711(5): 8.50.70 s 712: 9.30.60 s 713: 9.30.60, 9.30.70 s 713(5): 9.30.60 s 761A: 3.20, 9.30.70 s 761D: 3.60.60 s 761E(1): 3.20 s 764A(1)(b): 9.30.70 s 768A: 3.60.100 s 769C: 9.10.30, 9.30.60, 14.50.20 s 793C: 12.10 s 827D: 3.70.20 s 1012B: 9.30.70 s 1013C: 9.30.70 s 1013D: 9.30.70 s 1013E: 9.30.70 s 1041A: 10.60, 11.100 s 1041B: 10.60, 11.100 s 1041E: 11.10.30 s 1041F: 11.10.30 s 1041H: 2.40, 7.60.10, 7.60.40, 9.80, 11.10.10, 11.10.20, 11.70, 12.100 s 1041I: 7.60.10, 7.60.40, 11.10.20 s 1041I(4): 11.10.20 s 1042A: 14.50.60 s 1042F: 14.50.60 s 1042G: 6.20.20, 6.30 s 1043A: 6.30, 14.50.60 s 1043A(1): 14.50.60 s 1043A(2): 14.50.60 s 1071F: 21.60 s 1101B: 7.60.10, 7.60.40, 12.10, 21.60 s 1274(8): 12.80 s 1306: 16.40 s 1308(2): 16.30 s 1309: 12.10 s 1311: 7.30, 9.80, 15.80 ss 1311 to 1312: 10.60 s 1312: 7.60.40, 9.80, 15.80, 16.50 ss 1317A to 1317C: 16.70 s 1317B: 15.110, 20.60 s 1317C: 20.60 s 1317C(ga): 21.20.10 s 1318: 21.60 s 1322: 11.50.20, 12.80, 18.20, 18.30, 18.80, 21.60 s 1322(4): 17.40 s 1322(4)(d): 17.60

xlv

xlvi

Table of Statutes

Corporations Act 2001 — cont s 1323: 21.60 s 1323(4): 21.60 s 1324: 18.80, 21.60 s 1324(1B): 18.80 s 1324(2): 7.60.40 s 1325A: 8.50.70, 11.10.20, 20.50.60, 21.60 s 1325A(1): 7.60.10, 7.60.40, 15.80, 16.30, 16.50 s 1325A(3): 15.80, 16.50 ss 1325A to 1325E: 21.60 s 1325B: 7.60.40, 21.60 s 1325C: 13.80, 20.50.60 s 1325C(1): 13.80 s 1325C(3): 3.70, 13.80 s 1325C(4): 13.80 s 1325D: 11.50.20, 12.80, 12.90, 16.50, 18.30, 20.20, 21.60 s 1325D(1): 21.60 s 1325D(3): 15.80 s 1325E: 9.20 s 1330: 20.50.60 s 1378: 2.20 Ch 2E: 5.60.30C, 19.90 Ch 5C: 2.20, 2.40 Ch 6: 1.20, 1.30, 2.10, 2.20, 2.30, 2.40, 2.50, 2.50.10, 2.50.20, 2.50.30, 2.60.10, 2.60.20, 2.60.30, 3.20, 3.30, 3.50, 3.60.70, 3.60.110, 3.70, 3.70.30, 5.30.70, 5.40.20, 5.40.30H, 5.40.40, 6.20.20, 6.40.20, 6.40.30A, 7.60.20, 8.20, 8.30, 8.50.10, 8.50.50, 9.30.60, 11.40, 13.60, 15.40, 16.30, 17.80, 18.60, 18.80, 19.60, 19.120, 19.170, 20.10, 20.20, 20.30, 20.60, 21.10, 21.20.10, 21.20.30, 21.30, 21.50, 21.60 Chs 6 to 6C: 2.30, 3.40 Ch 6A: 1.30, 2.20, 2.40, 2.50.20, 3.20, 3.70, 5.40.20, 20.10, 20.60, 21.10, 21.20.10, 21.20.30, 21.30, 21.60 Ch 6B: 2.50.20, 3.70, 20.10, 21.10, 21.20.10, 21.20.30, 21.30, 21.60 Ch 6C: 1.30, 2.20, 2.50.20, 3.70, 20.10, 20.60, 21.10, 21.20.10, 21.20.30, 21.30, 21.60 Ch 7: 11.80 Pt 2D.2, Div 2: 22.40 Pt 2F.1A: 21.60 Pt 2J: 19.130 Pt 2J.1, Div 2: 13.70 Pt 5.1: 2.40, 5.40.40, 19.120, 23.30 Pt 5B.2: 18.90 Pt 6.4: 19.20 Pt 6.5, Div 1: 12.10 Pt 6.5, Div 5: 8.20.40 Pt 6.6: 8.20.40

Pt 6A.1: 17.10, 17.70, 18.10, 20.10, 21.20.30 Pt 6A.2: 17.60.20, 18.10, 18.20, 18.80 Pt 6A.5: 17.50 Pt 6C.1: 15.10 Pt 6C.2: 16.10, 16.40 Pt 7.7, Div 3: 11.90 Pt 7.10, Div 3: 6.30 Sch 3: 10.60, 11.10.20, 15.80, 16.50 Sch 3, item 178: 7.30 Sch 3, item 182: 7.60.40 Sch 3, item 183: 7.60.40 Sch 3, item 226: 9.80 Sch 4, cl 3: 2.30

Corporations Amendment (Insolvency) Act 2007: 18.120 Corporations Amendment (Takeovers) Act 2007(Cth): 21.20.30, 21.30, 21.40 Corporations (Fees) Regulations 2001: 16.20 Item 5: 16.20

Corporations Law: 3.80.60, 9.60, 11.90 s s s s s s s s s s s s

12(1): 3.80.20 40: 3.60.30 109X(7): 9.80 109Y: 10.20 195: 17.60.20 630: 3.60.10 637(1): 10.20 641: 8.40.30 642: 8.40.40 663(2)(a): 8.50.90 681: 12.120.30 733: 3.70.40

Corporations Law and the Companies (Acquisition of Shares) Act 1981: 7.60.10

Corporations Law Economic Reform Program Act 1999: 3.80.60 Corporations Regulations 1990 reg 1.0.18: 3.60.110

Corporations Regulations 2001: 19.150, 21.50 reg 1.0.02A: 2.20, 15.10 reg 1.0.18: 3.70.20, 3.70.30, 3.80.60 reg 1.1.01: 5.30.60 reg 2.2: 15.10 reg 2C.1.02: 5.30.60 reg 2C.1.03: 5.30.60 reg 2C.1.04: 5.30.60 reg 5.1.01: 5.40.30F reg 6.2.01: 2.20, 2.50.10, 3.60.110, 19.150 reg 6.2.02: 3.60.110, 19.150 reg 6.8.01: 10.30, 11.50.20 reg 6.10.01: 21.40

Table of Statutes Corporations Regulations 2001 — cont reg 7.1.01: 11.30, 19.110 Sch 2, Form 603: 10.70, 12.140, 15.30A Sch 2, Forms 603 to 605: 15.60 Sch 2, Form 604: 10.70, 12.140 Sch 2, Form 605: 15.30D Sch 3: 3.60.110 Sch 4, Item 1: 5.30.60, 16.40 Sch 4, Item 1AA: 5.30.60 Sch 4, Item 3: 16.40 Sch 4, Item 4: 10.10 Sch 4, Item 5: 16.20 Sch 8: 18.90 Sch 8, cl 8303: 5.40.30F Sch 8, cl 8306: 5.40.30F Form 6021: 10.70, 12.140 Form 6022: 10.70 Form 6023: 10.70, 17.80 Form 6024: 18.30 Form 6071A: 16.20 Crimes Act 1914: 20.50.30 s 4AA: 7.60.40, 9.80, 15.80, 16.50 Crimes (Taxation Offences) Act 1980: 3.20

Criminal Code s 5.6: 9.80 s 6: 3.20 s 6(2): 2.10

Federal Court of Australia Act 1976 (Cth) s 33V: 21.20.50

Financial Sector (Shareholdings) Act 1998: 4.10, 4.10.10, 4.40 s 3: 4.40 s 10: 4.40 s 10(a): 4.40 s 11: 4.40 s 12: 4.40 ss 14 to 16: 4.40 s 22: 4.40 s 23: 4.40 ss 24 to 25: 4.40 s 44: 4.40 ss 189 to 197: 4.40 Sch 1, cl 4: 4.40 Sch 1, cl 10: 4.40 Sch 1, cl 11: 4.40

Financial Services Reform Act 2001: 3.70, 21.10

Foreign Acquisitions and Takeovers Act 1975: 1.20, 4.10, 4.10.30, 4.10.50, 4.10.80, 4.30, 8.50.90, 19.90, 21.20.10, 21.20.30 s 5(1): 4.10.20 s 5A: 4.10.20 s 6: 4.10.30 s 9: 4.10.20, 4.10.30 s 9(1): 4.10.30 s 9A(1)(a): 4.10.20 s 9A(1)(b): 4.10.20

s s s s s s s s s s s s s s s s s s

9A(2): 4.10.20 12C: 4.10.20 13(1)(h): 4.10.10 14: 4.10.30 18(4): 4.10.70 25(1C): 4.10.70 25(2): 4.10.70 25(3): 4.10.70 26: 4.10.30, 4.10.70 26(2): 4.10.70 26(2)(b): 4.10.30 26(3): 4.10.40 26(3)(b): 8.40.30, 8.50 26(4): 4.10.40 26(6): 4.10.30 26A: 4.10.30 31: 4.10.70 38A: 4.10.70

Foreign Acquisitions and Takeovers Regulations 1989 reg reg reg reg

4: 4.10.50 9: 4.10.10 12: 4.10.10 13: 4.10.10

Foreign Acquisitions and Takeovers Regulations 2015 reg 41(2): 4.10.40

Freedom of Information Act 1982: 20.50.10, 20.50.50

Income Tax Assessment Act 1997: 13.30.30 s 6-5(1): 23.20.10, 23.30 s 8-1: 23.20.10 s 40-880: 23.20.10, 23.40 s 70-35: 23.20.10 s 104-10: 23.30 s 104-10(3)(a): 23.30 s 104-10(3)(b): 23.30 s 109-5: 23.30 s 110-25: 23.20.20 s 110-25(2)(b): 23.20.20 s 110-36: 23.30 s 110-45: 23.20.20 s 115-30(1), item 2: 23.30 s 124-780: 23.30 s 124-780(2A): 23.30 s 124-790: 23.30 s 165-12: 23.40 s 165-13: 23.40 s 165-15: 23.40 s 269-105(3): 23.40 s 707: 23.20.30 s 707-310: 23.20.30 s 707-320(2): 23.20.30 Div 115: 23.30 Div 149: 23.40 Div 705: 23.20.30

xlvii

xlviii

Table of Statutes

Income Tax Assessment Act 1997 — cont Div 707: 23.20.30 Div 974: 23.20.10 subdiv 124-784B: 23.20.30 subdiv 709-A: 23.20.30 subdiv 717-A: 23.20.30 subdiv 717-D: 23.20.30 subdiv 855-A: 23.30

Insurance Acquisitions and Takeovers Act 1991: 4.10, 4.40 Judiciary Act 1903 s 44: 21.40

Legislation Act 2003: 1.30 s 13: 1.30

Legislative Instruments Act 2003: 20.10, 20.40 s 5: 20.20 s 7, Item 6: 20.20 s 13: 19.150, 20.20

Life Insurance Act 1995: 4.40 Migration Act 1958: 4.10.20 Personal Property Securities Act 2009: 8.50.20 s 12: 3.60.10

Personal Property Securities (Corporations and Other Amendments) Act 2010: 3.60.10, 19.50

Qantas Sale Act 1992

s 52: 11.10.20

Trade Practices Legislation Amendment Act 1992: 4.20 Uniform Civil Procedure Rules 2005: reg 54.3: 5.40.40

Uniform Companies Acts (from 1971): s 162C: 20.10

New South Wales Companies (Acquisition of Shares) (New South Wales) Code: 2.30 Trustee Act 1925 s 63: 5.40.40

Victoria Companies Act 1961: 3.50.10 Estate Agents Act 1980: 4.10 Gambling Regulation Act 2003: 4.10

Health Professions Registration Act 2005: 4.10

Insurance Act 1973: 4.10 Supreme Court (General Civil Procedure) Rules 2005 r 54.02: 5.40.40

s 7: 4.10

Taxation Administration Act 1953 s 14-D: 23.20.40 s 14-210(3): 23.20.40

Telstra Corporation Act 1991 ss 8BG to 8BH: 4.10

Trade Practices Act 1974: 1.20, 2.50.30, 3.70.20, 4.20

United Kingdom Companies Act 1981: s 273: 20.10

Companies Act 2006: 14.70.20 s 986(3): 17.60

Chapter 1

Introduction [1.10] [1.20] [1.30] [1.40]

1.1 1.2 1.3 1.4

The regulation of takeovers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Sources of regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 General overview of Ch 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Law reform proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

1.1 The regulation of takeovers [1.10] The regulation of takeovers in Australia proceeds on the policy basis that takeovers, and the prospect of takeovers, are beneficial for the operation of equity markets and the Australian economy as a whole. Takeovers lead to improved corporate efficiency and enhanced management discipline, leading ultimately to greater wealth creation.1 Accordingly, Australian law strives to strike a balance between the promotion of takeovers and the protection of target company shareholders. This book is intended to provide a practical discussion of the regulation and procedures relevant to takeover bids in Australia and to highlight tactical opportunities for bidders and target companies. Takeover bids remain the most common form of acquisition of control of public companies in Australia, measured by number of transactions. This is despite the increase in the use of schemes of arrangement for friendly acquisitions of public companies in recent years. Schemes of arrangement tend to be used for larger transactions, no doubt reflecting the general preference of bidders to have the target company supporting and recommending the transaction before going public.

1.2 Sources of regulation [1.20] The main source of regulation of takeovers in Australia is Ch 6 of the Corporations Act 2001 (Cth) (Corporations Act).2 Chapter 6 contains the central prohibitions and restrictions concerning acquisitions of shares,3 and sets out the permitted forms of takeover bid and the information that must

1

CLERP Paper No 4, Takeovers – Corporate Control: A Better Environment for Productive Investment (April 1997) p 7.

2

References to sections in this book are references to sections in the Corporations Act 2001, unless otherwise indicated.

3

And interests in listed managed investment schemes: see 2.4.

2 Takeovers Law & Strategy

be given to shareholders and the stock market generally in connection with a takeover bid. It was extensively revised in 2000.4 Most of the prime objectives of Ch 6 are derived from a report on takeovers and the disclosure of substantial shareholdings published in 1969. This report was the work of the Company Law Advisory Committee, known as the Eggleston Committee after its chairman, Sir Richard Eggleston.5 The objectives are today set out in the Corporations Act, s 602, which states that the purposes of Ch 6 are to ensure: (a) the acquisition of control over shares or interests takes place in an efficient, competitive and informed market;6 (b) the holders of shares or interests, and the directors of the company or responsible entity for the scheme: (i)

know the identity of the person who proposes to acquire a substantial interest;

(ii) have a reasonable time to consider the proposal; and (iii) are given enough information to enable them to assess the merits of the proposal; (c) as far as practicable, the holders have a reasonable and equal opportunity to participate in any benefits accruing to holders under a proposal under which a person would acquire a substantial interest in the entity; and (d) an appropriate procedure is followed as a preliminary to compulsory acquisition.7 These principles, commonly known as the Eggleston principles, embody the philosophy of the legislation and are critical to bear in mind when assessing any action of a bidder, shareholder or target company. A breach

4

Corporate Law Economic Reform Program Act 1999 (Cth), which commenced on 13 March 2000.

5

Company Law Advisory Committee, Second Interim Report on Disclosure of Substantial Shareholdings and Takeover Bids (Commonwealth Government Printing Office, Canberra, February 1969). The origin of these principles is discussed in Durbridge and Rich, “The Origin of the Australian Takeovers Code: Would the Real Sir Richard Eggleston Please Stand Up” in Damian and James (eds) Towns Under Siege: Developments in Australian Takeovers and Schemes (Sydney, Ross Parsons Centre of Commercial, Corporate and Taxation Law, 2016) pp 3–72.

6

The first objective was added to the canon in 1980 and is sometimes referred to as the Masel principle after the first chairman of the National Companies and Securities Commission, to whom it is attributed: see Masel, “Towards an Efficient, Competitive and Informed Market” JASSA/1980 No 2, 10–4 and Greenwood, “In Addition to Justin Mannolini” (2000) 11 Aust Jnl of Corp Law 308, which contains background information about development of the law from the 1960s to the 1980s.

7

This objective was first stated as a principle in the 2000 amendments, although it is the oldest policy of takeovers law.

Introduction

3

of the principles may lead to remedial action even if there would otherwise be no breach of any specific provision in Ch 6 (see chapter 21). Other sources of regulation of takeovers in Australia are contained in the Foreign Acquisitions and Takeovers Act 1975 (Cth), the Competition and Consumer Act 2010 (Cth), the Listing Rules of ASX Ltd8 and legislation dealing with specific industries such as banking, insurance and television and radio. Occasionally, special legislation may regulate the acquisition of shares in a company in a particular type of business or in a specific company: see 4.1.

1.3 General overview of Ch 6 [1.30]

Chapter 6 contains a central rule which has two aspects:

•

A person must not acquire control of more than 20% of the voting shares in a company unless the acquisition is in accordance with the legislation. The threshold of 20% is regarded as the point just below where a person has sufficient voting power to control or influence the activities of the target company.9

•

A person who has control of more than 20% of the voting shares (but less than 90%) must not acquire control of more shares unless it is done in accordance with the legislation.

When determining how many shares a person can control, any shares controlled by his or her associates are also counted: see Ch 3. “Associate” has a broad definition designed to catch persons who have formal relationships (such as related bodies corporate and persons with whom particular agreements have been entered into) and informal relationships where persons are acting in concert in connection with the relevant entity. To avoid breaching the central rule, a person wishing to increase his or her shareholding must do so under one of the exceptions contained in s 611 of the legislation. The main four exceptions are: •

formal takeover bids;

•

acquisitions of not more than 3% in a six-month period;

•

acquisitions approved by independent shareholders; and

•

acquisitions resulting from a court-approved scheme of arrangement.

A formal takeover bid may be off-market or on-market. The bidder must give the target company and its shareholders a statement of certain prescribed information (called a bidder’s statement). The target’s directors must respond with another statement (called a target’s statement).

8

Formerly Australian Stock Exchange Ltd.

9

The background to the selection of 20% as the takeover threshold is discussed in the Report of the Companies & Securities Law Review Committee, “The Takeovers Threshold”, dated 26 November 1984.

4 Takeovers Law & Strategy

Chapter 6 is a very technical and complex part of the Corporations Act. It contains detailed rules concerning things such as the minimum price at which a takeover bid may be made, specific time periods for various requirements to occur and requirements for lodging formal bid documentation with ASIC10 and the ASX. The Corporations Act also outlines the requirements for disclosure of share acquisitions and dispositions (Ch 6C) and provisions dealing with the mopping up of remaining shares after a successful bid (Ch 6A). The Corporations Act and the Australian Securities and Investments Commission Act 2001 are interpreted according to their own definition and interpretative provisions and the Acts Interpretation Act 1901 (Cth) as it stood on 1 January 2005.11 An instrument such as a regulation, class order or individual exemption made under either of those Acts is governed by the same definitions and interpretative provisions as the relevant Act itself.12 A key element to understanding how the legislation works in practice is to recognise the roles of ASIC and the Takeovers Panel. ASIC’s role in administering and enforcing the legislation is discussed in Ch 20 of this book. Critically, it has a power to modify the legislation as it applies either generally, or in relation to particular persons.13 Given the technical nature of the legislation, these powers are often crucial in practice, and this book discusses many provisions as modified by ASIC class orders. ASIC publishes regulatory guides setting out its views and interpretations on many provisions in Ch 6, and the policies it applies in enforcing those provisions and in giving discretionary relief from them.14 The Takeovers Panel’s main role is to resolve disputes relating to takeover bids. It has broad power to declare circumstances “unacceptable” if it considers the Eggleston principles have been contravened, even if there is no illegality. The Panel’s constitutionality has repeatedly been upheld by the High Court of Australia (see Ch 21). Its views and attitudes have a 10 The Australian Securities and Investments Commission, until 1998 named the Australian Securities Commission. 11 Section 5C(2) of the Corporations Act and ss 5 and 5A of the ASIC Act. The extensive amendments made to the Acts Interpretation Act in 2011 do not apply. There are extensive definition and interpretive provisions in Ch 1 of the Corporations Act, which apply to both Acts, and additional definitions in each Act. 12 Section 46 of the Acts Interpretation Act (if the instrument is not legislative) or s 13 of the Legislation Act 2003 (Cth) (if it is legislative). 13 See ss 655A, 669 and 673, and Item 14(b) in s 611(1). Instruments which apply generally are referred to as class orders. This book describes several provisions of Ch 6 as modified by ASIC class orders. In general, an ASIC class order is a legislative instrument for the purposes of the Legislation Act, but another ASIC exemption or variation is not a legislative instrument: see s 8 of that Act. 14 One policy on takeovers which was issued by ASIC before the amendments in 2000 is still on issue: Regulatory Guide 59: Announcing and withdrawing takeover bids (ss 653 and 746). It should be used with care, as it refers to provisions which have since been substantially amended.

Introduction

5

major impact on the conduct of takeovers and the standards of behaviour of participants. The Panel is also empowered to review ASIC decisions relating to modifications of the requirements, though, in practice, this jurisdiction has rarely been exercised. The Takeovers Panel also issues guidance notes on takeovers matters and policy issues to provide guidance to market practitioners.15

1.4 Law reform proposals [1.40] There has not been a general review of takeovers law in Australia for many years. This is despite significant changes in takeovers practice and stock markets in Australia. This may be partly answered by the rejuvenation of the Takeovers Panel in 2000, which has led to the development of guidance dealing with market practices that have emerged (such as break fees and exclusivity provisions), so that the need for urgent law reform has abated somewhat. Nevertheless, there is scope for significant change and improvement to takeovers regulation in Australia. Some ideas were suggested at the time of release of the third edition of this book in 2008 and revised in 2016. At the risk of being repetitive, they are set out below as a reminder that laws should continue to evolve to adapt to streamline takeovers processes and assist the law to achieve its aim of improving corporate efficiency and enhanced management discipline. (1) A person who controls more than 50% of shares in a company should be free to acquire further shares without having to make a bid or satisfy another exemption. The law should focus only on transactions for a change of control. (2) All bids should be subject to a mandatory 50% minimum acceptance condition, so control only passes at a price acceptable to the majority of shareholders. This would require the abolition of the 3% creep rule and restrictions on some of the other exceptions in s 611. (3) Where target directors recommend a bid, the bidder should be able to compulsorily acquire the remaining shares in the bid class if it receives acceptances for 75% of the share for which it bids: the 90% threshold should not apply. (4) A bidder should be able to obtain binding commitments to accept its bid, which take its voting power to more than 20%, although these commitments should fall away if a higher bid is made. (5) The equal treatment principle should apply only during a bid: the minimum bid provisions and the prohibition of escalator agreements should be repealed.

15 Both ASIC and the Takeovers Panel review and update their policies from time to time. Where relevant, readers should ensure that any reference to a regulatory guide, guidance note or class order remains current.

6 Takeovers Law & Strategy

(6) Transactions between a bidder and a shareholder collateral to a bid should be allowed where the aggregate voting power of the parties is less than 20%, or the transaction is dependent on other shareholders accepting the bid for 50% of the shares bid for. (7) The rules governing the bid timetable should be reformed to avoid takeover bids dragging on unnecessarily and to bring matters to a head more quickly. (8) We should build on the success of the Takeovers Panel by conferring on it additional powers to grant exemptions and modifications and give advance rulings. Full details of the suggestions are in the chapter by Levy and Furphy, “Takeover Law Reform Proposals” in Damian and James (eds), Towns Under Siege: Developments in Australian Takeovers and Schemes.16 In July 2012, the Chairman of ASIC, Mr Greg Medcraft, announced that ASIC was concerned with a number of market developments and practices and that it had raised certain issues with Treasury with a view to possible law reform. This included concerns about non-binding approaches made to target companies which do not attract the two month rule in s 631, the 3% creep exception, the use of equity derivatives and how companies should respond to market rumours outside conventional news or market channels. At the time of writing, neither Treasury nor ASIC has proposed legislation in any of these areas.

16 (Sydney: Ross Parsons Centre of Commercial, Corporate and Taxation Law, 2016).

Chapter 2

The 20% Prohibition and when it Applies [2.10] [2.20] [2.30] [2.40] [2.50] [2.60]

2.1 2.2 2.3 2.4 2.5 2.6

The 20% prohibition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 What is a “company”?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Foreign companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Managed investment schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 The crown . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Securities to which Ch 6 applies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

2.1 The 20% prohibition [2.10] The central prohibition in Ch 6 of the Corporations Act is that, except as permitted under the legislation (such as pursuant to a formal takeover bid or other exempt transaction), a person must not acquire a relevant interest in issued voting shares in a company1 if: (a) the company is: (i)

a listed company; or

(ii) an unlisted company with more than 50 members;2 (b) the person acquiring the interest does so through a transaction in relation to securities entered into by or on behalf of the person;3 and (c) because of the transaction, that person’s or someone else’s voting power in the company increases through the 20% level or from a starting point between 20% and 90%: s 606(1). The legislation adopts 20% as the threshold on the basis that, from that point, a shareholder can affect the direction and control of a company. The rule applies even if there is another independent shareholder who has a controlling stake. The prohibition applies to all acquisitions regardless of whether or not the acquirer intends to make a bid.

1

The definitions of “company” and “listed”, and the extension of Ch 6 to certain listed non-companies and managed investment schemes, are discussed in 2.2 and 2.4.

2

In determining whether a company has 50 members, joint holders of shares are counted as one member: s 606(3). See also 19.15.

3

This limb of the prohibition is considered in 3.2.

8 Takeovers Law & Strategy

There is a related prohibition on acquiring a legal or equitable interest4 in securities of a body corporate if doing so causes another person to acquire a relevant interest in issued voting shares in a listed company5 and someone’s voting power increases through the 20% level or from a starting point between 20% and 90%: s 606(2). This can sometimes have a wider application than the main rule in s 606(1). For example, a person can make an acquisition potentially attracting s 606(2) even if that person does not acquire a relevant interest in any shares. This may be the case where a person purchases shares as a securities dealer or a bare trustee for another, and does not acquire a relevant interest in the shares because one of the exceptions in s 609 applies.6 To bolster these prohibitions, s 606(4) further provides that a person must not offer to acquire, or issue an invitation in relation to, shares, if the person is prohibited by s 606(1) or (2) from acquiring those shares. This prohibition may apply to a tender offer for a percentage of shares in a target less than 20% (see discussion at [5.10]), but is relevant if a formal bid is made or extended in a way which fails to comply with the legislation (so that the bid or extension is not within the formal exemptions in s 611).7 These provisions are given extended operation in several ways: •

Because a relevant interest in a share may be indirect, and its commencement may be accelerated (see 3.2 and 3.3), the acquisition of such a relevant interest may also be indirect or accelerated.

•

Section 52 of the Corporations Act provides that a reference to doing a thing includes a reference to causing or authorising a thing to be done: so s 606(1) may apply to one person, who causes or authorises another person to engage in a transaction in relation to securities.

•

Section 610(3) provides that, where a person acquires a relevant interest in securities in which the person did not previously have a relevant interest, but an associate of the person already had a relevant interest, the person’s voting power is taken to have increased because of the acquisition, even though under s 610(1) the person’s voting power would otherwise already include the shares in question, being shares in which an associate had a relevant interest.8

•

Under s 606(6) a person is taken to acquire a relevant interest in voting shares for s 606(1) or (2) if and when a security in which the

4

On the effect of a condition requiring third party approval, see [8.50].

5

Or voting shares in an unlisted company with more than 50 members or voting interests in a listed managed investment scheme.

6

These exceptions are discussed in Ch 3.

7

See s 612 (non-complying bid); and Re WM Haughton & Co Ltd [1978] VR 233; (1978) 2 ACLR 320; (1977) ACLC 29, 357; and Premium Income Fund [2011] ATP 10 (noncomplying extensions).

8

This provision aims to prevent people avoiding s 606, by forming associations and then transferring shares between associates without affecting their voting power.

The 20% Prohibition and when it Applies

9

person already has a relevant interest becomes a voting share (such as when a note or preference share converts automatically into an ordinary share), or additional votes are attached to a share in which the person already has a relevant interest (such as when a partly paid share is paid up). It is the person who undertakes the transaction that causes the acquisition of the relevant interest who breaches s 606, not the person whose voting power increases beyond the permitted amount. This means, for example, that an acquirer of shares must consider any consequential effects his or her purchase of shares may have on the technical voting power of other persons. This can be particularly relevant when dealing with large groups of corporations. An acquisition of shares is not invalid because of a breach of s 606: s 607. However, the legislation provides broad powers for a court or the Takeovers Panel to make various orders to remedy the breach. The most common order is one requiring divestiture of shares to non-associated persons (often via the appointment of an independent stockbroker or after vesting the shares in ASIC).9 A breach does not necessarily mean that the person in breach must go on to make a bid for the company (as is often incorrectly thought). The offences created by s 606 are offences of absolute liability: that is, the prosecution does not need to prove any mental element such as intention or recklessness. There are two defences, however. Under s 606(5), a person has a defence if they prove that they contravened s 606 because of inadvertence or mistake as to fact, or because they were not aware of a relevant fact or occurrence. Alternatively, the person has a defence if they prove that they contravened the section because they had an actual, honest, operative and reasonable belief as to facts which, had they been true, would have meant their conduct did not contravene s 606: Criminal Code, s 6(2). The prohibitions in s 606 raise the threshold questions of what is a “company” and what is a “voting share”. These questions are discussed in this chapter. The questions of identifying relevant acquisitions and measuring voting power are discussed in Ch 3.

2.2 What is a “company”? [2.20] The prohibition only applies to an acquisition of a relevant interest in shares in a “company”. Primarily, this means a company registered under the Corporations Act, including such a company, which was formerly

9

For examples of divestiture orders, see Anaconda Nickel Ltd 16–17 [2003] ATP 15; Village Roadshow Ltd 01 [2004] ATP 4; and Australian Pipeline Trust 01R [2006] ATP 29. The latter orders were considered by the court in Australian Pipeline Limited v Alinta Limited [2006] FCA 1378. A compensation order was considered by the court in Cemex Australia Pty Ltd v Takeovers Panel [2008] FCA 1572 (on appeal: Cemex Australia Pty Ltd v Takeovers Panel [2009] FCAFC 78).

10 Takeovers Law & Strategy

registered under predecessor legislation.10 In Ch 6, a managed investment scheme which is registered under Ch 5C and listed is also referred to as a company, as is a body which is not a company, but which is formed in Australia and is listed.11 A company, a body or a scheme is “listed” if it is included in the official list of a prescribed financial market. The markets currently prescribed are Asia Pacific Exchange Limited, ASX Limited, Chi-X Australia Pty Ltd, National Stock Exchange of Australia Limited and SIM Venture Securities Exchange Ltd.12 The prohibition does not apply directly to an acquisition of shares in a prescribed body or class of bodies: s 611, item 20. Regulation 6.2.01 of the Corporations Regulations 2001 (Cth) sets out various entities which are prescribed for this purpose, including: •

an incorporated body corporate which is a public authority or an instrumentality or agency of the Crown in right of a State or Territory;

•

a corporation sole;

•

certain co-operatives; and

•

incorporated associations.13

The general rule is, therefore, that the legislation will only apply to the acquisition of shares in a co-operative if it is incorporated under the Corporations Act (or predecessor legislation) or it is listed on a prescribed financial market.14 It may, however, apply to an acquisition of an interest in a prescribed body which results in an indirect acquisition of voting shares in a company (or a listed body or listed scheme), in the same way as it may apply to a takeover of a foreign company or a company limited by guarantee: see 2.3, 19.15 and 19.16.

10 Section 9 (definitions of “company” and “listed”) and s 1378. 11 Sections 603 and 604. Chs 6A (compulsory acquisition) and 6C (shareholding disclosure) are correspondingly extended: ss 660A, 660B, 671B and 672A. The extension to listed bodies other than companies is probably now of no effect, as it appears that all such bodies which were formerly listed have been converted into companies. 12 Section 9, definitions of “listed” and “prescribed financial market”, and reg 1.0.02A, as at 28 March 2017. 13 In addition, as a practical matter, since s 606 cannot apply to a takeover of a body which has no shares, it does not apply directly to a takeover of a company limited by guarantee without a share capital, however many members it has. The prohibition may, however, apply indirectly to an acquisition of an interest in a company limited by guarantee: see following paragraph. 14 Previously, permanent building societies and credit unions were prescribed as exempt. However, since 1 July 1999, they are, on the whole, deemed to be companies registered under the Corporations Act: Sch 4, cl 3. Accordingly, a takeover bid for such an entity is regulated by the legislation.

The 20% Prohibition and when it Applies 11

The legislation continues to apply to a company which is in liquidation.15 In that case, any transfer of shares would require the approval of the court: see ss 468, 493. If the company is clearly insolvent, it may be possible to seek a modification from ASIC (or, if ASIC refuses, from the Takeovers Panel) that s 606 not apply to any acquisitions of shares in it.16

2.3 Foreign companies [2.30] The legislation does not apply directly to the acquisition of shares in a foreign incorporated company. However, it can regulate such an acquisition if it results in an increase in a person’s voting power in an Australian company. The classic situation in which this occurs is where a foreign company has a shareholding in excess of 20% in an Australian company which is listed or has more than 50 members and a bid is made for the foreign company. The takeovers provisions in Chs 6–6C are expressly given extraterritorial effect by s 5, which applies them to all persons, bodies corporate and unincorporated bodies and acts and omissions whether in Australia or not. In National Companies and Securities Commission v Brierley Investments Ltd (1988) 14 NSWLR 273, Brierley Investments Ltd, a New Zealand company, acquired 30% of the shares in Rainbow Corporation Ltd, another New Zealand company. At the time, each controlled intermediaries which held just under 20% of the shares in Woolworths Ltd, a New South Wales company. As a consequence, Brierley Investments Ltd increased its control over shares in Woolworths to almost 40%. It was held this breached the equivalent to s 606(1) under the Companies (Acquisition of Shares) (New South Wales) Code. Hodgson J, in the Supreme Court of New South Wales, rejected an argument that the legislation was beyond the power of the New South Wales legislature. His Honour considered that there was a sufficient connection with New South Wales.17 Other examples of courts upholding an extraterritorial operation of takeovers law concern the disclosure requirements on substantial shareholders under s 671B18 and the serving of notices under s 672B requiring disclosure of ultimate controllers.19

15 See Re Country Distributors Ltd [1974] 2 NSWLR 135 for an example of a target company in liquidation and 19.12 for companies in administration. 16 See Pasminco Ltd (Administrators Appointed) [2002] ATP 6. 17 In BTR plc v Westinghouse Brake & Signal Co (Aust) Ltd [1992] FCA 55; (1992) 7 ACSR 122 a full Federal Court accepted that without an ASC exemption the 20% limit would have been breached by a takeover of a UK parent company. 18 Considered in CAC v Orlit Holdings Ltd (1983) 3 ACLR 164. 19 Considered in Re North Broken Hill Holdings Ltd (1986) 10 ACLR 270; and ASC v Bank Leumi Le-Israel (Switzerland) (1996) 21 ACSR 474. The Panel accepted the extraterritorial operation of the tracing notice provisions in Village Roadshow Ltd 01 [2004] ATP 4.

12 Takeovers Law & Strategy

Today, given s 5 and the Australia Acts of each State and the Commonwealth passed in 1986, the extraterritorial operation and validity of Ch 6 seems beyond doubt. Despite the legislation potentially applying to acquisitions of shares in a foreign company, there is an important exemption from the general 20% prohibition where the foreign company is listed on an overseas stock market that has been approved by ASIC for this purpose: s 611, item 14.20 If a bid is made for a foreign company which would result in a downstream acquisition of over 20% of an Australian company and the exemption for foreign listed companies is not available, ASIC may be prepared to grant relief on certain conditions: see discussion at 19.11.

2.4 Managed investment schemes [2.40] The legislation also extends to the acquisition of interests in a managed investment scheme which is registered under Ch 5C of the Act and listed on a prescribed market.21 A managed investment scheme is defined to cover essentially any scheme where investors contribute funds to a pool to be managed and invested by a third party: s 9.22 The most common example in Australia is a unit trust. Under s 604(1), Ch 6 applies as if the scheme was a listed company and interests in the scheme were shares in a company. Amongst other things, s 604 also equates features of a managed investment scheme to the corresponding features of a company: the directors of the responsible entity of the scheme are treated as directors of a company. There may be some doubt as to how well this drafting technique works: for example, there is a question whether a “voting interest” in a scheme can be equated to a “voting share”: see discussion at [2.60.20]. The provisions governing the interaction between the takeovers code and buy-back of shares in a company do not apply straightforwardly to redemption of units in a managed investment scheme, leading one judge to suggest that “s 606 is not engaged by ss 603 and 604 in respect of things a responsible entity can lawfully do if those things would be beyond the powers of the notional listed company that the scheme is taken to be for the purposes of Ch 6.”23

20 Discussed in detail in 19.11. 21 This overcomes the previous problems and perceived unfairness which existed before March 2000. See AF & ME Pty Ltd v Aveling (1994) 14 ACSR 499; Rural and Agricultural Management Ltd v West Merchant Bank (1996) 20 ACSR 563. 22 The definition excludes many situations, such as partnerships of less than 20 members, franchises, banking products, retirement villages, superannuation and insurance products. 23 Re Real Estate Capital Partners Managed Investments Limited as Responsible Entity of the Real Estate Capital Partners USA Property Trust [2013] NSWSC 190 [58], per White J, discussing Item 19 of s 611, although s 609(4) raises similar issues. See also the discussion of reg 1.0.18 and registered schemes at [3.70.20].

The 20% Prohibition and when it Applies

13

Historically, it was common for the deed governing a managed investment scheme to contain its own rules about the acquisition of interests beyond a certain level. Typically, these largely replicated the equivalent provisions of the takeovers legislation, though with some necessary adjustments. Once Ch 6 was extended to managed investment schemes in 2000, this gave rise to a question about which rules to apply if the provisions in the deed were more restrictive than, or inconsistent with, Ch 6.24 Given the amount of time that has passed since then, it is unlikely that this situation would now arise, but, if it did, a bidder who could not comply with both sets of requirements may need to seek either a modification of Ch 6 from ASIC or a waiver of the trust deed requirements from the trustee or responsible entity (assuming the deed gives them such a power) As an alternative to making a takeover offer under Ch 6, all the units in a managed investment scheme may be acquired under a “trust scheme”, modelled on a scheme of arrangement under Pt 5.1: see [5.40.40]. Apart from acquiring control of a unit trust by acquiring a majority of units, it may also be possible to acquire control of the responsible entity by private negotiation. Generally, such a transaction would not require unit-holder approval (though the responsible entity may remain subject to removal from office by unit-holder resolution): s 601FM. [2.40.10] An acquisition of units in an unlisted unit trust is not regulated by Ch 6. Therefore, it is possible for a person to acquire a controlling interest in such a unit trust without extending a similar offer to all unit-holders. Once sufficient units have been acquired, a resolution of unit-holders can then be used to remove the manager or trustee from office.25 The great difficulty is usually in reaching 100% ownership. Sometimes the trust deed will provide for compulsory acquisition of remaining unit-holdings once a certain threshold has been reached.26 If the deed does not have such provisions, the person seeking control can propose a meeting of unit-holders to approve amendments to the trust deed to introduce a compulsory acquisition or redemption provision. This route may be preferred where the majority of unit-holders are favourably disposed towards the proposal, though it will generally involve the

24 The deed cannot require or enable the responsible entity or a holder to act inconsistently with the Act. Nor can it enable the responsible entity to block transfers or divest interests, since it must reflect ASX Listing Rules 6.12 and 8.10. The deed could require the responsible entity to do more than Ch 6 requires (e.g. provide an independent expert’s report, even where s 641 didn’t require one). 25 See Brewster, “Fiduciary Obligations of Trust Managers and Takeovers of Unit Trusts” (1990) 8 C&SLJ 303 for a general discussion of issues arising in takeovers of public unit trusts. See also Kriewaldt and Hemmings, “A Unitholder’s Interest (and Relevant Interest) in Trust Property” (1994) 12 C&SLJ 451 where it is suggested that, in some circumstances, a unit-holder may have a relevant interest in shares forming part of the trust fund. In that rare case, an acquisition of units could well have further implications under Ch 6. 26 Elkington v Moore Business Systems Australia Ltd (1994) 15 ACSR 292.

14 Takeovers Law & Strategy

trustee (or responsible entity) facilitating any necessary meeting of unit-holders. Under the definition in s 92, units in an unlisted unit trust are “securities”. Although the general provisions in the Corporations Act relevant to dealings in securities apply to a transaction involving units in an unlisted trust and it may be possible to make a bid for them under Ch 6,27 the bidder will not be able to utilise the post-bid compulsory acquisition provisions if the bid is successful. Ch 6A’s application to unit trusts is limited to listed managed investment schemes and applying it beyond those schemes is not facilitated by the legislation.28

2.5 The crown [2.50] The applicability of Ch 6 to the Crown and instrumentalities and agencies of the Crown should be considered from three perspectives. As a target company [2.50.10] It is difficult to conceive how the Crown could be a target company as it is not likely to be listed or have more than 50 members. Nevertheless, the law expressly provides that Ch 6 does not apply to an acquisition of shares in a company which is a public authority or an instrumentality or agency of the Crown in right of a State or Territory: s 611, Item 20 and reg 6.2.01 of the Corporations Regulations. The law is silent regarding an acquisition of shares in a body representing the Crown in right of the Commonwealth. As a purchaser [2.50.20] Section 5A(3) of the Corporations Act provides that Chs 6, 6A, 6B and 6C bind the Crown in right of the Commonwealth, but do not bind the Crown in right of any State, the Australian Capital Territory, the Northern Territory or Norfolk Island.29 This means that a State or Territory instrumentality is able to purchase shares in a listed company in excess of the general 20% limit without contravening the law. Various State and Commonwealth officers (in particular, members of ASIC and of the Takeovers Panel) and trustees in bankruptcy are exempt from s 606 where they acquire interests in shares as a result of holding those offices: Item 20 of s 611, reg 6.2.02 and Sch 3 to the Regulations.

27 Provisions such as s 616 refer simply to “securities”, but the provisions dealing with notices and the target’s statement assume that the bid is for securities of a company. That notion is extended by s 604 to include a listed managed investment scheme, but not an unlisted one. See also [2.60.30]. 28 Compulsory acquisition of interests in a listed scheme may be completed after the scheme is delisted, however: s 660B. 29 This includes any instrumentality or agency (whether a body corporate or not) of the Crown: s 5A(1). On when a body is such an agency, see Bradken Consolidated Ltd v Broken Hill Proprietary Company Ltd (1979) 145 CLR 107.

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15

As a vendor [2.50.30] It used to be arguable that, on the basis that Ch 6 did not bind the Crown in right of a State, a person dealing with such an instrumentality could also benefit from the Crown’s exemption. If correct, that person could not be restrained from an acquisition that may otherwise have breached s 606. The reasoning for this view was that to apply Ch 6 to such a transaction would prejudice the interests of the Crown or could impede performance by a statutory authority of its functions, albeit indirectly. For similar reasons, private companies dealing with the Commissioner of Railways, who by statute represented the Crown were formerly held to be exempt from the Trade Practices Act 1974 (Cth). The doctrine of derivative Crown immunity has since then been narrowed, however.30

2.6 Securities to which Ch 6 applies [2.60] The general rule in s 606 applies only when there is an acquisition of relevant interests in issued “voting shares” (or “voting interests” in a listed managed investment scheme) which increases a person’s “voting power”. The prohibition is not generally concerned with the acquisition of non-voting shares or non-voting interests or with the acquisition of other securities (such as convertible notes, options over unissued shares or units in unlisted unit trust schemes). A bid may, however, be made for any securities of a company: see [2.60.30]. What is a voting share? [2.60.10] A voting share is defined in s 9 as an issued share in a body that carries any voting rights beyond a right to vote: (1) while a dividend (or part of a dividend) in respect of the share is unpaid; (2) on a proposal to reduce the body’s share capital; (3) on a resolution to approve the terms of a buy-back agreement; (4) on a proposal that affects rights attached to the share; (5) on a proposal to wind up the body; (6) on a proposal for the disposal of the whole of body’s property, business and undertaking; (7) during the body’s winding-up. “Non-voting share” is defined by s 9 to mean an issued share that is not a voting share.

30 This decision, Bradken Consolidated Ltd v Broken Hill Proprietary Company Ltd (1979) 145 CLR 107, was overruled on this point in Bropho v Western Australia (1990) 171 CLR 1, as explained in Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd [2007] HCA 38.

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The definition of voting share is based on the traditional circumstances in which preference shares confer a right to vote.31 If a vote is conferred in any other circumstance, the share will be a voting share. This may be the case, for instance, if a preference share is given a right to vote on a resolution to approve an issue of further preference shares, on a resolution to approve the sale of the company’s “main undertaking”, during a period where any redemption money is unpaid or on a resolution to appoint a director to represent preference shareholders. If the share confers a vote in such a circumstance, it will be a “voting share” even if the circumstance has not yet arisen. In practice, it may be difficult to determine what voting rights are attached to a preference share. Section 254A(2) of the Corporations Act requires the rights of preference shareholders with respect to voting to be “set out” in the company’s constitution or to have been otherwise approved by special resolution. However, to preserve maximum flexibility for the company, often all that is set out is that voting rights will be determined by the terms of issue of the share or as set out in the relevant share certificate. This practice was approved as satisfying the predecessor to s 254A(2) in TNT Australia Pty Ltd v Normandy Resources NL (1989) 53 SASR 184. In these instances, assistance can often be obtained from searching the company’s records at ASIC or the ASX to review documents lodged when the shares were issued. If the constitution of the company confers unequal voting rights (such as a sliding voting scale favouring small shareholders), or provides that the same number or a maximum number of votes can be cast irrespective of the number of shares held,32 there is an argument that the shares may not be voting shares at all.33 A person acquiring additional shares may, in those circumstances, not acquire any additional votes. In Westel Co-operative Ltd v Foodland Associated Ltd (1987) 12 ACLR 60, the constitution of the target company, a co-operative company limited by shares, provided that each member had one vote irrespective of the number of shares held. Although the case was decided on other grounds, Burt CJ in the Supreme Court of Western Australia considered that the shares were not voting shares as the voting power attached to the membership, not the shares. The other judges did not comment on the issue, though, at first instance, Wallace J took the opposite view, namely that each share was a voting share because it had the capacity to provide its holder with a vote. The point was also noted, but without being decided in Re Darling Downs Co-operative Bacon Association Ltd (1988) 12 ACLR 709, 31 See ASX Listing Rule 6.3 and the preference shares considered in Specialty Press Ltd v Industrial Equity Ltd [1977] CLC 40-399 and in Catto v Ampol Ltd (1989) 15 ACLR 307; 16 NSWLR 342. A non-voting share does not become a voting share while or because the additional voting rights attached to it are enlivened. 32 See 13.4 for when this may be encountered. 33 Or at least that there is no definite number of votes attached to specified shares, as assumed by s 610.

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17

also concerning a co-operative. In that case, a vote was only conferred on shareholders who were also active producers and suppliers. The preferable approach, however, seems to be not to focus on any restrictions on the present holder of the shares, but to ask whether the shares could be voted if held by someone else.34 On this basis, shares subject to some impermanent limitation (such as no right to vote unless held by a member with a particular qualification) would remain voting shares despite the limitation.35 The same conclusion would apply to shares which had been forfeited due to non-payment of a call36 and shares in a company held by an entity controlled by the company which may not be voted under s 259D(3). A similar question arises if shares do not confer a present voting right but will confer such a right after the occurrence of a certain event or after a certain date or which may be converted by the holder to become ordinary voting shares (for example, converting or convertible preference shares). The view conventionally taken is that such shares are not voting shares until they confer a present voting right.37 The conversion will constitute an “acquisition” of a relevant interest, however, even though the holder took no action to bring it about or had a relevant interest in the share prior to the conversion: s 606(6). The acquisition of options over unissued shares is not regulated by Ch 6 as, prior to exercise, an option is neither a share nor an interest in a share.38 Two further points can be made. First, this position must be contrasted with the acquisition of an option over an issued share. In that case, the acquisition of the option (whether on its creation or by assignment) will be the acquisition of a relevant interest in the share (see 3.5 “Relevant interest: acceleration rule”) and, accordingly, within the ambit of s 606. This will apply to options acquired privately. However, options over issued shares acquired pursuant to trading on

34 This approach is suggested by Renard, “Relevant Interests and Associations Revisited” (1989) 7 C&SLJ 44 [48]. It appears to have been adopted in El-Fahkri v Arrow Taxi Services Ltd (unreported, Sup Ct Vic, no 67 of 2007), referred to in Arrow Taxi Services Ltd [2007] ATP 11. 35 See also the analysis in Cumbrian Newspapers Group Ltd v Cumberland & Westmorland Herald Newspaper & Printing Co Ltd [1987] Ch 1; [1986] 3 WLR 26. 36 Which are not entirely extinguished by forfeiture: McLachlan v Cooper’s Creek Mining and Exploration NL [1973] VR 517. 37 Re Arrowfield Group Ltd (1995) 17 ACSR 649. This view is supported by s 606(6) which contemplates the legislation being attracted when a non-voting share becomes a voting share. In other words, despite the future voting right, until conversion, the share is a non-voting share. 38 NCSC v Consolidated Gold Mining Areas NL [1985] 1 NSWLR 454; Equiticorp Industries Ltd v ACI International Ltd [1987] VR 485; and ASIC Regulatory Guide 5: Relevant interests and substantial holding notices, RG 5.157–5.159. A contrary view is suggested in Greenwood, “Unissued Shares – Relevant Interests Disinterred” (1991) 9 C&SLJ 7.

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options markets are excluded from the relevant interest concept for these purposes until the obligation to make or take delivery arises: s 609(6). Secondly, the exercise of an option to take up an unissued share is an acquisition of a relevant interest in the share attracting s 606: see s 64. Accordingly, the option can only be exercised if the acquisition of the share would not breach s 606. In this regard, there are special provisions permitting the exercise of renounceable options or convertible notes if those securities were acquired on market during a formal takeover: see s 611, Item 3 (discussed at 19.3). What is a voting interest? [2.60.20] As discussed at [2.40], s 604 extends Ch 6 to listed managed investment schemes by deeming the scheme to be a company, and most of its key features to be the corresponding features of a company. This is coupled with a definition in s 9 of “voting interest”, which is similar to the definition of “voting share” discussed above, though, unlike the definition of “voting share”, a right to vote while a dividend (or distribution) is unpaid or to vote on a capital return or buy-back agreement is not excluded. It appears that every interest in a registered scheme is a voting interest, despite this definition. Under s 253C, each member of a registered scheme has one vote for each dollar of the value of the total interests they have in the scheme. There is no recognition of interests that purport, under their terms of issue, to have limited voting rights, although s 253C appears to require partly paid interests to have fractional voting rights. All interests have a statutory right to vote on all resolutions, subject to fetters put on voting by particular holders (as by s 253E), and many of the matters on which the Act confers the right to vote fall outside the list of matters on which a non-voting interest may be voted. Accordingly, an acquisition of any interest in a registered scheme may have implications under Ch 6. Bids for securities that are not voting shares [2.60.30] Even though the acquisition of securities which are not voting shares cannot trigger the prohibition in s 606, it is possible for a bid to be made for such securities under Ch 6, provided they are issued by a company (or a listed managed investment scheme). This may be useful, for example, in contemplating an acquisition of a company which has options, convertible notes or other securities on issue. The prime motivation in launching such a bid is to enable the bidder to compulsorily acquire minority holdings if the tests in s 661A are satisfied (see 17.2 for discussion of compulsory acquisition tests). However, the choice is a difficult one as Ch 6 contains many onerous provisions, including the disclosure requirements of bidder’s statements, minimum offer price rules and rules prohibiting the giving of benefits to target company shareholders outside the takeover bid. An alternative available for non-voting shares is to rely on the general compulsory

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19

acquisition power or to frame an offer which may enable the bidder to rely on the compulsory acquisition procedure in s 414 (discussed at 18.6).39

39 But Ch 6A is not available for interests in an unlisted managed investment scheme (see 2.41), and s 414 is not available for interests in any managed investment scheme (see 18.6).

Chapter 3

Voting Power, Relevant Interests and Associations [3.10] [3.20] [3.30] [3.40] [3.50] [3.60] [3.70] [3.80] [3.90]

3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9

Control over shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Meaning of “acquire” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Meaning of “dispose”. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Measuring “voting power” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 What is a “relevant interest”? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Exclusions from the “relevant interest” concept . . . . . . . . . . . . . . 37 Who is an “associate”?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Exclusions from the associate concept . . . . . . . . . . . . . . . . . . . . . . . . . 62 Examples of the rules in operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

3.1 Control over shares [3.10] The prohibition in s 606 only operates when there is an acquisition of a “relevant interest” in shares1 which results in a person’s “voting power” increasing so as to contravene the prescribed limits. To understand what constitutes an acquisition of a “relevant interest” and how to calculate a person’s “voting power” requires an examination of detailed provisions in the legislation. These provisions and the supporting definitions of “relevant interest”, “voting power” and “associate” are concerned with the proportion of the votes attached to voting shares in the company which a person controls. These concepts are discussed in sections 3.5, 3.4 and 3.7. They do not correspond to legal or beneficial ownership of shares, and may include control over shares which is partial, indirect, deemed and tenuous. The complexity of the provisions often leads to difficult interpretative issues and inadvertent breaches.2

1

For brevity, in this Chapter “share” in general includes an interest in a managed investment scheme.

2

The fact that a breach is accidental or inadvertent may prevent it having criminal consequences, but will not preclude the Takeovers Panel making a declaration of unacceptable circumstances: see LV Living Ltd [2005] ATP 5 [105]–[107]; and Brisbane Broncos Ltd 01 and 02 [2002] ATP 1 [13]–[22].

22 Takeovers Law & Strategy

3.2 Meaning of “acquire” [3.20] Section 606 is only attracted if a person “acquires a relevant interest in securities”,3 but the Act provides no definition of what it is to acquire a relevant interest. It does provide that a person is taken to acquire a security when it is issued to the person, and a note observes that securities can also be acquired by secondary trading.4 This is consistent with the ordinary meaning of “acquire”, as applied to securities, which is to acquire title to, or a proprietary interest in, the securities.5 The notion of a relevant interest in securities is much more artificial and extended than those of title and of a proprietary interest, however, and s 606 contemplates that a person can acquire a relevant interest by entering into a “relevant agreement”, which includes an informal and unenforceable understanding,6 and so without acquiring any proprietary interest in the security. For these reasons, it has been held that the notion of acquiring a relevant interest has a meaning extended to correspond with that of a relevant interest: to acquire a relevant interest is to obtain that interest, including in any way commensurate with that artificial concept.7 Because a person may have a relevant interest in shares in company B by virtue of having an interest in securities of body A (for instance, where A holds a parcel of shares in B), a person may acquire a relevant interest in a share in B by acquiring securities in body A, such as a controlling interest in A: see examples at 2.3. There are, however, several limitations to the types of acquisitions which attract the prohibition in s 606. First, a person only contravenes s 606(1) if the person acquires a relevant interest through a “transaction in relation to securities”.8 The concept of “entering into a transaction” in relation to securities is partially defined to include entering into or becoming a party to a relevant agreement

3

This concept is also used in ss 608, 609, 610 and 611. It incorporates a definition formerly set out separately in s 51.

4

Section 761E(1), reached via definitions of “acquire”, in reference to securities, in ss 9 and 761A.

5

Green v Crusader Oil NL (1985) 10 ACLR 120: this is undoubtedly the sense in which the chapeau of s 606(2) and provisions of Chs 6 and 6A other than ss 606 and 611 refer to acquisitions of securities.

6

See the definition of “relevant agreement” in s 9.

7

Aberfoyle Ltd v Western Metals Ltd [1988] FCA 744; (1988) 84 FCR 113, 144; Australian Securities & Investments Commission v Yandal Gold Pty Ltd [1999] FCA 799 [82]–[100] per Merkel J (on appeal upheld on this point: Edensor Nominees Pty Ltd v Australian Securities & Investments Commission [2002] FCA 307; (2002) 41 ACSR 325 [34]–[39] per Hill, Sundberg and Mansfield JJ). This was accepted by the Panel in The President’s Club Ltd [2012] ATP 10 [90].

8

As noted below and in 2.1, the securities to which the transaction relates need not be the same securities as those in which the person acquires a relevant interest.

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concerning the securities or exercising an option to have the securities allotted.9 “Transaction” has been considered in revenue cases to refer to an act or dealing with another person or persons. It would not ordinarily cover an isolated unilateral action, such as exercising voting rights in support of a particular resolution.10 On this basis, for example, the appointment of a person as a director would not usually be regarded as a “transaction”. However, if the action is part of an integrated and pre-determined course of action involving other participants, the overall course of action may be taken together to constitute a “transaction”.11 In Birks v FCT (1953) 10 ATD 266, a series of steps taken to ensure that a man’s rights to take up shares in a company were exercised not by him but by his wife and daughter for their benefit, thereby diluting the value of his remaining shareholding, was held by Kitto J in the High Court of Australia to constitute a single transaction. In Re Real Estate Capital Partners Managed Investments Limited as Responsible Entity of the Real Estate Capital Partners USA Property Trust [2013] NSWSC 190 [52], White J held that it would be artificial to treat receipt of an application for redemption of interests in a scheme and the redemption itself as separate transactions, where redemption was an automatic and immediate result of receipt of the application. While a relevant transaction is one in relation to securities, it may relate directly to securities of one sort and only indirectly to other securities in respect of which s 606 applies. For instance, a person may purchase shares in an upstream body, which is not a company for the purposes of Ch 6, but through that purchase acquire a relevant interest in shares in a company in respect to which Ch 6 does apply. Secondly, a person only contravenes s 606(1), if the relevant transaction is entered into by or on behalf of that person. This usually involves an acquisition by an agent or nominee for a principal: an example is where a broker purchases shares on market on the instructions of a client. Where one person A enters into a transaction in relation to securities, or acquires a legal or equitable interest in securities, which results in another person B having a relevant interest in shares but does not do so on behalf of B, B may not contravene the prohibition. This may even be the case where A is a subsidiary of B.12 If the other elements of s 606(1) or (2) are present, however, A will breach s 606.

9

Section 64 and the definitions of “enter into” and “relevant agreement” in s 9.

10 Grimwade v FCT (1949) 78 CLR 199. 11 Birks v FCT (1953) 10 ATD 266; Gorton v FCT (1965) 113 CLR 640; Palmer v Commissioner of State Taxation [1976] WAR 37; Franmarine Services (WA) Pty Ltd v Commissioner of State Taxation (1990) 90 ATC 4,207; Nicholas Paspaley Properties Pty Ltd v Commissioner of Taxes (1991) 91 ATC 4,171. See also Re Arrowfield Group Ltd (1995) 17 ACSR 649. 12 See R v Ditfort (1987) 19 ATR 60 (appeal dismissed in R v Ditford (1991) 22 ATR 73), a case concerning the Crimes (Taxation Offences) Act 1980 (Cth). Although on the face of it, this limb of s 606(1) could be engaged when A as trustee acquires shares on behalf of B as

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Section 606 does not apply where a person’s voting power increases because other shares in the company are cancelled or cease to be voting shares. Because a reduction of capital involves shares being cancelled, rather than acquired, the reduction does not breach s 606, even though it increases the voting power of shares which are not cancelled.13 Although the notion of acquiring a relevant interest in securities may include a passive acquisition,14 s 606 appears not to prohibit passive acquisitions. As noted above, s 606(1) only applies to an acquisition of a relevant interest in securities through a transaction entered into by, or on behalf of, the acquirer.15 Similarly, s 606(4) applies only to a person who makes an offer or invitation, or causes it to be made. While s 606(2) and s 606(6) do not in terms require an active acquiring, item 15 in s 611 excludes from the prohibition an acquisition through a will or through operation of law.16 As discussed in 2.6, only an acquisition of a relevant interest in an issued share attracts the prohibition in s 606.17 For this reason, a person may acquire options to subscribe for (or other rights over) unissued shares,

beneficiary of a discretionary trust, in this situation B generally does not acquire a relevant interest in the shares unless A is acting at B’s direction, in which case A is also acting on behalf of B. 13 Re Stockbridge Ltd (1993) 9 ACSR 637, 651. When a company buys back its own shares under Div 2 of Pt 2J.1, the transaction proceeds as a purchase and sale, but the shares are cancelled on transfer to the company: s 257H(3). In Coles Myer Ltd v Commissioner of State Revenue [1998] 4 VR 728; [1998] VSC 288, the Court of Appeal held that this consequence took the transfer outside the concept of a transfer of securities for the purposes of stamp duty legislation, for reasons which should equally mean that it does not involve an acquisition of a legal, equitable or relevant interest in the shares bought back. The buy-back is in any case exempted from s 606 by s 609(4) and item 19 in s 611. See [3.60.40] and [19.130]. 14 See the discussion of a similar ambiguity in “obtain” in Attorney-General’s Reference (No 1 of 1988) [1989] 1 WLR 195, 205 per Lord Lane CJ (CA); and Attorney-General’s Reference (No 1 of 1988) [1989] 2 WLR 729, 734–35 per Lord Lowry (HL). In Edensor Nominees Pty Ltd v ASIC [2002] FCAFC 72 [34] the Full Court of the Federal Court quoted alternative definitions of “acquire” as “gain … by one’s own exertions” and as “receive”, but did not need to choose between them. 15 In ASIC v Yandal Gold Ltd [1999] FCA 799 [89] Merkel J said that this requirement “protect[s] against a passive acquisition”. A person may, however, acquire a relevant interest in a share as the delayed result of a transaction into which they entered, such as where a non-voting security they have purchased is converted into a voting share with no further action on their part. 16 In addition, the view is at least open that, although s 606(6) supplies the acquisition element of s 606(1), it does not supply the transaction element. Since a breach of s 606 is a criminal offence, s 6 of the Criminal Code requires the physical element of the offence to be constituted by conduct of the offender, which may be causing or authorising the relevant acquisition. See also The President’s Club Ltd [2012] ATP 10 [94]–[96]. 17 See “issued” in s 608(1) and (2) and ASIC Regulatory Guide 5: Relevant interests and substantial holding notices, RG 5.157–5.159.

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25

without contravening s 606, until the underlying shares are issued.18 In this case, because s 606 does not require the acquisition to follow immediately after the transaction, it is possible for a breach to result from a transaction which was completed some time previously.19 Section 606 applies extraterritorially, to acts and omissions outside Australia, and to natural persons wherever resident and bodies corporate wherever formed or carrying on business: s 5(7) and (8). The jurisdictional nexus is supplied by its application in relation to securities of companies, bodies and registered schemes formed in Australia.20

3.3 Meaning of “dispose” [3.30] For the purposes of Ch 6 of the Corporations Act, s 9 provides that a person who has a relevant interest in securities “disposes” of those securities if, and only if, they cease to have a relevant interest in the securities. The definition seems entirely inappropriate. The word “dispose” is used in only two places in Ch 6. One is s 608, where “relevant interest” is defined partly by reference to power to dispose of a share. If “dispose” is in turn defined in terms of relevant interest, both definitions are circular. The other is the prohibition against a bidder disposing of securities during the bid period: s 654A (see 10.6). Since the mischief here is the bidder depressing the price of the bid class shares by selling, the relevant sort of disposal is sale. Under this definition, it is possible to agree to sell shares without “disposing” of those shares, because, until the seller has been paid and becomes a bare trustee of the legal title, the seller retains a lien over the shares which entitles the seller to some residual control over the shares. This control constitutes a relevant interest.21 Conversely, it is possible to dispose of the right to vote and the right to sell the share, though still retaining a full beneficial interest, and, not being the registered holder, to be regarded by the legislation as having “disposed” of the share.22

3.4 Measuring “voting power” [3.40] The meaning of “voting power” is central to the operation of Chs 6–6C. It is aimed at grouping together and counting the percentage of 18 Anaconda Nickel Ltd 02–05 [2003] ATP 4 [122], where a bidder purchased both shares and rights issued under a rights issue made by the target. 19 Similarly, where shares previously acquired become voting shares or have additional votes attached to them (s 606(6)), or when exceptions in s 609 cease to apply. 20 See NCSC v Brierley Investments Ltd (1988) 14 NSWLR 273; Re North Broken Hill Holdings Ltd (1986) 10 ACLR 270; ASC v Bank Leumi Le-Israel Switzerland (1996) 21 ACSR 474; Village Roadshow Ltd 01 [2004] ATP 4. 21 NCSC v FAI Investments Pty Ltd (1982) 7 ACLR 152. See 3.4 for the effects on the unpaid vendor’s ability to acquire additional shares. 22 North Sydney Brick & Tile Co Ltd v Darvall (1986) 5 NSWLR 681, 688 per Mahoney JA.

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all voting shares23 that are controlled by a person and his or her associates. The drafting of the legislation is complex. Section 610(1) defines a person’s voting power as: Person’s and associates’ votes Total votes in body corporate

×

100

where: “person’s and associates’ votes” is the total number of votes attached to all the voting shares in the body corporate (if any) in which the person or an associate has a relevant interest, and “total votes in body corporate” is the total number of votes attached to all voting shares in the body corporate.24 For this purpose, regard is had to the number of votes that could be cast on a poll on an election of directors or, if directors are not elected by votes of voting shares, on the adoption or amendment of the body’s constitution: s 610(2).25 A transaction between associates which confers a relevant interest on one associate which he or she did not have previously is treated as an increase in “voting power” for the purposes of s 606: s 610(3). This is intended to preclude persons forming associations and then selling shares between themselves in ways which may affect control, without attracting s 606 at either stage.26 The definition of “voting power” aims to regulate “warehousing”, in which several persons acting together could acquire a control block of shares while individually remaining below the 20% threshold. “Warehousing” occurs where there is an undisclosed arrangement between two parties pursuant to which shares controlled by the first party will eventually be acquired by the second party or voted or disposed of according to the second party’s wishes.27 Where warehousing occurs and the market is uninformed, so that the parties involved reap an unfair advantage, that is likely to constitute unacceptable circumstances, whether or not the parties could be regarded as associates.

23 See Anaconda Nickel Ltd 16–17 [2003] ATP 15 where the importance of the rule applying to percentage of voting shares rather than the number of voting shares can be seen. 24 On when a vote is attached to a share, see Westel Co-operative Ltd v Foodland Associated Ltd (1987) 12 ACLR 60, per Wallace CJ and cf The President’s Club Ltd [2012] ATP 10 [79] and Cumbrian Newspapers Group Ltd v Cumberland and Westmorland Newspaper and Printing Co Ltd [1987] Ch 1 [15]ff. 25 The operation of s 613 (which precludes a bidder from voting shares acquired on market during a bid period if the bidder’s statement has not been dispatched on time) is disregarded in working out voting power: s 610(4). See [2.60.20] for the number of votes attached to an interest in a managed investment scheme. 26 See Touch Holdings Ltd [2013] ATP 3 [77]–[78]. 27 See oOh!media Group Limited [2011] ATP 9.

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27

As mentioned in 3.3, until it has been paid, the vendor under an agreement to sell shares has a vendor’s lien and a relevant interest in those shares. This is relevant in determining how many shares the vendor can purchase after agreeing to sell the shares: until the vendor is paid in full, the vendor must count those shares towards its voting power. Once persons are associates of one another, in general, each will have “voting power” which includes all shares any of them controls.

3.5 What is a “relevant interest”? [3.50] The prohibition in s 606 is attracted when a person acquires a “relevant interest” in a share.28 The essence of having a relevant interest in a security is being able to control the security. It is not necessarily commensurate with ownership.29 The legislation sets out a basic rule in s 608(1) and follows it with various other rules which, on one view, can be regarded simply as illustrations of the basic rule. There are also various important exceptions intended to preserve legitimate commercial arrangements. A convenient way to discuss the concept is to summarise the three main rules that emerge from the legislation. Relevant interest: basic rule A person has a relevant interest in securities if that person: (a) is the holder30 of the securities; (b) has power to exercise, or control the exercise of, a right to vote attached to the securities; or (c) has power to dispose of, or exercise control over a power to dispose of, the securities: s 608(1).

[3.50.10] It is immaterial whether the power or control is direct or indirect or is, or can be, exercised as a result of, by means of, in breach of, or by revocation of, trusts, relevant agreements and practices, whether or not they are enforceable,31 or whether the power is only exercisable jointly with another person: s 608(2). It is also immaterial whether or not the power is express or implied, formal or informal, cannot be related to a particular security or is, or can be made, subject to restraint or restriction: s 608(2). A relevant interest is not to be disregarded merely because of its

28 See ss 606(1), 606(2) and 606(6). 29 The divorce between these concepts is discussed in G Durbridge and A Rich “Will The Real Sir Richard Eggleston Please Stand Up”, in T Damian and C James (eds) Towns Under Siege: Developments in Australian takeovers and schemes, (Sydney, Ross Parsons Centre), 2016, Ch 2, at [2.2.6(c)] and [2.6.2]. 30 “Holder” ordinarily means registered shareholder: Kingston v Keprose Pty Ltd (No 3) (1987) 12 ACLR 609. 31 These concepts are discussed in The President’s Club Ltd [2012] ATP 10 [80]–[90]. An informal and unenforceable arrangement may be sufficient even if the parties are free to withdraw from it at any time: Edensor Nominees Pty Ltd v ASIC (2002) 41 ACSR 325.

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remoteness or how it arose: s 608(1).32 A company can have a relevant interest in its own securities: s 608(9).33 Simple illustrations of relevant interests include the powers of a registered holder of a share and the powers of a person holding a voting authority in respect of shares.34 If the securities are not registered in the name of the person concerned, “control” over voting or disposal of the securities must be established. The word “control” has a wide range of meanings: at one extreme, control of a company means the power to cause any ordinary resolution to pass or to fail,35 at the other extreme, it is capable of applying to something weaker than “restraint”, something more equivalent to “regulation”.36 Having regard to the tenuous and indirect control contemplated by s 608(2), the courts have regarded the definition as requiring only power to exercise some true or actual measure of control over the disposal (or, by parity of reasoning, over the voting) of the security.37 That degree of control must, however, be more than “minor, peripheral or merely hypothetical, theoretical or notional”.38 In ASIC v Yandal Gold Pty Ltd (1999) 32 ACSR 317, Merkel J said that there may be some controversy whether an agreement not to accept a takeover bid involves the requisite degree of control, but that it would if coupled with an undertaking to retain the shares. On appeal, the Full Court of the

32 Thus, in NCSC v Brierley Investments Ltd (1988) 14 NSWLR 273 Hodgson J held that power to control disposal of a parcel of shares could be exerted by a person through a long chain of companies, so that person had a relevant interest in the parcel of shares, without needing to rely on the deeming provisions now in s 608(3)–(8). 33 Reversing the decision in Rendoel Pty Ltd v Campbell Investments Company (1985) 1 NSWLR 435: see [3.70.20]. 34 Re Kornblums Furnishings Ltd; Blair v Wade [1982] VR 123; (1982) 6 ACLR 25. For an example of a voting agreement giving rise to unacceptable circumstances, see Trysoft Corporation Ltd [2003] ATP 26. 35 Mendes v Commissioner of Probate Duties (Vic) (1967) 122 CLR 152, 164 per Kitto J, who left it open whether the power needed to extend to passing special resolutions. 36 Bank of New South Wales v Commonwealth (Bank Nationalisation Case) (1948) 76 CLR 1, 385 per Dixon J, stressing that “control” is “an unfortunate word of … wide and ambiguous import” and that its content “is normally dictated by its context”. 37 Re Kornblum’s Furnishings Ltd; Blair v Wade [1982] VR 123; (1982) 6 ACLR 25. This case was decided under the Companies Act 1961 (Vic), but has been followed in decisions on later provisions, discussed below. This degree of control may exist under an agreement that restricts a person’s ability to sell a “material asset” where that person holds a significant parcel of shares, such as the arrangement in Australian Pipeline Trust 01 [2006] ATP 27. 38 North Sydney Brick & Tile Co Ltd v Darvall (No 2) (1986) 5 NSWLR 681, 689 per Mahoney JA; ASIC v Yandal Gold Pty Ltd (1999) 32 ACSR 317 [73]; Edensor Nominees Pty Ltd v ASIC (2002) 41 ACSR 325 [33]; Azumah Resources Ltd [2006] ATP 34 [58]. A standstill agreement binding one holder limits the power of every other holder of the relevant class of securities to dispose of their own holding, but the effect is too marginal to count as a relevant interest, since only one potential buyer is taken out of the market.

Voting Power, Relevant Interests and Associations

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Federal Court agreed with this view: see Edensor Nominees Pty Ltd v ASIC (2002) 41 ACSR 325. The ordinary meaning of “control” is the positive ability to bring about the result of one’s choosing. This would cover an ability to cause securities to be voted or transferred in a particular way.39 This is consistent with the objective of the relevant interest concept to identify securities which are, in a practical sense, controlled by a person and may therefore be available to be used to influence the direction of the company concerned. The courts have, however, gone a step further: an ability to prevent some action may be sufficient to constitute “control”. Accordingly, a pre-emptive right over shares may confer a relevant interest on the holder of the right, whether conferred by a private agreement40 or by the constitution of the company.41 In other words, negative control over securities may be sufficient. This is contrary to conclusions reached in various revenue cases concerning control of a company. In those cases it has been held that a power of veto does not constitute control.42 These cases can arguably be distinguished on the basis that the definition of relevant interest uses the expression “power to exercise control” rather than simply “control”. Nevertheless, this result is arguably inconsistent with the objective of Ch 6 as the holder of a pre-emptive right may have no likelihood of ever being able to use the securities in question to support any objectives he or she has for the company. On that basis, the inclusion of those securities within his or her “voting power” will often overstate the person’s ability to influence the direction of the company. Some indication of the scope of the relevant interest concept can be gleaned from a series of decisions on different pre-emptive rights. •

In Re Kornblums Furnishings Ltd,43 a pre-emptive right arising under an agreement did not prevent shares being transferred between parties to the agreement or to any other person who agreed to be bound by the agreement. Beach J in the Supreme Court of Victoria pointed out that the agreement enabled one party to enjoin another from selling their shares on the open market. His Honour considered

39 These two sentences were quoted with approval in The President’s Club Ltd [2012] ATP 10 [82]. 40 Re Kornblums Furnishings Ltd; Blair v Wade [1982] VR 123; 6 ACLR 25; TVW Enterprises Pty Ltd v Queensland Press Ltd [1983] 2 VR 529; (1983) 7 ACLR 821; Trysoft Corporation Ltd [2003] ATP 26. 41 North Sydney Brick & Tile Co Ltd v Darvall (1986) 5 NSWLR 662. This position is now affected by s 609(8), but the cases on pre-emptive rights still illustrate the relevant interest concept. They reveal that whether a particular power to restrain the exercise of the power to sell a vote a security constitutes a relevant interest is a matter of fact and degree. 42 R v Staples (1940) 2 WWR 627; Mendes v Commissioner of Probate Duties (1967) 122 CLR 152; Dworkin Furs (Pembroke) v Minister of National Revenue [1966] ExCR 228; (1966) 67 DTC 5035. These cases reflect a specific concept of control of a company, rather than general notions of control. 43 Re Kornblums Furnishings Ltd; Blair v Wade [1982] VR 123; (1982) 6 ACLR 25.

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that this restraint on disposal of shares was sufficient to confer on each party to the agreement a relevant interest in each other party’s shares. •

In TVW Enterprises Pty Ltd v Queensland Press Ltd,44 the pre-emptive right considered was an unconditional right under an agreement, and the holder of the right was held to have a relevant interest in the subject shares.

•

North Sydney Brick & Tile Co Ltd v Darvall concerned pre-emptive rights in the constitution of the relevant company, which permitted a member to transfer shares to any other member, but not to a non-member if any member was willing to purchase the shares at their fair value. The constitution further required that an intending seller must first offer the shares for sale to all other members. The constitution was held to confer on each member of the company relevant interests in shares held by every other member, because each member could by injunction prevent another member from selling their shares, except in accordance with the pre-emptive rights.45

•

In the Foodland litigation,46 less restrictive pre-emptive rights in the constitution of a company permitted transfers between members and transfers in favour of a purchaser of the transferor’s business or any other person approved by the directors, though the constitution also provided that shares could not be transferred to a person who was not a member if a member or any other person approved by the directors was willing to purchase the shares for their fair value. In other cases, a selling shareholder had to first offer the shares to all other members. This constitution was held not to confer on each shareholder a relevant interest in another shareholder’s shares, because it conferred such wide discretions on the company’s directors that, in most cases, one shareholder could not prevent another shareholder from dealing with its shares.47

In North Sydney Brick & Tile Co Ltd v Darvall (No 2),48 Mahoney JA raised the question whether an absolute prohibition on voting or disposing of a 44 [1983] 2 VR 529; (1983) 7 ACLR 821. 45 North Sydney Brick & Tile Co Ltd v Darvall (1986) 5 NSWLR 662 (upheld on appeal: North Sydney Brick & Tile Co Ltd v Darvall (No 2) (1986) 5 NSWLR 681; 10 ACLR 837). Similar pre-emptive rights in a company’s or registered scheme’s constitution would no longer be taken to confer relevant interests, under s 609(8). 46 Foodland Associated Ltd v Garina Pty Ltd (1989) 14 ACLR 739, 744 per Wallace J; Foodland Associated Ltd v Garina Pty Ltd (1989) 15 ACLR 530, 553–54 per Commissioner Murray QC; Garina Pty Ltd v Foodland Associated Ltd (1989) 15 ACLR 745, 750 per Kennedy J, Brinsden J concurring. 47 These decisions leave it open whether the directors had relevant interests in the shares. Although one shareholder had a residual right to prevent another shareholder from dealing with its shares, that right was a minor or peripheral restraint on the power to dispose of them. 48 (1986) 5 NSWLR 681; 10 ACLR 837.

Voting Power, Relevant Interests and Associations

31

share could constitute a relevant interest. While his Honour did not need to resolve the question, the answer would appear to be that the prohibition would confer a relevant interest on a person who had the power to enforce the prohibition. Other difficulties can arise in practice where a company’s constitution provides that transfers of shares can only be made in favour of a person within a particular class (for example, a person carrying on a specified business activity) or that a transfer cannot be made in favour of a person within a particular class (for example, to a competitor or to a non-resident). It is often difficult to reach a definitive view whether or not such restrictions give a relevant interest to members of the company. If such a provision is enforceable, it does give one member power to restrain another from disposing of shares in certain ways, but depending on the width of the provision, it may not amount to more than a minor or peripheral restraint on the power to dispose of the shares. The safest approach for a bidder faced with this situation may well be to seek a modification of Ch 6 from ASIC to clarify the extent to which a relevant interest is conferred in a particular situation.49 If the basic rule in s 608(1) applied to standard pre-emptive rights over shares in a body, conferred by the body’s constitution, each member would have a relevant interest in 100% of the shares in the body. This would mean that each member could purchase additional shares without contravening s 606 as no relevant interest would be obtained as a result of further share purchases. It would also mean that a non-member would have difficulty in becoming a member as his or her relevant interests would increase from zero to 100% on the acquisition of a single share. These difficulties are addressed by s 609(8) which provides that a person does not have a relevant interest in securities merely because the body’s constitution gives all members pre-emptive rights on the same terms.50 Based on the predecessor to s 608(2), that a power exercisable jointly is treated as exercisable by any one of the persons concerned, it was held in Clements Marshall Consolidated Ltd v ENT Ltd (1988) 13 ACLR 90 that each director of a company has a relevant interest in any shares held by the company. This approach has not been followed in other cases,51 and has now been reversed by s 609(9), which confirms that a directorship is 49 See [20.30] for discussion of ASIC’s power to modify Ch 6. 50 See [3.60.80] on s 609(8) and [5.30.30] for a discussion of bids for companies with pre-emption rights. Section 609(8) does not apply where the pre-emptive rights are contained in a separate document, such as a shareholders’ agreement, but in that case the breach of s 606 would not result from the purchase, but from entry into the shareholders’ agreement. In Re Real Estate Capital Partners Managed Investments Limited as Responsible Entity of the Real Estate Capital Partners USA Property Trust [2013] NSWSC 190 [54], White J found that, under the constitution of the listed managed investment scheme in question, the responsible entity had a relevant interest in every interest in the scheme, because of the provision it made for redemption of units by the responsible entity. 51 Zytan Nominees Pty Ltd v Laverton Gold NL (1988) 14 ACLR 524, 533; North Sydney Brick & Tile Co Ltd v Darvall (1986) 5 NSWLR 662, mentioned in following paragraphs.

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insufficient by itself. The pragmatic view is that the powers exercisable by company officers are now disclosed and regulated as the powers exercisable by the company itself. This is consistent with the decision not to deem directors of a body corporate to be associated with that body.52 An alternative view is that because ordinarily a director can only exercise control over shares controlled by the company if enough of the other directors are persuaded to vote the same way, a theoretical possibility that a director may form part of a majority ought not to be sufficient.53 On this view, a sole director, directors who are associated with one another, or a board which has actually resolved to sell or vote the shares may have relevant interests in shares which their company controls.54 Similar reasoning will generally deny a relevant interest to holders of units in a unit trust which owns shares. This view was taken in the decision at first instance in North Sydney Brick & Tile Co Ltd v Darvall (1986) 5 NSWLR 662 where Kearney J decided that investors in a unit trust did not have the requisite level of control merely because they could, if they were so minded, amend the trust deed or replace the trustee. The argument that unit-holders have relevant interests is weaker than the corresponding argument concerning directors in Clements Marshall Consolidated Ltd v ENT Ltd (1988) 13 ACLR 90, inasmuch as unit-holders in a trust do not usually have the power to manage the affairs of the trust.55 On the other hand, a unit-holder in a unit trust may have a relevant interest if it has sufficient units to control activities of the trust or if the trustee cannot vote shares held on an election of directors without prior unit-holder approval. Much depends on the terms of the trust.56 Relevant interest: tracing rule If a body corporate or managed investment scheme has a relevant interest in securities, a person will also have a relevant interest in those securities if: (a) the person has voting power in the body or the scheme which exceeds 20%; or (b) the person controls the body or the scheme: s 608(3).

52 Contrast s 12(2)(a) with s 11(a) and (c), which are representative of corresponding previous provisions. 53 This approach is consistent with the distinction drawn in WP Keighery v Federal Commissioner of Taxation (1957) 100 CLR 66 between power to control and mere capacity to control, and is supported by comments in Zytan Nominees Pty Ltd v Laverton Gold NL (1988) 14 ACLR 524, 533 per Malcolm CJ, which considered a similar argument in the context of shareholders at a meeting theoretically voting together to control the company. 54 These relevant interests would owe their existence to circumstances additional to the fact of the directors holding office as directors, so would not be disregarded under s 609(9). 55 Similar comments apply to the corresponding argument in Zytan Nominees Pty Ltd v Laverton Gold NL (1988) 14 ACLR 524, mentioned above. 56 See Kriewaldt and Hemmings, “A Unitholder’s Interest (and Relevant Interest) in Trust Property” (1994) 12 C&SLJ 451. A unit-holder who holds an interest greater than 20% is deemed under s 608(3)(a) to have a relevant interest in securities held by the trust.

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33

[3.50.20] The 20% deeming rule in paragraph (a) is generally easy to apply in practice. A shareholder with more than 20% voting power in a body corporate or managed investment scheme is treated as having a relevant interest in securities held by the body or scheme.57 This is consistent with the legislation’s approach of treating 20% as the level at which control is conferred (even if there is another holder or holders who, by themselves, have greater interests).58 There is an important limitation on this 20% rule. It does not have a successive effect: s 608(3). It may be applied only once in a chain of entities. This can be illustrated by the following example. Example 3.1 A 35% B 30% C 25% D

In this example, A is treated as having a relevant interest in the 30% holding B has in C. This is because A has more than 20% of B. However, as the 20% deeming rule does not have successive effect, A does not have a relevant interest in C’s stake in D as that conclusion would require the rule to be applied twice.59 Tracing a relevant interest via control of an intermediary is dealt with in paragraph (b) of the rule. It requires “control” of the intermediary to be established. Absent provisions such as ss 608(4), (5), (6) and (7), a person has control of a company (or a controlling interest in the company) if they control a majority of the votes, which might be cast at a general meeting of the company. The person may control those votes as shareholder or 57 “Managed investment scheme” appears to have the same meaning as in s 9, but the body or scheme need not be one to which s 606 relates directly. Under this provision a relevant interest as registered holder of a security may be traced, as well as one resulting from a power or control. 58 An example of the consequences of this rule is contained in Taipan Resources NL 09 [2001] ATP 4, where, due to a downstream acquisition, the relevant interests of a 20% shareholder in the purchaser increased in contravention of the 20% rule in s 606. The Panel ordered the excess shares be vested in ASIC on a trust for sale. 59 However, s 608(3)(a) can be applied once, together with one or more applications of s 608(3)(b). If A held 60% of the shares in B, it would have a relevant interest in C’s shares in D.

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indirectly, and need not be able to override an entrenched interest or control the proceedings of the company’s board.60 Under this general concept, a person does not have a controlling interest in a company merely by holding options over unissued shares which, on exercise, would give a majority shareholding, especially if exercise of the options is subject to conditions precedent which have not yet been satisfied,61 or if he or she can only block certain transactions, such as by voting preference shares on a sale of the company’s main undertaking.62 Under this concept, it is possible that a person with less than 50% of votes may have control if there are no other significant holders. This point has not been considered in detail in any decided cases, though in NCSC v Brierley Investments Ltd (1988) 14 NSWLR 273 a chain of private company interests, some of which conferred no immediate voting power, coupled with an absence of any third party with a real interest in the chain of companies, was regarded as indicating that control was held by the last company in the chain.63 For the purposes of s 608(3)(b) only, however, “control” of a body corporate is defined in s 608(4) as the capacity to determine the outcome of decisions about the body’s financial and operating policies. For this purpose, the practical influence that a person can exert (rather than the rights they can enforce) is the issue and any practice or pattern of behaviour affecting the body’s financial or operating policies is to be taken into account (even if it involves a breach of an agreement or a breach of trust): s 608(5). A joint capacity is insufficient if the other person is not an associate: s 608(6). Furthermore, no regard is to be had to any capacity which is to be exercised for the benefit of someone else: s 608(7).64 This definition differs from the usual one in that it relates to control over decisions, which would normally be made by the board, rather than by the general meeting, and does not depend on control over votes which might be cast at a general meeting. The typical example where paragraph (b) operates is where a holding company is treated as having a relevant interest in securities held by a subsidiary, because the holding company has “control” of the subsidiary. 60 Mendes v Commissioner of Probate Duties (Victoria) [1967] HCA 23; (1967) 122 CLR 152 [17]–[23], per Kitto J, Taylor J concurring. Windeyer J reached a similar conclusion. 61 See WP Keighery v Federal Commissioner of Taxation (1957) 100 CLR 66; Equiticorp Industries Ltd v ACI International Ltd [1987] VR 485; and Hartnell, “Relevant Interests—‘Control’ in the Eighties” (1988) 6 C&SLJ 169, 177. 62 Mendes v Commissioner for Probate (1967) 122 CLR 152; Re The News Corporation Ltd (1987) 70 ALR 419; Village Roadshow Ltd [2004] ATP 4 [49]. 63 This case was decided before ss 50AA and 608(4)(7) were enacted. 64 This definition of control is derived from a former consolidation standard (now see AASB 127.4) and is much the same as the definitions in ss 50AA and 259E, but is very different from the concepts in s 608(2), which requires control over voting or disposal of shares to be taken into account, even if it can be exercised in breach of trust, and which applies to determining voting power for s 608(3)(a). There are similar discrepancies in the treatment of capacity to control, and of powers held jointly. See also [3.70.20].

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In most such cases the holding company will control the subsidiary on any test, and the differences between the s 608(4) concept of control and the general law concept will be unimportant. They may be relevant, however, where the intermediary is controlled by means other than voting power, or the putative controller, does not have power to dictate to, or remove and replace, the board of the intermediary. The application of the rule where a body corporate is owned by a trust can sometimes be difficult. A trustee may attract the exclusion in s 608(7) and not be regarded as “controlling” the body corporate given it is under an obligation to exercise that capacity for the benefit of someone else.65 It may nonetheless attract the 20% rule in s 608(3)(a).66 Since s 608(7) refers only to the existence of an obligation,67 it appears to apply, even if the fiduciary acts in breach of the obligation. In practice, it is often not important to decide whether control exists because the 20% deeming rule in paragraph (a) above will have the same effect if only 20% of the voting shares are held. However, as mentioned before, there is a crucial distinction: paragraph (b) can operate successively, whereas paragraph (a) can only be used once in a chain of companies. One effect of s 608(3)(a) is that shares may usually be shifted between related companies without contravening s 606 or triggering the need for a fresh substantial holding notice, because related companies are usually taken to have relevant interests in the same shares. If two companies A and B have the same holding company, each of A and B has voting power in excess of 20% in the other, because the holding company is an associate of A, which has a relevant interest in more than 20% of the shares in B, and vice versa.68 It follows that if A has a relevant interest in a parcel of shares, B is deemed by s 608(3)(a) have the same relevant interest in that parcel, although B does not control A. Accordingly, the relevant interest can be transferred from A to B without any change in either A’s or B’s relevant interest or voting power in the issuer of that parcel, so without breaching s 606, or even needing to give a fresh substantial holding notice. Exceptionally, because s 608(3)(a) does not deem a subsidiary to have a relevant interest in shares held by its ultimate holding company, a transfer from the ultimate holding company to the subsidiary may contravene s 606. ASIC has remedied this by class order.69 65 It is probably not necessary that the trustee not be a beneficiary of the trust, provided it is not the sole beneficiary. 66 The position of an appointor under a discretionary trust is similar. The power to appoint a trustee is fiduciary, and must be exercised for the benefit of the beneficiaries: Re Burton; Wily v Burton [1994] FCA 1146; (1994) 126 ALR 557 [11]. 67 Unlike s 608(5), which makes the existence of control depend on practical influence, not merely on rights. “Legal obligation” here includes an equitable obligation. 68 The association arises under s 12(2)(a) (see [3.70.10]) and the relevant interest under one or more applications of s 608(3)(b). 69 Although the subsidiary and the ultimate holding company are associated, s 610(3) deems the voting power of the subsidiary to be increased by the transfer. ASIC

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Relevant interest: acceleration rule A person has a relevant interest in securities if: (a) another person has a relevant interest in those securities; (b) the other person has (whether before or after acquiring their relevant interest): (1) entered into an agreement concerning the securities with the first person; or (2) given an enforceable right concerning those securities (whether presently exercisable or not and whether conditional or not); or (3) granted an option to the first person concerning those securities; and (c) the first person would have a relevant interest if the agreement were performed, the right enforced or the option exercised: s 608(8).

[3.50.30] The effect of this provision was summarised by Helsham CJ in Eq as being to “bring back to the earliest possible point of time in some transactions affecting shares the moment at which a person will be treated as having a relevant interest in those shares.”70 The classic example where this provision operates to accelerate the acquisition of a relevant interest is an agreement to purchase a share or an agreement granting a call option. It would also cover an agreement conferring pre-emptive rights, a put option71 and an acceptance received under a takeover bid, even if conditional.72 However, it would not cover a situation where one party merely agrees to announce a takeover bid, unless the other party could enforce an obligation to proceed (as in the latter case it may be similar to a put option).73 This provision can be applied successively, so that A may have an accelerated relevant interest in securities under a call option granted by B, who has in turn an accelerated relevant interest in corresponding securities

Regulatory Guide 5: Relevant interests and substantial holding notices, RG 5.114–5.121 and ASIC class order [CO 13/520]. The class order exempts an acquisition by a subsidiary from its ultimate holding company, but does not deem the subsidiary to have a relevant interest beforehand. It does not apply if the transfer increases the voting power of a person other than a group company, and does not apply to transfers between companies whose common controller is not a body corporate. 70 Re Adelaide Holdings Ltd (1982) 6 ACLR 675, 679. 71 Re Adelaide Holdings Ltd (1982) 6 ACLR 675. In KBL Mining Ltd [2015] ATP 3, the Panel left it open whether a person who had sold shares with a provision to buy them back had an accelerated relevant interest in the shares. 72 In Re Real Estate Capital Partners Managed Investments Limited as Responsible Entity of the Real Estate Capital Partners USA Property Trust [2013] NSWSC 190 [54], White J held that s 608(8) applied to a power conferred by the trust deed on a unit-holder to request the responsible entity to redeem units, so that the responsible entity had a relevant interest in every unit in the trust from the time it was issued. 73 Alpha Healthcare Ltd [2001] ATP 13. Contrariwise, in Corebell Pty Ltd v New Zealand Insurance Co Ltd (1988) 13 ACLR 349 and in MYOB Ltd [2008] ATP 27, a bidder was found to have acquired relevant interests in shares belonging to shareholders who had committed to accept the bids.

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under a call option granted by C, who holds the necessary securities. It can also be combined with tracing under s 608(3): adapting the same example, the relevant securities might be held by a subsidiary of C. In addition, s 608(8) only operates if, on performance of the agreement, enforcement of the right or exercise of the option, the first person would have a relevant interest. If it is possible for the agreement to be performed, the right enforced or the option exercised without a relevant interest coming into existence (for example, where one or other party may elect to settle in cash), the test is not satisfied.74 In deciding whether it is satisfied, it is essential to consider whether each party has an agreement, a right or an option to which it may apply, because the same set of facts may be capable of being analysed in each of those ways. It is also essential to consider whether the state of affairs resulting from performance, enforcement or exercise (as distinct from the final outcome of the transaction) involves a relevant interest as defined in s 608(1)–(3). Despite these caveats, this outcome is consistent with the general intent of the relevant interest concept of identifying shares over which a person has control. If the agreement can be performed without the person in the bought position obtaining any shares, it seems incongruous to treat that person as having a relevant interest in any shares until it is inevitable he or she will acquire the shares.75 The exclusions in s 609(1), (4), (6) and (7), which are discussed in 3.6, override the acceleration rule in certain situations. ASIC has modified its effects on certain securities lending transactions: see [3.60.150].

3.6 Exclusions from the “relevant interest” concept [3.60]

There are several exclusions from the definition of relevant interest.

Financiers [3.60.10] A person (a “financier”) does not have a relevant interest in securities merely because of a security interest76 taken for the purpose of a transaction entered into by the financier if: 74 So an agreement by a company to buy back shares does not give rise to an accelerated relevant interest, because on completion of the agreement, the shares will be cancelled and the company will have no relevant interest in them: Coles Myer Ltd v Commissioner of State Revenue [1998] 4 VR 728; [1998] VSC 288. 75 For the purposes of s 606, this is largely achieved by s 609(6), which disregards accelerated relevant interests which would otherwise arise from derivatives and market traded options, until an obligation to make or take delivery arises. This exception does not apply to substantial holding notices: see [3.60.40]. 76 A security interest is defined at s 51A as a security interest as defined by s 12 of the Personal Property Securities Act 2009 (Cth) or a charge, lien or pledge. It will generally confer rights which are exercisable against some personal property to secure a payment or performance of an obligation. ASIC Class Order [CO 13/520] extends the notion of a security interest to include a negative pledge. In BioProspect Ltd 01 [2008] ATP 8, the Takeovers Panel decided that a securities-lending arrangement was not a “mortgage, charge or other security” (the corresponding expression before the commencement of the

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(1) the security interest is taken or acquired in the ordinary course of the financier’s business of providing financial accommodation and is on ordinary commercial terms; and (2) the person whose property is subject to the security interest is not an associate of the financier: s 609(1).77 ASIC has modified this exception to extend it to a trustee holding a security interest on behalf of one or more financiers, and to a financier who acquires a pre-existing security interest, but only if the financier obtains the security interest in the ordinary course of a financing business and on ordinary commercial terms.78 The provision of financial accommodation includes money-lending, providing vendor finance79 and accepting bills.80 It is a continuing requirement that the owner of the property subject to the security interest and the holder of the security interest (whether original or substituted) are not associates. If at any time they are associated, the exception ceases to apply. The exception also ceases to apply when the holder of the security interest exercises a power under the security.81 This emerges from a related provision which safeguards the position of the holder of the security interest (and of a receiver they appoint)82 who acquires a relevant interest in securities as a result of the holder exercising a power under the security interest, and who might otherwise contravene s 606: s 611, item 6 (see

Personal Property Securities (Corporations and Other Amendments) Act 2010 (Cth)) and a bank acquiring a relevant interest pursuant to a securities-lending transaction did not get the benefit of s 609(1). 77 This exclusion is broader than the equivalent under previous legislation, which only applied where the transaction involved money-lending, which excluded common forms of financing, such as a bill facility, which does not involve “lending money”: KD Morris & Sons Pty Ltd v Bank of Queensland (1980) 146 CLR 165 and Legal Committee of the Corporations and Securities Advisory Committee Anomalies in the Takeovers Provisions of the Corporations Law—Report (Canberra, March 1994) p 10. See also the related exclusion from s 606 in item 6 of s 611, discussed at 19.5. Association is discussed at [3.70]. 78 ASIC Class Order [CO 13/520], which also extends the notion of a security to include a negative pledge, tidies up the drafting of s 609(1) and modifies s 611, item 6 in corresponding ways. See also ASIC Regulatory Guide 5: Relevant interests and substantial holding notices, RG 5.67–5.70. 79 Prime Wheat Association Ltd v Chief Commissioner of Stamp Duties [1997] NSWSC 546. 80 KD Morris & Sons Pty Ltd v Bank of Queensland (1980) 146 CLR 165 per Aickin J, Mason J concurring, both dissenting from the result. 81 Just how and when this occurs will depend on the security documents, but it must involve an act of the financier or trustee which enlivens a power to control voting or disposal of the shares subject to the security interest, which was previously latent. 82 See also Haughton Properties Pty Ltd (Receiver and Manager Appointed) v Sandridge City Development Company Pty Ltd (1994) 13 ACLC 1 per Hayne J, to whom the predecessor of item 6 in s 611 seems not to have been cited.

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discussion at 19.5).83 Although these provisions enable a security-holder to take and enforce a security interest, they do not enable it sell a parcel of shares to a person who would breach s 606 by buying those shares. Bare trustees [3.60.10A] A bare trustee is a trustee, who, under the terms of the trust, has no active duties to perform and must transfer the trust property at the beneficiary’s direction and allow the beneficiary to enjoy possession of it in the meantime.84 The typical bare trustee is a nominee company of a bank or stockbroker holding shares and securities on behalf of clients,85 but another example is a vendor of shares who has been paid in full for the shares but remains registered.86 A relevant interest of a bare trustee is disregarded if a beneficiary has a presently enforceable and unconditional right which would attract s 608(8), that is a right which, on enforcement, would give the beneficiary a relevant interest in the security: s 609(2). In general, the beneficiary of a bare trust does have such a right, because it can direct the trustee to transfer the trust property, and how to vote shares comprised in the trust property.87 Securities dealers and derivatives brokers [3.60.10B] Section 609(3), as modified with general effect by an ASIC class order,88 provides that a financial services licensee does not have a relevant interest in securities merely because they receive specific instructions from 83 Item 6 is also extensively modified by ASIC Class Order [CO 13/520]. It is essential to read s 609(1), item 6 of s 611 and the class order together. 84 Any trustee has some active duties implied by law, but a trustee may nonetheless be a bare trustee if it is in a commercial sense a mere cipher: Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 27; Corumo Holdings Pty Ltd v C Itoh Ltd (1991) 5 ACSR 720, 746; ASC v Bank Leumi Le-Israel [1995] FCA 1744 [206]–[210] per Sackville J; AuIron Energy Ltd [2003] ATP 31 [93]–[111] where the cases are discussed, Old Papa’s Franchise Systems Pty Ltd v Camisa Nominees Pty Ltd [2003] WASCA 11 and Knights Capital Group Ltd [2012] ATP 22. 85 See also [3.60.30]. In Anaconda Nickel Ltd 16–17 [2003] ATP 15, Anaconda Nickel Ltd 18 [2003] ATP 18, and LV Living Ltd [2005] ATP 5, there was insufficient evidence to support findings that bare trusts existed. In Anaconda Nickel Ltd 19 [2003] ATP 20, the Panel considered that, where there appears to be a contravention of the legislation and “a person claims the benefit of an exception (which is analogous to a defence), … it is proper that the person should make out their entitlement to the exception …”. 86 London Founders Association Ltd v Clarke (1988) 20 QBD 576; Hawks v McArthur [1951] 1 All ER 22, 26; compare an unpaid vendor: NCSC v FAI Investments Ltd (1982) 7 ACLR 152, 160. Similarly, a bidder whose bid had lapsed was bare trustee of the shares for which it held acceptances: Scott v HS Lawrence & Sons Pty Ltd (1982) 6 ACLR 579, 595, and a former trustee was bare trustee of trust assets it still held after being removed from office: Commissioner of Taxation v Bruton Holdings Pty Ltd [2008] FCAFC 184 [79]. 87 Unlike trust beneficiaries in general: see Re Brockbank [1948] Ch 206. 88 The class order omits s 609(3) as enacted, in favour of the provision outlined in the text. The enacted provision is to the effect that a financial services licensee does not have a relevant interest in securities merely because they hold securities on behalf of someone else in the ordinary course of their financial services business. While it is unusual for a

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their client directing them to dispose of the securities, or to enter into a sold position over them by dealing in a warrant, in the ordinary course of their financial services business.89 The client’s instructions must specify the securities to be sold, so the exemption does not cover a discretionary account,90 but the class order does not appear to require the instructions to be any more specific. The class order does not deal with the relevant interest the licensee will have in securities which it buys or holds for a client. It appears that the bare trust exception in s 609(2) is available in respect of securities bought, sold or held by a dealer pursuant to specific client instructions, if the dealer holds sufficient client funds and the client has the necessary accelerated relevant interest.91 If the client has yet to put the dealer in funds, however, the dealer will have a lien over securities it has bought for the client, which is a relevant interest, unless it is disregarded under s 609(1) as securing financial accommodation given in the ordinary course of the dealer’s business of providing such accommodation. Even if a particular dealer extends credit to clients in the ordinary course of its business, it is another question whether its business can be characterised as one of providing such financial accommodation. Share buy-backs [3.60.20] A person does not have a relevant interest in a company’s shares if the relevant interest would arise merely because the company has agreed to buy back the shares: s 609(4).92 Without this provision, the company might breach s 606 by agreeing to buy back shares, if it had voting power over sufficient shares in itself, or had a controller or holder of over 20%, who would be taken to have a relevant interest in the shares immediately the company agreed to buy them back.93 To be fully effective, this exception must be understood as applying to an agreement for a selective buy-back, conditional on shareholder approval.

dealer to be the registered holder of client securities, it is arguable that s 609(3) should be understood as referring to securities in which the dealer has a relevant interest; compare former s 40. 89 ASIC Class Order [CO 13/520] and ASIC Regulatory Guide 5: Relevant interests and substantial holding notices, RG 5.77–5.85. 90 A broker discretionary account is discussed in AuIron Energy Ltd [2003] ATP 31 [97]–[104]. 91 Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 27 [43]. 92 Section 609(4) does not expressly require the buy-back to comply with s 257A, unlike the corresponding exclusion from s 606: s 611, item 19: see 19.13. 93 As noted above, this exclusion overrides the acceleration rule. Since s 257H(3) cancels the shares on their being transferred to the company, the company will not have a relevant interest in the shares after completion of the agreement: cf Coles Myer Ltd v Commissioner of State Revenue [1998] 4 VR 728; [1998] VSC 288.

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The share buy-back provisions do not apply to redemption of interests in managed investment schemes, and s 604 does not expressly translate them. In Re Real Estate Capital Partners Managed Investments Limited as Responsible Entity of the Real Estate Capital Partners USA Property Trust, White J considered whether s 604 makes item 19 of s 611 (buy-back) applicable to redemption of units by the responsible entity of a registered scheme, inclining to the view that it does. His reasoning seems to be equally applicable to s 609(4).94 Honorary proxies [3.60.30] A person does not have a relevant interest in securities merely because the person has been appointed to vote as a proxy or representative at one meeting of members of the company95 if neither the proxy nor any associate gives valuable consideration for the appointment: s 609(5). It has been held that the exception is only available if the proxy is directed how to vote.96 If this is correct, a chairman of a meeting who received a large number of undirected proxies could contravene s 606 or be required to lodge a substantial holding notice. This holding is not required by the text of the provision or relevant authority, it was unnecessary to the decision, it has never been followed in other decisions or taken up by the legislature,97 and its correctness has been doubted.98 If consideration is given for the appointment by a third party, not associated with the proxy, the exemption remains available. An example is where the target company gives consideration for a “scheme proxy” under a scheme of arrangement and reduction of capital.99 Options, derivatives and warrants [3.60.40] A person does not have a relevant interest in securities merely because of a market-traded option over those securities, or a right to acquire the securities given by a derivative.100 The exception deals with accelerated relevant interests which would otherwise arise under s 608(8). 94 [2013] NSWSC 190 [55]–[56]. 95 There is no antecedent for “the company”, but the opening words of the subsection should no doubt be read as referring to a relevant interest in securities of a company. One meeting includes the same meeting, adjourned and resumed. In Flinders Diamonds Ltd v Tiger International Resources Inc [2004] SASC 119 [42], the Full Court held that a proxy did not fall under s 609(5) because, having been given for the purposes of an understanding which extended beyond the specified meeting, the proxy was for more than one meeting. 96 Re Kornblum’s Furnishings Ltd; Blair v Wade [1982] VR 123; (1982) 6 ACLR 25 per Beach J. 97 Compare the view taken in the same case that the exception as it stood in 1982 was available only in relation to a proxy limited to one meeting, now reflected in s 609(5). 98 Renard and Santamaria, Takeovers and Reconstructions in Australia (LexisNexis, subscription service), [424]. 99 Re Advance Bank Australia Ltd (1997) 22 ACSR 513, 526. 100 A market-traded option is defined in s 9 as an option declared by the operator of a prescribed financial market to be a market-traded option. A derivative is defined in

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It stops applying when the obligation to make or take delivery of the securities arises: s 609(6). If the option or derivative is closed out, or an election is made to settle it in cash, the relevant interest never arises. ASIC has extended this exception by class order to cover relevant interests arising under quoted call warrants and in respect of shares held in trust to satisfy quoted put warrants, on conditions designed to ensure that powers to control dealing in securities underlying a warrant are only used to ensure delivery of those securities in accordance with the warrant.101 The exception does not apply for the purposes of the substantial holding notice provisions (s 671B(7)), so that a person who has voting power of 5% or more, including accelerated relevant interests under market-traded options, derivatives or warrants must notify their interests. The obligation to notify only arises, however, when the person becomes aware of having the relevant interests, which depends on their being aware that their counterparty has relevant interests in securities which may be acquired on exercise of the option or derivative. If a person is not aware that their counterparty has such a relevant interest, they are not aware that they themselves have a corresponding accelerated relevant interest. ASIC notes that the issuer of a warrant is identified, and that warrant holders can and should ascertain the warrant issuer’s relevant interests in underlying securities from its substantial holding notices. Conditional agreements [3.60.50] A person does not have a relevant interest in securities merely because of an agreement if the agreement: (1) is conditional on a resolution of independent shareholders being passed under s 611, item 7102 or ASIC exempting the acquisition under the agreement from Ch 6 pursuant to s 655A;103 and (2) does not confer any control or power to substantially influence the exercise of a voting right attached to the securities; and (3) does not restrict disposal for more than three months from the date of the agreement: s 609(7).

s 761D, in terms which include over-the-counter contracts. Until 2002, this exception applied only to exchange-traded options and futures contracts, which were in effect exchange-traded contracts. 101 ASIC Regulatory Guide 5: Relevant interests and substantial holding notices, RG 5.186–RG 5.242 and Class Order [CO 13/526]. 102 See [19.60.20]. 103 An example appears in National Can Industries Ltd 01 [2003] ATP 35. ASIC has on several occasions modified the exception to cover an acquisition which is conditional on approval of a scheme of arrangement, on the basis that such approval is analogous to shareholder approval under item 7: see Australian Pipeline Trust 01 [2006] ATP 27 [55], [59].

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The person acquires a relevant interest only when the condition in (1) is satisfied. This exception resolves the difficulty which emerged in decisions on predecessors of item 7, that to agree a proposal to acquire issued securities which was sufficiently definite to be capable of being approved under that provision was itself to acquire those securities without the benefit of prior approval.104 Since the exception may apply to an agreement, which places some restriction on disposal of the securities, the shareholder resolution condition must apply to performance of the agreement, rather than to its formation. Like the exception for derivatives, this exception does not apply for the purposes of the substantial holding notice provisions (s 671B(7)), so that a person who has voting power in excess of 5%, including an accelerated relevant interest under an agreement subject to approval or exemption, must notify it. Section 609(7) may apply to an agreement which does not restrain disposal of the relevant securities at all. It appears not to require such an agreement to terminate at any particular time. If it does restrain disposal, the agreement must provide that the restraint on disposal ends at a specified date, no more than three months after it was entered into,105 or at an earlier time when the exemption or shareholder approval is refused.106 Once the condition cannot be satisfied by obtaining approval or exemption, the agreement cannot in any real sense be conditional on the approval or exemption being obtained. In Australian Pipeline Trust 01 [2006] ATP 27,107 the Panel found that unacceptable circumstances had resulted from a person purchasing 10.25% of the interests in a listed scheme after agreeing to acquire another company by scheme of arrangement, and before approval of the scheme. A scheme implementation agreement restrained the scheme company from disposing of another 30% of the interests in the listed scheme and on approval of the scheme of arrangement the acquirer would have acquired a relevant interest in that parcel. Section 609(7) applied to the acquirer’s

104 Baden Pacific Ltd v Portreeve Pty Ltd (1988) 14 ACLR 677; Magnacrete Ltd v Douglas-Hill (1988) 15 ACLR 325; oOh!media Group Limited [2011] ATP 9 [45]–[50]; Niord Pty Ltd v Adelaide Petroleum NL (1990) 8 ACLC 694. 105 Parties who purport to extend a restraint on disposal of shares so that it operates for more than three months risk a declaration of unacceptable circumstances: see Firestone Energy Ltd [2013] ATP 4. If an extension is required, the safer course is to seek an ASIC exemption or modification. 106 Australian Pipeline Ltd v Alinta Ltd [2006] FCA 1378 [120]–[123] (confirmed on appeal, similarly per the Panel: Australian Pipeline Trust 01R [2006] ATP 29 [51]–[59]); and ASIC Regulatory Guide 74: Acquisitions approved by members, RG 74.94. These decisions both refer to the exception as modified by ASIC relief, but the modification does not affect this point. 107 Upheld on review: Australian Pipeline Trust 01R [2006] ATP 29.

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relevant interest in the 30% parcel by virtue of a modification granted by ASIC.108 The Panel has indicated that it will regard as unacceptable the use of a colourable condition designed to attract the protection of this exception to an acquisition which is intended to be completed without an exemption or shareholder approval, such as under the creep rule.109 The view is open that such a condition is a sham, inasmuch as it is not intended to operate in accordance with its terms. The Panel has also said that it may constitute unacceptable circumstances for a bidder to use a conditional agreement covered by s 609(7) to prevent shares being accepted into a competing transaction.110 Although s 609(7) refers to an exemption under s 655A and a condition in an agreement usually tracks that wording, ASIC may give relief by modification under the same section. It should be understood as referring to a modification under s 655A, as well as an exemption. Pre-emptive rights [3.60.60] A member of a company, body or managed investment scheme does not have a relevant interest merely because the constitution of the company, body or scheme gives the member pre-emptive rights on the transfer of securities if all members have pre-emptive rights on the same terms: s 609(8). This overcomes difficulties which may be caused where, but for the exception, a new member would acquire a relevant interest in 100% of securities (and contravene s 606) even on the purchase of a single security, but could then buy any or all of the remaining securities in the company without contravening s 606 again.111 This result would be inappropriate, particularly if the pre-emptive rights procedure had already required the securities to be offered to each other member. Directors [3.60.70] A person does not have a relevant interest in securities in which a body corporate has a relevant interest, merely because the person is a director of the body: s 609(9). This overcomes the decision in Clements 108 While the Panel agreed with the policy of the modification, it criticised ASIC’s drafting of the instrument, although the weakness exploited by the acquirer is inherent in s 609(7) itself. In light of these decisions, it would appear that in future any similar modification may require that no further shares in the relevant company be acquired. 109 oOh!media Group Limited [2011] ATP 9 [41]–[52], apropos of a clause which expressly contemplated the acquisition of the relevant shares under the creep rule in s 611, item 9. See also ASIC Regulatory Guide 74: Acquisitions approved by members, RG 74.95. 110 Takeovers Panel Guidance Note 1: Unacceptable Circumstances (Fourth Issue, 18 April 2008), [18]. The example is not used in the current Fifth Issue. 111 North Sydney Brick & Tile Co Ltd v Darvall (1986) 5 NSWLR 662; Corporations Law Simplification Task Force Takeovers – Proposal for Simplification Canberra, 1996 item 5(a). Not all pre-emptive rights confer relevant interests on other members, or on anyone: see the discussion at [3.50] under “Relevant interest: basic rule”. This provision may not apply to pre-emptive rights which differentiate between classes of shares.

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Marshall Consolidated v ENT Ltd (1988) 13 ACLR 90. It prevents a relevant interest being traced under s 608(3)(b), because the directors jointly have the capacity to control the body.112 The exception seems to be available to the sole director of the body, consistently with it applying to directors acting jointly. Clearing houses [3.60.80] The operator of a clearing and settlement facility113 does not have a relevant interest in securities merely because it provides facilities for the settlement of transactions: s 609(9A). Prescribed exclusions [3.60.90] Regulations under s 609(10) may provide that specified interests that people have in securities are not relevant interests in specified circumstances and subject to conditions. No regulations have been made under that section, although acquisitions of securities in certain bodies and acquisitions by certain public officers have been exempted by regulations under s 611, item 20.114 Accordingly, where securities are acquired by a Commonwealth authority115 in that list, such as ASIC, the authority does not contravene s 606, but does have a relevant interest in the securities and may be required to lodge substantial holding notices in respect of them. ASIC class orders [3.60.100] ASIC has given class order relief to the effect that certain situations and transactions do not give rise to relevant interests for the purposes of some or all of Ch 6 (takeovers), Ch 6A (compulsory acquisition), and Ch 6C (substantial holding disclosure).116 These are mentioned below. Listing rule escrows [3.60.110] ASIC has modified s 609 so that neither a listed company nor ASX has a relevant interest in shares covered by an escrow required by

112 Discussed at [3.50]: see particularly [3.50.10] as regards a sole director or directors who are associated or acting jointly. 113 Defined in s 768A. 114 Regulations 6.2.01 and 6.2.02 and Sch 3 to the regulations. In addition, ASIC Class Order [CO 12/1209] disregards any relevant interest that ASIC has in securities it holds, except on behalf of the Commonwealth, and any relevant interest its Chairman has in securities held by ASIC. 115 Chapter 6 does not apply to the Crown in right of a State or Territory: see [2.50.20] and s 5A(3)(b). A number of State and Territory officers are nonetheless prescribed under item 20. 116 ASIC Regulatory Guide 5: Relevant interests and substantial holding notices, RG 5.243–5.280 and Table 4, and ASIC Class Order [CO 13/520].

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Ch 9 of the ASX Listing Rules,117 except that the listed company must take them into account in complying with the substantial holding provisions. ASIC is prepared to consider analogous case-by-case relief for escrows entered into voluntarily.118 A listing rule escrow is a restraint on disposal of shares in a company which can be enforced by the company and by ASX. ASIC has taken the view that entry into an escrow confers a relevant interest on the listed company, and may confer a relevant interest on ASX, but does not facilitate an acquisition of control over the company, and that listing rule escrows contribute to an orderly market. Acceptance facilities [3.60.120] The same class order also provides that a bidder does not have a relevant interest in bid class securities in respect of which an acceptance or acceptance instructions are given by a holder to the operator of an acceptance facility, if the operator holds an appropriate financial services licence and is not associated with the bidder, the facility does not discriminate between the offerees to whom it is offered and the bidder aggregates securities subject to the facility with acceptances for substantial holding disclosures. ASIC may consider case-by-case relief for facilities which do not comply with the structural requirements of the class order.119 The class order does not deal with the position of the acceptance facility operator. ASIC accepts that a facility can be structured so that the operator can rely on the exception for a financial services licensee acting under instructions.120 As a stakeholder, the operator may also be able to rely on the bare trust exception. Investor directed portfolio services [3.60.130] The class order also provides that the operator of an investor directed portfolio service does not have a relevant interest in shares it holds on behalf of a client or over which it has a discretionary power of disposal. The service is a scheme for holding and dealing with investments selected by clients, who decide what investments to acquire and dispose of. The operator acquires, holds and disposes of the investments as trustee for the client, with minimal independent discretion, except as to the timing of transactions and that it may sell investments to recoup amounts owing to

117 ASIC Regulatory Guide 5: Relevant interests and substantial holding notices, RG 5.243–5.280 and ASIC Class Order [CO 13/520]. ASIC will also consider case-by-case relief for escrows over newly issued shares which are required by the issuer or an underwriter, but not by the Listing Rules. 118 In Tigers Realm Coal Ltd [2014] ATP 2, the Panel found that a company had contravened s 606 and brought about unacceptable circumstances by taking voluntary escrows over roughly 31% of its own shares. 119 These are listed in Table 4 in Regulatory Guide 5: Relevant interests and substantial holding notices. 120 ASIC Regulatory Guide 9: Takeover bids, RG 9.596–9.625 and ASIC Class Order [CO 13/520]. On acceptance facilities generally, see 11.8.

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it.121 There are obvious affinities with the exceptions for licensees acting on instructions and for bare trustees. Institutional investors’ collective voting arrangements [3.60.140] Under a policy to facilitate consultation and agreement between institutional investors about voting at company meetings, ASIC formerly gave class order relief to disregard for the purposes of Chs 6 and 6C relevant interests, associations and voting power which might otherwise have resulted from institutions agreeing to vote together at a particular company meeting, for no consideration. That relief was discontinued in 2015, but ASIC is prepared to consider case-by-case relief for collective action, which would clearly contravene Ch 6, but which is not directed to obtaining a substantial interest in, or control over, the relevant company.122 Securities lending [3.60.150] ASIC has made two modifications relating to securities lending, which apply only for the purposes of the substantial holding provisions. It has modified s 608 to deem a lender to retain a relevant interest in securities it has lent, even if the borrower does not have a relevant interest in them. It has also modified s 609 to disregard an accelerated relevant interest, which is taken to arise from an agreement to borrow securities from a custodian or prime broker, until the securities are actually borrowed.123 Exchange-traded funds [3.60.160] ASIC has given class order relief to limit and clarify the effect of holding interests in an index fund, which holds quoted securities, and interests in which are quoted, but which may be withdrawn and distributed in specie, generally only if the interests cease to be quoted (an ETF). While the instrument is complex, for the purposes of Ch 6, the effect is that a holder of an interest in the ETF is not taken to have a relevant interest in the securities held in the ETF, merely because they have a right to withdraw their interest in the ETF, until they exercise that right. The holder is not exempt from disclosure under Ch 6C, but is entitled to comply on the basis that they have a relevant interest in the number of underlying securities that would be transferred to them on withdrawal of their interest, as set out in the most recent statement published by the responsible entity of the

121 ASIC Class Order [CO 2015/1067]. For the relevant schemes see ASIC Regulatory Guide 148: Platforms that are managed investment schemes and Class Order [CO 13/763]. 122 ASIC Regulatory Guide 128: Collective action by institutional investors, particularly RG 128.53–128.55, former Class Order [CO 00/455] and Consultation Paper 228. 123 ASIC Regulatory Guide 222: Substantial holding disclosure: Securities lending and prime broking, RG 222.34–222.37 and ASIC Class Order [CO 11/272].

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ETF.124 This number will vary from time to time as the responsible entity adjusts the composition of the fund but is generally published daily.

3.7 Who is an “associate”? [3.70] The concept of “association” endeavours to identify all persons who should be grouped together in determining which persons have interests which are aligned and which shares should be treated as forming a single block.125 The concept is used to identify blocks of shares,126 people likely to assist a person in acquiring a control block127 and people who lack requisite independence.128 There are two definitions of associate in Div 2 of Pt 1.2: one for takeovers and kindred purposes and another for all other purposes under the Corporations Act.129 The definition which applies for all purposes under Chs 6, 6A, 6B and 6C (including for the definitions relevant to those chapters) is set out in ss 12 and 16(1).130 The definition covers persons with whom the person in question has a formal relationship (such as companies within a corporate group), a formal agreement (such as an agreement as to how persons will vote) or an informal relationship (such as where there is no agreement but the persons act together to pursue a common objective). The better view is that s 12 (with the exceptions in s 16(1)) exhaustively defines “associate” for the provisions to which it applies: s 12(1) provides that s 12 applies for the purposes of those provisions “despite anything [other than s 16(1)] in this Part” and ss 12(2)(a) and 12(2)(c) make significantly different provision relating to corporate groups and to acting in concert from ss 11 and 15 respectively. In a few cases, however, courts 124 ASIC Class Order [CO 13/721]. There seems to be no regulatory guide on point, but as well as the explanatory statement for the class order, see Consultation Paper 196 Periodic statements for quoted and listed managed investment products and relief for AQUA products and Report 373: Response to submissions on CP 196. 125 This sentence was approved in In the matter of AMP Capital Funds Management Ltd (in its capacity as responsible entity of the AMP Capital China Growth Fund) [2016] NSWSC 986 [37], per Brereton J. 126 Section 608(3)(a) and ss 610, 661A, 662A, 663A and 672B. 127 Sections 621, 622, 623 and 664D. 128 Sections 648A(2), 667B(1) and 629(1), s 648(1)(d) and s 611, item 7. 129 The other definition comprises ss 11 (corporate groups) and 15 (acting in concert), with additional provisions specific to Ch 7 in ss 13 and 16(2). Exceptions in s 16(1) apply to both definitions. 130 By s 12(1)(b), the same definition is also applicable to “associate” in provisions outside Chs 6, 6A, 6B and 6C, which relate to any of a list of cognate matters, including relevant interests and voting power over securities, and takeover bids. One of these matters is “the extent, or restriction, of a power to exercise, or control the exercise of, the votes attached to voting shares in the designated body”, which has been relied on to apply s 12 to occurrences of “associate” in provisions such as ss 224, 253E, 256C, 257D, 260B and 1325C(3), which bar associates of certain people from voting on certain resolutions, an approach deprecated in the fourth edition of this book (except as regards s 1325C(3)), but adopted in AMP Life Ltd v AMP Capital Funds Management Ltd [2016] NSWCA 176 [7] and [40], per Barrett AJA, Bathurst CJ and Meagher JA concurring.

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have applied both ss 12 and 15, seemingly without asking whether s 12(1) permits them to do so.131 The definition of “associate” has been amended several times in recent years, each time with the aim of simplifying the concept.132 However, it remains difficult. There are three main categories arising from s 12, which is intended to define the “associate” concept exhaustively for the takeovers provisions in the legislation. Corporate groups [3.70.10] Under s 12(2)(a), the following are associates of a body corporate:133 •

another body corporate which the first body controls;

•

another body corporate which controls the first body; and

•

another body corporate which is controlled by an entity which also controls the first body, whether or not that entity is a body corporate.134

Under this limb of the definition, a body corporate is not taken to be associated with any natural person, even: •

a director or secretary of that body or a related body, or

•

an individual who controls the body.

However, a body may be associated with a natural person by relevant agreement or concert: these limbs of the definition are discussed at [3.70.20] and [3.70.30] below. Bodies which are associates under this limb of the definition are associates for all purposes under Ch 6, and not merely in respect of particular companies and are associates regardless of whether there are any relevant agreements or concerts between them. The better view is that s 50AA applies to the references in this limb to control of a body corporate.135 Accordingly, control of a body may be disregarded if it is held in a fiduciary capacity.

131 Everest Capital Ltd v Trust Company Ltd [2010] NSWSC 231 [80]–[83], per White J, Perpetual Custodians Ltd v IOOF Investment Management Pty Ltd [2013] NSWCA 231 [58]–[59] and [118]–[122], per Leeming JA, McColl and Gleeson JJA concurring. 132 In particular, it was completely revised by the Corporate Law Economic Reform Program Act 1999 (Cth), and restructured by the Financial Services Reform Act 2001 (Cth). 133 “Body corporate” here includes certain unincorporated bodies: see para (b) of the definitions of “foreign company” and of “registrable Australian body” in s 9. 134 Definition of “entity” in s 9. This limb of the definition is wider than “related body” in ss 11 and 50. 135 Re Great Southern Managers Australia Limited [2009] VSC 557 [23] per Davies J. This definition is discussed above in [3.50.20] under “Relevant interest: tracing rule”. It does not apply to “control” in s 12(2)(b).

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Associations through relevant agreements [3.70.20] One person will be an associate of another person in relation to a designated body136 if those people have, or propose to enter into, a relevant agreement for the purpose of controlling or influencing: •

the composition of the body’s board (or the identity of its responsible entity, if the body is a scheme);137 or

•

the conduct of the body’s affairs: s 12(2)(b).

If persons are associated under this limb in relation to a particular entity, they are regarded as associates for all purposes of Ch 6 regarding that entity. Previously, the definition contemplated persons being associated in relation to a matter “to which the reference relates”, a formulation which is retained for other purposes: see s 15. This meant that persons could be associated for one purpose but not for others.138 Under this limb of the definition, a body corporate may be associated with another person “in relation to a matter relating to securities in” itself. This provision is derived from amendments made in 1985 to reverse a decision to the effect that the associate definition did not contemplate that a company could be an associate in relation to the company itself.139 It could apply if a company entered into an agreement for the purpose of warehousing shares in itself. As discussed below, more common standstill agreements probably do not come within the general part of the definition. The purpose may be common to the parties to the agreement, but may immediately concern only one of them, if the other party or parties pursue that purpose at that person’s request or direction,140 for instance if a proposing bidder pays someone to warehouse shares to facilitate the success of the bid. A relevant agreement is an agreement, arrangement or understanding, whether formal or informal, whether written or oral, whether or not it has any legal force, and whether or not it is based on legal or equitable 136 The designated body may be a body corporate or unincorporated, or a managed investment scheme: s 12(5) and definition of “body” in s 9. It need not be the company in relation to which s 606 or 671B applies: it may be a body corporate in relation to which s 608(3)(a) applies. Unlike s 15, which provides for associations in respect of particular matters, an association under s 12(2)(b) or (c) in relation to a body is an association for all purposes related to that body. 137 Section 12(3)(a). 138 See, for example, Aberfoyle Ltd v Western Metals Ltd (1998) 28 ACSR 187. 139 Section 12(4). The case reversed was Rendoel Pty v Campbell Investment Co (1985) 9 ACLR 659, 661: see s 5 of the Companies and Securities (Miscellaneous Amendments) Act 1985 (Cth) and paras [20] to [24] of the relevant Explanatory Memorandum. Having regard to the 1985 amendments, the words “in relation to a matter relating to securities” appear to have the effect that s 12(2) may be applied to determine that an issuer has voting power, or a relevant interest, in securities in itself. Unfortunately, s 12(4) seems to have been overlooked in ConocoPhillips WA 248 Pty Ltd v Batoka Pty Ltd [2005] WASC 184 [76]. 140 Commissioner of Taxation v AXA Asia Pacific Ltd [2010] FCAFC 134.

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rights.141 For this purpose, a proposal to enter into a relevant agreement must be mutual and the parties must have a concept of what might become a relevant agreement between them.142 It is not enough that A has it in mind to enter a relevant agreement with B, if B is not aware of the proposal, or does not share with A an expectation or understanding that they will reach agreement. For people to have made a relevant agreement, there must at least be an understanding between them as to their common purpose or object. A mere coincidence of separate acts is insufficient,143 and persons “are not associates merely because each pursues a similar goal to the other, if each follows his or her own several interests, without agreeing to co-operate or act in any other concerted manner”.144 It is not essential that the parties be committed to the plan or bound to support it. An arrangement or understanding may be informal as well as enforceable and the parties may be free to withdraw from it or to act inconsistently with it notwithstanding their adoption of it.145 The conduct of the affairs of a company or other body is not defined in the Act, but the concept is familiar from several areas of company law, particularly oppression,146 directors’ duties and corporate responsibility.147 “Conduct” here means “management” or “direction”, not “behaviour”, 141 Definition of “relevant agreement” in s 9, which also applies to “agreement”. This concept was mentioned in 3.2 above. 142 Elders IXL Ltd v NCSC [1987] VR 1; Endresz v Whitehouse (1997) 24 ACSR 208. 143 Adsteam Building Industries Pty Ltd v Queensland Cement and Lime Co Ltd [No 4] (1985) 14 ACLR 456, 459 per McPherson J. To similar effect are comments of the Federal Court concerning the use of a similar expression in the Trade Practices Act 1974 (Cth) in Tillmans Butcheries Pty Ltd v Australasian Meat Industry Employees Union (1979) 42 FLR 331, 337 per Bowen CJ. Further comment about the meaning of “arrangement or understanding” in that context appears in ACCC v Prysimian Cavi E Sistemi SRL (No 12) [2016] FCA 822 [169]ff. Also see Anaconda Nickel Ltd 15 [2003] ATP 17 where two major shareholders in a target were not considered to be associates notwithstanding action by both shareholders designed to influence the outcome of a bid by a third party. 144 Bateman v Newhaven Park Stud Ltd [2004] NSWSC 566 [3]–[40]; Flinders Diamonds Ltd v Tiger International Resources Inc [2003] SASC 158; Bridgewater Lake Estate Ltd [2006] ATP 3 [100]; “a concurrence of view about the merits of a particular resolution does not constitute an understanding about the conduct of the company’s affairs”: Winepros Ltd [2002] ATP 18 [33] (approved in Perpetual Custodians Ltd v IOOF Investment Management Ltd [2013] NSWSC 1318 [102] and on appeal in Perpetual Custodians Ltd v IOOF Investment Management Pty Ltd [2013] NSWCA 231 [103]–[115]); LV Living Ltd [2005] ATP 5; Boulder Steel Ltd [2008] ATP 24 [24]. 145 Commissioner of Taxation (Cth) v Lutovi Investments Pty Ltd (1978) 140 CLR 434, 443–44 per Gibbs and Mason JJ; Bank of Western Australia Ltd v Ocean Trawlers Pty Ltd (1995) 16 ACSR 501; Anzoil NL 01 [2002] ATP 19 and Anzoil NL 02 [2002] ATP 21; Bateman v Newhaven Park Stud Ltd (2004) 49 ACSR 597. 146 See ss 232 and 233. 147 R v Board of Trade; Ex parte St Martin’s Preserving Co Ltd [1965] 1 QB 603; Re HR Harmer Ltd [1958] 3 All ER 689; Tesco Supermarkets Ltd v Nattrass [1972] AC 153; Mendes v Commissioner of Probate Duties [1967] HCA 23 [16] per Kitto J, Taylor J concurring and Windeyer J agreeing in the result; and s 827D.

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and the compound expression refers to the decisions made by the body’s directors and senior management about its operations, internal affairs and financial policies, and their implementation. Importantly, only the company’s own officers can be said to conduct its affairs.148 To have a shared purpose of controlling or influencing the conduct of the affairs of a body, associates must seek to obtain or exert control or influence over the decisions of its board and top management, or at least, a substantial segment of those decisions.149 The Panel summarised all of this in National Foods 01, concerning an agreement intended to regulate the conduct of a substantial part of a company’s affairs, by saying: The affairs of a company, on ordinary concepts and without reliance on section 53, include its business and its internal affairs, such as board and company meetings and its dealings with its subsidiaries. Accordingly, an agreement to control or influence the conduct of a company’s affairs must be aimed at exerting pervasive control or influence over the company’s direction and management.150

Accordingly, it is not enough that a relevant agreement deals with some part of a body’s affairs, such as the ownership of a parcel of securities of the body, if the agreement is not for the purpose of obtaining or exerting control or influence over how the body conducts its own affairs. As the National Foods Panel observed, this limb of the definition should “not be read unduly widely, as many agreements relate to the conduct of a company’s affairs, which should not ordinarily be treated as within the policy of the association provisions and which never have been held to be associations.”151 More recently, the Panel in Crescent Gold Ltd 02 considered the history and policy of the association concept, as it applies to agreements to buy and sell shares, concluding that the s 53 extension of “affairs” to ownership of a company’s shares does not attract the definition to a simple share sale

148 Including external administrators, on occasion. 149 The expression cannot be read down under the interpretation principle that the plural includes the singular: Acts Interpretation Act 1901 (Cth) s 23. That principle would yield some such phrase as “the conduct of an affair of the body”, which has no accepted meaning. Any meaning attributed to it would be qualitatively different from that of the plural form, particularly in not being co-ordinate with control over the composition of the board: Colonial Sugar Refining Co Ltd v Dilley [1967] HCA 34; 116 CLR 445; Blue Metal Industries Ltd v Dilley [1970] AC 827; 117 CLR 651. 150 National Foods Ltd 01 [2005] ATP 8 [55]. Perpetual Custodians Ltd v IOOF Investment Management Pty Ltd [2013] NSWCA 231 [102], Leeming JA, McColl and Gleeson JJA concurring, suggested that a lower degree of control would be sufficient. The remark was obiter and not explained. 151 National Foods Ltd [2005] ATP 8 [58]. The Panel instanced loan covenants; another example might be terms in an intellectual property licence. In RCL Group Ltd [2012] ATP 2 the Panel took the view that the inclusion of a provision giving a financier a veto over replacement of directors of the borrower was not a control transaction. Compare Buzzle Operations Pty Ltd v Apple Computer Australia Pty Ltd [2011] NSWCA 109 [175]–[233], per Young JA, Hodgson JA and Whealy JA agreeing.

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agreement, the parties to which do not have a shared goal of exerting pervasive influence over that company.152 The notion of the affairs of a designated body (both here and in s 12(2)(c)) is extended to include a list of matters set out in s 53,153 which includes in s 53(f) certain powers in relation to shares in the body which would also constitute relevant interests in those shares: the power of persons to exercise, or to control the exercise of, the rights to vote attached to shares in the body or to dispose of, or to exercise control over the power to dispose of, such shares.

Reading s 12(2)(b) in accordance with this definition, it defines association to include a relevant agreement for the purpose of controlling or influencing the conduct of the affairs of the designated body, those affairs being taken to include the existence and incidents of certain relevant interests in shares of the relevant entity.154 This extension adds little or nothing to the definition as set out in s 12(2)(b) itself, referring to an agreement for the purpose of controlling the conduct of the affairs of the body, and s 12(4), under which a body may be an associate in relation to itself. As so extended, s 12(2)(b) refers to the conduct of certain powers over shares in a body. This expression does not appear to be meaningful, and the better view is that the addition of it to the notion of a body’s affairs does not alter the effect of s 12(2)(b), as enacted. That limb of the definition relates to control over how a body conducts its own affairs, and in general a body does not “conduct” relevant interests in its own shares in any sense at all. An agreement about a control parcel of shares in a body may be good evidence of an underlying agreement concerning control over the conduct of its affairs, but it only relates to the body’s conduct of those affairs, if the body itself (or an officer or controller) is party to the agreement. A relevant agreement which affects relevant interests in a smaller block of shares (such as most share sale agreements) is qualitatively different from an agreement to take or exert control over the issuer’s conduct of its affairs.

152 Crescent Gold Ltd 02 [2011] ATP 14 [30]–[42], applied in Touch Holdings Ltd [2013] ATP 3, Celamin Holdings NL [2014] ATP 22, and Blackham Resources Ltd [2014] ATP 16. 153 Corporations Regulation, reg 1.0.18, made pursuant to s 53. The origin of this provision is briefly discussed in G Durbridge and A Rich “Will the Real Sir Richard Eggleston Please Stand Up”, in T Damian and C James (eds) Towns Under Siege: Developments in Australian takeovers and schemes, Sydney, (Ross Parsons Centre), 2016, Ch 2, at [2.4.1] and footnote 143. 154 This extended definition applies in terms only where the designated body is a body corporate. As mentioned below, s 53 and reg 1.0.18 refer only to bodies corporate. In Re Real Estate Capital Partners Managed Investments Limited as Responsible Entity of the Real Estate Capital Partners USA Property Trust [2013] NSWSC 190 [56] White J said that s 604 has the effect that Ch 6 applies in relation to a listed managed investment scheme as if the scheme were a “notional company”. It may follow that ss 604(1) and (2) apply reg 1.0.18 to such a scheme as if it were a company.

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This notion of control over the conduct of the affairs of a company is not affected by s 50AA, which relates only to control over a body corporate.155 By analogy with the common law concepts, “control” over the conduct of affairs, without qualification, appears to mean the power to have the board and management adopt any proposal on which the controller insists.156 “Influence” over the conduct of a body’s affairs is something less than control over the conduct of those affairs. Having regard to the policy of the provisions, and the apparent intention of providing a broader concept than control, influence here means imperfect control. Without attempting to further define this concept, its presence ensures that a relevant agreement may constitute an association in relation to a company, although the parties know that they cannot secure complete and unfettered control over the conduct of the affairs of that company. While the content of the concepts is very different, the concept of control or influence over the composition of the board of a body is evidently co-ordinate from a policy perspective with that of control or influence over the conduct of the body’s affairs. One concept relates to control exerted by appointing and removing directors, the other to control exerted by dictating to directors how to exercise their powers. In the ordinary case in which the directors are elected by a simple majority vote of ordinary shareholders, power to direct how a majority of those votes are cast will confer both control over the body and control over the composition of its board. Since a person with a majority of votes can elect their nominees to all vacancies on the board, the existence of such a controller may leave no room for influence over the composition of the board. A person who can direct a large block of votes, but less than a majority, and who can elect nominees for whom they can obtain support from other shareholders, may be said to have influence over the composition of the board, particularly if they are likely to be able to block the election of candidates they do not support. It is a difficult question whether the definition applies to an agreement which confers power to elect or remove a minority of a board, on the basis that the agreement is for the purpose of influencing the composition of the board. The better view is that the definition contemplates a purpose of replacing (or maintaining) a majority of the board, even if that can only be done over successive meetings or with the support of other shareholders.157 An objective short of that is not co-ordinate with control over the conduct of the body’s affairs. The only court decision in point is 155 Kitto J sharply distinguished the two concepts in Mendes v Commissioner of Probate Duties [1967] HCA 23 [18]–[19]. 156 It probably does not require the power to override restrictions placed on the board to protect particular interests: compare Mendes v Commissioner of Probate Duties [1967] HCA 23 [18]–[19] per Kitto J. 157 In Touch Holdings Ltd [2013] ATP 3, an arrangement between shareholders to keep one director in office for a transitional period was part of the basis on which the Panel inferred an association. While other evidence supported the finding, query whether

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not entirely clear and was decided under rather different provisions, but neither the court nor the Panel has been keen to penalise an agreement to secure the appointment of one director as nominee of an incoming substantial shareholder, in the absence of a wider agreement concerning control of the company in question.158 Whatever its effect in relation to the affairs of a body corporate, the broad test may have a more limited application when applied to interests in managed investment schemes. Section 12(3) extends the definition to such schemes, but the s 53 definition of “conduct of the body’s affairs”, on its terms, only applies to the affairs of a body corporate, not to the affairs of a managed investment scheme, and neither s 12(3) nor reg 1.0.18 applies s 53 with suitable adaptations. Section 53 makes reference to interests in a managed investment scheme in s 53(e), (h) and (j), but those references are only directed at situations where the body corporate whose affairs are relevant is the responsible entity of the scheme. Acting in concert [3.70.30] Under s 12(2)(c), persons are associates in relation to a designated body, for all purposes of Ch 6, if they are acting in concert, or propose to act in concert, in relation to that body’s affairs. “Propose” and “designated body” have the same meanings as discussed apropos of s 12(2)(b). Occurring in a co-ordinate limb of the same definition, “the designated body’s affairs” must mean the same as in s 12(2)(b), that is, those affairs as a whole, not some isolated part of those affairs.159 Acting in concert means much the same as having entered into a relevant agreement. In McAuliffe v The Queen [1995] HCA 35; (1995) 183 CLR 108,160 the High Court described the concept as follows: The doctrine of common purpose applies where a venture is undertaken by more than one person acting in concert in pursuit of a common criminal design. Such a agreement to support one director is enough to constitute agreement to influence or control the composition of the board. 158 Afro-West Mining Ltd v Australian Mining Investments Ltd (1983) 14 ACLR 709; see also Aliquot Asset Management Ltd [2003] ATP 19 and Celamin Holdings NL [2014] ATP 22. In each case, the proposal was to move the existing board to appoint the nominee to a casual vacancy, and in none is there mention of an agreement to marshal votes to install the nominee: perhaps in none of these cases the parties had the power to enforce the appointment of their nominee, or the purpose of doing so. Contrast strong reactions to conspiracies to spill boards in Flinders Diamonds Ltd v Tiger International Resources Inc [2003] SASC 158 (on appeal: Flinders Diamonds Ltd v Tiger International Resources Inc [2004] SASC 119), Online Advantage Ltd [2002] ATP 14, Anzoil NL 01 [2002] ATP 19, Anzoil NL 02 [2002] ATP 21, and Orion Telecommunications Ltd [2006] ATP 23. 159 Contrast similar words in the context of s 657A, discussed by Austin J in Lionsgate Australia Pty Ltd v Macquarie Private Portfolio Management Ltd [2007] NSWSC 318 [48]–[55]. The inclusive definition of “affairs” from s 53 will apply: reg 1.0.18 of the Corporations Regulations, discussed at [3.70.20]. 160 While the High Court’s words reflect the fact that this was a criminal appeal, the notion of concert in Ch 6 need not involve wrongdoing: a joint bid is clearly both an acting in concert and in itself inoffensive.

56 Takeovers Law & Strategy venture may be described as a joint criminal enterprise. Those terms – common purpose, common design, concert, joint criminal purpose – are used more or less interchangeably to invoke the doctrine … Such a common purpose arises where a person reaches an understanding or arrangement amounting to an agreement between that person and others that they will commit a crime. The understanding or arrangement need not be express and may be inferred from all the circumstances.161

This amply supports McPherson J: It … seems to me that the express reference … to persons “acting in concert” adds little if anything to what is already comprehended by the expression “understanding”. … I cannot see how it is possible for persons to “act in concert” towards an end or object, or even simply to act in concert, unless there is an understanding between them as to their common purpose or object. The expression in question invokes the notion of joint actors, or perhaps even joint tortfeasors, as to which it is settled that there must be “concerted action to a common end”. A mere coincidence of separate acts is insufficient.162

While a concert is much the same thing as a relevant agreement, the words used to describe the common purpose of a concert covered by s 12(2)(c) (“in relation to the affairs of the designated body”) are very different from the words used to describe the purpose of a relevant agreement to which s 12(2)(b) applies (“for the purpose of controlling … the conduct of the affairs of the designated body”), and do not articulate how the concert must relate to the affairs. There is less to this difference than meets the eye. To constitute an association, a concert must have a common purpose in relation to the affairs of the body. As we have already seen, the affairs of a body (as a whole) are qualitatively different from isolated parts or aspects of those affairs, just because the purpose of dealing with those affairs as a whole involves obtaining or exercising control. The definition must refer to a relation between the concert and the affairs which gives effect to the policy and operation of the provisions which it supports.163 The purpose of the definition is revealed by how it is used, which is to identify control blocks of shares, people likely to assist a person in acquiring a control block, and people who lack requisite independence in the context of a control 161 McAuliffe v The Queen [1995] HCA 35; (1995) 183 CLR 108 [12] per Brennan CJ and Deane, Dawson, Toohey and Gummow JJ, cases there cited; Osland v The Queen [1998] HCA 75; (1998) 197 CLR 316; Australian Meat Employees Union v Meat and Allied Trades Federation of Australia [1991] FCA 524; Handlen v The Queen; Paddison v The Queen [2011] HCA 51; and Norcast v Bradken (No 2) [2013] FCA 235 [263]. 162 Adsteam Building Industries Pty Ltd v Queensland Cement and Lime Company Ltd (1984) 2 ACLC 829, 832 per McPherson J. 163 Tooheys Ltd v Commissioner of Stamp Duties (NSW) (1961) 105 CLR 602 per Taylor and Windeyer JJ, “The words ‘in relation to’, read out of context, are wide enough to cover every conceivable connection. But those words should not be read out of context … What is required is a relevant relationship, having regard to the scope of the Act.” O’Grady v Northern Queensland Co Ltd [1990] HCA 16; (1990) 169 CLR 356 per Dawson J; Project Blue Sky v Australian Broadcasting Authority [1998] HCA 28; Chief Executive Officer of Customs v AMI Toyota Ltd (2000) 102 FCR 578; St Barbara Mines Ltd 110 FCR 552; Lionsgate Australia Pty Ltd v Macquarie Private Portfolio Management Ltd [2007] NSWSC 318 [29]–[35].

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transaction.164 Accordingly, the relation which must subsist between the concert and the affairs is that the concert relate to amassing and exercising control or influence over the conduct of the body’s affairs, including where relevant, over the votes attached to securities in the body and over the selection of those who conduct those affairs.165 It is possible for a person to be “acting” in concert even though the person is not engaged in any physical or overt act. This may occur when a person with the power to prevent something from happening allows that thing to happen, in furtherance of the common object. In Industrial Equity Ltd v CCA (1989) 1 ACSR 153 it was decided that a holding company was acting in concert even though the critical actions were undertaken by a subsidiary. The subsidiary’s acts were attributed to the holding company. In the end, s 12(2)(c) adds little or nothing to association as defined in s 12(2)(b). The legislative history rebuts the presumption that some distinct effect must be given to each provision in an Act of Parliament: ss 12(2)(b) and 12(2)(c) were included in s 12 to preserve the residual elements of a much more extensive definition, which overlapped itself extensively, and which was drastically pruned in the simplification effected in 2000.166 Proving an association [3.70.40] As a practical matter, associations may be difficult to prove.167 The courts have repeatedly pointed out that “the understanding or arrangement … may be inferred from all the circumstances”.168 On the other hand, the “admittedly wide words … are to permit a finding, from the known facts and circumstances, that a combination as a matter of probability exists, notwithstanding it is hedged about with all manner of devices for concealment. It must be emphasized, however, that such a finding must be truly available and not the product of mere suspicion or prejudice”.169 In Dromana Estate 01R, the Panel said that: Determining associations must depend on the facts of the case, and this will often require analysis of complex circumstances. Moreover, the Panel recognises that issues of association are notoriously difficult for outsiders to prove since access to the type of evidence needed is rarely available. Issues of association frequently need to be

164 See references collected at the beginning of 3.7. 165 Although a concert in relation to a control block of shares may be good evidence of a concert in relation to the affairs of the body as a whole, as discussed in 3.70.20 in relation to s 12(2)(b), an agreement in relation to a smaller block is qualitatively different. 166 By the Corporate Law Economic Reform Program Act 1999 (Cth): see also Corporations Law Simplification Task Force Takeovers—Proposal for Simplification (Canberra, 1996), under the heading “Associates”. 167 Mount Gibson Iron Limited [2008] ATP 4. 168 McAuliffe v The Queen [1995] HCA 37; 183 CLR 108 [12]. 169 Elders IXL Ltd v NCSC [1987] VR 1 per Marks J.

58 Takeovers Law & Strategy decided on the basis of inferences from partial evidence, patterns of behaviour and a lack of a commercially viable explanation for the impugned circumstances.170

In Viento Group, the Panel set out six categories of information on which it may base a finding of an association.171 They are: •

a shared goal or purpose

•

prior collaborative conduct

•

structural links

•

common investments and dealings

•

common knowledge of relevant facts and

•

actions which are uncommercial.

The Panel has stated that it is not its role to make investigations into shareholders of the target to find out if any associations existed between them without an applicant first providing the Panel with substantive allegations and reasons for, or evidence supporting, those allegations.172 It appears that the Panel’s approach to allegations of association will include considering whether any of the persons involved had acted in an uncommercial manner, that is, whether any person had acted in a way which was inconsistent with their pursuing their own interests and was only explicable by reference to acting in accordance with a common plan.173 Where there is such uncommercial behaviour, the Panel may be more willing to make further enquiries into alleged associations and draw reference to determine associations. Although the Panel has drawn on its own experience of the ordinary course of commerce and applied the rule in Jones v Dunkel (1959) 101 CLR 298 in relation to findings of indicia such as uncommercial behaviour,174 that rule requires there to be evidence supporting an inference, which is merely supported by a party’s failure to provide evidence which rebuts the inference. The Panel has not followed the UK Panel in basing rebuttable 170 Dromana Estate Limited 01R [2006] ATP 8 [25], which was applied in Mount Gibson Iron Limited [2008] ATP 4 [13]. 171 Viento Group Limited [2011] ATP 1 [120], referring to Mount Gibson Iron Limited [2008] ATP 4, similarly Perpetual Custodians Ltd v IOOF Investment Management Ltd [2013] NSWSC 1318 [81]. 172 Rusina Mining NL [2004] ATP 13 [43]; Dromana Estate Ltd 01 [2006] ATP 4 [25]–[35]; Big Air Group Ltd [2008] ATP 12 [19]; Boulder Steel Ltd [2008] ATP 24 [22]; Regis Resources Ltd [2009] ATP 7. 173 Anaconda Nickel Ltd 15 [2003] ATP 17; and Anaconda Nickel Ltd 16–17 [2003] ATP 15 where the bidder was seeking to rely on no association and a “bare trustee” exemption to avoid a breach of s 606(1). In these circumstances, the Panel required the bidder to show reason why orders should not be made against it, that is, the onus was shifted to the party claiming no association. See also Bridgewater Lake Estate Ltd [2006] ATP 3. 174 See Dromana Estate Ltd 01R [2006] ATP 8 [25]; DataDot Technology Ltd [2009] ATP 13 [41]–[45]; MYOB Ltd [2008] ATP 27; and CMI Ltd 01R [2011] ATP 5; and compare Corebell Pty Ltd v New Zealand Insurance Co Ltd (1988) 13 ACLR 349.

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presumptions of association on the existence of certain business and family relations.175 Since facts which involve such relations may nonetheless vary widely,176 reliance on such presumptions could lead to the Panel making decisions which were not open on the evidence. Examples where associations have been held to exist include where 15 parties formed a consortium to acquire shares in a co-operative,177 where various persons formed a joint venture to make a takeover bid,178 where several directors announced that they intended to vote substantial holdings in support of a resolution,179 and where a bidder and a major supplier of the target agreed to form a joint venture agreement relating to some of the target assets if the bidder acquired control of the target.180 In Wesfi, without mentioning association, the Panel said that, where a third party which had a director in common with the bidder had acquired a substantial parcel of shares in the target of a bid, there would be a heavy onus to satisfy the Panel that it would not be in the public interest to declare that acquisition to have been unacceptable.181 In proving a case, it may be open for a court or the Takeovers Panel to infer that persons are acting in concert due to a concurrence of time, character, direction and result as naturally lead to an inference that separate acts were the outcome of a pre-concert or some mutual contemporaneous agreement.182 If two companies have a common director, a court may infer that each company knew and countenanced the object and purpose of the other.183 The fact that persons have some affiliation in common, such as all being directors of the same company184 or related to one another, or having common knowledge, does not always support an inference that they are acting in concert.185 Accordingly, in the absence of additional evidence of agreement or dependency or actual influence implying commonality of action, family relationships or personal relationships are not enough to 175 See the definition of “acting in concert” at C1–C5 of the City Code on Takeovers and Mergers (12th ed). 176 See the notes to the UK Code definition mentioned above, and contrast the findings concerning family relationships in Bateman v Newhaven Park Stud Ltd [2004] NSWSC 566, on the one hand, and CMI Ltd 01R [2011] ATP 5, on the other, mentioned at the end of this section. 177 Williams v United Dairies Ltd (1986) 10 ACLR 406. 178 North Sydney Brick & Tile Co Ltd v Darvall (1986) 5 NSWLR 662. 179 Tigers Realm Coal Ltd [2014] ATP 2. 180 National Foods Ltd [2005] ATP 8 [61]–[65]. 181 Wesfi Ltd [1999] ATP at [79]: former s 733 provided for declarations of unacceptable acquisitions. 182 R v Associated Northern Collieries (1914) 14 CLR 387, 400 per Isaacs J. 183 Industrial Equity Ltd v CCA (1989) 1 ACSR 153, 158. 184 Orion Telecommunications Ltd [2006] ATP 23 [97]–[102]. 185 Big Air Group Ltd [2008] ATP 12 [19]: where widespread shareholder support for a resolution to remove a director was not a sufficient basis to infer an association.

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establish that parties are acting in concert.186 In several matters, the Panel has been able to infer that several people were acting in concert to assemble parcels of shares in excess of 20%, though it did not rely only on suspicious coincidences and acquisitions, as in each case there was evidence pointing directly to a concert.187 Each case must be considered on its facts.188 In one matter, the Panel sidestepped an association issue, saying it was “inclined to accept” that it would be unacceptable for the wife of the vendor of certain shares to vote on a resolution under item 7 of s 611 to approve the acquisition of those shares. Item 7 disregards votes cast by the vendor and purchaser of the shares, and their respective associates, but the Panel was prepared to exclude the wife from voting without finding that she was associated with her husband, because she stood to benefit so much from the sale that she could not be treated as being interested only in her own shareholding.189 Particular fact situations [3.70.50] While an agreement marshalling votes to replace (or maintain) a board is an agreement for the purpose of controlling or influencing the composition of that board, the fact that different shareholders, each with a view only to its own several interest, arrive at the same conclusions about voting on the removal and appointment of directors is not. Where shareholders discuss their voting intentions, the line can be a fine one, as shown by some of the fact situations mentioned in ASIC’s policy on

186 Bateman v Newhaven Park Stud Ltd (2004) 49 ACSR 597, 606 per Barrett J: “… the mere fact of family relationship should be left to one side. King George V and Kaiser Wilhelm II were first cousins. They did not act in concert between August 1914 and November 1918 and probably at other times as well.” Contrast CMI Limited [2011] ATP 4; and CMI Limited 01R [2011] ATP 5, where the Panel found that the family and financial ties between a father and daughter were part of a body of evidence establishing an association. An application for judicial review of this decision was dismissed: Tinkerbell Enterprises Pty Ltd v Takeovers Panel [2012] FCA 1272. See also Ainsworth Game Technology Limited 01 and 02 [2016] ATP 9, discussed below, and Innate Immunotherapies Ltd [2017] ATP 2. 187 Brockman Resources Ltd [2011] ATP 3, Orion Telecommunications Ltd [2006] ATP 23, Anzoil NL 01 [2002] ATP 19, Anzoil NL 02 [2002] 21, Online Advantage Ltd [2002] ATP 14, Touch Holdings Ltd [2013] ATP 3, Merlin Diamonds Ltd [2016] ATP 18: contrast Namakwa Diamond Company NL 01 [2001] ATP 8, where there was only circumstantial evidence. 188 For example see Sedimentary Holdings Ltd [2006] ATP 24, where the Panel did not find any breach of s 606 as there was no evidence of any arrangement or understanding between the bidder and major shareholder in relation to 5.9% of the major shareholder’s shareholding in the target (there was an agreement in relation to another 17.8% held by the major shareholder), notwithstanding that the bidder and the major shareholder had identical boards and management. This was in the context that the two companies had put in place procedures to ensure they acted independently of each other (for example, separate board committees receiving independent valuation and legal advice). See generally Dromana Estate Ltd 01 [2006] ATP 4 at [25]–[30]. 189 Ainsworth Game Technology Limited 01 and 02 [2016] ATP 9 [48]–[51] and [92]–[110]. The matter was settled by undertakings, so the Panel made no declaration or orders.

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institutional shareholders.190 The test is whether each shareholder pursues his or her own several interest in the circumstances as known to them, or whether one acts to assist, or at the direction of, another.191 For example: •

There was no case of association to be tried, where one shareholder could see for himself or herself, without any need for discussion, that another shareholder would vote in a way which suited the first shareholder very well.192

•

One shareholder may persuade another how to vote at a general meeting, including on election to the board and other resolutions bearing on the conduct of the body’s affairs, without their becoming associates, if each merely pursues his or her own several interest, as he or she sees it.193

•

Given a choice between candidates A, B and C, in that order of preference, my agreement to vote for B to oblige another shareholder is association, but my decision to vote for B, because I know that if I vote for A, I will split the votes against C who will then be elected, is merely pursuit of my several interest.

A recurring issue is whether two people are associates, because they have made an agreement about a relevant matter, and are co-operating to complete that agreement. The common object of the concert parties needs to be something beyond the shared purpose of completing “the mechanical aspects of the transaction” and must concern “the background to, and underlying reasons for” the transaction.194 Thus, parties to agreements entered into at arm’s length were not associates because they co-operated to carry out those agreements,195 but parties to back-to-back agreements which together made up a “rolled-up omnibus solution of all the problems between all of the parties” were found to be acting in concert.196

190 ASIC Regulatory Guide 128: Collective action by institutional investors, RG 128.4–RG 128.6. 191 Commissioner of Taxation v AXA Asia Pacific Ltd [2010] FCAFC 134; Flinders Diamonds Ltd v Tiger International Resources Inc [2004] SASC 119. 192 Bateman v Newhaven Park Stud Ltd [2004] NSWSC 566 [37]. 193 Flinders Diamonds Ltd v Tiger International Resources Inc [2004] SASC 119 [70]–[75]; Bateman v Newhaven Park Stud Ltd [2004] NSWSC 566 [40]: “acting selfishly and entirely in the shareholder’s own interests”; Big Air Group Ltd [2008] ATP 12 at [19]. 194 IPT Systems Ltd v MTIC Corporate Pty Ltd (Administrator Appointed) [2000] WASC 316 [26]–[27] per Owen J. His Honour added that “there must always be some pejorative element” in a finding of concert, but this should probably be confined to avoidance cases. 195 TNT v Poseidon (1989) 7 ACLC 303 per Jacobs J; and ConocoPhillips WA 248 Pty Ltd v Batoka Pty Ltd [2005] WASC 184 [76]. Similarly, Aberfoyle Ltd v Western Metals Ltd [1998] FCA 744; Papua New Guinea Dockyard Limited v Adams [2005] FCA 413. 196 Alan Davis Group v Rivkin Financial Services [2005] NSWSC 369 [60]–[73] per Gzell J.

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A proposal to put a resolution to a general meeting to replace a board or a responsible entity, or to reconstruct a company or trust, may envisage a change in the composition of the board or in the conduct of the affairs of the body in question, but is not for the purpose of controlling or influencing those matters, unless one or more of the proponents will decide or materially influence the outcome. If directors formulate a scheme of arrangement, or if a responsible entity proposes its own replacement with another manager, and the directors or the responsible entity (together with the proposed counterparty and their respective associates) do not have substantial voting power in the company or scheme, or they cannot or will not vote any substantial parcel of securities they do have, the proposal is not for the purpose of the proponents controlling or influencing the conduct of the company’s affairs or the identity of the scheme’s responsible entity, but for the purpose of enabling other people who are not parties to the proposal (that is, the general body of shareholders) to decide whether to change those matters. Standstill agreements are generally entered into in contemplation of a bid, scheme or similar transaction. The prospective acquirer receives due diligence information concerning the prospective target and undertakes to preserve the confidentiality of that information and not to trade in securities of the target for an agreed period while it will have an information advantage. As with a reconstruction proposal, the better view is that a standstill which deals only with these matters is not a relevant agreement or concert for the purpose of controlling the composition of the board of the target or the conduct of its affairs, but a machinery agreement to enable other people to make a decision on those matters. If the target agrees not to make changes to its business and capital structure pending the transaction, or uses the standstill as a means of entrenching the target board, the agreement may raise the more difficult issues discussed in National Foods Ltd [2005] ATP 8.197

3.8 Exclusions from the associate concept [3.80] There are a number of situations which, by themselves, do not generally give rise to associations.198 Several of them are outdated, because they respond to elements of former definitions of association which have not been retained in current s 12.

197 A more extensive agreement between a seller of shares and several buyers to restrict the conduct of the relevant company’s affairs and to entrench one director during a transitional period of one year was found to constitute an association between the vendor and each purchaser in Touch Holdings Ltd [2013] ATP 3. Although each buyer was party to one and the same agreement, there was no finding as to whether the buyers were associated with one another. 198 By s 52 of the Corporations Act, in each of the situations to which s 16(1) applies, the principal, client, or bidder is taken to have taken the relevant action, because it caused or authorised the action.

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Professional agents and advisers [3.80.10] A person is not an associate of another person merely because one gives advice or acts on the other’s behalf in the proper performance of the functions attaching to a professional capacity or business relationship: s 16(1)(a). This will cover, for instance, the relationship between a nominee company and its client.199 However, it is unlikely to apply to a one-off business relationship simply because advice is given by one party to another.200 None of the few authorities on the exceptions has had to deal with what constitutes “proper performance”. Securities dealers [3.80.20] A person is not an associate of another person merely because one, a client, gives specific instructions to the other, whose ordinary business includes dealing in securities, to acquire shares on the client’s behalf in the ordinary course of that business: s 16(1)(b). Absent a shared control purpose, however, an agreement to this effect would not now fall within the inclusive part of the definition.201 Offerees under takeovers [3.80.30] A person is not an associate of another person merely because one has sent, or proposes to send, to the other a takeover offer, or has made, or proposes to make, offers under a takeover announcement in relation to shares held by the other: s 16(1)(c). This exclusion is obsolete for the same reason as the previous one. In Crescent Gold Ltd 02 [2011] ATP 14, the Panel declined to conduct proceedings on an association alleged to arise from acceptance of takeover offers.202 Honorary proxies [3.80.40] A person is not an associate of another person merely because one has appointed the other, otherwise than for valuable consideration, to vote as a proxy or representative at a meeting of members of a body corporate: s 16(1)(d). It need not be a directed proxy.203 Since the

199 Heine Management Ltd v Australian Securities Commission (1992) 12 ACSR 578; ASIC v Bank Leumi Le-Israel [1999] FCA 1744 [202]–[204] per Sackville J; Everest Capital Limited as Trustee of the EBI Income Fund v Trust Company Limited [2010] NSWSC 231 [85]–[96] per White J. In ASC v AS Nominees Pty Ltd [1995] FCA 1663 [336], dealing with what is now the definition of “director” in s 9, Finn J gave the example of directors taking the advice of a manager. 200 Bank of Western Australia Ltd v Ocean Trawlers Pty Ltd (1995) 16 ACSR 501, per Owen J. 201 See [3.80.60]. The agreement would, however, have been within former s 12(1) of the Corporations Law. 202 Similarly, concerning a scheme of arrangement, see Perpetual Custodians Ltd v IOOF Investment Management Ltd [2013] NSWSC 1318 [82]. 203 Section 16(1)(d) and see [3.60.50]. Note the differences of wording from s 609(5), but query whether they are significant.

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proxy-holder has given no consideration, the proxy may be revoked by the donor at will. Institutional investors [3.80.50] ASIC has revoked its former class order allowing institutional shareholders some latitude to discuss and agree on a course of action without becoming associates but may grant similar relief case-by-case: see [3.60.120D]. Share sales [3.80.60] ASIC has also given class order relief to ensure that a simple agreement to buy and sell shares does not constitute an association, merely because the agreement has the effect of giving a party the right to dispose of securities in the designated body or to control the exercise of a power to dispose of the securities.204 The Class Order may not be strictly necessary, as it is more than arguable that an outright sale of shares, even a substantial parcel, without any additional provisions or understandings designed to assist the buyer to achieve control, does not come within the inclusive part of the definition of association.205 Despite the Class Order, an agreement to warehouse shares for a bidder or other intending controller will constitute an association, since it is for the purpose of controlling or influencing the conduct of the relevant body’s affairs, even if indirectly, since it is designed to assist the bidder to achieve that control, in addition to creating the rights specifically dealt with by the Class Order. Warrants [3.80.70] ASIC has given class order relief to similar effect, so that the issuer and holder of a quoted warrant are not associated merely by virtue of the terms of the warrant.206

204 ASIC Class Order [CO 13/520]; and ASIC Regulatory Guide 5: Relevant interests and substantial holding notices, RG 5.141–5.151. Under the Companies (Acquisition of Shares Act) 1980 (Cth) and the Corporations Law, parties to an agreement to buy and sell shares were associates, but this rule led to anomalies and was done away with by the Corporations Law Economic Reform Program Act 1999 (Cth). On one view, it was resurrected by reg 1.0.18, which includes ownership of shares in a body corporate among its affairs for the purposes of s 12(2)(b) and (c): see [3.70.20]. 205 “The householder and the milkman are not associates because one buys milk from the other.” Opal Group Holdings (Aust) Pty Ltd v Franklins Ltd [2002] NSWCA 169 [42], per Sheller JA, Mason P and Ipp AJA concurring, admittedly in a different context. 206 ASIC Regulatory Guide 5: Relevant interests and substantial holding notices, RG 5.227–5.231 and Class Order [CO 13/526].

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3.9 Examples of the rules in operation [3.90] The following simple examples illustrate the interplay of the various rules in determining a person’s entitlement and whether a particular transaction could contravene the general prohibition in s 606.207 Example 3.2 A 60% B 18% C 15% D

In Example 1, A has a relevant interest in 60% of shares in B in accordance with s 608(1) and in 18% of shares in C in accordance with s 608(3)(a). A does not have a relevant interest in any shares in D because the link between B and C is less than 20%: s 608(3)(a). A could purchase B’s shares in C without breaching the s 606 prohibition because A already has a relevant interest in those shares. Example 3.3 A 25% B

C Right to vote 5% of E

8%

D

6%

10%

E

As holder of more than 20% of B, A has a relevant interest in B’s 8% holding in E and in the 5% subject to B’s voting arrangement with C: s 608(3). This totals 13% which means A could purchase D’s 6% holding in E. However, B’s voting power includes C’s entire 10% holding in E as B and C are

207 Other examples highlighting some anomalies in the legislation are discussed in Renard, “Relevant Interests and Associations Revisited” (1989) 7 C&SLJ 44.

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associates: s 610. Therefore, B’s voting power is 18% and it could not purchase D’s 6% stake. Example 3.4 A 19% B

10%

C

If B entered into an agreement to buy back C’s 10% holding in B, the relevant interest B would obtain under the agreement is ignored under s 609(4). Therefore, the agreement would be legal. Upon the buy-back being effected, the relevant shares are cancelled under s 257H(3). A’s holding would increase to over 20%, but this does not breach s 606 as there is no “acquisition” by A nor any transaction by or on behalf of A.

Chapter 4

Foreign Bidders, Anti-competitive Bids and Acquisitions in Regulated Industries [4.10] [4.20] [4.30] [4.40]

4.1 Foreign bidders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 4.2 Takeovers which may be anti-competitive . . . . . . . . . . . . . . . . . . . . . 73 4.3 Acquisitions of shares in television and radio companies . . . . 83 4.4 Acquisitions of shares in financial institutions . . . . . . . . . . . . . . . . 88

4.1 Foreign bidders [4.10] Apart from the Corporations Act, there are further important restrictions under other legislation1 which may affect the strategy for making a bid or acquiring shares in a particular company.2 If the bidder is a “foreign person”, the takeover will be subject to the restrictions in the Foreign Acquisitions and Takeovers Act 1975 (Cth).3 These restrictions require, in general, that the takeover must be referred to the Foreign Investment Review Board, upon whose advice the Federal Treasurer will decide whether or not to object to the bid if it is considered to be “contrary to the national interest”. What is in the “national interest” will be determined by the government on a case-by-case basis having

1

See, for example, Gambling Regulation Act 2003 (Vic); Financial Sector (Shareholdings) Act 1998 (Cth); Airports Act 1996 (Cth); Broadcasting Services Act 1992 (Cth); Insurance Acquisitions and Takeovers Act 1991 (Cth); Insurance Act 1973 (Cth); Air Navigation Act 1920 (Cth); Qantas Sale Act 1992 (Cth); Telstra Corporation Act 1991 (Cth); and Commonwealth Serum Laboratories Act 1961 (Cth).

2

There is also an issue whether a foreign bidder is required by s 601CD of the Corporations Act to be registered as a foreign company before it can dispatch offers. The point is not free from doubt, but it seems that making a takeover offer is not “carrying on business” in Australia and therefore registration is not required, though it may be material for target shareholders to know that their rights to pursue the bidder may be limited if it is not registered: see Skywest Ltd 01 [2004] ATP 10 [94]–[98]; and Pinnacle VRB Ltd 06 [2001] ATP 11 [17]. Often, a foreign bidder will use an Australian subsidiary to make a bid for practical and convenience reasons.

3

References to sections in 4.1 are references to sections in the Foreign Acquisitions and Takeovers Act 1975 (Cth) unless otherwise indicated.

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regard to “community concerns about ownership of certain Australian assets”.4 The Act provides for the making of orders which prohibit the acquisition of control of Australian companies, Australian businesses and interests in Australian land. In addition, there are published guidelines to assist investors which discuss proposed acquisitions subject to the legislation, the procedures involved in seeking approval and government policy regarding acquisitions in particular sectors of the economy.5 Foreign investment policy [4.10.10] The Australian government’s stated approach is generally to encourage and welcome foreign investment into Australia. In the majority of industry sectors, smaller acquisitions are exempt from the Act or from notification under the policy and larger proposals are generally routinely approved without any issues arising.6 The review process undertaken by the Foreign Investment Review Board allows for comments to be made by government agencies in considering whether larger or more sensitive foreign acquisitions are contrary to the national interest.7 Apart from company takeovers (dealt with in [4.10.30]), the types of foreign investment proposals which are subject to the Act or to the policy (or both) and should be notified to the Government for approval include:8 •

acquisitions of substantial interests in an Australian business where the value of the gross assets is $252 million. For non-government investors from Chile, China, Japan, Korea, New Zealand and the

4

Department of Treasury, Australia’s Foreign Investment Policy (July 2016).

5

Department of Treasury, Australia’s Foreign Investment Policy (July 2016) and various guidance notes prepared by the Foreign Investment Review Board from time to time.

6

Outright refusals of approval under the Act are infrequent. In 2013 the Treasurer rejected Archer Daniels Midlands’ proposed acquisition of GrainCorp Ltd on the potential anti-competitive effects of the transaction and in 2011, the Treasurer rejected the proposed acquisition of ASX Limited by Singapore Stock Exchange Limited, on the basis that Australia could not adequately supervise ASX’s conduct of its markets and clearing and settlement operations, without full regulatory sovereignty over the holding company. In 2001 Shell’s proposed takeover of Woodside Petroleum was rejected. In 2008, Sinosteel withdrew an application to acquire 100% of Murchison Metals Ltd, and received conditional approval to acquire 49.9%. Approval is sometimes granted subject to conditions: as well as Murchison Metals, see AXA SA’s acquisition of 51% of National Mutual (now AXA–Asia Pacific) in 1995, Chinalco’s acquisition of 14.99% of Rio Tinto plc in 2008 and Yancoal’s acquisitions of Felix Resources Ltd in 2009 and Gloucester Coal Ltd in 2012.

7

Department of Treasury, Australia’s Foreign Investment Policy (July 2016). Other parties may be consulted, but only with the applicant’s permission, or under court order.

8

Department of Treasury, Australia’s Foreign Investment Policy (July 2016). The monetary thresholds are indexed each year.

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United States,9 the exemption threshold is $1,094 million (except for investments in prescribed sensitive sectors)10 in which case a $252 million threshold applies;11 •

acquisitions in agribusinesses above certain specified monetary thresholds;

•

portfolio investments in the media of 5% or more and all nonportfolio media investments irrespective of size;

•

direct investments by foreign governments and their agencies (including the Chile, China, Japan, Korea, New Zealand and the United States governments, state-owned enterprises and sovereign wealth funds) irrespective of size;12 and

•

acquisitions of Australian land (being agricultural land, commercial land, residential land or a mining or production tenement), in some cases only above specified thresholds.

The Treasury has also published an outline of the policy and examination guidelines in respect of particular industry sectors which are regarded as

9

The Act does not apply to investments by non-government investors in those financial sector entities which are subject to the operation of the Financial Sector (Shareholdings) Act 1998 (Cth); Foreign Acquisition and Takeovers Regulation 2015 (Cth), reg 32.

10 Media, telecommunications, transport, supply (or manufacture) of certain goods and services to the Australian defence force or for military use, manufacture or supply of encryption and security technologies and communications systems and uranium or plutonium extraction or operation of nuclear facilities: Foreign Acquisition and Takeovers Regulation 2015 (Cth), reg 22. 11 These thresholds are all subject to annual indexation: Foreign Acquisition and Takeovers Regulation 2015 (Cth), reg 53. 12 Where a proposal involves a foreign government investor, the Australian Government also considers whether the investment is commercial in nature and whether the investor may be pursuing broader political or strategic objectives that may be contrary to Australia’s national interest. This includes assessing whether the prospective investor’s governance arrangements could facilitate actual or potential control by a foreign government, including through the investor’s funding arrangements. Mitigating factors that assist in showing that such proposals are not contrary to the national interest may include: • the existence of external partners or shareholders in the investment; • the level of non-associated ownership interests; • the governance arrangements for the investment; • ongoing arrangements to protect Australian interests from non-commercial dealings; and • whether the target will be, or remain, listed on the ASX or another recognised exchange. 12 The Government will also consider the size, importance and potential impact of such investments in considering whether or not the proposal is contrary to the national interest: Department of Treasury, Australia’s Foreign Investment Policy (July 2016).

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sensitive, namely Australian land, banking, civil aviation, airports, shipping, media and telecommunications.13 Who is a “foreign person”? [4.10.20] A “foreign person” is defined in s 4 as: •

a natural person not ordinarily resident in Australia;14

•

a corporation in which a natural person not ordinarily resident in Australia or a foreign corporation holding a substantial interest (defined under s4 holding, together with any associates, not less than 20% of the voting power or issued shares in the corporation);

•

a corporation in which two or more persons, each of whom is either a natural person not ordinarily resident in Australia or a foreign corporation, hold an aggregate substantial interest (defined under s 4 as holding, together with any associates, not less than 40% of the voting power or issued shares in the corporation);

•

the trustee of a trust estate in which a natural person not ordinarily resident in Australia or a foreign corporation holds a substantial interest (defined in s 4 as holding, together with any associates, a beneficial interest in not less than 20% of the property or income of the trust estate);15 or

•

a trustee of a trust estate in which two or more persons, each of whom is either a person not ordinarily resident in Australia or a foreign corporation, holds an aggregate substantial interest (defined in s 4 as holding, together with any associates, a beneficial interest in not less than 40% of the property or income of the trust estate).

There are tracing provisions in s 19 which state that interests held through interposed companies and trusts are relevant in determining whether a person is a foreign person or whether a foreign person has acquired an interest in an Australian company or other assets. Notification of company takeovers [4.10.30] Section 81 of the Foreign Acquisitions and Takeovers Act requires a foreign person to notify the Treasurer (in practice, the Foreign Investment Review Board) before acquiring a substantial shareholding in an Australian corporation or, having such a shareholding, acquiring more shares. Once the notification has been given, it is illegal to proceed with the 13 Department of Treasury, Australia’s Foreign Investment Policy (July 2016). 14 A person is regarded as ordinarily resident in Australia at a particular time if the person has been in Australia at least 200 days in the preceding 12 months and the person’s presence is not subject to any time constraint imposed by law, such as a limitation imposed on a prohibited non-citizen under the Migration Act 1958 (Cth): see s 5(2). 15 If the trust is a discretionary trust, each beneficiary is taken to hold a beneficial interest in the maximum percentage of property or income that the trustee is empowered to distribute to the beneficiary: s 18(3).

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acquisition unless advice is given by the Treasurer that there is no objection to the acquisition or 40 days elapse, whichever occurs first: s 82.16 For these purposes, a “substantial shareholding” exists where a person, together with any associates,17 holds not less than 20% of the voting power or issued shares in a company: s 4, 17 and 18. A person holds voting power if the person has a present or contingent future right to exercise the votes in question.18 Acquisitions of interests which are not issued shares but which confer rights to obtain voting shares, such as options and convertible notes or debentures, are now regulated and no longer provide an avenue for a foreign bidder to build a stake without having to seek approvals under the legislation. Section 81 requires prior notification of acquisitions of interests in Australian land. An “interest” in “Australian urban land” can include the acquisition of shares in a company if the value of its Australian land is more than 50% of the value of its total assets. Exceptions [4.10.40] There are some exceptions to the pre-notification rule. First, a person may enter into an agreement or offer to acquire shares provided the provisions of the agreement are not binding until a condition (for example, a condition that there is no objection to the acquisition under the Act) is satisfied: s 15(5). Based on this exception, a foreign bidder may launch a bid before obtaining Foreign Investment Review Board clearance, provided the bid is conditional on obtaining such a clearance.19

16 A competing purchaser has no standing to seek a court order against the Treasurer that a particular acquisition is against the national interest, nor will a court review the exercise of the Treasurer’s discretion: Leisure & Entertainment Pty Ltd v Willis (1996) 14 ACLC 379; Wight v Pearce (2007) 157 FCR 485, 516. 17 The definition of associate in the Foreign Acquisitions and Takeovers Act is in some respects broader than that in the Corporations Act. For example, s 6 of the Foreign Acquisitions and Takeovers Act provides that any corporation in which a person has a “substantial interest” (defined to cover a holder of 20% of shares or voting power) is an associate of that person and vice versa. That may not necessarily be the case under the equivalent definition in the Corporations Act. See Midwest Corporation Limited 02 [2008] ATP 15 for an example of the application of the broader definition. 18 Equiticorp Industries Ltd v ACI International Ltd [1987] VR 485, where an option-holding which, on exercise, would confer a shareholding in excess of 15% of total shares (the case we heard at a time when the relevant threshold under the Foreign Acquisitions and Takeovers Act was 15%), was held not to be sufficient as the options were not immediately exercisable. 19 If the purchase contract is subject to a condition requiring third-party approval, the purchaser does not acquire a legal or equitable interest in the securities until the condition is fulfilled: McWilliam v McWilliams Wines Pty Ltd (1964) 114 CLR 656. 661 per McTiernan and Taylor JJ; Brown v Heffer (1967) 116 CLR 344, 350 per Barwick CJ, McTiernan, Kitto and Owen JJ. However, on application by the purchaser, a court will order the vendor to take all reasonable steps in its power to obtain fulfilment of the condition: Egan v Ross (1928) 29 SR (NSW) 382.

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Secondly, the acquisition of shares pursuant to an issue of new shares under a right issue offered pro-rata to shareholders is excluded: Foreign Acquisition and Takeovers Regulations 2015 (Cth), reg 41(2). Offshore takeovers [4.10.50] A company takeover occurring overseas may fall within the Foreign Acquisitions and Takeovers Act if the target falls into one of the following categories: (1) a foreign corporation owning in excess of $252 million of interests in Australian land, mineral rights or shares in an Australian corporation; (2) a foreign holding corporation of an Australian corporation with assets in excess of $252 million; or (3) a holding corporation of a foreign corporation falling within (1) or (2). If the target is such a corporation, the Act empowers the Treasurer to make orders in relation to the acquisition. Usually, acquisitions by foreign persons of foreign-held interests do not raise issues which may be contrary to the national interest as there is no reduction in Australian ownership and control. Applications for approval [4.10.60] Generally, formal notification is accompanied by a submission which seeks to make out a case why the foreign investment is in Australia’s national interest. This may refer to factors such as job security, improved technological efficiency, local research and development, greater export opportunities, Australian participation, improved employee relations prospects and any other competitive advantages that may accrue. Penalties and powers of treasurer [4.10.70] Failure to notify the Treasurer under s 81 when required to do so is an offence punishable, in the case of a natural person, by a fine of up to $135,000 or three years’ jail or both and, in the case of a corporation, by a fine of up to $675,000. In addition, officers of the corporation may be personally liable in some instances: s 26(2) and 103. If the Treasurer is satisfied that an acquisition of shares by a foreign person is contrary to the national interest, the Treasurer may order the person who acquired the shares to dispose of them: s 69. The Treasurer is not permitted to make such an order if 30 days elapse from the date of the notification under s 81: s 77. The Treasurer may extend the 30-day time limit for up to 90 days: s 68(2). The Treasurer may declare that there are no objections subject to the acquirer fulfilling certain conditions. Breach of those conditions is an offence: s 87. If a person has put in place a scheme for the sole or dominant purpose of avoiding the operation of the Act, the Treasurer may make any order as if the scheme had not achieved its purpose: s 78.

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Scope for takeovers panel orders [4.10.80] The Takeovers Panel does not have power to enforce the Foreign Acquisitions and Takeovers Act. However, the Panel may consider itself to have power to make remedial orders where a breach of the Foreign Acquisitions and Takeovers Act has occurred and the breach has had the effect of preventing the acquisition of control of a company taking place in an “efficient, competitive and informed market”. In Midwest Corporation Ltd 02 [2008] ATP 15, the Panel made a declaration of unacceptable circumstances and made orders preventing a foreign company and its associates from voting shares acquired in breach of the Foreign Acquisitions and Takeovers Act, despite the relevant acquisition being later cleared by the Treasurer. It is arguable that the Panel over-reached its powers in this case: see [21.20.30]. Nevertheless, the decision shows that the Panel may be prepared to take a broad view of its jurisdiction and provide a remedy to parties who are affected by conduct in breach of the Act.

4.2 Takeovers which may be anti-competitive [4.20] A takeover which may lead to an increased level of concentration (and in some instances, increased vertical integration) in a market or an industry may give rise to concerns under competition or anti-trust laws. A takeover will be prohibited under s 50 of the Competition and Consumer Act 2010 (Cth)20 (CCA) if it would have the effect, or be likely to have the effect, of substantially lessening competition in any market in Australia.21 In addition, given the increased internationalisation of business, if the target owns foreign businesses, the bidder will frequently need to consider whether concerns arise under foreign competition or anti-trust laws (or for that matter foreign investment restrictions). It is important to consider the possible application of the s 50 prohibition to a takeover early in the planning stages because the CCA enables a court to injunct the acquisition,22 declare the acquisition void or to order divestiture and provides substantial penalties for a contravention. In considering whether the prohibition is relevant, it is necessary to identify the market (or markets) affected in Australia and whether the effect, or likely effect, of the takeover will be to “substantially lessen competition” in that market. If there is a risk of contravention, the next question is how best to deal with the national competition law authority, the Australian Competition and Consumer Commission (ACCC). 20 Formerly the Trade Practices Act 1974 (Cth). References to sections in 4.2 are references to sections of the Competition and Consumer Act 2010 (Cth), unless otherwise indicated. 21 This test was introduced by the Trade Practices Legislation Amendment Act 1992 (Cth). The previous test prohibited takeovers which put the acquirer in a position to “dominate” a market for goods or services or strengthened any such dominance. The current test was considered to be more consistent with the general focus of the legislation which is about competition in markets. 22 As noted below, an injunction application may only be brought by the ACCC: CAA, s 80.

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What is the relevant “market”? [4.20.10] “Market” is defined under the CCA, s 4E as a market in Australia and includes a market for goods and services substitutable for or otherwise competitive with the goods and services the subject of the enquiry. In delineating a market, regard must be had to: (1) the goods and services supplied by the parties together with competing goods or services which could reasonably be used by most customers as substitutes; (2) the geographic area in which participants operate and to which customers can practicably turn for the goods or services; (3) the functional level of the market (that is, the vertical stage of production or distribution) which comprises the relevant area of competition; and (4) the timeframe over which substitution would occur – goods and services will only fall within a given market if they are capable of long-run rather than short-run substitution for other goods in that market. A market should be understood in the sense of an area of potential close competition in particular goods and/or services and their substitutes.23 In the ACCC’s Merger Guidelines 2008, the ACCC states that it will take a pragmatic view of the market. All sources of closely substitutable products to which consumers would turn in the event the merged firm attempted to exercise market power are relevant. Practical information concerning what those businesses operating in the market see as their close competitors, switching costs in consumption and production and price relativities will all be relevant considerations.24 Previously, s 50 only operated if the market was a “substantial” market for goods and services. However, in 2011, Parliament removed the requirement that the market be substantial.25 This amendment was made in response to concerns about so-called “creeping acquisitions”, or small-scale acquisitions which individually do not substantially lessen competition in a market, but may collectively have that effect over time.

23 Queensland Wire Industries Pty Ltd v The Broken Hill Proprietary Company Ltd (1989) 167 CLR 177, 195 per Deane J. For detailed discussion of the concept of “market”, see Re Queensland Co-operative Milling Association Ltd (1976) 25 FLR 169; Australia Meat Holdings Pty Ltd v TPC (1989) ATPR 40-932; TPC v Arnotts Ltd (1990) 93 ALR 657; TPC v BTR Nylex Ltd (1991) ATPR 40-075; ACCC v Metcash Trading Limited [2011] FCAFC 151. See also Norman and Williams, “The Analysis of Market and Competition under the Trade Practices Act: Towards the Resolution of some Hitherto Unresolved Issues” (1983) 11 ABLR 396. 24 Details of factors considered relevant are set out in the ACCC, Merger Guidelines 2008, chapter 4 in general. 25 The relevant amendment came into operation in February 2012.

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The amendment largely supported the ACCC’s pre-existing practice. Prior to the amendments, the ACCC had assessed the effects of a number of acquisitions in very narrow local markets, including in supermarket, liquor retailing and petrol retailing mergers. Will the acquisition lead to a “substantial lessening of competition”? [4.20.20] To attract the prohibition, the takeover must have the effect, or be likely to have the effect, of substantially lessening competition. This requires the effect on competition to be meaningful or relevant to the competitive process.26 It requires an understanding of business carried on in the relevant market and an assessment of the relative change as a result of the acquisition.27 The classic example is where there is a real and not remote chance that the merger will result in a significant and sustainable increase in prices. Other examples will be where the merged firm may be able to limit production, lower service standards or reduce quality of a product without also reducing its price or, in the case of a merger on the demand side of the market, where the merged firm may be able to impose a significant price decrease on sellers. In determining whether the test is satisfied s 50(3) sets out a non-exclusive list of factors which must be taken into account. These are: (1) the actual and potential level of import competition in the market; (2) the height of barriers to entry to the market; (3) the level of concentration in the market; (4) the degree of countervailing power in the market; (5) the likelihood that the acquisition would result in the acquirer being able to significantly and substantially increase prices or profit margins; (6) the extent to which substitutes are available in the market or are likely to be available in the market; (7) the dynamic characteristics of the market, including growth, innovation and product differentiation; (8) the likelihood that the acquisition would result in the removal from the market of a vigorous and effective competitor; and (9) the nature and extent of vertical integration in the market.

26 Rural Press Limited v Australian Competition and Consumer Commission [2003] HCA 75, 41. 27 Radio 2UE Sydney Pty Ltd v Stereo FM Pty Ltd (1982) 44 ALR 557, 563 per Lockhart J discussing the expression as it appears in s 45.

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In a practical sense, these factors can be taken into account in a five-stage evaluation process of mergers:28 (a) The first stage is market definition, discussed above. (b) The second stage would be to consider whether the merger would meet any of the criteria where the ACCC encourages voluntary notification. (c) At stage three, import competition is reviewed. The competitive constraint imposed by imports can be very significant in a small open economy like Australia. (d) At stage four, barriers to entry and expansion are reviewed. (e) At stage five, other structural and behavioural market features are considered. In relation to the second stage, the ACCC’s Merger Guidelines 2008 encourage merger parties to notify the ACCC well in advance of completing a merger where both of the following circumstances apply: •

the products of the merger parties are substitutes or complements; and

•

the merged firm will have a post-merger market share greater than 20% in a relevant market.29

The ACCC says that it will rarely investigate a merger if it falls outside these notification thresholds.30 However, the thresholds are set at a low level. In practice, many proposed acquisitions will cross the thresholds but raise no substantive competition law concerns. In practice, a bidder will usually engage a lawyer with competition law experience to advise whether a proposed takeover would have a risk of challenge under s 50. In some instances expert economic input is also obtained. Generally, a report is prepared making an assessment of what constitutes the relevant market and the factors that are relevant in determining whether there may be a substantial lessening of competition if the takeover proceeds. The report may form the basis for a submission to the ACCC if this is thought appropriate.

28 The five-stage evaluation process was set out in the ACCC’s 1999 Mergers Guidelines. The Merger Guidelines 2008 do not contain such a five-step process. Nevertheless, it remains a useful framework for considering the application of s 50. 29 This supersedes the two so-called “safe-harbours” in the 1999 merger guidelines, where competition concerns are considered unlikely to arise: • the combined market share of the merging parties is less than 15%; or • the combined market share of the merging parties is less than 40% and the post-merger combined market share of the four largest firms is less than 75%. 30 ACCC, Merger Guidelines 2008, 2.7.

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Acquisitions effected outside Australia [4.20.30] Section 50 applies to acquisitions of entities operating in Australia. By virtue of s 5(1), s 50 can also have extraterritorial operation so as to apply to acquisitions effected overseas by a person or corporation resident or incorporated in Australia or carrying on business in Australia.31 In addition, an acquisition effected overseas by a foreign entity (that is, a person or corporation not resident or incorporated in Australia or carrying on business in Australia) may come within the legislation by virtue of s 50A. Where there is an acquisition outside Australia of a controlling interest in a body corporate which results in the acquirer obtaining another controlling interest in a corporation in Australia (for example, a local subsidiary),32 an application may be made by the Minister, the ACCC or any other person to the Australian Competition Tribunal (Tribunal) for a declaration that, as a result, there would be, or it is likely there would be, a substantial lessening of competition in a market in Australia and that would not result in such a public benefit that the acquisition should be disregarded: s 50A(1).33 In making its declaration, the Tribunal is required by s 50A(1A) to consider the matters mentioned in s 50(3) and is required to regard as a public benefit a significant increase in the real value of exports or a significant substitution of domestic products for imported goods. It is also required to have regard to all other matters that relate to the international competitiveness of any Australian industry: s 50A(1B). An application for such a declaration may be made within 12 months of the acquisition: s 50A(3). If the Tribunal makes a declaration, the corporation must cease to carry on business in the relevant market within six months or such further time as the Tribunal permits (such latter period not to exceed six months): s 50A(6). “Clearance” from the ACCC [4.20.40] There is no requirement for compulsory notification of mergers to the ACCC. However, if the bidder concludes that there is some uncertainty as to whether s 50 will prohibit the acquisition, generally, in view of the significant remedies and penalties that can be imposed, a bidder will usually want some comfort that the ACCC will not take action. This comfort may take the form of either informal clearance, formal clearance or an authorisation on public benefit grounds.34 31 See TPC v Australian Iron and Steel Pty Ltd (1990) FCR 305 for discussion of the extraterritorial operation of s 50. 32 Defined in s 50A(8). 33 The s 50A Tribunal process has never been used. 34 Adopting the recommendations of the 2015 Competition Policy Review (the Harper Review), the Commonwealth Government has stated that it proposes to reform the

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Informal clearance [4.20.40A] Informal clearance is not specifically provided for in the legislation. Rather, it is a commonly used process developed and administered by the ACCC. Usually, the process is initiated with a submission to the ACCC covering all relevant aspects, often supported by opinions from economists and lawyers. The submission will generally include background information on the proposed acquisition and the parties involved, the structure of the market including details of the main competitors, the commercial rationale for the merger, an analysis of the proposed acquisition in terms of the factors set out in s 50(3) and any other matters relevant to the competitive implications of the merger.35 The submission may be made on a strictly confidential basis, but, in these circumstances, any ACCC view will often be highly qualified in a takeover that involves material consolidation. The ACCC will generally not give a final view to the parties without making market enquiries. Following lodgment of the submission, the ACCC reviews the submission, discusses it with the applicant and determines the need for market enquiries (including of the target company). In some cases, where the ACCC is satisfied that there is a low risk of a merger substantially lessening competition, the ACCC may determine that market enquiries are not required in order to approve the merger. These mergers are described as being “pre-assessed”. An indicative timeline for decision will be formulated and published. Where market enquiries are conducted, but no concerns are ultimately identified, approval may be obtained in approximately six to eight weeks. Where market enquiries are conducted, and substantive competition issues are identified, then the ACCC will publish a “statement of issues” and conduct a second round of market enquiries before making its final decision (with the entire process often taking 12 weeks or more).36 Even if the ACCC gives a response to the effect that there is no contravention of s 50 likely to arise from a bid, informal clearance has no binding legal effect. It does not prevent subsequent action being taken by the ACCC (as occurred in the Santos Ltd bid for Sagasco Holdings Ltd considered in TPC v Santos Ltd (1992) 110 ALR 517), action being taken by the relevant Minister (as occurred in Attorney-General v Davids Holdings Pty Ltd (No 1) (1993) ATPR 41-210), or action by private parties. However, it is unlikely that the ACCC would take action after having informally cleared a takeover unless the ACCC formed the view that the information provided by the parties in their submission was incorrect or incomplete. In formal clearance and authorisation processes. These reforms are expected to be implemented in 2017 and will combine the two formal processes into a single authorisation process that may only be brought to the ACCC. The Tribunal’s role will only be by way of review of an ACCC determination. 35 See ACCC, Merger Review Process Guidelines (July 2006), [4.94] and Appendix A. 36 See ACCC, Merger Review Process Guidelines (July 2006), for a detailed explanation of the ACCC informal clearance processes.

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practice, ACCC “informal clearance” provides a reasonably high degree of regulatory certainty. Any response indicating the ACCC’s attitude will usually be disclosed in the bidder’s statement. If the ACCC forms the view that the takeover would be anti-competitive, it may be that the bidder can modify the proposal or give enforceable undertakings to reduce any effect on competition. A common approach is to agree to sell certain assets to competitors or a new entrant. Such undertakings may be enforced in court by the ACCC: s 87B. In more significant takeovers, the ACCC may publish a public competition assessment setting out its reasons for its decision, whether to approve or oppose the takeover. If the ACCC refuses to clear a proposed acquisition, a bidder may seek to obtain a court declaration that the proposed acquisition does not breach s 50: see Australian Gas Light Company v ACCC (No 3) [2003] FCA 1525. Given the time involved in bringing the matter to court, this may not be feasible in a takeover bid unless the bidder is confident that there are no rival bidders. Alternatively, a bidder may initiate one of the formal processes discussed below: see Application for Authorisation of Macquarie Generation by AGL Energy Ltd [2014] ACT 1 and Application by Sea Swift Pty Ltd [2016] ACT 9, where the applicant in each matter sought merger authorisation after the ACCC rejected an informal clearance application. If, despite the ACCC’s decision not to grant clearance, the parties proceed with the takeover, or announce their intention to proceed, the ACCC will ordinarily apply for an injunction, as occurred in ACCC v Metcash Trading Ltd (2011) 198 FCR 297.

Formal clearance [4.20.40B] A bidder also has the option of seeking formal merger clearance from the ACCC: s 95AC. A formal clearance has binding legal effect and provides immunity against an action for breach of s 50. To obtain formal clearance, a bidder must submit an application to the ACCC in the form required (Form O of the Competition and Consumer Regulations 2010 (Cth)) accompanied by payment of the relevant fee37 and an undertaking not to complete the acquisition while it is being considered by the ACCC. The information required to support the application is substantial and it is anticipated that key details will be made public.38 The ACCC must not grant a formal clearance unless it is satisfied that the acquisition would not breach s 50: s 95AN (that is, the test is the same). The 37 The fee is currently set at $25,000. 38 See ACCC, Formal Merger Review Process Guidelines (January 2007). The application may be invalidated by claiming confidentiality over information in the form, which must be made available on the ACCC’s website in its entirety. The ACCC will discuss reasonable requests for confidentiality over material submitted in other documents.

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ACCC must ordinarily make a decision within 40 business days, although this period can be extended with the applicant’s consent and the ACCC can extend the period for a further 20 business days if the matter is complex or if special circumstances exist. If the ACCC does not make a decision in the review period it is taken to have refused the application unless the applicant has agreed to a longer period: s 95AO. If clearance is refused, the applicant may seek review by the Tribunal: s 111 (third parties, including the target, do not have a right of review to the Tribunal). The Tribunal has 30 business days to make its decision but may extend this period for a further 60 business days if the matter is complex or if special circumstances exist: s 118. If the Tribunal does not make a decision in the review period it is taken to have affirmed the ACCC’s decision. The ACCC can formally approve a takeover subject to conditions, including a condition that the acquirer must comply with court-enforceable undertakings given to the ACCC under s 87B to reduce any negative effect upon competition. As of March 2017, the formal clearance process had not been used. This is primarily because the informal clearance process is more flexible, less costly and generally works well.

Authorisation [4.20.40C] Authorisation is a formal and public procedure which can be used to enable a takeover bid to proceed notwithstanding the potential for anti-competitive effects: s 95AT. If an authorisation is granted, then s 50 will not prohibit the acquisition. The Tribunal may grant an authorisation only if it is satisfied that in all the circumstances the takeover would result, or would be likely to result, in such benefit to the public that it should be allowed to occur: s 95AZH. In determining what amounts to a “public benefit”, the Tribunal must regard a significant increase in the real value of exports and a significant substitution of domestic products for imported goods as positive benefits and must take into account all other relevant matters that relate to the international competitiveness of any Australian industry: s 95AZH(2). The Tribunal has adopted a broad interpretation of potential public benefits, which may include rationalisation of industry resulting in lower costs; fostering business efficiency and broader economic development. In order to be taken into account, benefits must be of substance and of durability. Benefits that are not widely shared (such as a benefit to shareholders) may be viewed as a public benefit, but benefits that are more widely shared will be given more weight.39 An application for an authorisation must be in the form required (Form S of the Competition and Consumer Regulations 2010 (Cth)) accompanied by

39 Re Qantas Airways Ltd [2004] ACT 9, Application for Authorisation of Macquarie Generation by AGL Energy Ltd [2014] ACT 1 and Application by Sea Swift Pty Ltd [2016] ACT 9.

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payment of the relevant fee (currently $25,000) and an undertaking to the ACCC not to complete the acquisition while the matter is being considered by the Tribunal. The Tribunal must give a copy of the application to the ACCC (s 95AX) and the ACCC must publish the application on its website and invite submissions from the public (subject to confidentiality restrictions): s 95AY. Before making its decision the Tribunal is required to obtain a report from the ACCC (s 95AZEA) and may seek additional information relevant to making its determination from the applicant (s 95AZC), and any other person: s 95AZD. The ACCC’s role in the authorisation process is to assist the Tribunal, as required. The Tribunal is required to make a determination within three months of the date of the application. If no determination is made within this time the Tribunal is taken to have refused the application. The Tribunal can, however, extend this time limit up to an additional three months if the Tribunal considers that the matter cannot be dealt with properly within the initial period because of the complexity or other special circumstances: s 95AZI. The Tribunal can grant an authorisation subject to conditions, including a condition that the acquirer must comply with court-enforceable undertakings given to the ACCC under s 87B to reduce any negative effect upon competition. The Tribunal’s decision is not subject to appeal to a court on the merits (although more limited appeals on questions of law or procedural issues could potentially arise). If a contract is conditional on authorisation or formal clearance being granted, it will not be regarded as an “acquisition” attracting s 50 if the application for the authorisation or clearance is made within 14 days of the contract being executed and the application is disposed of or the condition is satisfied before completion under the contract: s 50(4), (5). Theoretically, it would be possible to launch a bid subject to such a condition. However, given the likely time delays in obtaining a definitive answer, in practice, this is not a practical option. Penalties and remedies [4.20.50] An injunction against the takeover may be sought under s 80(1A) of the CCA but only by the ACCC.40 For a takeover to which s 50A applies either the Minister, the ACCC, or in the circumstances set out in s 80(1B) – a private litigant – may apply for an injunction: s 80(1AAA). A strong discretionary factor against an interlocutory injunction will exist where two companies are seeking control of a target company, as the imposition of such an injunction may cause irreparable harm to the 40 See QIW Retailers Ltd v Davids Holdings Pty Ltd (1992) 8 ACSR 245, 250 per Heerey J. The restriction as to who can seek an injunction applies both to permanent and interim injunctions. However, a private litigant can seek a court declaration that a contravention of s 50 has arisen or will arise, which in some instances may be just as effective: s 163A. A court injunction may prevent a bidder’s statement for the bid from being lodged with ASIC: Trade Practices Commission v Rank Commercial Ltd (1994) 53 FCR 303.

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restrained entity as well as to the competitive bidding process should it later be established that the acquisition would not contravene s 50.41 It is also potentially possible for a bidder to avoid an injunction by offering suitable undertakings to the court, such as to keep the operations of the target and the bidder separate and not to exercise control of the target until the s 50 question has been resolved.42 The bidder may also provide undertakings to the ACCC to not complete the deal until the s 50 question has been resolved (either informally or in court), which may result in the ACCC not seeking an interlocutory injunction.43 The ACCC or any other person may seek directions from the Federal Court for the divestiture of shares or assets acquired in breach of s 50: s 81(1).44 Furthermore, where the vendor has been involved in the contravention of s 50, the ACCC may seek a declaration from the court that an acquisition is void from the day it took place with the result that the shares or assets are deemed not to have been disposed of by the vendor, and the vendor is required to refund to the acquirer any amount paid in respect of the acquisition: s 81(1A). A vendor must therefore carefully assess the risk of a possible contravention of s 50 because, if the transaction is declared void, the vendor will have a business returned to it which may not have been under its control for some time. In place of an order, the court may accept an undertaking by the acquirer to dispose of other shares or assets owned by the acquirer: s 81(1C). Contravention of s 50 or s 50A may also result in the imposition of civil pecuniary penalties in proceedings initiated by the ACCC. The maximum penalty for a body corporate is the greatest of: •

$10 million;

•

if the value of the benefit arising from the contravention can be determined – three times the value of such benefit; and

•

if the value of the benefit cannot be determined, 10% of the annual turnover of the body corporate: s 76(1A).

The maximum penalty for an individual is $500,000: s 76(1B). In addition, on application by the ACCC, the court may in certain circumstances order that an individual involved in a contravention of the CCA is disqualified from managing a corporation for a specified period: s 86E. Any person who suffers loss as a result of a takeover contravening s 50 or s 50A (for

41 APM Investments Pty Ltd v TPC (1983) 49 ALR 475, 485 per Smithers J. 42 This occurred in TPC v Santos Ltd (1992) 14 ATPR 41-194 (affirmed: TPC v Santos Ltd (1992) 110 ALR 517). 43 This occurred in ACCC v Metcash [2011] FCA 967, where the ACCC accepted an undertaking from the parties before the first instance court hearing. Following the judgment at first instance, the ACCC unsuccessfully sought an interim injunction before the appeal hearing. 44 See TPC v Australia Meat Holdings Pty Ltd (1988) 83 ALR 299.

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example, a customer or supplier) may also seek an award of damages under s 82.

4.3 Acquisitions of shares in television and radio companies [4.30] Media ownership has always been a contentious issue and the legislative regime in this area has seen significant policy shifts over the years. The latest significant changes were introduced in 2007, when laws were passed which changed the focus of the law from preventing cross-media ownership in the same regions to a focus of encouraging diversity in the media.45 At the time of writing, further reform in the form of the Broadcasting Legislation Amendment (Media Reform) Bill 2016 (Cth) was being considered by Parliament.46 If passed into law, the reform will deliver further material change to the legislative regime. The stated object of the 2007 changes was to reform “media ownership laws while protecting the public interest in a diverse and vibrant media sector”.47 The key aspects introduced include the following: •

cross-media mergers are permitted subject to requirements regarding “media diversity”. This is supported by a register of controlled media groups (to identify the ownership and control of media groups in each licence area) maintained by the Australian Communications and Media Authority (ACMA);

•

restrictions on foreign ownership of commercial television and subscription television interests were removed from the Broadcasting Services Act 1992 (Cth), with the consequence that foreign ownership is regulated by the Government’s foreign investment policy under the Foreign Acquisitions and Takeovers Act 1975 (Cth) (although media continues to be a “sensitive sector” under that Act);

45 The 2007 media reform legislative package included the Broadcasting Services Amendment (Media Ownership) Act 2006 (Cth) and the Communications Legislation Amendment (Enforcement Powers) Act 2006 (Cth), which were passed in October 2006 with the substantive provisions commencing operation on 4 April 2007. 45 Separately, the Broadcasting Services Act 1992 (Cth) previously contained restrictions affecting subscription television broadcasting or “Pay TV” licences. These provisions were repealed by the Australian Communications and Media Authority (Consequential and Transitional Provisions) Act 2005 (Cth). 46 At the time of writing, the Broadcasting Legislation Amendment (Media Reform) Bill 2016 (Cth) had been passed by the House of Representatives and was before the Senate for review. A previous version of the Broadcasting Legislation Amendment (Media Reform) Bill 2016 (Cth) was introduced into Parliament in March 2016. The Senate referred the previous Bill to the Senate Environment and Communications Legislation Committee for inquiry and report. While the previous Bill lapsed when Parliament was dissolved prior to the July 2016 Federal election, the Committee continued its inquiry and released its report on 5 May 2016. The Bill was re-introduced in Parliament on 1 September 2016. 47 Explanatory Memorandum, Broadcasting Services Amendment (Media Ownership) Bill 2006 (Cth), [1].

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•

mergers involving commercial radio, television and associated newspapers within a regional radio licence area continue to be subject to ACCC review under the CCA; and

•

ACMA is empowered to impose licence conditions on commercial television licensees in regional Queensland, New South Wales, Victoria and Tasmania stipulating minimum levels of locally significant content and to impose local content conditions on regional radio licences.48

These changes were intended to encourage greater competition and allow media companies to achieve economies of scale and scope, while protecting the diversity of Australia’s media.49 The proposed 2017 reforms are intended to repeal what are considered outdated media ownership and control laws to better reflect the contemporary digital media environment, including repealing the “75% audience reach rule” and the “2 out of 3 cross-media control rule”, both of which are described below.50 Restrictions under the legislation [4.30.10] If the target company holds or controls a commercial television broadcasting licence or a commercial radio broadcasting licence, an acquisition of shares in it is subject to the restrictions in the Broadcasting Services Act 1992 (Cth).51 These restrictions require a person obtaining “control” of a licensed company to notify ACMA in writing (ss 62–65) and prohibit a person from being in a position to control multiple licences: ss 53–54. The object of these provisions is to encourage diversity in control of the more influential broadcasting services: s 3(c). The meaning of “control” [4.30.20] Complex provisions are contained in Sch 1 to assist in determining whether a person has “control” over a licence or a company holding a licence for the purposes of the restrictions. The following points are relevant.

48 The local content conditions were subsequently eased by the Broadcasting Services Amendment (Regional Commercial Radio) Act 2012 (Cth). This Act reduced the number of weeks per year in which licensees must provide the regulated amount of content and introduced exemptions from the requirement to provide minimum amounts of local content for remote service radio licensees, regional racing service licensees and a small number of licensees operating outside the broadcast service band. 49 Supplementary Explanatory Memorandum, Broadcasting Services Amendment (Media Ownership) Bill 2006 (Cth). 50 Explanatory Memorandum, Broadcasting Services Amendment (Media Reform) Bill 2016 (Cth). 51 References to sections in 4.3 are references to sections in the Broadcasting Services Act 1992 (Cth) unless otherwise indicated.

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•

A person will be regarded as having control if the person (together with any associates52) controls a significant proportion of programs broadcast or a significant proportion of the operations of the licensee or is in a position to veto any action taken at board level, appoint at least half of the directors or exercise direction or restraint over any substantial issue affecting the management or affairs of the licensee: Sch 1, cl 2(1).

•

A lender to a licensee may have control if it can control programming or board composition: Sch 1, cl 4(2). Banks and other authorised lenders acting in the ordinary course of business are excluded: Sch 1, cl 4(1).

•

An interest53 of 15% in a company will be regarded as control: Sch 1, cl 6(1). However, the legislation recognises that interests of less than 15% may confer control, such as where a person holds 10% but no other person holds more than 2% and those other persons do not act in concert: Sch 1, cl 1(1). Where an interest of more than 15% is maintained through a chain of companies, the person may be regarded as controlling all companies in the chain: Sch 1, cl 7. An interest in a company may be held indirectly through interposed entities, but if there are external interests in the interposed entities, the ultimate interest will be reduced proportionately: Sch 1, cl 8.

It is possible to apply for an advance opinion from ACMA on whether a proposed transaction would place a person in a position of control over a licence. The application must be in an approved form and state the applicant’s opinion as to whether control would exist. If ACMA does not give a written opinion within 45 days of receipt of the application or of any further information sought by ACMA, ACMA is taken to have given an opinion which accords with the applicant’s opinion: s 74. ACMA is also given a monitoring role and powers of investigation to determine whether a person is in a position to exercise control, whether or not there has been a recent transaction relevant to the question. Changes in control [4.30.30] There is no prohibition against a person acquiring control of a commercial television or radio broadcasting licence or making a takeover bid for a licence-holder, unless the person has control of another such licence. Unlike the predecessor legislation,54 a change of control is not

52 Defined in s 6 to include various relatives, related bodies corporate and persons acting in concert. 53 “Interest” in this context means a “company interest”, defined in s 6 as an interest in share capital, voting power on any issue in general meeting, and rights to receive dividends and other distributions, including on a winding up. An interest, right or power which exceeds 15% of the total within the company may, accordingly, constitute control of the company. 54 Broadcasting Act 1942 (Cth); Broadcasting (Ownership and Control) Act 1987 (Cth); Broadcasting (Ownership and Control) Act 1988 (Cth).

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subject to ACMA approving the new controller. However, a person who becomes aware that he or she is in a position to exercise control of a commercial television or radio broadcasting licence must, within five days after becoming so aware, notify ACMA in writing: s 64(1). The licensee is also obliged under s 63 to notify ACMA if it becomes aware of any changes in control of the licensee and is obliged under s 62 to provide details of each person who was in a position of control as at the end of each financial year. A company is taken to have the knowledge of each director, chief executive and secretary: s 50. Multiple licence restrictions [4.30.40] Under the current law, a person must not be in a position to exercise control of: (1) commercial television broadcasting licences whose combined licence area populations exceed 75% of the population of Australia: s 53(1);55 (2) more than one commercial television broadcasting licence in the same licence area: s 53(2);56 (3) more than two commercial radio broadcasting licences in the same licence area: s 54; (4) a commercial television broadcasting licence and a data transmitter licence: s 54A; (5) a commercial radio broadcasting licence and a restricted datacasting licence during the six-year period from the start of the digital radio start-up day for the licence area: s 54B(2) (only applies in relation to a commercial radio broadcasting licence if the licence was in force immediately before the digital radio start-up day for the licence area: s 54B(1)). Sections 55, 56 and 56A of the legislation impose limitations on cross-directorships. The effect of these provisions is to treat a directorship as conferring control of a company and its licence. Before a transaction takes place that would put a person temporarily in breach of the above prohibitions, the person may apply under s 67(1) to ACMA for an approval of the breach. ACMA may approve the breach if it is satisfied that the person will take action to ensure that the breach does not continue and that the breach is incidental to the objectives of the transaction: s 67(4). A period of up to two years must be specified by ACMA during which the breach must be remedied: s 67(5). If ACMA fails to approve or refuse to approve the breach within 45 days of receipt of the

55 “Licence area population” means the population of a licence area determined by ACMA under s 30. 56 ACMA designates “licence areas” under s 29 or s 40. There is some flexibility in small markets: see s 73.

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application (or of further information it requests), it is taken to have approved the breach and permitted two years for it to be remedied: s 67(7). A breach of the prohibitions, or of a condition of approval, constitutes an offence with a penalty of up to $3,600,000 (if in respect of a television licence) or $360,000 (if in respect of a radio licence):57 s 66, 69. If ACMA considers that there has been a breach, it may direct the person in breach or the licensee to remedy the breach: s 70(1). If enacted, the Broadcasting Legislation Amendment (Media Reform) Bill 2016 (Cth) will repeal the prohibition on control of commercial television broadcasting licences whose combined licence area populations exceed 75% of the population of Australia. The proposed reform was introduced as it was believed the rule does little to support media diversity, given regional and metropolitan viewers received the same commercial television programming, due to the prevalent use of content supply agreements by broadcasters. Cross-media ownership [4.30.50] Cross-media ownership provisions which restricted control over a commercial television broadcasting licence, a commercial radio broadcasting licence, and an associated newspaper58 in the same licence area, were repealed in 2007. The current rule allows cross-media transactions to proceed, subject to there remaining sufficient diversity of media groups following the merger: Div 5A. This is subject to the requirement that there be a minimum number of commercial media groups in the relevant market (five in mainland State capitals, four in regional markets – known as the “5/4 rule”): ss 61AB–61AC. Any media merger, including one that is not a cross-media merger, would not be permitted if it would permanently reduce the number of media groups in a licence area below the minimum level – this would be considered an “unacceptable media diversity situation”: Div 5A. An operator is also prohibited from owning more than two out of three regulated media platforms in any single market – this unacceptable three-way control situation is sometimes referred to as the “2 out of 3 rule”: s 61AEA. To ensure compliance with the minimum number of separate media groups rule, ACMA will maintain a register of controlled media groups identifying the ownership and control of media groups in each 57 At the time of publication, the Crimes Amendment (Penalty Unit) Bill 2017 (Cth) had been introduced into the House of Representatives to increase the value of penalty units such that the penalty for breach in respect of a television licence would be $4,200,000 and in respect of a radio licence would be $420,000 effective from 1 July 2017. 58 A newspaper is associated with a licence area if the name of the newspaper is entered in the register maintained under s 59(1): s 59(2). ACMA must enter the name of a newspaper in the register if ACMA is satisfied that at least 50% of the circulation of the newspaper is within the licence area of a commercial television or radio broadcasting licence: s 59.

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licence area: s 61AU. In addition, the ACCC separately assesses the competitive impact of a transaction under s 50 of the Competition and Consumer Act 2010 (Cth). As with the multiple licence provisions, ACMA may approve a temporary breach of the media diversity test or the “2 out of 3 rule”, provided the applicant takes action to remedy the breach within a specified time A breach of the new media diversity test or “2 out of 3 rule” is a criminal offence and a civil contravention with penalties of up to $3,600,000 for a person and up to $18 million for a body corporate: ss 61AG, 61AH, 61AMA and 61AMB. Breaches may also result in remedial directions including divestiture orders: ss 61AN and 61ANA. The “2 out of 3 rule” is to be repealed as part of the Broadcasting Legislation Amendment (Media Reform) Bill 2016 (Cth).

4.4 Acquisitions of shares in financial institutions [4.40] The acquisition of interests in shares in financial sector companies is regulated under the Financial Sector (Shareholdings) Act 1998 (Cth).59 Financial sector companies are defined under the legislation to include: •

authorised deposit-taking institutions (including banks, building societies and credit unions);

•

authorised insurance companies; and

•

holding companies of such companies: s 3.

The legislation follows the recommendations of the Financial System Inquiry Report (March 1997) (the Wallis Report) and provides a single acquisition framework with common rules and thresholds covering all deposit-taking and insurance sectors, replacing the Banks (Shareholdings) Act 1972 (Cth) and the part of the Insurance Acquisitions and Takeovers Act 1991 (Cth) concerned with the acquisition of shares in insurance companies.60 The legislation controls the acquisition of shares in these companies in order to protect the public interest by preventing unsuitable persons from being in a position of influence over financial sector companies and preventing undue concentration of economic power. Under the legislation, a person must not acquire a stake in 15% or more of the voting shares in a financial sector company or, having such an interest, 59 References to sections in 4.4 are references to sections in the Financial Sector (Shareholdings) Act 1998 (Cth) unless otherwise indicated. See also Austock Group Ltd [2012] ATP 12 [6] and legislation there cited. 60 The Insurance Acquisitions and Takeovers Act 1991 (Cth) continues to regulate the acquisition of assets of Australian-registered insurance companies and arrangements for the appointment of directors. There is also a procedure for amalgamation of life insurance businesses by scheme of arrangement under the Life Insurance Act 1995 (Cth): ss 189–197. A discussion of these provisions is beyond the scope of this work.

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increase it: s 10(a). “Stake” is defined under the legislation as meaning the aggregate of: (1) the direct control interests61 in the company that a person holds; and (2) the direct control interests in the company held by associates62 of the person: Sch 1, cl 10. If the 15% threshold is breached, an “unacceptable shareholding situation” (s 10) exists, which is an offence and the person in breach is subject to a fine on conviction not exceeding $72,000: s 11. Additionally, the Federal Court may, on application by the Treasurer or the financial sector company, make such orders as it considers appropriate for the purposes of ensuring that the unacceptable shareholding situation ceases to exist: s 12. This can include an order to dispose of shares, an order restraining the exercise of any rights attached to shares, an order prohibiting or deferring the payment of any sums due to a person in respect of shares held by the person or an order that any exercise of rights attached to shares be disregarded. The Treasurer (in practice, the Treasurer’s powers under the Act are delegated to the Australian Prudential Regulation Authority (APRA): s 44) may grant approval so as to allow a person to exceed the 15% shareholding limit, provided it is in the national interest to do so, and subject to such conditions as are specified in the notice of approval: ss 14–16. A person whose stake in a financial sector company does not exceed 15% may be declared by the Treasurer to have practical control of the company where the Treasurer is satisfied that: (1) the directors of a financial sector company are accustomed to acting in accordance with the wishes of a person (either alone or together with associates); or (2) a person (either alone or together with associates) is in a position to exercise control63 over the financial sector company;and that it is in the national interests for the Treasurer to so declare: s 23. If a person is declared to have practical control, they must take steps to divest themselves of practical control or otherwise the person will face the same consequences as arise for an unacceptable shareholding situation (that is, conviction of an offence and subject to a Federal Court order): ss 24–25.

61 Defined in Sch 1, cl 11 to equate to voting power in the company. 62 The definition of “associate” is very broad and includes, amongst others, relatives, partners, a company of which the person is an officer, a company in which the person has a stake of not less than 15%, and each person who is an associate of an associate (meaning successive applications of the definition are possible): Sch 1, cl 4. 63 “Control” is defined for this purpose as including control as a result of, or by means of, trusts, agreements, arrangements, understandings and practices, whether or not having legal or equitable force and whether or not based on legal or equitable rights: s 22.

Chapter 5

Strategic Planning and Structural Considerations [5.10] 5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 [5.20] 5.2 Assemble a team. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 [5.30] 5.3 Due diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 [5.40] 5.4 Takeover bid or scheme of arrangement? . . . . . . . . . . . . . . . . . . . . . . 99 [5.50] 5.5 Joint bids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 [5.60] 5.6 Pre-bid asset sale agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 [5.70] 5.7 Reverse takeovers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 [5.80] 5.8 Sale of main undertaking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 [5.90] 5.9 Dual-listed company mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 [5.100]5.10 Tender offers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123

5.1 Introduction [5.10] Good planning is crucial to the success of every takeover bid, from the point of view of achieving the desired level of acceptances, maximising tactical opportunities and ensuring efficient integration of the target’s business once the bid has been completed. This chapter discusses a number of key steps and structural issues that arise before a bid is launched.

5.2 Assemble a team [5.20] The bidder should assemble a team of experienced people to be involved in the bid. To preserve maximum confidentiality, the team should be as small as possible and only expanded on a need-to-know basis. A code name for the target should be selected and used exclusively. A typical team would usually include the following: •

Key executives — This would generally include the chief executive officer of the bidder, the chief financial officer and the company secretary or general counsel. Often the chairman may take a leading role as well.

•

Investment banker — The investment banker would usually assist in co-ordinating members of the team and would usually be heavily involved in evaluating the takeover proposal from the bidder’s perspective. The investment banker would generally be involved in determining the bid price, advice on takeover strategies and may be

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involved in obtaining or providing finance for the bid. Often the investment banker may have identified the takeover opportunity. •

Lawyer – The lawyer is responsible for all legal advice, conducting legal due diligence, drafting documents required and advising on the implementation of the bid. The lawyer may often have to play a role in limiting the exuberance of the bidder which could otherwise lead to inadvertent breaches of the law or give rise to unacceptable circumstances.

•

Accountants – A firm of accountants may become involved to assist the bidder with reviewing the target, financial due diligence, considering the impact of the bid on the bidder and reviewing the reasonableness of any profit forecasts made in the bid documents. If a scrip consideration is offered, the accountants may be responsible for preparing a report or limited audit on the financial information concerning the bidder presented in the takeover documents.

•

Stockbroker – The stockbroker’s role is to assist with any on-market share purchases and to provide information about market reaction to the bid and the availability of shares in the target.

•

Public relations firm – A public relations firm is often engaged to advise on how best to present the bid to the target shareholders and to ensure that the bid is well received by the financial press and media.

5.3 Due diligence [5.30] So far as is possible, the bidder should investigate all factors which could affect the value of the target to the bidder or the likelihood of success or the structure of the bid. This would usually involve a detailed examination of all publicly available information and, if the bid is friendly, all information made available by the target itself. In contrast to private company acquisitions, bidders for public companies do not receive detailed warranties regarding the target company and its business (although see [5.30.60]). In this respect, due diligence prior to making the offer can be critical to ensuring the acquisition is a success for the bidder. A bidder for a public company usually has very limited scope to force the target to provide non-public information. One way, where the bidder is a shareholder, is to apply to the court under s 247A for an order authorising themselves or any other person on their behalf to inspect the books1 of the company. The court may grant the order if it is satisfied that the shareholder is seeking inspection in good faith for a proper purpose connected with the exercise of rights attached to their shareholding. Theoretically, this could be used to assist in gathering information in 1

“Books” is defined broadly in s 9 to include a register, any record of information, financial reports or financial records and any document.

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determining whether to launch a takeover bid, but the court is likely to refuse the order if the sole motivation is to assist the shareholder in preparing for a bid.2 A review of the company’s books to determine whether to commence litigation against the company may be a proper purpose.3 If a bidder cannot gain access to non-public information, there are a few further steps that can be considered. •

First, it may be possible for a bidder to announce that, subject to the outcome of due diligence, it may proceed with a takeover bid. This may put some pressure on the target to allow due diligence access, particularly if the proposed bid price is attractive. However, the bidder must ensure that it does not breach s 631 by publicly proposing a bid without having a sound basis for considering the bid will proceed.4

•

Secondly, although it is not possible to make a bid subject to a due diligence condition which depends on the bidder being satisfied about certain matters (due to the restriction in s 629), it is possible to make a bid with a due diligence condition which is tested objectively. However, in that case, the terms of the condition should be spelt out in some detail to ensure that the market does not overestimate the likelihood of the bid proceeding.5 A failure to do so may constitute unacceptable circumstances.6

•

Thirdly, it may be possible to structure the bid consideration to reflect the financial position or performance of the target at some time after completion of the bid, although this sort of arrangement is more usual in private transactions. In order to comply with the requirement to provide the bid consideration not later than 21 days after the bid closes, the bidder may need to issue a security promptly after the bid closes, which is later redeemed for an amount which varies with the adjustment.

If the target does make available information to a (potential) bidder, it will usually be provided subject to the terms of a confidentiality agreement,

2

The authorities and principles are gathered in Smartec Capital Pty Ltd v Centro Properties Ltd [2011] NSWSC 495 and Mesa Minerals Ltd v Mighty River International Ltd [2016] FCAFC 16 [22]. Even if it allows inspection of the company’s books, the court may limit the use that can be made of information derived from them: ENT Pty Ltd v Sunraysia Television Ltd [2007] NSWSC 270 [77]–[82].

3

Unity APA Ltd v Humes Ltd (No 2) (1987) 5 ACLC 64; ENT Pty Ltd v Sunraysia Television Ltd [2007] NSWSC 270.

4

See further 7.6.

5

Similarly, there is no prohibition on announcing that a person is contemplating making a bid, if due diligence is satisfactory: but any such announcement should make it clear that the bid may not be made, and it is preferable not to announce a possible bid until the bidder’s intention is definite.

6

Realestate.com.au Ltd [2001] ATP 1.

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requiring the bidder to keep the information and the discussions between the parties confidential. A key point for negotiation in a confidentiality agreement will be the standstill provision. In general terms such a provision prevents the bidder or its related parties from buying shares in the target or even making a takeover offer for the target (other than an offer recommended by the target directors) for a specified period. The periods may vary but three, six or 12 months are not uncommon. The terms of standstills often provide that the restriction is released, in whole or in part, if a third party makes a bid for the target. A standstill provision which applied for 12 months after the bidder withdrew from a sale process was considered in International All Sports Ltd 01 [2009] ATP 4 and International All Sports Ltd 01R [2009] ATP 5. The Panel decided that the standstill was not unacceptable and the 12-month term was justifiable on the facts, having regard to market practice, the nature of the information provided (including forecasts extending beyond the term of the standstill), the nature of the business providing the information and the nature of the recipient (a competitor in the same industry). The Panel considered that it was necessary to ascertain whether the bidder was provided with commercially sensitive information regardless of whether that information was price sensitive or required disclosure in takeover documents. From the bidder’s perspective, apart from standstills, care should be taken in negotiating the permitted use of confidential information in a confidentiality agreement. If the permitted use is tied to assessing information for the purposes of making a friendly or recommended takeover offer, the target may attempt to restrain the bidder from making a hostile takeover bid.7 If information is received from the target, the bidder must be careful in ensuring full disclosure is made in the takeover documentation so as to comply with the statutory disclosure requirements and to avoid allegations that the bidder has inside information. Furthermore, in extreme cases, an information advantage (such as having confidential information about the target or information about a possible takeover bid) may give rise to unacceptable circumstances if a person uses that information to acquire shares in the target from persons unaware of that information.8 Unlike the position in the UK, there is no rule in Australia that a target must give competing bidders equal access to due diligence information: see [14.50.60]. Investigations will differ between target companies, but key items of information which would usually be investigated include the following.

7

See Certicom Corp v Research In Motion Ltd (2009) CanLII 1651 (Ontario Sup Ct); Martin Marietta Materials Inc v Vulcan Materials Company 2012 WL 2783101 (Del. July 12, 2012).

8

Skywest Limited 03 [2004] ATP 17; Advance Property Fund [2000] ATP 7.

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Financial aspects [5.30.10] Recent annual reports and accounts, interim financial statements and other releases to the stock exchange should be examined to understand the financial position of the target. Particular attention should be paid to the accounting policies in determining profits and losses, any contingent liabilities in the financial statements, the valuations of significant assets and the cash flow and profit generated by different businesses carried on by the company. If appropriate, the bidder may seek its own valuations of significant assets of the target. The bidder should determine whether the takeover will involve the acquisition of goodwill and what effect the post-acquisition amortisation of that goodwill will have on the bidder’s earnings. Generally, information concerning financial aspects of the bidder can be obtained from a search of the records maintained by the stock exchange if the target company is listed. If the target company is not listed, similar information can be obtained from ASIC’s records. Often information in annual or half-yearly reports will be out of date. Frequently, more current information, especially forecast information, is published in stockbrokers’ research reports. These are often produced by analysts after lengthy discussions with company executives and tours of the company’s operations and, accordingly, may be fairly accurate. However, it would be unwise to place too much reliance on these reports unless the information has been verified by the company. Capital structure [5.30.20] The bidder should determine the classes of securities on issue in the target. Particular attention should be paid to any arrangements which could lead to the issue of new shares (such as pursuant to options or pursuant to employee share and option plans). The rights of each class of security should be checked to see that they will not vary in the event of a takeover bid so as to disadvantage a bidder. An early decision should be made as to which classes of securities will be the subject of the bid. Information concerning securities can be obtained from the stock exchange and from an examination of the constitution of the target. This would also indicate the scope the target has to issue shares without breaching ASX Listing Rule 7.1 which provides that, subject to certain exceptions in ASX Listing Rule 7.2, a listed entity cannot issue, or agree to issue, equity securities equivalent to more than 15% of its issued capital in a 12-month period, without obtaining the approval of security holders.9

9

An entity outside the ASX300 may be able to issue an additional 10% if it has obtained prior approval under ASX Listing Rule 7.1A. The ability of a target to issue new securities is also limited once a bid is announced by ASX Listing Rule 7.9 and by the rule against frustrating actions: see 7.6.

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Restrictions in constitution [5.30.30] Although generally prohibited in listed companies, constitutions of unlisted companies frequently contain shareholding limits (such as a prohibition against holding more than 5% of issued shares) and/or pre-emption rights requiring a shareholder to offer their shares for sale first to other shareholders before they can be sold to a third party. It is therefore critical that a bid for such a company is framed so as to comply with the restriction. For example, a bid for a company which has a shareholding limit in its constitution will need to be conditional on a special resolution in general meeting to remove the restriction (and also confer on the bidder the right to vote shares accepted at the meeting). Unless the target is recommending the bid, the bidder may also need to be able to requisition a meeting under s 249D or convene a meeting itself under s 249F. Where shares in the target are subject to pre-emptive rights, it may be necessary for the bid to remain open for long enough to allow shareholders who wish to accept the bid to go through the pre-emptive rights process (which usually requires written notice to other shareholders and a specified time to elapse). In Tower Software Engineering Pty Ltd 01 [2006] ATP 20, the target’s constitution conferred pre-emptive rights under which a selling shareholder had to offer their shares to other shareholders for one month before they could sell to a third party within three months. The target directors consented to early dispatch of the bidder’s statement to shareholders purportedly on the basis of ensuring shareholders and employees were “as fully informed as practicable”. However, this had the effect of ensuring that a 14% shareholder who had already given notice under the pre-emptive rights procedure would receive the bidder’s statement and could accept the offer before its three-month selling period expired. The Takeovers Panel considered that the consent to early dispatch, without having undertaken a review of the bidder’s statement or obtaining any legal or financial advice in relation to it, would have justified a declaration of unacceptable circumstances having regard to the facts of the matter and the effect the decision had on the control of the target.10 In Coopers Brewery Ltd 01 [2005] ATP 18, a bid was made for a target whose constitution contained a pre-emptive rights regime that applied when a shareholder wanted to transfer his or her shares to a person other than a relative. Under the constitution, the company was appointed as the transferor’s agent to sell the shares and, in effect, allowed the company’s auditors to determine the (fair value) price at which the transfers would

10 See also court proceedings relating to the registration of transfers of shares pursuant to an acceptance of the takeover bid (VID 496 of 2006) and in relation to the enforcement of undertakings given to the Panel: McCann v Pendant Software Pty Ltd (2006) 235 ALR 566.

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occur under the regime. This price could have been lower than the offer price under the takeover offer, which would have frustrated the bid.11 Special legislation [5.30.40] If the target company carries on a particular type of business, it may be necessary to obtain government approval under a specific statute before acquiring shares beyond a certain limit (see Ch 4). If the target has overseas operations, there may be foreign statutes which impact on a takeover. Change-of-control clauses [5.30.50] If a significant part of the target’s business or funding depends on arrangements under a key contract or other arrangements, it will be critical to review the terms of that contract or arrangement to determine whether it can be adversely affected by a successful takeover bid. It is common for joint venture agreements to enable one party to terminate the joint venture or to buy out the interest of the other venturer if the other venturer is the subject of a change of control.12 Similarly, industrial property licences and funding arrangements may be liable to be terminated on a change of control.13 If the bidder cannot get access to these documents, the bid can be made conditional on there being no adverse effect under the key contract or perhaps making the bid conditional on disclosure of key parts of it. This should elicit a response from the target company directors in their target’s statement commenting on whether the contract or arrangement contains such a provision and any material information that is relevant to the bid.

11 The takeover offer led to a number of Takeovers Panel applications and court cases regarding various issues, such as misleading statements in relation to the operation of the pre-emptive right regime, a submission that the Panel make orders effectively modifying the operation of the pre-emptive right process (which was declined), misleading target’s statements and an amendment to the constitution removing the ability of Lion Nathan to be registered as a shareholder. Ultimately, the bid was stopped by the target in general meeting amending its constitution to introduce strict shareholding restrictions against the bidder acquiring shares: see Coopers Brewery Ltd 01 [2005] ATP 18; Coopers Brewery Ltd 02 [2005] ATP 19; Coopers Brewery Ltd 03 [2005] ATP 22; Coopers Brewery Ltd 04 [2005] ATP 21; Coopers Brewery Ltd 03R [2005] ATP 23; Coopers Brewery Ltd 04R [2005] ATP 24; and Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2005) 55 ASCR 583; Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2005) 56 ACSR 263; and Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2005) 59 ACSR 444. 12 Compare AMP Shopping Centre Trust 01 [2003] ATP 21; and AMP Shopping Centre Trust 02 [2003] ATP 24. 13 National Foods Limited 01 [2005] ATP 8; Novus Petroleum Limited 01 [2004] ATP 2. In Australian Leisure and Hospitality Group Limited 02 [2004] ATP 21 the Panel required a target to disclose which material contracts were subject to change-of-control clauses, in order to allow target shareholders to assess the prospects of the bid. In Billabong International Ltd [2013] ATP 9 and in Moreton Resources Ltd [2013] ATP 14, the Panel considered that particular change of control clauses in funding agreements were unacceptable lock-ups, but in RCL Group Ltd [2012] ATP 2 a change of control clause was thought inoffensive.

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Existing shareholdings [5.30.60] The register of shareholders should be reviewed to identify significant shareholdings, especially those likely to be available for sale, such as shares held by a person under financial pressure, and those which may be sympathetic to the incumbent directors, such as the directors’ personal and family holdings, the target company’s superannuation fund and employee shareholdings. Attention should be paid to significant shareholders who are also trustees. An offer at a fair price will put a trustee under some pressure to accept as a refusal may lead to allegations of breach of fiduciary duties, especially if the share price declines after the bid closes. A review of the register may also identify shareholders who themselves may become rival bidders. To obtain information about the register of shareholders before a bid is launched, any person can inspect the register of shareholders—which must be open for inspection (s 173(1))—and make copies or extracts from it: s 173(3). If a person pays a fee no greater than a prescribed amount14 and makes an application which discloses their name and address and the purpose for which they require the copy,15 the company is obliged to send a copy of the register or part of the register within seven days after payment is received or such longer period as ASIC allows: s 173(3) and (3A).16 If the register is kept on a computer, the target must provide electronic data if it is requested in this form: s 173(3).17 The data must be readable, though need not be formatted for the receiver’s operating system. The right to seek a copy of “part of the register” enables a person to request only selected information, such as a list of holders of shares of a particular class or those becoming members after a certain date, provided the criterion for identifying the holders is apparent from the register itself.18

14 A member of the company or scheme may inspect the register without charge. Otherwise, the maximum fee for inspection is $5.00 per inspection if the register is not kept on a computer, or a reasonable amount not exceeding the marginal cost of providing the inspection, if the register is kept on a computer. The maximum fee for the supply of a copy is $250, plus 5 cents per member in excess of 5,000 and up to 19,999 members, plus 1 cent per member at 20,000 or more members: Corporations Regulations, reg 1.1.01, Sch 4, items 1 and 1AA. In Direct Share Purchasing Corporation Pty Ltd v AXA Asia Pacific Holdings Ltd [2008] FCA 935, Finkelstein J held that the marginal and reasonable cost of provision of a CD-ROM containing the register was $250. 15 The company need not supply the copy if the purpose disclosed is one listed in Corporations Regulations, Reg 2C.1.03: briefly, they are soliciting donations from holders and researching their wealth, approaches by stockbrokers or for purposes covered by s 1019D(1) (the “David Tweed provisions”). It is an offence to provide false or misleading information in the application. Although s 173(3A)(c) requires the application to be made in the prescribed form, no form seems to have been prescribed or approved: Reg 2C.1.04 merely requires the applicant to disclose their name and address. 16 Similar information may be sought about the register of option-holders: s 170 and 173. 17 Reversing the previous position: APA Oceanic Funds Management Ltd v Smith (No 1) (1987) 9 NSWLR 569. Compare s 641. 18 Re Performing Right Society Ltd [1978] 1 WLR 1197.

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Generally, before a bid is announced, a person considering making a bid would not make a formal request to receive a copy of the register as to do so would alert the target that a bid may be imminent. There is, however, a regular practice of stockbrokers seeking lists of the top 20 or 40 shareholders and such a request can usually be made without raising suspicion. Often major shareholdings will be in the names of nominee companies and the ultimate controllers may be difficult to identify from a review of the register. If a target is unlisted, those shares that are not held beneficially should be identified on the register (s 169(5A)), but the identity of the beneficial owner need not be disclosed. If the target is listed, the identity of a controller may be identified in a substantial holding notice under s 671B or in response to a notice given under s 672A requesting disclosure of all persons with relevant interests in certain shares. Copies of substantial holding notices must be given to the ASX by the substantial holder. It is also possible for a shareholder to request that ASIC require that a disclosure notice under s 672B be given to the registered shareholder: see s 672A(2). Information received by the company in response to a notice given under s 672A or received by the company from ASIC in response to a notice under s 672B must be kept in a register which is open for inspection: s 672DA. This is discussed in greater detail in 16.4. Requests for ASIC to issue a disclosure notice and inspections of the s 672DA register may alert the target company to a possible predator and, therefore, would generally only be pursued after the bid is announced. Once a bidder’s statement is served, the bidder can request details as to the holders of shares, options and convertible notes: s 641. See further discussion at 10.1. Downstream interests [5.30.70] The bidder should also seek to establish whether the proposed target has relevant interests in other companies, indirect acquisition of which may be subject to Ch 6. There will usually be evidence of any such holdings in the target’s financial statements. If the target is listed, the downstream acquisition will be exempt from s 606, by virtue of s 611, item 14. If the target is not listed, the better view is that the downstream acquisition is nonetheless exempt if the bidder acquires over 20% of the upstream company by takeover bid or scheme of arrangement, but ASIC may not share this view. Even if the downstream acquisition is covered by s 611, there is some risk that ASIC will refer the acquisition to the Panel as an artifice to acquire over 20% of the downstream company without making a bid: see 19.11 and ASIC Regulatory Guide 71: Downstream acquisitions.

5.4 Takeover bid or scheme of arrangement? [5.40] Instead of making a formal takeover bid, it is possible for a bidder to achieve control of a target company by effecting a scheme of

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arrangement under s 411.19 A scheme of arrangement is, in its most basic form, essentially an arrangement between the company and its shareholders which becomes binding once the statutory tests are met. Accordingly, it can be used to compel all shareholders to transfer their shares to a bidder in exchange for cash or other consideration. Key steps in a scheme [5.40.10] The key steps in undertaking a takeover by way of a scheme are generally as follows: •

the target and bidder agree to implement the scheme under a binding contract usually called a merger or scheme implementation agreement;

•

a booklet satisfying the disclosure requirements in s 412 and under ASIC policy is prepared and settled with ASIC;

•

an application is made to court for a shareholders’ meeting to be convened, usually on 28 days’ notice;

•

at the meeting, the scheme is considered by the shareholders and must be approved by a majority in number of shareholders20 at a general meeting who represent 75% in value of the shares voted at the meeting;

•

the matter returns to court for final approval; and

•

finally, the scheme is implemented, usually by all shares in the target not held by the bidder being transferred to the bidder in exchange for payment of the consideration under the scheme.

If the target has other securities on issue, these are usually dealt with under a contemporaneous and inter-conditional scheme or by private agreement. Avoidance of Ch 6 [5.40.20] There is an important restriction on using a scheme of arrangement. Section 411(17) provides that a court must not approve a scheme of arrangement unless: •

it is satisfied the scheme has not been proposed for the purpose of avoiding the takeovers provisions in Ch 6 of the Corporations Act; or

19 For a detailed discussion of schemes of arrangement, see Damian and Rich, Schemes, Takeovers and Himalayan Peaks (3rd ed, University of Sydney, 2013). Also see Corporations and Markets Advisory Committee, Members’ Schemes of Arrangement (Australian Government, 2009) for a discussion of schemes and possible reforms of the relevant provisions. 20 Section 411(4)(a)(ii)(B) gives the court discretion to approve a scheme even where the vote is not passed by a majority of members present. This is intended to operate where the outcome has been influenced by activities, such as share splitting, or otherwise to allow for unforeseen extraordinary circumstances.

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ASIC produces a statement to the court that it has no objection to the scheme.21

In practice, this restriction is invariably dealt with by obtaining a statement from ASIC that it does not object to the scheme. ASIC’s policy is that it, and the law, does not prefer one acquisition structure over the other.22 However, ASIC will only produce a no objection statement to the court if it is satisfied that all material information relating to the scheme of arrangement has been disclosed and the standard of disclosure in the explanatory memorandum is commensurate with that required under the takeover provisions.23 ASIC will also take an interest in actions or features of the scheme that would be prohibited in a takeover and may refuse to produce the necessary statement for that reason (see discussion on Re Ranger Minerals Ltd (2002) 42 ACSR 582 below). The courts have held in a number of decisions24 that, if ASIC produces a no objection statement, it is not open to the court to reject the scheme on the basis of takeover avoidance. However, the court may still consider any avoidance of Ch 6 as part of assessing whether the scheme is fair as part of its general discretion25 to approve the scheme under s 411(4)(b). The predecessor of s 411(17) was concerned primarily with attempts to circumvent the higher 90% threshold for compulsory acquisition under the takeover provisions. However, in 1999, the compulsory acquisition provisions were moved to Ch 6A. Therefore, it is arguable that the use of a scheme of arrangement to take advantage of the lower 75% vote approval threshold cannot be a ground for applying s 411(17).26 In rare situations where it has been necessary for courts to consider whether the scheme has been proposed for the purpose of avoiding the takeover provisions in Ch 6 of the Corporations Act, the courts have generally focused on how the bidder and the target came to decide to

21 See ASIC Regulatory Guide 60: Schemes of arrangement, RG 60.104 for the circumstances in which ASIC will be prepared to produce a statement to the court. 22 ASIC Regulatory Guide 60: Schemes of arrangement, RG 60.17–60.19. 23 ASIC Regulatory Guide 60: Schemes of arrangement, RG 60.26 and 60.104(c). 24 Re Advance Bank Australia Ltd (1997) 136 FLR 281; Re MIM Holdings Ltd (2003) 45 ACSR 554; Re News Corporation Ltd (2004) 51 ACSR 394; Re Mincom Ltd [No 3] (2007) 64 ACSR 387; Re Coles Group Ltd (2007) 65 ACSR 494. 25 In relation to the court’s general discretion to approve a scheme see Re NRMA Ltd (2000) 156 FLR 412 [21]–[24]. In determining whether or not to exercise its general discretion the court needs to be satisfied that there has been no oppression and that the scheme is one capable of being approved by shareholders, voting honestly: also see Re Hudson Conway Ltd (2000) 22 ACSR 657. 26 This point was noted in the course of a careful review of the origin and operation of the provision in Macquarie Private Capital A Ltd [2008] NSWSC 323 [32], per Barrett J. In Re Hellenic & General Trust Ltd [1976] 1 WLR 123, where no provision comparable to s 411(17) applied, the court withheld approval of a scheme of arrangement, in part because one reason for propounding it was to outflank a 13% parcel, which could have prevented compulsory acquisition after a takeover bid.

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proceed by way of scheme and on basic features of the proposal. Schemes have readily been approved where an aspect of the transaction could not have been achieved in a takeover bid, such as where the scheme involves a cash payment to target shareholders as a result of a reduction of capital,27 a cancellation of options in the target,28 a share buy-back to return excess funds and dividend franking credits to shareholders or where the target is giving financial assistance to the acquisition and the scheme will satisfy the requirements of s 260A of the Act. However, there remain a handful of cases where issues have been raised about whether the scheme was proposed to avoid Ch 6. In Re David Mitchell Ltd,29 a case concerning an unlisted company with 59 shareholders, Finkelstein J gave notice to the company at the court hearing to convene the shareholders meeting that, if a significant number of shareholders voted against the scheme, his Honour would require the “Ch 6 avoidance” point argued at the court hearing to approve the scheme. As it happened, the scheme obtained 99.8% approval with only one small shareholder voting against the scheme. The issue arose also in Re MIM Holdings Ltd (2003) 45 ACSR 554, where a shareholder holding approximately 2.5% of the target opposed the convening of the scheme meeting, arguing that the acquisition should proceed by a takeover under Ch 6. White J did not consider that the shareholder had made a sufficient case on the Ch 6 avoidance point to cause the court to stop the scheme “in its tracks”. The court referred to evidence that the scheme was proposed because it was the only way in which the acquirer could fund the $4.9 billion necessary to complete the transaction — the lenders to the acquirer requiring a high degree of certainty as to the outcome and as to timing. In convening the scheme meetings, White J commented that the initial court hearing did not usually require an in-depth analysis of whether the scheme warrants approval by the court. Her Honour also noted that, if ASIC produced a no objection statement at the court hearing to approve the scheme, it would not be open to the court to reject the scheme on this point. 27 Re ACM Gold Ltd; Re Mount Leyshon Gold Mines Ltd (1992) 7 ACSR 231; Re Stockbridge (1993) 9 ACSR 637. 28 Since Ch 6 now provides for a formal takeover bid to be made for options and other securities, the need to deal with options, by itself, may not be sufficient reason to use a scheme of arrangement. Option-holders have long been treated by the courts as able to be dealt with under a creditors’ scheme of arrangement, as contingent creditors, on the theory that if the holder exercised the option and the company failed to issue the share, the holder would have a claim against the company: in Westgold Resources Ltd [2012] WASC 301 [16], Hall J set out the history of this approach and mentioned the doubts that judges have entertained about it, but concluded that it is now established. See also Damian and Rich, Schemes, Takeovers and Himalayan Peaks (3rd ed, University of Sydney, 2013), [3.4.1] and Corporations and Securities Advisory Committee Members’ Schemes of Arrangement—Report Sydney, 2009 at 7.1 and 7.6.1. 29 Re David Mitchell Ltd (unreported, Fed Ct Aust, Finkelstein J, Nos 3173, 3174 and 3175 of 2002, 19 November 2002).

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The takeover avoidance point was also raised in Re Mincom Ltd [No 3] (2007) 64 ACSR 387, where Fryberg J considered that a substantial purpose of using a scheme rather than a takeover was to provide greater certainty of timing. In his Honour’s view, this amounted to avoidance of Ch 6 and, specifically, avoidance of the ability under s 650C to extend the offer period up to 12 months. While ASIC provided its no objection statement under s 411(17)(b), the avoidance point was still a factor to take into account in the court’s exercise of its general discretion to approve a scheme. However, in the circumstances of the case, the avoidance of Ch 6 did not alter the exercise of the court’s discretion to approve the scheme. For many years, ASIC has not raised the general issue that a Ch 6 bid could have been used to achieve much the same outcome as a given scheme of arrangement.30 ASIC raised a specific Ch 6 avoidance point, however, at the court hearing to convene the shareholder meetings in Re Ranger Minerals Ltd (2002) 42 ACSR 582. ASIC was concerned that the acquiring company had purchased 19.28% of the issued capital of the target at a price above the price payable under the scheme of arrangement. ASIC considered that the scheme allowed the acquirer to circumvent the minimum bid price rule in s 621(3)31 as well as the prohibition on collateral benefits in s 623, one or other of which would have applied, had the takeover been by Ch 6 bid. In response, the acquirer and the target argued that the scheme had not been proposed for that purpose: it had in fact been proposed before the share purchase had taken place or indeed been contemplated. The scheme had been proposed because the acquirer needed certainty that it would acquire 100% of the target and have access to the target’s cash holdings by a specified date in order to meet other commitments. Parker J found that there was no reason to find that the scheme had been proposed for the purpose of avoiding Ch 6 and convened the shareholder meetings in relation to the scheme. However, Parker J left the door open for the application of Ch 6 principles to a scheme of arrangement in an appropriate case to ensure equality and prevent unfairness.32 These cases and the apparent willingness of ASIC to object in an appropriate case, suggest that bidders who wish to proceed by scheme of arrangement, rather than a takeover bid, should have clear and valid reasons for doing so and should be prepared to justify these in court.33

30 A fact noted in Re Archaean Gold (1997) 23 ACSR 143, in a way which suggests that Santow J may have shared some of Finkelstein J’s reservations. 31 Section 621(3) provides that the consideration offered under a takeover bid must equal or exceed the maximum consideration paid, or agreed to be paid, for a security in the bid class in the four months before the date of the bid. 32 Re Ranger Minerals Ltd (2002) 42 ACSR 582, 591, followed, without comparable attention to the scheme company’s purposes, in Re Goodman Fielder Ltd [2014] FCA 1449 [15]–[20], per Yates J. 33 See also ASIC Regulatory Guide 60: Schemes of arrangement, RG 60.70(b).

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Deciding between a scheme and a takeover bid [5.40.30] In making a decision whether to proceed by scheme of arrangement or by takeover bid, a bidder will need to have regard to the issues below. Control of the transaction

[5.40.30A] The court may not have jurisdiction to sanction the scheme unless the scheme has been proposed with the support of the board of the scheme company.34 Accordingly, a scheme may only be appropriate in a recommended takeover, management buy-out or a friendly merger of two companies beneath a new holding company. This also means that the process for a scheme of arrangement is driven by the target company. It is the target company who applies to the court and it is the target company who has primary responsibility for preparing the explanatory memorandum to be sent to scheme shareholders. To the contrary, a takeover bid process and timetable is driven by the bidder. In a scheme, the bidder may gain some control over the process via an implementation agreement between the bidder and the target which sets out the obligations of a target company and a bidder in relation to the scheme process. However, ultimately, the target controls the process. Certainty

[5.40.30B] A scheme provides greater certainty. It is an “all-or-nothing” proposition. Either shareholders approve the scheme by the requisite majorities and the court approves the scheme, in which case, the bidder will obtain 100% of the company or the shareholders (or the court) do not approve the scheme and the bidder gets nothing. This means that a bidder will know by a certain date whether or not the acquisition is successful. This may be attractive if the bidder wishes to know whether or not it can pursue other alternative investment opportunities or, as in the case of the bidder in Re Ranger Minerals Ltd (2002) 42 ACSR 582, whether it needs to arrange alternative means of accessing cash to meet its other commitments. A takeover bid can also be all or nothing in that a takeover bid may be conditional on obtaining sufficient acceptances to proceed to compulsory acquisition and 100% ownership. Similarly, a bidder may close the bid after a month if it has not been successful by that time. Nevertheless, it is not uncommon for bids to be extended, or to close, without 100% being obtained and as such the timing is less certain.

34 Re Savoy Hotel Ltd [1981] 3 All ER 646; Re Centro Properties Limited [2011] NSWSC 1465 [30], Citect Corporation Ltd (2006) 56 ACSR 663; [2006] NSWSC 143 [16], and compare Molopo Energy Ltd [2014] NSWSC 1864, concerning a proposed reduction of capital.

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A scheme places much greater pressure on shareholders to make a decision at the scheme meeting on the proposal on the table. In a takeover bid, the pressure is on the bidder (particularly in a conditional bid) to modify the bid, such as by declaring it unconditional, increasing the price, extending the closing date or by publicly declaring the offer price “final” or ruling out further extensions to the closing date: see 11.7. Time to implement

[5.40.30C] From the time a scheme is announced, it can take 10–14 weeks (and sometimes longer) for it to be completed. The timetable and steps are somewhat certain. However, as the process involves various steps required by law, there is little that can be done to shorten the timetable if the need arises (for example, a rival bid emerges). In contrast, it can often take less time for a bidder to reach a controlling position under a takeover bid. This may particularly be the case if there are large shareholders willing to commit to the bid. However, the timetable for a takeover is ultimately uncertain, as it depends on the speed and timing of acceptances. This is compounded by the additional time that may be required to reach the compulsory acquisition threshold under a bid and to implement the compulsory acquisition procedure. This may mean that the overall timetable to reach 100% ownership may be roughly the same under a bid as under a scheme. Procedurally rigid

[5.40.30D] A takeover bid will give a bidder far more procedural flexibility to change the terms of the offer mid-way through the process if, for example, a rival bid emerges or if it becomes necessary to increase the consideration to ensure a sufficient number of shareholders accept the bid. By contrast, a scheme of arrangement involves a more rigid process. To improve the terms of the offer mid-way through the process generally requires the parties to go back to court and this would usually require fresh proxies to be sought for the meeting.35

35 See Re Citect Corporation Ltd (2006) 56 ACSR 663; [2006] NSWSC 143 and Re Excel Coal Ltd (No 3) (2006) 60 ACSR 184 where the courts approved the dispatch of supplementary explanatory materials and allowed a further resolution to be proposed at the scheme meeting to amend the resolution to approve the scheme. Once the first resolution amending the scheme is passed, the amended scheme can then be put to shareholders. It may be possible to change the terms of the proposal without court approval if the scheme involves a cash-only consideration and the only change is to increase the amount of cash payable. This could be achieved by the acquirer executing a deed poll (which would be outside strict terms of the scheme) to the effect that, if shareholders approve the scheme, the acquirer will pay an additional amount or the target would pay an additional dividend. As this is not disadvantageous to shareholders, the court should be able to approve the scheme even where the additional payment is announced just before the scheme meeting: see Re McConnell Dowell Corporation Ltd (unreported, Fed Ct Aust, Giles J, 1 August 2003).

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This lack of flexibility may have severe consequences for a bidder if an alternative bid offering a higher price emerges. Lower thresholds to reach 100%

[5.40.30E] Under a scheme, in order to obtain 100% ownership, a bidder needs only have a majority of shareholders by number present and voting at each scheme meeting who represent 75% by value present and voting to approve the scheme. Given that not all shareholders may vote, this may mean a positive response from the holders of only 50–60% of shares (or, in some cases, an even lower percentage) may be enough to achieve the necessary approval.36 By contrast, under a takeover bid, the holders of at least 90% of shares must take positive action to accept the bid before the outstanding minority holdings can be compulsorily acquired. Similarly, it may be harder under a scheme for any one shareholder to prevent a bidder from being successful. In a bid, a holder of 10% can, by itself, prevent a bidder from getting to compulsory acquisition. In a scheme, depending on how many shareholders vote, a 10% holding may not be enough to vote down a scheme. Expert’s report

[5.40.30F] To meet ASIC policy, schemes of arrangement generally require an independent expert’s report opining whether the scheme is in the best interests of shareholders. By contrast, a takeover bid only requires an independent expert’s report if the bidder and target have a director in common or the bidder has voting power of 30% or more when it makes the takeover offer: s 640.37 Structural flexibility

[5.40.30G] A scheme of arrangement is a flexible tool and a bidder and a target company can achieve a number of different ends in the one transaction. For example: •

part of a company could be demerged to existing shareholders while the other part is transferred to an acquirer. This may be particularly attractive for a bidder who is interested only in certain assets of the company; or

•

part of the scheme may involve a buy-back and a return of franking credits.

36 These are not percentages of the entire shareholder body, however. Each meeting is of a class of members, identified as being similarly affected by the scheme, so that the proposed acquirer and its allies cannot vote together with members who are deciding whether to sell under the scheme. 37 Reg 5.1.01 and cll 8303 and 8306 of Sch 8 to the Corporations Regulations only require such a report if the other party to the reconstruction or amalgamation has a director in common with the scheme company, or an entitlement to 30% of the shares in the scheme company. “Entitlement” was the term corresponding to “voting power” before March 2000. See also ASIC Regulatory Guide 60: Schemes of arrangement, RG 60.74–RG 60.78.

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Further, if the bid has highly leveraged financing, it may also be necessary to seek target shareholder approval under s 260B for the provision of financial assistance for the acquisition of target shares. It will be practical to obtain that approval at the same time as approval is obtained for the scheme. In the case of a takeover bid with the same financing structure, a need arises for a shareholders meeting where one may not otherwise be required. Chapter 6 provisions do not apply

[5.40.30H] Many of the Ch 6 constraints and restrictions do not apply to schemes of arrangements, for example: the rule in s 631 requiring a person to dispatch offers within two months of announcing a bid; the minimum bid price rule in s 621(3);38 the restrictions on certain types of conditions in s 629; and the rule against collateral benefits in s 623. This may be a significant advantage in the context of, for example, management buy-outs or public-to-private takeover bids. However, as discussed above at [5.40.20], ASIC and the courts may, in some cases, seek to apply Ch 6 principles to various aspects of schemes of arrangements. While there does not seem to be any basis in the black letter of the legislation for the application of Ch 6 principles to a scheme of arrangement, courts may seek to exercise their supervisory jurisdiction to adopt Ch 6 principles in relation to schemes.39 Trust schemes [5.40.40] The scheme of arrangement provisions in Pt 5.1 do not apply to the reconstruction of a managed investment scheme. As an alternative to making a takeover offer under Ch 6, however, all the units in a managed investment scheme may be acquired under a “trust scheme”.40 This is a transaction modelled on a scheme of arrangement under Pt 5.1 but involving the amendment of the scheme’s constitution to introduce provisions to effect a compulsory acquisition of units on issue.41 Except that s 411(17) does not apply to a trust scheme, it has much the same advantages and disadvantages as a scheme of arrangement under Pt 5.1, as discussed at [5.40.30]. A trust scheme generally requires two unit-holder resolutions.

38 Note the discussion of Re Ranger Minerals (2002) 42 ACSR 582 in [5.40.20]. 39 Re Archaean Gold (1997) 23 ACSR 143, 147. 40 See Colonial First State Property Trust Group 01 [2002] ATP 15; Takeovers Panel Guidance Note 15: Trust Scheme Mergers; Re Macquarie Capital Alliance Ltd (2008) 67 ACSR 484; Damian and Rich, Schemes, Takeovers and Himalayan Peaks (3rd ed, University of Sydney, 2013), [9.10]; and section D of ASIC Regulatory Guide 74: Acquisitions approved by members. 41 In stapled security matters, this technique has been used in tandem with a true scheme of arrangement since Re Mirvac Ltd [1999] NSWSC 457.

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First, an ordinary resolution under s 611, item 742 to approve the acquisition beyond 20% by the acquirer. The resolution must be passed by independent unit-holders. No votes may be cast in favour of the resolution by the person proposing to acquire the units and their associates or by any person from whom the acquisition is to be made and their associates. This can present a problem where every unit-holder will have their units acquired under the proposal. In that case, an ASIC modification of s 611, item 7 can be obtained so that only a unit-holder who has an interest in the acquisition other than as a member cannot vote in favour.43 Secondly, a special resolution under s 601GC to amend the constitution of the managed investment scheme to effect the actual acquisition and transfer of the units.44 A trust scheme may also be effected via a redemption of the units (other than those held by the acquirer). In this case, as there is no acquisition, it may be possible to avoid the need for a resolution under s 611, item 7 or an ASIC modification.45 Only a special resolution to amend the constitution to compel the redemption would be required. Although a trust scheme does not require court approval, it is normal to seek approval in the form of judicial advice that the responsible entity of the scheme would be justified in submitting resolutions to approve the trust scheme to a meeting, and again that it would be justified in amending the constitution of the scheme, after those resolutions have been passed.46 Care needs to be taken in preparing the explanatory statement for unit-holders in relation to a trust scheme. In the absence of mandatory supervision by a court, the Takeovers Panel recommends procedures and disclosures equivalent to a scheme of arrangement be adopted to ensure that any acquisition by a trust scheme is not considered to be unacceptable.47 In this respect, unit-holders must be provided with all material information in relation to the proposal, as well as disclosure equivalent to that required for a scheme of arrangement or takeover under Ch 6.48

42 See detailed discussion at 19.6. 43 ASIC Regulatory Guide 74: Acquisitions approved by members, RG 74.62–RG 74.65. 44 Colonial First State Property Trust Group 01 [2002] ATP 15; Takeovers Panel Guidance Note 15: Trust Scheme Mergers. 45 Takeovers Panel Guidance Note 15: Trust Scheme Mergers, [15.23]. 46 Under s 63 of the Trustee Act 1925 (NSW) or r 54.02 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) or Reg 54.3 of the Uniform Civil Procedure Rules 2005: the provisions are compared in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42 [41]–[49]. The second application should not be made until after the meeting: Re Mirvac Ltd [1999] NSWSC 457 [48]. 47 Takeovers Panel Guidance Note 15: Trust Scheme Mergers. 48 Takeovers Panel Guidance Note 15: Trust Scheme Mergers, [15.21]–[15.25].

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5.5 Joint bids [5.50] A joint takeover bid may be an appropriate way to proceed with an acquisition if a single bidder lacks the resources to mount a bid by itself, where an existing shareholder wants to retain or increase their interest in the target company or where different persons have interests in different assets of the target company.49 A joint bid may be made in one of several forms: •

two or more persons may make the bid in their names jointly or using an agent or nominee: see the definition of “bidder” in s 9; or

•

the joint bidders may form a joint venture bid vehicle to make the bid.50

More often than not, a joint venture vehicle form is used as it will generally provide more flexibility during the conduct of the bid and after the bid has closed. Before a joint bid is made, there would generally be a bidding agreement between the parties. This would deal with various aspects relating to the conduct of the bid and potentially cover how the parties will deal with the assets of the target company after the bid has been completed. As a tactical matter, joint bidders are usually reluctant for the bidding agreement to go into great detail as to how the assets of the target company would be distributed between them if the bid is successful. This is because, if that detail is agreed, it must be disclosed in the bidder’s statement (as being central to the parties’ intentions). Any valuation the bidders put on the target’s assets may give the directors of the target company scope to criticise the bid as undervaluing the target’s assets or may encourage other potential bidders or encourage shareholders not to accept. The legal implications of a joint bid depend primarily on the aggregate percentage of voting shares that the joint bidders control when they decide to proceed. This is because by entering the bidding arrangement they will generally become associates and acquire relevant interests in each other’s shares. In Edensor Nominees Pty Ltd v ASIC (2002) 41 ACSR 325, a 12% shareholder and a 28% shareholder executed a bidding agreement which provided for them to form a joint venture company to make a takeover bid. Amongst other things, the agreement stated that each remained free to dispose of their existing shares in the target company. Despite that provision, the court decided that the parties had an overriding understanding between them that neither would accept the bid and would 49 The definition of “bidder” in s 9 expressly contemplates more than one bidder, overruling Blue Metal Industries Ltd v Dilley [1969] UKPCHCA 2: see Company Law Advisory Committee, Second Interim Report to the Standing Committee of Attorneys-General on Disclosure of Substantial Shareholdings and Takeovers [29]. 50 Though not strictly a “joint bid”, a similar economic outcome can be achieved if the bidder agrees with a third party before launching the bid to sell certain assets of the target if the bid is successful: see discussion at 5.6.

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retain their shares so that they would assist the bidding vehicle to reach the compulsory acquisition thresholds. This constituted a relevant interest (and, as a result, a breach of the 20% rule). If the aggregate number of shares that are held is less than 20%, formation of the joint bidding arrangement will not necessarily have any implications, other than a need to file a substantial shareholding notice if the aggregate shares exceed more than 5% of voting shares in the target (or would result in a 1% change to an existing notice).51 The notice would need to be accompanied by a copy of the joint bidding agreement. If the aggregate shares represent more than 20% of the total voting shares, there is a significant risk of a breach of s 606. In those circumstances, ASIC will generally grant modifications to facilitate a joint bid if the bid complies with the following major conditions:52 (1) The bid must contain a non-waivable minimum acceptance condition of 50.1% of shares held by target shareholders who are not associated with the joint bidders.53 This is designed to ensure the bid proceeds only at a price that target shareholders who are not associated with the joint bidders and who hold a majority of all shares held by non-associated shareholders consider acceptable and will stop the joint bidders being able to use a joint bid to take control at a lower than fair price.54 (2) If a higher rival bid is made, the bidders must agree to accept it, unless they match the price. This condition is designed to ensure the joint bidders do not necessarily deter a potential rival bid and any ensuing auction for the target company. ASIC has said that it may not impose this condition if one of the joint bidders has a relevant interest in over 50% of the target’s voting shares, or has less than 3% voting power in the target.55 (3) The bidders must use their best endeavours to have the target engage an independent expert to prepare a report on the bid.56

51 See Pathak, “’Public to Private’ Takeover Bids” (2003) 21 C&SLJ 295, 312. 52 ASIC Regulatory Guide 9: Takeover bids, RG 9.626–RG 9.644. 53 ASIC Regulatory Guide 9: Takeover bids, RG 9.632. For issues with a former acceptance condition see Prudential Investment Company of Australia Ltd [2003] ATP 36. 54 ASIC’s refusal to relax this requirement was upheld by the Panel in Lion-Asia Resources Pte Ltd [2009] ATP 25. 55 ASIC Regulatory Guide 9: Takeover bids, RG 9.640–RG 9.642. The reasoning is that a 50% block is a complete deterrent on its own, and item 9 in s 611 allows an acquisition of 3%. The condition may be imposed if ASIC finds that the joint bidders have contrived shareholdings to bring them within one of these exceptions. 56 ASIC Regulatory Guide 9: Takeover bids, RG 9.643.

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(4) The joint bidders must terminate any relevant agreements or arrangements relating to the joint bid if the bid does not proceed or fails because a defeating condition is not satisfied or waived.57 The second condition is the most controversial. ASIC’s intention is that this would require the joint bidders to sell not only shares acquired under the joint bid, but also their existing shares to the rival bidder. Therefore, by deciding to launch a bid, the joint bidders may, in fact, be forced to sell their shares. Difficulties may also arise in comparing cash bids with scrip bids and determining which is the higher bid. Joint bidders will be reluctant to receive rival bidder’s scrip. This aspect of the policy requires revision as, rather than promoting or facilitating joint bids, this feature has the opposite effect. ASIC should be willing to depart from this rule where the shareholders have been long-term holders and are willing to dispose of any shares acquired under the bid. Any joint bidders who require ASIC relief should ensure that any joint bidding agreement or other agreement entered into prior to ASIC relief being obtained is expressed as being subject to such relief being obtained to take advantage of s 609(7). As an alternative to seeking relief from ASIC, joint bidders with an aggregate voting power over 20% may also proceed without breaching s 606 if the bidding agreement is conditional on the matters in s 609(7), that is, conditional on a resolution under s 611, item 7 and does not confer control over voting nor restrict disposals for more than three months.58 That course will avoid the risk that ASIC imposes the requirement to sell into a higher bid, though it will require a general meeting of the target (something that will be more convenient if proceeding via scheme of arrangement). If one of the joint bidders is a shareholder in the target company, an agreement to make a joint bid will confer benefits on the shareholder which are not available to other shareholders. This will be the case where the joint bidders agree to divide the target’s assets between them after the bid and, even if that is not the case, it is arguable that benefits may be conferred by the arrangements under which the shareholder becomes a joint bidder, that is, a benefit may be represented by the mere opportunity to invest in the joint bidding vehicle.59

57 ASIC Regulatory Guide 9: Takeover bids, RG 9.644. 58 ASIC Regulatory Guide 9: Takeover bids, RG 9.645–RG 9.652 on when this technique is acceptable (the bidders must really intend to hold the meeting to approve the acquisition), and when ASIC will give relief to extend the three-month period. See also [3.60.70] for discussion of s 607(7), including the need for use of s 609(7) to be bona fide to ensure that the use of the exception will not be unacceptable. 59 The mere opportunity to acquire an asset may be a benefit: Aberfoyle Ltd v Western Metals Ltd (1998) 28 ACSR 187, 223 per Finkelstein J.

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From a strict legal point of view, provided the joint bidding agreement is reached before the offer period commences and is not settled until after it closes, there should be no breach of the rule against collateral benefits in s 623 (discussed at 11.4). An uncertainty remains, however, whether the Takeovers Panel may nevertheless declare the arrangements unacceptable, particularly as its Guidance Note 21: Collateral Benefits contemplates pre-bid benefits as potentially breaching the equality principle in s 602. There is a strong indication in GasNet Australia Ltd [2006] ATP 22 that the Panel will regard arrangements between bona fide joint bidders as outside the collateral benefits rule (and the minimum bid price rule), because the benefits are received in the capacity of joint bidder, not that of potential offeree, although the matter was concluded before being fully argued. The London Takeover Panel takes the view that benefits received by a shareholder in the capacity of a genuine joint bidder do not attract the equivalent London rule. For this purpose, the London Panel asks whether the shareholder can properly be considered to be a genuine offeror, rather than simply acting in concert with the bidder. The test it uses is as follows: A genuine offeror is a person who, alone or with others, seeks to obtain control of an offeree company, and who, following the acquisition of control, can expect to exert a significant influence over the offeree company, to participate in distributions of profits and surplus capital and to benefit from any increase in the value of the offeree company, while at the same time bearing the risk of a fall in its value resulting from a poor performance of the company’s business or adverse market condition.60

The London Panel assesses this by reference to the facts of the particular case, but looks to the following criteria: •

What proportion of the equity share capital of the bid vehicle will the person own after completion of the acquisition?

•

Will the person be able to exert a significant influence over the future management and direction of the bid vehicle?

•

What contribution is the person making to the consortium?

•

Will the person be able to influence significantly the conduct of the bid?

•

Are there arrangements in place to enable the person to exit from his or her investment in the bid vehicle within a short time or at a time when other equity investors cannot?

These factors are outlined in the London Panel decision in Canary Wharf Group Plc (London Takeover Panel 2003/25). In that case, a continuing 15% shareholder was considered to be a genuine joint bidder and, therefore, benefits received in that capacity were permissible.61 60 Canary Wharf Group Plc [London Panel 2003/25] [14]. 61 Although the Panel did not cite Canary Wharf in its GasNet reasons, or the Canary Wharf indicia of a bona fide joint bid, it does seem to have had that decision in mind: it also

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5.6 Pre-bid asset sale agreements [5.60] A bidder may wish to launch a bid only if it has certainty about the eventual disposal of a particular asset or business of the target. This may be because the bidder is not comfortable owning that particular type of business or because it gives rise to concerns under competition laws. Alternatively, the bidder may be relying on the eventual sale to assist financing the bid.62 In such cases, the bidder will wish to enter a pre-bid asset sale agreement with a third party. These arrangements raise difficult issues, in particular if the purchaser is an existing shareholder in the target, or if less than 100% of the target is acquired under the bid. Transaction steps [5.60.10] The steps involved in the transaction would be as follows: •

the bidder and the third party would enter into an agreement under which the third party would agree to acquire the relevant asset from the target if the bid is successful;

•

the agreement would specify the terms (including price or price formula) on which the third party would purchase the asset;

•

details of the agreement would be disclosed in the bidder’s statement; and

•

once the takeover had been successfully concluded, the third party would purchase the asset on the agreed terms.

An alternative structure is for a bid to be made which is conditional on the target disposing of (or entering into an agreement to dispose of) the particular asset during the offer period, on specified terms and conditions. This avoids some of the legal complications described below, but gives the bidder no certainty that the sale will occur.63 Shareholder as purchaser [5.60.20] If the purchaser is a shareholder in the target, a threshold issue arises about whether the transaction gives rise to unequal benefits to target shareholders contrary to the equality principle under s 602(c). There is an argument that the mere opportunity to acquire the asset which is not otherwise generally available, even on arm’s length terms, will looked to the “capacity” (see [11.40.30]) in which a joint bidder received benefits, and pointed out that there were no indications that the GasNet bid was other than a bona fide joint bid. 62 A variation is where the offer is structured so that the consideration under the bid includes shares in a company which owns the unwanted assets: see the examples discussed in Email Ltd 03 [2000] ATP 5; and Brickworks Ltd 01 [2000] ATP 6. The bid is therefore effectively spinning-off the unwanted asset back to its existing owners. 63 For an example of a bid conditional on the sale of an asset, see Becker Group Ltd 01 [2001] ATP 13; and Becker Group Ltd 02 [2007] ATP 15. In that case, the sale of an asset to a major shareholder gave rise to concerns under s 623.

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constitute a benefit within the meaning of the legislation. Support for this view comes from cases dealing with the collateral benefits prohibition (discussed at 11.4). For example, in Aberfoyle Ltd v Western Metals Ltd (1998) 28 ACSR 187 at 223, Finkelstein J said that the mere opportunity to acquire a significant number of shares at one time was a benefit.64 Under the CLERP amendments in March 2000, the law was amended to facilitate takeover bids and avoid problems that were perceived to arise from the operation of the former collateral benefits rule prior to the making of formal offers. As a consequence, it now seems that a transaction with a shareholder is possible, provided that the transaction is on arm’s length terms. This is supported by the Takeovers Panel’s decisions in Alpha Healthcare Ltd [2001] ATP 13; PowerTel Limited 03 [2003] ATP 28; and Normandy Mining Ltd 06 [2001] ATP 32. In those cases, the Panel said that, provided there was evidence indicating the transaction did not give an additional benefit to the shareholder, the transaction would be acceptable.65 On the other hand, if the terms are shown to be favourable to the shareholder, the value of the benefit may need to be reflected in the price paid to that shareholder under the bid66 or, if the transaction was entered into during the offer period, the transaction may breach s 623. The process undertaken in relation to the sale of an asset to a shareholder may be important in evidencing whether or not a sale is an arm’s length transaction. In Becker Group Ltd 01 [2007] ATP 13, the Panel found unacceptable circumstances to exist in relation to a proposal to sell the film business, which was a substantial asset of the target, to a company associated with the major shareholder in connection with a takeover offer for the company which was conditional on the sale being completed. In that case there was no independent market testing of the fair value of the film business, the sale price was approximately half of the book value of the target and the bidder and its associates’ shareholding meant that shareholder approval of the sale of the film business under ASX Listing Rule 10.1 was virtually assured. Risk of not achieving 100% [5.60.30] If the bidder achieves 100% shareholding in the target, the transaction can be completed without any further shareholder approval or complications. 64 Further support comes from Thiess Holdings Ltd v CSR Limited (unreported, Sup Ct Qld, No 3189 of 1979), a case decided under the AASE listing requirements. In that case, a shareholder agreed to sell its shares and, if the offer was successful, to purchase coal mining interests from the bidder. Connolly J held that it was reasonably arguable that this arrangement conferred a special benefit on the shareholder, even if on arm’s length terms. 65 See also Takeovers Panel Guidance Note 21: Collateral Benefits; and Becker Group Ltd 01 [2007] ATP 13 [59]. 66 An adjustment of the minimum bid price under s 621(3) does not resolve the problem, as it will benefit the shareholder who engages in the collateral transaction, as well as other shareholders.

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However, even if the takeover offers are made with a 90% minimum acceptance condition (so as to enable compulsory acquisition), usually a bidder has to consider freeing the offers from that condition to encourage acceptances. This creates a risk that the bidder may end up with less than 100% as it would not be able to reach the compulsory acquisition thresholds. In that event, there is a danger that the transaction could not be completed without a shareholder vote. There are several relevant restrictions.

ASX Listing Rule 10.1 [5.60.30A] A listed company cannot dispose of an asset with a value of more than 5% of shareholders’ funds to a substantial (greater than 10%) shareholder or an “associate” of a substantial shareholder, unless independent shareholder approval is obtained: ASX Listing Rule 10.1. If the purchaser is a substantial shareholder in its own right, this rule may be attracted. If the purchaser is not a substantial shareholder in its own right, there is a question whether it would be regarded as an associate of the bidder (who would be a substantial shareholder if the bid was successful) for the purposes of this rule. It is arguable that, provided the purchaser has no involvement in the conduct or the financing of the takeover bid, the bidder and the purchaser are not associates as they are dealing at arm’s length in relation to a one-off transaction. Nevertheless, there is a risk that they could be regarded by the ASX as associates for the purposes of ASX Listing Rule 10.1. This seems to follow as the purchaser’s obligation to buy the asset is owed to the bidder (since there is no contract between the target and the purchaser) and this implies that the purchaser and the bidder are associated in relation to the sale of the assets. If the rule applies, the sale of the assets would need to be approved by the target shareholders. The parties to the transaction and their associates could not vote on the resolution: ASX Listing Rules 14.11 and 14.11.1. Therefore, the bidder, as an associate of the purchaser (a party to the transaction), could not vote on the resolution, leaving only remaining shareholders eligible to vote.67 To overcome this difficulty it may be possible to seek a waiver of ASX Listing Rule 10.1 to allow the sale of assets to the purchaser to proceed without shareholder approval. This could arguably be justified on the basis that the rule is only intended to apply to transactions with persons in a position of influence (which would not apply to the bidder or the purchaser at the time of their agreement) and on the basis that, if the 67 In Becker Group Ltd 01 [2007] ATP 13, the sale was structured as an agreement between the target company and a company associated with its major shareholders. The Panel determined that, given the interconnected nature of the sale of the asset and a concurrent takeover offer which was conditional on the sale being completed, the bidder could not vote its shares on the shareholders resolution to approve the sale.

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bidder’s statement makes it clear that the bidder intends to procure the disposal of the assets after the bid, the target shareholders can take this into account in deciding whether to accept the bid. However, there are no clear precedents supporting the grant of a waiver. If a waiver cannot be obtained, another course may be to make the bid conditional on a shareholder approval during the offer period. In that case, it is likely that target shareholders could vote in favour of the transaction (or appoint the bidder to do so on their behalf), even if they intended to or had accepted the bid. ASX Listing Rule 11.2

[5.60.30B] A listed company must get the approval of shareholders before it may dispose of its “main undertaking”. This expression does not have a technical meaning and an assessment must be made of the importance of the assets to the target having regard to such things as relativities of assets used in the business, revenues and profits generated. If the relevant assets comprise the main undertaking, ASX Listing Rule 11.2 requires a resolution to be passed by the holders of at least 50% of ordinary shares. On this resolution, no regard is had to votes cast by “any person who might obtain a benefit, except a benefit solely in the capacity of a security holder, if the resolution is passed”: see ASX Listing Rule 14.11.1. The bidder may derive a benefit from the distribution of the proceeds of the sale, whether through a dividend or a return of capital, and this could be used to repay debt. However, the dividend or return of capital would be received by the bidder in its capacity as a shareholder, and would be the same as the benefit received by all other remaining target shareholders. Therefore, the bidder is arguably not precluded by this rule from voting its shares in the target in this situation. Company constitutions commonly provide provisions in similar terms to ASX Listing Rule 11.2. The constitution of the target should be reviewed to see if it has a broader operation. The disclosure required in a notice of meeting to consider such a resolution was discussed by Austin J in ENT Pty Ltd v Sunraysia Television Ltd [2007] NSWSC 270. Related party transactions

[5.60.30C] Pt 2E of the Corporations Act prohibits a public company giving a financial benefit to a related party unless one of the statutory exceptions apply. This can create a further difficulty as it is arguable that the purchaser would be a related party itself on the basis of acting in concert with a controller of the public company (that is, the bidder): s 228(7). In that case, the transaction may require approval of independent shareholders. There is an exception for arm’s length transactions, but a pre-bid transaction may not be on arm’s length terms as far as the target is

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concerned. Due to confidentiality limitations, the transaction is unlikely to have been fully tested by the market and it is possible a better price could have been obtained from elsewhere, particularly if due diligence was allowed or standard warranties given. Therefore, a shareholder vote may be required. If the bidder is an associate of the purchaser, it may be precluded from voting: s 224.

Directors’ duties [5.60.30D] Although it is likely that, after the takeover is concluded, the bidder nominees would comprise a majority on the target’s board, those directors cannot advance the bidder’s interests at the expense of the target’s interests. Those interests could require a sale of the assets on different terms from the pre-bid transaction or to a different purchaser. If the directors are concerned about whether their actions are in the interests of all shareholders, the only safe way to proceed would be with the approval of shareholders. However, there would be no common law rule which would prevent the bidder from voting on such a resolution.

Association and substantial holding notice [5.60.30E] An agreement between a bidder (which had over 5% acceptances) and a third party (which was not a shareholder in the target) to operate part of the target’s business as a joint venture after the bid may have had the effect of making the third party an associate of the bidder. On that view, the third party is obliged to lodge a substantial holding notice reflecting its voting power over the acceptances held by the bidder, and to attach a copy of the joint venture agreement, even if it contains sensitive commercial arrangements.68 Method of distributing sale proceeds [5.60.40] Assuming the sale goes ahead, the proceeds from the sale of the assets could be distributed by the target to its shareholders (including the bidder) either by way of dividend or return of capital. Payment of a dividend would be a matter for the target’s directors, subject to s 254T, which requires that: •

the company’s assets exceed its liabilities immediately before the dividend is declared, by enough to cover the dividend;

•

the payment of the dividend is fair and reasonable to the company’s shareholders as a whole; and

•

the payment of the dividend does not materially prejudice the company’s ability to pay its creditors.69

68 National Foods Limited 01 [2005] ATP 8. 69 The section was repealed and replaced in 2010, with a view to removing the former requirement that dividends be paid only out of profits. Whether the new section had that

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An alternative is to return capital to shareholders via a reduction of capital. This does not require court approval, but does require shareholder approval: s 256C. Assuming the capital reduction is an “equal reduction” (that is, all the target shareholders are treated the same), the bidder could vote on this resolution and only a 50% vote is required. The directors of the target would also need to form the view that the capital reduction: •

was fair and reasonable to the company’s shareholders as a whole; and

•

did not materially prejudice the company’s ability to pay its creditors: s 256B.

Although these matters would need to be assessed at the relevant time, these requirements should not pose any major problems, especially if the target is not highly geared or part of the proceeds are used to repay the target’s debt. There is an additional risk that all or part of the dividend or capital return could be taxed as an unfranked dividend in the hands of the shareholders. This depends, in part, on whether the dividend or capital return is attributable to the profits of the target, having particular regard to any profit derived on sale of the assets. Financial assistance [5.60.50] It is arguable that the distribution of the proceeds of the sale of the assets in the target (by dividend or capital return) to the bidder may assist the bidder in acquiring the target’s shares. Section 260A provides that a company may financially assist a person to acquire shares in it only if: •

giving the assistance does not materially prejudice the interests of the company or its shareholders or its ability to pay creditors;

•

the assistance is approved by a special resolution of shareholders (and shareholders in any parent company which is listed); or

•

the assistance is exempt.

It has been suggested (without being decided) that, where the financial assistance occurs after the acquisition, s 260A can apply even if, at the time of the acquisition, there is no contract or arrangement to deliver the financial assistance.70 Precisely what link is required between the acquisition and the assistance for the section to apply has not been decided. However, it is arguably sufficient if, at the time of the acquisition of the shares, there is a “legitimate expectation” by the purchaser that the later financial assistance will be provided by the target.71 On that view, effect was considered in Re Centro Properties Limited [2011] NSWSC 1171 and in Wambo Coal Pty Ltd v Sumiseki Materials Co Ltd [2014] NSWCA 326 [57]. 70 Law Society of New South Wales v Milios (1999) 33 ACSR 396. See further discussion in 22.6. 71 Tallglen Pty Ltd v Optus Communications Pty Ltd (1998) 28 ASCR 610.

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there may be a sufficient connection between the acquisition of shares in the target and a later dividend or capital return by the target since, at the time of the bid, the bidder expects that the assets will be sold and the proceeds distributed. Despite those views, the rule will not apply if the asset sale proceeds are returned to the bidder (and other the target shareholders) through a capital reduction or share buy-back: s 260C(5). If the funds are returned through payment of a dividend, the rule can apply: s 260A(2)(b). However, it is unlikely that payment of a dividend could result in material prejudice to the company, its shareholders or its ability to pay creditors, given that the dividend could only be paid in accordance with s 254T. Therefore, although this will need to be assessed at the time, it is unlikely that s 260A will apply to the sale of the assets and the distribution of the proceeds. If the rule did apply, the financial assistance could be provided if approved by a special resolution passed by the target’s shareholders and, assuming the bidder holds more than 50% of the target, a special resolution of the bidder’s shareholders: s 260B. However, the bidder and its associates cannot vote their shares in respect of the target resolution: s 260B(1).

5.7 Reverse takeovers [5.70] A reverse takeover is one where the bidder makes an offer to acquire shares in a larger company for a share consideration which will result in the shareholders in the larger company becoming the majority holders in the bidder. It may result in a target shareholder acquiring voting power of 20% or more in the bidder, or even control of the bidder.72 A reverse takeover will have the same economic result as if the larger company had acquired the smaller company. It may be a suitable method of proceeding for various reasons. •

The small company may have an active growth-orientated management which may be supported by the shareholders in the larger company, particularly if the larger company is seen as less active or with less attractive prospects.

•

The larger company may be unlisted. A share swap offer by a listed company would therefore enable the smaller company to maintain its listing (though usually the ASX will require the smaller listed company to hold a general meeting to approve the offer and to effectively reapply for listing).73

72 Factual issues as to whether reverse takeovers in this sense had led to changes in control had to be resolved in Perpetual Custodians Ltd v IOOF Investment Management Ltd [2012] NSWSC 1318 and in Gloucester Coal 01R [2009] ATP 9. 73 See ASX Listing Rule 11.1 and ASX Listing Rules Guidance Note 12: Significant Changes to Activities.

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•

There may be tax advantages if capital gains tax rollover relief is not available and the shareholders in the larger company would incur a smaller liability than would the shareholders in the smaller company if it was taken over. This may be the case, for instance, if their shares had a high cost base or were pre-capital gains tax shares.

•

The smaller company may have a minority shareholder above the 10% level which could block compulsory acquisition if the larger company was to bid for the smaller company. In that event, assuming there are no such potential dissidents in the larger company, a reverse takeover bid may more easily achieve the desired result of merging the two companies.

However, care must be taken to ensure the directors of the smaller company are discharging their fiduciary duties properly.74 The issue of shares under a reverse takeover is exempt from the general prohibition under ASX Listing Rule 7.1 against a listed company issuing more than 15% of its capital in a 12-month period.75 Furthermore, the acquisition of shares by the accepting shareholders is exempt from s 606: s 611, item 4.76 Even if a reverse takeover leads to a change of control of the bidder, shareholders in the bidder will not receive a takeover bid. If they do not have an opportunity to vote on the transaction,77 the Panel may find that the bid leads to unacceptable circumstances, particularly if the reverse takeover locks up control of the bidder and frustrates another possible control transaction.78 The Panel suggests that a defeating condition in the bid that no superior proposal is made for control of the bidder may deal with the latter issue, but it may not be straightforward to determine which proposal is superior.

74 See Residues Treatment & Trading Co Ltd v Southern Resources Ltd (1989) 15 ACLR 770, where a reverse takeover was successfully challenged by a minority on the grounds that it was designed for the impermissible purpose of maintaining control by the directors and their associates. 75 ASX Listing Rule 7.2, exceptions 5 and 6. On 12 April 2017, ASX released draft amendments to Listing Rule 7.2 which would limit to 100% the number of shares a listed company may issue for the purposes of a takeover without obtaining shareholder approval. As ASX notes, this limit is concerned only with dilution of existing equity, not with effects on control. 76 See discussion at 19.4. Examples of reverse takeovers are found in Television New England Ltd v Northern Rivers Television Ltd (1971) CLC 27, 128; Re Australian Development Ltd (1973) 6 SASR 197; Rossfield Group Operations Pty Ltd v Austral Group Ltd [1981] Qd R 279. 77 As in AuIron Energy Limited [2003] ATP 31. 78 Takeovers Panel Guidance Note 1: Unacceptable Circumstances, [32(b)]; Titan Hills Australia Ltd [1991] ATP; Gloucester Coal 01 [2009] ATP 6; Gloucester Coal 01R [2009] ATP 9; see also 19.4.

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5.8 Sale of main undertaking [5.80] Sometimes a majority of shareholders may be in favour of a sale of the entire company, whether by way of takeover or scheme of arrangement. However, the existence of a significant minority shareholder opposed to a sale may make a takeover bid by a bidder requiring 100% ownership or control of the main assets of the company futile. One possibility to structure around the influence of the significant minority shareholder is for the company to sell its main business, assets or undertaking to a third party and then return the proceeds of the sale to its shareholders via a buy-back, reduction of capital or a winding up of the company. This may require a resolution under ASX Listing Rule 11.2: see [5.60.30B].

5.9 Dual-listed company mergers [5.90] Another method for effecting a merger, which has only been used for a few mergers, albeit high profile ones,79 is a dual-listed company or DLC merger. A DLC merger involves the combination of two companies through contractual arrangements rather than the acquisition by one of an interest in the other. The arrangement creates a synthetic merger where the two companies operate as if they were a single entity (with identical boards and senior management) and the economic and voting interests of the two sets of shareholders are the same. The main features of a DLC structure are as follows. •

The two companies retain separate corporate identities and separate stock exchange listings, though commonly the companies will adopt matching corporate names and identities.

•

Shareholders in each company continue to hold their existing shares and, accordingly, continue to receive dividends from the company in which they originally invested. The shareholders will, however, effectively have an economic and voting interest in the merged group as a result of a contractual requirement that the distributions received by each group of shareholders (both regarding income and capital) must effectively be equalised on a per share basis and as a result of a joint electorate when voting on matters of mutual interest. In order to equalise these interests, the two companies will agree in the merger agreement on an equalisation ratio. Bonus shares are issued by one of the companies (or, alternatively, shares are consolidated) so that the value of shares in each company is equivalent. If there is a subsequent action by one of the companies that would result in a change to the equalisation ratio, the companies would be obliged to take some action to restore the equilibrium. There would be further arrangements concerning the payment of dividends so that if one company proposes to pay a dividend, the other must match it. If the other

79 For example, the coming together in 1995 of CRA Limited and RTZ plc to form Rio Tinto and the coming together in 1998 of BHP Limited and Billiton plc to form BHP-Billiton.

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company cannot match that dividend, the companies will, as far as practical, enter into a balancing transaction as may be necessary to enable both companies to pay the appropriate amount of dividends. •

As the two companies remain separate corporate entities, they each continue to have a separate board of directors, but the board will comprise the same people. The constitution of the companies would normally be amended so that, in addition to the normal fiduciary duties to the relevant entity, the board is entitled to have regard to the interests of shareholders in the other entity in the management of the merged group.

•

Both sets of shareholders would vote on matters concerning the merged group. To ensure the appropriate voting outcome is achieved, a special voting share would typically be issued and held by an independent trustee who would vote the share in accordance with the votes cast on the matching resolution of the other company.

•

To further equalise the economic position of each company, the two companies may enter into cross-guarantees so that creditors will, to the extent possible, be placed in the same position as if the debts were owed by each company in the merged group.

•

In order to deal with the possibility of a takeover offer, the constitution of each company would contain a provision to ensure that a person cannot gain control of the merged group without having made an offer to both sets of shareholders on equivalent terms in accordance with the equalisation ratio. This would normally require extensive modifications to the Corporations Act so far as these rules are intended to apply to an Australian incorporated entity.80

In order to implement a DLC merger, each company would hold a shareholders’ meeting to pass resolutions, to approve the arrangement and to amend their constitutions to authorise the new arrangements concerning the unified board, voting procedures, takeovers and other matters. For an Australian company, therefore, this will require a special resolution passed by the holders of 75% of shares represented at the meeting. The principal advantages of proceeding with DLC mergers relate to tax. This is relevant as far as the shareholders are concerned, as both sets of shareholders will retain their current investments without triggering a capital gains tax upon a disposal of shares. Furthermore, by retaining shares in the original company, the shareholders will be able to retain the

80 A bid would also typically need to comply with rules in different jurisdictions, which may well be inconsistent, requiring specific regulatory relief. For these reasons, a hostile takeover bid for a dual-listed company is difficult. The preferred manner of acquisition being inter-connected schemes of arrangements.

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benefit of the particular tax treatment of dividends paid on their shares.81 (For example, a non-Australian company cannot pay franked dividends to Australian residents.) Secondly, a DLC merger will enable each entity to retain its own assets and avoid triggering change-of-control provisions in contracts and avoid a disposal (or notional disposal) of assets which may give rise to other taxes and costs.

5.10 Tender offers [5.100] A tender offer is an offer made to shareholders in the target to purchase a limited amount of shares in a way which does not require a formal takeover offer to be made. This may be a suitable way to proceed if the purchaser wishes to acquire less than 20% of the target. Tender offers rarely give rise to a significant level of acceptances. Shareholders tend to view them as a prelude to a full takeover bid, which may offer more favourable terms. A bid within the next four months must be at least at the same price due to the minimum bid price rule in s 621. This encourages shareholders to wait. The tender offer may also begin rumours of a bid which forces up the market price, making the tender procedure less attractive. There are also legal difficulties due to the prohibition in s 606(4) against a person making an offer to acquire, or issuing an invitation in relation to, shares if the person would be prohibited by s 606(1) or (2) from acquiring those shares. This effectively prevents an invitation being sent to shareholders enabling them to tender their shares at a price specified by the shareholder on the basis the purchaser would buy the shares tendered at the lowest price, and would not purchase shares which would increase its entitlement beyond 20% of voting shares in the target. This follows because such an invitation would be “in respect of” more than 20%.82 Accordingly, a tender offer must be drafted carefully to take one of the following forms. •

It may be an offer to purchase a proportion of every shareholder’s holding, say 19.9%.

•

It may be a series of offers to selected shareholders to purchase a fixed number of shares (ensuring that the aggregate number of shares subject to offers at any one time does not exceed 20% of the target’s voting shares).

•

It may be a first-come-first-served offer under which the purchaser agreed to purchase the first 19.9% of shares tendered and, at that moment, all other offers automatically lapse.83 Any ability of the

81 See also ASIC Regulatory Guide 29: Financial reporting by Australian entities in dual-listed company arrangements, which sets out ASIC’s views on some financial reporting matters relating to DLCs. 82 Albert v Votraint No 320 Pty Ltd (1987) 13 ACLR 336. 83 Similar to the arrangement considered in CAC v Industrial Equity Ltd [1972] 2 NSWLR 120.

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purchaser to increase the percentage will lead to a breach of s 606(4).84 The offer should state that the offeror will hold any acceptance form it receives in respect of an offer which has lapsed as a bare trustee for the shareholder so that, relying on s 609(2), any control arising from holding the form would be disregarded in determining whether a relevant interest had been acquired. It may be an offer or invitation conditional on prior approval of ASIC: see s 609(7).85 The NCSC stated that it was prepared to grant relief to ensure that tender offers did not infringe the predecessor to s 606(4). The conditions of the relief require the tenders to close on a fixed date, to specify the maximum number of shares sought, to invite shareholders to specify their price, to accept the lowest priced tenders and to return offer documents and any share certificates within five days of rejecting the shares tendered for whatever reason.86 ASIC seems not to have continued this specific policy, though it has granted modifications to clarify that acceptances under a tender offer may not confer a relevant interest until finalised. A tender under which shares or other securities are offered as consideration must comply with the prospectus provisions of the Corporations Act.87

84 United Dairies Ltd v Ord Minnett Ltd (1987) 12 ACLR 198. 85 See also Precision Data Holdings Ltd v Titan Hills Australia Ltd (1990) 2 ACSR 707, 727 per Tadgell J. 86 See NCSC Policy Statement 154. 87 The Broken Hill Proprietary Company Ltd v Bell Resources Ltd (1984) 8 ACLR 609.

Chapter 6

Involvement of Insiders [6.10] [6.20] [6.30] [6.40]

6.1 6.2 6.3 6.4

Conflicts of interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 Common directors of the bidder and target . . . . . . . . . . . . . . . . . . 125 Conflicts arising in a sale by a major shareholder . . . . . . . . . . . 131 Public to private takeover bids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

6.1 Conflicts of interest [6.10] Conflicts of interest are common in takeovers. This chapter discusses key issues that arise, first, concentrating on the position of directors and, secondly, examining special issues that arise where an insider, often a key executive or group of executives, seeks to participate in a personal capacity in a bid for the company, known as a public to private transaction or a management buy-out. From a legal perspective, the following duties will be relevant: (a) to act in good faith in the best interests of the relevant company: s 181;1 (b) not to use improperly their position or any information gained through their employment or directorship to gain an advantage for themselves or someone else or cause detriment to the company: ss 182, 183; (c) to avoid positions of conflict between personal interests and those of the company; (d) if the insider is an executive, to continue to devote their full time and efforts to the discharge of their duties as an executive; and (e) to maintain the confidentiality of the company’s information. There are no hard and fast rules in Australia which govern precisely how the person with the conflict (or the company) should proceed. Much will depend on the facts and the personalities of the people involved.

6.2 Common directors of the bidder and target [6.20] Where a person is a director of the bidder and also a director of the target, various issues arise for the director concerned and for each

1

Under s 184, a breach of the duties under s 181, 182 and 183, which is dishonest will create a criminal offence.

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company.2 The issues may be considered in the context of various scenarios that present themselves as a takeover unfolds. During the planning phase [6.20.10] A person who is a director of a bidder and a target and who attends a board meeting of either company when a takeover is being planned is putting themselves in a potentially difficult position where they could be criticised, even if they have observed all legal obligations. This criticism could come from shareholders in either company or from the market generally, based on concerns that not only must all legal rules be satisfied, but they must be “seen” to be satisfied. For this reason, it is common for such a director to seek to be excused from deliberations concerning the possible takeover. Sometimes this applies to both companies,3 and sometimes the director is excused from board meetings of only one of the companies. It may also be possible to deal with the conflict by resigning from one of the boards, though that does not appear to be a common occurrence, nor would it necessarily deal with all conflicts as some duties will continue after retirement. In practice, it would appear the issue is commonly dealt with by the chairman of the bidder informing the relevant director that there will be a matter discussed in which the director has a conflicting interest and excusing the director from the relevant part of the board meeting. This is usually seen to be the correct course of action, even though, as a general rule, a director should participate in all board discussions in order to discharge their duty of diligence, particularly where the subject matter relates to a significant transaction which could impact fundamentally on the company’s business. Normally, the director would not be informed of the identity of the company to which the conflict relates. A question may arise whether the director has a duty to inform the other company of any suspicions he or she may have that a takeover bid may be made for that company. This does not seem to be the usual course in practice. A particular issue for a director may arise if they become aware that their company proposes to bid for another company of which they are also a director, and they are aware of undisclosed adverse information which is material to the bid. In some situations, the courts have held that a director is obliged to take steps to avoid adverse consequences for the company and that simply excusing themselves from the deliberations citing a

2

See generally, Hay, “Common Directors of Offeror and Target Companies” (1990) 8 C&SLJ 260.

3

The practice of withdrawing from the deliberations of both boards was encouraged by Street CJ in Ampol Petroleum Ltd v RW Miller (Holdings) Ltd (1972) ACLC 27,336.

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conflict may be insufficient to discharge their duties as a director.4 Yet disclosing the actual information may breach a general duty of confidence owed to the target and may breach s 183, which prohibits a director from improperly using information gained in that capacity to gain advantage for themselves or someone else, or to cause detriment to the company. What should the director do if the confidential information he or she has means that the takeover bid may be adverse to the interests of the bidder? In that event, one solution to the director’s dilemma may be for the director to state their opposition to the course of action being considered, so long as they do not disclose the actual information. That opposition may fall short of constituting the “use” of information to gain an advantage for the bidder and would not cause a detriment to the target. Another way forward may be to ensure that the target company has made proper disclosures under its continuous disclosure obligations or to press strongly for the bid to be subject to a condition that no material adverse information emerges. Preparation of bidder’s statement [6.20.20] Under s 636(1)(m) a bidder’s statement is required to include all material information “known to the bidder”. Information is regarded as known by a company if known to those people who constitute “the brain and nerve centre, the directing mind and will” of the bidder.5 This is generally the directors, though it may include other executives to whom the board has delegated authority to act with full discretion and without instructions.6 A difficult question can arise when a director of a bidder has relevant information gained in another capacity, for example, as a director of a target company or of another corporation. Generally, knowledge of an officer is not imputed to the company unless the officer has a duty to disclose it. This applies whether or not there is a duty on the company to receive the information.7 In the context of a bidder’s statement, the

4

Permanent Building Society (in liq) v Wheeler (1994) 14 ACSR 109; disclosure may be required, depending on the circumstances: Duncan v Independent Commission Against Corruption [2016] NSWCA 143 [431]–[452] per Bathurst CJ [473] per Beazley P and [623]–[641] per Basten JA.

5

HL Bolton (Engineering) Co Ltd v TJ Graham & Sons Ltd; Re Rossfield Group Operations Pty Ltd [1981] Qd R 372, 377 (Connolly J). Separate information held by an officer or agent may be aggregated with information held by another if there is a duty and opportunity to communicate it to the other: see Commonwealth Bank of Australia v Kojic [2016] FCAFC 186.

6

El Ajou v Dollar Land Holdings plc [1993] 3 All ER 717; Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500. See discussion in [9.30.130].

7

See ZBB (Australia) Ltd v Allen (1991) 4 ACSR 495, 506 (Waddell CJ (Eq)). In this regard, it may be noted that s 205F obliges a director to give written notice to the company of such information relating to the director personally as is necessary for the company to comply with Chapter 6. For the purposes of the insider trading legislation, information is only imputed to the company if the director or officer has gained the information in the course of his or her duties on behalf of that company: s 1042G.

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disclosure requirements of s 636 are not subject to exceptions, but the statutory duty of confidence is imposed with respect to the other corporation: s 183.8 There are several courses open to a bidder in this difficult position. •

The director in question may be isolated so as not to form part of the “directing mind” of the bidder in relation to the bid (such as the director taking leave of absence or the bidder establishing a special subsidiary to make the bid which does not include the relevant director as a director). If this is done, it may be permissible for that director’s special knowledge to be omitted.

•

If that course of action is not possible (such as where the relevant director is the managing director or chairman), the bidder may have to delay the bid until the director in question is freed from his or her obligation of confidence (for example, by the other company publicly releasing the information).9 Where the information is from the target, one approach may be to frame the offer so it is not sent or cannot be accepted until the target’s formal response is released. As that document is required to contain all information material for shareholders, the information known to the common director should then have become public. This approach may be bolstered by obtaining appropriate ASIC relief.

Much will depend on the precise circumstances. If the board of the bidder and the target company are the same, knowledge will be imputed,10 but not necessarily if only one director is on both boards.11 A further difficulty can arise when the bidder’s statement is approved. If the offer includes securities in the bidder, the bidder’s statement is required to be approved by unanimous resolution of the directors: s 637.12 ASIC relief can be obtained if there is a director who cannot participate due to a conflict.

8

Section 183 prohibits only improper disclosures. Disclosure by an officer to a company of information it requires in order to satisfy its obligations under s 636 may not be improper, at least if the officer had not caused the bidder to incur that obligation: compare Cultus Petroleum NL v OMV Australia Pty Ltd [1999] NSWSC 422, per Santow J [73].

9

It is not enough for the common director to resign from the target’s board, since their obligation to respect confidences they have already received as a director of the target continues after they cease to hold that position.

10 Re Rossfield Group Operations Pty Ltd [1981] Qd R 372. 11 See TNT Australia Pty Ltd v Normandy Resources NL (1989) 15 ACLR 99, 120 per Jacobs J referring to the conflicting fiduciary duties of the common director. In iP3 Systems Ltd [2005] ATP 7 [55] the Panel indicated that the content of an offer document for a rights issue (which had been structured so as not to require a prospectus) should be to prospectus standard, because the underwriter had an information advantage, because it had a common director with the company making the issue. 12 This is intended to harmonise the requirements with those applying to a prospectus.

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The perspective of the target company [6.20.30] As mentioned above, the safest course of action is for a director to exclude themselves from deliberations of the target, as well as the bidder. An issue that may arise is whether the director need excuse themselves only from deliberations, which relate directly to consideration of the bid or whether they should be excused from other board deliberations.13 Typically, a great deal of information that may be discussed during a board meeting of a target company may be relevant to assessing whether or not to recommend a bid or, from the bidder’s perspective, whether or not to increase the offer. An obvious example is information relating to the current trading performance of the target company. On the other hand, some information that would normally be provided to a board of directors should also be provided to the common director. Formal reports, such as reports relating to compliance with statutory obligations or remuneration issues, may fall in this category. It would follow that it would be open for the board, or perhaps the chairman, to consider each agenda item as and when it arises and determine whether or not the common director should participate. An alternative is for the common director to be granted leave of absence during the period of the offer.14 To minimise room for difficulties, it is common for a special committee of the board to be established to deal with the target’s response to the bid, which would not include any director affiliated with the bidder. This is typically done with the consent of all directors. However, the establishment of a takeover response committee with broad powers, which excludes one or more directors, may be invalid if it is against the wishes of the common director on the basis that it is contrary to the general right of a director to participate in all decisions affecting the company.15 If a committee is established, the general rule that directors are entitled to access all documents of the company16 is replaced by a rule that a director who is not a member of the committee can only access the information belonging to the committee if they can show a “need to know”.17

13 Generally, the mere fact a director is also a director of the bidder would not constitute a material personal interest so as to exclude the director under s 195. 14 Leave of absence is typically contemplated by the constitution of a company. 15 Trounce and Wakefield v NCF Kaiapori Ltd (1985) 2 NZCLC 99,422. Section 198D(1)(a) provides that the directors may delegate any of their powers to a committee of directors, without requiring unanimity. For the functions usually entrusted to such a committee, see [6.40.20]. 16 Edman v Ross (1922) 22 SR (NSW) 351. 17 See Molomby v Whitehead (1985) 63 ALR 282; Birmingham County Council v O [1983] AC 578. This follows from the reason that it is not necessary for the director to have access to

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The general rule is also displaced if a director seeks to inspect the company’s material with a view to using it in breach of his fiduciary duty to the company.18 While the purpose of facilitating a bid for the company is not of itself such a breach, the intention to use or disclose the company’s confidential information without the company’s authority may well be. Preparation of the target’s statement [6.20.40] The target’s statement must contain all information that shareholders and their professional advisers would reasonably require in order to make an informed assessment whether to accept the bid: s 638(1). The information must be included if it is known to any of the directors of the target, but need only be included to the extent it is reasonable for shareholders and their advisers to expect to find the information in the target’s statement: s 638(1A). If a director of the target has obtained information relevant to the bid in connection with the affairs of another company (such as the bidder) and subject to obligations of confidence to that other company, it may not be reasonable for shareholders to expect to find that information in the target’s statement. This will lessen the disclosure burden on the target. That leaves the question of how the target can finalise its target’s statement if one or more directors have been excluded from deliberations about the target’s response to the bid. One course of action is to provide to the common director a copy of a near final version of the target’s statement and ask them to confirm that they do not have any material information regarding the company which is not in the draft or to provide such information for inclusion. An alternative course of action is to seek ASIC relief so that the knowledge of any common director is excluded from the content requirement of s 638. This is a cleaner course of action and, if adopted, should be spelt out in the target’s statement. Occasionally, a common director insists on participating in consideration of the target’s statement, despite their conflict, and may insist on including statements and advice to shareholders, which may differ from the recommendations and advice given by other directors. This approach would presumably be on the basis that the director was concerned that shareholders may not receive all material information in order to make an informed decision about the bid. However, this course of action is extremely rare and generally attracts significant criticism.

the committee’s information in order to discharge his or her duties. In Re Geneva Finance Ltd (1992) 7 ACSR 415, Owen J said it was not necessary for a director to show a need to know before accessing documents, but that case can be distinguished on the basis that it did not involve a committee. 18 Molomby v Whitehead (1985) 63 ALR 282; Berlei Hestia (NZ) Ltd v Fernyhough (1980) 2 NZLR 150; Re Tai-Ao Aluminium (Australia) Pty Ltd [2004] FCA 1488. Although s 290 appears to give a director a right to inspect the company’s financial records regardless of purpose, the courts have read the common law exceptions into that right.

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6.3 Conflicts arising in a sale by a major shareholder [6.30] It is often the case that a major shareholder is on, or has a nominee on, the board of a company. Questions about the proper course of action can therefore arise if the major shareholder is considering a sale of its shareholding. A few observations can be made. Merely because the shareholder is a director of the target does not mean he or she is obliged to inform the target of the proposed sale, even if a sale may be considered material to the target. If the director has the information as a director of the shareholder, he or she is likely to owe a duty of confidence to the shareholder. However, there may be practical reasons why informing the target is appropriate, including where it is likely that the purchaser will want access to the target’s books to conduct due diligence. The insider trading rules in Corporations Act, Pt 7.10, Div 3, may affect how the shareholder should proceed. If the shareholder has inside information about the target, it will not be able to conduct a sale of the shares (unless the purchaser also has the information), until the information is released or ceases to be price sensitive: s 1043A(1). The information cannot be given to prospective purchasers without consent of the target, because it will generally be confidential to the company. In some circumstances, providing it may also constitute tipping under s 1043A(2). If the nominee director has confidential price sensitive information about the target that has been obtained as a director of the target and not actually communicated to the shareholder, that information is not deemed to be known by the shareholder under the insider trading rules: s 1042G. Therefore, technically, the shareholder could proceed with a sale, though the nominee director should be isolated from the sale process and any decision to sell. However, whether or not this is sufficient to ensure the director has acted properly will depend on the circumstances. It may call into question the adequacy of the steps taken by the shareholder and the director. If the shares are sold to a person who makes a takeover offer for the company, the director is not precluded from making a recommendation in the target’s statement. However, that seems invariably to be the practice, with the relevant director declaring a conflict as a reason why he or she is not making a recommendation: see further [14.80.20].

6.4 Public to private takeover bids [6.40] A “public to private” takeover bid, or a “going private” transaction (as these takeovers are called in the US), is the name given to a leveraged buy-out of a public company by a financial buyer, often with the support of existing management.19 While these transactions can be viewed merely as representing one application of the usual takeovers rules, typically they 19 See generally Pathak, “‘Public to Private’ Takeover Bids” (2003) 21 C&SLJ 295.

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give rise to a great deal of complexity as they involve multiple parties, each of whom has differing commercial interests which need to be protected. Former Justice Austin, speaking extra-judicially,20 usefully observed that, although no two transactions are the same, the ’private equity model’ has a number of distinctive characteristics: •

the targeting of poorly managed businesses (which provide an opportunity for turn-around by improved management and costcutting), or companies with good cash flows that are undervalued by the market, or capital poor entrepreneurial start-ups;

•

acquisition using a combination of equity provided by private investors and high levels of debt from third-party lenders;

•

the injection of substantial capital into the acquired business;

•

high gearing of the post-acquisition group;

•

a medium to long-term investment strategy (say, a horizon of 3-7 years), typically leading to a resale or flotation of the acquired assets; and

•

control of the acquired business and consequently the injection of management disciplines to achieve aggressive business plans.

To these six characteristics above, another can be added: the frequent continuing involvement of existing management, often with a revised remuneration incentive arrangement tied to the returns achieved by the private investors. This section considers some of the issues which may arise in public to private transactions and deals with the differing perspectives of the main players in the transaction. The perspective of the insider [6.40.10] At the outset, it can be said that public to private transactions do not always involve existing managers or directors. Sometimes the private equity firm will have a fresh management team which it wishes to employ to run the business once it has been acquired. However, when existing managers or directors are involved, there is an obvious potential for conflicts of interests to arise.21

20 See Austin, “An Introduction to Private Equity”, in Austin and Tuch (eds), Private Equity and Corporate Control Transactions (Ross Parsons Centre of Commercial, Corporate and Taxation Law, The University of Sydney, Monograph Series, 2007), p 6. 21 The difficulty in this area is not helped by the case law relating to conflicts of interest generally (as opposed to the takeovers context), where there is a divergence between decisions which refer to a strict formulation of the principles, that is, a fiduciary must not place himself in a position where his duty and interest may conflict (see Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 and Phipps v Boardman [1967] 2 AC 46, 123) and decisions which enunciate a more relaxed position where fiduciaries need to avoid situations where there is a “significant possibility”, or a “real and substantial possibility”

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As an executive or a director of the target, the insider will owe a range of statutory, fiduciary and contractual obligations to the target, as mentioned in 6.1. In practical terms, these duties to the target may conflict with the insider’s interests in the conduct of the bid. Among the more prominent of these conflicts are: •

the conflict between the obligation of the insider to assist the target to obtain the best possible terms (including the highest price) from the bidder, and the interests of the insider in assisting the bidder to obtain the best possible terms (including the lowest price) in order to maximise subsequent gains;

•

the conflict between the obligation of the insider to assist the target, should it choose to conduct a competitive sale process by giving equal treatment and access to relevant information to each potential bidder (subject to limits designed to protect the target company’s interests), and the interest of the insider in providing the greatest possible informational advantage to their own bidding consortium; and

•

the conflict between the obligations of the insider to the target to continue to conduct the business in the normal course and with minimal disruption, and the interest of the insider in spending as much time as possible in assisting their own bidding consortium and negotiating the terms of their participation in that consortium.

Faced with this array of conflicting duties, a threshold legal question is whether an executive or director can ever participate in a bid for a company which employs them or on whose board they sit without breaching their duties. The answer to this question is the subject of some controversy. There are two views. The first view22 is that the case law23 requires the fully informed consent of the target’s shareholders (who are the parties to whom the duty is owed) before an insider is permitted to agree to any form of participation in the bid (whether by subscribing for equity or otherwise). This consent could be obtained if the transaction was being effected by a scheme of arrangement and the scheme booklet disclosed fully the insider’s interests (though that would constitute ratification only and may leave the insider in a difficult position if the resolution is not passed). However, under this view, consent could not be obtained via acceptances of a takeover bid, nor could it be given by the board on behalf of the of a conflict (see Chan v Zacharia (1984) 154 CLR 178 and Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41). See generally chapter 9 of Austin and Ramsay, Ford’s Principles of Corporations Law (16th ed, LexisNexis, 2014). 22 This view is expressed by Young QC in a paper entitled “Conflicts of Interest in the Context of Private Equity Transactions” (Law Council of Australia, Business Law Section, Corporations Law Workshop, 21 July 2007). 23 Furs Ltd v Tomkies (1936) 54 CLR 583; Chan v Zacharia (1984) 154 CLR 178; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; Breen v Williams (1996) 186 CLR 71; and Warman International Ltd v Dwyer (1995) 182 CLR 544.

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shareholders unless there was some enabling provision in the target’s constitution. Failure to obtain that consent would lead to a breach of fiduciary duties and an obligation to account to the target’s shareholders for any profits that subsequently accrue to the insider from the transaction. Furthermore, where the insider’s conduct amounts to a breach of the relevant sections in the Corporations Act, no form of informed consent or ratification is available to approve or remedy the breach.24 Under the second view,25 however, where an independent board reaches the conclusion that the transaction and the insider’s involvement in it is in the interests of shareholders, board approval should be sufficient to resolve the insider’s conflict, provided that the insider is excluded from board consideration of the bid, and this remains the case even if the insider continues as an officer for the duration of the bid.26 In that instance, the statutory duties under ss 181–183 are arguably not breached as the actions of the insider, if done with the approval of the board, may not be “improper”. Irrespective of which of the two views is correct, it will be essential for the insider to disclose fully and frankly the details of any discussions they have had with the potential bidder and thereafter to take no part in any negotiation or deliberations on behalf of the target. The insider must not disclose confidential company information without the consent of the company. For this reason, early discussions must be limited to information which is already in the public domain. The Takeovers Panel has stated in Guidance Note 19: Insider Participation in Control Transactions that an insider should promptly inform the board of the target of any approaches which may lead to a change of control transaction.27 It does not cover the position where the insider is the instigator of the transaction. Presumably, in that case, the insider is best

24 Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 215 ALR 110; Forge v ASIC (2004) 213 ALR 574. 25 This view is expressed by Bathurst QC in “Conflicts of Interest for Target Executives in Responding to a Private Equity Bid”, in Austin and Tuch (eds), Private Equity and Corporate Control Transactions (Ross Parsons Centre of Commercial, Corporate and Taxation law, The University of Sydney, Monograph Series, 2007), p 81. 26 This view follows the decision in Queensland Mines v Hudson (1978) 18 ALR 1, where the board of a company consented to the managing director of the company taking up an opportunity involving a mining licence that came to him because of his position as managing director. The case may not be a true exception to the principle requiring shareholder approval, because the directors who consented were fully informed and were nominees of the only shareholders in the company, which was in effect an incorporated joint venture. 27 Guidance Note 19: Insider Participation in Control Transactions, [14]. The Guidance Note defines “insider” to cover any officer or adviser of the target company who is in a position to influence the target’s consideration of a bid or any person with significant non-public information about a target company obtained through the person’s role as an officer or adviser or a former officer or adviser: see, [10].

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advised to inform the board once any discussions with third parties have begun in earnest. Other steps the insider should take include: •

appointing, at the insider’s own cost, legal and any other necessary advisers who do not have any conflict in connection with the transaction;

•

assisting the company to implement any sale process which the target’s board chooses to conduct in response to or as an alternative to the bid, including making timely, full and accurate disclosure to the target board of any matters of which may be relevant in considering, implementing or making a recommendation regarding the bid or any alternative proposal;

•

where the board resolves to do so, providing the same level of target information to other potential purchasers or investors as may be provided to any potential partner in the bid; and

•

disclosing to the board any information known to the insider about the target but not known to the board, which might reasonably be expected to be material to a potential purchaser.

The perspective of the target [6.40.20] The task for the target may be no different from any other takeover bid if the public to private bid does not involve participation by any insiders. In practice, an initial key issue to be considered will be the duty to inform the ASX if an indicative approach is received: see 14.2. However, there are some issues that are special to public to private bid proposals. The key issue, where an insider is participating in the bid proposal, is the need for the target to establish procedures to ensure that the interests of shareholders are protected. Where a director of the target is not independent of the bidder, the main step will be to establish a committee of independent directors to deal with the proposed transaction. This course of action is recommended by the Takeovers Panel.28 The committee should only consist of directors of the target company who are unconnected with, and independent of, the management buy-out or bid team and who, preferably, will have no continuing role with the business. The typical role of the independent committee is to: •

establish information disclosure rules, access and protocols;29

28 Guidance Note 19: Insider Participation in Control Transactions, [16]. See also Note 4 on Rule 25.1 of the London City Code on Takeovers and Mergers for the UK equivalent. 29 See Guidance Note 19: Insider Participation in Control Transactions, [18]–[19] for a list of matters which may be included in such protocols.

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•

authorise and regulate management’s participation in the transaction (including limited waiver/release of confidentiality and other obligations in service agreements and deciding whether to stand down any executives while the bid is on foot);

•

negotiate the offer with bidder (and other potential acquirers) — in doing so, seek to maximise the likelihood of the bidder delivering an acceptable offer to shareholders as well as to determine and consider alternatives to the management buy-out;

•

generally, seek to limit the disruption to the business caused by the bid process;

•

ensure that the merits of any transaction are assessed by independent advisers to the extent necessary and, if the bidder decides to proceed, appoint an independent expert to provide a valuation to facilitate a recommendation concerning the proposal;30 and

•

if the bid proceeds, make a recommendation to shareholders and make appropriate announcements to ASX.

The existence of an independent committee does not relieve the participating insiders from their statutory and fiduciary duties. While the interested directors generally do not join the independent members of the board in making a recommendation to shareholders,31 they will generally remain responsible for the accuracy and completeness of any documents sent to shareholders. A key aspect of public to private transactions which may be affected by conflicts of interest is access to information concerning the target. Management has an inherent advantage in this respect in comparison with other bidders. They will have a better understanding of the business than anyone else, will have easy access to information which they can (subject to legal duties) provide to their advisers and financiers and can potentially restrict access to information or make access more difficult for counter bidders.32 The protocols established by the independent committee should manage the potential for issues to arise from selective disclosure by management. 30 Assuming there is no common director between the target and the bidder and the bidder does not already have voting power of 30% or more of the target, there is no legal requirement for an independent expert’s report to be provided to target shareholders: s 640 and [14.90]. Nevertheless, an independent expert’s report is likely to assist in facilitating board recommendation of the offer and in obtaining shareholder support for the offer. 31 Section 638(3) requires that a target’s statement contains a statement by each director of the target recommending that offers under the bid be accepted or not accepted (and giving reasons for the recommendation) or giving reasons why a recommendation is not made. In the case of a director who is participating in the bid vehicle, it is accepted practice for that director to state that they do not make a recommendation due to their position of conflict. 32 See the comments of Andrews, “Management Buyouts: An un-Australian Activity?” (1995) 5 AJCL 100, 111.

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There is no specific obligation on the target company to provide equal disclosure of information to rival bidders. The Takeovers Panel has considered the issue of equal access of information to rival bidders and decided there is no such principle or requirement in Ch 6.33 However, the Panel has cautioned that a bidder should have sound reasons for denying equal access and Guidance Note 19 makes clear that any reason for denying equal access will be closely scrutinised in the context of a transaction involving insiders.34 The perspective of the private equity firm [6.40.30] The private equity firm’s main concerns will include reaching a suitable agreement with management (if they are to participate), ensuring that the financing is well organised and seeking appropriate protection to guard against the consequences of the transaction not proceeding. Agreements with management

[6.40.30A] If management is participating in the bid, the arrangements with management will be crucial to the overall transaction. This would generally cover service contracts, equity participation and incentives arrangements if the acquisition proceeds. One initial issue that may arise is determining the point at which the bidder may be regarded as an associate of management for the purposes of Ch 6. This is important as difficult disclosure issues arise once a private equity firm becomes an associate of a person or persons (in this case, management) and the firm and management control in aggregate more than 5% of issued shares. If an association is formed, the private equity firm will need to lodge a substantial holder’s notice, which may lead to premature disclosure of the proposed transaction. To guard against this risk, it is critical to ensure that the parties remain independent of one another for as long as possible. In practice, it seems that a substantial holder’s notice is only lodged once the final agreements are executed and the transaction is announced, presumably on the basis that, until then, each party was not bound to the other.35 Other issues may arise under Ch 6 as a result of the agreement reached with management if management holds shares in the target. This may include a potential breach of the 20% rule in s 606 if the private equity firm and management control in aggregate over 20% of issued capital and the agreement gives the bidder control over the shares controlled by management, or either the bidder or management acquires additional shares. There may also be issues under the collateral benefits rule in s 623 or the Takeovers Panel’s Guidance Note 21: Collateral Benefits, under which

33 Goodman Fielder Limited 02 [2003] ATP 6; Guidance Note 19: Insider Participation in Control Transactions, [23]–[25]. 34 Guidance Note 19: Insider Participation in Control Transactions, [25]. Also see [8.50.60]. 35 See Pathak, “‘Public to Private’ Takeover Bids” (2003) 21 C&SLJ 295, 312.

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the Panel may declare unacceptable circumstances as a result of a benefit being given prior to the offer period: see 11.4. Accordingly, care should be taken to ensure that management understands the parameters of Ch 6 and that their actions may have ramifications for the terms of the bid. Once bid discussions are entered into, management should be advised not to buy or sell target securities to ensure they do not engage in insider trading, affect the pricing of the bid (under the minimum bid price rule in s 621) or otherwise engage in conduct which breaches the takeover provisions of the Corporations Act or which may result in the Takeovers Panel making a declaration of unacceptable circumstances.

Protection against a transaction not proceeding [6.40.30B] Any bidder will be concerned by possible risks and costs if the transaction does not eventuate. However, the additional complexities and risks involved in a public to private bid mean that private equity bidders are extremely sensitive to spending time and money on considering and implementing a takeover proposal where there is a significant risk that a successful acquisition will not be achieved. In this respect, a number of techniques can be used to reduce or minimise the risks. •

A private equity bidder will want to secure preferred bidder status, and, ideally, will want an exclusivity agreement before it invests significant resources in investigating, planning and implementing an acquisition: see 14.7 for a further discussion of these arrangements. This is typically a requirement specified in the indicative letter given to the target when the process commences.

•

The transaction costs risk of a private equity bidder will be greatly reduced if it can procure a commitment from the target to pay a break fee if the bid is not successful. Typically, a break fee will be designed to reimburse a bidder for reasonable due diligence (and other transaction) costs and to compensate the bidder for time devoted (eg, reasonable internal costs) to the transaction if the transaction does not complete in certain specified events. In line with Takeovers Panel guidance, break fees are generally capped at 1% in Australia: see 14.7.36

•

Due diligence will be necessary in the vast majority of private equity funded bids. The manner in which due diligence is structured can minimise transaction costs. For example, due diligence can be undertaken in stages. After each stage, the bidder recommits to its indicative bid price or revises the indicative bid in light of the due diligence undertaken. This allows for effective management of costs to

36 For a detailed discussion on various aspects of break fees see Mannolini and Rich, “Break Fee Agreements in Takeovers” (2001) 19 C&SLJ 222. In Ausdoc Group Limited [2002] ATP 9 [40], the Panel rejected a suggestion that the 1% limit should be relaxed in favour of a private equity buyer.

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broadly correspond with the degree of completion certainty. For a further discussion of due diligence matters, see 5.3. A practical aspect for a private equity bidder is to identify the due diligence requirements of the debt providers early in the transaction in order to ensure that its own due diligence covers these requirements and so avoid the need to conduct supplementary due diligence (and incur greater expense) to satisfy its financier’s needs at a later point in time. •

A further way of improving the position of the private equity firm, to insure against being overbid, and possibly to make a small profit if a higher rival bid is successful, is for the private equity bidder to acquire an initial stake in the target before launching any bid, perhaps by way of a pre-bid acceptance agreement: see 7.1–7.3. In acquiring such a springboard, the bidder needs to watch the 5% (substantial holding) and 20% (s 606) thresholds, and the minimum bid price rule in s 621(3).

•

The bidder will wish to keep a tight control on the process and manage the transaction effectively to ensure costs are controlled. In particular, the private equity bidder should ensure early identification of the requirements of debt providers, including security package issues (which may give rise to financial assistance issues) and conditions to financing.37 Further, the private equity bidder should ensure the arrangements with management are agreed at an early stage in the process. Surprises later on in the transaction process may increase costs and even derail the transaction. These issues will require the parties to agree on detailed term sheets early in the process. Formal documentation for management and the equity providers (including subscription agreements and shareholders agreements) should ideally be agreed before the bid is made. However, as a practical matter, they are often not agreed until a later date and the parties will need to be wary of any association being formed.38

•

One of the key decisions in structuring a public to private takeover is whether to proceed by an off market takeover bid or by a scheme of arrangement under s 411. Often the added complexities (including the need to reach agreement with lenders and management) lead the parties to proceed by scheme of arrangement where the various pre-conditions and matters can be managed on a more predictable

37 The bidder may also wish to ascertain the debt provider’s view on the waiver of bid conditions. While a leveraged bid may require a bidder to obtain 100% of the target company, in some cases it may be necessary to waive the minimum acceptance condition of 90% and make the bid unconditional before institutional shareholders and arbitrageurs accept the bid and allow the 90% threshold for compulsory acquisition to be reached. 38 See [8.50.50] and Goodman Fielder Ltd 01 [2003] ATP 1.

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timeline: see 5.4 for a discussion on schemes of arrangement and the advantages and disadvantages of proceeding by a scheme.

Financing [6.40.30C] The arrangements with lenders or debt financiers will also be vital to the success of a public to private takeover. Aside from takeover-related issues, the highly leveraged nature of these transactions alone will give rise to a number of complex commercial issues, for example, structural subordination between senior, mezzanine and junior finance, syndication and security issues, which are beyond the scope of this book. A private equity bidder will need to have some assurance as to the terms of its debt funding before it proceeds. Ideally, this will mean having a binding agreement with its financiers. However, time constraints and practicalities may mean that the bidder only has a term sheet at the time it announces a takeover bid. In any case, even if the bidder has a binding agreement for the debt finance, drawdown of the funds will be subject to a number of conditions. These matters give rise to some issues under takeover laws, namely: •

the extent to which a bidder must be certain that it will be able to fund a bid at the time it announces a bid. Unlike in the UK, there is no “certain funds“ requirement in Australia, although there may be issues under s 631–see 7.6;

•

the financing-related conditions which a bidder may attach to its bid: see [8.50.50]; and

•

the extent of disclosure in the bidder’s statement of the availability and terms of the debt finance: see [9.30.50].

A financier may arguably become an associate of the bid vehicle and of management if the financing arrangements contain extensive conditions that will give the financier some control over the conduct of the target’s business or over its issued shares once the transaction is effected. As with the position with management, this may have unwanted disclosure consequences, though probably only to the extent that it is an issue for the private equity firm.

Chapter 7

Pre-bid Activity [7.10] 7.1 Buying an initial stake . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 [7.20] 7.2 Equity derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 [7.30] 7.3 Pre-bid acquisition and acceptance agreements and shareholder intention statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 [7.40] 7.4 Negotiating with a major shareholder . . . . . . . . . . . . . . . . . . . . . . . . 149 [7.50] 7.5 Approaching the target . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151 [7.60] 7.6 Announcing the bid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153

7.1 Buying an initial stake [7.10] Once the target is identified and the preferred overall structure to effect the acquisition is determined, the bidder faces a number of decisions in the immediate period before launching the bid. This chapter considers bidder strategy in accumulating a pre-bid stake and in approaching major shareholders in the target as well as the target itself. How these matters are handled can be critical in shaping the ultimate success or failure of any proposed takeover. A threshold question for the bidder is whether to commence buying shares in the target before announcing the bid. The bidder can, of course, acquire up to 20% of the voting shares in the company before contravening s 606.1 There are several advantages in acquiring an initial stake: •

Usually, before a takeover bid is announced, a bidder can acquire shares at a lower price than might be possible once the bid has been announced.

•

By acquiring shares before a bid is announced, a bidder can build a strategic stake which can deter others from making a bid. The stake will give the bidder a strong hand in any dealing with the target company if the bidder wishes to propose a friendly transaction.

•

Once a large stake has been amassed, the bidder may be one of the largest, if not the largest, shareholder in the company and it could lead to an invitation being made for a nominee to be appointed to the board of directors. This by itself may give the bidder a sufficient level of influence over the target company’s direction so as to obviate the

1

In this chapter, for brevity it is assumed that the bidder has no pre-existing voting power over target shares. References to its being able to acquire up to 20% should be adjusted if the bidder already has some voting power.

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need for making a formal bid. It would also put the bidder in an excellent position to assess the company in greater detail and factor any further information into its considerations. There may be countervailing reasons not to go on the target board, including assuming the additional duties on a director to avoid a conflict of interest, inability to trade in target securities because of insider trading, complications that arise for disclosure in the bidder’s statement and the need for the target to commission an independent expert’s report under s 640: see 6.2 and [9.30.130]. •

The acquisition of a large shareholding can be significant in potentially blocking any resolutions that the target’s board of directors may submit to a general meeting as a defensive manoeuvre once the bid has been announced, such as the sale of the main undertaking of the company, a change to the company’s constitution, or a proposal for a scheme of arrangement.

•

A purchase of an initial significant stake (up to 19.9%) from a controlling shareholder will establish that shareholder’s selling price.

•

If the bidder becomes a shareholder, it will have sufficient standing if it becomes necessary to bring any legal action to restrain any defensive measures taken by the directors which it considers are not in the interests of the company as a whole.

However, there are other considerations which must be weighed up when contemplating embarking on a program of pre-bid share acquisitions. •

Any share acquisitions could have the effect of forcing up the stock market price of the target’s shares (especially if there is a lack of liquidity in the target’s shares). This may reduce the attractiveness of the bid to the target’s shareholders as they may perceive the final bid price to be at a smaller premium to the market price than would otherwise have been the case. Any such perception may have to be addressed in the bidder’s statement.

•

Any significant activity in the target’s shares may alert the target that a large shareholding is being amassed and that a takeover bid may be imminent. The share acquisitions may lead to the bidder’s presence on the register being noticed by the target company directors and by the market generally, which could have the effect of further increasing the market price to the disadvantage of the bidder. In order to preserve maximum secrecy of the acquisitions, a bidder can acquire shares in the name of one or more nominees. In an unlisted company, it is possible to buy some time by delaying the submission of share transfers for registration, but, in the meantime, the bidder should ensure that it will have power to vote the shares at any general meetings by receiving a voting authority or proxy from the vendor. The use of nominees and other intermediaries will, of course, not be effective to prevent the bidder from being uncovered if a listed target

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issues notices to the registered shareholders under s 672A seeking disclosure of the persons who have a relevant interest in the shares in question: see 16.2. Also, once the bidder controls 5% of the voting shares in a listed target, it will be required to lodge a substantial shareholding notice disclosing its interest: s 671B and see further 15.3. These disclosure rules do not apply to the acquisition of non-voting shares and securities which are not shares, such as options to subscribe for shares and convertible notes. •

If the bidder acquires a large parcel of shares and the bid is unsuccessful without being overbid, the bidder may have incurred significant costs which cannot be fully recovered by selling the shares.

•

Any price paid (or agreed to be paid) by the bidder or an associate for shares will set a floor for the eventual price under any offer made during the next four months: s 621(3), discussed in [8.40.30]. Therefore, if the bidder has to pay a high price for a strategic stake, that price will have to be offered to all shareholders unless the bidder is prepared to delay dispatching the offers for more than four months so that the rule ceases to operate.

As an alternative to buying an initial holding of shares, a bidder may also consider entering into an equity derivative or a pre-bid acquisition or acceptance agreement. These are considered in the next sections.

7.2 Equity derivatives [7.20] A cash-settled equity swap, contract for differences or some other long equity derivative in relation to the target’s shares may give the bidder an economic exposure to the target’s shares without necessarily incurring the risks of actually buying the shares, but also without the rights which go with owning them. In essence, a cash-settled equity swap or other long equity derivative is a contract referenced to an underlying parcel of shares pursuant to which the investor or “taker” gives or receives cash payments from the swap counterparty or “writer” equal to the decrease or increase in the underlying share price between the date of the agreement and the maturity of the swap. In return, the taker agrees to pay a fixed return to the writer by way of a financing charge. Ordinarily, the writer of the swap will hedge its position by acquiring the underlying shares, so that its economic return is equal to the financing charge. However, this need not be the case and the writer may take an unhedged or partially hedged position. The advantages for a bidder entering into a long equity derivative rather than buying an initial stake are threefold: •

there may be less downside risk and expense associated with closing out a derivative than in selling a large parcel of shares, if the bid does not proceed or is unsuccessful (though ultimately if the writer of the swap has hedged its position, the cost of unwinding the hedge may be to the account of the bidder);

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•

the upfront cost of entering into a derivative is generally much less than the cost of buying the shares. It may allow the bidder to effectively lock in the price of a pre-bid stake and hedge against target share price rises at a lower cost than buying the physical shares; and

•

a derivative may, to a large degree, preserve the secrecy of the bidder’s interest in the target. A properly structured cash-settled equity swap or other derivative, which can only be settled in cash, will not give the taker of the derivative control over the voting or the disposal of any underlying shares which the writer acquires to hedge its position and need not create an association between the taker (that is, the bidder) and the writer.2 Therefore, a potential bidder who has entered into a derivative may not be uncovered by a tracing notice served on the writer3.

Following a series of Takeovers Panel cases4 and the issue of Takeovers Panel Guidance Note 20: Equity Derivatives, the Panel will expect that, where there is a “control transaction”, any long position5 which already exists, or which is created, will be disclosed unless it is below 5%6 (the level at which a substantial holding notice would be required in relation to the holding of physical stock). For this purpose, a “control transaction” commences when: •

a proposal that is likely to affect control or potential control has been announced;

•

an acquisition of a substantial interest occurs; or

•

a proposed acquisition of a substantial interest is announced.7

The Panel considers adequate disclosure of an equity derivative should enable the market to fully understand the nature of the taker’s long 2

Takeovers Panel Guidance Note 20: Equity Derivatives, [25] and [33]. ASIC deferred taking a general policy position on this issue, pending the Government’s response to Mr Medcraft’s suggestion mentioned below in this section: ASIC Report 350: Response to submissions on CP 193 Takeovers, compulsory acquisitions and substantial holdings, [10].

3

There have been moves over the years to amend the substantial holder notice requirements to require disclosure of derivatives, including a suggestion made by the Chairman of ASIC, Mr Greg Medcraft in July 2012. At the time of writing, no such recommendation has been accepted by the Government.

4

Austral Coal Ltd 02 [2005] ATP 13; Austral Coal Ltd 02R [2005] ATP 16; and Austral Coal Ltd 02RR [2005] ATP 20.

5

For this purpose, a long position is the aggregate of a person’s voting power and any long equity-derivative position, whether or not the writer’s position is hedged, with no offset for any short equity-derivative position.

6

Takeovers Panel Guidance Note 20: Equity Derivatives, [9]. The percentage should be calculated as if s 671B applied and the bidder had a relevant interest in the reference parcel for the equity derivative: offsetting short positions are not netted off.

7

Takeovers Panel Guidance Note 20: Equity Derivatives, [6] and [10]. A substantial interest is any parcel of securities the acquisition of which, in the circumstances, constitutes a step along the way to control.

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position. This may require disclosure of the reference (or strike) price, entry date, number of relevant shares, type of derivative and any short equity-derivative position that offsets a long position. The Panel generally expects the long position to be disclosed at the same time as a corresponding substantial holding notice would be required to be lodged.8 The Panel does not consider that a derivative which does not confer a relevant interest should be disclosed in a formal substantial holder notice. It should be disclosed by a note annexed to a substantial holding notice where one is required because of a person’s voting power or otherwise by written notice to the target.9 The Guidance Note makes clear that any bidder who enters into a long equity derivative relating to 5% or more of a target company risks a declaration of unacceptable circumstances if it does not disclose the entry into such contract, once the bid is announced. The Guidance Note does not consider if the reference (or strike) price for any derivative will set a floor for the eventual price under any offer made during the next four months, as would be the case under s 621(3) if the target’s shares were purchased: see [8.40.30]. However, there would be a significant risk that the Panel would consider such a floor to have been set if such a case came before it.10 Unfortunately, the Guidance Note leaves some issues undecided. It appears to require a person to disclose an existing long position of 5% or more when that person or anyone else announces a proposed control transaction, and to disclose changes to that long position at 1% increments while the control transaction is current. It is less clear, however, on whether one person should disclose a long position when another person makes an acquisition which may be thought substantial, or announces that they propose to do so. Nor does it mention how a person should deal with a long equity derivative position entered into by an associate of that person. It also states (at [26(a)], compare [43]) that a substantial holding notice may be misleading if it does not disclose a long derivative position held by the person giving the notice: if this is insisted on, it should make no difference whether or not a control transaction is under way. While the secrecy benefits of equity derivatives may have diminished, the cost advantages still make derivatives an attractive proposition for bidders.

8

Takeovers Panel Guidance Note 20: Equity Derivatives, [39]–[42] where the Panel notes that the entry into an equity derivative may be multi-staged, where the writer of the derivative offers firm exposure progressively, as it is in a position to hedge the exposure. The taker should disclose the increasing exposure in 1% increments.

9

See Takeovers Panel Guidance Note 20: Equity Derivatives, [35]–[42] generally.

10 This is the position taken in the UK under the equivalent rule in the City Code on Takeovers and Mergers. In Normandy Mining Limited 06 [2001] ATP 32 [13]–[14], the Panel said that the minimum bid price might be derived by adding together the strike price and the exercise price of an option to acquire bid class securities which had been settled by delivery, but was not considering a cash-settled swap.

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7.3 Pre-bid acquisition and acceptance agreements and shareholder intention statements [7.30] Another way to build a platform before launching a bid is to seek an agreement from one or more significant shareholders that they will sell their shares, or will agree to accept the bid, if the bidder launches a takeover bid within a short period of time, say the next two business days. This gives the bidder the comfort of knowing that the shares are committed to the bid and may minimise some of the risks of purchasing a large holding without knowing whether the bid will be successful. The agreement can also be structured to protect the shareholders from the risk that a firm sale of their shares may involve, namely, missing out on a higher bid that emerges subsequently. In devising any such agreement, the bidder must ensure it does not breach the prohibition against certain escalator agreements in s 622. Essentially, this may be attracted if the price payable for the shares may increase with the price paid by the purchaser under a subsequent takeover bid. These arrangements were thought to be unfair11 and the law was amended in 1986 to outlaw escalators in connection with a takeover bid. The prohibition against escalators under s 622 prohibits a bidder giving or agreeing to give an additional benefit to a person from whom it buys shares before making a bid.12 It applies to their respective associates. The rule applies where a person acquires a relevant interest in bid class securities in the six months before a bid is announced or made and there is a relevant agreement between the bidder and the person who previously had a relevant interest in the securities for a price adjustment to be made (up or down) by reference to the bid consideration.13 Breach of the prohibition is an offence and any agreement is void to the extent it contravenes the prohibition.14 The prohibition does not outlaw escalator agreements generally. A person who is not associated with a bidder may offer an escalator in a share acquisition, even if the escalator is calculated by reference to a takeover bid. Furthermore, the prohibition does not apply if the benefit is not calculated by reference to the price under a takeover bid made by the buyer but some other factor (such as movements in a share price index or 11 Because they led to unequal access to benefits accruing under a partial bid. 12 For background to the prohibition, see Companies and Securities Law Review Committee, Report on Partial Takeover Bids (August 1985), [74]–[77]; Vaux, “Escalator Arrangements: Is It the End?” (1986) 4 C&SLJ 199. For examples of escalator agreements, see RACV Investment Co Ltd v Silbury Pty Ltd (1986) 13 ACLR 555 and Chase Securities Ltd v GSH Finance Ltd [1989] 1 NZLR 481. 13 ASIC has granted a modification of this provision to permit a shareholder to agree to rebate a portion of the consideration it receives under the bid in order to allow the takeover to deliver a fixed price to the shareholder and a potentially higher price to other (minority) shareholders. 14 Breach is punishable by a fine of $2,750 or six months’ jail or both: s 1311, Sch 3, item 178 and s 622(2).

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commodity prices or a third party’s bid price) or where the increase is a fixed amount. Nor does it apply if the benefit is calculated by reference to a price paid for control of the target under a transaction other than a takeover bid (for example, pursuant to a scheme of arrangement, selective reduction of capital or acquisition approved by shareholders under s 611, item 7). Attempts to avoid the prohibition which rely on fine distinctions may, however, lead to an application to the Takeovers Panel for a declaration of unacceptable circumstances (see 21.2), though the Panel has not shown any enthusiasm to restrict shareholders selling their shares on the basis of potentially sharing in any upside from a full bid.15 In light of the escalator prohibition in s 622, it has become common for pre-bid agreements to be structured to allow the shareholder to benefit from any higher price offered by the bidder by drafting the agreement as merely an agreement to accept the bid (instead of selling the shares firm).16 This leaves open the possibility of the shareholder benefiting from any subsequent increase in the bid price due to the statutory escalator in s 650B.17 This is not regarded as breaching s 622 as the benefit received by the shareholder is derived from the acceptance of the bid, not from the agreement.18 This agreement, often referred to as a “pre-bid acceptance agreement”, gives the bidder a relevant interest in the shares the subject of the agreement and, therefore, to avoid breaching s 606, the shares must be less than 20% of voting shares in the target. To protect the shareholder, the agreement is typically conditioned on a takeover bid being announced on certain terms within a short period of time (say, two business days). In addition, the agreement may entitle the shareholder to terminate its obligation to accept in the event that the bid does not proceed in an orderly manner (such as the offers are not dispatched or do not become unconditional within a specified time frame). It may also be subject to termination if a higher rival bid is made which is

15 In Goldlink IncomePlus Ltd 02 [2008] ATP 19 [11], the Panel declined to conduct proceedings on an alleged escalator, on the basis that the equality principle was not offended, because the vendor of the relevant shares would not receive consideration additional to that offered under the bid. This reasoning is extraordinary, since the bid in question was proportional. 16 Examples are discussed in Advance Property Fund [2000] ATP 7 and Alpha Healthcare Ltd [2001] ATP 13. A derivation of the usual undertaking to accept a bid if made within a short period is an undertaking to accept the bid if a bid already on foot is increased: see Vision Systems Ltd 01 [2006] ATP 32. 17 As a commitment to accept, or make, a bid is not a “purchase”, the minimum bid price rule in s 621(3) would not apply to the price specified. This may be important if the bid consideration involves scrip consideration, the value of which may fluctuate: see discussion at [8.40.30]. 18 Savage Resources Ltd v Pasminco Investments Pty Ltd (1998) 30 ACSR 1.

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not matched by the original bidder within a short period of time (say, five business days).19 A variation on this model is an agreement whereby the shareholder agrees to sell shares to the bidder, but on terms that the agreement terminates if the bid is not made within a certain period, if the shareholder accepts the bid (which may be on more favourable conditions, and is generally capable of being improved) or if a higher rival bid is made and not matched.20 Settlement under the agreement would be delayed until the bid has had time to play out. This model may be preferable if the shareholder is precluded by investment mandates from entering into a “derivative”. Pre-bid acquisition and acceptance agreements have been considered by the Takeovers Panel without attracting criticism, presumably on the basis that all shareholders have an equal opportunity to participate in the benefits eventually delivered under the bid. The Panel’s benign attitude may be put to the test if the shareholder receives the benefit of early payment, while still retaining the possibility of additional payments.21 Often, in addition to, or instead of, a pre-bid acquisition or acceptance agreement a bidder may seek a statement from a key shareholder that it will accept a takeover once made. This will give the bidder comfort that, if it makes a bid, it is likely to have the support of the shareholder involved. These statements have become more prevalent in recent years. Under the “truth in takeovers rule” (discussed in 11.7), once the shareholder’s statement is made public, the shareholder is treated as bound by the statement, so some degree of care must be taken by the bidder and the shareholder. A few points about this type of statement can be made: •

There is a risk that the statement may evidence an agreement or understanding between the bidder and the shareholder, which confers a relevant interest on the bidder. This was taken to be the case in MYOB Ltd [2008] ATP 27, where the bidder arranged equivalent statements from three key shareholders, who held an aggregate of 34% on the issued shares in the target, to each accept the bid at an early stage. The statements, which the shareholders agreed would appear prominently in public documents, were not qualified to cease operating if a superior bid emerged. The Panel considered the statements reflected commitments to accept the bid which constituted a relevant interest in breach of the 20% rule in s 606 and considered

19 See Lionsgate Australia Pty Ltd v Macquarie Private Portfolio Management Ltd (2007) 62 ACSR 522 for an example of a pre-bid acceptance agreement. In that example, the agreement included a termination right in the event of a “higher offer”. Barrett J held that the announcement of a scheme of arrangement proposal at a higher price was not a “higher offer” and therefore the shareholder could not exercise the termination right. 20 An example is contained in Savage Resources Ltd v Pasminco Investments Pty Ltd (1998) 30 ACSR 1. The Panel considered such a clause in Vision Systems Ltd 01 [2006] ATP 32. 21 Sagasco Amadeus Pty Ltd v Magellan Petroleum Australia Ltd [1993] HCA 14; 177 CLR 508 [16].

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they had the effect of inhibiting an efficient, competitive and informed market. •

If the statement relates to more than 20% of shares (counting any other shares in which the bidder has a relevant interest), the statement should be qualified by there being “no superior offer made for the company” or it will risk a declaration of unacceptable circumstances.22

•

If a statement is qualified by reference to there being no superior proposal, it is likely to give rise to unacceptable circumstances if the shareholder accepts before allowing a reasonable time to pass for a superior proposal to emerge. The amount of time required will depend on the circumstances, but generally the Panel will consider a reasonable time to be 21 days after the offer has opened.23

•

The Panel expects details of the shareholder’s holding to be disclosed in number and percentage terms.

•

A statement aggregating the intentions of multiple shareholders can be made, but it must break down the individual holdings of each shareholder. The Panel expects that each of them will have consented to being named and included in the statement.24

7.4 Negotiating with a major shareholder [7.40] Before launching a bid, or during the offer period, it is acceptable for a bidder to have discussions with a significant shareholder with a view to ascertaining the likelihood of that shareholder accepting a bid. Where the discussions are conducted between investment bankers or others with a professional understanding of the consequences of reaching an illegal agreement, the courts will require proof going beyond merely suspicious circumstances before deciding that a breach has occurred.25 There are, however, a number of rules which should be followed to avoid a breach of the legislation which could adversely affect the takeover bid. •

It is imperative to ensure that no agreement or understanding is reached to the effect that the shareholder will sell its shares to the bidder if the shares represent more than 20% of voting shares in the target company. Such an agreement would be illegal as it would give the bidder a relevant interest in more than 20% of the target in breach of s 606.

22 Takeovers Panel Guidance Note 23: Shareholder Intention Statements [10(b)]. 23 Takeovers Panel Guidance Note 23: Shareholder Intention Statements [10(c)]. 24 Takeovers Panel Guidance Note 23: Shareholder Intention Statements, [11]. See also Bullabulling Gold Ltd [2014] ATP 8, which related to aggregated statements that shareholders would reject a bid. 25 ICAL Ltd v County Natwest Securities Australia Ltd (1988) 13 ACLR 129, 156 per Bryson J; Corebell Pty Ltd v New Zealand Insurance Co Ltd (1988) 13 ACLR 349.

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•

For the same reason, the bidder must not obtain an undertaking that the holder of more than 20% of the voting shares in the target will deal exclusively with the bidder regarding the shares in target: the undertaking would give the bidder a degree of control over shareholder’s shares sufficient to constitute a relevant interest.

•

It is acceptable to discuss the business of the target, including value which should be placed on its shares, the prices at which shareholder might be inclined to sell and the prices at which bidder might be inclined to offer, provided no agreement understanding results.

the the the or

It is permissible for the bidder to say: At what price would you accept an offer?

The classic formulation of what the shareholder may say runs along the following lines: If you were to offer $per share, our inclination, in the absence of any higher bid, would be to accept the offer.26

•

It would be acceptable for the shareholder to agree to sell up to 19.9% of the target to the bidder27 and to publicly announce that, in the absence of any higher offer, it would intend to accept a bid for the balance of its shares made at the same price. The critical factor is to ensure that the shareholder is not bound to accept an offer for more than 19.9%. The announcement by the shareholder should expressly make this point.

•

As mentioned, escalation agreements are outlawed: see 7.3. Thus, if the bidder buys an initial stake from the shareholder, it cannot do so on terms which require a subsequent upward price adjustment.

•

The bidder could, at the time of any initial share purchase, undertake to announce publicly that it will make a takeover bid at a certain price. The shareholder should be able to take some comfort from such an announcement as s 631 would then require the bidder to proceed with its bid within two months in the absence of unforeseen circumstances: see [7.60.20]. There is no equivalent statutory compulsion on a shareholder who announces it intends to sell to go through with the sale, but, if a public announcement is made the shareholder may risk an action by ASIC under its truth in takeovers policy28 or a declaration of

26 Similar considerations may apply to discussing an increase to the bid price with a major shareholder. 27 A holder of more than 20% can agree to accept a bid for less than that number: Sedimentary Holdings Ltd [2006] ATP 24. It would be sensible for the sale documentation to be abundantly clear that the bidder acquires no rights over the remainder of the seller’s holding. 28 See 11.7 and ASIC Regulatory Guide 25: Takeovers: false and misleading statements, RG 25.29. In BreakFree Ltd 04R [2003] ATP 42 [64], the Panel indicated willingness to extend

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unacceptable circumstances being made by the Takeover Panel. Therefore, if possible, an undertaking from the shareholder to make such an announcement should be sought.29 •

A final point to bear in mind is that it may be necessary for a bidder to disclose in the bidder’s statement any relevant agreements or statements of intention to accept which result from pre-bid discussions it has had with a major shareholder on the grounds that those discussions represent information material to other shareholders in determining whether or not to accept the bid. This is especially the case where the intentions of the major shareholder will affect whether any conditions of the bid will be satisfied.

7.5 Approaching the target [7.50] The majority of takeover bids are preceded by an initial, usually informal, approach to the target company, generally via its chairman. This may be motivated by a desire to maintain cordial relations, but usually the approach is made to see if there is any prospect of the takeover being recommended by the directors of the target. A favourable recommendation is extremely valuable for the bidder because it generally means the target will be co-operative and may allow some form of due diligence exercise to be carried out which will assist the bidder in launching the bid.30 A favourable recommendation will also assist in the progress of the bid by encouraging shareholders to accept an offer and may tend to discourage rival bidders. In making an approach it is important to do so in a way that will maintain the confidentiality of the proposed bid. ASX Listing Rule 3.1 obliges a company to inform the stock exchange once an entity is or becomes aware of price-sensitive information. This would generally cover an intention to make a takeover offer. The requirement to disclose information to the stock exchange will not apply where the information is confidential and concerns an incomplete proposal or negotiation: ASX Listing Rule 3.1A.3. Therefore, disclosure may be delayed while confidential discussions are continuing, but only to the stage when it is obvious that the bidder has

the truth in takeovers policy to announcements by shareholders of their intentions whether to accept a bid, but in MYOB Ltd [2008] ATP 27 and Ambassador Oil and Gas Ltd 01 [2014] ATP 14 Panels were concerned that firm pre-commitments were being disguised under truth in takeovers announcements. 29 Similar considerations may apply where a bidder is considering an increase in the bid price and is in discussions with a target shareholder to determine at what point they may accept. 30 Any material information obtained from the target must be carefully disclosed in the bidder’s statement before any shares are purchased to avoid the risk of insider trading and to comply with disclosure requirements.

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formed the requisite intention and the discussions remaining are concerned only with detail not bearing on whether a bid will be made. In addition, if confidentiality is lost (which may be revealed by rumours of a bid emerging or the target’s share price starting to move), the exception in ASX Listing Rule 3.1A would no longer apply and disclosure of the approach would be required.31 If it is sufficiently definite, such an approach may trigger the restrictions on share issues in ASX Listing Rule 7.9 (see 7.6) and the Panel’s frustrating action policy.32 A letter indicating that a takeover bid is merely being considered does not trigger ASX Listing Rule 7.9 as it does not amount to notice of an actual or proposed bid.33 It may also not amount to a genuine potential bid for the purposes of the frustrating action policy, particularly if it is conditional on board recommendation or is to be implemented by scheme of arrangement.34 This may be contrasted to a genuine offer setting out key terms, such as price and principal conditions, even though the letter is expressed to be non-binding, indicative and incomplete. One tactic used occasionally is for the bidder to approach the target and state, privately or publicly, that, if it receives a favourable recommendation (usually within a very short time frame), it will make a takeover bid.35 This is known as a “bear hug” and is designed to put maximum pressure on the directors of the target. If they fail to recommend, they may leave themselves open to criticism that they have denied shareholders an opportunity to sell their shares into a takeover bid. Nevertheless, if a serious effort is made to reach a position to be able to meet any deadline imposed by the bidder, it is unlikely the directors could be held liable if they fail to reach a decision or reject the approach. A potential disadvantage of using this tactic is that the initial approach may give the target more time to develop a defensive strategy against a subsequent bid. If the bid does not eventuate, it would seem that no disclosure obligation would arise for the target, but the target may choose to disclose the discussions to put pressure on the bidder or to make it clear its reasons for rejecting the approach and avoid any criticism that it had not been transparent.

31 See also 14.2 for discussion of duties on the target upon receipt of an informal approach. 32 See 14.5, Takeovers Panel Guidance Note 12: Frustrating Action; and MacarthurCook Ltd [2008] ATP 20. See also ASIC Regulatory Guide 59: Announcing and withdrawing takeover bids, RG 59.12; and Skywest Ltd 01 [2004] ATP 10 [47]–[52], on s 631. 33 Residues Treatment and Trading Co Ltd v Southern Resources Ltd (1988) 14 ACLR 375. 34 MacarthurCook Ltd [2008] ATP 20; Takeovers Panel Guidance Note 12, footnote 9, citing Transurban Group [2008] ATP 5. 35 An early example appears in Heron International Ltd v Lord Grade [1983] BCLC 244. The Panel declined to compel targets to respond to bear hugs in Macarthur Coal Ltd [2010] ATP 3; and Transurban Group [2010] ATP 5.

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Usually, if a recommendation is forthcoming, the parties will execute a takeover bid implementation agreement,36 the takeover will be announced jointly and, if there is a scrip consideration involved, the takeover may be called a “merger”. The bidder’s and target’s statements would generally be sent to shareholders together.

7.6 Announcing the bid [7.60] The announcement of a bid and its timing can be critical in affecting the outcome of a bid. If the announcement coincides with the target’s announcement of its own results, it may limit the responses open to the target company. Another tactical advantage may arise from announcing the bid on the eve of a holiday period so as to limit the ability of the target to respond or to announce at a time which puts pressure on a major shareholder to accept before a balance date requires it to record a profit or a loss on its holding. One advantage that arises for the bidder in announcing the bid is that, if the target is listed on the ASX, the target becomes prohibited (without the approval of ordinary shareholders) under ASX Listing Rule 7.9 from issuing shares or securities which may convert into shares for three months except within five exceptions. The exceptions are: •

where the issue is made under an existing dividend or distribution plan;

•

where the issue is pro-rata to all shareholders (other than preference shareholders);

•

where the issue was previously announced;

•

where the issue is pursuant to conversion of existing convertible securities; and

•

where the issue is made as consideration under a takeover bid made by the target itself.

It has been suggested that a notice can be given on a confidential basis which triggers the operation of the restrictions, but this seems a dangerous course of action for the bidder as the target is obliged to announce price-sensitive information immediately, which would normally include a proposed takeover bid: ASX Listing Rule 3.1 (see 7.5). That would also raise questions under s 631, discussed below at [7.60.10]. A letter indicating that a takeover bid is being considered does not trigger the restrictions in ASX Listing Rule 7.9: see 7.5.

36 This agreement would usually cover the terms of the bid (price and conditions); timing of announcement; terms of recommendation; early dispatch of bidder’s statement; exclusivity and break fees; transition arrangements; and general co-operation about the bid. See Wattyl Ltd [2006] ATP 11 [82]–[84] where sharing of information about the target businesses (subject to an exception for commercially sensitive information) with the bidder during the period which the offer was open was found to be not unacceptable.

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False or bluffing bids [7.60.10] The Corporations Act strictly regulates the announcement of takeover bids in order to minimise uncertainty and possible market manipulation which may arise if a bid is falsely announced. The intent is to allow shareholders and investors to act on statements with confidence that persons who make statements to the market will follow through with what they have announced. Accordingly, a person must not publicly propose (either alone or with others) to make a takeover bid if: (1) the person knows the proposed bid will not be made, or is reckless as to whether the proposed bid is made: s 631(2)(a); or (2) the person is reckless as to whether they will be able to perform their obligations relating to the takeover bid if a substantial proportion of the offers under the bid are accepted: s 631(2)(b). “Publicly propose” is not defined. However, on the basis that it should take its meaning from the context and purpose of the prohibition, it would seem to cover any communication made to another person or persons in circumstances where the other person would, or could reasonably be expected to, disseminate the information to others who may be influenced by it.37 This would include giving a letter containing a complete and firm takeover bid proposal to a listed company which would then be obliged to disclose the letter to the stock exchange,38 notice to the stock exchange39 and delivery of a bidder’s statement to the stock exchange.40 It seems unlikely to extend to communication of an incomplete proposal which is not sufficiently definite and which is given in confidence.41 The Panel considers that this is one of the fundamental principles in Australian takeovers regulation and has said that it will take action to prevent, or repair the effect of, statements or actions which detract from that policy intention, whether they were deliberate or inadvertent.42 Consistently with that view, it formerly took the view that a person is reckless in breach of s 631(2)(b) if they do not have a reasonable basis to expect that they will have sufficient funding to satisfy full acceptance of offers when the bid becomes unconditional43 or if they do

37 See s 52 of the Act (a reference to doing an act or thing includes a reference to causing the act or thing to be done); and ASIC v Narain [2008] FCAFC 120. A similar approach is taken by ASIC: see ASIC Regulatory Guide 59: Announcing and withdrawing takeover bids. 38 Australian Securities Commission v Mt Burgess Gold Mining Co Ltd (1994) 15 ACSR 714. 39 BT Australia Ltd v Bell Brothers Pty Ltd (1981) 6 ACLR 138. 40 TNT Australia Pty Ltd v Normandy Resources NL (1989) 1 ACSR 1. 41 ASIC Regulatory Guide 59: Announcing and withdrawing takeover bids, RG 59.18; and see Skywest Ltd 01 [2004] ATP 10 [47]–[52], contrasted with Australian Securities Commission v Mt Burgess Gold Mining Co Ltd [1994] 15 ACSR 714. 42 See Brisbane Broncos Ltd 03 [2002] ATP 3 [39]–[41]. 43 Pinnacle VRB Ltd 04 [2001] ATP 7; Pinnacle VRB Ltd 06 [2001] ATP 11; Indophil Resources NL [2008] ATP 18; Austock Group Ltd [2012] ATP 12 [42]–[64]. Takeovers Panel Guidance Note 14: Funding Arrangements, 14.6.

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not reasonably assess the likelihood of a particular pre-condition to making the bid being satisfied, such as whether a due diligence condition will be satisfied44 or whether any regulatory or other third-party consent will be forthcoming. In Realestate.com.au Ltd [2001] ATP 1, the bidder was regarded by the Takeovers Panel as being reckless by announcing a bid when it was aware of a real possibility that it would not proceed with a bid it had announced. The public announcement had implied that the due diligence proposed would be satisfactory. This created a false market in the target’s shares. The Panel said that, in general, it is preferable that no announcement of a takeover bid is made until the bidder has made a firm and unconditional decision to proceed. If it is necessary to make an early announcement to avoid a speculative market, the announcement should not overstate the likelihood of the bid being made. It should sufficiently caution the reader about any uncertainty.45 In Australian Securities and Investments Commission v Mariner Corporation Ltd, however, Beach J held that “reckless” in s 631(2)(b) (which creates a criminal offence) has much the same meaning as in criminal law, and imposes a subjective test, that (a) the bidder be aware of a substantial risk that it will be unable to fund purchases under its bid, and (b) having regard to the circumstances known to the bidder, it is unjustifiable to take that risk.46 (Even on this view, whether the risk is unjustifiable is a partly objective test.) Since this decision was handed down, the Panel has re-issued its policy, acknowledging the court’s construction of the section, but re-affirming its policy of requiring a bidder to have reasonable grounds for believing it can pay for shares for which it receives acceptances, as necessary to satisfy s 602.47 Accordingly, the standard the Panel imposes is higher than the standard required by s 631(2)(b) and closer to the standard formerly applied by the Corporations Law and the Companies (Acquisition of Shares) Act 1981 and Codes. In assessing whether a person is able to perform his or her obligations under a bid, the Panel may review all sources of cash and the terms of their

44 Realestate.com.au Ltd [2001] ATP 1. 45 ASIC Regulatory Guide 59: Announcing and withdrawing takeover bids, RG 59.22 says that s 631 is not avoided by expressing the intention to bid in qualified language (such as an intention to bid if a certain event occurs). This appears to be too broad and is not required by the policy of the legislation. It is inconsistent with Realestate.com.au Ltd [2001] ATP 1 and with RG 59.7. Market practice includes conditional announcements of bids (with appropriate warnings about the risk of the bid not eventuating). 46 [2015] FCA 589 [248]–[279]. This case was an application by ASIC for disqualification orders against directors of the bidder in Austock Group Ltd [2012] ATP 12 for breaches of s 631 in respect of that bid, in which the directors gave the court much fuller evidence than they had given the Panel. 47 Guidance Note 14: Funding Arrangements, third issue 26 November 2015. See also Goodman Fielder Ltd 01 [2003] ATP 1 [59].

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availability,48 or in the case of a scrip bid, whether the bidder has power under its constitution to issue the securities offered under the bid.49 Where a person contravenes s 631, under s 1325A(1) the court may make any order it considers appropriate, which could include an order to pay compensation or setting aside post-announcement transactions. If the announcement also constituted misleading or deceptive conduct in breach of s 1041H, it could lead to similar orders under s 1041I or s 1101B.50 Failing to proceed with a bid [7.60.20] If a person publicly proposes to make a takeover bid, the person must make (that is, send) offers under the bid within two months.51 The terms and conditions of the offers must be the same or not substantially less favourable than those in the public proposal: s 631(1).52 The terms of the announcement are critical in determining whether there is a breach. The Panel has said that it considers that an initial announcement of an intention to make a takeover does not require all details of payment mechanisms and related matters to be disclosed. However, any bidder who omits a material condition or qualification of any part of its proposed bid runs a material risk of its initial announcement being misleading by omission and risks contravening s 631.53 If a bid is announced without mention of conditions, a conditional bid will constitute a breach of the prohibition. If a bid is announced in very general terms, it seems that, as a minimum, the eventual bid must be one which could result in the bidder acquiring voting power in excess of 20% of the 48 Taipan Resources NL 04 [2000] ATP 16. See Takeovers Panel Guidance Note 14: Funding Arrangements; and see also Goodman Fielder Ltd 01 [2003] ATP 01 where it was sufficient for the bidder, in a highly leveraged transaction, to have lending commitment letters at the time of announcement (as opposed to fully settled and signed loan agreements). The Panel declined to make premature inquiries into whether a bidder could fund its bid in Indophil Resources NL [2008] ATP 18. This should be contrasted with the position in the UK where a bidder effectively needs to have committed funding before it announces a takeover: see Rule 24.7 of the City Code on Takeovers and Mergers. 49 Colonial First State 03 [2002] ATP 17; NewSat Limited [2009] ATP 20. 50 Australian Securities Commission v Mt Burgess Gold Mining Co Ltd (1994) 15 ACSR 714. 51 ASIC has granted modifications of s 631 to extend the two-month period. See BreakFree Ltd 03 [2003] ATP 38, where ASIC granted a modification allowing a short extension to the two-month period in the context of a bidder and target negotiating amendments to a bidder’s statement prior to its dispatch to target shareholders. ASIC has also given relief to allow a transaction to proceed by scheme of arrangement instead of Ch 6 bid. 52 See Brisbane Broncos Ltd 01 and 02 [2002] ATP 1 [13]–[22]; and Brisbane Broncos Ltd 03 [2002] ATP 3 [39]–[41]. See also SSH Medical Ltd [2003] ATP 32; and InterMet Resources Ltd [2008] ATP 17 [27]. 53 See Patrick Corporation Ltd [2005] ATP 17 [28]; BC Iron Ltd [2011] ATP 6 [24]–[34]; InterMet Resources Ltd [2008] ATP 17 [27]–[31]; Volante Group Ltd 01 [2006] ATP 2; Austock Group Ltd [2012] ATP 12 [37]–[41]. The addition of a prescribed occurrences condition is probably acceptable: SSH Medical Ltd [2003] ATP 32 [46]; Boral Energy Resources Ltd v TU Australia (Queensland) Pty Ltd (1998) 28 ACSR 1, 34; ASIC Regulatory Guide 59: Announcing and withdrawing takeover bids, [59.37] and [59.57].

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target’s shares.54 A bid with fewer conditions than announced would be acceptable.55 In TNT Australia Pty Ltd v Normandy Resources NL (1989) 1 ACSR 1, consideration under the offer as originally announced included an issue of redeemable preference shares which could, in certain events, be redeemed for cash or exchanged for another share. With prior NCSC approval, the eventual offer omitted the cash redemption possibility. The Full Court of the South Australian Supreme Court decided, by a majority, that this was an offer “substantially less favourable”56 than the offer announced. The court, however, excused the contravention. In Goodman Fielder Ltd 03 [2003] ATP 14, the Panel rejected an argument that the inability of a bidder to finalise its financing within two months of the announcement of a bid (which had been made but which was conditional on finance) was a breach of the actual terms, or spirit, of s 631.57 In doing so, the Panel noted that many takeover offers are open and remain subject to many conditions for more than two months. Defences [7.60.30] A person is not liable for failing to proceed with an announced bid if it is proved that the person could not reasonably have been expected to make the bid as a result of: (1) circumstances that existed when the announcement was made but of which the person had no knowledge and could not reasonably have been expected58 to have knowledge: s 670F(a); or (2) a change in circumstances after the announcement was made other than a change caused directly or indirectly by the person: s 670F(b).59 Whether a given change in circumstances is sufficient is often contentious. If the announcement included conditions and a condition is breached or cannot reasonably be satisfied, that may provide sufficient grounds.

54 BT Australia Ltd v Bell Brothers Pty Ltd (1981) 6 ACLR 138, 142 per Mitchell ACJ, rejecting an argument that a bid for 10% of remaining shares may be sufficient. 55 See also Colortone Holdings Ltd v Calsil Ltd [1965] VR 129. 56 TNT Australia Pty Ltd v Normandy Resources NL (1989) 1 ACSR 1, 27 per O’Loughlin J. 57 Contrast Consolidated Minerals Ltd 03 [2007] ATP 26; and Consolidated Minerals Ltd 03R [2007] ATP 28, where the bidder’s exposure was unlimited, and Taipan Resources NL 10 [2001] ATP 5, where the bidder had no firm arrangements to fund the bid. 58 This imports a need for the bidder to make reasonable enquiries and endeavours to protect themselves before announcing a bid: Brisbane Broncos Ltd 03 [2002] ATP 3. 59 The policy and cases are discussed in Brisbane Broncos Ltd 01 and 02 [2002] ATP 1 [12]–[22]. In Selwyn Mines Ltd [2003] ATP 33, after a bid was announced, the target’s assets were sold to a third party. In BreakFree Ltd 04 [2003] ATP 39; and BreakFree Ltd 04R [2003] ATP 42 the Panel and the Review Panel rejected the bidder’s argument that it could rely on s 670F and not proceed with a scrip bid, partly because it had delayed for four weeks.

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ASIC has suggested60 that the following events, which may make the bid illegal, futile or significantly more financially burdensome, could be sufficient: •

it becoming impossible to satisfy a condition;

•

a court order prohibiting the bid;

•

a rival bid proceeding on significantly better terms;

•

action by the target company which effects a material alteration in the target company, such as an unusual and substantial dividend or distribution, a substantial increase in issued capital or the disposal of the whole or a substantial part of its assets or undertaking;61 and

•

a significant change in the market price of securities of the target company or the bidder.

On the other hand, self-induced changes (such as entering into a standstill agreement)62 or re-evaluation of factors in existence at the time of the announcement (such as government regulation, financial capacity of the bidder or prevailing economic factors) may be insufficient to make out the defence.63 The prudent course is to discuss the matter with ASIC. In BreakFree Ltd 04 [2003] ATP 39 and BreakFree Ltd 04R [2003] ATP 42, the bidder sought not to proceed with a scrip bid purportedly on the basis of certain statements made by the target to the effect that it had surveyed a number of target shareholders who had said they would not be accepting the bid and, as a result, the minimum acceptance condition could not be satisfied. The Panel did not accept the reasons advanced by the bidder as the bidder should not have relied on the statement made by the target about the surveyed shareholders as the statement was not reliable, the bidder waited 26 days before seeking to rely on the statements attributed to the surveyed shareholders, and the bidder only withdrew the scrip bid

60 ASIC Regulatory Guide 59: Announcing and withdrawing takeover bids. In addition to this list, many of the prescribed occurrences mentioned in s 652C (but not all of them) would so alter the nature of the bid as to make it unreasonable to require the bidder to proceed, whether or not the announcement mentioned, or the bidder was entitled to add, a defeating condition that no prescribed occurrences take place. For instance, a share split could make a bid at a stated price per share much more expensive, without making the target any more valuable. 61 In Quancorp Pty Ltd v MacDonald (1997) 15 ACLC 1415, after a bid was announced, the target announced it would distribute its only asset to its shareholders. This was a sufficient change in circumstance. The Panel might now restrain such an action as frustrating the bid. The facts in Selwyn Mines Ltd [2003] ATP 33 are similar, except that the assets were sold by receivers. 62 BT Australia Ltd v Bell Brothers Pty Ltd (1981) 6 ACLR 138. 63 In SSH Medical Ltd [2003] ATP 32 [47], the Panel pointed out that the addition of a narrowly drafted condition that a named regulatory body not intervene may not offend against s 631(1), as the regulator has the power to intervene anyway. See also Austock Group Ltd [2012] ATP 12 [40], raising the issue whether announcing the bid without mentioning the need to obtain regulatory clearances offends against s 631(2).

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once it was in a position to make a cash bid. Accordingly, the Panel made a declaration of unacceptable circumstances in relation to the failure to proceed with the scrip bid and the delay in announcing that it would not so proceed. In SSH Medical Ltd [2003] ATP 32, the target alleged unacceptable circumstances had arisen as a result of the bidder including conditions in its bidder’s statement which were not in the announcement of the bid and of certain deficiencies in the bidder’s statement. The target sought that the bidder be prohibited from dispatching the bidder’s statement. The target and the bidder attempted to resolve matters between themselves, following which the bidder withdrew its bid (and the target consented to its withdrawal). The Panel was not convinced that the bidder met the standard required by s 670F. However, as the application related to the restraining of dispatch, no application had been made for an order that the bid proceed on terms announced and the withdrawal of the bid followed negotiations in good faith with the target, the Panel did not object to the bid being withdrawn. It is likely that, if a subsequent clearly superior bid emerges, it would be unreasonable to require an earlier bid to proceed and effectively require the first bidder to become an underwriter for the second bidder should the second bidder decide to sell down any shares received under its bid.64 However, to minimise this risk, the first bidder should plainly state its objectives in announcing its bid (namely that it may not proceed if a higher bid emerges or if it does not reach a specified minimum acceptance level), particularly if there is already a larger shareholder on the target’s register with a shareholding close to control. Penalties [7.60.40] A failure to proceed with an announced bid in breach of s 631 of the Corporations Act is a criminal offence. The penalty for a breach of s 631(1) is $18,000 or two years’ jail or both. The penalty for a breach of s 631(2) is $36,000 or five years’ jail or both.65 If a body corporate is in breach, the maximum penalty is a fine of five times that which would apply to an individual: s 1312. The person may also be liable to pay compensation to any person who suffered loss as a result of entering into a transaction in reliance on the public announcement: s 670E(2). A similar order could be made under s 1041I if the announcement constituted misleading or deceptive conduct within the prohibition in s 1041H. The compensation will equal the difference between the share price at which the transaction was conducted and the price it would have been conducted in the absence of the

64 Brisbane Broncos Ltd 03 [2002] ATP 3. This decision was “on balance” and may be contrasted with the different conclusion reached by the Panel at first instance in Brisbane Broncos Ltd 01 [2002] ATP 1. 65 Corporations Act 2001, Schedule 3, items 182 and 183, and Crimes Act 1914, s 4AA.

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announcement: s 670E(2). The general power of the court on the application of any person affected by the relevant conduct under s 1324(2) to order a person to do an act which that person has failed to do does not apply to a contravention of s 631(1): s 631(3). However, ASIC may seek a court order under s 1325B and a private litigant may still apply to the Takeovers Panel for an order that the person proceed with the bid.66 In addition, an order is possible under s 1325A(1) or s 1101B to enable a person to set aside any transaction entered into in reliance on a false bid.67

66 Brisbane Broncos Ltd 03 [2002] ATP 3. See also BreakFree Ltd 04 [2003] ATP 39; and BreakFree Ltd 04R [2003] ATP 42, where the Panel made a declaration of unacceptable circumstances but did not make an order requiring the bidder to proceed with a scrip offer. This was because it was considered impracticable to do so as the bidder and target had been in dispute for many weeks as to alleged deficiencies in a scrip bidder’s statement and that dispute was not resolved (and the subject of a separate Panel application). Therefore, the Panel considered that it could not be sure that the scrip bidder’s statement was in a form which could be dispatched in the short term. In any case, the bidder was separately proceeding with an all-cash offer. 67 Australian Securities Commission v Mt Burgess Gold Mining Co Ltd (1994) 15 ACSR 714.

Chapter 8

Terms of the Offer [8.10] [8.20] [8.30] [8.40] [8.50] [8.60] [8.70] [8.80]

8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8

Framing the terms of the offer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 Securities to which the offer relates . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 Off-market or market bid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 Consideration and financing aspects . . . . . . . . . . . . . . . . . . . . . . . . . . 168 Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178 Uniform offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190 Miscellaneous terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191 Form of acceptance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192

8.1 Framing the terms of the offer [8.10] This chapter deals with the terms of the offer. The offer itself provides the foundation for the contract of sale of the shares under the bid and must be prepared with this in mind. It also provides a convenient framework in which to examine how a bid can be framed so as to best achieve the bidder’s objective.

8.2 Securities to which the offer relates [8.20] The first question for a bidder is: which securities will be subject to the bid? If the target has on issue various classes of securities, such as ordinary shares, preference shares, options and convertible notes, a bidder seeking full control may have to bid for each class of securities.1 The Corporations Act permits a bid to be made for “securities”, which is defined to cover shares, debentures, interests in managed investment schemes and options to acquire any of those things (whether by transfer or issue): s 92(3).2 This rule was introduced in March 2000 and has the important practical effect that it permits a successful bidder to compulsorily acquire such securities. Previously, without the ability to

1

Alternatively, if a bidder obtains 100% of the ordinary shares, it may be able to compulsorily acquire the other securities under the general compulsory acquisition power: see 18.2.

2

See Anaconda Nickel Ltd 01–19 [2003] ATP 2, 4, 6–13, 15, 17, 18, 20 which is a series of cases arising from a takeover bid for the rights issued under a rights issue. Care needs to be taken when dealing with “performance rights” issued to employees as they often create an automatic obligation to issue new shares. As such, they may not constitute “options” as neither the holder nor the company has a right to elect whether the shares are issued. ASIC relief may be required if a bid is to be made for them under Ch 6.

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invoke the post-takeover compulsory acquisition provisions, this was far more difficult.3 There are a number of rules that affect how a bidder can proceed in framing the bid. Single class of securities [8.20.10] An off-market bid must relate to only one class of securities: s 617(1)(a). This rule is intended to reduce undue complexity of the offer document. If securities are not divided into two or more classes, all issued securities are regarded as a single class. The term “class” is not fully defined in the legislation.4 It has been held that “class”, when used in relation to shares, refers to “a category of shares which differs sufficiently in respect of rights, benefits, disabilities, or other incidents, as to make it distinguishable from any other category of shares, if there are any, in the capital structure of the company”.5 Therefore, groups of securities which have special rights or disadvantages must be treated as separate classes. Consequently, partly paid employee shares were held to constitute a different class from ordinary shares as, until fully paid, they differed in respect of voting rights, dividend rights, liability to calls and transferability. A single takeover offer covering both classes was therefore invalid. ASIC has stated6 that it will generally act on the view that two shares are included in the same class of shares only where they are effectively interchangeable, that is to say, where: (1) precisely the same rights, obligations and incidents are attached to them; or (2) any differences in rights, obligations or other incidents are temporary and can be compensated by a simple and certain adjustment in cash. This approach is consistent with s 605(2) which provides that securities are not taken to be different classes merely because some are fully paid and others are partly paid or different amounts are paid up or remain unpaid. Furthermore, s 619(2) contemplates that securities having different accrued dividend entitlements or on which different amounts are

3

ASIC v DB Management Pty Ltd [2000] HCA 7; 199 CLR 321. This used to be a reason for preferring schemes of arrangement to take over a target with a complex capital structure.

4

Section 605(2), which is discussed below, partially defines the concept.

5

Clements Marshall Consolidated Ltd v ENT Ltd (1988) 13 ACLR 90, 93 per Neasey J, dealing with similar previous provisions, approved in TNT Australia Pty Ltd v Normandy Resources NL (1989) 15 ACLR 99, 108 per Jacobs J. Although cases dealing with classes for schemes of arrangement must be viewed with caution in this context as they are concerned primarily with classes of members, rather than classes of shares, see Wattyl Ltd [2010] FCA 854 [15]–[16] per Stone J.

6

ASIC Regulatory Guide 9: Takeover bids, RG 9.46–RG 9.50.

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paid up may be in the same class.7 ASIC considers that classes of shares are distinguished only by differences in rights and obligations arising from the issuing company’s constituent documents and the terms of issue of the shares in question. Other differences in the rights exercisable by shareholders are not differences between classes of shares, even if, for some purposes, they distinguish classes of shareholders. Restrictions on vendor shares held in escrow or the inability of a subsidiary to vote shares it holds in its parent should accordingly be disregarded.8 Dealing with multiple classes [8.20.20] A bidder wishing to bid for two classes of security in a target may either make two bids, one for each class, or seek ASIC relief to make one bid for all of those securities. If it makes two bids, the bidder must satisfy the requirements of s 661A in respect of each class to compulsorily acquire remaining securities in that class, but, if it makes one bid, the bidder may acquire remaining securities in both classes on the basis of aggregated acceptances for the two classes. If the bidder makes two bids, it must comply with the procedural and substantive requirements for each bid as if it were a standalone bid. It seems that no relief is required to provide one bidder’s statement covering both bids, though the statement needs to comply with s 636 as it applies to each of the bids. In particular, the terms of each bid should be set out separately, to avoid confusing or misleading offerees. Similarly, one notice with details about both bids may satisfy both requirements for notices under s 630. Although each bid must comply with s 621 (minimum bid price), there is no requirement that the prices under the two bids must be related in any way. Either bid may be conditional on the level of acceptances for the other bid, as well as on acceptances for that bid itself, but the Panel may find that such a condition is unacceptable because it conflicts with the policy of s 623 (collateral inducements) if one bid is decidedly more attractive than the other.9 ASIC will grant relief on certain conditions to allow one offer to be made for shares which differ because some are fully paid and others are partly paid, as if they were one class of shares.10 Given that the relief allows one sort of shares to be compulsorily acquired because of the level of acceptances for the other sort, the relief will only be given where holders

7

Despite these rules, if, in fact, partly paid shares have a different commercial nature or value from fully paid shares in the same company, they may well constitute different classes: Taipan Resources NL 11 [2001] ATP 16.

8

For an example of restrictions on shares held by a controlled entity being disregarded for this purpose, see Arrow Taxi Services Ltd [2007] ATP 11.

9

Before 2000, relief from the predecessor of s 623 was required to make offers to people who held shares in both classes, which may have constituted offers of collateral benefits, but s 623(3)(c) now makes such relief unnecessary. A cross-condition may nonetheless be unacceptable in particular circumstances, because of its tendency to induce acceptances.

10 ASIC Regulatory Guide 9: Takeover bids, RG 9.105–RG 9.119.

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of the two sorts of share will have a community of interest, and the main condition imposed by ASIC is that the offer terms must be equitable as between the fully paid and partly paid shares. ASIC envisages that this will be achieved by appropriately differentiating the considerations offered for the two sorts of shares, having regard to the respective rights and obligations attached to each sort. Issued and unissued securities [8.20.30] Offers under an off-market bid must relate to the securities in the bid class on issue on the date specified by the bidder under s 633(2), which must be on or after the date on which the bidder’s statement is given to the target, but on or before the date of the offers.11 The offers need not relate to securities issued during the offer period, but the bidder can extend the bid to securities issued after the date set by the bidder to determine to whom offers should be sent if the issue is pursuant to the conversion of existing convertible securities, such as options and convertible notes: s 617(1)(b).12 This is the standard practice if 100% of the target is required.13 If it extends the bid in this way, the bidder must send a copy of the offer to each holder of convertible securities, and may require the target to provide a list of the holders: ss 622(1) and 641(1)(a)(ii). Section 617(1)(b) does not cover securities issued during the bid otherwise than pursuant to the conversion of existing securities (for example, pursuant to an agreement with a third party, pursuant to a scrip bid made by the target itself, under an employee share plan or under a scheme of arrangement).14 In order to extend the bid to those securities, an ASIC modification is required.15 A market bid, by contrast, extends to all securities in the bid class which exist at any time while the bid is open.16

11 This is the date as at which the target must provide a snapshot of the register to the bidder: s 641. 12 For a discussion of the policy behind s 617 see Anaconda Nickel Ltd 08 [2003] ATP 9 and Anaconda Nickel Ltd 09 [2003] ATP 10 where the Panel rejected an argument that s 617 was only applicable for issues of convertible securities in small proportions. ASIC has modified s 617(2) to broaden the definition of “convertible securities” and apply it to securities issued between the s 633(2) date and the opening of the bid: ASIC Regulatory Guide 9: Takeover bids, RG 9.54–9.57, Class Orders [CO 13/520] and [CO 13/521], and 19.3. 13 With sufficient acceptances, however, the bidder can compulsorily acquire bid class securities issued during the bid period, even if the bid does not extend to them: s 661A(4) and [17.20]. 14 Taipan Resources NL 07 [2001] ATP 18. 15 ASIC Regulatory Guide 9: Takeover bids, RG 9.51–RG 9.63. 16 Section 617(3): see 12.4.

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Full and partial offers [8.20.40] Although a market bid must be a full bid (s 618(3)), the bidder under an off-market bid may elect whether to bid for all shares or only some of the shares in a particular class.17 The choice is fairly limited as the only type of partial bid now permitted is one where the offers relate to a proportion of the shares held and the proportion is the same in each offer: s 618(1).18 If a proportional offer is made for shares in a listed company and an offeree would be left holding less than a marketable parcel of shares after acceptance, the offer and the acceptance are deemed to include that parcel: s 618(2).19 A proportional offer cannot be converted into a full offer by variation under Pt 6.6.20 One disadvantage of a proportional bid is that the bidder has limited control over the number of bid class shares it will acquire, which could be anything from any minimum acceptance threshold to the percentage specified in its offers. A bidder could seek to acquire a specific shareholding by making a full or proportional bid and, at the same time, agreeing with a stockbroker or underwriter that they will take any shares over its preferred level,21 by a scheme of arrangement or by an equal capital reduction followed by a placement. Further disadvantages of a proportional bid is that the bidder is unable to purchase on-market during the bid beyond the 20% threshold (see 11.2), and that a bidder may only compulsorily acquire remaining shares after a full bid (see 17.2). If the constitution of the target company contains takeover approval provisions under ss 648D to 648H of the Corporations Act (see 13.3), and a

17 It is permissible to bid for “all or any lesser number” of shares: Brickworks Ltd 02 [2000] ATP 08. 18 Pro-rata takeover offers, where the bidder offers to acquire up to a certain proportion of total issued capital and to return shares pro-rata if that proportion is exceeded, are no longer permitted. These were thought to create uncertainty for offerees: see the Companies and Securities Law Reform Committee report on Partial Takeover Bids (August 1985) and the Companies and Securities Legislation Amendment Act 1986 (Cth). A tender offer for up to 19.9% of shares may involve proration if acceptances are received for more than 19.9%: see [5.10]. 19 In GoldLink Income Plus Ltd 04 [2009] ATP 2 and GoldLink Income Plus Ltd 04R [2009] ATP 3, a shareholder sought to exploit this rule by splitting its holding into smaller parcels and accepting the bid for the whole of each of those parcels. The Panel directed the bidder to purchase only the relevant proportion of the shares in those parcels, but not residual odd lots. ASIC has now modified s 618(2) to similar effect by class order: ASIC Regulatory Guide 9: Takeover bids, RG 9.85–RG 9.91 and Class Order [CO 13/521]. 20 Albert v Votraint No 320 Pty Ltd (1987) 13 ACLR 336, 345–46 per Marks J. ASIC can modify Pt 6.6 to allow such a variation, but the bidder’s obligations under such a modification would be extensive. 21 An arrangement of this kind was considered in Augold NL v Yaramin Pty Ltd (1987) 5 ACLC 295. Such an arrangement can give rise to disclosure issues relating to the underwriting arrangements (also see 19.9) and regulatory restrictions relating to sell-downs by controllers (s 707(2), (3) and (5)) and by bidders: s 654A.

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resolution to approve a proportional bid is put and rejected, that bid closes immediately and all acceptances of it are rescinded. Any proportional bid for such a company should be conditional on a resolution approving the bid being passed or deemed to be passed. A particular problem in a proportional takeover scheme is the so-called “multiplier effect”. This occurs when an offeree accepts for part of his or her holding and sells the balance to a person who then accepts for his or her holding and so on. This effectively increases the number of shares acquired by the bidder in excess of the proportion subject to the bid. Section 653B(1) prevents this by modifying the general rule that that a person may accept a bid as if an offer had been made to them in respect of securities to which they can give title, on the same terms as each other offer under the bid. If a person accepts a proportional bid in respect of a parcel of securities, no one else may accept an offer under the bid in respect of the same parcel. If the original offeree sold part of his or her holding before accepting the offer, under s 653B, he or she may only accept the bid as if an offer had been made in respect of the securities he or she retains. In that event, the original offeree and the purchaser can each accept in respect of the specified proportion of the shares retained and sold, respectively.22

8.3 Off-market or market bid [8.30] A bid under Ch 6 may be structured as a market bid, if the target company is listed and the bid class securities are quoted.23 Unlike an off-market bid, a market bid must be an unconditional offer to acquire all securities in the bid class for cash. It is effected by an announcement made on behalf of the bidder by a stockbroker to the effect that for a specified period the stockbroker will stand in the market to acquire bid class securities at a specified price.24 The offers can only be accepted by brokers selling securities on behalf of target security-holders in accordance with stock exchange rules. The decision whether to proceed by an off-market bid or a market bid depends on the key differences between the two types of bids, as follows. (a) An off-market bidder has a good deal of freedom in framing the offers so as to appeal to the target’s shareholders, and the offers are generally easier for retail shareholders to accept than offers under a market bid, which must be accepted on the stock exchange. (b) Under an off-market bid, the bidder may offer cash, securities or other property as consideration. Under a market bid, only cash may be

22 The Australian Stock Exchange has special procedures for quoting shares in companies subject to a proportional takeover offer: see ASX Listing Rules Guidance Note 18: Market Codes and Trading Procedures, [8]. 23 Chapter 12 deals with market bids. 24 The procedure is set out in ss 634 and 635. Except where noted in the text, the substantive requirements are the same for both types of bid.

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offered as consideration: s 621(2).25 Under an off-market bid, an increase in the price offered is effective for all accepting offerees, even those who have already accepted, whereas under a market bid, a price increase only applies prospectively.26 (c) An off-market bid can be in respect of all or a proportion of the shares in a particular class. A market bid must be in respect of all shares in the class: s 618(3). (d) An off-market bid may be subject to various conditions (subject to limits discussed in 8.5). If the bid is full and subject only to “prescribed occurrence” conditions,27 the bidder will still be able to purchase shares on-market. Although a market bid must be unconditional, if a prescribed occurrence occurs, the bidder may be able to withdraw offers under the bid which have not yet been accepted: s 652C.28 (e) A bidder under a market bid can start acquiring shares above the 20% threshold on market as soon as trading resumes after the bid is announced. The bidder under an off-market bid may not acquire shares on market unless the bid is a full bid for cash29 and is unconditional or conditional only on prescribed occurrences, and only once the bidder’s statement has been served.30 (f) A market bid will put more pressure on the target company as the formal response in the target’s statement must be given within 14 days of the announcement. Under an off-market bid, the formal response can be delayed until 15 days after the takeover documents have been dispatched to shareholders (a minimum of 14 days after the bidder’s statement is served). (g) The bidder would incur no brokerage under an off-market bid, except for on-market purchases. Under a market bid, brokerage will be payable by both the bidder and sellers.

25 The requirement that the consideration offered must be worth at least as much as any consideration given for shares in the bid class over the previous four months applies in both cases: see [8.40.30] and 12.6. 26 Similarly, a price increase does not extend to shareholders who previously sold to the bidder on-market during an off-market bid. 27 For discussion of “prescribed occurrence” conditions, see [8.50.20]. 28 This possibility means that a market bid can attract the Takeovers Panel’s frustrating action policy if the target undertakes an action that may entitle the bidder to withdraw the bid: see Takeovers Panel Guidance Note 12: Frustrating Action, [3]. 29 More precisely, unless the bid already offers such a cash amount, s 651A will vary it to add a cash alternative consideration equal to the highest price paid on market. 30 Section 611(1), item 2, and “bid period” in s 9. In general, s 623 prevents a bidder or associate from acquiring bid class securities off-market during a bid, except by acceptances of the off-market bid, even where the acquisition would not contravene s 606, for example, because the bidder has less than 20% voting power.

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(h) Payment of the consideration under an off-market bid may generally be delayed for up to one month after the date of acceptance or 21 days after the offer closes. Under a market bid, payment will be required as for other on-market purchases (usually two business days after the purchase). A bidder may not proceed simultaneously with an off-market bid and a market bid for the same class of securities. Although s 623 disregards on-market transactions in considering if a collateral benefit has been offered to offerees under the off-market bid, the off-market bid may constitute an offer of benefits to shareholders which are not offered under the market bid.31 Most takeover bids in Australia are initiated as off-market bids.

8.4 Consideration and financing aspects [8.40] Consideration offered under an off-market bid may be cash, securities (for example, ordinary shares, converting preference shares or loan notes), other property of value or a mix of any such consideration.32 Alternative considerations (such as cash or shares) may be offered. Although it is usually a fixed amount, it may be determined by a formula (such as one dependent on the market price of the bidder’s shares).33 It may include shares in a subsidiary of the target which owns a particular asset.34 Form of consideration [8.40.10] The decision as to which form of consideration to offer depends on the circumstances affecting the bidder and what may be attractive to the shareholders in the target. Some factors that should be considered include the following: •

A cash offer will generally provide the most powerful form of bid, especially where it is thought that a significant proportion of target shareholders want to realise their investment.

31 Section 623(3)(b) and (c) respectively disregard an on-market transaction and simultaneous bids for different classes of securities. ASIC has on occasion given an exemption to allow simultaneous off-market and market bids for the same class. Even an off-market bid under which the only consideration is a cash amount equal to the bid price under a market bid offers benefits not available under the market bid: the opportunity to sell free of brokerage, and an increased price if the off-market bid price is increased. 32 See the note in the next section. 33 See, for example, GIO Australia Holdings Ltd v AMP Insurance Investment Holdings Pty Ltd (1998) 28 ACSR 584. 34 See, for example, Email Ltd 03 [2000] ATP 5; and Brickworks Ltd 02 [2000] ATP 8. In preparing announcements and bidder’s statements, care needs to be taken to ensure that target shareholders are not misled as to the source of any consideration under a bid and any other payments which may be procured by a bidder following a bid. See Patrick Corporation Ltd 01 [2005] ATP 17, where the bidder’s announcement of its takeover bid referred to target shareholders receiving, among other payments, an in-specie distribution of shares in a subsidiary of the target should the bid be successful.

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•

The consideration under a market bid must be cash: s 621(2).

•

If the bidder under an off-market bid is to buy bid class securities on market, it must offer cash, at least as an alternative consideration.

•

If a cash offer would require borrowings which would increase the bidder’s gearing to an unacceptable level, a bidder could undertake a capital raising in conjunction with the bid. This can be made by a placement as the restriction against a listed company issuing more than 15% of shares in a 12-month period in ASX Listing Rule 7.1 does not apply to shares issued to fund cash consideration required for a takeover bid: see ASX Listing Rule 7.2, exception 6. If shares are issued to, or underwritten by, a person who is a shareholder in the target, care must be taken to avoid a contravention of the rule against giving a collateral benefit outside the takeover scheme: s 623; see 11.4.

•

A scrip bid may be attractive where the target shareholders are interested in participating in future growth of the target through its ownership by the bidder.35 However, a scrip bid will raise additional disclosure requirements in the bidder’s statement (which may leave it more open to challenge in a contested bid) and may alter the control of the bidder itself if a large enough number of shares are issued.

•

An offer of scrip consideration may enable accepting shareholders to get the benefit of scrip-for-scrip rollover relief from capital gains tax. This may be valuable as it will defer the taxing point of a disposal of the shares in the target. This relief is available if, as a result of the bid, the bidder becomes the owner of 80% of shares in the target.

•

A scrip bid may be unattractive for existing major shareholders of the bidder if they do not want to have their existing percentage shareholding and level of control of the bidder diluted by shares being issued to target shareholders.

•

The bidder needs to be comfortable with the effect the acquisition is likely to have on its own share price during and after the bid (including the effect issuing scrip may have on the bidder’s earnings per share). The bidder should review or suspend any capital management initiatives which are in progress. The Panel has said that bidders should be careful to avoid capital management activities which might give the impression that the bidder was seeking to affect the perceived value of securities offered as consideration under a bid.36 In addition, where the bid may have an effect on the bidder’s share price, to avoid any concerns under the insider trading

35 To enhance the attractiveness of the scrip, the offer may be coupled with a right for accepting shareholders to apply for additional shares at a discount to the market price. In order to introduce such a feature, ASIC relief is required to avoid the separate prospectus requirements and to overcome an argument that the top-up right may be an unequal collateral benefit if not offered pro-rata to all target shareholders. 36 See Nexus Energy Ltd 02 [2006] ATP 25 [45] where the bidder announced an issue of bonus options to its shareholders during an offer period.

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provisions, it may be necessary to suspend any buy-back program while the bid is in contemplation until the bid is announced.37 •

A controlling shareholder of the bidder needs to be careful about buying shares in the bidder during the offer period (even if to make up for any dilution of its percentage shareholding caused by a scrip bid) if doing so may create a false or misleading impression as to the value of the scrip offered under a takeover bid.38

•

Where a bidder offers alternative or mixed cash and scrip considerations, the offer may provide for the bidder to scale back the cash or the scrip if a large number of target shareholders elect for one option (though, in that case, care needs to be taken to comply with the payment timing rules in s 620(2) or to obtain an ASIC modification).39

•

Special forms of securities, such as preference shares, debentures and convertible notes, can give the bidder greater control over its financing of the bid. However, they can be difficult to explain to target shareholders and that can slow the rate of acceptances. They may also require amendments to the constitution of the bidder (or, in the case of debentures or loan notes, a trust deed and a trustee) which may lead to tactical disadvantages.

•

It may not be possible to use as consideration a debenture or note which provides automatically for an additional payment equal to the price of a higher rival bid. Such a note was determined by the Panel in Consolidated Minerals Ltd 03 [2007] ATP 25 and Consolidated Minerals Ltd 03R [2007] ATP 28 to be anti-competitive, inhibiting of an auction process and contrary to the legislative policy underlying the Corporations Act provisions on variations of offers and, therefore, amounted to unacceptable circumstances. In that instance, the clause which varied the note purported to operate even after the offer had formally closed.

37 Suspension of any buy-back program will also be relevant for a cash bid where the making of the bid may affect the bidder’s share price. 38 See Nexus Energy Ltd 02 [2006] ATP 25, where the Panel had concerns with purchases of shares in the bidder made by a 56% shareholder of the bidder during the offer period, but decided not to make a declaration of unacceptable circumstances as there was no probative evidence to suggest the purchases were intended to give a false impression of the value of the bidder’s shares. 39 A bid may offer a limited amount of one particular type of consideration (for example, cash) which is made available pro-rata to the holders who select that alternative, with the balance being made up of the other alternative (such as shares). Due to the need to pay consideration within the statutory periods under s 620(2) (when it may not be known how many accepting shareholders will elect for the limited form of consideration), this may require the bidder to issue a convertible loan note as an interim payment, which raises the complexity of the offer. See also ASIC Regulatory Guide 9; Takeover bids, RG 9.270–RG 9.273, suggesting that structuring the consideration in this way may offend against s 626.

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•

171

While foreign currency may be used as consideration for an off-market bid, it is unlikely that it should be treated as cash for the purposes of Ch 6. This is because the scheme of the legislation, including s 651A, appears to assume that “cash” will have a constant value.40 Several bids41 have been made in which the consideration was a fixed amount in US dollars, but offerees could elect to receive varying amounts in Australian dollars obtained by converting the US dollars at fluctuating conversion rates, in each case with an ASIC modification which ensured that any differences in the Australian dollar amount paid (because of currency conversions at different times) did not result in a contravention of s 619(1) that all offers be the same.42

Financial assistance [8.40.20] The prohibition in s 260A of the Corporations Act against a company giving financial assistance for the purpose of, or in connection with, an acquisition of shares in the company (or its holding company) may have important implications for a takeover bid. The prohibition is less relevant in a public company takeover than in a private company acquisition because the target company is rarely involved in facilitating the takeover, but it is often important in negotiating a credit facility or determining the structure of the bid. The prohibition applies if the financial assistance materially prejudices: •

the interests of the company or its shareholders; or

•

the company’s ability to pay its creditors.

Where the financial assistance is not material in the context of the company’s overall financial position, it may be possible to take the view that there is no material prejudice to shareholders or creditors. However, at other times this may not be clear and directors of the company and financiers may not be prepared to proceed without shareholder approval under s 260B.

40 On this view, for the purposes of s 621(3) and (4)(b), a price paid for bid class securities in foreign currency must be converted to Australian currency as at the date of the pre-bid acquisition. 41 USFC Acquisition Inc bid for Memtec in 1997 (see Memtec Ltd and Australian Securities Commission, USFC Acquisition Inc (Party Joined) [1997] AATA 479), the UUNET Holdings Australia bid for Ozemail in 1998 and the CEMEX bid for Rinker in 2006. 42 Rinker applied to the Panel concerning the ASIC modification granted in relation to the conversion mechanism and various other matters concerning the takeover offer being made in US dollars. The Panel declined to make a finding whether the CEMEX offer was for cash or kind, but determined that it did not offend the minimum bid price rule in s 621 or the equality principle in s 602(c) and was not otherwise unacceptable. It did, however, require CEMEX to revise the conversion mechanism and to provide appropriate disclosure of the conversion mechanism and exchange rate risks: Rinker Group Ltd [2006] ATP 35 [49]–[92]. See also Takeovers Panel Guidance Note 6: Minimum Bid Price, [11] and footnote 14.

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The prohibition can also be attracted if financial assistance is given after the shares are acquired. This is provided expressly by s 260A(2).43 The question is whether the financial assistance given after the acquisition has a sufficient connection with the acquisition. There are various approaches to this issue. These are discussed in detail in 22.6. The classic instance where the issue arises is where, after a takeover closes successfully, the bidder uses the target’s cash resources to pay for shares acquired under the bid, whether directly or via a round robin of cheques.44 A more difficult instance is where the bidder seeks to refinance a credit facility used in the takeover and the target is required to give a guarantee and charge its assets. If the giving of such a guarantee and charge was an obligation under the original credit facility, it may support a conclusion that there is a sufficient nexus. Accordingly, where possible, the bidder should seek to resist any condition that requires a subsequent target company guarantee on the grounds that it may lead to a breach of s 260A or, alternatively, seek agreement that no such guarantee need be given until the shareholder approval procedure authorising the financial assistance under s 260B has been completed. To ensure this can be completed effectively, it is generally necessary to allow flexibility so that the procedure need not be undertaken unless the bidder achieves 100% ownership of the target. This may lead to the financier requiring the bid to be conditional on the bidder reaching the compulsory acquisition thresholds: see 17.2. The s 260A prohibition may also be relevant when the consideration under the takeover includes shares in the bidder or its holding company. The question is whether the company issuing the shares is giving financial assistance in connection with the issue. This is unlikely where the bidder is offering shares in itself on the grounds that a company may issue shares as consideration for the acquisition of any asset. Such an offer is not regarded as “financial assistance”.45 To resolve any uncertainties about s 260A, resort can be had to the authorising shareholder approval procedure in s 260B. If a listed company is the ultimate holding company of the bidder, however, this course of action may not be attractive as a meeting of its shareholders will be necessary. This will require the bid to be conditional and may provide opportunity for the target company to persuade the bidder’s shareholders to vote against the proposal (especially if the target company is itself a shareholder). Another way to limit the impact of s 260A is to use a company which is not a subsidiary of the listed company as a bid vehicle.

43 See also Juniper Pty Ltd v Grausom (1984) 8 ACLR 212 in relation to predecessor legislation. 44 Wallersteiner v Moir [1974] 1 WLR 991; Selangor United Rubber Estates Ltd v Cradock (No 3) [1968] 1 WLR 1555; Keygrowth Ltd v Mitchell [1990] VicSC 593 [21]–[24]. 45 In a case where a subsidiary offered shares in its parent company, Sheppard J described a submission that the subsidiary was providing financial assistance for the acquisition of shares in its parent as “unreal”: Re Myer Retail Investments Pty Ltd (1983) 8 ACLR 102.

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Minimum price [8.40.30] The consideration offered for securities in the bid class must equal or exceed the maximum consideration that the bidder or an associate provided, or agreed to provide, for a security in the bid class under any purchase or agreement during the four months before the date of the bid: s 621(3).46 This applies to cash and non-cash bids and to market and off-market bids. This rule can mean that a bidder may have to wait four months after a purchase of a strategic stake before launching the bid to avoid having to offer the same price to other shareholders. The Takeovers Panel has said that it regards the policy of this provision as fundamental to Ch 6, but that it does not take an unduly technical approach to compliance.47 If the consideration for the pre-bid acquisition is neither cash nor listed securities, a valuation report must be provided in or with the bidder’s statement to support a conclusion that the bid consideration is worth at least as much as the consideration for the pre-bid acquisition.48 Generally, the mid-point of a valuation range will be acceptable for this purpose, as that ought to be the most likely outcome.49 If a purchase agreement provides for variations to price, a variation is disregarded for determining the relevant price: s 621(5).50 If the target has subsequent to the purchase or agreement split its shares or declared a dividend, the bidder may adjust the minimum price accordingly. If the target has done something else which affects the value of bid class securities, the bidder may have to seek ASIC approval for an altered minimum price.51 46 See ASIC Regulatory Guide 9: Takeover bids, RG 9.147–RG 9.238 (replacing former Regulatory Guide 163: Takeovers: minimum bid price principle) for ASIC’s views on the minimum bid price rule. ASIC Corporations (Minimum Bid Price) Instrument [2015/1068] modifies s 621 to allow a bidder to offer a lower price to wholly-owned, consenting, group entities and their nominees: RG 9.236–RG 9.238. Also see Takeovers Panel Guidance Note 6: Minimum Price Requirements. Although there is no requirement that the consideration offered under a bid be full or fair, post-bid compulsory acquisition may fail if the consideration to be provided is not “fair value” for the relevant securities within the meaning of s 667C: see [17.60.20]. 47 See Takeovers Panel Guidance Note 6: Minimum Price Requirements and decisions noted in this section. 48 Section 636(1)(h)(iii) and (2), which attracts s 648A. 49 ASIC Regulatory Guide 9: Takeover bids, RG 9.214; Email Ltd 03 [2000] ATP 5. 50 This provision was intended to prevent a bidder from using an escalation clause to achieve an artificially low minimum price: Explanatory Memorandum to the Company Take-overs Bill 1979 (Cth) at [68(e)]. It may not have the intended effect. 51 ASIC Regulatory Guide 9: Takeover bids, RG 9.216–RG 9.227 and ASIC Corporations (Minimum Bid Price) Instrument [2015/1068]. On the other hand, ASIC may refer a bidder to the Panel if it does not adjust its bid price for a share consolidation: RG 9.152(c). The instrument operates by reference to a diminution in value of bid class securities which results from payment of a cash dividend. While the policy may be applied case-by-case to dividends in kind, it makes no mention of franking credits, on which see Sedgman Ltd

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“Purchase or agreement” includes a conditional contract, such as a put or call option drafted as a sale and purchase, subject to the fulfilment of a condition. Since “agreement” here includes all manner of agreements, arrangements and understandings,52 it is doubtful whether conditional and contingent arrangements escape the rule, such as an agreement providing that an obligation to purchase will not arise until the satisfaction of a condition precedent (such as a contract drafted to satisfy s 15(5) of the Foreign Acquisitions and Takeovers Act 1975 (Cth)) or a call option drafted as an irrevocable offer or an agreement to accept a takeover offer. Relying on such structures may, of course, attract a declaration of unacceptable circumstances.53 Despite the width of “agreement”, it seems clear on policy and legislative history grounds that s 621(3) does not apply to a subscription for shares in the target, which does not affect equal treatment of security-holders.54 The section may not apply to an acquisition by obtaining control of an upstream company, because the consideration would be given for shares in that company, not for bid class securities. There is a risk that the Panel will consider an upstream acquisition to be unacceptable if the primary purpose or commercial effect of the upstream acquisition was to obtain

[2016] ATP 2, where takeover offers provided that the bidder could adjust the consideration for the value of franking credits, as well as the amount of a dividend, without specifying how the bidder would ascertain the value of the franking credits. ASIC submitted that the offers should be varied to omit reference to adjustments for the value of franking credits: the bidder made this change, but the Panel made it very clear that it had not required the bidder to do so, and regarded the issue as open. 52 Section 9, definitions of “agreement” and “relevant agreement”, to include agreements, arrangements and understandings, even if oral, informal and without legal or equitable force. In GasNet Australia Limited [2006] ATP 22, the Panel declined to apply the rule to an agreement between bona fide joint bidders, without needing to discuss the fact that it was a put and call option agreement, not a simple purchase and sale: see also 5.50. 53 In GoldLink Income Plus Ltd 02 [2008] ATP 19 (concerning an escalation clause); and Bowen Energy Ltd 02 [2009] ATP 16 (concerning a subscription agreement), the Panel declined to intervene where agreements arguably contravened s 621(3), but did not offend against the equality principle. On the other hand, in Taipan Resources NL (No 9) [2001] ATP 4, the Panel made a declaration and divestiture order, in part because the acquisition to which it related would have required an increased bid price under s 621(3). 54 Former s 641 referred only to a purchase or agreement to purchase for cash, and s 621(3) appears to have been extended to cover purchases of issued securities for non-cash consideration, not to cover subscriptions for securities. On purchase and subscription, see Re VGM Holdings Ltd [1942] Ch 235 and Skywest Ltd 01 [2004] ATP 10 [66]–[77]. The bidder in Skywest 01 had acquired convertible securities at $0.22 each and then converted those securities into ordinary shares before making a bid at $0.20. The Panel rejected an argument that the bid price should be $0.22. However, in doing so, the Panel said that unacceptable circumstances may arise if a bidder acquires convertible securities at a significant premium relative to the offer price for the underlying security under a bid (having regard to the different terms and rights of the two securities) and exercises the securities to build up a pre-bid stake: [78]. ASIC’s policy in Regulatory Guide 9: Takeover bids does not deal with amounts subscribed for bid class shares before a bid.

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control of securities in the target without triggering the minimum bid price rule.55 The minimum bid price rule tests the consideration offered at the time the offer is made.56 This means the dispatch of the offers to the relevant holders, not the date the takeover bid is announced. This can create difficulties if a scrip bid is announced and the value of the scrip offered as consideration declines before the dispatch date. In that case, the legislation requires the offer to be topped-up. Given usual printing times, it will generally be impossible to value quoted shares with certainty on the date of dispatch for the purposes of s 621(3). In recognition of this fact, ASIC’s and the Panel’s policy is that a bidder may use the weighted average prices over two trading days ending up to five business days before the offers are dispatched.57 If the bidder offers alternative forms of consideration (for example, cash or scrip), ASIC’s policy is that each form of consideration must be at least equal in value to the maximum consideration already paid.58 This interpretation of the law is not free from doubt and there does not appear to be a policy justification for it. The equal opportunity principle is satisfied if the values of the alternatives are disclosed and at least one of them is worth at least as much as any pre-bid purchase.59 Indeed, sometimes scrip with a lower value can be more attractive than cash to shareholders seeking scrip bid rollover relief. If a pre-bid share acquisition is coupled with another transaction, any additional benefit given to the seller of shares may need to be aggregated 55 Normandy Mining Ltd 06 [2001] ATP 32. See also Intercapital Holdings Ltd v NCSC (1987) 12 ACLR 684 where units in a unit trust (which owned shares in the target) were acquired at an effective price higher than the acquirer proposed to offer under a bid. The bid did not proceed, but Marks J was disposed to accept, without having to decide, that the minimum bid price under a precursor of s 621(3) was to be calculated from the price paid for the units. ASIC Regulatory Guide 71: Downstream acquisitions deals with similar issues. 56 Rinker Group Ltd 01 [2006] ATP 35 [32]. The four months run from when the pre-bid agreement was made, but on one reading it could recommence when the agreement is performed: Taipan Resources NL 08 [2001] ATP 3. The legislative history and policy of the provision do not support this reading. That is, “provided” is read with “purchase”, referring to a transaction settled immediately it is agreed, and “agreed” is read with “agreement”, referring to a transaction settled after an interval. The rule applies to a market bid when it is announced, effectively 14 days earlier than to a comparable off-market bid: see 12.6. 57 ASIC Regulatory Guide 9: Takeover bids, RG 9.178–RG 9.183 and ASIC Corporations (Minimum Bid Price) Instrument [2015/1068]; Takeovers Panel Guidance Note 6: Minimum Bid Price. The class order requires certain details of the valuation to be provided in the bidder’s statement. 58 ASIC Regulatory Guide 9: Takeover bids, RG 9.156. The Panel Guidance Note does not mention this issue. 59 Compare s 651A. Where one alternative consideration is clearly less valuable than another, it may, however, give rise to unacceptable circumstances to specify that alternative as the default consideration in a notice under s 661B(1).

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with the price paid for the shares. In Becker Group Ltd 01 [2007] ATP 13, the Panel required that a side transaction which would have attracted the minimum bid price rule not proceed without revised disclosure and shareholder approval. However, the Panel did not find unacceptable benefits given on commercial arm’s length terms in Alpha Healthcare Ltd [2001] ATP 13 and PowerTel Ltd 03 [2003] ATP 28 (purchases of debts from substantial shareholders for amounts independently assessed to represent fair value) or a commitment to undertake a scheme of arrangement in Normandy Mining Ltd 06 [2001] ATP 32, as it was considered to be in accordance with normal premiums paid in similar transactions.60 Two-tier offers [8.40.40] It is possible to provide for the consideration payable under an off-market bid to be increased if a condition subsequent is satisfied. For example, the offer price may be increased from $2 to $3 if the bidder reaches a specified shareholding in the target (such as the compulsory acquisition threshold). As all offerees would be treated equally, such a provision is unobjectionable. Where the conditional increase is part of the terms of the offer, some ASIC relief may be necessary as the bid could require an additional payment to be made more than one month after acceptance, if the second tier is triggered after the bid has become unconditional: see [8.40.50].61 However, the need for ASIC relief may be avoided if the two-tier offer is structured as a statement of intention to vary the offer to increase the consideration payable following satisfaction of a specified condition.62 In this case, the bidder would be held to the statement under the “truth in takeovers” policy (see [11.10.20]) and, consistent with any other variation to increase the bid price, the additional payment would only need to be paid following the formal variation. In that situation, it does not matter that the additional payment following the variation was made more than one month after the acceptance. If this technique is used, it will be important to ensure shareholders are not misled into thinking the higher price is certain. A bid with a lower second tier that comes into operation once a certain level of acceptances is reached seems to be prevented by s 626, which prohibits a takeover bid from including a maximum acceptance condition which relieves the bidder of an obligation under the bid contracts, if acceptances are received in excess of a maximum number or percentage of

60 That is, the Panel asked itself whether part of the consideration provided by the bidder under the related transaction should be treated as having really been a supplementary payment for shares acquired under the bid. See generally Takeovers Panel Guidance Note 20: Collateral Benefits, where the Panel’s approach is very similar. 61 ASIC’s policy is to grant relief to vary a bid to add a second tier, which also deals with the effects on the time for payment of consideration: ASIC Regulatory Guide 9: Takeover bids, RG 9.558–RG 9.559. It may be prepared to give similar relief from s 620 for a bid which has two tiers from the outset: cf RG 9.99–RG 9.104. 62 For an example, see Australian Leisure & Hospitality Group Ltd 03 [2004] ATP 25.

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shares. ASIC Regulatory Guide 9: Takeover bids, RG 9.274–RG 9.275 states that s 626 does not allow offers to provide for the bid to fail, or for the consideration to be reduced, if acceptances are received in respect of more than a certain number of shares. It appears from a note following RG 9.275 that ASIC would be less concerned if the composition of the consideration changed, but its value was not reduced. Specify payment time [8.40.50] The offer must specify how and when the obligations of the bidder to pay or provide the consideration will be satisfied: s 620(1). If the bidder is given the necessary transfer documents with the acceptance,63 the bidder must satisfy this obligation to pay within one month after the offer is accepted or becomes unconditional whichever is later, but not more than 21 days after the offer closes: s 620(2)(a). Mailing a cheque on the last day of those periods will be acceptable if the offer deems that to be payment.64 ASIC may extend the time for the consideration to be paid or provided.65 If the bidder is not given the necessary transfer documents with the acceptance but is given them before the end of the offer period, it must make payment within one month after receipt of the transfer documents or after the offer becomes unconditional, whichever is later, but no more than 21 days after the bid closes.66 If the bidder is given the transfer documents after the end of the offer period, then it must make payment within 21 days of receipt.67 Lastly, a bidder may reduce the time for payment in the later stages of a bid as a means of encouraging acceptances from target shareholders: see [11.50.30].

63 This is for unquoted securities. If bid class securities are quoted, in due course they are transferred under Section 14 of the ASX Settlement Operating Rules, without the need for any documents. 64 Re Evans Deakin Industries Ltd (1980) 5 ACLR 322. 65 Note that a bidder is restricted by regulations under the Charter of the United Nations Act 1945 (Cth), the Autonomous Sanctions Act 2011 (Cth) or both from paying consideration to certain persons without first obtaining approval from the Department of Foreign Affairs and Trade. This includes a number of organisations (such as the Taliban, Al-Qaida and ISIL), certain national and local governments (such as North Korea, Crimea and parts of Ukraine) and specified residents of certain countries (such as Iraq and Libya). The Department maintains a “Consolidated List” of individuals currently subject to financial sanctions. 66 Section 620(2)(b), as modified by ASIC Class Order [CO 13/521], see ASIC Regulatory Guide 9: Takeover bids, RG 9.102. 67 Section 620(2)(c), which is also modified by ASIC Class Order [CO 13/521] to allow the bidder 21 days from the bid becoming free of a prescribed occurrence condition, if it is still subject to such a condition when the bid closes: see s 650F(1)(a); and ASIC Regulatory Guide 9: Takeover bids, RG 9.103.

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8.5 Conditions [8.50] A market bid must be unconditional,68 but an off-market bid may include various conditions.69 These may be conditions precedent to the formation of the contract, conditions precedent to the performance of obligations or conditions subsequent. Generally, the conditions used are conditions subsequent which are expressed to enable the bidder to rescind the contracts resulting from acceptances70 and to be for the benefit of the bidder only. In that case, the fact that the bid is conditional does not enable an offeree to withdraw an acceptance.71 Although it is possible to include a range of conditions about the target’s business and operations, this is less common as it generally has an adverse effect on the likelihood of acceptance. A condition which may prevent an acceptance giving rise to a contract, or which may result in the rescission of a contract which has resulted from an acceptance, is referred to as a defeating condition, and a bid can only be declared free of it in accordance with s 650F. If the bid is not declared free of the condition, and the condition is not satisfied when the bid closes, all contracts which have resulted from acceptances of the bid will be avoided by s 650G: see [11.60]. The mere fact that a condition is likely to be breached or confers a discretion on the bidder will not mean that the offer, and any resulting contract, is void at common law as “illusory”.72 However, there is a very real question whether such an offer would create unacceptable circumstances. Restrictions on conditions [8.50.10] There are some restrictions in the legislation. A condition which may result in the bidder acquiring shares from some but not all persons 68 It may, however, be withdrawn if a “prescribed occurrence” listed in s 652C occurs. 69 On conditional takeover offers generally, see Gurry, “Aspects of the Law of Contract in Relation to Takeover Offers” (1976) 50 ALJ 167. If a purchase contract is conditional on approval by a third party, the purchaser does not acquire a legal or equitable interest in the securities until the condition is fulfilled: McWilliam v McWilliams Wines Pty Ltd (1964) 114 CLR 656, 661 per McTiernan and Taylor JJ; Brown v Heffer (1967) 116 CLR 344, 350 per Barwick CJ, McTiernan, Kitto and Owen JJ. However, on application by the purchaser, a court will order the vendor to take all reasonable steps in its power to obtain fulfilment of the condition: Egan v Ross (1928) 29 SR (NSW) 382. 70 Although defeating conditions usually take this form, a bidder need not rescind a contract which is subject to a condition which is not satisfied: s 650G will avoid the contract at the close of the bid. A condition precedent to the formation of a contract is often used to comply with s 26(3)(b) of the Foreign Acquisitions and Takeovers Act 1975 (Cth), but that enables offerees to withdraw their acceptances before fulfilment. 71 Colortone Holdings Ltd v Calsil [1965] VR 129, 137–38 per Gillard J; Scott v HS Lawrence & Sons Pty Ltd (1982) 6 ACLR 579, but see s 650E which allows an offeree to withdraw the acceptance of a conditional offer following an extension to the offer period of more than one month. 72 Broken Hill Proprietary Co Ltd v NCSC (1986) 10 ACLR 478.

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who accept an offer is prohibited by s 627.73 This would appear not to prohibit the offer specifying what will be regarded as a valid acceptance (for example, requiring execution of the form of acceptance in a particular way). Furthermore, a takeover bid74 cannot be subject to a condition which depends on any of the following: •

a maximum number or percentage of shares accepted: s 626;75

•

approval of a benefit given to a director, secretary or principal executive officer of the target or any related body corporate of the target in connection with loss of office. A condition to this effect is void: s 628;

•

the opinion, belief or other state of mind of the bidder or an associate of the bidder.76 A defeating condition to this effect is void: s 629(1)(a); and

•

an event within the sole control of, or directly resulting from action by, the bidder or an associate of the bidder (either acting alone or together with the bidder or another associate or associates of the bidder). A defeating condition to this effect is also void: s 629(1)(b).

A condition which depends on the bidder’s opinion or action and also on the opinion or action of a non-associated person is not prohibited by s 629.77 Similarly, the Panel has held that a condition which depends on the bidder’s reasonable opinion is not within the opinion, belief, state of mind or control of the bidder.78 It is unclear whether the prohibition in s 629 is attracted by a condition requiring a resolution to be passed in a general meeting of the bidder if, at

73 Sections 626 and 627 derive from provisions of the Companies and Securities Legislation Amendment Act 1986 (Cth), enacted in response to the Companies and Securities Law Revision Committee’s report on Partial Takeover Bids (1985); see also paragraphs 11 and 29 of the relevant Explanatory Memorandum. 74 This must be contrasted with the announcement of a proposed bid. These rules are not contravened if a bidder announces it will make a bid if certain pre-conditions are met even if those pre-conditions, if contained in the actual offer, would breach s 629. However, the announcement must not mislead the market to conclude the bid is more likely than it is in reality: Realestate.com.au Ltd [2001] ATP 1. It can also be contrasted with a scheme of arrangement, for which there is no corresponding rule. 75 See ASIC Regulatory Guide 9: Takeover bids, RG 9.261–RG 9.275. 76 The origin of s 629 is in s 13 of the Companies and Securities Legislation (Miscellaneous Amendments) Act 1985 (Cth): see also paragraphs 61 and 62 of the relevant Explanatory Memorandum. In DoloMatrix International Ltd [2008] ATP 10, a material adverse change condition stated that it was deemed to be breached where, had the bidder known of the relevant information prior to announcing its bid, it would have offered a lower price. The Panel considered this was within the bidder’s control and therefore in breach of s 629. 77 Aberfoyle Ltd v Western Metals Ltd (1998) 28 ACSR 187. 78 Gloucester Coal Ltd 01R [2009] ATP 9 [75] (superior proposal).

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the date of the offer or the bidder’s statement, the meeting is yet to be convened as, on a literal reading, it would still be within the control of the bidder to prevent the passing of the resolution by not convening the meeting (though it is likely that a term is implied requiring the bidder to convene the meeting).79 On the other hand, such a condition will fall within the prohibition if an associate of the bidder (for example, a holding company) controls a majority of votes that may be cast in a general meeting. The prudent step for the bidder in each case would be to obtain a modification pursuant to s 655A to permit such a condition. The Panel has not treated such a condition as unacceptable, if the condition is reasonably necessary in the circumstances and the bidder undertakes to use its best efforts to ensure that it is satisfied.80 In Target Petroleum NL v Petroz NL (1987) 12 ACLR 11, an offer was subject to a 90% minimum acceptance condition. Associates of the bidder held over 10% and, if they did not accept, the condition would not be satisfied. Since s 629 is self-executing, such a condition would now seem to be impossible without ASIC relief.81 This restriction would also seem not to apply where the bidder had to seek a government consent, especially if it had lodged an application for the consent on or before the date of the bidder’s statement. Apart from the restrictions under the Corporations Act, some conditions may be regarded by the Panel as unacceptable. For example, a condition that seeks to preclude a review of the takeover bid by ASIC or the Panel may be unacceptable82 as would a condition that was triggered if ASIC or Panel relief is given to a rival bidder.83 However, a condition allowing termination if there is an adverse decision of ASIC or the Panel (or any other regulator) which materially increased the costs for the bidder or affected the viability of the bid is likely to be a legitimate condition to protect the bidder’s interests, unless it would allow the bidder to avoid bringing its bid into compliance with Ch 6.84 If the satisfaction of a condition is to any degree within the control of the bidder, there will be a duty implied by law that the bidder does not act so as to prevent the fulfilment of the condition or, depending on the condition,

79 Since the general meeting relevantly is the bidder, the condition may breach s 629, even if the meeting has already been called. 80 Despite this, as s 629 is self-executing, it is still advisable to obtain ASIC relief. 81 The corresponding provision then in force did not prohibit the inclusion of the condition, but made it a ground for the NCSC to refuse to register the relevant Part A statement. The issue would not now arise in the same form, because of subsequent changes in the compulsory acquisition regime. 82 This argument was raised in Normandy Mining Ltd 04 [2001] ATP 31, but the bidder withdrew the wording subject to the challenge. 83 Brisbane Broncos Ltd 03 [2002] ATP 3. 84 Brisbane Broncos Ltd 01 and 02 [2002] ATP 1 [62], developed in Brisbane Broncos Ltd 03 [2002] ATP 3 [112]–[126].

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possibly there would be a duty to take reasonable efforts to satisfy the condition.85 In addition, it may be unacceptable if the bidder or its associate does not seek to satisfy the condition during the offer period.86 A condition must be certain in operation. A condition which expressly depended on the bidder’s opinion as to whether a certain situation existed would obviously breach s 629,87 but in Goodman Fielder Ltd 01 [2003] ATP 1 the Panel observed that conditions which were vaguely drafted and uncertain in their operation may contravene the policy of s 629 by, in effect, giving the bidder a discretion on its interpretation.88 The Panel, without reaching any definite conclusion on s 629, considered that a financing condition (where the finance agreements still needed to be settled and signed and once signed would have various conditions) was not unacceptable. The Panel’s decision was influenced by the bidder making a clear undertaking in the bidder’s statement to use its best endeavours to procure satisfaction of the financing conditions. Even where satisfaction of a condition is not within the bidder’s control, if the condition is not fulfilled, the bidder has a discretion whether to declare the bid free of the condition or to allow the bid to fail under s 650G. Once a condition cannot be fulfilled, the bidder has much the same discretion whether to proceed as if it had included a subjective condition in the bid. The Panel has not regarded this situation as unacceptable, in matters where the bidder had not contrived the situation and had decided whether to declare the bid free of the relevant condition in a reasonable time.89 Where a bid has been announced, the bid does not comply with s 631(1) if it includes a condition which was not foreshadowed in the announcement and which is sufficiently material that the terms of the bid are substantially less favourable than those in the announcement. It is probably not necessary to set out each proposed condition verbatim in the announcement, but it has become standard practice to do so.90

85 Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537. 86 Brickworks Ltd 02 [2000] ATP 8, where the bidder failed to convene a necessary general meeting during the offer period; and Bigshop.com.au Limited [2001] ATP 20 [80]. 87 The conditions in Realestate.com.au Ltd [2001] ATP 1; and DoloMatrix International Ltd [2008] ATP 10 [18] contravened, but those in NGM Resources Ltd [2010] ATP 11 [16]–[30]; and Gloucester Coal Ltd 01R [2009] ATP 9 [75] did not. The Panel did not make a finding as to whether the condition in Austock Ltd [2012] ATP 12 complied. 88 See SA Liquor Distributors Ltd [2002] ATP 22; Skywest Ltd 01 [2004] ATP 10; NGM Resources Ltd [2010] ATP 11 [30] and the following footnote. 89 See extensive policy discussions in Anaconda Nickel Ltd 06 & 07 [2003] ATP 6 [34]–[38]; and Novus Petroleum Ltd [2004] ATP 2 [34]–[46], the discussion of Goodman Fielder Ltd 01 [8.50.40]; and Southcorp Ltd [2005] ATP 4 [124], referring to Brisbane Broncos Ltd 01 and 02 [2002] ATP 1. 90 See ASIC Regulatory Guide 59: Announcing and withdrawing takeover bids (s653 and s746), RG 59.23–RG 59.27 and Austock Group Ltd [2012] ATP 12.

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Prescribed occurrence conditions [8.50.20] Commonly, an offer is subject to there being no “prescribed occurrence” during the offer period. “Prescribed occurrence” is no longer a defined expression, though it has an accepted meaning as referring to certain situations where a market bidder can withdraw its bid: s 652C.91 It will cover the following events: (1) the target converts all or any of its shares into a larger or smaller number of shares; (2) the target or a subsidiary of the target resolves to reduce its share capital in any way; (3) the target or a subsidiary of the target enters into or approves a buy-back agreement; (4) the target or a subsidiary of the target issues shares or grants an option over its shares, or agrees to make such an issue or grant such an option; (5) the target or a subsidiary of the target issues, or agrees to issue, convertible notes; (6) the target or a subsidiary of the target disposes, or agrees to dispose, of the whole, or a substantial part, of its business or property; (7) the target or a subsidiary of the target grants, or agrees to grant, a security interest92 in the whole, or a substantial part, of its business or property; (8) the target or a subsidiary of the target resolves to be wound up; (9) a liquidator or provisional liquidator of the target or of a subsidiary is appointed; (10) a court makes an order for the winding up of the target or a subsidiary; (11) an administrator of the target, or a subsidiary, is appointed under s 436A, 436B or 436C of the Corporations Act; (12) the target or a subsidiary of the target executes a deed of company arrangement; and (13) a receiver, or a receiver and manager, is appointed in relation to the whole, or a substantial part, of the property of the target or of a subsidiary.

91 Santow J described them as “basically directed at defensive manoeuvres or disaster events”: Boral Energy Resources Ltd v TU Australia (Queensland) Pty Ltd (1998) 28 ACSR 1, 3. 92 “Security interest” is defined in s 51A, which was introduced on 30 January 2012 when the Personal Property Securities Act 2009 (Cth) became effective.

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The inclusion of such a condition is standard unless the bidder is already in control of the target. A bidder should carefully consider whether such a condition is sufficient to protect its interests. For instance, a decision by the target agreeing to purchase significant assets or declaring a large dividend is not within the concept. If this is a real concern, additional conditions can be included in the bid. A bidder whose offer is unconditional or subject only to a “prescribed occurrence” condition is permitted to purchase shares on-market beyond the 20% threshold: s 611, item 2 (see 11.2). Minimum acceptance conditions [8.50.30] An offer may include a minimum acceptance or minimum voting power condition. The particular number or percentage of shares required is usually specified in the condition as a number of shares or as a percentage of the shares in the relevant class or of the shares to which the bidder is not entitled. In framing such a condition, the bidder should consider the minimum shareholding required to control the target. Often this may be 50%, but frequently 90% is specified so that the bidder can rely on the compulsory acquisition procedure in s 661A to achieve 100% ownership. It is commonly a term of takeover financing facilities that a bidder cannot waive such a condition without the financier’s prior consent. Material adverse change conditions [8.50.40] An offer may be conditional on no “material adverse change” occurring to the target, or becoming known, during the offer period. Typically, the condition is drafted in terms of changes to the business, assets, financial or trading position or profitability or prospects of the target or the group consisting of the target and its subsidiaries, often with thresholds specified in percentage or dollar terms. •

There is some uncertainty about what event would allow a bidder to rely on a condition which referred to a material adverse change without further specification. This has only once been considered by an Australian court and much will depend on the terms of the actual condition.93 However, based on UK and US precedents,94 several

93 Garden City Shopping Centre Pty Ltd v Woolworths Ltd (1982) 7 ACLR 803. See also Vincorp Wineries Ltd [2001] ATP 6; Australian Liquor Group Ltd [2001] ATP 18; and NGM Resources Ltd [2010] ATP 11. 94 See UK Takeovers Panel, Statement on Offer by WPP Group plc for Tempus Group plc (6 November 2001); IBP Inc v Tyson Foods Inc Del Ch LEXIS 81 (2001) (and cases cited therein). For the difficulties in relying on material adverse change clauses see also Frontier Oil Corp v Holly Corp WL 1039027 (2005 Del Ch) where the court decided that the target’s exposure to mass toxic tort litigation resulting in costs ranging from US$15 million to $US20 million was not sufficient to trigger a material adverse change

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propositions can be suggested: the event must be of considerable significance striking at the heart of the purpose of the transaction and one that could not have reasonably been foreseen at the time of launching the bid; •

a short-term downgrade in profit projections for the target may not be sufficient if the acquisition was proposed for long-term strategic reasons (though that may be sufficient for a lender, particularly if funds are being provided in a work-out situation);95 and

•

a change in economic, industrial or political circumstances or other changes which affect the market generally (as opposed to the target in particular) will not generally be sufficient.

A bidder which seeks to rely on a material adverse change clause contrary to the above propositions may face a declaration of unacceptable circumstances if the Takeovers Panel takes a different view. The UK Takeover Panel decision regarding the offer by WPP Group plc for Tempus Group plc (statement dated 6 November 2001) concerned a bid for an advertising company during an economic decline both generally and in the advertising sector, of which the bidder was aware when it launched the bid. The bidder argued that the terrorist actions in the US on 11 September 2001 affected the target and had led to a material adverse change in its prospects. The Panel rejected this argument on the basis that a temporary effect on profitability due to the 11 September events was not sufficient as the acquisition was undertaken for long-term strategic reasons. This can be contrasted with the UK Panel’s decision in 1990 concerning the offer by Godfrey Davis for Sketchley, where the bidder was permitted to rely on a material adverse change condition after the target announced that full-year profits were expected to be 65% lower than expected. In that case, the target did not object to the withdrawal. In Vincorp Wineries Ltd [2001] ATP 6, the bidder relied on a material adverse change condition after the target had issued a half-year financial report which showed continued trading losses and an abnormal loss on the sale of assets. This necessitated seeking consent from the Panel to the withdrawal of certain undertakings about extending the bid. The Panel granted the necessary consent. However, the Panel’s written reasons do not describe the losses compared to the previous position or discuss their significance. In Goodman Fielder Ltd 01 [2003] ATP 1, which involved a highly leveraged takeover bid, the bidder sought to include a condition that there was no material adverse change in itself. This appeared to have been included to

clause; and Genesco, Inc v Finish Line, Inc No 07–2137–II(III) (2007 Tenn Ch Ct) where the court decided that the purchaser could not rely on the material adverse change clause because any decline in the target’s financial performance was due to a general decline in economic conditions. 95 Pan Am Corp v Delta Airlines 175 BR 438 (SDNY 1994), 492–93.

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match conditions of its financing facility. In that case, there were concerns that such a condition may breach s 629 (see [8.50.10]) as being within the bidder’s sole control. The bidder, without admitting that the condition was unacceptable or contravened the legislation, agreed to waive the condition. However, an equivalent condition remained a condition to the bidder’s financing, which was also a condition to the bid, though only the financiers could trigger that material adverse change condition. The Panel’s ability to supervise reliance on bid conditions is illustrated by NGM Resources Ltd [2010] ATP 11, where, following the abduction of personnel employed at a mine site 150 kilometres from the target’s tenements in Africa, the bidder purported to rely on breach of a force majeure condition and a no material adverse change condition to announce that its bid would lapse when it closed. The Panel considered that the conditions had not been breached, because the event did not have material adverse implications for the target, and required the bidder to withdraw the announcement, though not to declare the bid free of either condition.96 The Panel first found that neither condition offended against s 629; they were objective conditions, in the sense that the bidder did not have control over the triggers. The Panel went on, however, to ask whether the conditions were too broad or imprecise, potentially giving the bidder an option whether to proceed with the bid, contrary to what they called “a policy of certainty inherent in the requirements of Chapter 6 for takeover bids, as evidenced, for example in ss 629 and 631”.97 They accepted that the materiality element of the material adverse change condition ensured that it did not give rise to objectionable uncertainty. After a careful examination of the force majeure condition in this context, they found that it would only be triggered by an event likely to have a material adverse effect on the target, and accordingly did not offend the policy of certainty in bids.98 Certainty of finance [8.50.50] Private equity backed bids, leveraged bids or other bids reliant on debt funding may need to be conditional on finance being available to fund the payment of the consideration. In these cases, the bidder will often need to make a decision whether to proceed on the basis of detailed term sheets, commitment letters or signed formal loan documentation. Practical issues may mean that a bidder proceeds on the basis of detailed term sheets and commitment letters. In any case, the ability of a bidder to drawdown

96 If the Panel finds that reliance on a breached condition has created unacceptable circumstances, it may have to order the bidder to declare its bid free of the condition. 97 Citing Novus Petroleum [2004] ATP 2 [43] and Goodman Fielder Ltd 01 [2003] ATP 1 [76] for the view that it may be unacceptable for a defeating condition to be so broad and non-specific that the bidder has in effect a discretion in relation to its interpretation. 98 In Austock Group Ltd [2012] ATP 12 [41] the Panel expressed a reservation about it being unacceptable for a defeating condition to be triggered by an immaterial event, but the Panel had found it unnecessary to decide whether the condition in question was subject to an implied materiality requirement.

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under the loan facilities will be subject to a number of conditions including events of default, material adverse changes in the target (and the bidder), regulatory matters and various accounting conditions (for example, provision of accounts, as well as earnings and interest coverage ratios). The conditional nature of the finance means that the availability of finance may need to be a condition of the bid. While it is permissible under Ch 6, and accepted practice, to have a financing condition, care must be taken to ensure that the condition does not contravene the restriction on bid conditions depending on events within the sole control of, or a direct result of action by, the bidder: s 629. In Goodman Fielder Ltd 01 [2003] ATP 1, the bidder’s financing condition required that each of the pre-conditions to the financing facilities remained satisfied throughout the offer period and at the end of the offer, and that there was no event, or potential event, of default under the facilities. The target challenged the condition on the basis that some of the pre-conditions (such as the execution of formal documentation) were in the sole control of the bidder. While the Panel acknowledged that the target had an arguable case, it did not find it necessary to decide the issue99 and it did not have a fundamental problem with the existence of a financing condition, noting that such a condition was a “reasonable and sensible” precaution for a bidder.100 The Panel considered that many, if not most, takeover bids over recent years had been, at one time or another, subject to elements under the sole control of the bidder. The Panel took comfort from the bidder’s commitment in its bidder’s statement that it undertook to use its best endeavours to procure the satisfaction of the financing conditions and to ensure the events of default were not triggered.101 Conditions requiring target to disclose information [8.50.60] If the bidder has been unable to conduct due diligence, it may include a condition designed to elicit specified information from the target in order to provide the bidder with comfort that certain assumptions it has made in framing its bid and/or determining its offer price are correct. Examples of such conditions include: •

an accounting condition – for example, in Goodman Fielder Ltd 01 [2003] ATP 1, the bidder included conditions requiring the target directors to confirm the target’s restructuring costs, earnings, working capital and liabilities and an actuarial review of the target’s defined benefit superannuation plan;

•

an independent expert condition – for example, in Anaconda Nickel Ltd 03 [2003] ATP 4, the bidder included a condition that the target permit an independent expert access to a mining project to verify public

99 Goodman Fielder Ltd 01 [2003] ATP 1 [91]. 100 Goodman Fielder Ltd 01 [2003] ATP 1 [41] and [93]. 101 See Takeovers Panel Guidance Note 14: Funding Arrangements, [14.12]–[14.13] in relation to waiving financing conditions.

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statements made by the target about the project’s capacity and operating performance; and •

an equal access to information condition – for example, in Volante Group Ltd [2006] ATP 2, the bidder included a condition that the target provide to the bidder the same information as provided to any potential rival bidder.102

The use of such conditions has been challenged by target companies. The Panel has held that, while a bidder may make its offer conditional on these matters, a target company is not obliged, in general or in particular circumstances, to disclose any or particular information merely because a bidder has chosen to make its bid subject to such a condition. The existence of the condition does not compel the target directors to comply with it and, if the directors choose not to comply with it, it will not amount to a “triggering action” under Takeovers Panel Guidance Note 12: Frustrating Action. Nevertheless, target directors need to carefully consider whether or not to refuse to provide the relevant information to the bidder having regard to the best interests of the company.103 Their decision may be influenced by a range of issues, for example, damage to the target’s commercial interests resulting from the disclosure, confidentiality obligations to third parties, value that may be lost by target shareholders if an offer fails because the defeating condition is triggered and the right to barter access to the information in exchange for improved bid terms.104 In responding to conditions seeking disclosure, target directors should also consider their obligations under s 638 to include in the target’s statement all information which shareholders reasonably require and expect in a target’s statement to assess the merits of the offer. If the information sought is reasonable (such as details of material contracts that have change for control provisions), it may be hard for the target to resist disclosure (and to disclose would appear to be the common practice). In some cases, the relevant information sought may be provided in a way other than in strict

102 It should also be noted that, unlike the position in the UK (see The City Code on Takeovers and Mergers, Rule 20.2), there is no legal or policy requirement in Australia for a target company to give equal access to all bidders: see the decisions cited in the following footnote. 103 Anaconda Nickel Ltd 03 [2003] ATP 4 [93]; Goodman Fielder Ltd 02 [2003] ATP 5 [84]–[96]; Skywest Ltd 03 [2004] ATP 17 [58]; Volante Group Ltd [2006] ATP 2 [31]. Also in the context of a rival bid to a private equity bid, see the Panel’s comments in Takeovers Panel Guidance Note 19: Insider Participation in Control Transactions, [25]. 104 See Northern Energy Corporation Ltd [2011] ATP 2 [30]; International All Sports Ltd 01 [2009] ATP 4 [22] (confirmed: International All Sports Ltd 01R [2009] ATP 5 [15]); Anaconda Nickel Ltd 03 [2003] ATP 4 [82]–[90]; Volante Group Ltd 01 [2006] ATP 2 [31]. In Australian Leisure & Hospitality Group Ltd 02 [2004] ATP 21, the Panel advised the target that it should disclose which contracts were affected by a change of control condition. This position is qualified in Takeovers Panel Guidance Note 19: Insider Participation in Control Transactions, [23]–[25].

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accordance with the condition.105 In that event, if such information is sufficient and reliable, it may be unacceptable for the bidder not to waive the condition.106 An issue may also arise where the bidder includes a condition that requires disclosure by the target or some other form of cooperation and the target refuses to provide the information or cooperation sought. In that instance, the bid condition may fail leaving the bid’s status uncertain. This may relieve the target from the usual obligation under the frustrating action policy.107 Statutory quotation condition [8.50.70] Section 625(3) provides that, if the offer document or bidder’s statement for a scrip bid states or implies that the securities offered as consideration will be quoted on a stock exchange, the offer is subject to a condition that an application for quotation will be made within seven days after the start of the bid period108 and permission for admission to quotation will be granted not later than seven days after the end of the offer period.109 This condition cannot be waived.110 A breach of this condition gives the court jurisdiction to make any order it considers appropriate: s 1325A.111 This requirement is based on the equivalent provision in the fundraising rules (s 711(5)) which is designed to protect investors from acquiring securities which are expected to be listed on a stock market, but, for some reason, fail to become listed. In that case, the investor can seek a refund of their investment. Section 625(3) would not seem to apply if the offer document makes it clear that listing is not guaranteed,112 but the bidder should be careful to spell the risk out in some detail to avoid s 625(3) operating or becoming subject to a declaration of unacceptable circumstances. In Pinnacle VRB Ltd 9B [2001] ATP 26, the bidder stated, 105 Goodman Fielder Ltd 01 [2003] ATP 1 [68]; and Goodman Fielder Ltd 02 [2003] ATP 5 [87]–[90]; Anaconda Nickel Ltd 03 [2003] ATP [87]–[89]. 106 Goodman Fielder Ltd 01 [2003] ATP 1 [69]. 107 See 14.6. 108 Where application is not made within seven days of the start of the bid period, it may be possible to obtain a court order extending the time for compliance: see Re MacMahon Holdings Ltd [2008] FCA 1079. 109 ASIC has modified s 625(3) to ensure that the condition it implies is not a defeating condition: ASIC Regulatory Guide 9: Takeover bids, RG 9.257–RG 9.260 and ASIC Class Order [CO 13/521]. 110 It may not be misleading to describe a bid subject to the s 625(3) condition as “unconditional” if there is no material risk the s 625(3) condition would not be fulfilled: Taipan Resources NL 10 [2001] ATP 5. 111 Venturex Resources Ltd; in the matter of Venturex Resources Ltd [2009] FCA 677, where McKerracher J considers the interaction of ss 1325A and 659B; Graincorp Ltd; In the matter of Graincorp Ltd [2008] FCA 996; and In the matter of McMahon Holdings Ltd [2008] FCA 1079, where McKerracher J canvasses previous decisions and the proper source of power. 112 As was the position considered in Email Ltd 02 [2000] ATP 4.

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during the offer period, that it was proposing to seek listing on the ASX. The Takeovers Panel decided unacceptable circumstances existed when, after six weeks had elapsed, it had not advanced its listing application significantly. Accepting shareholders were given the right to withdraw their acceptances and the bidder was required to extend its bid until the listing application had been dealt with.113 Other conditions [8.50.80]

Other common conditions include:

•

regulatory approvals and consents to the acquisition, for example, ACCC or FIRB approval;114

•

that all options and other securities are acquired by the bidder or cancelled or become capable of being compulsorily acquired by the end of the offer period;115

•

releases or waivers of any rights to terminate any material contacts of the target on the bidder acquiring control;116

•

none of the disclosures or announcements made by the target company to the market are incorrect or misleading in any material respect;

•

no material litigation against the target and its subsidiaries;

•

no regulatory action in relation to the takeover offers117 or against the business of the target company; and

•

there is no fall in a specified stock market index below a specified level (for example, the All Ordinaries Index or the S&P/ASX 200).

Ability to declare bid free of conditions [8.50.90] To preserve flexibility, the offer will generally include a term that the conditions are solely for the benefit of the bidder and that the bidder may declare the offer and any contract resulting from acceptance to be free from any condition.118 If it is not included, there may be doubt whether the

113 Similarly in Premium Income Fund [2011] ATP 10, where the bidder’s statements were inconsistent, but included a statement that listing was not guaranteed. 114 In DoloMatrix International Ltd [2008] ATP 10, the bid was subject to a condition that “all necessary regulatory approvals and consents” be obtained. While the Panel noted such conditions are relatively common, it considered it appropriate that material approvals and consents be identified and the bidder state that it would use best endeavours to obtain the approvals and consents: see also Austock Group Ltd [2012] ATP 12 [37]–[40]. 115 Southcorp Ltd [2005] ATP 4 [121]–[125]. 116 Australian Leisure & Hospitality Group Ltd 02 [2004] ATP 21. 117 These conditions are discussed in [8.50.10]. 118 Until 2000, a provision to this effect was required, but s 650F no longer requires it. See former s 663(2)(a), current s 650F(1), the note to s 630(3) and 11.6.

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conditions can be waived:119 see 11.6. The bidder’s statement sometimes provides that the bid cannot be declared free of certain conditions, such as conditions requiring satisfaction of the requirements of the Foreign Acquisitions and Takeovers Act 1975 (Cth) and certain conditions required by ASIC relief. Despite s 650F, such a statement may be effective to constrain the bidder under the truth in takeovers principle.

8.6 Uniform offers [8.60] Each offer under an off-market bid must be the same: s 619(1). However, there are exceptions for differences arising from the number of securities held by each holder, different accrued dividend or distribution rights, amounts paid up or unpaid and dealing with fractional entitlements by rounding or offering cash: s 619(2). It is implicit that offers are not relevantly different because of fluctuations in the market value of scrip consideration. ASIC has given class order relief to allow a bidder to provide cash instead of non-marketable parcels of scrip, using the nominee procedure in s 619(3).120 Occasionally, offerees must be treated differently due to laws in the jurisdiction in which they reside. A common example is where the consideration offered is shares and some of the target’s shareholders are located in jurisdictions where a prospectus is required for an offer of securities. For instance, as the offer document would not normally be registered in accordance with US securities regulations, an offer of a share consideration may be illegal under US law.121 The Corporations Act permits differential treatment of foreign holders in scrip bids: s 619(3). That section requires the appointment of an ASIC-approved nominee for the foreign shareholders. The bidder securities which would have otherwise been issued to the foreign shareholder who accepts the bid are issued to the nominee who sells the securities and remits the proceeds of sale, less expenses, to the foreign shareholder.122 In several decisions on schemes of arrangement, the courts have resolved a similar issue concerning equality of treatment by holding that a cash-out mechanism (resembling that in s 615) for shares, which

119 Maynard v Goode (1926) 37 CLR 529; Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; Sandra Investments Pty Ltd v Booth (1983) 153 CLR 153. 120 ASIC Regulatory Guide 9: Takeover Bids, RG 9.77–RG 9.84 and Class Orders [CO 13/521] and [CO 13/525] (consequential prospectus relief). Similarly, ASIC has granted modifications to supplement s 619(2) to ensure that differences in consideration paid arising from offers being made in a foreign currency with a conversion option to Australian dollars are disregarded for the purposes of s 619(1): see [8.40.10]. 121 The US law has been amended to relax the requirements where less than 10% of the target’s shares are held by US citizens. 122 Section 619(3), as modified by Class Order [CO 13/521]. See also ASIC Regulatory Guide 9: Takeover bids, RG 9.64–71 and Class Order [CO 13/525] (consequential prospectus relief).

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would otherwise be provided to foreign shareholders did not make those foreign shareholders a separate class.123

8.7 Miscellaneous terms [8.70] An off-market bid will usually include other terms that are normally found in share purchase contracts. This generally covers warranties as to title and entitlement to dividends, rights and other distributions which accrue after the date on which the offer is announced.124 To the extent such payments are made to shareholders, the terms of the offer usually entitle the bidder to deduct an amount from the offer price paid to accepting shareholders.125 The offer will usually permit the bidder to treat an acceptance as valid even if some formality, such as a failure to enclose the relevant share certificates, is not complied with.126 The offer will also generally include a power of attorney in favour of the bidder to vote the shares or exercise other rights prior to transfer of title to it. This may be effective immediately upon acceptance, but in practice, if the offer is conditional, it is usually drafted so as to be effective only after the offer becomes unconditional.127 A conditional offer must specify a date not less than seven days and not more than 14 days before the offer period closes for the publication of the notice referred to in s 630(3): s 630(1). This notice advises of the status of the conditions: see 11.5.

123 Hills Motorway Ltd [2002] NSWSC 897 [9]–[13]; ABB Grain Ltd [2010] FCA 1309 [10]; Prime Infrastructure Holdings Ltd [2010] NSWSC 1104 [8]–[21]. 124 At general law, the purchaser is entitled to such distributions and rights which accrue after the beneficial ownership of the share passes: Re Wimbush [1942] Ch 92; Re Kidner [1929] 2 Ch 121. Beneficial ownership would generally pass once the offer is accepted unless the offer is subject to a condition which the bidder cannot waive: McWilliam v McWilliam Wines Pty Ltd (1964) 114 CLR 656, 661; Brown v Heffer (1967) 116 CLR 344, 350. For an example where a non-renounceable rights issue was made after a bidder’s statement was served, see Consolidated Gold Mining Areas NL v Southern Goldfields NL (1985) 13 ACLR 456. 125 WMC Resources Ltd [2005] ATP 3; Rinker Group Ltd 02 [2007] ATP 17; and Rinker Group Ltd 02R [2007] ATP 19. Also see Corporations Act, ss 619(2)(b) and 650B(1)(g), which deal with some of the issues that arise in relation to dividend entitlements during takeover bids. On adjustments for franking credits, see [8.40.30]. 126 Tyndall Pacific Ltd v ANZ Nominees Ltd (1991) 4 ACSR 535. 127 See Sydney Gas Ltd 01 [2006] ATP 9 [83]–[86] for discussion of an offer where the power to attend or vote at a meeting or attend as a proxy was effective immediately on acceptance. The Panel considered that such a term would not give rise to unacceptable circumstances if it was adequately disclosed. See also Crescent Gold Ltd 02 [2011] ATP 14. Under the UK Takeover Code, a bidder may only exercise such a power in order to satisfy the last remaining condition to which the bid is subject.

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8.8 Form of acceptance [8.80] The form of acceptance should be well designed in order to ensure that offerees are able to complete it properly. It should clearly state how and by when128 the form should be signed and returned to the bidder. The form usually contains various statements and representations by the accepting shareholder including an appointment of the bidder (or its officers) as an attorney to correct any errors and to exercise the shareholder’s rights prior to registration of the transfer. It should be checked against the target’s constitution to ensure there are no special formalities which must be satisfied before the form would be effective to transfer the shares or enable the bidder to vote the shares. Once the acceptance form is returned (if the bid class securities are not quoted) or an acceptance is effected via the securities clearing house (if they are quoted), a binding contract will arise and the shareholder cannot withdraw his or her acceptance.129 However, the Takeovers Panel has power to cancel the contract, give the accepting shareholder the option to withdraw from it or order acceptances to be returned, which it may exercise if they have been made in genuine error and the bidder was promptly alerted to the mistake.130

128 See Qantas Airways Ltd 02 [2007] ATP 6 and Qantas Airways Ltd 02R [2007] ATP 7, where the Takeovers Panel (and Review Panel) declined an application which sought orders the effect of which were to treat an acceptance received approximately five hours after the closing time as having been received before that time. Section [10.30] discusses the effect of an acceptance in more detail. 129 Colortone Holdings Ltd v Calsil [1965] VR 129, 137–38 per Gillard J; Scott v HS Lawrence & Sons Pty Ltd (1982) 6 ACLR 579, but see s 650E which allows an offeree to withdraw the acceptance of a conditional offer following an extension to the offer period of more than one month. 130 Section 657D(1) and para (k) of the definition of “remedial order” in s 9. Contrast Pinnacle VRB Ltd 10 [2001] ATP 21a (confirmed: Pinnacle VRB Ltd 11 [2001] ATP 23) with Golden West Resources Ltd 03 and 04 [2008] ATP 1 (confirmed: Golden West Resources Ltd 04R [2008] ATP 2), where the Panel declined to order that a disputed acceptance be returned mainly because of the delay in the matter being raised (23 days against three to four days in Pinnacle) and as the disputed acceptance arose as a result of an unauthorised action, rather than a mistake. The Panel also ordered that acceptances might be withdrawn because of a deficiency of information, in Goodman Fielder Ltd [2003] ATP 1; and cancelled them outright, where information was defective, in Sydney Gas Ltd 01 [2006] ATP 9. Panel orders are discussed at [21.30].

Chapter 9

Bidder’s Statements [9.10] [9.20] [9.30] [9.40] [9.50] [9.60] [9.70]

9.1 9.2 9.3 9.4 9.5 9.6 9.7

General purpose and format. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 General approach to bidder’s statements . . . . . . . . . . . . . . . . . . . . . 196 Specific disclosure requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199 Consent for third-party statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 224 Lodgment of the bidder’s statement . . . . . . . . . . . . . . . . . . . . . . . . . . 227 Service of the bidder’s statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227 Supplementary and replacement bidder’s statements . . . . . . . 228

9.1 General purpose and format [9.10] A takeover bid will generally be presented to shareholders in the form of a booklet prepared by the bidder. It will comprise the formal terms of the offer, disclosures under the bidder’s statement and an acceptance form. Offers under a takeover bid may not be dispatched unless contained in or accompanied by a bidder’s statement: s 633. The bidder’s statement is intended to satisfy the objective of the legislation that shareholders and directors know the identity of a person who proposes to acquire a substantial interest in the company and to supply some of the information sufficient to enable them to assess the merits of such a proposal. These comprise two of the Eggleston principles enshrined in s 602. At the same time, however, the framework of the takeovers legislation assumes that criticism of the commercial desirability of the offer will be dealt with in the target’s statement.1 The bidder’s statement is usually the most important component of the bidder’s campaign to encourage target shareholders to accept the bid. Accordingly, as well as satisfying the specific disclosure requirements of s 636 (discussed in 9.3 below), it must include any other information that is known to the bidder and is material to the making of a decision by a holder of bid class securities whether to accept an offer under the bid.2 This general disclosure requirement is now the main yardstick against which the contents of a bidder’s statement are assessed. 1

QIW Retailers Ltd v Davids Holdings Pty Ltd (No 1) (1992) 8 ACSR 245.

2

Section 636(1)(m). This obligation is subject to exclusions for information which it would be unreasonable to expect the bidder to include because it has already been disclosed to the holders (s 636(1)(m)(iii)), or which relates to the value of securities offered as consideration under the bid (unnumbered paragraph at end of s 636(1)).

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The preparation of the bidder’s statement is usually time-consuming due to the extensive disclosure requirements which apply to it. A bidder should commence preparation of the statement early in order to avoid any delays once the bidder is ready to launch its bid. Generally, the statement would be prepared by the bidder’s lawyers with input from any financial advisers and the company secretary or general counsel. A questionnaire to relevant directors and executives can assist in the efficient collation of the information. Marketing section [9.10.10] It is usual for the booklet containing the bidder’s statement to contain, generally in the first section, the key selling or marketing messages for the offer. This would usually include a chairman’s letter and, if the bid is recommended, possibly a letter from the chairman of the target. This marketing section:3 •

summarises the bidder’s key reasons why target shareholders should accept the bid (often repackaging information contained elsewhere in the bidder’s statement, but typically containing further information, such as the premium over recent share prices of the target or recent share performance of the bidder compared to the target);

•

is the primary information intended to affect the decision of shareholders to accept or not; and

•

is the part of the document which is most likely to be read.4

Formerly, the bidder usually prepared the marketing section separately from bidder’s statement proper, and often did not provide it to the target at the same time as it first gave the target the bidder’s statement. In part, this was to allow the offer booklet to be updated to take account of developments (including the market’s reaction to the bid) that occurred in the two weeks between release of the bidder’s statement and the time of dispatch to shareholders.5 The legislation contemplates that the booklet containing the bidder’s statement may contain other material when it is dispatched to offerees, even if the material has not been given to the target previously.6 However, the Takeovers Panel has now made clear that it will 3

It is sometimes referred to as “wrap information” as previously it was often prepared separately from the bidder’s statement, printed on better quality paper and then bound around the bidder’s statement proper prior to dispatch to target shareholders.

4

It is also the section of the bidder’s statement most often found to contain material defects or misleading statements.

5

This practice relied on s 633(6), which requires the bidder to give the target, ASIC and the ASX a copy of all additional information sent to offerees with the bidder’s statement. The Panel’s view is that only information which is not material to shareholders can be sent to shareholders in reliance on s 633(6) without being sent to the target with the service copy of the bidder’s statement. See 9.7 for updates which ASIC allows to be made in a bidder’s statement after lodgment and before dispatch.

6

GIO Australia Holdings Ltd v AMP Insurance Investment Holdings Pty Ltd (1998) 29 ACSR 584, not following Solomon Pacific Resources NL v Acacia Resources Ltd (1996) 19 ACSR 238.

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generally constitute unacceptable circumstances for material containing selling messages or other relevant information to be sent with the bidder’s statement without having been lodged with the bidder’s statement and given to the target with the bidder’s statement.7 This is to ensure that ASIC and the target directors have the statutory two-week period prior to dispatch of the bidder’s statement to shareholders to consider the information. Accordingly, marketing messages are now set out in the bidder’s statement itself, rather than in another document. Value of Securities [9.10.20] Takeovers Panel proceedings concerning a bidder’s statement often relate to disclosure of information about the value and price of bid class securities, relative to the consideration under the bid. The price per bid class security offered under a bid for control of a company is often much higher than market prices for parcels which do not affect control, which is often taken to represent the prices at which the securities would trade in the absence of a bid.8 The pre-bid market price may also be anomalously low, compared to the prices at which comparable securities trade, for reasons specific to the target. In one matter, the independent expert concluded that the bid class shares had traded at 40% less, relative to earnings, than comparable securities and that on a control basis the bid class securities were worth more than double the pre-bid market price.9 The bidder’s statement usually discusses the premium being offered, relative to the previous market price. Because market prices fluctuate over time and tend to reflect the bid price once it is known, there is often scope for disagreement as to the proper basis from which to calculate the premium. For instance, it may be misleading to calculate a premium from the market price of bid class securities over a period during which it was anomalously low, or from anomalously high prices for securities offered as consideration.10 In general, the Panel requires that the bidder’s statement disclose the most recent market price for bid class securities (and, if

A copy of the other material must also be lodged with ASIC and given to the target and each stock exchange where the target is listed: s 633(6). 7

Southcorp Ltd [2005] ATP 4 and Takeovers Panel Guidance Note 18: Takeover Documents, [20].

8

More accurately, portfolio parcels of securities are worth less per security than control parcels, for reasons discussed in Lonergan, The Valuation of Businesses, Shares and other Equity (4th ed, Sydney, Allen & Unwin, 2003). This discount for divided control varies greatly, but figures in excess of 25% are common. An example is analysed in Coleman v Myers & Paddington Holdings Ltd [1976] NZHC 5; [1977] 2 NZLR 225.

9

Grant Thornton, in a report accompanying the explanatory memorandum issued by Ludowici Ltd for a meeting on 31 May 2012, to consider the acquisition of the company by scheme of arrangement for three times the pre-bid price.

10 See Takeovers Panel Guidance Note 18: Takeover Documents, [25]–[27]. Among many Panel decisions on point, see the discussion of principles in General Property Trust [2004] ATP 30; and Programmed Maintenance Services Ltd 02 [2008] ATP 9.

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relevant, securities offered as consideration).11 It is common and generally acceptable to include also the most recent price which was not affected by takeover speculation, but which prices should be mentioned and what comments on them should be made depend on the history of the price of those securities and of the influences on that price.12 A graph comparing the price or profit histories of bidder and target raises similar issues. It also raises concerns over comparing like with like. The respective histories of bidder and target should be dealt with in ways which are consistent with one another and also appropriate to the entities as they stand today: for instance, the dividends of each should be dealt with in a fair and consistent way,13 and the effects of a major transaction may have to be allowed for, or the time period covered by the comparison may have to be curtailed so that it is not affected by that transaction. Forward-looking Statements [9.10.30] In preparing disclosures for a bidder’s statement, there is often a question whether the bidder should make any statements about future matters and, if it does, how much information it should include to justify or qualify those statements. In principle, although a forward-looking statement is taken to be misleading unless the maker of the statement has reasonable grounds for it,14 that does not mean the grounds have to be spelt out in the bidder’s statement.15 However, a claim about a bidder’s expertise or track record may need to be justified, essentially demonstrating a reasonable basis for such a claim.16

9.2 General approach to bidder’s statements [9.20] A bidder’s statement must include the information prescribed in s 636(1) and must not contain any statements that are misleading. Failure

11 General Property Trust [2004] ATP 30; Consolidated Minerals Ltd 03 [2007] ATP 20. 12 Programmed Maintenance Services Ltd 01 [2008] ATP 7. In Queensland Ores Ltd [2009] ATP 8, the Panel pointed out that the market in the relevant shares was so thin and volatile that one day’s closing price did not provide a reasonable basis for a premium statement. 13 In Hastings Diversified Utilities Fund [2012] ATP 1, the bidder was required to correct a price comparison in which the consideration was valued cum dividend and the bid class securities were valued ex dividend. Several comparisons were considered in Alinta Ltd [2006] ATP 14 [47]–[70]. 14 Section 670A(2), for documents listed in s 670A(1) (bidders’ and targets’ statements and supplementary statements, offers and variations, compulsory acquisition and buy-out notices and reports accompanying any of those documents), s 769C, for other documents and oral statements. 15 Ashton Mining Ltd [2000] ATP 9, where the Panel was concerned that requiring supporting evidence to be published with every statement about the future would lead to an infinite regress: relevant evidence would itself relate to the future and would equally need supporting, but see Sydney Gas Ltd [2006] ATP 9 [78] and SA Liquor Distributors Ltd [2002] ATP 22 [28]–[33]. 16 Australian Leisure & Hospitality Group Ltd 01 [2004] ATP 19; Qantas Airways Ltd [2007] ATP 1. Forward-looking statements are discussed at [9.30.60].

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to meet this standard may lead to criminal or civil sanctions (s 670A and 670B), but will not make the takeover bid illegal. They may, however, lead to an order from the Takeovers Panel to correct the document or issue a supplementary statement. This can create a delay in dispatch or extend the time the target has to issue its formal response. As delay can have strategic consequences for the bid process, the first line of defence by the target of a hostile bid is generally to comb through the document in great detail and seek amendments to the bidder’s statement based on any misleading statement or non-disclosure of material information. The courts developed a number of rules about the approach to take in reviewing a bidder’s statement to determine whether it met the requirements of the legislation.17 The general approach is to read the statement fairly as a whole and not in discrete parts or selectively, remembering that the words are being used by business people in a manner well understood by them. The legislative requirements should be construed in light of their application to commercial dealings and practice, provided that the information given would be the kind of information one may assume the legislature had in mind that shareholders should receive to determine whether or not to accept the offer.18 The fact that a supplementary statement has been or may be sent should not ordinarily influence a decision as to whether the statement complies.19 In considering whether to restrain dispatch because of a technical contravention, influential factors may be the ability of the target company directors to remedy any deficiencies in their target’s statement20 and the power to order the bidder to issue a supplementary statement. In particular, because the Takeovers Panel has a general preference for avoiding restraining dispatch of the bidder’s statement for more than a few days wherever possible,21 it often deals with a non-disclosure of material information or a misleading statement by requiring supplementary statements. On the other hand, the Panel is likely to order that the original document not be dispatched until it has been corrected, if it finds that a

17 The issues relevant to whether a bidder’s statement complies with the legislation, and what remedial orders should be made if it does not, were reduced to 11 principles by Tamberlin J in Pancontinental Mining Ltd v Goldfields Ltd (1995) 16 ACSR 463. 18 Colortone Holdings Ltd v Calsil Ltd [1965] VR 129, 137 per Gillard J; see also comments of Young J in Austen & Butta Ltd v Shell Australia Ltd (1992) 10 ACLC 735, 738. 19 See ICAL Ltd v County Natwest Securities Australia Ltd (1988) 13 ACLR 129, 137 per Bryson J. 20 Associated Dairies Ltd v Central Western Dairy Ltd (1993) 11 ACSR 234; Kresta Holdings Ltd v CHKP Capital Pty Ltd (1998) 26 ASCR 486; Savage Resources Ltd v Pasminco Investments Pty Ltd (1998) 30 ACSR 1. 21 Takeovers Panel Guidance Note 5: Specific Remedies—Information Deficiencies, [5]–[22]. In Gantry Acquisition Corporation v Parker & Parsley Petroleum Australia Pty Ltd (1994) 14 ACSR 11, 564–65, Sheppard J said that when an order is sought to restrain the dispatch of an offer, it must be clear that the breach of the legislation relied upon is real and of substance, and involves the withholding of relevant information from shareholders. Otherwise there is a risk that the public interest in a competitive market will suffer.

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misstatement in the document is likely to convey misinformation which it will be difficult to correct by a supplementary document, or if it is concerned that shareholders receive one correct and coherent document, rather than a series of documents, each correcting a previous one. The basic standard of materiality in a bidder’s statement is whether the information in question might reasonably affect, or tend to affect, the decision of the ordinary shareholder whether to accept the bidder’s offer.22 Issues about the relevance and materiality of information proposed for inclusion in the statement need to be resolved in the light of this standard: information which will assist shareholders to decide whether to accept the bid, or whether to remain as holders should the bid succeed, is relevant, and may be material. On the other hand, although that information might be very valuable to shareholders, the bidder is not responsible for providing information which may assist shareholders to decide whether to accept an alternative bid or sell on market, or to assess the value of the target company to the bidder, the likelihood of the bidder increasing the price it offers or the likelihood of an alternative bid being made.23 In dealing with alleged failures to comply with the requirements of s 636(1), the Takeovers Panel has consistently been concerned principally to ensure that the bidder’s statement informs holders of bid class securities sufficiently, clearly and without distortion of the value of the bid consideration, the terms of the bid and any information peculiarly within the bidder’s knowledge which might influence their assessment of the bid or the value of bid class securities. It has treated the specific disclosure requirements of s 636(1) as secondary to whether the bidder’s statement provides information that holders can use in deciding whether to accept the bid. In general, however, the Panel has expected the target, rather than the bidder, to be the principal source of information about the target and as to the value of bid class securities.24 Where a bidder’s statement falls short of this standard, the Panel may require a bidder to send with or after a bidder’s statement a supplementary document intended to correct, clarify or add to the information in the bidder’s statement. The court has held that these powers lend themselves to a liberal construction: they are enabling provisions central to a statutory 22 Cultus Petroleum NL v OMV Australia Pty Ltd [1999] NSWSC 422; (1999) 32 ACSR 1 [13]; AAPT v Cable & Wireless Optus [1999] NSWSC 509 [130]. 23 Aberfoyle Ltd v Western Metals Ltd (1998) 28 ACSR 187, per Finkelstein J; Metal Manufacturers Ltd v Marsh Electrical Pty Ltd (1998) 29 ACSR 245, per Bryson J; Savage Resources Ltd v Pasminco Investments Pty Ltd (1998) 30 ACSR 1, per Hely J; Cultus Petroleum NL v OMV Australia Pty Ltd [1999] NSWSC 422; (1999) 32 ACSR 1, per Santow J; and AAPT v Cable & Wireless Optus [1999] NSWSC 509 [130]–[139] per Austin J, not following Samic Ltd v Metals Exploration Ltd (1993) 10 ACSR 652, Gantry Acquisition Corporation v Parker & Parsley Petroleum Australia Pty Ltd (1994) 14 ACSR 11 and Pancontinental Mining Ltd v Goldfields Ltd (1995) 16 ACSR 463. It is more consistent with the function of a target’s statement to comment on these collateral issues. 24 QIW Retailers Ltd v Davids Holdings Pty Ltd (No 1) (1992) 8 ACSR 245; Pancontinental Mining Ltd v Goldfields Ltd (1995) 16 ACSR 463, per Tamberlin J.

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scheme designed to facilitate the making and consideration of takeover offers and the making of informed decisions in a commercial environment, which is often volatile and requires dispatch and efficiency.25

9.3 Specific disclosure requirements [9.30] Section 636(1) prescribes a list of disclosures to be made in the bidder’s statement. These disclosure requirements do not limit one another.26 The specific disclosure obligations are not limited by reference to information known to the bidder,27 to confidentiality,28 or to materiality,29 although they should be construed by reference to the legislative policy of ensuring that offeree shareholders be enabled to make informed decisions whether to accept the bid.30 They are as follows. The identity of the bidder [9.30.10] The identity of the bidder must be disclosed: s 636(1)(a). If the bidder is a body corporate, it may be material to state the identity of the directors and major shareholders and disclose relevant details about them. It may also be material to disclose details of the principal activities of the bidder, particularly if these may be relevant to the bidder’s future intentions for the target company’s business. If the bidder is a special-purpose bidding vehicle, similar disclosures should be made about its principal. The date of the statement [9.30.20] The statement must bear a date: s 636(1)(b). This will usually be the date it is signed by the bidder. The bidder’s intentions [9.30.30] Disclosure must be made of the details of the bidder’s intentions31 regarding: 25 Target Petroleum NL v Petroz NL (1987) 12 ACLR 11, 22 and Australian Consolidated Industries Ltd v Rossington Holdings Pty Ltd (1992) 7 ACSR 515, 517 per Davies J, concerning precursors to ss 657D(2) and 1325E and the definition of a remedial order in s 9. 26 Re Cumberland Holdings Ltd (1976) 1 ACLR 361, 368–69 per Bowen CJ in Eq; Re Evans Deakin Industries Ltd [No 2] (1980) 5 ACLR 322, 324 per Campbell J. 27 The general disclosure obligation in s 636(1)(m), however, is limited to information known to the bidder: see QIW Retailers Ltd v Davids Holdings Pty Ltd (No 1) (1992) 8 ACSR 245, 251 per Heerey J. The defences in s 670D may be relied on in criminal and civil actions, but not against remedial orders. ASIC has a policy of giving some relief from ss 636(1)(h), (i) and (l): see [9.30.80]. 28 National Foods Ltd 01 [2005] ATP 8. 29 In AAPT v Cable & Wireless Optus [1999] NSWSC 454 [36], Austin J said that the legislature required these matters to be disclosed, regardless of whether they would otherwise be considered material. 30 AAPT v Cable & Wireless Optus [1999] NSWSC 509 [45] per Austin J. 31 For this purpose, views of individual directors are not relevant unless they represent the views of the bidder: Stirling Resources NL v Capital Energy NL (1996) 14 ACLC 1005 and,

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•

the continuation of the business of the target;

•

any major changes to be made to the business of the target, including any redeployment of fixed assets; and

•

the future employment of the present employees of the target: s 636(1)(c).32

The purpose of the disclosure is to enable shareholders to gauge what is likely to happen to the company if the bid is successful. The provision was introduced at a time when there was widespread concern that takeovers were leading to asset-stripping, and was designed to enable a target shareholder to assess the likely effects of the takeover on the target’s business and employees, whether out of public-spirited concern or to decide whether to remain as a minority shareholder. Disclosure of planned asset sales may shed light on what valuation should be placed on the target or its assets which may assist the offeree in deciding what to do.33 An “intention” connotes a state of affairs which the intending party does more than merely contemplate. It connotes a state of affairs which the party decides to bring about as far as is within the power of the party and which the party has a reasonable prospect of being able to bring about. Accordingly, a bidder need not describe proposals concerning the target which it does not seriously intend to investigate or pursue, or which it regards as impracticable.34 Unless the bidder has a non-waivable 90% minimum acceptance condition, it is usual to present the bidder’s intentions in two scenarios, namely: •

if the bidder acquires 100% of the target; and depending on the bidder’s decision-making process, the relevant intentions may be formed by officers of the bidder who plan the bid, whether they are directors or not: AAPT v Cable & Wireless Optus [1999] NSWSC 509 [84]–[97] per Austin J.

32 Intentions concerning businesses, assets and employees of subsidiaries of the target may also be material: Gantry Acquisition Corporation v Parker & Parsley Petroleum Australia Pty Ltd (1994) 14 ACSR 11. If the target is a managed investment scheme, the bidder’s statement must also disclose intentions regarding the continued operation of the scheme and any plans to replace the responsible entity: s 636(1)(d). The history, policy and construction of s 636(1)(c) are discussed by Austin J in AAPT v Cable & Wireless Optus [1999] NSWSC 509 [50]–[83] and in AAPT v Cable & Wireless Optus [1999] NSWSC 454 [46]–[49]. 33 In A Note on Takeovers Bids and Corporate Purchases of Stock (1966) Business Lawyer 149, Manuel F Cohen argued that disclosure of a bidder’s intentions would inform what was in effect a decision whether to buy into “a new, or at least vastly changed company”, by retaining one’s shares in the target. In Pancontinental Mining Ltd v Goldfields Ltd (1995) 16 ACSR 463, Tamberlin J suggested that it also enables offerees to judge how valuable the acquisition will be to the bidder and therefore to make an informed assessment of whether the bidder may be prepared to pay more for the shares than its offer suggests. This may be so, but current orthodoxy is that it is not the object of the provision. 34 Cunliffe v Goodman [1950] 2 KB 237 (CA) [253]–[254] per Asquith LJ (applied in Cumberland Credit Corporation Ltd v TNT Australia Pty Ltd (1988) 13 ACLR 371; ICAL Ltd v County Natwest Securities Australia Ltd (1988) 13 ACLR 129.

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if the bidder does not acquire 100%, but still acquires a sufficient shareholding to obtain control.

If the bidder may obtain control without acquiring 100%, detailed disclosure of these matters, and of the bidder’s intentions regarding the target’s future dividend policy,35 is particularly important as in these circumstances offerees may remain as target shareholders.36 In this case, it is insufficient merely to state the bidder’s intention in the event of the takeover being successful and the bidder’s nominees then constituting a majority of target directors, and the bidder should set out its intentions should it fall short of acquiring outright control.37 However, it is not necessary to deal with every possible alternative.38 Section 636(1)(c) requires disclosure of intentions which the bidder has formed, but in general, it does not require the bidder to formulate intentions. In Mildura Co-operative Fruit Company Ltd [2004] ATP 5, however, the Takeovers Panel considered that because of the special nature of the target company, which was founded on co-operative principles, it was unacceptable for the bidder not to have formed and disclosed intentions relating to payments to suppliers to the company (many of whom were shareholders).39 The requirement is to provide details: a statement that the bidder will review and evaluate the target company’s assets if the bid is successful40 or will “rationalise” the target company’s assets if there is duplication with the bidder’s assets41 will be insufficient if in fact the bidder has specific plans in mind, even if those plans may be subject to further consideration. Similarly, a statement that the bidder will “integrate” the target’s operations with those of the bidder arguably does not comply with the requirement, unless it also spells out which operations are being considered for integration and whether the integration would affect the future employment of the present employees or further deployment of

35 Australian Leisure & Hospitality Group Ltd 01 [2004] ATP 19. 36 See Sirtex Medical Ltd [2003] ATP 22 where the Panel would have required greater disclosure of a proposed distribution agreement and proposed capital raising had the bidder not stated it would not waive the 90% minimum acceptance condition. See also Australian Leisure & Hospitality Group Ltd 01 [2004] ATP 19; and Pacific Energy Ltd [2004] ATP 23 where the Panel application resulted in the bidder making further disclosure as to its intention for managing conflicts of interest in relation to litigation between the bidder and the target should it acquire control, but not 100% of shares, under the bid. 37 Stirling Resources NL v Capital Energy NL (1996) 14 ACLC 1005. 38 Stirling Resources NL v Capital Energy NL (1996) 14 ACLC 1005. 39 Mildura Co-operative Fruit Company Ltd [2004] ATP 5 [82]–[97]. Also see Multiplex Prime Property Fund 01 and 02 [2009] ATP 18 [76]–[82], where the target was insolvent and business as usual was not an option. 40 Cumberland Credit Corporation Ltd v TNT Australia Pty Ltd (1988) 13 ACLR 371. 41 ICAL Ltd v County Natwest Securities Australia Ltd (1988) 13 ACLR 129.

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fixed assets.42 While statements about the bidder’s intentions may have to be imprecise where the bidder does not have access to sufficient target information, the Panel has required a bidder to provide further information on the nature and principal objectives of planned integration where the bidder acquired control but not full ownership.43 If the bidder has not made a decision on any of those matters, it may need to disclose each possible course of action it is considering (if any) and why no decision has been made.44 It need not mention a course of action, however, if it has no material foundation or has little prospect of being realised.45 It is permissible to add that a final decision will only be made after control is achieved if that is accurate.46 If the bidder refers to options available to it, it must explain the effect of each option on the target’s business, assets and employees.47 Where a bidder operated a business which competed with the target company and intended the target company to purchase that business if the bid was successful, it was required to disclose the value of the business, how the purchase would be financed and how the competing businesses would be operated prior to the purchase being effected.48 Where a bidder had entered into a joint venture with a major supplier of the target in relation to some of the target assets post-takeover49 or had agreed to sell some of the target’s assets post-takeover (for example, because of competition laws), it was required to disclose the material terms of those agreements. In each of these cases, however, it was possible for the bidder to acquire control, but less than 100% of the shares in the target. In such a case, the Panel has insisted that information about the future conduct of the target’s business under the

42 Associated Dairies Ltd v Central Western Dairy Ltd (1993) 11 ACSR 234, AAPT v Cable & Wireless Optus [1999] NSWSC 509 [101] per Austin J, noting that in ICAL v McCaughan Dyson & Co Ltd (No 2) (1987) 12 ACLR 436 Bryson J described the use of “strategic review” in this context as “indeterminate figurative language with vaguely military connotations”, which left to guesswork its meaning in the particular context. 43 Australian Leisure & Hospitality Group Ltd 01 [2004] ATP 19. 44 Taipan Resources NL 04 [2000] ATP 16. In AAPT v Cable & Wireless Optus [1999] NSWSC 454, following Savage Resources Ltd v Pasminco Investments Pty Ltd (1998) 30 ACSR 1 and Metal Manufacturers Ltd v Marsh Electrical Pty Ltd (1998) 29 ACSR 245, Austin J suggested obiter that “that proposition may not be universally true”. 45 See ASIC Regulatory Guide 9: Takeover bids, RG 9.258–RG9.270. See also Kent, “Implications for Disclosure in Takeover Documents after the ICAL and Cumberland Credit Decisions” (1988) 6 C&SLJ 282. 46 Savage Resources Ltd v Pasminco Investments Pty Ltd (1998) 30 ACSR 1; SGIO Insurance Ltd v Wesfarmers Insurance Investments Pty Ltd (1998) 29 ACSR 207. 47 Gantry Acquisition Corporation v Parker & Parsley Petroleum Australia Pty Ltd (1994) 14 ACSR 11. 48 QIW Retailers Ltd v Davids Holdings Pty Ltd (unreported, Sup Ct Qld, White J, No 848 of 1992, 12 June 1992); QIW Retailers Ltd v Davids Holdings Pty Ltd (No 1) (1992) 8 ACSR 245. 49 See National Foods Ltd 01 [2005] ATP 8 [39]–[48] for a discussion of the extent of disclosure required in relation to a proposed joint venture.

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bidder’s control is information squarely relevant to the offeree’s choice whether or not to accept the bid.50 In framing the disclosure, it is essential to be precise in setting out the particulars of the intended course of action.51 A statement will be misleading if it creates the impression that the bidder is much less (or much more) advanced in its planning for the target than is in fact the case.52 If the bidder intends to use the target’s cash for corporate acquisitions or entrepreneurial investments, it is insufficient to refer to identifying investments which will earn a higher yield than existing bank deposits.53 On the other hand, the bidder should not overstate the precision or detail of the intentions it has formed: where a bidder had merely identified certain operations of the bidder and target which should be combined, it was not required to decide or spell out how it would combine them.54 Where there is a complex proposal, however, materiality of information involves difficult questions of commercial judgment and matters of degree as to future conduct about which there can be honest and reasonable differences of opinion. The statement should illuminate the issues rather than confuse them by canvassing all the pros and cons of every possibility. The objective is to present a document which can be understood by members of the public and which does not confuse. This includes a considerable degree of selectivity designed to confine the information to that which is really useful.55 An avalanche of trivial detail is to be avoided.56 A statement of the bidder’s intentions may imply a statement as to a future matter, which will be taken to be misleading, unless the bidder has a reasonable basis for it. Generally, of course, the bidder knows the basis of the statement. The statement may, however, be misleading if it implies that a future course of action will be feasible, without a reasonable basis.57

50 Australian Leisure & Hospitality Group Ltd 01 [2004] ATP 19 [15]. 51 Gantry Acquisition Corporation v Parker & Parsley Petroleum Australia Pty Ltd (1994) 14 ACSR 11. In that case, the judges disagreed on the level of particularisation of the intentions required and whether it was necessary to explain any technical terms used in the disclosure. Arguably, disclosure in terms of a general statement expressed to be “subject to” specific comments followed by extensive exceptions is misleading: see at 26 per Burchett J. 52 Ampolex Ltd v Mobil Exploration & Producing Australia Pty Ltd (1996) 19 ACSR 345; National Foods Ltd 01 [2005] ATP 8. 53 Samic Ltd v Metals Exploration Ltd (1993) 10 ACSR 652 (approved on appeal: Samic Ltd v Metals Exploration Ltd (1993) 60 SASR 300). 54 AAPT v Cable & Wireless Optus [1999] NSWSC 509 [101] per Austin J. 55 See National Foods Ltd 01 [2005] ATP 8 [39]–[48] for a discussion of the extent of disclosure required in relation to a proposed joint venture. 56 Fraser v NRMA Holdings Ltd (1995) 15 ACSR 590, 603; TSC Industries Ltd v Northway Inc 426 US 438 (1976), 448. 57 Midwest Corporation Ltd 01 [2007] ATP 33; Fosters Group Ltd [2011] ATP 15, GoldLink Income Plus Ltd 03 [2008] ATP 21.

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Lodgment with ASIC [9.30.40] In an off-market bid,58 the bidder’s statement must state that it has been lodged with ASIC, but that ASIC takes no responsibility for the content of the statement: s 636(1)(e). Sources of cash consideration [9.30.50] If the consideration includes cash, and the bidder is to provide all or some from its own funds, the bidder’s statement must contain details of the cash amounts (if any) held by the bidder for payment of the consideration: s 636(1)(f)(i). If the cash is to be provided from another source, details must be given of any other person who is to provide, directly or indirectly, cash from that person’s own funds and details of the arrangements by which the cash will be provided: s 636(1)(f)(ii) and (iii).59 The object of this requirement is to ensure that sufficient information is given to establish whether the bidder is able to pay for the shares it offers to buy.60 The bidder is not obliged to have available to it all funds necessary to pay for the shares it may acquire, either under this disclosure requirement, or under s 631(2), which makes it an offence for a person to announce that they will make a bid if they are reckless as to their ability to perform their obligations if a substantial proportion of the offers under the bid are accepted.61 A bidder could satisfy the disclosure obligation by stating in the bidder’s statement that it had not organised any source of funds. If the bidder is to provide cash consideration from its own funds, it is only obliged to disclose details sufficient to identify the funds (for example, the name of the bank holding the funds and their amount) if the funds have already been committed for that purpose. This arises from the words “cash amounts (if any) held by the bidder for payment of the consideration”.62 If the funds have not been earmarked, the bidder may be required to disclose

58 This does not apply to a market bid because of an historical anomaly: s 635 allows the bidder’s statement for a market bid to be lodged after it is given to the target and the exchange, although on the same day. 59 The requirement to disclose particulars does not require the statement to state whether the financing arrangement is oral or in writing or to be implied, or its date: Parker & Parsley Petroleum Australia Pty Ltd v Gantry Acquisition Corporation (1994) 13 ACSR 689. 60 Peters (WA) Ltd v National Companies & Securities Commission (1986) 13 ACLR 487, 490 per Rowland J; Augold NL v Yaramin Pty Ltd (1987) 5 ACLC 295, 299 per Ryan J. 61 See ASIC Regulatory Guide 9: Takeover bids, RG 9.371–RG 9.372.The different requirements are analysed in Pinnacle VRB Ltd 04 [2001] ATP 7. 62 Wright Heaton Ltd v PDS Rural Products Ltd [1982] 2 NSWLR 301, 309 per Needham J, where the following disclosure was upheld: “The immediate sources of the cash consideration for the acquisition of the Shares will be the offeror’s own internal cash resources and a loan from its holding company Tooth and Co Limited; the amount of the loan facility made available by Tooth and Co Limited is $9,092,370 which is sufficient to fund the acquisition of all the Shares.”

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that fact as information material for offerees. The same approach applies if the cash reserves are those of an associate of the bidder.63 Where cash consideration is being obtained from a third party, the bidder’s statement must contain disclosure of the following.64 First, there must be disclosure of particulars sufficient to identify the person who is to provide, whether directly or indirectly, the cash from that person’s own funds: s 636(1)(f)(ii).65 It is not necessary to set out details of the financial position of the third party unless the third party is a lender which is not well-known in the Australian market.66 If a third party is contractually obliged to provide the full amount of the cash, it “provides” the funds even if it may subsequently syndicate the loan among other lenders.67 If syndication occurs prior to the date of the bidder’s statement, it has been suggested that the disclosure of the syndicate may be required,68 but even in that event the original lender may still be regarded as providing the funds.69 This approach is consistent with the decision in North Sydney Brick & Tile Co Ltd v Darvall (1986) 5 NSWLR 662, where the bidder had arranged to borrow funds from one company which had a loan facility from an affiliated finance company, which intended to draw down funds provided by a bank. Details of the financing arrangement between the finance company and the bank were held to be not relevant as the finance company was (indirectly) providing the funds to the bidder. A stricter approach was taken in Australian Consolidated Investments Ltd v Rossington Holdings Pty Ltd (1992) 7 ACSR 341. The bidder was jointly owned by two shareholders. The bidder’s statement disclosed that the bidder had loan facilities from one shareholder and from the finance subsidiary of the other shareholder. Davies J considered this disclosure was 63 Savage Resources Ltd v Pasminco Investments Pty Ltd (1998) 30 ACSR 1. 64 This would seem not to apply to the situation where shares which would otherwise be allotted to foreign shareholders are instead sold by a nominee and the net proceeds are remitted to those shareholders: Stirling Resources NL v Capital Energy NL (1996) 14 ACLC 1005. 65 See Tower Software Engineering Pty Ltd 01 [2006] ATP 20 [53]–[64] for an example of where the Panel considered disclosure of bid funding to be inadequate because the bidder’s statement failed to identify the persons ultimately responsible for providing those funds. 66 Takeovers Panel Guidance Note 14: Funding Arrangements, 14.4. See also GoldLink Income Plus Ltd 03 [2008] ATP 21 [13]–[15]. 67 Broken Hill Pty Co Ltd v National Companies & Securities Commission (1986) 10 ACLR 470, 478 per Marks J. 68 See Kent, “Implications for Disclosure in Takeover Documents after the ICAL and Cumberland Credit Decisions” (1988) 6 C&SLJ 282, 288. On similar reasoning, it has been held that disclosure is required of the name of investors who are to subscribe equity capital to fund a bid if known before the date of the bidder’s statement: Aberfoyle Ltd v Western Metals Ltd (1998) 28 ACSR 187. 69 Broken Hill Pty Co Ltd v National Companies & Securities Commission (1986) 10 ACLR 470, 478 per Marks J.

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insufficient as it failed to disclose the identity of the person out of whose own funds the cash would be provided. The finance subsidiary was, in fact, to draw down funds from its parent company. Beaumont J considered that the failure to disclose the proportions in which the two immediate lenders to the bidder had agreed to finance the bid was also material. Davies J declined to express a view on that point. In Savage Resources Ltd v Pasminco Investments Pty Ltd (1998) 30 ACSR 1, disclosure of proportion was not required as no such proportional responsibility had been agreed. Secondly, there must be disclosure of particulars of the arrangements by which the cash will be provided by the third party to the bidder: s 636(1)(f)(iii).70 “Arrangements” includes arrangements whether legally binding or not.71 The courts’ approach to this question has been that, in the absence of unusual provisions, the disclosure requirement may be satisfied by describing the nature of the facility in the briefest terms. In Peters (WA) Ltd v National Companies & Securities Commission (1986) 13 ACLR 487, a disclosure of funding by “a credit facility of $16 million from Boston Australia Limited” was sufficient. The court said that further details of the facility would not be of much interest to offerees.72 In Augold NL v Yaramin Pty Ltd (1987) 5 ACLC 295, the court rejected an argument that disclosure must be made of the terms of the loan facility, such as the period for which it would be available, provisions for draw-down, whether funds were to be available before or after settlement, whether settlement was to be funded by the on-market broker and reimbursed by the lender, the interest and fees payable, the security required and the default provisions.73 In QIW Retailers Ltd v Davids Holdings Pty Ltd (unreported, Sup Ct Qld, White J, No 848 of 1992, 16 June 1992) it was held in interlocutory proceedings that references to a “loan facility”, draw-down subject to “usual” conditions precedent and there being no “unusual banking terms or conditions” applicable were too vague and raised a serious issue to be tried as to compliance. In addition, the courts have required the bidder’s statement to disclose any terms of the credit facility which may affect payment to an offeree. For instance, if the financing terms involve a contravention of the legislation and thereby affect the provision of funds,74 or the facility is

70 See Jolley, “Takeover Finance Disclosure: Simplicity v Certainty” (1994) 12 C&SLJ 53; Takeovers Panel Guidance Note 14: Funding Arrangements; and Skywest Ltd 01 [2003] ATP 10. 71 Target Petroleum NL v Petroz NL (1987) 5 ACLC 687, 695 per Full Court. 72 Peters (WA) Ltd v National Companies & Securities Commission (1986) 13 ACLR 487, 510 per Rowland J. See also Westel Co-operative Ltd v Foodland Associated Ltd (1987) 12 ACLR 60. 73 Augold NL v Yaramin Pty Ltd (1987) 5 ACLC 295, 299 per Ryan J. Similar comments were made in Associated Dairies Ltd v Central Western Dairy Ltd (1993) 11 ACSR 234. See also Bridge Oil Ltd v Parker & Parsley Petroleum (Australia) Pty Ltd (1994) 15 ACSR 240; Re Archaean Gold NL (1997) 23 ACSR 143. 74 Augold NL v Yaramin Pty Ltd (1987) 5 ACLC 295 (a put option financing arrangement was in breach of the general takeover prohibition).

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repayable prior to the close of the offer,75 or the facility is repayable on demand,76 disclosure is required. The availability and disclosure of funding for bids have been the subject of applications to the Takeovers Panel for declarations of unacceptable circumstances. Inadequate funding arrangements or inadequate disclosure of the arrangements may render a bid illusory and may militate against an efficient, competitive and informed market in the shares of the target, regardless of whether they breach the law.77 In Pinnacle VRB Ltd 04, the Panel rejected a submission that s 631(2) and 636(1)(f) covered the ground, so that the bidder need only to disclose whatever arrangements it had made, and point out that a bid which was illusory because the bidder could not pay for acceptances would take place in a false market. Instead, the Panel set out a policy based on the efficient, competitive and informed market principle in s 602(a), requiring a bidder to have sufficient funding arrangements in place to ensure the consideration offered under the bid could be provided.78 For funding arrangements to be sufficient, the bidder must have firm arrangements for access to have enough funds to pay for all the acceptances, which it may receive under its bid, whether directly or through firm arrangements with persons who have those funds. This requirement was qualified in Taipan Resources NL 1179 where the Panel said that whether or not funding arrangements are sufficient will depend on the facts and circumstances of each case and stated that, if it is clear from publicly available information that a bidder had capacity to pay for acceptances under the bid, it may not be necessary for the bidder to have firm arrangements. There need only be a reasonable basis to believe that

75 ICAL Ltd v County Natwest Securities Australia Ltd (1988) 13 ACLR 129 (one facility was repayable in such circumstances and another was not available unless confirmation was received that it would be repaid before the first facility). 76 Australian Consolidated Investments Ltd v Rossington Holdings Pty Ltd (1992) 7 ACSR 341. 77 Pinnacle VRB Ltd 04 [2001] ATP 7 [31]–[33]. In that matter, the Panel made a declaration of unacceptable circumstances because, at the time offers were dispatched, the bidder had only a “best efforts” funding agreement with a privately owned foreign company, which was unknown in the Australian market and which did not appear to have access to sufficient funds. The Panel made final orders stopping the takeover bid by ordering that the offers and contracts under the bid be cancelled. When the bidder finally produced evidence of sufficient funding, a review Panel allowed the bid to proceed: Pinnacle VRB Ltd 06 [2001] ATP 11. 78 This reasoning seems not to have been brought to the attention of Beach J, in Australian Securities and Investments Commission v Mariner Corporation Ltd [2015] FCA 589. Since that decision was made, the policy has been clarified in Panel Guidance Note 14: Funding Arrangements, [9]. 79 Pinnacle VRB Ltd 04 [2001] ATP 7; Taipan Resources NL 11 [2001] ATP 16.

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the bidder will be able to access funds (or other consideration80) to pay for acceptances within the necessary timeframe.81 In Goodman Fielder Ltd 01, at the time the takeover offers were made, the terms and documentations for number of loans that the bidder would require to fund its takeover offers had not been fully signed or settled, although commitment letters were in place. The takeover bid was subject to a number of conditions, including that the pre-conditions to funding were satisfied. The target applied to the Panel for a declaration of unacceptable circumstances, arguing that the financing condition made the bid essentially subject to the bidder’s control—in effect, a “self-defeating” condition in breach of s 629 (see [8.50.10]). The Takeovers Panel did not agree.82 However, the Panel noted that the financing conditions were complex and considered that there was a material risk of uncertainty as to the status of the bid and the conditions, and some lack of transparency as to the progress of the bidder satisfying the financing conditions.83 As a result, the Panel decided that the target shareholders should not be bound to any acceptance contract before the financing facilities were settled and documented as the Panel considered that this was information that the shareholders were properly entitled to receive in a bidder’s statement.84 The Panel decided that shareholders who accepted the bid before the facilities had been finalised should have the opportunity to withdraw their acceptance until the terms had been settled and the documents had been executed (and for a sufficient period afterwards for shareholders to assess the new information). The bidder provided appropriate undertakings for a withdrawal facility. On the basis of the proposed undertakings, the Panel 80 In Brickworks Ltd 02 [2000] ATP 8 [54]–[58]; and Colonial First State Property Trust Group [2002] ATP 15, the Panel applied similar considerations to a bidder’s ability to provide scrip consideration. In Patrick Corporation Ltd 01 [2005] ATP 17, the s 631 issue seems not to have been raised. 81 In Taipan Resources NL 11 [2001] ATP, 16 the bidder had a plan to raise the necessary funds through the sale of shares in another listed company. This plan fell through, but the bidder managed to arrange alternative funding to pay for acceptances under the bid. Although the Panel at first instance (Taipan Resources NL 10 [2001] ATP 5) made a declaration of unacceptable circumstances in relation to misleading disclosure about the funding, the bidder had not breached s 631(2) (reckless announcement of a bid) as it had alternative means of funding the bid. 82 The decision was based on part on the bidder having undertaken in its bidder’s statement to make its best efforts to finalise the funding. In a subsequent application to the Takeovers Panel, the target sought a declaration of unacceptable circumstances as the bidder’s financing had not been finalised, and as the bidder had not made an offer capable of acceptance, within two months after the bid had been announced: see Goodman Fielder Ltd 03 [2003] ATP 4. The Takeovers Panel rejected the target’s arguments stating that there was no basis for the assertion that s 631 required the bidder to finalise its financing within two months of the announcement of the bid and that there are many takeover offers which remain open for more than two months which remain subject to conditions for the entirety of the takeover bid. 83 Goodman Fielder Ltd 01 [2003] ATP 1 [41]. 84 Goodman Fielder Ltd 01 [2003] ATP 1 [42].

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did not consider that the bid offended the principles relating to funding certainty and disclosure in takeover bids. However, the Panel stated that it would have considered it “better practice” for the terms of the facilities to have been settled prior to the bidder giving its bidder’s statement to ASIC and the target.85 The Takeovers Panel has issued Guidance Note 14: Funding Arrangements, which sets out the approach the Panel expects. This largely consolidates the earlier decisions and the principles from Goodman Fielder Ltd 01 [2003] ATP 1, emphasising the desirability of a bidder ensuring that it has committed funding prior to making its takeover offers (if not prior to the bid being announced).86 The Panel states that the documentation should be settled and signed before the offers are sent to target shareholders, and that it does not wish to encourage the use of withdrawal rights as a substitute for timely preparation and finalisation of financing documentation. The Panel has taken a similar approach to the courts as regards disclosure of the details of funding arrangements. It has stated that a bidder is required to disclose only the “essential provisions” of the arrangements in sufficient detail for an offeree to obtain a reasonable understanding of whether or not the funds are likely to be available to pay for acceptances under the bid and any terms likely to affect the interests of shareholders who retain their shares after successful completion of the bid. This would require disclosure of any restrictions on the availability of the funds, including events of default, conditions precedent outside the bidder’s control or unlikely to be met and the status of events of default and conditions.87 Although there is no strict requirement for the bidder’s statement to disclose the total amount necessary to pay for all the shares subject to the bid, ASIC expects this to be disclosed.88 If the bid extends to securities issued during the offer period, the funding arrangement should be sufficient to pay for those securities.89 If acceptances are not expected from

85 Goodman Fielder Ltd 01 [2003] ATP 1 [46] and [57]. Generally see Takeovers Panel Guidance Note 14: Funding Arrangements. 86 And of avoiding a mismatch between the preconditions to the bidder being able to access funding and the defeating conditions of the bid: see Goodman Fielder Ltd 01 [2003] ATP 1 [59]. Such a mismatch has the potential to require offerees to sue the bidder for the price of their shares, or to prove in its liquidation: see Austock Group Ltd [2012] ATP 12 [58] and George Hudson Holdings Ltd v Rudder [1973] HCA 10; (1973) 128 CLR 387. 87 Taipan Resources NL 10 [2001] ATP 5; Goodman Fielder Ltd 01 [2003] ATP 1; Takeovers Panel Guidance Note 14: Funding Arrangements. 88 See ASIC Regulatory Guide 9: Takeover bids, RG 9.372–RG 9.373, which set out details of the funding arrangements that ASIC considers relevant. See also Austock Group Ltd [2012] ATP 12 [46]. 89 Takeovers Panel Guidance Note 14: Funding Arrangements, [14.7]; and Multiplex Prime Property Fund 01 and 02 [2009] ATP 18 [52]–[73]. Guidance Note 14, 14.9 also states that a bidder ought to have reasonable grounds for believing it can pay an increased price before announcing the price increase.

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some offerees (for example, associates of the bidder), disclosure should be made of that expectation and the basis for it. Disclosure of refinancing arrangements in the bidder’s statement may be necessary if they are material for offerees or continuing shareholders. This may be the case if the refinancing would require the bidder to sell or charge the assets of the target company after the bid or if the refinancing was required a short time after the end of the offer period.90 Securities as consideration [9.30.60] If the consideration includes securities91 which are issued by the bidder or an entity controlled by the bidder or by a parent company of the bidder, the bidder’s statement must contain the prospectus information that would be required for an offer under ss 710–713 of the Corporations Act.92 If the bidder offers securities in another entity which it does not control or of which it is not a subsidiary, this disclosure requirement does not apply, but further information may be required to avoid a declaration of unacceptable circumstances.93 If the offer allows a shareholder to elect to apply cash consideration under the bid to the purchase on-market of existing securities, the Panel has said that the disclosures required by s 636(1)(g) apply as the offer is, in substance, an offer of securities.94 The main determinant of the level of disclosure required under s 636(1)(g) is whether or not the securities being offered as consideration are continuously quoted securities. If they are, the bidder’s statement disclosure need only comply with the short-form prospectus requirements in s 713. If they are not, the disclosure requirement may be more onerous. If the securities being offered as consideration are in a class of securities that were continuously quoted securities at all times in the 12 months before the issue of the bidder’s statement (or options to acquire such securities) and the issuer did not have any relief from generally applicable continuous disclosure obligations in the legislation,95 the bidder’s statement need only include:

90 ICAL Ltd v County Natwest Securities Australia Ltd (1988) 13 ACLR 129, 138 per Bryson J. 91 For this purpose, “securities” does not include managed investment products, which are dealt with under the next disclosure heading in s 636(1)(ga). 92 Section 636(1)(g), as modified by ASIC Class Order [CO 13/521]. 93 Brickworks Ltd 02 [2000] ATP 8. The Panel relied on s 602(a) to remedy the oversight by which neither s 636(1)(g) nor s 636(1)(m) requires this disclosure. It did, however, acknowledge that the bidder was limited to using information published by the issuer of the securities: Brickworks Ltd 01 [2000] ATP 6 [41]. 94 SA Liquor Distributors Ltd [2002] ATP 22 [44]–[49]. 95 See s 713 and the definition of “continuously quoted securities” in s 9. ASIC has waived the requirement that the issuer not be exempted from continuous disclosure obligations in respect of some exemptions which do not affect the substance of continuous disclosure.

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(1) all information that investors and their professional advisers would reasonably require to make an informed assessment of the effect of the offer on the issuer and the rights and liabilities attaching to the securities, though only to the extent to which it is reasonable for investors and their professional advisers to expect to find this information in the bidder’s statement; and (2) a statement that explains that the issuer is subject to regular reporting and disclosure obligations and advises that copies of documents lodged in relation to the issuer may be obtained from ASIC;96 and (3) any confidential information that had not been disclosed to the stock market in reliance on the exception to ASX Listing Rule 3.1: s 713(5). The crucial part of the disclosure required will be explaining the effect of the takeover bid on the issuer. This will vary from case to case. Sometimes the disclosure may be quite extensive, such as where the target company is approximately the same size as, if not bigger than, the bidder. In other cases, the amount of disclosure may be quite small, such as where a large company makes a bid for a small company which would not impact significantly on the financial position of the larger company.97 The level of disclosure is a matter for careful judgment and must be made bearing in mind that, unlike the operation of s 713 in the context of a capital raising offered to existing shareholders, the offerees will have no prior information concerning the bidder. This will generally mean that fuller disclosure is required than would be needed for a rights issue.98 If the securities being offered are not continuously quoted securities or the bidder is not able to satisfy the other preconditions of s 713, the bidder’s statement must include the same information as would be required in a prospectus complying with the general disclosure obligations in s 710, as well as the specific disclosures listed in s 711. This means it must contain all information that investors and their professional advisers would reasonably require to make an informed assessment of the assets and liabilities, financial position and performance, profits and losses and prospects of the relevant issuer and the rights and liabilities attaching to the securities offered. This disclosure is subject to the qualification that the information must be such that it would be reasonable to expect to find it in the document and known or reasonably obtainable by the bidder and relevant having regard to the nature of the offer and the offerees.99 The requirement to set out information concerning the financial position of the issuer (s 710), or the effect of the offer on it (s 713), is generally satisfied

96 It is not necessary to list all the documents that have been lodged nor to attach copies of them. 97 Or where, as in Brickworks Ltd 02 [2000] ATP 8; or Patrick Corporation Ltd 01 [2005] ATP 17, the bidder offers to provide already-issued shares in a listed company. 98 Infratil Australia Ltd 02 [2000] ATP 1. 99 Re Primac Holdings Ltd (1996) 22 ACSR 212.

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in practice by setting out a pro-forma balance sheet and profit and loss statement for the merged entity based on historical and publicly available information. Any assumptions, qualifications and opportunities for rationalisation benefits should be set out.100 Often information is presented assuming various levels of acceptance (such as 50%, 75% and 100%), though the strict need for this has been doubted where the various results would be self-evident.101 Any forward-looking statement must have a reasonable basis, part of which may need to be set out, and speculation must be avoided.102 For instance, a statement that the acquisition will not dilute the bidder’s earnings may need to be justified in detail if the target is expected to suffer a decline in future earnings.103 Future earnings may be affected by the accounting standards dealing with goodwill, under which assets acquired are required to be recorded at the cost of acquisition. Where this exceeds the fair value of the identifiable net assets acquired, the excess must be recorded as goodwill. Goodwill is subject to an annual impairment test which requires consideration of the future benefits of the goodwill. To the extent the value of goodwill has been reduced, it must be amortised against the profit and loss account.104 It is not permissible to eliminate this difference by valuing shares issued as consideration on the basis of the fair value of the assets of the target company, rather than the prevailing market price.105 In showing the fair value of identifiable assets, it is acceptable for the bidder’s statement to refer to the general criteria of how the value has been determined without going into great detail.106 A forecast107 of profit or cash flow for the bidder or for the bidder and target on a merged basis is arguably material information for a shareholder in a scrip bid. Whether it must be included is a matter for judgment in each case, with the court mainly concerned with its reliability.108 Where such a 100 Primac Holdings Pty Ltd v IAMA (1996) 22 ACSR 454. In Perilya Ltd [2008] ATP 28, the Panel rejected merged historical financial statements because of material events after the balance date, and required the bidder to provide financial information which reflected those events. 101 Stirling Resources NL v Capital Energy NL (1996) 14 ACLC 1,005, 1,011 per Hill J. 102 Australian Consolidated Investments Ltd v Rossington Holdings Pty Ltd (1992) 35 FCR 226, 228–29 per Davies J; Email Ltd 03 [2000] ATP 5, and [9.30.130]. 103 Re Primac Holdings Ltd (1996) 22 ACSR 212. Similarly, in Magna Pacific (Holdings) Ltd [2007] ATP 2, a bidder was required to set out its grounds for saying the future performance of the target was not expected to be strong. 104 See 23.3 for accounting considerations. 105 Solomon Pacific Resources NL v Acacia Resources Ltd [No 2] (1996) 19 ACSR 677. See also 23.3. 106 Allstate Explorations NL v Beaconsfield Gold NL (1996) 20 ACSR 165. 107 The use of forecasts in target’s statements is discussed [14.40.20]. 108 GIO Australia Holdings Ltd v AMP Insurance Investment Holdings Pty Ltd (1998) 29 ACSR 584.

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forecast is made, the bidder needs to consider whether it would be materially affected by an action, which it intends or an event which it expects to occur, such as a dilutive issue,109 disposal of a material asset (e.g. to satisfy foreign investment conditions)110 or debt becoming repayable (e.g. because of the change of control).111 In Pancontinental Mining Ltd v Goldfields Ltd (1995) 16 ACSR 463, after reviewing eight recent prospectuses and observing that the bidder had no track record, but that most of the necessary information was already in the Part A statement, but not correlated (at 472), Tamberlin J held that an earnings forecast for the bidder was required, covering a two-year period and spelling out any assumptions, qualifications and risk factors. However, his Honour rejected a claim that a discounted cash flow valuation of the bidder’s assets should be included, and stated that earnings forecasts may not be essential in every case as a matter of law. In Solomon Pacific Resources NL v Acacia Resources Ltd (1996) 19 ACSR 238, it was held that earnings forecasts and cash flow projections for the bidder, a listed company, were not required. McLelland CJ in Eq stated that there was a significant distinction to be drawn between facts and predictions.112 Predictions, whether in the form of forecasts or projections or in any other form, are inherently speculative and subject to contingencies of varying degrees of probability and foreseeability. The very inclusion in a bidder’s statement of such a prediction might well be potentially misleading. This is consistent with the general principle that speculation must be avoided. In Primac Holdings Pty Ltd v IAMA (1996) 22 ACSR 454, Dowsett J said he was “unpersuaded” that a cash flow statement was required, but he did not decide the point as the bidder offered to forward a statement to the shareholders. He also rejected an argument that performance forecasts beyond those provided for the current year were required. In GIO Australia Holdings Ltd v AMP Insurance Investment Holdings Pty Ltd (1998) 29 ACSR 584, Emmett J said that it was a matter of judgment for the directors of the bidder whether they had information which was reliable enough to provide a merged forecast and refused to overturn a decision not to include such a forecast. The Panel’s general approach is to require that, where a bidder does have reasonable grounds for providing forecasts, that information should be provided.113 If this is not possible, the bidder should explain the

109 Re Evans Deakin Industries Ltd [No 2] (1980) 5 ACLR 322. 110 FAI Investments Pty Ltd v Mercantile Mutual Holdings Ltd [1982] 2 NSWLR 206. 111 Bridge Oil Ltd v Parker & Parsley Petroleum (Australia) Pty Ltd (1994) 15 ACSR 240. 112 Solomon Pacific Resources NL v Acacia Resources Ltd (1996) 19 ACSR 238, 242 per McLelland CJ in Eq. 113 There is a careful discussion of the policy issues in PowerTel Ltd 02 [2003] ATP 27 [55]–[72]. See also Aztec Resources Ltd 01 [2006] ATP 28.

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uncertainties which prevent it from providing that information.114 Panel decisions also reflect the availability of reliable information rather than any blanket rule that forecasts should, or should not, be provided: •

In Infratil Australia Ltd 02 [2000] ATP 1, the bidder’s accounting profits and distributions depended on periodic valuations of its assets conducted by an independent valuer. As these could not be calculated reliably in advance by the bidder, the Panel did not require any forecast or projection to be included, but required the bidder to explain this factor and to keep the offer open until its preliminary announcement of the next half-year result.

•

In Taipan Resources NL 10 [2001] ATP 5, the Panel did not require any forecast beyond that set out (which was for the three months to the end of the current financial year) on the basis that, as a mining company whose financial performance was largely unpredictable because its resources consisted of small operations which were still being developed, such a forward statement would be speculative and therefore of little use to target shareholders. However, the Panel indicated a different result may follow for a mining company with developed resources with more predictable results.115

•

In Aztec Resources Ltd 01 [2006] ATP 28, having regard to various statements in the bidder’s statement as to the financial strength of the balance sheet and forecast cash flows, the Panel required that the bidder, a mining company, issue a supplementary bidder’s statement including a forecast for the remaining four months of the year.

•

In PowerTel 02, the Panel found that earnings forecasts which the target had provided to bidders were “mere projections,” because they were not accompanied by a careful statement of assumptions and risk factors, which the bidders, being industry participants, had not required, but without which they should not be published to shareholders.116

Whether a forecast is required to be included or not, a bidder may wish to include a forecast for commercial reasons. This may be the case, for example, to promote the merits of the acquisition and the bidder’s expected financial performance. Because a forecast is taken to be misleading unless the bidder has reasonable grounds for making it, a bidder should consider carefully whether to volunteer a forecast. If a forecast is included, this must be done in a way that enables shareholders to assess the reliability of the forecast, including assumptions,

114 Infratil Australia Ltd 02 [2000] ATP 1; Taipan Resources NL 10 [2001] ATP 5; Vincorp Wineries Ltd [2001] ATP 6. 115 This decision was affirmed by a review Panel, see Taipan Resources NL 11 [2001] ATP 16. 116 PowerTel Ltd 02 [2003] ATP 27 [55]–[72].

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qualifications and risks.117 If a bidder includes a revenue forecast alone, it may need to comment on costs of production or profit, and to discuss risk factors and sensitivity information.118 If an expert’s report commenting on the forecasts is included, the instructions and scope of work performed should be disclosed.119 The Panel takes the view that the policy laid down in s 602(b)(iii) (enough information to enable them to assess the merits of the proposal) requires a bidder making forecasts in a bidder’s statement “to disclose sufficient of the bases and assumptions underlying the statements to target shareholders to allow them to understand and assess the weight they should give to the forward looking statements”.120 This policy is explicitly additional to ss 670A and 769C, which require the bidder to have a reasonable basis for a forward-looking statement but do not require it to disclose that basis.121 The bases and assumptions are treated as part of the context in which the forecast is to be understood and assessed, not as disclaimers. Accordingly, the policy is not satisfied by setting out a formulaic catalogue of risks such as war, fire and drought. On the other hand, particularly where a forecast appears to depend on an assessment of confidential or incomplete business records, the Panel has accepted the signoff of an independent expert on its preparation.122 Similarly, the Panel has generally insisted that mineral assets be described in the terms, and measured according to the processes, required by the JORC Code.123 Where a bidder offers securities and has made a forward-looking statement about its own operational or financial performance, outside the bid

117 Re Primac Holdings Ltd (1996) 22 ACSR 212. See also DoloMatrix International Ltd [2008] ATP 10 where the Panel considered that it was inappropriate for a bidder’s statement merely to refer to previous announcements including forecasts. Instead the bidder should have confirmed that the forecasts were still accurate under current conditions and include the relevant assumptions underlying them. See also ASIC Regulatory Guide 170: Prospective financial information which, while aimed at fundraising disclosure documents, is also relevant to the use of forecasts and projections in takeover documents. 118 Sydney Gas Ltd 01 [2006] ATP 9 [64]–[73]. 119 Re Primac Holdings Ltd (1996) 22 ACSR 212; Wattyl Ltd [2006] ATP 11 [61]. If a forecast is made, information should be provided about the identity and experience of the persons who prepared the forecast and the data and methods used to compile the forecast. This is so users of the forecast can decide for themselves how much weight to put on “the element of judgment” involved in preparing the forecast: see Goodman Fielder Ltd 02 [2003] ATP 5 [50]. 120 Midwest Corporation Ltd 01 [2007] ATP 33 [17]; DoloMatrix International Ltd [2008] ATP 10 [15]; and see Hastings Diversified Utilities Fund [2012] ATP 1 [41]–[49]. 121 The approach in Ashton Mining Ltd [2000] ATP 9 [20] has been overtaken by SA Liquor Distributors Ltd [2002] ATP 22 [28]–33] and Sydney Gas Ltd [2006] ATP 9 [78]. 122 Wattyl Ltd [2006] ATP 11 [59]–[61]; cf Goodman Fielder Ltd 02 [2003] ATP 5 [46]–[50]. 123 Namakwa Diamond Company NL 02 [2001] ATP 9 [19]–[26]; Universal Resources Ltd [2005] ATP 6 [17]–[25].

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documents, the Panel has required that statement to be confirmed and qualified. In effect, the statement must be brought up to the standard required in a bidder’s statement, if it does not already meet that standard and the bidder does not expressly disclaim it.124 One bidder referred in its bidder’s statement to a financial forecast it had made a year earlier, relating to the current financial year. The Panel said it was inappropriate for the bidder to refer to the old forecast without confirming that it was still applicable or stating the assumptions on which it rested, and required the bidder to provide a supplementary bidder’s statement in which it confirmed the forecast and set out the assumptions.125 Another bidder had made forward-looking public statements in the context of the bid, though not in its bidder’s statement, about its operations, the strength of its balance sheet and its cash flow. It was required to substantiate those statements by making an operational and financial forecast in a supplementary bidder’s statement, relating to its own affairs (not those of the merged entity) for four months. The Panel acknowledged the bidder’s submissions as to the uncertainty of such a forecast, but said that the uncertainty was not so great that the bidder did not have a reasonable basis for the forecast, and that it should be dealt with by disclosing the assumptions and risks to which the forecast was subject.126 Where a statement regarding a future matter is clearly a statement of intention rather than a prediction, the Panel does not require the assumptions underlying the statement to be disclosed.127 The Panel may, however, treat the statement as misleading, if the bidder has no reasonable basis to believe that its intentions are feasible. Another matter for judgment is the period for which pro-forma merged group financial information should be provided. Generally, it is preferable to combine the most recent audited or half-yearly accounts of the bidder and the target. However, practical difficulties arise where the bidder and the target have different accounting periods and year-ends. In this case, if pro-forma combined information is to be provided some adjustments and

124 For the standard, see Guidance Note 5: Specific Remedies—Information Deficiencies, [17] and Fosters Group Ltd [2011] ATP 15 [24]–[25]. For withdrawing a statement, see Midwest Corporation Ltd 01 [2007] ATP 33 [33]–[42]. 125 DoloMatrix International Ltd [2008] ATP 10 [14]–[15]. It seems that the Panel may have treated the forecast as spent, had not the bidder refreshed it by referring to it. See also Midwest Corporation Ltd [2007] ATP 33 [20]–[25] in relation to previously released financial information in the market which was no longer valid. In those circumstances, it should be clearly explained that the information is no longer valid. 126 Aztec Resources Ltd 01 [2006] ATP 28 [47]–[59]. 127 Midwest Corporation Ltd 01 [2007] ATP 33 [41]–[44]; Fosters Group Ltd [2011] ATP 15 [28]–[34]; and GoldLink Income Plus 03 [2008] ATP 21 [30]–[36].

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assumptions will need to be made.128 Separately, if the bidder’s statement is issued some months after the last audited or half-year accounts, there is a question as to whether the financial information should be updated. In Perilya Ltd [2008] ATP 28 given the number of material developments and corporate actions as well as the volatility and decline of stock and commodities markets in the five months since the date of the last accounts, the bidder was required to provide more up-to-date financial information than the five-month-old accounts. Apart from the general disclosure requirements, s 711 will require the bidder’s statement to include other specific information, including: •

the nature and extent of the interests of directors, named advisers, promoters and named underwriters in the formation or promotion of the issuer in any property to be acquired in connection with that or the offer or in the offer;

•

the nature and value of any benefit given or agreed to be given to any director or other person mentioned above in connection with the offer;129

•

statements about the quotation of the securities being offered on relevant securities exchanges (in the same terms as required by s 625(3), discussed at [8.50.70]); and

•

an expiry date, which must be no later than 13 months after the date of the bidder’s statement.

It is also possible to incorporate information required by s 710, s 711 or s 713 by reference: s 712. This has been used in practice, for example, to incorporate by reference the bidder’s most recent annual report.130 If the bidder wishes to incorporate by reference information not required by those sections, an ASIC modification of s 636 would be required as there is no general provision in Ch 6 permitting incorporation by reference for bidder’s statements. Managed investment products as consideration [9.30.70] If a managed investment product is offered as under the bid and the bidder is the responsible entity of investment scheme (or controls the responsible entity), statement must include all material that would be required

consideration the managed the bidder’s by s 1013C to

128 In Perilya Ltd [2008] ATP 28 [20] the bidder was not required to disclose information in pro-forma financial statements that would have combined accounts for different past accounting periods. 129 This will require disclosure of the advisers’ fees if they are named in the bidder’s statement. If their name appears in a separate document that does not form part of the bidder’s statement, this disclosure requirement seems not to apply. 130 This practice was approved in Taipan Resources NL 11 [2001] ATP 5.

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be included in a product disclosure statement given to a person in an issue situation (within the meaning of s 1012B) in relation to that product.131 “Managed investment product” covers an interest in, and an option to acquire by way of issue an interest in, a managed investment scheme: s 761A, 764A(1)(b). Section 1013C requires extensive disclosures and information to be included in a product disclosure statement, including information about the benefits and risks of the product, expenses that may be deducted, any commissions and significant tax implications. The level of disclosure required is tested against what is reasonable for a retail investor. The general disclosure requirement in s 1013E is similar to that in s 710 for an offer of securities, but the specific disclosures required by s 1013D are different from those of s 711 and differ between one product and another. Certain information can be incorporated by reference if the product is a continuously quoted security.132 Pre-bid purchases [9.30.80] If the bidder or an associate133 provided, or agreed to provide, consideration for a security in the bid class under a purchase or agreement during the four months before the date of the bid, disclosure is required of the following information about the consideration:134 (1) the amount per security of any cash sum; (2) to the extent the consideration is quoted securities, the market price per security of those securities; and (3) in other cases, the value per security of that consideration: s 636(1)(h). If the last category is relevant, the bidder’s statement must also include an expert’s report whether the value stated is fair and reasonable: s 636(2).

131 Section 636(1)(ga), as modified by ASIC Class Order [CO 13/521]: see also ASIC Regulatory Guide 9: Takeover bids, RG 9.391–RG 9.392. 132 Section 1013FA, which partly corresponds with s 713, discussed in [9.30.60]. 133 The terms of s 636(1)(h) reflect those of s 621(3): see [8.40.30]. In this section and the next, a reference to an associate includes a person who was an associate of the bidder at the date of the relevant transaction, but who has subsequently ceased to be an associate: FAI Investments Pty Ltd v Mercantile Mutual Holdings Ltd [1982] 2 NSWLR 206. 134 ASIC is prepared to give conditional relief from the requirements of s 636(1)(h), (i), (k) and (l) insofar as they require a bidder to disclose information about a body corporate, which is an associate of the bidder under s 12(2)(a) (common control), but is a foreign company or a trustee of an externally managed superannuation fund, from which the bidder is unable to obtain the relevant information by reasonable efforts: ASIC Regulatory Guide 9: Takeover bids, RG 9.407–RG 9.417.

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Pre-bid benefits and inducements [9.30.90] If, during the four months before the date of the bid, the bidder or an associate135 gave, or offered to give or agreed to give a benefit to another person and the benefit was likely to induce the other person, or an associate, to accept an offer under the bid or dispose of securities in the bid class, and the benefit is not offered to all holders of securities in the bid class, details of the benefit must be disclosed: s 636(1)(i). This is based on the concepts relevant for s 623: see [11.40]. Convertible securities [9.30.100] If, under s 617(2), the bid is to extend to securities that come to be in the bid class during the offer period due to a conversion of or exercise of rights attached to other securities, a statement to that effect must be included.136 Securities on issue [9.30.110] For an off-market bid, the following details in relation to each class of securities in the target must be included: (1) the total number of securities in the class; and (2) the number in which the bidder had a relevant interest immediately before the first offer was sent (expressed as a number or as a percentage): s 636(1)(k). In recognition of the possibility that the bidder’s relevant interest may change between the date of the bidder’s statement and the date of dispatch of the offer, the information under (2) need not be specified in the bidder’s statement to be lodged with ASIC but can be included in the bidder’s statement prior to dispatch: s 636(1)(k)(ii).137 It is not strictly necessary to explain how the relevant interest arises unless that is material information for an offeree, though such explanation is frequently given in practice. As noted at [9.30.80], ASIC may grant relief so that shares and securities held by overseas associates need not be disclosed. Voting power [9.30.120] For an off-market bid, disclosure is required of the bidder’s voting power in the target company.138 135 See footnote to [9.30.80] on associates. 136 See s 636(1)(j) and [8.20.30] and [9.30.50] on funding. In Skywest Ltd 01 [2004] ATP 10 the Panel rejected an argument that it was unacceptable for a bid for ordinary shares not to be extended to ordinary shares issued on conversion of convertible securities. 137 See ASIC Regulatory Guide 9: Takeover bids, RG 9.418–RG 9.427, ASIC Class Order [CO 13/521] and discussion at [9.30.80]. 138 See s 636(1)(l) and [9.30.80] on relief to allow voting power to be disclosed as at the date of dispatch.

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Other material information [9.30.130] The statement must include any other information that: (1) is material to the making of a decision by a holder of bid class securities whether to accept an offer under the bid; (2) is known to the bidder; and (3) does not relate to the value of securities offered as consideration under the bid: s 636(1)(m). This is the most important disclosure requirement for a bidder’s statement. It requires very careful consideration, as it will embrace a wide range of matters. “Information”, in this context, excludes speculation and indefinite suggestions. Information will be “material” if it would tend to encourage or deter offerees from accepting the bid or would assume significance in the deliberations of the offeree,139 and particularly if it could reasonably affect a shareholder’s assessment of: •

the value of the bid consideration. If the consideration is securities, this will involve the same issues as affect the value of the bid class securities;

•

any risk that the bid consideration will not be provided, whether due to defeating conditions operating to illegality or to the bidder’s financing failing and

•

the effect of the bid on the value of any shares retained, including any risk to the target’s profitability, whether it exists already or results from the takeover, changes in dividend policy and whether the shares will continue to be quoted.

On the other hand, shareholders should look to the target’s statement as the principal and most reliable source of information on the value of the target company to the bidder, whether the bidder is likely to improve its offer, and the prospects of a competing offer.140 Information is known to a corporate bidder if known to those people who constitute “the brain and nerve centre, the directing mind and will” of the

139 Information is material if it might reasonably affect (or tend to affect) the decision of an ordinary investor whether or not to accept the offer: Cultus Petroleum NL v OMV Australia Pty Ltd [1999] NSWSC 422 (1999) 32 ACSR 1, per Santow J, citing US authorities; AAPT v Cable & Wireless Optus Ltd [1999] NSWSC 509 [130]–[139], per Austin J, discussing Australian authorities and rejecting a wider concept of materiality. See also Re Rossfield Group Operations Pty Ltd [1981] Qd R 372, per Connolly J referring to the test propounded by Farwell J in Cackett v Keswick [1902] 2 Ch 456, 464; TSC Industries, Inc v Northway, Inc 426 US 438 (1976). 140 The view taken in Pancontinental Mining Ltd v Goldfields Ltd (1995) 16 ACSR 463, 467 per Tamberlin J that the bidder’s statement should deal with these matters is no longer accepted: see [9.20].

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bidder.141 This is generally the directors, but may include other executives to whom the board has delegated authority to act with full discretion and without instructions.142 Knowledge of a mere servant or agent will not necessarily be sufficient, but a person may be taken to be aware of information of which an employee or agent having duties or acting on behalf of the employer or principal in connection with the matter is aware, though not if acting in a private capacity.143 A difficult question arises where a director of the bidder has relevant information gained in the capacity of a director of the target company or another corporation. This is discussed in detail in [6.20.20]. Previously, a target company may have been able to obtain an injunction restraining the bidder from dispatching a bidder’s statement which contained information obtained from the target company in confidence.144 However, the prohibition against commencing litigation in relation to a takeover contained in s 659B may mean that litigation to restrain dispatch cannot be launched.145 It is unclear whether the Takeovers Panel would restrain dispatch if a bidder’s statement contained confidential information, given the Panel’s general objective is to ensure relevant information is made available. However, arguably, allowing a bidder to disclose improperly obtained information detracts from the proper operation of an efficient market, in which case the Panel may be willing to prevent the information being disseminated. The Panel has suggested that, where a bidder has non-public information which is material to shareholders but which may be the subject of legal rights of the target that may restrict its inclusion in a bidder’s statement, the bidder should approach the target for consent to include the information in that document. If the target would be required to include the information in its target’s statement (or other similar information whose disclosure would not cause substantial commercial harm to the target), a failure to consent may in itself be an unacceptable circumstance

141 HL Bolton (Engineering) Co Ltd v TJ Graham & Sons Ltd [1957] 1 QB 159 (CA); Re Rossfield Group Operations Pty Ltd [1981] Qd R 372, 377 per Connolly J. Separate information held by an officer or agent may be aggregated with information held by another if there is a duty and opportunity to communicate it to the other: see Commonwealth Bank of Australia v Kojic [2016] FCAFC 186. 142 Tesco Supermarkets Ltd v Nattrass [1972] AC 153, 170 per Lord Reid. 143 El Ajou v Dollar Land Holdings plc [1993] 3 All ER 717. 144 Austen & Butta Ltd v Shell Australia Ltd (1992) 10 ACSR 556. See also Dunford and Elliott Ltd v Johnson and Firth Brown Ltd [1977] 1 Lloyd’s Rep 505 where dispatch was not restrained as the information had ceased to be confidential due to wide dissemination amongst potential underwriters; and Cultus Petroleum NL v OMV Australia Pty Ltd [1999] NSWSC 422; (1999) 32 ACSR 1 where it was held the confidentiality agreement permitted disclosure in a bid document. 145 See 21.6 for discussion of s 659B.

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as the refusal to consent would impair the information on which shareholders need to rely in considering the takeover bid.146 Information need not be disclosed under this heading if it relates to the value of securities offered as consideration under the bid: s 636(1)(m)(iii). This is to avoid the bidder having to provide prospectus-like information where the usual provisions applied by s 636(1)(g) or (ga) would not require such disclosure.147 Despite that, however, the Panel may declare unacceptable circumstances to exist if it considers there is inadequate information for shareholders due to the lack of such information.148 Information does not have to be disclosed under this heading if it would be unreasonable to require the bidder to do so because the information has previously been disclosed to holders of bid class securities: s 636(1). This exception will generally only be satisfied if the information has been sent to those shareholders. Dissemination by news media would be significant only if, as a result, it was probable that all shareholders had become aware of it.149 Material dispatched or released after the date of the bidder’s statement may be relevant in considering whether to order remedial action in respect of a breach.150 Although the bidder is not required to provide information to assist shareholders to assess the likelihood of an increase in the offer price or the merits of selling on-market or the merits or likelihood of any alternative transaction, the bidder’s statement should make clear the terms, process and effects of its bid. For instance, in particular cases bidders have been required to provide additional information about: •

restrictions on transfer of shares offered as consideration;151

•

regulatory activities which might affect the bidder, the target or the bid;152

146 Skywest Ltd 03 [2004] ATP 17 [58]. The Panel also noted that its position on disclosure of material information is similar to its position concerning obtaining consents under s 638(5) considered in Mildura Co-operative Fruit Company Ltd [2004] ATP 5 [44]–[48] and to that considered in relation to an information condition in Goodman Fielder Ltd 01 [2003] ATP 1 [69]. 147 Brickworks Ltd 02 [2000] ATP 8. For this purpose, interests in a managed investment scheme are securities, only if the scheme is registered: s 92(3)(c). 148 Brickworks Ltd 02 [2000] ATP 8, see also Pancontinental Mining Ltd v Goldfields Ltd (1995) 16 ACSR 463. 149 ICAL Ltd v County Natwest Securities Australia Ltd (1988) 13 ACLR 129, 141 per Bryson J. None of the decisions to date has taken express account of the fact that the public now have much fuller and quicker access to announcements made to the ASX and to company websites than they had even 10 years ago. 150 Kinwat Holdings Pty Ltd v Platform Pty Ltd [1982] Qd R 370. 151 Wright Heaton Ltd v PDS Rural Products Ltd [1982] 2 NSWLR 301. 152 ICAL Ltd v County Natwest Securities Australia Ltd (1988) 13 ACLR 129; Scott v HS Lawrence & Sons Pty Ltd (1982) 6 ACLR 579; Pancontinental Mining Ltd v Goldfields Ltd (1995) 16 ACSR 463.

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•

whether shares controlled by directors of the bidder would be counted towards a minimum acceptance threshold;153

•

the effect of a break-up of a long-standing cross-shareholding involving the target, and how it would be financed;154

•

in a scrip bid, acquisitions by the bidder’s holding company of shares in the bidder during the offer period;155

•

whether capital gains tax rollover relief might be available and the tax treatment of the bidder’s distributions;156 and

•

how the bidder could exercise options without contravening the legislation.157

Whether information is material in respect of a particular document, however, depends on its place in the assemblage of facts which are relevant to the decision to be made by the people to whom that particular document is addressed. Accordingly, a decision on whether information is material in one matter is of limited value in assessing whether similar information will be material in a different matter.158 If the bid may result in the bidder obtaining control of the target without acquiring all of the shares, information about the prospects of the target under the bidder’s control is relevant to a decision whether to accept the bid or retain one’s shares. This is partly covered by the specific disclosure requirements in respect of the bidder’s intentions and its financing arrangements, but it has been held to include where relevant: •

details of the financial position of the bidder,159 the track record of its existing business and who it would appoint to the target’s board;160

•

where the bidder was offering securities in itself and was party to a deed of indemnity with a parent company, a discussion of the parent’s financial position;161

153 Stirling Resources NL v Capital Energy NL (1996) 14 ACLC 1005, a case where the number of shares the directors controlled was significant. 154 Brickworks Ltd 02 [2000] ATP 8. 155 Or at least a statement that the holding company did not intend to make acquisitions, which would have a material effect on the bidder’s share price: Nexus Energy Ltd 02 [2006] ATP 25 [32]–[41]. 156 Infratil Australia Ltd 02 [2000] ATP 1; Brickworks Ltd 02 [2000] ATP 8. 157 Allstate Explorations NL v Beaconsfield Gold NL (1996) 20 ACSR 165. 158 For instance, in one anomalous matter a bidder was required to disclose a costs agreement under which a major shareholder in the target would reimburse some of the costs of the bidder should it be unsuccessful. This was probably less about financial disclosure than about association between the bidder and the shareholder: MYOB Ltd [2008] ATP 27 [43]. 159 QIW Retailers Ltd v Davids Holdings Pty Ltd (No 1) (1992) 8 ACSR 245. 160 Australian Leisure & Hospitality Group Ltd 01 [2004] ATP 19. 161 Email Ltd 02 [2000] ATP 5.

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•

where a bidder stated that the future financial performance of the target was not expected to be strong, the grounds and bases for the statement;162

•

the bidder’s assessment of the likely outcome of litigation, which might affect the relative values of convertible notes and shares issued by the target;163 and

•

a description of current litigation between bidder and target, including the best and worst case scenarios for the target and representations relating to how the litigation would be managed and handled by the target (for example, by a committee of independent directors).164

In general there is no need to include such information if the bid is a cash bid and the bidder intends to acquire all outstanding shares.165 An offer subject to a 90% minimum acceptance condition would suggest that the bidder intends to acquire all shares, but this may not be the case if the bidder retains the right to waive that condition.166 An extraordinary loss may not be material if it is offset by a substantial increase in the net tangible assets of the company,167 but the better view (and certainly the safer for the bidder to adopt) is that each change may be material even if it is offset by another change.168 The question whether information is material needs to be assessed in the light of all factors concerning the entity and the bid. In Austral Coal Ltd 01 [2005] ATP 11, the Takeovers Panel considered that a share price fall of 10% on the day that certain information was announced did not necessarily mean the information was material due to other factors present.

9.4 Consent for third-party statements [9.40] A bidder’s statement169 may only include, or be accompanied by, a statement by a person, or said to be based on a statement by a person if:

162 Magna Pacific (Holdings) Ltd [2007] ATP 02. 163 Ampolex Ltd v Mobil Exploration & Producing Australia Pty Ltd (1996) 19 ACSR 354. 164 Pacific Energy Ltd [2004] ATP 23. This was not the result of a decision by the Panel to that effect, but the result of negotiations between the bidder and the target on the disclosure in the bidder’s statement following application to the Panel. Nevertheless, it seems clear that the Panel supported this outcome. 165 Associated Dairies Ltd v Central Western Dairy Ltd (1993) 11 ACSR 234. 166 Parker & Parsley Petroleum Australia Pty Ltd v Gantry Acquisition Corporation (1994) 13 ACSR 689. 167 Unity APA Ltd v Humes Ltd (1986) 13 ACLR 501, 504–05 per Beach J. 168 That view was preferred by Connolly J in Re Pine Vale Investments Ltd (1989) 13 ACLR 757. See also Barrett, “Disclosure of Material Change in Company’s ‘Financial Position’ Since ‘Date of’ Last Balance Sheet” (1989) 63 ALJ 52. 169 As s 9 defines “bidder’s statement” to include a bidder’s statement “as supplemented”, the rule will also apply to a supplementary bidder’s statement.

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(a) the person has consented to the statement being included in the form and context in which it is included; (b) the bidder’s statement states that the person has consented; and (c) the person has not withdrawn the consent before the bidder’s statement is lodged with ASIC: s 636(3).170 This is intended to ensure that a statement is not attributed to a third party unless that person accepts responsibility for it and is based on the usual prospectus requirements.171 In practice, it can give rise to a problem when the third party refuses to consent or cannot be contacted (for example, because he or she is connected with the target). ASIC may be prepared to give relief in some circumstances (discussed below) on the basis that the lack of consent is noted. However, occasionally s 636(3) creates a real difficulty, if relief is not available and the statement is material and central to the merits of the offer.172 In that situation, it seems that the specific prohibition and the policy requiring third party consent overrides the policy of full disclosure of all material information under s 636(1).173 This approach may be open to criticism as it can preclude disclosure of all relevant information. In addition, the legislation does not require consent where a statement based on a third party statement is made outside a bidder’s statement, such as in an ASX announcement or a letter to shareholders (although the Panel has said that such action risks a declaration of unacceptable circumstances as the policy of s 636(3) would be contravened).174 ASIC has issued class order relief to deal with situations where citations of experts do not impair the policy underlying s 636(3). In particular, third party consent is not required for: •

statements made in, or based on statements made in, documents lodged with ASIC or given to the ASX. This relief is based on the premise that people making statements in a regulated context are at risk if they do not ensure that the statements are correct. The relief is

170 This provision is designed to prevent gaps in responsibility for statements: if the bidder attributed a material statement to another person who did not accept responsibility for it, neither the bidder nor the other person might be liable for the truth of the statement: Board of Trade, Report of the Committee on Company Law Amendment Cmd 6659 (London: HMSO, 1945) (Cohen Committee), [44]; Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661. 171 See item 10 in s 670B(1), ASIC Regulatory Guide 9: Takeover bids, RG 9.377–RG 9.411, Class Order [CO 13/523], ASIC Regulatory Guide 55: Statements in disclosure documents and PDSs: Consent to quote; and Great Mines Ltd [2004] ATP 1. Where the bidder cannot attribute the statement to its author, it may include the statement, without attribution, and plead reasonable reliance on the author, under s 670D(3). 172 See, for example, Ashton Mining Ltd [2003] ATP 09. 173 Mildura Co-operative Fruit Company Ltd [2004] ATP 5 in relation to the corresponding provision for a target’s statement in s 638(5). 174 Takeovers Panel Guidance Note 18: Takeover Documents, [20]. It would also deprive the bidder of the defences in s 670D.

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on the condition that the bidder will provide a copy of the document on request;175 and •

statements by official persons or from public official documents or statements published in a book, journal or comparable publication.176 The relief does not apply where the statement was made by the third party in connection with the bid, bidder, target or their businesses, although ASIC may consider case-by-case relief in such circumstances.177

References to broker or analyst valuations in relation to the target (or bidder) securities is an area where consent for third party statements is particularly relevant. Where a bidder’s statement discloses a broker’s valuation and names the broker, the consent of the broker is required in accordance with s 636(3). However, Takeovers Panel Guidance Note 18: Takeover Documents accepts that it is possible for a bidder to include an average of all broker valuations in a bidder’s statement without consent if no brokers are named. This is on the proviso that sufficient information is provided so that target shareholders can assess the proper weight that should be given to the average valuation.178 A bidder who does so, takes responsibility for the information, that is, that the average valuation is not false or misleading.179 The Panel states that an averaged valuation should include all available recent valuations (at least four) other than material outliers and provide the following information: •

the number of brokers whose valuations were aggregated;

•

the date range over which the valuations were given;

•

a measure of the dispersion of the valuations aggregated (such measures as the total range, standard deviation etc may be suitable);

•

the criteria used to select the valuations which make up the average (for example: “all publicly available valuations known to the bidder

175 ASIC Regulatory Guide 9: Takeover bids, RG 9.504–RG 9.508 and ASIC Class Order [CO 13/521]. Query whether this condition is still necessary, as regards ASX announcements. 176 ASIC Regulatory Guide 9: Takeover bids, RG 9.479–RG 9.491, Regulatory Guide 55: Statements in disclosure documents and PDSs: Consent to quote and ASIC Class Order [CO 13/523]. It is unlikely that a newspaper or website article would be a “comparable publication”. See also Volante Group Ltd [2006] ATP 2 [19] where the Panel considered that use of certain trading data from Bloomberg and IRESS (without their consent) may have been in breach of s 636(3)(b) and not within former ASIC Class Order [CO 03/635] (see also ASIC Information Release IR 05-04 (10 January 2005)). However, the Panel considered that, even if there was a breach, it was unlikely to mislead shareholders or the market and therefore there was no need to resolve the issue. 177 The class order relief used to extend to the reuse of ratings issued by certain ratings agencies, but has been amended to require the agencies’ consent. 178 Aurion Gold Ltd [2002] ATP 13 [80]; Southcorp Ltd [2005] ATP 4 and Takeovers Panel Guidance Note 18: Takeover Documents, in particular [21]–[24]. 179 Takeovers Panel Guidance Note 18: Takeover Documents, [35]; Southcorp Ltd [2005] ATP 4 [98].

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from the three months prior to the announcement of the bidder’s intention to bid”) and the reasons for selecting the criteria; •

whether any valuations which would otherwise fall within the criteria were excluded, and clear explanation of why those valuations were excluded and the effect on the averaged value of excluding them;

•

whether any of the valuations are made on different portfolio or trading versus whole-of-company bases to the others;

•

whether the directors of the entity citing the average value adopt the average value cited; and

•

any material information or events that have occurred since the dates of the individual valuations which might reasonably affect them.

9.5 Lodgment of the bidder’s statement [9.50] A copy of the bidder’s statement and pro-forma offer for an off-market bid cannot be served on the target unless a copy has been lodged with ASIC within the previous 21 days: s 633(1), item 3. ASIC’s practice is not to review documents prior to lodgment, though it may discuss draft documents with a bidder if there are particular areas of uncertainty. There is no longer a registration process under the legislation.

9.6 Service of the bidder’s statement [9.60] The copy of the bidder’s statement for an off-market bid, which is served must bear a statement that the statement has been lodged with ASIC and that ASIC takes no responsibility as to its contents. The statement must be approved, where the bidder is: •

an individual, by the bidder; and

•

a body corporate, by a resolution passed by the directors of the bidder (the resolution must be unanimous if the consideration offered under the bid is not a cash sum only): s 637(1).180

On the day of service, the bidder must lodge with ASIC a notice to that effect and deliver to any relevant stock exchange a copy of each of the documents served on the target: s 633(1). Offers may be sent to target shareholders within 14–28 days after the bidder’s statement and pro-forma offer were served on the target.181 The copies of the bidder’s statement and offer which are posted should incorporate individual details and current information on the bidder’s 180 ASIC may grant relief if for some legitimate reason not all directors are available to approve a bidder’s statement in a scrip bid. 181 Section 633(1), item 6 and 10.2. ASIC may extend the period in appropriate cases: see ASIC Regulatory Guide 9: Takeover bids, RG 9.448–RG 9.451. This provision seems not to be open to a reading on which the bidder must allow 14 clear days between service and dispatch, unlike the corresponding provision of the Corporations Law.

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voting power in the target and other matters which ASIC allows to be included or updated with information which will not be known until the date of dispatch is settled.182

9.7 Supplementary and replacement bidder’s statements [9.70] Section 643 requires that, if a bidder becomes aware of: •

a misleading or deceptive statement in the bidder’s statement; or

•

an omission from the bidder’s statement of information required by s 636; or

•

a new circumstance that has arisen since the bidder’s statement was lodged and would have been required to be included in the bidder’s statement if it had arisen before lodgment,

that is material from a target shareholder’s viewpoint, the bidder must prepare a supplementary bidder’s statement that remedies the defect.183 Section 647 requires a supplementary bidder’s statement to be sent to the target and ASIC as soon as practicable and, where the target is listed, to the ASX as well. Where the target is unlisted, a supplementary bidder’s statement must be sent to all target shareholders. It is common for various supplementary bidders’ statements to be issued during the course of a takeover bid. This may be required due to various reasons, including: •

a variation to the offer terms (for example, an increase in the offer);

•

developments during the offer period, including satisfaction or waiver of key conditions; and

•

as a result of complaints by the target and Takeovers Panel applications.184

182 ASIC Regulatory Guide 9: Takeover bids, RG 9.418–RG 9.433 and ASIC Class Order [13/521], and ASIC Regulatory Guide 23: Updating and correcting prospectuses and application forms, RG 23.37, on what changes can be made in a copy document. See also 9.7, on incorporating supplementary information into a bidder’s statement before dispatch. 183 A director who becomes aware of a defect is obliged to inform the bidder: s 670C(1). 184 See Takeovers Panel Guidance Note 16: Correction of Takeover Documents (now superseded by Guidance Note 5: Specific Remedies—Information Deficiencies). For examples of supplementary bidder’s statements arising from Panel applications, see Goodman Fielder Ltd [2003] ATP 1, where the Panel required additional disclosure on the bidder’s funding arrangements and also required withdrawal rights to be available to target shareholders until funding arrangements were settled, signed and disclosed. See also Patrick Corporation Ltd 02 [2006] ATP 10, where changes to the offer and new significant information arose (including ACCC undertakings offered by the bidder, a major acquisition was undertaken by the bidder and the terms of the offer were varied). In the circumstances of significant changes and developments, the Panel preferred the offer to remain open for some time, say one month, following the issue of the supplementary bidder’s statement, unless there are mitigating factors. This is to allow

Bidder’s Statements

229

Where a supplementary bidder’s statement is lodged before dispatch of the bidder’s statement, ASIC has issued class order relief to allow a bidder to send a replacement bidder’s statement (incorporating the changes made in the supplementary) to target shareholders instead of the original bidder’s statement and the supplementary.185 The relief is subject to various conditions including the requirement to lodge with ASIC and the ASX a replacement bidder’s statement marked up to show changes from the original bidder’s statement. The Class Order also enables a bidder to lodge a replacement bidder’s statement and to dispatch copies of the replacement bidder’s statement to target shareholders less than 14 days after lodging the replacement bidder’s statement, if ASIC or the target consents. ASIC’s policy is that it may consent to early dispatch where the changes are not substantial or are a result of negotiations with the target.186 In BreakFree Ltd 02 [2003] ATP 30, ASIC refused to consent as there remained a genuine dispute between the bidder and the target as to whether the replacement bidder’s statement was defective. The bidder sought a review of the ASIC decision not to consent. The Panel agreed with ASIC that there was a serious question whether the bidder’s statement remained defective.187 If ASIC or target consent is not forthcoming, the bidder may be able to keep on its original bid timetable by sending the original bidder’s statement together with the supplementary statement. However, in deciding between sending a supplementary and original bidder’s statement and issuing a replacement bidder’s statement (or in debating the point with the Takeovers Panel in relation to it framing an order dealing with defective disclosure), it should be noted that the Panel has expressed a preference for fewer, more comprehensive documents to be sent to target shareholders and for documents to be amended (especially when corrections are voluminous) before they are distributed rather than to have a complex collage of similar, but differing, messages before shareholders.188

target shareholders to consider the revised offer and the target to prepare a supplementary target’s statement in response. 185 See ASIC Regulatory Guide 9: Takeover bids, RG 9.434—RG 9.444 and Class Order [CO 13/528]. Also see Sydney Gas Ltd 01 [2006] ATP 9 for an example of the policy in practice. 186 ASIC Regulatory Guide 9: Takeover bids, RG 9.344—RG 9.345. 187 BreakFree Ltd 02 [2003] ATP 30. See also Infratil Australia Ltd [2000] ATP 1. 188 Takeovers Panel Guidance Note 16: Correction of Takeover Documents, [9] (now superseded, but see paragraph 10.2 and footnote 5 to Guidance Note 5: Specific Remedies – Information Deficiencies) and Panel decisions in Brickworks Ltd 02 [2000] ATP 8; BigShop Ltd 03 [2001] ATP 22; Pinnacle Ltd 09 [2001] ATP 25; Mildura Co-operative Fruit Company Ltd [2004] ATP 5 [98]; Sydney Gas Ltd 01 [2006] ATP 9 [31]–[36]. Also compare Volante Group Ltd [2006] ATP 2, where the Panel decided that a supplementary bidder’s statement was not appropriate as it gave too little prominence to the corrections and failed to describe errors in the original bidder’s statement that it was correcting.

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9.8 Liability for deficiencies in a bidder’s statement [9.80] A person must not give a bidder’s statement, which contains a misleading or deceptive statement,189 or from which is omitted matter which s 636 requires to be included in it: s 670A(1). The same prohibition covers statements in and omissions from an offer document, notice of variation, target’s statement, supplementary bidder’s or target’s statement, notice of compulsory acquisition or buy-out or a report which accompanies any of these documents.190 A statement about a future matter is taken to be misleading for this purpose, if the person making it does not have reasonable grounds for making the statement (s 670A(2)).191 There is no requirement that the grounds be disclosed with the statement, but the Takeovers Panel has said that where the grounds include information which is itself material to a shareholder’s decision whether to accept an offer, that information should be disclosed. If s 670A is not complied with, a court may make a wide range of remedial orders under s 1325A. This may include requiring a correcting statement to be sent to shareholders as occurred in Bond Corporation Holdings Ltd v Grace Bros Holding (1983) 7 ACLR 61, requiring prior acceptances to be confirmed in the light of the correcting statement as occurred in Allied Mills Ltd v IEL No 1 Pty Ltd (1985) 9 ACLR 539 or vesting shares in ASIC as occurred in Albert v Votraint No 320 Pty Ltd (1987) 13 ACLR 336. The Takeovers Panel has similar powers: see 21.3. If a person gives, or causes or authorises someone to give,192 a bidder’s statement which contains a misstatement (a misleading statement or omission) which is materially adverse from the point of view of the holder of securities, the person commits an offence punishable by a fine of up to $9,000 or one year’s jail or both.193 The person only commits the offence if they are reckless as to the statement or omission being materially misleading.194

189 Examples of misleading statements are set out at [11.10.10]. Unlike s 1041H, s 670A does not refer to a statement which is “likely to mislead or deceive”. 190 This discussion is applicable to all of these documents, suitably adapted: what constitutes an omission in each case depends on what the Act requires to be included in that document. 191 There is, however, no presumption that a person who makes a statement about a future matter has no reasonable grounds for the statement: contrast s 4(2) of the Australian Consumer Law. 192 Sections 633, 635 and 647 require statements to be sent, rather than given, but ss 650D(1) and (2) and 109X(7) seem to use the two expressions indiscriminately. 193 This is the penalty for a natural person: for a body corporate, the maximum penalty is a fine of $45,000. See ss 52, 1311 and 1312, item 226 in Sch 3, and s 4AA of the Crimes Act 1914 (Cth). Materiality is discussed at [9.30.130]. 194 Criminal Code, s 5.6.

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231

There is a defence to a prosecution where the person: (a) did not know that that the statement was false or misleading or that the relevant document contained an omission; (b) reasonably relied on information provided by someone, other than (in the case of a body corporate) a director, employee or agent of the body or (in the case of an individual) someone other than an employee or agent of the individual; or (c) publicly withdrew their consent to being named in any way: s 670D. The bidder, each of its directors and any person involved in a criminal contravention of s 670A(1) may be liable in damages to anyone who suffers loss or damage caused by a misstatement in the bidder’s statement. So may a person quoted in the bidder’s statement, with their consent, as having made a statement found to be misleading, though that person is liable only for that statement. A person may be civilly liable on a document even if they are not criminally liable. The defences to a criminal prosecution mentioned above also apply in a civil action. There is also a limited exception from civil liability for any director who was not present when the statement was authorised or who voted against the authorisation: s 670B(1). Criminal and civil liability extends to omission of information concerning a new circumstance which arose after the statement was lodged, but before it was given, and which would have been required to be disclosed, had it occurred before the statement was lodged: s 670A(1)(j).195 If a director, or a person who has consented to be quoted or is involved in a contravention, becomes aware that a statement in the bidder’s statement is misleading, that there is an omission from it or that a material new circumstance should have been disclosed, the person must inform the bidder. Someone who has provided a report to be issued with the bidder’s statement must similarly inform the bidder if they become aware that the report contains a material misstatement or requires to be updated: s 670C.

195 The defences in s 670D turn on the defendant’s state of mind until the document was given: see particularly s 670D(6).

Chapter 10

Procedures During the Offer Period [10.10]10.1 [10.20]10.2 [10.30]10.3 [10.40]10.4 [10.50]10.5 [10.60]10.6 [10.70]10.7

Obtaining a list of shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233 Date and sending of offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234 The offer period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236 Who is an offeree? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236 Withdrawal of offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238 Share disposals by the bidder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239 Indicative timetable for off-market bid . . . . . . . . . . . . . . . . . . . . . . 240

10.1 Obtaining a list of shareholders [10.10] Once the bidder’s statement has been prepared, the bidder will need to update its information concerning the identities of the holders of shares and other securities in the target. This should be done as soon as possible so that the bidder will be ready to send the bidder’s statement or other information designed to persuade the target shareholders to sell their shares into the bid. A bidder who has served a bidder’s statement on the target is entitled under s 641(1) to request from the target a written statement of: •

the names and addresses of persons who, on a date specified by the bidder, held securities in the bid class or which are convertible into the bid class; and

•

the type and number of each type of those securities held by the person on the specified date.

The target is entitled to charge a fee for the information given not exceeding 10 cents for each name and address of a security-holder.1 In practice, the bidder will estimate the fee by reference to the number of relevant holders specified in the target’s last annual report and adding a margin to allow for increases in the number since the date of the report. This practice avoids any delay which the target could conceivably create if asked to calculate the applicable fee before the request was made. The bidder may ask for the information sought in electronic form. The target must provide the information in the form sought, including 1

Corporations Regulations, Sch 4, item 4.

234 Takeovers Law & Strategy

electronically, unless it is unable to comply, in which case the information must be given in writing: s 641(3).2 The target may be required to respond within two days after receiving the request: s 641(6). Section 641 only operates once the bidder’s statement has been served. It is, however, also possible to use the general right to request a copy of a register of shareholders under s 173 before the bidder’s statement has been served. This has a similar operation to s 641, though the target is given seven days to comply with the request.3 In practice, unless it is critical to commence contacting shareholders early, it seems common to wait until the bidder’s statement is served and then make the request under s 641. That has the advantage of enabling the bidder to request the register at a specified date which will ease compliance with s 633(2) (the requirement to specify the date for determining holders who will receive the bidder’s statement). Section 641 does not preclude the bidder making further requests during the bid period to ensure an up-to-date list of shareholders is used by the bidder. In practice, a weekly update may be sought to take account of changes in the register. There is mixed practice on whether further fees are charged as generally it is in the interests of both parties for up to date registers to be used during the takeover process.

10.2 Date and sending of offers [10.20] Each offer must have the same date: s 620(1)(b). The offers must be sent within a three-day period4 and must be sent within 14 to 28 days after the bidder’s statement is sent to the target5 (though the target directors can agree to earlier dispatch):6 s 633(1), item 6.

2

If the information is provided in electronic form, it must be readable, but need not be formatted for the bidder’s preferred operating system.

3

For the fees and constraints which apply to s 173, see [5.30.60]. The fee for each entry provided under s 641 is 10 cents, (Corporations Regulations, Schedule 4, item 4) which is more than the fee under s 173 for more than 2,500 entries.

4

If the last day is not a business day, sending may be held over to the next business day: Acts Interpretation Act 1901 (Cth), s 36(2).

5

This wording differs markedly from former s 637(1) of the Corporations Law which required the bidder to have served the Part A statement “not earlier than 28 days and not later than 14 days before the day the offers are sent”. Unlike that wording, it is not open to the reading on which 14 clear days must elapse between service and dispatch. See also ASIC Regulatory Guide 7: Calculating time periods, RG 7.12.

6

This is intended, in particular, to enable a second bid to be dispatched early so that offerees may consider it at the same time as an earlier bid: Taipan Resources NL 08 [2001] ATP 3. It is not uncommon for the target directors to agree to early dispatch in the case of an agreed or recommended bid. In Tower Software Engineering Pty Ltd 01 [2006] ATP 20, the target board agreed to early dispatch without having undertaken a review of the bidder’s statement or obtaining any legal or financial advice in relation to it. The Panel said that this would justify a declaration of unacceptable circumstances, having regard to the facts of the matter and the effect the decision had on the control of the target.

Procedures During the Offer Period

235

The 14-day waiting period is to give the target board a reasonable time to assess and react to the bid, including commencing preparation of the target’s statement, reviewing the bidder’s statement to see if it complies with the law or if changes should be requested (or if a Panel application should be taken).7 On one view, the 14-day minimum period is affected by a general interpretative provision that, subject to contrary implication, a document which is sent by pre-paid post is taken to be given when it would be received in the ordinary course of post.8 If this provision applies, a bidder may comply with the requirement to allow 14 days to elapse by posting the offers before the end of the 14-day period, provided that the offers would not arrive in the ordinary course of post until that 14-day period had elapsed. The bidder would, however, have to arrange the posting so that, in the ordinary course of post, every offer would arrive at the address to which it was sent within the window of three days allowed by items item 6 in s 633; something that would be very challenging, even if the target only had Australian-based shareholders. In Diamond Rose NL v Striker Resources NL, however, Lee J rejected this reading, and held that the interpretative provision was impliedly excluded because of the uncertainty it would introduce into compliance with the dispatch requirement, particularly having regard to postage to remote parts of Australia or overseas.9 While Diamond Rose concerned dispatch of a notice of variation of a bid, the decision does not suggest any basis in language or policy to distinguish between dispatch of an offer and dispatch of a notice of variation.10 Accordingly, the better view is that the first offers should be posted on or after the 14th day after service. That day is the second recurrence of the same day of the week as the day on which the bidder’s statement is served, that is, if the statement is served on a Monday, dispatch may begin on the second Monday after that day. The last day for posting offers is the fourth recurrence of the same weekday. The offers must be sent within two months of any public announcement of a proposal to make the takeover bid: s 631; see 7.5.

7

BreakFree Ltd 02 [2003] ATP 30; Tower Software Engineering Pty Ltd 01 [2006] ATP 20.

8

Section 29 of the Acts Interpretation Act 1901 (Cth).

9

Diamond Rose NL v Striker Resources NL [1998] FCA 1169; 28 ACSR 749 at 752, concerning former s109Y of the Corporations Law, which is to the same effect as s 29 of the Acts Interpretation Act 1901 (Cth). See also Pinnacle VRB Ltd v Reliable Power Inc [2001] VSC 262; Re Kargat Pty Ltd (1989) 7 ACLC 839.

10 In SSG Investments Pty Ltd v Australian National Industries Ltd [1999] FCA 12; (1999) 30 ACSR 325 (followed in Alpha Healthcare Ltd [2001] ATP 13 [77]–[81]), Diamond Rose was distinguished and s 109Y applied to dispatch of offers, partly because the ASC had modified former s 637, but partly because it appeared to Heerey J that there was a material difference in policy between former s 637 and former s 657 considered in Diamond Rose. No such difference appears in the wording of the current sections.

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A document may be sent by ordinary post or courier to offerees with addresses in Australia and by pre-paid airmail post for overseas offerees: s 648C. Notice that the offers have been sent must be given to the target, ASIC and, if the target is listed, to the ASX: s 633(1), items 7, 8 and 9.

10.3 The offer period [10.30] The offer must remain open for the period stated in the offer. Usually, the bidder will specify the shortest period possible to put maximum pressure on the target, the offerees and any potential rival bidder. The period must start on the date the first offer is made under the bid and must last for at least one month and not more than 12 months: s 624(1).11 A month after an event is the day of the following month corresponding to the day on which that event took place.12 If the offers are dated the 15th of one month, they may close at close of business on the 15th of the following month.13 Bidders nonetheless frequently specify a closing time for the offer on the day which is one month and one day after the date the first offer is dispatched.14 Extensions of the offer period in an off-market bid are discussed in [11.50.20].

10.4 Who is an offeree? [10.40] An offer must be sent to each holder of securities in the relevant class (other than the bidder): s 633(1), item 6. This means all persons registered as holders.15 An unregistered beneficial owner of shares need not receive an offer.

11 See also ASIC Regulatory Guide 7: Calculating time periods. 12 See s 105, definition of “month” in s 9. In view of Re Kargat Pty Ltd (1989) 15 ACLR 527 and Gosford Quarry Holdings Limited 01 [2008] ATP 11; and ASIC Regulatory Guide 7: Calculating time periods, RG 7.12, doubting that a bid could close before midnight, now appears to be too conservative, or out of date. 13 If there is no corresponding day (for example, the offers are dated the 30 January), the month ends with the last day of the following calendar month. The times of day at which offers for quoted securities close are implicit in ss 634 and 635 (for a market bid) and s 653A and reg 6.8.01 (an off-market bid). 14 This practice reflects a concern that a bid is not open for the whole of the requisite month, if it closes before midnight on the last day of the month, which is unnecessary in view of provisions with the effect that an offer under a bid for quoted securities can only be accepted while the relevant exchange facilities are available (about 4 pm for a market bid and about 7 pm for an off-market bid). On similar issues concerning lodgment of documents with a court, see Ryan v Rounsevell [1910] HCA 2; (1910) 10 CLR 176, per O’Connor J; Re Australian Electoral Commission; ex parte Kelly [2003] HCA 37 [2]–[6], per Gummow J and Mucelli v Government of Albania [2009] UKHL 2 [83–[85] per Lord Neuberger, with whom a majority of their Lordships concurred. 15 Kingston v Keprose Pty Ltd (No 3) (1987) 12 ACLR 609, ss 641 and 648B.

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237

If the bid extends to securities that may come to be in the bid class due to the conversion of, or exercise of rights attached to, other securities, the offer must also be sent to holders of those securities: s 633(1), item 6. The offer document must be sent to the holders of securities in the bid class at a date fixed by the bidder: s 633(2). The date can be specified in the bidder’s statement or in a separate notice. The date is generally the same date as the copy of the register obtained by the bidder when preparing the documents for dispatch. To enable subsequent purchasers of securities to accept an offer, the law provides that a person who is able during the offer period to “give good title” to a parcel of securities, and who has not already accepted an offer for those securities, may accept as if an offer had been made to that person in relation to those securities: s 653B(1)(a). “Able to give good title” is not defined but it would cover the registered holder of shares and a person who had lodged a duly executed transfer (and any relevant share certificates) with the company and is, accordingly, “entitled to be registered”.16 In addition, the expression will cover a person who has purchased shares on-market, even if the purchase has not yet been settled. This result seems to follow from GIA (Nominees) Pty Ltd v Bacdilet Pty Ltd (1989) 15 ACLR 501. In that case, the bidder told the plaintiff that it would treat an acceptance delivered with a contract note as valid. The plaintiff then purchased shares in the target on market and delivered an acceptance form and contract note to the bidder. At that time, the plaintiff had not yet settled the purchase with the vendors. The bidder later refused to treat the acceptance as valid. The Supreme Court of New South Wales held that the plaintiff was “entitled to be registered” (the expression in the predecessor to s 653B) and, accordingly, could accept the bid. Rogers CJ Comm Div considered that the law was intended to promote a liquid market in shares subject to takeover offers and, accordingly, was concerned with entitlement to registration as between purchaser and vendor, not as between purchaser and company.17 The fact that the purchaser had not paid for the shares at the time of acceptance did not affect the position in Rogers CJ Comm Div’s view, because payment was certain due to the stock exchange rules which impose a liability on the purchaser’s brokers to ensure payment.18 That

16 FCT v Patcorp Investments Ltd (1976) 140 CLR 247, followed in the context of a predecessor to s 653B in TNT Australia Pty Ltd v Normandy Resources NL (1989) 15 ACLR 99, 111. This provision is extended to a person who is entitled to be registered as a trustee etc by s 653B(2), in such a way as to treat “entitled to be registered” as synonymous with “able to give good title”. 17 GIA (Nominees) Pty Ltd v Bacdilet Pty Ltd (1989) 15 ACLR 501, 514–15 per Rogers CJ Comm Div. 18 See also discussion of this case in Barrett, “Company Takeover – Acceptance of Offer by Buyer of Shares – Companies (Acquisition of Shares) Act 1980, s 24” (1990) 8 C&SLJ 130.

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factor may distinguish the position for an off-market transaction, where it may be necessary for the purchase to have been settled.19 A person who notifies the bidder that they hold a certain number of securities as trustee or nominee for, or otherwise on account of other people, may accept as if a separate offer had been made for each such parcel and for any parcel the person holds in their own right: s 653B(1)(b). The provision is designed to permit an acceptance in respect of distinct portions even if the offer requires acceptance to be in respect of all securities held. This is especially relevant for nominee companies. The operation of the provision is not, however, limited to takeover bids which require acceptance in relation to all securities held.20 Section 653B(1)(b) will apply where a vendor has been paid for some of its holding and holds that portion as a bare trustee.21 However, it will not apply if the vendor is yet to appropriate particular shares to the sale (as, until then, no equitable interest passes),22 nor will it apply if the contract is subject to a condition precedent23 unless the purchaser can waive the condition.24

10.5 Withdrawal of offers [10.50] An off-market bid can only be withdrawn with the consent of ASIC, which may give its consent on conditions: s 652B.25 The NCSC’s stated policy was to consent to a withdrawal only in exceptional circumstances. A change in general economic, industrial or political circumstances or in circumstances within the control of the bidder would not normally be sufficient.26 The interests of shareholders who have purchased shares following announcement of the offer must be considered. Withdrawal of a bid has been permitted where a rival bidder has over-bid that bid27 and in limited circumstances following the 1987 stock market crash.28 The withdrawal of offers which have not been accepted does not 19 In the context of a proportional bid, the provision does not allow a person who buys the residue of a parcel from a vendor who has already accepted the bid in respect of that parcel to accept the bid again, so as to sell the same proportion of the residue. 20 Tyndall Pacific Ltd v ANZ Nominees Ltd (1991) 4 ACSR 535. 21 Hawks v McArthur [1951] 1 All ER 22, 26. For discussion of the meaning of “bare trustee”, see [3.60.20]. 22 GIA (Nominees) Pty Ltd v Bacidilet Pty Ltd (1989) 15 ACLR 501, 512 per Rogers CJ in Comm Div. 23 George Hudson Holdings Limited v Rudder (1973) 128 CLR 387. 24 Wood Preservation Ltd v Prior [1969] 1 WLR 1077; see also J Sainsbury plc v O’Connor [1991] 1 WLR 963 in the case of options. 25 See also ASIC Regulatory Guide 59: Announcing and withdrawing takeover bids. At common law, an offer may be withdrawn at any time until acceptance by giving notice to the offeree: Byrne v Van Tienhoven (1880) 5 CPD 344. 26 See NCSC Policy Statements 105 and 133. 27 See ASIC Regulatory Guide 59: Announcing and withdrawing takeover bids, RG 59.80–RG 59.85. 28 See McKeon, “Takeovers and Public Securities” (1988) 6 C&SLJ 56.

Procedures During the Offer Period

239

appear to terminate contracts which have already resulted from acceptances. However, the withdrawal will bring forward the time at which s 650G operates to terminate those contracts, if they are still subject to defeating conditions which have not been satisfied. By including conditions in the offer, the bidder should be able to guard against being unable to withdraw the offer while still treating shareholders fairly. However, the inclusion of extensive conditions may deter offerees from accepting the offer due to the uncertainty about when they will have an unconditional contract and receive payment for their shares. In Brisbane Broncos Ltd 04 [2002] ATP 04, the Panel granted a modification of s 652B to permit a bidder to withdraw offers if a rival bidder acquired a controlling stake in the target. The Panel was motivated by a desire to create greater certainty for bidders and to facilitate a better offer being made.

10.6 Share disposals by the bidder [10.60] The bidder must not dispose of any securities in the bid class during the offer period unless: (a) someone else who is not an associate of the bidder makes an offer, or improves the consideration offered, under a takeover bid for securities in the bid class after the bidder’s statement is given to the target; and (b) the bidder disposes of the securities after the offer is made or the consideration is improved: s 654A. “Dispose” is defined in s 9 to mean cease to have a relevant interest. Unless this definition is excluded by a contrary intention, the bidder could, for example, agree to sell shares without breaching the prohibition so long as completion of the sale did not occur during the offer period. In those circumstances, a relevant interest is retained.29 Since the mischief of s 654A is the bidder depressing the price of bid class shares by selling, this stratagem may be found to lead to unacceptable circumstances.30 The alternative bid exception requires offers to be actually sent under a takeover bid. It is available where the alternative bid is made after the bidder’s statement is served, but it need not be at a higher price. The restriction does not apply to disposals by associates of the bidder, but if the bidder is also regarded as having actively disposed of a relevant interest in the shares sold, the prohibition may be attracted. It is highly unlikely that the bidder could be convicted if it had merely suffered the loss of a relevant interest in the shares sold.31 The prohibition may not apply where a special bid vehicle is making the bid and it is sold to a purchaser who continues 29 NCSC v FAI Investments Pty Ltd (1982) 7 ACLR 152. 30 Sections 1041A and 1041B should also be considered whenever a bidder or associate sells bid class securities before or during the bid. 31 See the discussion of “acquire” and “dispose” at 3.2 and 3.3.

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the bid as, in that case, the bidder itself will not have disposed of any shares. Breach of the prohibition is punishable by a fine of $2,750 or six months’ jail or both: or, in the case of a body corporate, $13,750 (ss 1311–1312 and Sch 3). On general principles, it would seem that the bidder may have difficulty seeking to enforce the offending sale contract, though an innocent purchaser may be protected once registered.32

10.7 Indicative timetable for off-market bid [10.70] The timetable in Table 10.1 is indicative only as to timing of the transaction. It assumes that the target shares are quoted and, for simplicity, does not take into account non-trading days of the ASX, Saturdays, Sundays and public holidays. It also assumes that events will take place on the earliest possible day and that there are no delays due to Takeovers Panel proceedings or litigation. In practice, the total minimum time involved (excluding compulsory acquisition and assuming all action takes place on the first day available) will be approximately seven weeks, including a one-month offer period. Table 10.1: Indicative timetable for off-market bid Day

Activity

Preliminary

Bidder’s Statement drafted, reviewed by Bidder and finalised. Approach ASIC for any necessary modifications or other relief. Board meeting to authorise and appoint at least one director to sign Bidder’s Statement and pro-forma offer, and to approve the copy of the Bidder’s Statement lodged with ASIC. Press release and ASX announcement drafted. Bidder’s Statement signed. Brief stockbroker (if appropriate). Brief Bidder’s key employees. Signed Bidder’s Statement lodged with ASIC together with lodgment fee. This is the date of the Bidder’s Statement. Bidder’s Statement sent to Target. Bidder lodges with ASIC a notice that Bidder’s Statement and proposed offer sent to Target. Bidder’s Statement sent to ASX. Request Target to provide details of register of security-holders. The prescribed payment is 10 cents for each name and address provided. Appoint and brief printer regarding format of documents.

0

1

32 See generally Maddocks v DJE Constructions Pty Ltd (1982) 148 CLR 104.

Procedures During the Offer Period

Day

3 14–28 Day after offers first dispatched

Last offer dispatched Within 15 days after dispatch Section 630(3) notice date

To closing date

241

Activity Determine procedures for sending offers to Target shareholders and processing acceptances. If not specified in Bidder’s Statement, give notice to Target and ASX of date for determining shareholders to whom Bidder’s Statement will be sent. Last day for provision of share register details by Target, unless Bidder has requested details as at a later date. Bidder’s Statement dispatched to Target shareholders (may dispatch earlier if target directors consent). Notify ASX and Target in an initial substantial holding notice (Form 603) by 9.30 am of details of the relevant interests of Bidder and its associates in Target shares. Notice of change (Form 604) to be lodged with Target and ASX each time Bidder’s voting power as a substantial holder changes by 1% or more. This is a continuing obligation until end of offer period. Dispatch must be completed within a three-day period. Notice of dispatch sent to ASIC, ASX and Target. Target must lodge the Target’s Statement (and any accompanying report) with ASIC and send it to Bidder, shareholders and ASX. This date must be between seven and 14 days before closing date of the offer and must be specified in the offer document. The Bidder may declare the offer unconditional on or before this date. If offer declared free from any condition, s 650F(1) notice must be lodged with ASIC and given to ASX. Last day for extension of offer if offer remains conditional (assuming no rival bids). If offer period is extended, a s 650D variation notice must be lodged with ASIC and given to the Target and Target shareholders. Notice of variation must be approved by a resolution of Bidder’s board. Section 630(3) notice indicating status of conditions to be given to the Target and ASX (unless offer has already been extended pursuant to s 650C). Bid price can be increased at any time to closing date. If increased during last seven days, offer will extend a further 14 days. If offer has been declared unconditional, the offer can be extended at any time before offer closes. If offer period is extended, it can only be extended to a total of 12 months and, if extended for more than one month while conditional, shareholders may withdraw acceptances.

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Day

Activity

Closing date

Offer closing date. Unless offer period extended, this must be at least one month after date of offers. Give ASX Listing Rule 3.3 notice to ASX, specifying percentage of securities in the bid class in which the Bidder and its associates have a relevant interest and whether Bidder will proceed with compulsory acquisition. The last day for payment of consideration to accepting shareholders. If the Bidder is given necessary transfer documents with acceptance, consideration must be paid by the earlier of:

Closing date + 1

Closing date + 21

•

one month after acceptance or after takeover contract becomes unconditional (whichever is the later); and

• 21 days after closing date. Within one month If Bidder and its associates have relevant interests in 90% of closing date of the bid class shares: •

send s 662B(1) notice (Form 6022) to each remaining holder (unless it has already sent the holder a s 661B notice of compulsory acquisition); and

•

send s 663B(1) notice (Form 6023) to holders of securities convertible into bid class securities,advising

them of their right to be bought out. Copies of notices to be lodged with ASIC and ASX Within one month If Bidder and its associates have relevant interests in 90% of closing date of the bid class securities (having acquired at least 75% of securities bid for) and Bidder wishes to compulsorily acquire remaining securities, Bidder must lodge s 661B(1) notice (Form 6021) with ASIC and give it to remaining shareholders and ASX. Copy of s 661B notice and share transfer executed by Within s 661B Bidder and Bidder’s nominee, along with consideration for notice date + share transfer, given to Target. 1 month + 14 days Target registers Bidder as holder of outstanding shares.

Chapter 11

Bidder’s Strategy During Offer Period [11.10] [11.20] [11.30] [11.40] [11.50] [11.60] [11.70] [11.80] [11.90] [11.100]

11.1 Communications during the bid . . . . . . . . . . . . . . . . . . . . . . . . . . . 243 11.2 Share acquisitions outside the bid . . . . . . . . . . . . . . . . . . . . . . . . . 249 11.3 Acquisitions of shares in on-market transactions . . . . . . . . . 251 11.4 Offering collateral benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253 11.5 Formal variations of offers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261 11.6 Declaring the offer unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . 267 11.7 Declaring the bid “final”—truth in takeovers . . . . . . . . . . . . . 268 11.8 Institutional acceptance facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 274 11.9 Broker handling fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275 11.10 Countering share trading activity. . . . . . . . . . . . . . . . . . . . . . . . . 277

11.1 Communications during the bid [11.10] During the course of the bid, the bidder is able to employ various strategies to encourage acceptances and secure control of the target. This may include on-market share acquisitions, improving the terms of the bid, freeing the bid from conditions, declaring the bid “final” and other tactics. The bidder may also wish to negotiate with key shareholders. The use of these tactics is discussed in this chapter. The key strategy is to ensure that shareholders appreciate the merits of the offer being made by the bidder. For this reason, the bidder will issue various statements to the target’s shareholders and to the market generally seeking to win the hearts and minds of the persons who will ultimately determine the success of the bid. Equally, the target (or a rival bidder) may also issue various statements with contrary views. The statements may be contained in the formal bid documentation, such as the bidder’s or target’s statement, or in separate letters, booklets, advertisements, media releases or other forms of communication. Well prepared material may have a critical impact on the outcome of the bid. The Corporations Act does not specifically regulate the release of such material or other communications, apart from the formal bid documentation. There is no general requirement for review by, or even lodgment with, ASIC. However, care must be taken when making all such statements. The Panel has emphasised that communications prior to a bidder’s statement or a target’s statement should maintain the same standards as any other statement in a takeover, even if they do not contain

244 Takeovers Law & Strategy

the detail required in formal bid documents.1 The same approach should be adopted for all communications during a bid. Apart from written communications, it is also common for the bidder and the target to establish a telephone call centre to respond to shareholders’ questions about the takeover bid. In addition, outward calls may be made to shareholders to ascertain whether they intend to accept the bid and their attitude to various aspects of the bid. This can give valuable information in framing or revising a bid to ensure success or, from the target’s perspective, to ensure shareholders make an informed decision. Typically, scripts are prepared for the call centre operators, but they should be carefully reviewed to ensure the information being given is not misleading.2 Liability for misstatements [11.10.10] The legislation contains strict rules prohibiting certain omissions and misleading or deceptive statements. Those rules differ as between documents with specified content (covered by s 670A, which is discussed at [9.80]),3 and other documents and conduct. A person must not in connection with the making of takeover offers or making of an evaluation or recommendation in relation to such offers, engage in conduct that is misleading or deceptive or likely to mislead or deceive: s 1041H.4 This creates a civil liability only. This does not apply where the statement is covered by s 670A, but will apply to other statements, such as letters to shareholders and announcements. The consequences of a contravention of s 1041H are discussed at [11.10.20]. The courts have developed the following rules which assist in determining whether a statement is false or misleading.

1

Consolidated Minerals Ltd 01 [2007] ATP 20 [75]. Target companies will equally be held to such standards in their communications: Universal Resources Ltd [2005] ATP 6 [16]; Programmed Maintenance Services Ltd 02 [2008] ATP 9; NewSat Ltd [2009] ATP 20; Nexus Energy Ltd [2006] ATP 17; Foster’s Group Ltd [2011] ATP 15.

2

AurionGold Ltd [2002] ATP 13 [70]; Lake Technology Ltd [2004] ATP 18. The Corporations Act previously contained extensive provisions for sound recordings to be made of all telephone calls during the bid period to holders of relevant securities to discuss the takeover bid. These provisions were introduced to reduce the risk of misleading statements being made during telephone calls, but have now been repealed.

3

Section 670A applies to a bidder’s or target’s statement or supplementary statement, a takeover offer, a notice of variation of an offer, a compulsory acquisition or buy-out notice and a report which is included in, or accompanies, any of those documents. Section 670D affords defences resulting from making a misleading or deceptive statement, contrary to s 670A, which are not available in respect of s 1041H.

4

This will include a misleading statement made in an announcement of a proposed bid: ASC v Mt Burgess Gold Mining Co Ltd (1994) 15 ACSR 714. See also ASIC Regulatory Guide 25: Takeovers: false and misleading statements.

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•

A statement made in one part of a document or booklet may be false or misleading although the document or booklet in some other place corrects that statement.5

•

Conduct is likely to mislead if there is a real or not remote chance or possibility that it will mislead, regardless of whether the probability is less or more than 50%.6

•

A statement which is literally true may nevertheless at the same time be misleading and deceptive because of the overall impression given or because it is framed in a way which tends to mislead or deceive.7

•

A positive unqualified prediction may be misleading if relevant circumstances show the need for some qualification to be attached to that statement or the possibility of its non-fulfilment being disclosed.8

•

If the conduct is misleading or deceptive it does not cease to be so merely because someone taking due care would not in fact be misled or deceived.9

The misstatement will only give rise to civil liability if it is “material” in the sense that it might reasonably affect, or tend to affect, the shareholder’s decision how to act.10 Examples of statements which courts have found to be misleading include where: •

a valuer valued a gold mine at $60 million and then valued it at $80 million three months later without explaining the reason for the difference;11

5

Tonville Pty Ltd v Stokes (Australasia) Ltd (1985) 10 ACLR 449. In Mount Edon Gold Mines (Australia) Ltd v Burmine Ltd (1993) 12 ACSR 417 a statement that the directors of the defendant intended to reject the takeover offer in respect of their personal shareholdings was held to be misleading and deceptive because only one director held shares in the target company even though another part of the target’s statement correctly stated that only one director was entitled to shares in the company.

6

Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82, 87 per Full Court; Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees Union (1979) 42 FLR 331, 346 per Deane J.

7

Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Pty Ltd (1978) 140 CLR 216, 227 per Stephen J; ASIC v National Exchange Pty Ltd [2003] FCA 995, and see also the Takeovers Panel discussion in Mildura Co-operative Fruit Company Ltd [2004] ATP 5 [92].

8

Wheeler Grace and Pierucci v Wright (1989) ATPR 40–940; Famel Pty Ltd v Burswood Management Ltd (1989) ATPR 40–962.

9

Neilson v Hempston Holdings Pty Ltd (1986) 65 ALR 302; Sutton v AJ Thompson Pty Ltd (1987) 73 ALR 233; Collins Marrickville Pty Ltd v Henjo Investments Pty Ltd (1988) 79 ALR 83.

10 Materiality is discussed at 9.2. 11 Carr Boyd Minerals Ltd v Queen Margaret Gold Mines NL (1987) 7 ACLC 1029.

246 Takeovers Law & Strategy

•

a target company indicated to shareholders it had emerged from a share market crash in “excellent shape” without disclosing a loss of $14 million on its investments;12 and

•

where a target issued a statement that it has received legal advice that there would be adverse tax consequences for shareholders by accepting a particular consideration offered under a bid where, in fact, the legal advice was expressed in guarded and cautious terms and recommended further consideration was needed.13

Examples of statements which the Takeovers Panel has found to be misleading or potentially misleading include: •

the presentation of bar charts which set out notional values for the target’s shares without providing information usually provided with a valuation to allow the reader to assess the reasonableness of the range of values (for example, assumptions and qualifications);14

•

a statement referring to the value and possible value of the target’s shares in a diagrammatic form without including or referring to the value determined by an independent expert;15

•

a statement that the “effective” offer price under a bid was the offer price less the amount of anticipated distributions and then a comparison of the “effective” offer price against the highest trading price in the last 12 months (without reference to trading prices immediately prior to the announcement);16

•

providing total “copper equivalent” resource information in relation to both bidder and target resources without also presenting a breakdown of that information into “measured”, “indicated” and “inferred” sources as required by the JORC Code generally used for mining companies in public documents;17

•

a statement about the experience of, and nature of previous investments by, a private equity investor in the same industry as the

12 Re Pine Vale Investments Ltd (1988) 13 ACLR 757. 13 Bond Corporation Ltd v Grace Bros Holdings Ltd (1983) 7 ACLR 61. 14 Goodman Fielder Ltd 02 [2003] ATP 5. 15 Coopers Brewery Ltd 03 [2005] ATP 22. 16 WMC Resources Ltd [2005] ATP 3. This decision also has a useful discussion about the presentation of an independent expert’s report in a target statement and the appropriateness of valuation methodologies used by the expert. 17 Universal Resources Ltd [2005] ATP 6. The JORC Code is the industry code issued by the Joint Ore Reserves Committee of the Australian Institute of Mining and Metallurgy, the Australian Institute of Geoscientists and the Minerals Council of Australia. See also Midwest Corporation Ltd [2007] ATP 33 for a discussion on misleading statements in relation to production targets for a mining company and use of the JORC Code, and Northern Energy Corporation Ltd [2011] ATP 2; Namakwa Diamond Company NL 02 [2001] ATP 9; and Taipan Resources NL 10 [2001] ATP 5 (on review as Taipan Resources NL 11 [2001] ATP 16).

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247

target in the context of a bid by a consortium where that investor was the only consortium member with previous operational experience in the industry;18 •

a statement about the value of a tax benefit per target share which did not accord with the net present value of the tax benefit set out in an independent expert’s report;19

•

a statement that the total shareholder return of the target exceeded that of the bidder where the statement could only be supported by taking into account the share price of the target following the announcement of a tender process which led to a takeover bid;20

•

where an independent expert opined that an offer was not fair but reasonable, extensive emphasis in a target statement being given to the offer being “not fair” with insufficient emphasis given to the offer being “reasonable”;21

•

a statement that a takeover offer was the “only offer available to accept” without reference to the current market price of the target being materially higher than the takeover offer;22

•

a statement giving the impression that a major shareholder supported the takeover offer which was designed to give the erroneous view that the shareholder would be likely to accept the offer;23

•

a statement concerning the value of a proposed scrip offer which did not disclose the most recent price of the scrip offered as consideration24 and a statement about the premium payable that did not take into account the current price of the target shares;25

•

a statement that there would be no “voluntary” extension of a takeover offer when the bidder could trigger an automatic extension

18 Qantas Airways Ltd 01 [2007] ATP 01. 19 Auspine Ltd [2007] ATP 18 [22]–[28]. 20 Auspine Ltd [2007] ATP 18 [29]–[37], the Panel noting that the primary period of comparison should end prior to the announcement of the tender process. 21 Auspine Ltd [2007] ATP 18 [38]–[42]. 22 Auspine Ltd [2007] ATP 18 [58]–[59]. 23 Consolidated Minerals Ltd 01 [2007] ATP 20 where the major shareholder ultimately made a rival bid for the target. 24 Consolidated Minerals Ltd 01 [2007] ATP 20. In that matter, the Panel said that, where a bidder refers to value based on another date, it should disclose the reason for putting the other date forward and also disclose the most recent price. Also note the comments in that case on the valuation reports and valuation methodology referred to in support of the bid value. The Panel has made similar comments about the need for relevant share prices in Normandy Mining Ltd 01 [2001] ATP 27; General Property Trust [2004] ATP 30; Programmed Maintenance Services Ltd 02 [2008] ATP 7; and InterMet Resources Ltd [2008] ATP 17. 25 General Property Trust [2004] ATP 30.

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Takeovers Law & Strategy

under s 624(2) by increasing the offer price in the last week of the bid;26 and •

statements about operating synergies which may arise from a merger which did not make sufficiently clear that the synergies were potential synergies and not certain to be achieved.27

A particular area where care needs to be taken is the making of statements about future conduct of the bid, such as a statement that the price is “final” or that the bid will not be extended. This attracts the policy known as “truth in takeovers”, which is discussed in more detail in 11.7. Orders and penalties [11.10.20] A person suffering loss resulting from a contravention of s 1041H may recover under s 1041I. Court orders may be made in accordance with s 1325. Unlike ss 670A—670D, there is no defence that the person was unaware of the defect or had reasonable grounds for believing that the relevant statement was not defective. However, s 1041I(4) effectively confers a discretion on the court to relieve a person from liability if they acted honestly and ought be excused.28 Other legislative restrictions [11.10.30] There are a number of other provisions dealing with misleading statements contained in the Corporations Act and other legislation which may be relevant in a takeover context. These provisions include the following: •

A person must not make a statement or disseminate information which is false in a material particular or materially misleading and is likely to induce the sale or purchase of securities or affect their price if the person does not care if the statement is true or false or knew or ought reasonably to have known the statement was false: s 1041E.

•

A person must not induce or attempt to induce another person to deal in securities by making a misleading or false statement or concealing material facts: s 1041F.

26 Consolidated Minerals Ltd 03 [2007] ATP 25 [55]–[58]; and Consolidated Minerals Ltd 02R [2007] ATP 28 [38]–[41]. 27 Perilya Ltd [2008] ATP 28 [23]–[28]. 28 Section 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) overlaps with s 1041H, as it also prohibits misleading and deceptive conduct in relation to financial services. It is subject to power to relieve in s 12GI(5). The general rule under s 18 of the Australian Consumer Law (formerly s 52 of the Trade Practices Act 1974 (Cth) and parallel provisions of State fair trading legislation) that a corporation must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive, does not apply to the supply of financial services: s 131A of the Competition and Consumer Act 2010 (Cth). This means it will not apply to dealings in relation to securities.

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249

11.2 Share acquisitions outside the bid [11.20] Once a bid has been announced, it may be important for the bidder to acquire strategic shareholdings in the target or to increase its stake generally to increase its grip on the target and reduce the likelihood of alternative bidders emerging. A bidder may purchase shares outside the formal offers, but must bear in mind several rules: •

The bidder or an associate can acquire shares up to the 20% threshold. Only the bidder can acquire shares in excess of 20% of voting shares in the target, and only if it complies with s 611, item 2 (discussed in 11.3).

•

If before dispatching offers the bidder or an associate purchases for a consideration (whether cash or kind) worth more than the announced bid price, the amount or value of the consideration under the bid must be increased to at least match that price: s 621(3).29

•

If the bidder purchases bid class shares for cash after it has served the bidder’s statement, and a person at any time accepts an offer under the bid for a consideration which is not entirely cash, that person may elect to receive a matching cash-only amount: s 651A(4).30 The bidder must advise accepting shareholders of their right to receive the cash alternative within 14 days after the end of the offer period: s 651A(4)(d). This can have a major impact on the bidder as it effectively gives the accepting shareholders a put option over shares received as consideration.31

•

If the bidder under a bid for cash (or which includes a cash alternative consideration) purchases bid class shares for a cash amount greater than it has offered under the bid after offers have been dispatched, an automatic increase in the bid occurs: s 651A(2). Any shareholders who have already accepted an offer are also entitled to the additional consideration: s 651A(3); see [11.50.10].

•

If the bidder or associate has price-sensitive information, it may contravene the insider trading legislation unless the information is disclosed in the bidder’s statement and that document has been released to the market.

29 Under ASX Market Rule 20.3.1, the bidder must first announce any higher price before it purchases shares on-market. Trading in the target’s shares is then suspended for one hour. On a literal reading, ASX Market Rule 20.3.1 may also apply to purchases at a price lower than the bid price. 30 For the problems raised by a bid in foreign currency, see Rinker Group Ltd [2006] ATP 35 [33]–[48]; and [8.40.10]. The bidder in Rinker undertook not to buy on-market, so that the issue how s 651A would have applied to its bid did not arise. 31 The bidder must cancel shares returned to it under this provision: s 651C and s 258E(2).

250 Takeovers Law & Strategy

•

Once the offer period commences, the bidder or an associate cannot give a benefit to the seller which is not provided in the proposed formal offers, unless an exception applies: s 623. This rule is discussed in further detail in 11.4. The main exception is the purchase of shares in on-market transactions: see 11.3.

•

Any acquisitions made before the bidder’s statement is served must be disclosed in the bidder’s statement: s 636(1)(h). Once the bidder’s statement is served, details of acquisitions (and disposals) must be disclosed by 9.30 am on the next trading day: see 15.3.

If the bidder in an off-market bid wishes to purchase shares outside the formal offers beyond the 20% threshold, it can do so only if it satisfies the following conditions: •

the acquisition must be under an “on-market transaction” (see 11.3);

•

the acquisition must be by or on behalf of the bidder (not an associate);

•

the acquisition must occur after the bidder’s statement has been served on the target;

•

the bid must be for all voting shares in the bid class; and

•

the bid may not be subject to a defeating condition, other than a “prescribed occurrence” condition that an event referred to in s 652C(1) or (2) not occur or a statutory quotation condition for a scrip bid (see s 625(3)).32

It is possible that relief could be sought to expand the last requirement to cover other events. The NCSC stated that it would be likely to approve conditions specifying events outside the bidder’s control, occurring after the giving of the bidder’s statement and analogous to prescribed occurrences. This would not extend to changes in the financial position of the target nor matters affecting its economic and business environment (such as strikes or natural disasters). The NCSC stated it would be unlikely to approve minimum acceptance conditions, conditions relating to events within the control or influence of the bidder, vague, ambiguous and otherwise imprecise conditions and conditions relating to government authorisations and approvals. The policy was intended to support equality of opportunity between shareholders.33 It is possible to declare an offer free from conditions in order to satisfy this last pre-condition and be able to purchase shares on-market: see 11.5. This may be important if a rival bidder emerges who is able to buy shares on-market. If formal offers have not yet been sent, ASIC relief will be required to vary the offer document: see [11.50]. 32 See s 611, item 2, and ASIC Regulatory Guide 9: Takeover bids, RG 9.257–RG 9.260 and ASIC Class Order [CO 13/521], which ensures that the s 625(3) condition is not a defeating condition. 33 See NCSC Policy Statement 133. This policy is now obsolete.

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11.3 Acquisitions of shares in on-market transactions [11.30] A bidder may, in certain circumstances discussed in 11.2, acquire additional shares in the target without breaching the general 20% rule or the rule against collateral benefits in s 623 if the acquisition is under an “on-market transaction”. This is defined in s 9 to mean a transaction effected on a prescribed financial market34 which is: •

an on-market transaction as defined in the rules governing the operation of the market; or

•

if there is no definition, effected in the ordinary course of trading on the market.

The ASX Operating Rules applicable to the ASX market define an on-market transaction35 as a transaction by a Trading Participant which is: •

effected by matching of orders on an ASX trading platform, during usual trading hours or the closing phase;36 or

•

a crossing effected during normal trading where the crossing is arranged solely by the broker (and not pre-arranged between the principals to the transaction or their associates or advisers) and each principal is indifferent to the identity of the other.

A crossing, which is a transaction where the same broker acts for the seller and the buyer, may therefore be permitted provided that there is no pre-arrangement between principals before the crossing is effected.37 In effecting the crossing, all existing bids for shares at a price lower than the intended crossing price must be accepted, as must all existing offers to sell shares at a higher price (though bids and offers at the same price as the crossing do not participate). The effect is that other brokers have an

34 This is defined in reg 1.0.02A to cover the markets operated by ASX Ltd, Australia Pacific Exchange (now named Sydney Stock Exchange Ltd), Chi-X Australia Pty Ltd, the National Stock Exchange of Australia Ltd and SIM VSE (now named IR Plus Securities Exchange Ltd). 35 ASX Operating Rule 7100, definition of “On-market”, Procedures 4013 and 4060 and Appendix 4013. There appear to be no corresponding definitions in the Operating Rules of Chi-X or of Sydney Stock Exchange. Rule 1.4.3 of each of the ASIC Market Integrity Rules (ASX Market) 2010, the ASIC Market Integrity Rules (Chi-X Market) 2011 and the ASIC Market Integrity Rules (APX Market) 2013 contains a similar definition. Section 9 picks up the definition in “the rules which govern the operation of the market”, which leaves it unclear which definition prevails as regards ASX. In most respects, the Operating Rules (including their definition of “on-market”) govern the operation of the ASX market. Although the Market Integrity Rules prevail over the Operating Rules where they are inconsistent, their scope is limited, and the Rule 1.4.3 definition applies only for those limited purposes. 36 These trading sessions are discussed at 12.5. 37 Aberfoyle Ltd v Western Metals Ltd (1998) 28 ACSR 187.

252 Takeovers Law & Strategy

opportunity to participate in the transaction. A sale pre-arranged between brokers and effected that way may therefore be acceptable.38 This definition excludes a “special crossing”, which is essentially a transaction where the same broker acts for both the seller and the buyer (or acts as principal on one side of the transaction) and the price is agreed in advance. The transaction is not put through the market in a way whereby other persons may participate as seller or buyer. The definition also excludes transactions where the broker indicates that the crossing will only be effected if a certain minimum percentage of shares are acquired, as, in that case, the sellers are not indifferent to the identity of the buyer.39 However, merely because some sales will be scaled back in the event of a rush does not mean the transactions are outside the protection of the definition. Although the Operating Rules definition makes much of the previous law obsolete, the old rules about the expression “ordinary course of trading” remain relevant to crossings on ASX and applicable to the other prescribed markets.40 They may also inform the Panel’s thinking about anomalous trading. This expression is said to carry “overtones of an anonymous competitive bargaining in an open forum according to the common and usual course of that activity and without unusual features in the bargaining suggestive of collateral objectives” .41 Although a sale may be in the ordinary course even though the identities of the brokers’ clients are known, a transaction is outside the ordinary course of business if the seller instructs his or her broker to sell only to the bidder’s broker notwithstanding that a higher price may be achieved from elsewhere,42 or if the transaction includes any collateral arrangement, such as an escalator provision.43 Any element to a transaction which would induce the seller to wish to sell only to the bidder will put the transaction outside the ordinary course of trading.44 Nevertheless, a transaction may still be in the ordinary course of trading if it results from a bid to purchase a large number of shares that could not reasonably be expected to be satisfied in ordinary 38 Green v Crusader Oil NL (1985) 10 ACLR 120. 39 This was the form of stake-building used in Aberfoyle Ltd v Western Metals Ltd (1998) 28 ACSR 187. It was held to contravene the law as it then stood. 40 They also remain directly relevant to on-market buy-backs: s 9 definition of “on-market buy-back”. 41 Attorney-General (Vic) v Walsh’s Holdings Ltd [1973] VR 137, 144 per Gowans J. For a consideration of circumstances which may influence a court in determining whether a transaction is outside the ordinary course of trading, see Samic Ltd v Metals Explorations Ltd (1993) 11 ACSR 84, 101–02 per Olsson J. 42 ICAL Ltd v County Natwest Securities Australia Ltd (1988) 13 ACLR 129. 43 Attorney-General (Vic) v Walsh’s Holdings Ltd [1973] VR 137. 44 Aberfoyle Ltd v Western Metals Ltd (1998) 28 ACSR 187, where the bidder had told the seller that, if the bidder managed to purchase 15% of issued shares in the target, the bidder would launch a takeover offer for the target company. It was held that this meant the resulting crossing of shares was not in the ordinary course of trading.

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253

trading45 or if there is a minor non-compliance with the stock exchange Market Rules.46 Parts of a transaction may be negotiated off-market so long as the contract is concluded on the stock market.47 In practice, a bidder may be aware that a strategic shareholder is a likely seller in the market. To limit the room for allegations that an acquisition is not an on-market transaction, the bidder and the shareholder must act carefully, bearing in mind that their actions will be tested with hindsight. It may be appropriate to ensure that full and adequate disclosure of the intended sale is made to the market by the seller before the transaction is concluded. Furthermore, where possible, to avoid an adverse inference, the parties should avoid effecting the transaction as soon as the selling orders are put on the market. Any negotiations or dealings which may suggest that other potential purchasers may not be given an opportunity to purchase must be avoided. However, none of these steps are determinative by themselves nor would a transaction which conflicts with any of them necessarily be prohibited. Each case must be tested on its own facts. If the rules are contravened, it is possible that those involved may be sued in a civil action for conspiracy to enter an unlawful arrangement.48

11.4 Offering collateral benefits [11.40] During the course of an offer, it may become apparent that a major shareholder may be willing to accept the offer if a separate arrangement is agreed. This may become relevant, for example, if a shareholder has a separate relationship with the target that needs to be dealt with (such as being a supplier or lender) or if it is an employee. It can also arise if the shareholder wishes to acquire assets owned by the target. These possibilities are strictly regulated by the law, as, prima facie, they can contravene the general principle in s 602(c) that all shareholders should participate equally in benefits arising under a takeover bid. Therefore, s 623 provides that, subject to certain exceptions, a bidder (or an associate of a bidder) must not, during the offer period, give, offer to give or agree to give, a benefit to a person if:

45 Cuming Smith & Co Ltd v Westralian Farmers Co-Operative Ltd [1979] VR 129, where a broker bid for about 25% of issued capital of the target and the real purpose was to attract publicity without announcing a formal takeover bid. 46 Attorney-General (Vic) v Walsh’s Holdings Ltd [1973] VR 137, 145 per Gowans J; and see Eglo Engineering (Services) Ltd v Onstock Pty Ltd (unreported, WA Sup Ct, Pidgeon J, 14 March 1988) where a bidder purchased shares at a price higher than the previously announced takeover price without formally advising the stock exchange as required by the Operating Rules (or the Business Rules as they were known at that time), though the broker’s higher bid had been posted on the boards. 47 Attorney-General (Vic) v Walsh’s Holdings Ltd [1973] VR 137, 144 per Gowans J. 48 See Pancontinental Mining Ltd v Posgold Investments Pty Ltd (1994) 13 ACSR 117.

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(1) the benefit is likely to induce the person or an associate to: • accept an offer under the bid; or • dispose of securities in the bid class; and (2) the benefit is not offered to all holders of securities in the bid class under the bid.49 This rule is intended to ensure equality of treatment between all shareholders in the target. This prohibition is regarded by ASIC as one of the linchpins of Ch 6.50 It is not, however, expressly limited to dealings with current shareholders, and would seem to be applicable to benefits which are capable of inducing a person to acquire shares by purchase or subscription and sell them into a bid. Several points are relevant in considering the ambit of the prohibition and the extent to which it prevents the bidder reaching agreement with a shareholder. What is a benefit? [11.40.10] “Benefit” is defined as any benefit, whether by payment of cash or otherwise: s 9. There seems to be a difference in approach to this concept shown in decisions of the courts and the decisions of the Takeovers Panel. The courts have taken a fairly strict approach and held that “benefit” will include any advantage given to a shareholder not available to other shareholders, such as the ability to receive immediate payment not subject to conditions in the formal offers;51 the ability to sell all of one’s shareholding not merely the proportion specified in the formal offers;52 receiving an undertaking to increase the consideration offered in exchange for an agreement to accept an offer;53 the ability to sell other assets to the bidder in connection with a sale of shares in the target, irrespective of whether fair value was received;54 and the ability to participate in an equity raising by the bidder on favourable terms.55 In Aberfoyle Ltd v Western Metals Ltd (1998) 28 ACSR 187, ordinary shares and preference shares in the bidder were offered to institutional

49 An offence based on s 623 is an offence of strict liability: s 623(1A); Aberfoyle Ltd v Western Metals Ltd (1998) 28 ACSR 187. 50 See ASIC Regulatory Guide 9: Takeover bids, RG 9.287. 51 Attorney-General (Vic) v Walsh’s Holdings Ltd [1973] VR 137; Boral Energy Resources Ltd v TU Australia (Queensland) Pty Ltd (1998) 28 ACSR 1; Aberfoyle Ltd v Western Metals Ltd (1998) 28 ACSR 187. See also Citect Corporation Ltd [2006] ATP 6 [39] and [49]. This result may not follow if the conditions are likely to be satisfied: Boral Energy Resources Ltd v TU Australia (Queensland) Pty Ltd (1998) 28 ACSR 1, 39 per Santow J. 52 Albert v Votraint No 320 Pty Ltd (1987) 13 ACLR 336. 53 Corebell Pty Ltd v The New Zealand Insurance Co Ltd (1987) 13 ACLR 349. 54 Magellan Petroleum Australia Ltd v Sagasco Amadeus Pty Ltd (1992) 9 ACSR 162. 55 Aberfoyle Ltd v Western Metals Ltd (1998) 28 ACSR 187.

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shareholders in the target on the basis that the shares would be issued if a proposed takeover bid became unconditional. It was accepted that the shares were offered at a reasonable price. However, Finkelstein J held there was a breach of the predecessor to s 623. His Honour said (at 222): However, the fact that the shares were offered at their exchange value does not mean that the institutions were not offered a benefit. For the purposes of s 698, “benefit” is defined to mean “any benefit whether by way of payment of cash or otherwise”: see the definition in s 9. This is a very broad definition. It would include within it any advantage that might accrue from the offer. Each of the following advantages would fall within the meaning of benefit in my opinion:

• the ability to acquire shares without the payment of brokerage; • the ability to acquire a large parcel of shares at one time; • the ability to acquire a large parcel of shares without the need of having to purchase those shares on-market thereby avoiding the risk of forcing up the price of those shares before the whole parcel can be purchased;

• the ability to obtain an attractive investment (the converting preference shares carry a yield of 8.5%, are convertible to produce a profit of 10% and have downside protection);

• the ability to acquire shares not otherwise available on the open market. The offers that were made to the institutions carried with them each of these advantages. Each of them would be a very real commercial advantage to an institution or to an ordinary investor. Each advantage is a benefit within the meaning of s 698.

In assessing whether an advantage has been given, the courts and the Panel will have regard to any detriment, which offsets the benefit.56 On this basis, early payment may not necessarily be a benefit as the selling shareholder is relinquishing the rights attached to the shares (such as dividend rights and the possibility of selling at a higher price) earlier they would if they accepted a later takeover offer.57 It will not always be sufficient that a transaction took place at a market or arm’s-length price.58 Some matters can be disregarded, such as a speculative benefit or a benefit which does not constitute a profit, benefit or advantage59 or where the value of a benefit is too uncertain or too slight.60 For similar reasons, a

56 Boral Energy Resources Ltd v TU Australia (Queensland) Pty Ltd (1998) 28 ACSR 1; Citect Corporation Ltd [2006] ATP 6. 57 Sagasco Amadeus Pty Ltd v Magellan Petroleum Australia Ltd (1993) 177 CLR 508. 58 In Aberfoyle Ltd v Western Metals Ltd (1998) 28 ACSR 187, the relevant shares could not have been acquired on market without moving the price, and Thiess Holdings v CSR (Supreme Court of Queensland, No 3189 of 1979, unreported, but available on the Panel’s Resources web page) concerned the sale of an asset of strategic importance. See also Table 4 in ASIC Regulatory Guide 9: Takeover bids. 59 Boral Energy Resources Ltd v TU Australia (Queensland) Pty Ltd (1998) 28 ACSR 1, 33 per Santow J. In that case, a right to participate in a possible float of the bidder’s assets was dismissed as too speculative. 60 SA Liquor Distributors Ltd [2002] ATP 22 [40].

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payment of nominal consideration, such as a $10 fee paid for an option, would not normally be a benefit.61 Finally, the benefit must be “given” by the bidder so that an agreement is not within the prohibition merely because it preserves the ability of a person to do something which was already within that person’s rights (such as to sell the relevant shares into a takeover offer or accept a higher rival offer).62 When does the prohibition apply? [11.40.20] The prohibition applies during the offer period for an off-market bid but during the entire bid period for a market bid.63 This means that it does not apply to a benefit given to a shareholder before the offers are dispatched or to a remaining shareholder after the offer period closes.64 Once the prohibition applies, making a payment under an agreement entered into before the prohibition applied may be illegal.65 The safer course is, therefore, to delay settlement until after the bid closes. The benefit need not be referable to the takeover bid [11.40.30] A benefit will contravene s 623 if it is likely to induce the person (or an associate) to accept the bid or dispose of securities in the bid class. This will mean that benefits under transactions independent of the bid which are not calculated to affect a shareholder’s attitude to the bid, such as the provision of goods on ordinary terms between parties who normally trade in those goods, would be outside the prohibition.66 However, ASIC has provided relief in the context of takeover offers for co-operatives or former co-operatives (or companies of a similar nature) where shareholders who trade with the company may get added benefits by virtue of such trading.67 ASIC has also stated it will grant relief where relief is necessary for the bid to be completed and the benefit is not given to the relevant shareholder in 61 Primac Holdings Pty Ltd v IAMA (1996) 22 ACSR 454. 62 Savage Resources Ltd v Pasminco Investments Pty Ltd (1998) 30 ACSR 1. 63 Section 623(1), which prohibits collateral benefits during the offer period for both types of bid, is modified in respect of market bids by ASIC Class Order [CO 13/521] so that the prohibition applies from the making of the takeover announcement, because s 621 does not apply to transactions after that date: see ASIC Regulatory Guide 9: Takeover bids, RG 9.306–RG 9.313. 64 However, a benefit given prior to the offer period commencing may still give rise to unacceptable circumstances: see [11.40.50] and Takeovers Panel Guidance Note 21: Collateral Benefits, [10]. 65 Albert v Votraint No 320 Pty Ltd (1987) 13 ACLR 336. 66 See ASIC Regulatory Guide 9: Takeover bids, RG 9.298–RG 9.305, discussing inducement generally, and the difference between the current provision and the previous legislation. 67 See SA Liquor Distributors Ltd [2002] ATP 22 [43]; ASIC Regulatory Guide 9: Takeover bids, RG 9.316(b).

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its capacity as a shareholder. An example is the bidder undertaking to give ongoing financial support to the target in place of the selling shareholder.68 In Gantry Acquisition Corporation v Parker & Parsley Petroleum Australia Pty Ltd (1994) 14 ACSR 11, certain employees of the target company who were also shareholders were given the opportunity to acquire shares in the bidder or to obtain employment or retirement benefits from it. Sheppard J held that this did not contravene the predecessor to s 623, as that section only operated where the benefits were provided to shareholders in their capacity as owners of shares in the company. In that case, the benefit was conferred on the persons in their capacity as employees. The other judges did not comment on this matter.69 In Ampolex Ltd v Mobil Exploration & Producing Australia Pty Ltd (1996) 19 ACSR 354, Sackville J held that an offer to purchase convertible notes was not prohibited merely because some note-holders were also holders of shares subject to a formal takeover offer, because the offer was received in a different capacity and, in any event, was at a price in line with market price so that it was difficult to conclude it was a “benefit”. This can be contrasted with Skywest Ltd 04 [2004] ATP 26 where offers to option-holders who were also shareholders were at a price significantly above the fair market value of the options and, accordingly, the Panel considered the conduct in breach of s 623 and unacceptable. In Aberfoyle Ltd v Western Metals Ltd (1998) 28 ACSR 187 at 221, Finkelstein J held that the question of capacity was to be determined by asking whether the benefit in question is one which has the potential to influence or induce a decision to sell shares in the target company. This position is now explicitly stated in s 623. The question of “capacity” is therefore an item to consider, but not determinative of the issue. What are the exceptions? [11.40.40] The prohibition does not prohibit a variation of a takeover as provided by ss 649A–650D: s 623(2)(a). There is also an exception under s 623(2)(b) so that a person is not regarded as having received a benefit merely because the person sells bid class securities on-market70 and the takeover bid is an off-market bid, even if conditional.71 The exclusion of 68 See ASIC Regulatory Guide 9: Takeover bids, RG 9.319–RG 9.322. ASIC is also prepared to consider conditional case-by-case relief for inviting existing shareholders in a company to underwrite an issue to fund a bid for that company: RG 9.323–RG 9.331. 69 See also SA Liquor Distributors Ltd [2002] ATP 22 [34]–[43] where the Panel determined that the possibility of a discount provided to some shareholders in their capacity as customers was not a benefit of a kind to which the policy of s 623 applied. There was a similar finding in Mildura Co-operative Fruit Company Ltd [2004] ATP 5. 70 For “on-market”: see 11.3. 71 The Panel found that a bidder’s associate contravened s 623 by purchasing shares unconditionally off-market, in the context of a conditional bid, although the bidder immediately raised the price of the bid to that of the off-market transaction: Citect Corporation Ltd [2006] ATP 6.

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these on-market transactions proceeds on the basis that stock market trading is available to all offerees. Finally, there is an exception for any benefits arising under simultaneous takeover bids for different classes of securities in the target: s 623(2)(c). Takeovers Panel approach [11.40.50] The Takeovers Panel has issued Guidance Note 21: Collateral Benefits which makes clear that the Panel will take into account factors other than those set out in the black letter of s 623 and that a contravention of s 623 is neither essential to, nor will it necessarily result in, a declaration of unacceptable circumstances. However, notwithstanding the guidance, the combination of the black letter of s 623 and the overlay of Panel principles may often make it difficult for bidders to be sure of the bounds of the collateral benefits rule in practice and the prospect of any collateral transaction being acceptable or unacceptable. In its Guidance Note, the Panel states that it starts from “the idea that unacceptable circumstances will exist whenever a bidder provides a security holder something of value which it does not offer to other security holders”.72 In addition, while s 623 only applies to benefits given during the offer period, a benefit given prior to the offer period may give rise to unacceptable circumstances if the Panel considers the s 602 principles to be breached. Having said that, whether a collateral benefit is unacceptable will depend on all the circumstances. The main factors for the Panel are as follows. The equality principle

[11.40.50A] The Panel will be particularly concerned if the giving of a collateral benefit results in all shareholders not having a reasonable and equal opportunity to participate in any benefits accruing to shareholders: s 602(c).73 The Panel takes the view that, prima facie, the equality principle is contravened if an offeree receives a “net benefit” under a collateral transaction. A net benefit is assessed by taking into account the commercial advantages and disadvantages to security-holders of any transaction, that is, the commercial net effect of the transaction.74 The assessment is based on a “holistic” rather than an “atomistic” approach.75 It follows that, if there

72 Takeovers Panel Guidance Note 21: Collateral Benefits, [5]. 73 Takeovers Panel Guidance Note 21: Collateral Benefits, [11]–[26]. This approach may resolve the difficulty foreseen in complying with s 623, where bid class shares are stapled to interests in real estate: The President’s Club Ltd [2012] ATP 11 [70]. 74 Takeovers Panel Guidance Note 21: Collateral Benefits, [15]; PowerTel Ltd 03 [2003] ATP 28. 75 Boral Energy Resources Ltd v The Australia (Queensland) Pty Ltd (1998) 28 ACSR 1, 39; PowerTel Ltd 03 [2003] ATP 28; but contrast Aberfoyle Ltd v Western Metals Ltd (1998) 28 ACSR 1.

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is no net benefit, the equality principle is unlikely to be breached and unacceptable circumstances are unlikely to exist.76 Determining whether there is a net benefit may involve the Panel in a difficult assessment of the commercial reality, substance and value of a transaction. In this respect, a person seeking to establish that there is no net benefit may be assisted by an independent valuation,77 expert’s opinion78 and market testing of the value of a transaction.79 The Guidance Note states that, of these, market testing is the preferred way to establish there is no net benefit and, if it is not used, the reasons should be explained.80 The efficient, competitive and informed market principle

[11.40.50B] The Panel will consider whether a collateral benefit has the effect of dissuading alternative bidders from coming forward such that the efficient, competitive and informed market principle is breached: s 602(a).81 This concern is addressed to the extent that the collateral transaction is or has been exposed to competitive bids. It is, however, quite distinct from the equal opportunity issue: an offer by a shareholder to sell debt of the target for a stated amount to the successful bidder, whoever that may be, resolves the competition issue but the stated price may nonetheless be more than the debt is worth. Contravention of s 623

[11.40.50C] A breach of s 623 is not essential for a declaration of unacceptable circumstances. Conversely, a breach will not necessarily result in a declaration. Nevertheless, the Panel will consider if s 623 has 76 See Advance Property Fund [2000] ATP 7; Alpha Healthcare Ltd [2001] ATP 13; Normandy Mining Ltd 04 [2001] ATP 31 and Normandy Mining Ltd 06 [2001] ATP 32; SA Liquor Distributors Ltd [2002] ATP 22; PowerTel Ltd 03 [2003] ATP 28 where the repayment of a debt owed by a shareholder to the target for $10 million (the debt having a higher face value but was considered to be worth not less than $10 million) was not considered to be a net benefit. The result in PowerTel Ltd 03 can be contrasted with that in Skywest Ltd 04 [2004] ATP 26 where the bidder made offers to acquire options in the target to target shareholders at a consideration significantly above the fair value for the options – accordingly a “net benefit” was given/offered. See also Forest Place Group Ltd [2004] ATP 03. 77 Takeovers Panel Guidance Note 21: Collateral Benefits, [21]; Email Ltd 03 [2000] ATP 5; Alpha Healthcare Ltd [2001] ATP 13; and Forest Place Group Ltd [2004] ATP 03. 78 Takeovers Panel Guidance Note 21: Collateral Benefits, [25]; Becker Group Ltd 01 [2007] ATP 13; and Auspine Ltd [2007] ATP 18. 79 See Takeovers Panel Guidance Note 21: Collateral Benefits, [19]; and see Becker Group Ltd 01 [2007] ATP 13 where the voting by a 22.7% shareholder, who had made a takeover bid conditional on a sale of a major asset to a 42.6% shareholder, in favour of a resolution to approve the sale of the asset to the major shareholder was a benefit in which no other shareholder had the opportunity to participate. In that matter, there was some doubt as to whether the sale was on “arm’s length terms” as there was no public sale process. The sale itself was not unacceptable in itself, rather the process and the interdependence of the sale and the takeover offer was unacceptable. 80 Takeovers Panel Guidance Note 21: Collateral Benefits, [17]. 81 Takeovers Panel Guidance Note 21: Collateral Benefits, [27].

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been breached. Would the Panel consider that there may be an inducement and breach of s 623 which leads to unacceptable circumstances even if there is no net benefit?82 The Takeovers Panel’s approach in practice has been to not treat a collateral agreement as giving rise to a prohibited benefit if the agreement will not necessarily lead to a material net benefit83 or if it would merely provide a benefit on commercial arm’s length terms.84 The Panel seems to prefer this approach where the collateral transaction is necessary for the takeover bid to proceed at all, or where it allows a bidder to offer a materially higher price to all shareholders.85 Therefore, under the Panel’s approach, it may not be unacceptable if, during the offer period, the bidder offers to purchase another asset from a shareholder (or sell an asset to a shareholder) on arm’s length terms, even if that transaction is dependent on the takeover proceeding.86 Given the nature of Panel proceedings and the onus on the person challenging a transaction to establish it is prohibited (that is, not on arm’s length terms), this approach may often give rise to a different practical outcome compared to the outcome under the courts’ approach. Various other factors which may give rise to unacceptable circumstances

[11.40.50D] The Panel states that other factors which may influence its decision include:87 •

whether the collateral benefit was offered, given or received when a control transaction was contemplated;

•

whether the collateral benefit would be given or received irrespective of the control transaction outcome;

•

whether the benefit is linked to the control transaction through bid conditions, an understanding or otherwise;

•

any pre-existing relationship or a series of independent transactions explaining it; and

•

shareholder approval by non-associated shareholders. It would appear that the Panel considers that a collateral benefit approved by fully-informed non-associated shareholders is unlikely to give rise to unacceptable circumstances.88

82 Takeovers Panel Guidance Note 21: Collateral Benefits, [32]. 83 Advance Property Fund [2000] ATP 7. 84 Normandy Mining Ltd 06 [2001] ATP 32; Forest Place Group Ltd [2004] ATP 3. 85 Alpha Healthcare [2001] ATP 13 [61]–[63] and PowerTel 03 [2003] ATP 28 [56]. In each matter, the target owed a debt to its controlling shareholder which it could not service: the Panel did not object to the successful bidder acquiring the debt in a transaction clearly collateral to the bid. In each matter, however, the Panel was able to verify that the bidder did not overpay for the debt. 86 Normandy Mining Ltd 06 [2001] ATP 32. 87 Takeovers Panel Guidance Note 21: Collateral Benefits, [34]. 88 Becker Group Ltd 01 [2007] ATP 13.

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The additional Panel considerations may give rise to some difficult judgment calls for bidders. For example, a transaction which gives rise to no “net benefit” or one which is approved by shareholders may be considered by the Panel not to be unacceptable.89 However, the transaction may still breach s 623 which is an offence of strict liability. Therefore, a bidder may be at risk of prosecution or a civil action before the courts after a bid has closed.

11.5 Formal variations of offers [11.50] After the bid has been made, it is possible to change its terms in certain ways. This may be necessary in order to win a favourable recommendation from the target, to encourage more acceptances or to match or exceed the price offered under a rival bid. A takeover bid may only be varied as permitted by the legislation. This restriction is intended to promote equality between offerees. In recognition of market efficiency, some types of variations are permitted to happen expeditiously. The legislation allows variations to “offers”, but implicitly precludes varying an offer before it has been dispatched, by requiring the bidder to make offers on the same terms as the offer which it lodged with ASIC. A variation to a proposed offer before dispatch requires ASIC approval.90 If the variation changes the terms originally announced, a modification pursuant to s 655A may have to be obtained to avoid a technical breach.91 Variations may be considered under the following headings. Increase of consideration [11.50.10] Sections 650B and 651A provide alternative ways to increase the consideration offered under a takeover bid. This can be done at any time before the offer period closes, whether or not the offer is conditional. However, if the bidder increases the consideration offered during the last seven days of the offer period, the offer period will be extended by a further 14 days after that date: s 624(2).92 89 In addition, the Panel has had to consider whether an institutional acceptance facility (Patrick Corporation Ltd 03 [2006] ATP 2; and see 11.8) and fees paid by bidders to brokers who process acceptances (Normandy Mining Ltd 05 [2001] ATP 29; and Taipan Resources NL 10 [2001] ATP 5 and Taipan Resources NL 11 [2001] ATP 16) breach s 623 (see Takeovers Panel Guidance Note 13: Broker Handling Fees; ASIC Regulatory Guide 9: Takeover bids, RG 9.302–RG 9.305 and 11.9). 90 Sections 633 (item 6), and 650A–D, ASIC Regulatory Guide 9: Takeover bids, RG 9.565–RG 9.570. This requirement is more stringent than s 631, which only requires substantive parity. Apart from substantive changes, and including current information as mentioned at 9.6, the bidder may correct typographical and other minor errors in the original documents: RG 9.336 and Regulatory Guide 254: Offering securities under a disclosure document, RG 254.133–RG 254.136. 91 See TNT Australia Pty Ltd v Normandy Resources NL (1989) 1 ACSR 1. 92 See [11.50.20]. See also Qantas Airways Ltd 02 [2007] ATP 6; and Qantas Airways Ltd 02R [2007] ATP 7 where the Panel (and Review Panel) declined an application which sought orders the effect of which were to treat an acceptance received approximately five hours

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Section 650B sets out various ways in which consideration offered may be increased by way of a formal variation. These include increasing the cash, share, debenture or option component of the consideration offered under the bid. Offerees who have already accepted an offer are entitled to receive the additional consideration: s 650B. An offer may also be varied to introduce a cash consideration as a new alternative: s 650B(1)(h). Offerees who have already accepted must be given notice of the new cash alternative and given one month to elect whether they wish to receive it in place of the consideration accepted previously: s 650B(2). A bidder offering a scrip consideration is not taken to have effected a variation of the bid if it releases favourable financial results or forecasts during the offer period, even though that may effectively increase the market value of the scrip offered. A variation which involves a change in the mix of consideration will fall outside s 650B and, accordingly, will require prior ASIC consent, even if the aggregate value is higher. For example, to vary an offer of one share plus 50 cents cash per target share to two shares plus 20 cents cash per target share will require ASIC approval even if the shares have a high value. If the original offer was to acquire the target shares “cum” dividend, a variation to acquire the shares “ex” dividend, thereby enabling the offerees to retain the dividend, is within the scope of permitted variations: s 650B(1)(g). Section 651A provides an alternative way to vary the bid price. If the bidder purchases securities in the same class for a price higher than that made in the offer, the offer is deemed to be increased to that price and the formal variation procedure does not apply.93 Offerees who have already accepted are entitled to receive the additional consideration: s 651A(3). If the original offer did not include a cash consideration and the bidder purchases securities outside the takeover scheme for cash, the bidder must give offerees who have accepted the opportunity to elect to receive cash: s 651A(4). These rules do not apply if an associate of the bidder makes the purchase94 or if the purchase is made prior to the bidder’s statement being served.95

after the closing time of 7 pm (and which did not comply with s 653A) as having been received before that time. If the acceptance was treated as having been received before the close of the offer, the bidder would have had acceptances for more than 50%, thereby triggering the operation of s 624(2). 93 See the discussion in 11.2 and 11.3. Any acquisitions during the bid need to be made on-market and the bid may not be conditional on anything other than prescribed occurrences: see Citect Corporation Ltd [2006] ATP 6. 94 Unless the bidder caused or authorised the associate to make the purchase: in any case, the associate will contravene s 623, and may contravene s 606. 95 Though in that case, the higher consideration will lead to an increased minimum bid price under s 621(3).

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Where the target’s securities are listed on the ASX, trading will be suspended for one hour after the announcement of a price increase.96 The bidder cannot make any agreement or give any undertaking to a shareholder that it will increase the bid price as an inducement for the shareholder to accept. Such an agreement or undertaking would be an impermissible variation and would contravene the rule in s 623 against giving a benefit to a shareholder outside the formal bid.97 However, it may be possible for a shareholder to commit to accept a takeover bid in the event the bidder increased the bid price as this would be akin to a pre-bid acceptance agreement.98 Extensions of offer period [11.50.20] The offer period may be extended by a further period, but it may not exceed 12 months: s 624(1). If the offers under the bid are varied to improve the consideration offered or the bidder’s voting power in the target increases to more than 50% within the last seven days of the offer period, the offer period will automatically be extended so that it ends 14 days after that event: s 624(2). The bidder is required to give notice to shareholders within three days. The bid can be extended again before the automatic extension ends. An automatic extension under s 624(2) means that the bid will close at some time on the 14th day after the extension was triggered. Because of the general principle that the law disregards parts of a day, s 624 as enacted might not result in the bid closing at the same time of day as it would have done, had it not been extended, but it has been modified by ASIC to have that effect.99 In Gosford Quarries, the Panel reasoned that the extended bid must stay open until a reasonable time on the 14th day.100 Provisions of Ch 6 have the effects that a market bid cannot be accepted after the close of trading on the last day, and that an off-market bid for quoted securities cannot be accepted after ASX Settlement’s office closes on that day.101 Arguably, the combined effect of s 624(2) and the provisions governing

96 ASX Market Rules Procedures, Appendix 20.4. 97 Corebell Pty Ltd v The New Zealand Insurance Co Ltd (1987) 13 ACLR 349. See further 11.2. 98 See, for example, the arrangements considered in Vision Systems Ltd 01 [2006] ATP 32. The commitment must be subject to a better offer, to avoid a contravention of s 606, as in Corebell. 99 ASIC Regulatory Guide 9: Takeover bids, RG 9.524–RG 9.534 and Class Order [CO 13/521]. To avoid uncertainty in this regard, it may be possible to seek ASIC relief to allow a definite time to be specified as the closing time. 100 Gosford Quarry Holdings Ltd 01 [2008] ATP 11. 101 Section 634 indicates that acceptances of a market bid must be made on-market, which means no later than 4 pm Sydney time. The combined effect of s 653A, reg 6.8.01 and ASX Settlement Rule 14.14.2 is to require an acceptance of an off-market offer for quoted securities to be made by message to ASX Settlement, which may be sent up to 7 pm Sydney time.

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acceptance is that the extended bid closes at 4 pm or 7 pm Sydney time on the 14th day.102 If the offer is conditional, an extension (other than under s 624) may only be effected before the publication of the s 630(3) notice concerning the status of conditions, unless a rival takeover bid is announced or improved.103 ASIC takes the view that this permits a bidder to effect the variation on the day specified for publication of the s 630(3) notice.104 If the offer is unconditional, the extension may be effected at any time before the offer closes: s 650C(1). Offerees who accept a conditional offer may withdraw their acceptances where they receive notice of a variation which postpones for more than one month the time when the bidder’s obligations under the off-market bid must be satisfied: s 650E(1). In determining whether there has been a postponement of one month, it seems that successive extensions will be aggregated. ASIC takes this view.105 An offer may not be extended after it has closed.106 Despite that, however, the court can make an order under s 1322 or s 1325D validating an extension if notices of variation are sent after the closing date.107 Other variations [11.50.30] With appropriate relief from ASIC, a bidder may vary the offers in any other way: s 655A. However, ASIC is likely to consent only to variations which improve the terms of the offer for the offerees (such as improving the consideration even if conditioned on some event occurring). Some variations may not be permitted as they may lead to market uncertainty, such as changing a proportional offer into a full offer.108 Procedure for formal variation [11.50.40] The general procedure for effecting a formal variation is to prepare a notice of variation which sets out the precise changes and any changes to the bidder’s statement that are necessary as a result: s 650D. The

102 If the 14th day is a public holiday or bank holiday, s 36(2) of the Acts Interpretation Act 1901 (as at 1 January 2005—see s 5C) has the effect that the bid can be accepted on the next business day. The effect of this provision in a particular case may be uncertain, making it appropriate to further extend the bid, or to obtain an ASIC modification to fix the date on which it closes. 103 Section 650C, as modified by ASIC Class Order [CO 13/521]. 104 ASIC Regulatory Guide 9: Takeover bids, RG 9.521–RG 9.522. 105 ASIC Regulatory Guide 9: Takeover bids, RG 9.538–RG 9.544. 106 Re William Haughton & Co Ltd [1978] VR 233; Pinnacle VRB Ltd v Reliable Power Inc [2001] VSC 262; (2001) 39 ACSR 8; and Premium Income Fund [2011] ATP 10. See also Qantas Airways Ltd 02 [2007] ATP 6; and Qantas Airways Ltd 02R [2007] ATP 7. 107 Diamond Rose NL v Striker Resources NL (1998) 28 ACSR 749; Pinnacle VRB Ltd v Reliable Power Inc [2001] VSC 262; 39 ACSR 8 and discussion at 21.6. 108 Albert v Votraint No 320 Pty Ltd (1987) 13 ACLR 336.

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requirement to prepare a formal notice of variation does not apply to a variation effected by a purchase of shares at a higher price under s 651A. ASIC takes the view that, in a variation to increase the bid price, the source of the additional cash required must be disclosed in the notice.109 The notice of variation must be lodged with ASIC, served on the target110 and sent to all offerees (except that, if the offer is unconditional and the variation merely extends the offer period, it need not be sent to those who have already accepted): s 650D(1).111 The notice must be signed on behalf of the bidder112 and must bear an endorsement to the effect that the notice has been lodged with ASIC but that ASIC takes no responsibility for the notice: s 650D(4). Because the variation is not effective until it has been sent to shareholders, it is open for a bidder to lodge a variation notice with ASIC and then wait to see if it is needed. This may be a useful way of proceeding when the bidder is trying to satisfy the compulsory acquisition tests in s 661A and is weighing up whether or not an extension of the offer period is necessary. However, once the notice is lodged, it becomes a public document and there is a risk that a search of ASIC’s database could uncover it. If that occurred, it may adversely affect the flow of acceptances on the grounds that many shareholders will not accept an offer until the last possible moment so as to keep their options open. In Allegiance Mining NL [2008] ATP 3, shareholders accepted a takeover offer when unaware that the bidder had extended the offer by giving the target the notice of extension minutes before its scheduled close at 7 pm on the closing date. The Panel decided that, once the bidder had lodged the notice of an extension with ASIC and deposited letters informing target shareholders of the extension with Australia Post (in this case both at around 5 pm on the closing date), the bidder was effectively committed to extending the offer. Therefore, from that time, it was unacceptable for the bidder to withhold information about an extension from the target. Accordingly, shareholders who accepted the bid after 5 pm and before the

109 ASIC Regulatory Guide 9: Takeover bids, RG 9.368–RG 9.369. 110 Notice may be given by fax, though it must not be sent to a minor office of the company: Biotech International Ltd v Peptech Ltd (2000) 34 ACSR 443. It should be sent before the bid closes: see Diamond Rose NL v Striker Resources NL (1998) 28 ACSR 749. Failure to meet the requirements will mean the variation is not effective: Biotech International Ltd v Peptech Ltd (2000) 34 ACSR 443. 111 ASIC has modified s 650D so that the notice must be sent to the stock exchange (if the relevant securities are quoted), all bid class holders shown on the most recent list given by the target to the bidder and, where the variation affects them, to people who have accepted offers under the bid, even if they are no longer on the register: Class Order [CO 13/521] and Regulatory Guide 9: Takeover bids, RG 9.580–RG 9.585. 112 Section 650D(3). However, ASIC Class Order [CO 13/521] exempts a bidder from compliance with s 650D(3) where the notice of variation is approved by a resolution passed by the directors of the bidder (unless the bid is cash only, the resolution must be unanimous). See also ASIC Regulatory Guide 9: Takeover bids, RG 9.571–RG 9.574.

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time at which the market became aware of the extension were given the right to have their acceptance cancelled. It seems that, had the notice been given to ASIC, the target and Australia Post at the last minute, the Panel’s reasoning would not apply. Conditional price increases and extensions [11.50.50] In recent years, there has developed a practice of announcing a conditional price increase or a conditional extension. This is usually effected without a formal notice or variation. For example, a bidder may announce that, if it reaches a nominated level of acceptances (often 50% but other percentages may also be specified, for example, 20%, 75% or 90%) by a specified date, it will increase the bid price by a certain amount or it will extend the offer period (but otherwise the offer will lapse).113 These conditional increases or extensions are sometimes referred to as “virtual variations”. They are intended to encourage target shareholders to accept the bid. This may be critical to gain momentum for a bid, especially if a rival bid is rumoured or announced. Once the announcement is made, target shareholders will expect the bidder to act in accordance with its statements as to do otherwise would be in breach of ASIC’s “truth in takeovers” policy and risk liability for misleading conduct and a declaration of unacceptable circumstances: see 11.7. In employing this technique, it is critical to ensure that shareholders are aware that, if they accept and the pre-condition is not satisfied, they will be bound by their acceptance of the bid’s original terms. Once the pre-condition to the variation is satisfied, the bidder would need to promptly effect a formal variation of the bid. The Takeovers Panel considered a conditional price increase and extension statement in Australian Leisure & Hospitality Group Ltd 03 [2004] ATP 25. In that case, the bidder announced at 2.13 pm on the last day of its offer that it would increase its offer price from $3.15 to $3.40 per share if it achieved a relevant interest in 20% of the target shares by 6 pm that day. Otherwise, it would close its offer at 7 pm. If the price was increased, the bid would be automatically extended under s 624(2). The Panel said that a conditional increase was not of itself unacceptable, provided adequate information about the increase was given and shareholders had adequate time to consider it. However, in this matter, the Panel considered that not all shareholders would have become aware of the conditional increase statement and the time allowed was insufficient. The announcement was 113 On these virtual variations, see Durbridge “Review of Truth in Takeovers” in Damian and James (eds) Towns Under Siege:Developments in Australian Takeovers and Schemes (Ross Parsons Centre of Commercial, Corporate and Taxation Law, Sydney, 2016), page 343. ASIC appears to regard virtual variations as acceptable and effective, but will not give relief to enable a bid to be varied formally so that the price increases if a certain level of acceptances is reached, unless the increase can happen at any time until the bid closes, and the effect of waiving the minimum acceptance threshold is that the increased consideration is payable: Regulatory Guide 9: Takeover bids, RG 9.554–RG 9.557.

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therefore inconsistent with the s 602 principle that shareholders have a reasonable time to consider proposals to acquire a substantial interest in the company. The Panel made an order extending the bid by seven days to allow shareholders and the market further time to consider the matter. Any shareholder who had accepted the bid between 2.13 pm and 6 pm on the relevant day received withdrawal rights.

11.6 Declaring the offer unconditional [11.60] Shareholders are less likely to accept a conditional offer if there is no reasonable likelihood that the conditions will be satisfied. Acceptance of a conditional bid means the shareholder loses control of the shares and prevents the shareholder from accepting an alternative bid should one emerge. Therefore, declaring an offer free of conditions114 is a key step in making the bid more attractive for shareholders.115 In declaring a bid unconditional, the bidder assumes a greater risk of an adverse development affecting the target.116 A conditional takeover bid may only be declared free of conditions in accordance with s 650F. This section is intended to require the bidder to treat all offerees equally. A waiver of conditions (other than prescribed occurrence conditions) must be effected at least seven days before the offer closes. A condition is waived only if the target is given a notice declaring the offers free from the condition and specifying the bidder’s voting power: s 650F(3). A copy must be given to the stock exchange if the securities are quoted and to ASIC if they are not. If a condition is not waived at the proper time and, at the end of the offer period, that condition is not fulfilled, all contracts resulting from acceptances are void.117 Accordingly, a bidder cannot simply forbear from relying on an outstanding condition which has been triggered.118 This means that the bidder must make a decision whether to declare the offer unconditional and risk possible loss from the occurrence of any of the events against which the conditions were designed to provide protection or to retain the conditions and possibly be forced to return all acceptances if a minor breach occurs. The legislation requires this difficult decision to be made at least seven days before the offer closes. The only exception to this 114 Often, but imprecisely, referred to as waiving the conditions. 115 In order to overcome a bidder’s reluctance to declare an offer free from conditions, shareholders may be sounded out for indications that, if the bid was unconditional, they would accept the offer. A more formal way to proceed is for acceptance forms to be delivered into an institutional acceptance facility: see 11.8. This may give greater confidence to the bidder to free any minimum acceptance conditions. 116 For example, a material adverse change in the financial position of the target emerged a day after the bidder declared its bid unconditional in Australian Liquor Group Ltd [2001] ATP 18. 117 Section 650G, as modified by ASIC Class Order [CO 13/521]. 118 This was possible under previous legislation if the condition was expressed to be for the bidder’s benefit only: Gerrard Company of Australasia Ltd v Johns Perry Ltd (1982) 7 ACLR 699.

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rule is that “prescribed occurrence” conditions can be held and waived three days after the bid closes.119 To assist shareholders to understand the status of the bid conditions, a bidder under a conditional takeover bid is obliged to give a notice stating whether the offers have become free of any condition and whether, so far as is known, the condition has been fulfilled: s 630(3). This must be published on the date not less than seven days and not more than 14 days before the end of the offer period specified in the offers. The scheduled date must appear in the offer document: s 630(1).120 The notice must be given to the target and to the stock exchange if the securities are quoted and to ASIC if they are not: s 630(5). If a condition is waived or satisfied during the bid period but before the date for publishing the notice on the status of the condition, the bidder must, as soon as practicable, give a notice stating that the condition has been fulfilled: s 630(4). The notice must be given to the target and either the relevant securities exchange (if the securities are quoted) or ASIC (if unquoted): s 630(5). In general, a bidder need not declare immediately its position on a condition once it has been triggered.121 So long as the market knows of an uncertainty in relation to a bidder’s position on a condition which may have been triggered, the nature of the uncertainty and the timetable for resolving it, there is no concern in the bidder waiting until the date set under s 630(3) for giving notice of the status of the conditions before making an announcement in relation to the triggered condition.122 However, in some circumstances, for example, where target shareholders may be disadvantaged if the bidder’s position was not known by a certain date (for instance, where other alternatives open to the shareholders will close),123 the Panel may require a bidder to advise target shareholders at an earlier time whether or not it will be relying on a condition which has been triggered or whether the condition (or a particular breach of it) will be waived.

11.7 Declaring the bid “final”—truth in takeovers [11.70] A recurring issue for bidders is trying to entice acceptances of the offer from shareholders. As the offer must remain open for a certain time period and cannot be declared free of conditions during the last seven days of a bid, a stand-off can develop and pressure can build on a bidder seeking to gain some momentum in its bid. For that reason, a bidder may be inclined to issue various public statements to encourage acceptance, such 119 Section 650F(1), as modified by ASIC Class Order [CO 13/521]. 120 If the bid is extended before the notice is given, the date for giving the notice is postponed by the length of the extension: s 630(2). 121 Anaconda Nickel Ltd 06–07 [2003] ATP 6; Novus Petroleum Ltd [2004] ATP 2. 122 Novus Petroleum Ltd [2004] ATP 2 [46]. 123 Anaconda Nickel Ltd 06–07 [2003] ATP 6.

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as declaring the offer “final”, that is, that the offer price will not be increased or that the offer period will not be extended. Once shareholders know there is some finality, they may be more inclined to accept. Given the importance that shareholders will place on these statements, great care must be taken in framing such statements. If the statement turns out to be wrong (for instance, the price is increased or the offer is extended), the maker of the statement may need to prove that there were reasonable grounds for making the statement when the statement was made. If not, the statement is deemed to be misleading: s 769C. If it did not represent the bidder’s intentions and expectations when it was made, the statement may also be found misleading under s 1041H. In addition to these legal issues, a departure from such a statement may fall foul of the “truth in takeovers” policy. In general, both ASIC and the Takeovers Panel expect the maker of a statement about the conduct of a takeover bid to abide by it, unless the person clearly and expressly qualifies the statement at the time of making it.124 The policy applies primarily to statements about a bidder’s intentions about conducting its bid, such as whether the bidder will increase the bid, extend the bid or declare it free of conditions, at all, or in specified circumstances. The policy proceeds on the basis that shareholders should be entitled to expect that a bidder (or other person) will act consistently with a stated intention of a kind on which they might be expected to rely. For example, the Panel would consider unacceptable circumstances to exist where a bidder, in a formal notification to shareholders, states that a bid will not be increased or will not be extended or that a condition will not be waived, and then increases or extends the bid, or declares it free of the condition. People might reasonably deal in bid class securities, or decide whether to accept the bid, in reliance on the bidder’s announcement.125 ASIC’s policy states that a bidder cannot depart from a statement even if it offers to compensate those who have acted in reliance on the statement.126 The Panel has made similar comments:

124 ASIC Regulatory Guide 25: Takeovers: false and misleading statements, RG 25.24; Taipan Resources NL 06 [2000] ATP 15; Summit Resources Ltd [2007] ATP 9; Anaconda Nickel Ltd 18 [2003] ATP 18 [31]–[33]; BreakFree Ltd 04R [2003] ATP 42; Novus Petroleum Ltd 02 [2004] ATP 09; and Rinker Group Ltd 02 [2007] ATP 17 and Rinker Group Ltd 02R [2007] ATP 19. An order by the Panel itself may justify a bidder changing its commitment: Australian Leisure & Hospitality Group Ltd 03 [2004] ATP 25. For further background about the policy, see Jolley and Riley-Smith, “Truth in Takeovers – No Ifs; No Buts” in Hill and Austin (eds), The Takeovers Panel After 10 Years (University of Sydney, 2011), p 65 and Durbridge “Review of Truth in Takeovers” in Damian and James (eds) Towns Under Siege: Developments in Australian Takeovers and Schemes (Ross Parsons Centre of Commercial, Corporate and Taxation Law, Sydney, 2016). 125 Similarly, the policy applied where a bidder purported to leave its options open, but prominently and publicly made statements that contradicted that position: Normandy Mining Ltd 07 [2002] ATP 02. 126 ASIC Regulatory Guide 25: Takeovers: false and misleading statements, RG 25.24.

270 Takeovers Law & Strategy Palliatives such as offering accepting offerees an opportunity to withdraw their acceptances and offering compensation to other persons affected do not make coercive or deceptive conduct acceptable. Bidders should conduct themselves in ways which do not call for these remedies.127

The “truth in takeovers” policy applies equally to other market participants, for example, the target128 and substantial shareholders (in particular statements as to whether they will or will not accept an offer).129 The policy does not derive from a specific rule that a person is bound to carry out a statement of intention. Rather, it is founded on the general rules in the Corporations Act relating to misleading conduct (see [11.10.10]) and the s 602 principle that acquisition of control over shares should occur in an efficient, competitive and informed market. The policy can often give rise to controversy as it can be regarded as stifling an auction for a company if a bidder is held to a “no increase” statement, despite a rival bid emerging or other circumstances changing. Proponents of the policy support a strict application of it as it promotes market integrity by establishing greater certainty and enables shareholders and rival bidders to make decisions based on public statements during the bid. The lack of a clear basis for the policy has led to some areas of uncertainty, discussed below: Clarity of statement [11.70.10] Often the statement in question will be made clearly and deliberately. However, sometimes it will be less clear. Often an informal statement or comment may be made during the bid without the maker being precise as to what is meant or turning his or her mind to the consequences under the “truth in takeovers” policy. For that reason, the Panel has said it may allow some flexibility. In Taipan Resources NL 06 [2000] ATP 15, the Panel said: This principle is not an absolute rule that the bidder must act out its stated intentions mechanically. What it is reasonable to expect depends also on the degree of precision of its statement, the presence or absence of clear qualifications to the statement, on the

127 Taipan Resources NL 06 [2000] ATP 15 [36]. 128 In Andean Resources Ltd [2006] ATP 21, the Panel required a target to comply with paragraph [25.51] of the policy, requiring a target company which announces that it is in discussions with a rival bidder to update the market on those discussions before the bid closes. Compare Auspine Ltd [2007] ATP 18 [56]. 129 See ASIC Regulatory Guide 25: Takeovers: false and misleading statements, RG 25.29–RG 25.34. In BreakFree Ltd 04 [2003] ATP 39; and BreakFree Ltd 04R [2003] ATP 42, statements were made by the target to the effect that certain shareholders had said that they would not accept the offer. These were misleading as the target made them without appropriate qualifications. Therefore, those shareholders were not to be held to the statements and the manner in which they were presented (without consent or endorsement by the shareholder) meant that the statements could not be relied upon by the bidder as justification for certain action it had taken.

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acts of other persons, on new circumstances, on later statements of the bidder itself and on how far it is reasonable to expect stated intentions to be pursued.

This approach recognises that the overall impression created by the statement is important and that sometimes a broader range of factors may be relevant than what could be considered “reasonably foreseeable” as at the time the statement is made.130 In Ludowici Ltd 01R [2012] ATP 4, the managing director of a bidder answered “no” when asked by a journalist if he would consider increasing a bid during an interview on the day the bid was announced. This was reported by Reuters as a statement the bid was “final and would not be increased”. The bidder did not correct this for eight days. The Review Panel decided that the comment was not a last and final statement attracting the policy, but considered that unacceptable circumstances were created by the bidder not correcting the Reuters article for eight days.131 There are differing views about whether a statement that a bidder has “no present intention” to increase the bid attracts the policy. ASIC has said that such a qualification may be insufficient to counter-balance the effect of the last and final statement on shareholders, including ordinary investors.132 In practice, a bidder making a statement about its intention not to increase or extend an offer is well advised to set out clear qualifications or reservations if they wish to retain the flexibility to do such things if necessary (such as if a rival bid emerges). This includes any informal statements made in interviews.133

130 In Prudential Investment Company of Australia Ltd [2003] ATP 36, the Panel declined to enforce the truth-in-takeovers policy to prevent bidders from declaring their bid free of a condition which they had disclosed was non-waivable, as required by joint bid relief given by ASIC. The Panel regarded this as less a statement of intention by the bidders than a reflection of ASIC’s policy position. Contrast Taipan Resources NL 06 [2000] ATP 15, where a bidder was held to a declaration that a condition was non-waivable, which it had made for tactical reasons of its own. 131 The Panel also stated that there was no reason why the truth-in-takeovers policy would not apply to a scheme of arrangement (the intended transaction structure in that matter). 132 ASIC Regulatory Guide 25: Takeovers: false and misleading statements, RG 25.38. The London Panel treats a statement of present intention as firm, rather than qualified. Takeovers Panel Guidance Note 23 Shareholder intention statements states an acceptance intention statement expressed as a “present intention” is unclear in meaning and risks being misleading or at least confusing. 133 Detail matters: in Spotless Group Holdings Ltd 01 [2017] ATP 5, a bidder’s statement contained inconsistent provisions as to whether all or none of the defeating conditions in the bid were conditions precedent to the formation of contracts by acceptance. Some of those conditions would ordinarily have been expressed as conditions precedent, and others as conditions subsequent. ASIC submitted, and the Panel accepted, that the bidder should be held to a statement to the effect that all of the conditions were conditions precedent. This is an unfortunate decision, as a reader would not have been entitled to rely on that statement in the face of evidence in the same document that it had been made inadvertently. The decision relied on the policy of s 631, but the issue concerns the construction of the offer.

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Correction of statements [11.70.20] ASIC policy recognises that the correction, clarification and withdrawal of last and final statements may be acceptable in certain circumstances.134 In a similar vein, the Panel has permitted a change in position in a last and final statement where a correcting statement was made in relatively short time after the original statement (approximately two hours later) and there was a lack of evidence that anyone was adversely affected by the correction.135 In Ludowici Ltd 01R [2012] ATP 4, as noted above, allowing eight days to elapse before correcting a statement was too slow to avoid creating unacceptable circumstances. Change of circumstances [11.70.30] Prior to 2002, ASIC policy recognised that the maker of a statement may depart from it if there has been an unforeseeable change in circumstances. This was deleted from the policy statement issued in 2002, presumably due to difficulties in working out what is foreseeable. The highest that it can be put now is that a change in circumstances may be a factor to which ASIC or the Panel may have regard in deciding whether or not to enforce the policy.136 The London Panel will allow a departure in “wholly exceptional circumstances” which are approved by that Panel. Can a new bid be made? [11.70.40] A further uncertainty relates to how long a bidder who has declared its bid final is prevented from allowing the present bid to close before launching a fresh bid at a higher price. There is no guidance in the ASIC policy and much will depend on the circumstances and the precise words the bidder has used.137

134 ASIC Regulatory Guide 25: Takeovers: false and misleading statements, RG 25.46–RG 25.66. 135 Consolidated Minerals Ltd 03 [2007] ATP 25 [50]–[54]; and Consolidated Minerals Ltd 03R [2007] ATP 28. 136 At RG 25.24, ASIC describes its policy as consistent with the City Code rule which holds a bidder to a no-increase statement except in “wholly exceptional circumstances”. In Summit Resources Ltd [2006] ATP 9, the Panel rejected a submission that a negotiated change in the target’s recommendation was unforeseeable and justified a departure from an earlier statement. 137 The Panel accepts that the mere fact that a bidder has stated a specific intention for one bid does not prevent it from allowing that bid to lapse and then making a new bid with a different intention: Taipan Resources NL 06 [2000] ATP 15. ASIC has said that where “minimal time” has elapsed between the first bid and a second bid, ASIC may view the second bid as effectively an extension of the first bid: ASIC, Corporate Finance Liaison Meetings, Summary of Issues, June 2010 at 1.

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Remedies [11.70.50] Further difficulties have arisen in framing appropriate orders to rectify unacceptable circumstances caused where a person has departed from an earlier public statement. In Summit Resources Ltd [2006] ATP 9, the bidder declared it would vote in favour of resolutions proposed by the target to authorise a placement of shares to, and a joint venture with, a third party, but later withdrew support for the resolutions following an increase in its bid which secured a target board recommendation and success of the bid.138 The Panel made a declaration of unacceptable circumstances. However, as events had moved on, the Panel considered that it would not have been appropriate to force the target to hold a shareholder meeting and enter into a joint venture which would have disadvantaged target shareholders (who had accepted a scrip bid and become shareholders of the bidder). As a result, the Panel felt there was no sensible order which could be made to remedy the unacceptable circumstances. In Rinker Group Ltd 02 [2007] ATP 17; and Rinker Group Ltd 02R [2007] ATP 19, the bidder declared its offer price “best and final” but later allowed target shareholders to keep a dividend paid by the target, which effectively improved the offer.139 The Panel decided not to force the bidder to keep to its original statement (which would have deprived accepting shareholders of the dividend). Instead, the Panel required the bidder to compensate any shareholder who sold their shares in the period between the bidder declaring the offer final and the bidder announcing shareholders could keep the dividend.140 To similar effect is Ludowici Ltd 01R [2012] ATP 4, where the bidder was required to compensate shareholders who could prove that they had sold shares in reliance on the bidder statement in the eight days before it was corrected. The bidder was able to subsequently increase its bid after a rival bidder had emerged. This decision and the Rinker decision have been criticised as undermining the truth in takeovers principle as the bidders in both cases were able to buy their way out of trouble. Truth in takeovers is a creature of policy, not of law. The policy has similarities to the law on misleading and deceptive conduct, promissory estoppel, continuing representations, and perhaps other areas. On 138 This statement did not fit into any of ASIC’s categories of last and final statements, and did not concern the conduct of the bid itself. 139 Section 650B(1)(g) makes clear that giving shareholders a right to keep a dividend increases the bid consideration. 140 This decision was upheld on merits review in Rinker Group Ltd 02R [2007] ATP 19, on judicial review in CEMEX Australia Pty Ltd v Takeovers Panel [2008] FCA 1572 and appeal to the Full Court of the Federal Court in CEMEX Australia Pty Ltd v Takeovers Panel [2009] FCAFC 78. In Alesco Corporation Ltd 03 [2012] ATP 18 [33], the Panel indicated that it saw no reason to allow a departure from a last and final statement in response to a possible board recommendation. The statement related to adjustment of the bid price for the value of franking credits attached to dividends.

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occasion, conduct which breaches the policy may also breach the Act or another law, or be a consideration relevant to the exercise of one of ASIC’s discretions. In general, however, until the policy is formalised in the legislation, by ASIC class order or perhaps by a rule made by the Panel under s 658C, the policy rests on the Takeovers Panel’s willingness to enforce it by declarations of unacceptable circumstances.

11.8 Institutional acceptance facilities [11.80] Some institutional shareholders may be unwilling to accept a conditional bid or may be unable to do so because of restrictive investment mandates which prevent acceptance of a bid until it has become unconditional or the bidder controls more than 50%. At the same time, a bidder may not be prepared to take the risk of declaring its offer unconditional without an assurance that enough target shareholders will accept the bid. An alternative to declaring the bid free from all conditions before the bidder is assured of reaching control is to establish an acceptance facility for institutional investors.141 The facility typically comprises a series of agreements between the collection agent (usually, a share registry, an investment bank142 or trust company) and each participating shareholder under which the shareholder: •

notifies the operator and the bidder of its intention to accept the offer when, and if, the offer becomes unconditional;

•

instructs the collection agent to accept the bid on its behalf once the bidder has issued a confirmation notice (or facilitates the collection agent to instruct the shareholder’s custodian to accept the bid on behalf of the shareholder); and

•

has the express right to withdraw from the facility at any time before a confirmation notice is given.

The collection agent does not acquire a relevant interest in the shares as it acts as bare trustee: s 609(2); and [3.60.20]. The confirmation notice is an undertaking by the bidder to declare the bid unconditional no later than when acceptances for shares subject to the facility are provided to the bidder (or effected through CHESS). The terms of the facility provide that the collection agent would only act on the confirmation notice if the shares subject to the facility and the other shares

141 It is generally only available to institutional shareholders to avoid complications for operators of the facility in dealing with retail investors under the financial services provisions in Ch 7 of the Corporations Act. 142 Where an investment bank is advising the bidder, it should consider its obligations, as the holder of a financial services licence, to avoid conflicts before it acts as a collection agent.

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in which the bidder has a relevant interest exceed a specified threshold (usually 50% or 90%).143 In this way, institutional shareholders who may be satisfied with the price offered under the bid, but who cannot or will not accept the bid until it is unconditional, can signify their intention to accept the bid once it is unconditional by placing their shares into the facility. Another use of such a facility may be where shareholders are reluctant to accept unless the bidder will achieve 80% ownership and satisfy the tests for scrip bid rollover relief. While ASIC has had concerns that institutional acceptance facilities were not available to retail shareholders, it does not object to institutional acceptance facilities operated in the above manner, provided that the bidder discloses the number of shares subject to the facility together with the level of acceptances received by 9.30 am on each trading day. In this respect, the disclosure requirement is equivalent to that required under a substantial holder notice. ASIC has made a class order with the effect that where a holder of quoted securities authorises a bidder to direct a collection agent to accept its bid for those securities, the bidder is taken to have received an acceptance for the securities (for every purpose other than s 653A, which requires acceptances for quoted securities to be made through the clearing house), and to have a relevant interest in them: [CO 13/521]. In Patrick Corporation Ltd 03 [2006] ATP 12, the target submitted that an institutional acceptance facility established by the bidder contravened the equality of opportunity principle in s 602(c) as it was not available to all target shareholders. The Panel dismissed the application and stated that the facility was a procedural mechanism facilitating acceptance of the bid by addressing difficulties affecting institutional shareholders without providing discriminatory benefits or unequal opportunities to institutional shareholders.144

11.9 Broker handling fees [11.90] One tactic to encourage acceptances is to offer to pay a handling fee to brokers who procure acceptances. This is often very effective in increasing the awareness of the takeover offer and its merits, especially with retail shareholders. The fee is paid based on the value of the shares subject to acceptances submitted by the broker, typically, though not always, up to a maximum fee for each individual acceptance. A handling fee is more likely to be acceptable to the Takeovers Panel if the quantum is unlikely to materially influence a broker in making 143 See, for example, the arrangements considered in Patrick Corporation Ltd 03 [2006] ATP 12 [16]–[20]. 144 Patrick Corporation Ltd 03 [2006] ATP 12 [36]–[43].

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recommendations to the client or pressuring their client to accept a bid. Generally, the Panel considers that the fee should not exceed 0.75% of the consideration payable to an accepting shareholder and that it should be capped at $750 for each acceptance. A minimum amount may be set to encourage brokers to contact clients with small shareholdings.145 The Panel considers that generally a minimum not exceeding $50 per acceptance is acceptable.146 The rationale for the Panel in setting the quantitative guidelines is that such amounts are consistent with brokerage fees charged by brokers for performing various advisory and transaction services and a modest fee is not likely to result in brokers placing their own interests above those of their clients.147 In terms of the availability of a broker handling fee, the Panel seeks to ensure it is not made available for a short time such that clients of brokers may be pressured into accepting a bid. Therefore, once an offer is made, it should generally be made available for the balance of the bid period (including all extensions), unless clearly expressed otherwise or at least for a relatively long period (and where ample notice is given of any intended withdrawal).148 If a handling fee is payable, to avoid any issue under the collateral benefits rule in s 623, it should not be payable to a broker in respect of the broker’s own securities in the target and, generally, the broker should be required to undertake not to share the fee with the client.149 The Panel requires that a broker handling fee offer (including the availability period for the fee) be disclosed in the bidder’s statement.150 The broker will need to comply with various matters under the Corporations Act in providing the advice,151 including having a reasonable basis for any personal advice given to the client and disclosing the existence of the fee to his or her client: Pt 7.7, Div 3. Division 4 of Pt 4 of the Corporations Act152 prohibits the holder of an Australian Financial Services Licence from accepting conflicted remuneration, which relevantly includes a monetary benefit given to a licensee who gives financial product advice to retail clients, if the benefit could reasonably be expected to influence that advice. While the regime is primarily concerned with inducements to advise retail clients to acquire 145 Takeovers Panel Guidance Note 13: Broker Handling Fees, [17]. 146 Takeovers Panel Guidance Note 13: Broker Handling Fees, [18]. 147 Takeovers Panel Guidance Note 13: Broker Handling Fees, [19]; and Aurion Gold Ltd [2002] ATP 13. 148 Takeovers Panel Guidance Note 13: Broker Handling Fees, [22]–[25]; and see Normandy Mining Ltd 05 [2001] ATP 29. 149 Takeovers Panel Guidance Note 13: Broker Handling Fees, [26]–[27]. 150 Takeovers Panel Guidance Note 13: Broker Handling Fees, [31]. 151 Takeovers Panel Guidance Note 13: Broker Handling Fees, [5]. 152 Sections 963 to 965: see also ASIC Regulatory Guide 246: Conflicted Remuneration, and regs 7.7A.12 to 7.7A.18.

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financial products, the provisions are wide enough to cover inducements to advise them to sell. In specifying acceptable levels of broker handling fees, the Panel has attempted to specify amounts too low to influence the advice given by licensees to their clients but sufficient to compensate them for spending time on advising their clients on how to respond to the bid. This can be a fine distinction in practice, particularly as the fees are paid only on acceptances, and the consequences for a licensee who falls on the wrong side of the line could include civil liability and licensing action, neither of which would be administered by the Panel. The introduction of these rules seems to have stemmed the use of broker handling fees in takeovers.

11.10 Countering share trading activity [11.100] Following an announcement of a takeover bid, it is usual for the share price of the target to rise above the bid price (unless the bid is subject to conditions which the market considers will not be satisfied). One reason for this is that of hedge funds and other market participants buying shares and speculating that the bidder will, in due course, increase the offer price to secure the success of the takeover offer (or that a higher rival bidder will emerge). It has been suggested that, following the announcement of a bid, up to 40% (or more) of a target’s share register may become owned by hedge funds. Another strategy employed by hedge funds which can impact a scrip bid is short selling the bidder’s shares (at the same time as buying the target’s shares). This may have the effect of reducing the value offered by the bid, which may put pressure on the bidder to increase the offer. Increasing the offer in the case of a scrip bid often means increasing the ratio at which the bidder’s shares are offered for each target share. If this occurs, further pressure may be put on the bidder’s share price. In this respect, the hedge fund may make profits in two ways. First, on buying back shares in the bidder that it has short sold at a lower price. Secondly, having bought the target shares, it benefits from the improved share exchange ratio. Hedge fund activity has two key ramifications for bid strategy: •

the buying of target shares may mean a bidder comes under pressure to assure success to avoid any reputational damage associated with deal failure; and

•

the increase of short-term holders on the target company’s register means the target company is more likely to be taken over. While the hedge funds want the bidder to raise its bid price, they also ultimately want a bid to succeed. Otherwise, the share price may fall back to pre-bid levels. In this respect, once a hedge fund forms the view that no higher bid will eventuate, it will seek to maximise its return (or limit its losses) by selling in the market or accepting the bid.

What can a bidder do to counteract hedge fund activity? Unless a bidder is prepared to hold firm on its initial bid price, there may be little it can do in the short run. In this respect, traditional bid strategy, particularly in a

278 Takeovers Law & Strategy

hostile bid, may be to make an initial bid at a price lower than that which the bidder is ultimately prepared to pay. A bidder may want to have something in reserve so that it can increase its price to factor in the hedge fund activity and to secure a target board recommendation. Ultimately, to counteract hedge fund activity, the bidder may declare its bid price “final” (possibly subject to a qualification that no higher rival bid emerges). As discussed in 11.7, under the “truth in takeovers” policy, declaring a bid price “final” means that a bidder will be unable to increase its price (unless the announcement is qualified). This will signal to hedge funds that there may be no further price increase. Nevertheless, the decision to declare a bid price final will always be a difficult one for a bidder. There are instances, particularly in a rising stock market (or where the target company’s business is performing well), where target shareholders may decide that they may obtain better value in the medium to long term by holding their shares rather than selling into a bid which they consider undervalues the company.153 Share trading activity by major shareholders and other shareholders may also have an effect on the success or otherwise of a bid. For example, a major shareholder or a third party may buy shares in the target on-market post-announcement of the bid as a sign of support of the current management of the target. There is no general rule that prevents major shareholders taking action during the course of a bid (for example, buying on-market). Any action must, however, comply with general rules which aim to preserve an orderly market (such as s 1041A, market manipulation).154 An acquisition of shares above the takeover offer price by a substantial shareholder during a critical time of a takeover bid which is designed to create a false market may be considered by the Panel to be unacceptable if it adversely affects the efficient, competitive and informed market for control of the target shares.155

153 The takeover bid the subject of Qantas Airways Ltd 02 [2007] ATP 6; and Qantas Airways Ltd 02R [2007] ATP 7 is an example where a bidder declared its bid price final very early in the bid period, and was ultimately unsuccessful. 154 In Donald v Australian Securities and Investments Commission [2000] FCA 1142 [21]–[22] a person was found to have contravened a precursor of s 1041B by attempting to move the market price of securities towards what he considered to be their true value. 155 Anaconda Nickel Ltd 19 [2003] ATP 20 [10]–[11]; Nexus Energy Ltd 02 [2006] ATP 25.

Chapter 12

Market Bids [12.10] [12.20] [12.30] [12.40] [12.50] [12.60] [12.70] [12.80] [12.90] [12.100] [12.110] [12.120] [12.130] [12.140] [12.150]

12.1 Nature of offers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279 12.2 Who can launch a market bid?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280 12.3 Terms of the announcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280 12.4 Securities to which the offers relate . . . . . . . . . . . . . . . . . . . . . . . . 281 12.5 Offer period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281 12.6 Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282 12.7 Nature and content of bidder’s statement . . . . . . . . . . . . . . . . . 282 12.8 Lodgment and service of bidder’s statement. . . . . . . . . . . . . . 283 12.9 Sending the bidder’s statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283 12.10 Acquisitions after announcement . . . . . . . . . . . . . . . . . . . . . . . . . 284 12.11 Acceptances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285 12.12 Variations of offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285 12.13 Withdrawal and suspension of offers. . . . . . . . . . . . . . . . . . . . . 287 12.14 Target’s statement and supplementaries . . . . . . . . . . . . . . . . . 288 12.15 Indicative timetable for market bid. . . . . . . . . . . . . . . . . . . . . . . 288

12.1 Nature of offers [12.10] A market bid is a takeover bid commenced by an announcement made by a stockbroker on behalf of the bidder in accordance with Div 1 of Pt 6.5 of the Corporations Act to the effect that, for a specified period, the stockbroker will stand in the market to acquire shares in the target at a specified price.1 Pursuant to s 611, item 1, an acquisition as a result of acceptance of an offer made under the announcement is exempt from the s 606 general prohibition.2 A market bid can lead to a swift change of control due to its relative informality and the ability for the bidder to immediately commence buying shares on-market. It must, however, be a full, unconditional cash bid. An off-market bid on terms which allow the bidder to acquire shares under item 2 in s 611 has similar advantages.

1

Section 635, item 14, requires the bidder to make offers through the relevant financial market, which it does by causing the broker to make offers on its behalf: s 52.

2

Under s 611, item 2 on-market acquisitions of bid class securities by the bidder during the fortnight after the bid is announced and before the bid proper commences are exempt: see [12.10].

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The nature of this type of takeover and structure of its regulation is similar to the nature and regulation of off-market takeover bids except for the form the offer takes. Unlike an off-market bid, which is made by posting written offers, offers under a market bid are made by the broker standing in the market on the stock exchange and are subject to the general rules governing stock exchange trading.3 Many of the details of the bid process are not set out in the Act, which is drafted on the assumption that the rules governing market trading will deal with them.4 A breach of those rules is not a breach of the Act, but it can be restrained by court order,5 and a material breach is likely to be treated by the Panel as evidence of unacceptable circumstances.

12.2 Who can launch a market bid? [12.20] If the bidder has 30% or more voting power in the target, or a common director, s 640 will require the target to provide an independent expert‘s report with its target‘s statement, but those circumstances no longer preclude making a market bid.6

12.3 Terms of the announcement [12.30] The takeover announcement is required by Market Integrity Rule 6.1.1 to include the following information: (a) a description of the bid class of securities in the target and the total number of securities in that class; (b) the price offered for securities in the class; (c) the date of commencement and conclusion of the offer period; (d) the number of securities in the bid class in which the bidder has a relevant interest immediately prior to the announcement (expressed as a percentage of the total number on issue); (e) a statement as to whether the bidder will buy securities in the bid class on market before the offer period commences and, if so, the maximum number that may be bought and the price that will be paid; 3

Under previous law, the takeover announcement itself constituted the offer, even though it was not open for acceptance until the offer period commenced: ICAL Ltd v McCaughan Dyson & Co Ltd (1987) 12 ACLR 436, 441 (Bryson J).

4

Chapter 6 of the ASIC Market Integrity Rules (ASX Market) 2010, ASIC Market Integrity Rules (Chi-X Market) 2011 or ASIC Market Integrity Rules (APX Market) 2013, as relevant: the rules are relevantly identical.

5

Sections 1101B and 798H, and see also s 1324(1).

6

Until March 2000, a person with voting power in the target of 30% or more, or a shared director, could not make a market bid. This restriction was intended to avoid collusion between the bidder and the target and recognised that, unlike the position under an off-market bid, shareholders did not necessarily receive the benefit of an independent expert’s report in the target company’s statement responding to the bid. When that rule was abolished, the requirement now in s 640 for an independent expert’s report was extended to market bids.

Market Bids

281

(f) a statement that the market bid is an offer to buy all the securities in the bid class that exist or will exist at any time during the offer period for the price offered; and (g) a statement that the offer period may be extended and the offer price may be increased in accordance with the Corporations Act. The offer is governed by the market rules, customs and usages of the securities exchange. This means that the offer must be unconditional and may only be accepted by members of the securities exchange.7 The normal rules concerning personal liability between brokers and the process of “buying in” apply. The broker is deemed to contract as principal.8

12.4 Securities to which the offers relate [12.40] A market bid may relate to only one class of securities in the target: s 617.9 An offer for securities under a market bid must be an offer to buy all the securities in the bid class: s 618(3). It must relate to securities on issue at the time of the announcement and any securities that come into existence before or during the bid period (irrespective of whether or not they are created on the conversion of existing securities): s 617(3).10 It must also relate to every holding in the relevant class, whether or not the holding constitutes a marketable parcel.

12.5 Offer period [12.50] The offer must commence on the first trading day on the relevant securities exchange after the end of 14 days after the announcement is made: s 635, item 14. In general, this is the 15th day after the day on which the announcement is made.11

7

See also s 625(1) and the last item in the table in s 634.

8

ASX Operating Rule [4040].

9

See [8.2.1] for meaning of “class” in the context of an off-market bid. Because fully paid and partly paid securities are quoted separately by ASX they appear to constitute separate classes for the purposes of a market bid, so that it may not be possible to make one bid for both fully paid and partly paid shares. Section 623 (collateral benefit) allows parallel bids to be made for fully and partly paid classes of shares, but absent an ASIC modification the compulsory acquisition threshold in s 661A would apply separately to each class.

10 This alters the previous position considered in Business Capital Ltd v Lorinv Pty Ltd (1988) 12 ACLR 677, which held that it only applied to securities issued at the date of the announcement (in that case the target had options on issue which could be exercised during the offer period). As a practical matter, the bid extends only to securities admitted to quotation before the bid closes. 11 s 105 and ASIC Regulatory Guide 7: Calculating time periods. If the announcement is made on Monday 1st of the month, the bid must commence on Tuesday 16th. If the 15th day after the announcement is not a trading day, the bid must commence on the next trading day: a bid announced on Friday 5th commences on Monday 22nd.

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The bidder may acquire shares on market after announcing the offer and before it formally opens: see [12.10]. The offer must be open for acceptance for a period of at least one month and not more than 12 months: s 624. The offer period will end at the close of trading on the date specified in the announcement.12 However, it may be extended for further periods under certain circumstances.13

12.6 Consideration [12.60] The price specified in the announcement must be a cash sum. It must equal or exceed the maximum consideration that the bidder or an associate provided, or agreed to provide, for a security in the bid class under any purchase or agreement during the four months before the date of the bid: s 621(3).14 Except that a market bidder may offer only cash and that the rule applies at the date the bid is announced, not the date when offers are first made, this rule is precisely the same rule as applies to off-market bids: see [8.40.30].

12.7 Nature and content of bidder’s statement [12.70] The content requirements for a bidder’s statement for a market bid are virtually identical to those for an off-market bid. All of the disclosure requirements discussed at 9.3 in relation to off-market bids apply, subject to the following minor differences. Section 636 does not require the bidder’s statement to: (a) state that a copy of the bidder’s statement has been lodged with ASIC; or (b) specify the number of securities in the bid class, the bidder’s relevant interest in bid class securities or its voting power immediately before the offer period. The Market Integrity Rules, however, require the bidder’s current relevant interest in bid class securities to be set out in the announcement, and s 671B requires the bidder to lodge a substantial holding notice on the following trading day.

12 The Panel found in Gosford Quarry Holdings Ltd 01 [2008] ATP 11 [27]–[36] (upheld in Gosford Quarry Holdings Ltd 01R [2008] ATP 13) that a bid which had been extended by s 624(2) had to remain open “for as long as practicalities allowed” on the day it closed, in effect the close of trading on that day, and that trading had closed on that day at the end of the closing single price auction phase, at 4.12 pm Sydney time. The definition of “On-market” in ASX Operating Rule 7100 continues this outcome: a transaction other than a crossing may be On-market if it is effected during the Open Session State (which ends at 4 pm) or the CSPA Session State (which ends at 4.12 pm). See Appendix 4013 to the Operating Rules and discussion of “on-market” at 11.3. 13 See ss 624(2) and 649C and 11.5. 14 The date of a market bid is the date of the announcement, but the date of an off-market bid is the date the first offer is made: s 9 “date”.

Market Bids

283

In practice, the text of the takeover announcement is set out verbatim in the bidder’s statement.

12.8 Lodgment and service of bidder’s statement [12.80] On the same day that the takeover announcement is made, the bidder’s statement must be sent to the target company and the relevant stock exchange and lodged with ASIC: s 635. It may be served on the target at any time on the day of the announcement, either before or after the announcement is made.15 It is often served late in the day to reduce the possibility of the target seeking an order preventing the bidder from buying on-market during the day due to alleged defects in the statement. The legislation does not specifically deal with the obligations of ASIC in dealing with a bidder’s statement submitted for lodgement. However, s 1274(8) gives ASIC power to refuse to receive a document submitted for lodgement if the document does not comply with the legislation or contains false or misleading matter. Given the strict timing requirements of s 635, it is prudent to ensure that the document has been accepted by ASIC as lodged on the appropriate day. The bidder’s statement must be approved: (a) by the bidder personally, where the bidder is an individual; and (b) by a resolution passed by the directors of the bidder where the bidder is a body corporate: s 637(1). If the bidder fails to serve and lodge the bidder’s statement within the required time, the court may excuse the non-compliance under s 1325D or extend time for compliance under s 1322.16

12.9 Sending the bidder’s statement [12.90] A copy of the bidder’s statement must be sent in an approved manner17 to each holder of securities in the class to which the announcement relates within 14 days after the day on which the takeover announcement is made: s 635.18 The copies must be sent to the holders, at the addresses, in the list provided by the target under s 641.19 Although the bidder may specify a date at which that list must be correct, delays in

15 ICAL Ltd v County Natwest Securities Australia Ltd (1988) 13 ACLR 129, 153 (Bryson J). 16 In Dumoine Holdings Pty Ltd v United & Commercial Holdings Ltd (1985) 13 ACLR 448 a bidder, who was not aware of the relevant requirements apparently because a solicitor had not been employed, was excused by the court. See [8.50.70] for authorities on the interaction of these powers and s 659B. 17 See 10.2; s 648C. 18 The court may excuse late dispatch to offerees: s 1325D. In Re Elders Mining Pty Ltd (1986) 5 ACLC 116, the court excused late dispatch caused by printing delays due to Christmas holidays and the late receipt of a list of offerees from the target. 19 See s 648B and 10.1 and 10.2.

284 Takeovers Law & Strategy

printing and posting mean that it cannot ensure that the bidder’s statement is sent to every person who is a holder on the date of dispatch.20 Although a market bid extends to securities which come to be in the bid class while the bid is open, and although the snapshot of the register provided by the target under s 641 must identify holders of securities convertible into bid class securities, the bidder’s statement need not be sent to holders of convertibles. A copy of every document that accompanies the statement must be lodged with ASIC on the day of dispatch: s 635, item 7.

12.10 Acquisitions after announcement [12.100] Subject to compliance with item 2 of s 611 and s 623, the bidder may acquire securities on-market in the 14 days after the announcement and before the formal offer period commences. Acquisitions may commence immediately after the takeover announcement and before the bidder’s statement is served on the target.21 The requirements of these sections are discussed at 11.2, in respect of an off-market bid.22 This section deals with issues specific to market bids. Market Integrity Rule 6.1.1(e)(i) requires the takeover announcement to state whether the bidder will buy on market during the bid. If the announcement states that the bidder will not acquire securities during that period, for it to enter the market without prior announcement may constitute evidence of deceptive or misleading conduct so as to attract the prohibition in s 1041H.23 There is a hiatus in the Act between the application to a market bid of sections 621 (minimum bid price) and 623 (collateral benefits). The effect of s 621 depends on prices paid for bid class securities by the bidder in the four months before the bid is announced. Section 623 only applies from the opening of the bid proper. During the 14 days between those days, it appears that purchases by the bidder off-market24 at prices above the announced bid price might neither trigger a price increase nor breach s 623. ASIC has eliminated this gap by modifying s 623 so that it applies in respect of a market bid from the date of the announcement.25

20 As required by Needham J in ICAL Ltd v McCaughan Dyson & Co Ltd (1987) 12 ACLR 319, 321, on previous legislation, rather differently expressed. 21 ICAL Ltd v County Natwest Securities Australia Ltd (1988) 13 ACLR 129, 153 (Bryson J). This remains the case even if the bidder’s statement is defective: Metals Explorations Ltd v Samic Ltd (1994) 191 CLR 109. 22 See 11.2, 12.5 and 19.2. Only the bidder may buy above the 20% level: item 2 of s 611. 23 See 11.1 and ASIC Regulatory Guide 25: Takeovers: false and misleading statements. 24 Before the bidder can buy on market at a higher price, it must comply with Market Integrity Rule 6.2.1, by announcing a price increase. 25 ASIC Regulatory Guide 9: Takeover bids, RG 9.307–RG 9.312 and Class Order [CO 13/521] and see the definitions of “date of a takeover bid” and “offer period” in s 9.

Market Bids

285

Section 623 may apply to off-market purchases by the bidder or an associate during the bid period for a market bid, because the vendor will be able to sell its shares without incurring brokerage. This arguably remains the case even if the off-market price is adjusted for those costs.26 When a takeover announcement is made, official quotation of the relevant shares is suspended for a period of one hour. If the announcement is made outside trading hours, official quotation is suspended for the next one hour of trading. This means that, if the announcement is made after the close of trading on a day, quotation is suspended for the first hour on the next trading day, but if the announcement is made just before the close of a day’s trading, quotation would resume immediately when the next day’s trading commences as the announcement is not made “outside” trading hours. The same rules apply to variations.27

12.11 Acceptances [12.110] A market bid may be accepted on-market at any time during the offer period.28 There are no specific rules qualifying who may accept a market bid (unlike the case for off-market bids: see s 653B). This means it is regulated by the general securities exchange rules. Since an on-market offer is not an offer for part or all of a specific parcel of shares, an offeree can accept the offer for any number of securities they will be able to deliver at settlement. A purchaser of shares who is yet to become registered or settle a purchase contract is able to accept a market bid as they will be able to give good title.29

12.12 Variations of offers [12.120] Offers under a market bid may be varied only in limited circumstances, discussed below. The procedure to vary the bid is set out in the market rules, not the Act. The bidder’s broker must advise the stock exchange in writing of the increased price or extension of the offer period. The bidder’s broker is not permitted to buy at the varied price until the new price has been announced to the stock market during an official meeting of the securities exchange.30 The ASX suspends trading for one hour when a bidder announces a price increase.

26 Attorney-General v Walsh’s Holdings Ltd [1973] VR 137, 142 (Gowans J). It is unlikely that the Takeovers Panel would now take such a strict view: see 11.4. 27 ASX Operating Rules Procedures Appendix 4013, Pt 3. 28 The last paragraph of the table in s 634 appears to require that an acceptance be on-market: for this concept, see 11.3. 29 This resolves a difficulty raised by a former provision that a market bid could only be accepted by a “holder of shares”: GIA (Nominees) Pty Ltd v Bacdilet Pty Ltd (1989) 15 ACLR 501, ICAL Ltd v McCaughan Dyson & Co Ltd (1987) 12 ACLR 319 and Kingston v Keprose Pty Ltd (No 3) (1987) 12 ACLR 609, 623 (McHugh JA). 30 Market Integrity Rule 6.1.2.

286 Takeovers Law & Strategy

Price increases [12.120.10] The bidder may increase the price offered at any time before the last five trading days on the relevant stock exchange before the end of the offer period: s 649B.31 There is no obligation to pay the increased consideration to offerees who have accepted before the increase is effected. This can have important tactical implications in determining whether to proceed by an off-market bid or a market bid.32 If a rival bid is made or increased during the last five trading days, a bidder who wishes to compete must first extend the offer period pursuant to s 649C, so that it has more than five trading days to run, and then announce the higher price.33 Extension of offer period [12.120.20] The offer may be extended for a further period (which need not necessarily be a one-month period) by making an announcement to that effect to the relevant securities exchange. Generally, an extension announcement must be made before the last five trading days of the offer period. However, if during the last five-day period a rival takeover offer is made or announced, a rival bidder’s statement is lodged with ASIC or the consideration under a rival bid is improved, an extension can be announced at any time before the offer closes: s 649C(1). A notice setting out the terms of the extension announcement must be given to the target, the relevant securities exchange and ASIC on the day of the announcement: s 649C(2). It need not be sent to offerees, although, in practice, it often is sent. In addition, the offers are automatically extended if the bidder’s voting power in the target increases to more than 50% during the last seven days of the offer period: s 624(2). This will extend the offer to the end of trading on the fourteenth day from the day of the increase.34 Notice of an automatic extension must be given to the target and to offerees who have not accepted: in practice, it would always be given to ASIC and the securities exchange. Reduction of price [12.120.30] If between the time of the takeover announcement and the close of the offer period the target allots any shares, options or convertible notes or declares a dividend, the bidder may be able to seek an ASIC modification under s 655A to substitute a lower offer price. Relief to reduce 31 If there is a competing bid, it may be possible to extend the bid during the last five days, so as to be able to increase it: see s 649C(1) and [12.120.20]. 32 Although an off-market bidder is not required to top up the price it has paid for bid class shares on market, if it later increases the bid price. 33 Accordingly, unlike for off-market bids, s 624(2) does not automatically extend the closing date of a market bid which is increased in the last week of the offer period. 34 Gosford Quarry Holdings Ltd [2008] ATP 11.

Market Bids

287

the price offered in these circumstances would protect the bidder against dilution in value of the shares subject to the offer.35

12.13 Withdrawal and suspension of offers [12.130] In order to protect the interests of offerees, offers under a market bid may be withdrawn by the bidder only in limited circumstances, referred to as “prescribed occurrences”. This is possible: (a) if any of the following events occur and, at the time of the relevant occurrence, the bidder’s voting power in the target is equal to or less than 50%: (1)

conversion of target shares into a larger or smaller number;

(2)

reduction in share capital of the target or any subsidiary;

(3)

a buy-back agreement is entered into or authorised by the target or a subsidiary;

(4)

the issue of any shares, options or convertible notes by the target or a subsidiary or their agreement to do so;

(5)

disposal or charging of the whole or a substantial part of the business or property of the target or a subsidiary or agreement to do so; or

(6)

the target or a subsidiary resolving to be wound up36: s 652C(1);

(b) if any of the following events occurs, whatever the bidder’s voting power in the target: (1)

a liquidator or a provisional liquidator is appointed to the target or a subsidiary;

(2)

a court makes an order for winding up the target or a subsidiary;

(3)

an administrator of the target or a subsidiary is appointed;

(4)

the target or a subsidiary executes a deed of company arrangement; or

(5)

a receiver or receiver and manager is appointed in relation to the whole or a substantial part of the property of the target or a subsidiary: s 652C(2).

Unaccepted offers may also be withdrawn with the consent of ASIC: s 652B. See 10.5 in relation to withdrawal policy. The withdrawal of the offers, whether under s 652B or s 652C, must be announced to the relevant 35 The reduction should be announced in accordance with Market Integrity Rule 6.1.2(d). Former s 681 conferred a specific power on ASIC to consent to a reduction in these cases: now relief would have to be obtained under s 655A. There seems to be no published ASIC policy on point, but the discussion of relief from s 621(3) at Regulatory Guide 9: Takeover bids, RG 9.216–RG 9.226 is relevant. 36 Multiplex Prime Property Fund 01 and 02 [2009] ATP 18.

288 Takeovers Law & Strategy

exchange by the bidder’s broker: Market Integrity Rule 6.1.2(c). The bidder’s broker withdraws offers by cancelling (or ceasing to make) orders in the exchange’s trading system.

12.14 Target’s statement and supplementaries [12.140] The target company must prepare, lodge and dispatch a target’s statement in relation to the bid within 14 days after the takeover announcement. Like a target’s statement for an off-market bid, it must contain all the information that holders of bid class securities and their professional advisers would reasonably require to make an informed assessment whether to accept the bid, so far as that information is known to target directors and would reasonably be expected to be included in the statement.37 The 14-day period for issuing the target’s statement places great pressure on the target directors, which is exacerbated if a report by an independent expert is required under s 640. In practice, a target’s statement for a market bid is often a simpler document, as there is no need to value the bid consideration or assess defeating conditions. Both bidder and target must issue supplementary statements if they become aware of misstatements and omissions in their respective statements, or of new information which they would have been required to include in those statements, had it been available when they were compiled. A supplementary statement for a market bid must be approved by the bidder or target in the same way as the principal statement, lodged with ASIC and given to each exchange on which bid class securities are quoted. In practice, it is often dispatched to holders of bid class securities as well.38

12.15 Indicative timetable for market bid [12.150] The timetable is indicative only as to timing of the transaction. For simplicity, it does not take into account non-trading days of ASX, Saturdays, Sundays and public holidays. In practice, the total minimum time involved (excluding compulsory acquisition and assuming all action takes place on the first day available) will be approximately seven weeks, including a one-month offer period.

37 Section 635, items 12 and 13 (timing), ss 638 and 640 and 14.8 (content and independent expert report). 38 Sections 643 to 647 and [9.70] and [14.110].

Market Bids

289

Table 12.1: Indicative timetable for market bid Day

Activity

Preliminary Bidder’s statement drafted, reviewed by bidder and finalised. Approach ASIC for any necessary modifications or other relief. Board meeting to authorise and appoint director to sign bidder’s statement. Press release and ASX announcement drafted. Bidder’s statement signed. Brief stockbroker. Brief bidder’s key employees. 0 Bidder announces bid to ASX. Signed bidder’s statement lodged with ASIC together with lodgement fee. This is the date of the bidder’s statement. Bidder’s statement sent to target and ASX. Request target to provide details of register of security holders. 1 Appoint and brief printer regarding format of documents. Determine procedures for sending bidder’s statement to target shareholders. 2 Last day for provision of share register details by target. 14 Last day for bidder to send bidder’s statement to shareholders (and give copy of accompanying material to ASIC and ASX). Last day for target to lodge Target’s Statement with ASIC and send to bidder, ASX and shareholders. Notify ASX and Target in an initial substantial holding notice Day after (Form 603) by 9.30 am of details of the relevant interests of bidder’s bidder and its associates in Target shares. statement dispatched Notice of Change (Form 604) to be lodged with Target and ASX each time bidder’s voting power as a substantial holder changes by 1% or more. This is a continuing obligation until the end of the offer period. 14 Bidder required to stand in the market under the bid for one month (unless extended). 6 trading Last day on which bidder may increase price offered. Last day on days before which bidder can extend period of offer (unless a rival bid closing date emerges). Any extension must be notified to target, ASIC and ASX. Closing Offer closing date. Unless offer period extended, this must be at date least one month after bidder commences standing in the market. Before 9.30 am, serve Listing Rule 3.3 notice on ASX, specifying Closing percentage of securities in the bid class in which the bidder and date + 1 its associates have a relevant interest and whether bidder will business proceed with compulsory acquisition. day

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Day

Activity

Within 1 If bidder and its associates have relevant interests in 90% of the month of target shares (and have acquired at least 75% of securities bid for) closing date and bidder wishes to compulsorily acquire remaining shares, bidder must lodge s 661B(1) notice (Form 6021) with ASIC and send it to remaining shareholders and ASX. Copy of s 661B notice and share transfer executed by bidder and Within bidder’s nominee, along with consideration for share transfer, s 661B notice date given to target. Target registers bidder as holder of outstanding + 1 month shares. + 14 days

Chapter 13

Long-Term Defensive Strategies [13.10]13.1 [13.20]13.2 [13.30]13.3 [13.40]13.4 [13.50]13.5 [13.60]13.6 [13.70]13.7 [13.80]13.8 [13.90]13.9

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291 Directors’ duties and defensive tactics. . . . . . . . . . . . . . . . . . . . . . . 292 Shark repellents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296 Differential voting rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303 Tactical share allotments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305 Convertible securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311 Share buy-backs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313 Golden parachutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315 Crown jewel defences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317

13.1 Introduction [13.10] A range of strategies can be adopted by companies with a view to preventing or deterring unwanted takeovers or increasing the target’s leverage in dealing with a bidder if a takeover bid is made. None of these is a substitute for good financial performance, which is the only true long-term way to ensure any bid will only be successful at a full price. The suitability of a particular strategy for a company will depend on the circumstances surrounding the company, including whether the measure can be justified as promoting the interests of shareholders, whether or not the company is listed (as stock exchange listing rules can affect the ability of a company to implement a particular strategy) and whether shareholder approval is required to adopt a strategy. A target considering implementing any defensive strategy which requires the prior approval of shareholders should carefully assess the likelihood of the shareholders agreeing to the proposal as, if there is a rejection, it is a strong indication that the shareholders may be receptive to a takeover bid. Finally, the adoption of any particular strategy can lead to criticism on the grounds that it tends to perpetuate the incumbent management’s position and, on that basis, is not in the long-term interests of shareholders. This chapter summarises the fundamental duties of directors regarding defensive measures and then examines a number of strategies that are available for companies, including:

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•

shark repellents;

•

differential voting rights;

•

tactical share allotments;

•

convertible securities;

•

share buy-backs;

•

golden parachutes; and

•

crown jewel defences.

13.2 Directors’ duties and defensive tactics [13.20] The fundamental obligation of directors is to act bona fide in the interests of the company as a whole. This remains the same when the company is under threat of takeover as when it is not. However, any step taken which may have an impact on the likelihood of a bid or its chances of success raises special questions and focuses attention on the duties and actions of the directors. This is due to the possibility for conflict between the interests of directors, who may be motivated by a desire to maintain their position or office and the benefits which flow from it, and the interests of shareholders, who may wish for a bid to emerge so they can sell their shares at an attractive price. In addition, once a takeover bid has eventuated, there is also a potential litigant in the bidder who may be likely to commence proceedings to review and restrain the actions of directors if the directors’ actions may influence the outcome of the bid. Several propositions may be stated as a guide to assessing the legitimacy of actions taken by directors in advance of, or in response to, a takeover bid being made for the company. These are discussed below. Benefit of “the company as a whole” [13.20.10] Any action taken must be within the powers conferred by the company’s constitution and bona fide for the purpose of benefiting the company as a whole.1 Where the relevant action serves several purposes, the action will be invalid if an improper purpose was causative in the sense that, but for its presence, the action would not have been taken, notwithstanding that it may incidentally bring about a result which is

1

Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656 per Lindley, MR, Greenhalgh v Arderne Cinemas Ltd [1951] Ch 286. For pronouncements of the High Court on this general principle, see Australian Metropolitan Life Assurance Co Ltd v Ure [1923] HCA 29; (1923) 33 CLR 199, in particular per Isaacs J; Mills v Mills [1938] HCA 4; (1938) 60 CLR 150; Ngurli Ltd v McCann [1953] HCA 39 at [24]; (1953) 90 CLR 425, 440; Harlowe’s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483; Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285. See also Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821. Several cases mentioned in this section are discussed at [13.50.10B].

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within the purpose of the power exercised.2 Difficult judgements have had to be made when an issue of shares shifted voting power in the company in a way advantageous to the board, but there were also proper reasons for the issue. Several such issues have been upheld.3 Although the proposition that directors must act in the interests of the “company as a whole” is well settled, and may be sufficient whenever the directors’ action enables the company to obtain an identifiable financial or commercial benefit, or to avoid a detriment, it gives insufficient guidance where the directors must choose between the competing interests of different shareholders.4 It has also led commentators and some judges5 into a rather metaphysical debate about whether the phrase “the company as a whole” refers to the company as a commercial entity or to the shareholders as a body. Except as shorthand for the ongoing interests of the general body of shareholders, the commercial entity approach has been comprehensively rejected by the High Court.6 Usually, both formulations will give rise to the same result, because there is no conflict between the interests of the commercial entity (while it is solvent) and those of the shareholders. A transaction which improves the financial position and prospects of the commercial entity will usually also improve the position of the shareholders.7 On any view, directors are likely to be criticised in taking 2

Mills v Mills (1938) 60 CLR 150, 186, where Dixon J said that the purpose which concerns the court is the “substantial object the accomplishment of which formed the real ground of the board’s action”; Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285, 294 (Mason, Deane and Dawson JJ).

3

Mills v Mills [1938] HCA 4; (1938) 60 CLR 150, Harlowe’s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL [1968] HCA 37; (1968) 121 CLR 483.

4

Mills v Mills [1938] HCA 4; (1938) 60 CLR 150, per Latham CJ, Peters’ American Delicacy Co Ltd v Heath [1939] HCA 2; (1939) 61 CLR 457, per Latham CJ and Dixon J, Gambotto v WCP Ltd [1995] HCA 12 at [8]; (1995) 182 CLR 432, concerning the application of the same principle to resolutions to amend a company’s articles, and Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821, where the Privy Council pointed out that competing interests of different classes of shareholders cannot be resolved by reference to the benefit of the company as a whole.

5

Darvall v North Sydney Brick & Tile Co Ltd (1987) 12 ACLR 537, 554, per Hodgson J; Pine Vale Investments Ltd v McDonnell & East (1983) 8 ACLR 199, 211 (McPherson J); Russell Kinsela Pty Ltd v Kinsela (1983) 8 ACLR 384, 402–4 (Powell J).

6

Ngurli Ltd v McCann [1953] HCA 39 at [24]; (1953) 90 CLR 425, 440 and by Dixon J in Peters’ American Delicacy Co. Ltd v Heath [1939] HCA 2, (1939) 61 CLR 457, 512, referring to the “vague abstraction” of “the company as an entity”. This judgement was approved in Gambotto v WCP Ltd [1995] HCA 12; (1995) 182 CLR 432, and foreshadows the rejection (in a different context) of corporate metaphysics in Meridian Global Funds Management Asia Limited v Securities Commission [1995] UKPC 5; [1995] 2 AC 500. See also Renard in Finn (ed), Equity and Commercial Relationships (Lawbook Company, Sydney, 1987), p 138, McCabe, “The Roles and Responsibilities of Company Directors in a Takeover” (1994) 4 AJCL 36 and Rogers, “When Can Target Directors Legitimately Frustrate a Takeover Bid?” (1994) 12 C&SLJ 207.

7

The converse may not always be true, but in a long series of decisions on schemes of arrangement, courts have not objected to a company incurring a relatively small

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action for the purpose of frustrating a full bid, merely to preserve the existence of the company as an ongoing concern.8 Proper purpose [13.20.20] An action taken to benefit the directors themselves or their friends, to benefit some shareholders over others in a way not contemplated in the company’s constitution, or to benefit someone else at the company’s expense will be beyond the directors’ powers, even if the directors’ intentions are honourable and honest.9 On this basis, courts have held that a share allotment made to preserve the control of the directors10 or to dilute an existing majority11 is invalid even if the directors honestly believe that their actions are in the best interests of the company. Such allotments are invalid because their purpose is foreign to the purpose for which the share allotment power is conferred. Action taken merely to frustrate a bid will infringe the rule as it violates each shareholder’s individual right to dispose of shares. A share allotment made solely for the purpose of shifting the power to decide to whom and at what price shares are to be sold cannot be related to any purpose for which a power to issue shares is conferred and, accordingly, is invalid.12 There seems to be no case in which an issue made for the predominant purpose of frustrating a full bid has been held valid. However, directors’ action in mounting a competing bid was valid,13 and action taken to frustrate a change of control which is not made by a takeover bid may be valid, at least where the directors are concerned that the new controller may be disadvantageous to continuing shareholders.14 Frustrating effect [13.20.30] The mere fact that one effect of the directors’ action may be to frustrate a takeover is not of itself fatal. Therefore, a share allotment which is intended to raise capital so as to secure the financial stability of the

detriment such as a 1% break fee, with a view to giving shareholders the opportunity to sell their shares at a price the board is prepared to recommend. 8

See Renard & Santamaria, Takeovers and Reconstructions in Australia (Butterworths, looseleaf service, 1990), [1103]; Steel, “Defensive Tactics in Company Takeovers” (1986) 4 C&SLJ 30, 34.

9

The reference to “benefit as a whole” is but a very general expression negativing purposes foreign to the company’s operations, affairs and organizations: Dixon J in Peters’ American Delicacy Co Ltd v Heath [1939] HCA 2; (1939) 61 CLR 457, 512.

10 Punt v Symons & Co Ltd [1903] 2 Ch 506; Piercy v S Mills & Co Ltd [1920] 1 Ch 77; Hogg v Cramphorn Ltd [1967] Ch 254; Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285. 11 Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821; Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285; Ansett v Butler Air Transport Ltd (No 2) (1957) 75 WN (NSW) 299. 12 Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821; Hogg v Cramphorn [1967] Ch 254. 13 Rossfield Group Operations Pty Ltd v Austral Group Ltd (1980) 5 ACLR 290. 14 Teck Corporation Ltd v Millar (1972) 33 DLR (3d) 288 and [13.20.50].

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company15 or to assist in taking advantage of a genuinely commercially favourable opportunity to purchase assets16 will be valid, although it has the incidental effect of defeating a takeover attempt or the threat of takeover has spurred the directors into taking action which they had been contemplating. Directors are not reduced to inertia because of the existence of a takeover bid. However, if a bid is imminent or on foot, this must be read subject to the Takeovers Panel policy against action which may frustrate a bid: see 14.5. General meeting authorisation [13.20.40] Action taken, or to be taken, by directors which is in breach of their duties at general law may nevertheless be authorised in a general meeting of the company. This requires proper and full disclosure of all relevant facts, including the nature of the breach of directors’ duty and that the effect of the authorisation will be to absolve the directors from a breach of duty.17 Authorisation in general meeting is subject to the general equitable principle that a resolution which effects a fraud on the minority will be ineffective.18 This may be the case, for instance, where the directors control the majority of votes to be cast at the meeting. In such an instance, their votes should not be cast. Obtaining a benefit, or preventing a detriment [13.20.50] There may be some circumstances where action taken in order to frustrate a control transaction may not breach the duties of directors if the control transaction is contrary to the interests of the general body of shareholders. This is supported by the Canadian case Teck Corporation Ltd v Millar (1972) 33 DLR (3d) 288.19 An allotment which destroyed an existing majority and prevented the majority shareholder from taking effective control without a bid was upheld as valid on the basis that the majority shareholder was intending to appropriate to itself the benefit of the company’s assets. Some further support may be derived from Australian Metropolitan Life Assurance Co Ltd v Ure (1923) 33 CLR 199, where the interest of the company in maintaining a good reputation was held to

15 Harlowe’s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483. 16 Pine Vale Investments Ltd v McDonnell and East Ltd (1983) 8 ACLR 199; Winthrop Investments Ltd v Winns Ltd (1979) 4 ACLR 1. 17 Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666, where resolutions passed in general meeting were held to be ineffective because the notice of meeting failed to disclose that the directors’ purpose in undertaking a transaction was an improper one of seeking to avoid a takeover. The general meeting cannot, however, authorise a breach of directors’ statutory duties: see Angas Law Services Pty Ltd v Carabelas [2005] HCA 23 [29]-[32]. 18 Ngurli Ltd v McCann (1953) 90 CLR 425; Gambotto v WCP Ltd [1995] HCA 12; (1995) 182 CLR 432. 19 Commented on favourably in Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821 and in Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285. See also Cayne v Global Natural Resources PLC (unreported decision of Megarry VC – see note at end of this section).

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justify directors refusing to register share transfers which may have led to the election to the board of a person who had been struck off the rolls as a solicitor. In Savoy Corporation Ltd v Development Underwriting Ltd [1963] NSWR 138, Jacobs J observed at 147: It would seem to me to be unreal in the light of the structure of modern companies and of modern business life to take the view that directors should in no way concern themselves with the infiltration of the company by persons or groups which they bona fide consider not to be seeking the best interests of the company.

Similarly, when the High Court limited the power of the general meeting to amend a company’s constitution to provide for compulsory acquisition of shares, one of the exceptions it recognised was where the acquisition was necessary to prevent a detriment to the company, though not where it would provide a benefit to the company.20 This line of authority provides a justification for directors of a company taking frustrating action if a new controller may cause actual economic or commercial harm to the company or to other shareholders, but probably only if the person will take control without making a full bid.21 However, again, this must be read subject to the Takeovers Panel policy on frustrating action: see 14.5.

13.3 Shark repellents [13.30] A shark repellent is a provision in a company’s constitution designed to discourage a takeover or to make it more difficult for the acquirer of a significant number of shares to take control of the company. The constitution represents a statutory contract between the company, its shareholders and its directors and can be enforced by each one: s 140(1). The constitution of a company may be changed by special resolution passed in general meeting: s 136(2). This requires 21 days’ notice (or 28 days’ notice for a listed company) and 75% of votes to be cast to be in favour of the motion: ss 9, 249H(1) and 249HA(1). It is also possible to entrench provisions by making them unalterable until a further

20 Gambotto v WCP Ltd [1995] HCA 12; (1995) 182 CLR 432. 21 See dicta of Megarry V-C in Cayne v Global Natural Resources PLC, Chancery Division, 12.8.1982, unreported, upheld on appeal at [1984] 1 All ER 225, quoted in Criterion Properties PLC v Stratford UK Properties LLC [2002] EWCA Civ 1783, [2003] 1 WLR 2108 [15] and noted in RI Barrett, “Companies – Issue of Shares to Preserve Existing Control – Whether Breach of Directors’ Fiduciary Duties” (1982) 56 ALJ 600, suggesting that they point to directors being able to rely on the risk of fraud on a continuing minority, but compare the argument of counsel in Piercy v S Mills & Co Ltd [1920] 1 Ch 77, 82. See also McCabe, “The Roles and Responsibilities of Directors in Company Takeovers” (1994) 4 AJCL 36, 40, referring to 347883 Alberta Ltd v Producers Pipeline Inc (1991) 80 DLR (4d) 359 (CA Sask), and Advance Bank Australia Ltd v FAI Insurances Ltd (1987) 12 ACLR 118, where it was held to be proper to spend the company’s funds to point out to shareholders that candidates for election to the board would prejudice the company’s banking licence, but not to protect the positions of incumbent directors. If they act within this limitation, directors should not run foul of the Takeovers Panel policy on frustrating action: see 14.6.

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requirement is met, such as a super majority resolution: s 136(3). Any amendment to the constitution of a listed company must be supplied to the stock exchange for examination at least five business days before the notice of meeting is despatched: ASX Listing Rule 15.1. In presenting any change to the constitution, it is critical to ensure that the notice of meeting satisfies the general requirement that the notice must fully and fairly inform and instruct the shareholders about the proposed changes.22 Where the alterations proposed to the constitution may benefit the directors or impose restrictions on the rights of shareholders, the level of disclosure required increases.23 If the notice fails to reach the required standard, it is open for a shareholder to challenge the validity of any resolution passed, though a bidder who becomes a shareholder after the alteration to the constitution may have difficulty establishing standing to launch a challenge itself. Provisions of a defensive nature which may be included in the constitution include the following. Restrictions on appointments of directors [13.30.10] The constitution can contain provisions restricting the ability of a person who is not supported by the incumbent board of directors to become a director of the company. Examples of such provisions include: •

The constitution could provide that a person would only be eligible to be elected as a director if first recommended by the directors or if his or her nomination was received by the company a certain period, say 30 or 60 days, before the date of the general meeting or despatch of the notice of the general meeting at which he or she could be elected. ASX Listing Rule 14.3 permits a company listed on the ASX to reject nominations received after the 35th business day prior to the date of the general meeting (in the case of a meeting that members have requested directors to call, the company may reject nominations received after the 30th business day). The date of any general meeting at which directors will be elected must be disclosed to the stock exchange at least five business days before the closing date for receipt of nominations: ASX Listing Rule 3.13.1.

•

The constitution could include a provision limiting the eligibility of persons to act as directors in other respects. For example, the constitution could provide that a person who had acquired more than a certain percentage of shares in the company (or who was an associate of such a person) could not be elected as a director unless a majority of the other shareholders voted in his or her favour. Another example would be a restriction prohibiting a person from becoming

22 Bulfin v Bebarfalds Ltd (1938) 38 SR (NSW) 423. 23 Normandy v Ind, Coope & Ltd [1908] 1 Ch 84; Bancorp Investments Ltd v Primac Holdings Ltd (1984) 9 ACLR 264; Devereaux Holdings Pty Ltd v Pelsart Resources NL (No 2) (1985) 9 ACLR 956; Fraser v NRMA Holdings Ltd (1995) 15 ACSR 590.

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eligible to be a director if he or she carried on a business which competed with the company or did not actively carry on a business related to the company’s activities (the latter type of restriction might be particularly appropriate for a co-operative company). •

The constitution could provide for board size to be regulated by the directors themselves, rather than give this authority to the shareholders in general meeting. This would have the effect that, unless a special resolution was passed amending the relevant provision, a person seeking to be appointed to the board would have to seek the removal of an incumbent director in order for there to be a vacancy. If the constitution simply provided that the company in general meeting could increase the board size, only an ordinary resolution would be required to create a vacancy to appoint a new director.

•

If the constitution allows alternate directors to be appointed, the appointment of the alternate should be subject to the approval of the majority of the other directors. If not, it may be possible for a director to appoint an outsider as his or her alternate and effectively side-step any restrictions in the constitution on the appointment of directors.

Apart from restrictions on the appointment of directors, the constitution of a public company should not provide for a director to be removed unless by the procedure under s 203D of the Corporations Act, or a similar procedure in the company’s constitution. Section 203D requires special notice to be given (generally, two months) and requires that the director to be removed be given the opportunity to state his or her case in the notice of meeting.24 Regulations for general meetings [13.30.20] The constitution sets out the rules governing the convening and conduct of general meetings. It should ensure that a meeting will be conducted fairly and each person attending will be able to put his or her view on the business being considered. Apart from usual provisions, such as requiring proxies to be lodged up to 48 hours before the meeting and giving the chairperson clear authority to regulate proceedings, including the power to rule on points of order and the power to adjourn, the constitution can conceivably include provisions to prevent a small minority being in too strong a position compared to its relative holding. Examples of such provisions include: •

A provision requiring a significant proportion of shares to be represented at the meeting before a quorum exists. It may be possible to specify quorum requirement of, say, 50% of issued shares to be represented for particular types of business (such as a resolution

24 In Scottish & Colonial Ltd v Australian Power & Gas Co Ltd [2007] NSWSC 1266; (2007) 25 ACLC 1497; Bryson AJ held that s 203D is a code: this decision was followed in Mortimer v Proto Resources & Investments Ltd [2015] FCA 654, but not in State Street Australia Ltd v Retirement Villages Group Management Pty Ltd [2016] FCA 675, [15]–[36].

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which could affect control of the board) or for business which is not recommended by the directors. •

A provision requiring a significant period of notice before a general meeting could be convened. The Corporations Act only specifies minimums: s 249HA and 249H(1). Conceivably, this could distinguish between meetings convened by the directors and those convened by shareholders. A longer notice period could be justified if the history of the company suggested that that would facilitate greater attendance at general meetings so that more shareholders had a say in the business to be considered.

Restrictions on share acquisitions [13.30.30] ASX Listing Rule 8.10 prohibits a listed company from preventing, delaying or in any way interfering with the transfer of quoted securities.25 There are several limited exceptions. These permit a company to apply a holding lock to prevent a transfer or refuse to register a paper-based transfer where: (1) the company has a lien on the shares as a result of unpaid calls due on the shares (or arising from outstanding loans on employee shares); (2) it is required to prevent a paper-based transfer in accordance with stamp duty legislation; (3) it is required to do so pursuant to a court order; (4) registration may break the law and the ASX has agreed in writing to the application of a holding lock or the ASX has agreed in writing that the company may refuse to register a transfer; (5) the transfer is paper based and the securities are reserved for a bidder (whilst the bid is conditional) because the holder of the securities has accepted an off-market bid; (6) the transfer does not comply with the terms of an employee incentive scheme; (7) the transfer is paper based and registration will create a new holding which is less than a marketable parcel; or (8) the shareholder has agreed in writing to the application of a holding lock or that the entity may refuse to register a paper-based transfer. The result is that there is only limited scope for a listed company to include a provision in its constitution restricting share transfers. However, with the approval of the ASX, the company may have a provision requiring divestment of securities or disenfranchisement of the rights of a holder in limited circumstances, such as where legislation restricts shareholding in a particular company to a certain level or where the 25 Unlike unlisted companies: see the discussion of litigation concerning a bid for Cooper’s Brewery Ltd at 5.30.30.

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company holds a special licence (such as a broadcasting licence) which may be jeopardised if a person exceeds a statutory limit.26 This opens the possibility of a company acquiring such a licence and amending its constitution as a defensive measure. The only other exception is a proportional takeover approval provision: see [13.30.40]. The scope for restrictions against transfers in unlisted companies is much greater and there is a wide variety of restrictions found in practice. These range from general pre-emptive rights,27 and limits on the ability of an individual to hold or have a relevant interest in a number of shares greater than a certain percentage28 to restrictions prohibiting a person with certain characteristics (such as being foreign controlled) from acquiring shares beyond a certain percentage.29 A shareholder is not bound by an alteration of the constitution made after the date he or she became a shareholder so far as the alteration increases or imposes restrictions on the right to transfer the shares held by the shareholder at the date of the alteration, unless before or after the alteration is made the shareholder agrees in writing to be bound by it: s 140(2). This rule can limit the effectiveness of these changes. However, the rule would not assist a potential bidder who was not a shareholder at the date the restrictions were adopted. Another possible way to protect minority shareholders would be a provision to the effect that if a single shareholder became entitled to a specified majority of issued shares, minority shareholders would have the right to require that holder to buy their shares at a price appraised to be fair. This would be the reverse of constitutions which have been adopted to the effect that, in certain circumstances, a majority holder can compulsorily acquire minorities for a certain price.30

26 See generally 4.3. A condition imposed on the holder of a commercial TV or radio broadcasting licence is that the constitution prohibits shareholdings which would result in a contravention of Pt 5 of the Broadcasting Services Act 1992 (Cth) and provides for divestiture of shares in the event of a contravention: Broadcasting Services Act (1992) (Cth), Sch 2. 27 North Sydney Brick & Tile Co Ltd v Darvall (1986) 5 NSWLR 662; Coopers Brewery Ltd 01 [2005] ATP 18, Coopers Brewery Ltd 02 [2005] ATP 19, Coopers Brewery Ltd 03 [2005] ATP 22, Coopers Brewery Ltd 04 [2005] ATP 21, Coopers Brewery Ltd 03R [2005] ATP 23 and Coopers Brewery Ltd 04R [2005] ATP 24, discussed at 3.5. See also [5.30.30]. 28 Shears v Phosphate Co-operative Co of Australia Ltd (1988) 14 ACLR 747; Mildura Co-operative Fruit Company Ltd [2004] ATP 5. These restrictions are required in co-operative companies in order to take advantage of the special tax provisions in the Income Tax Assessment Act 1997 (Cth). 29 Equiticorp Industries Ltd v ACI International Ltd [1987] VR 485. 30 Brown v British Abrasive Wheel Company Ltd [1919] 1 Ch 290; Sidebottom v Kershaw, Lease & Company Ltd [1920] 1 Ch 154; Dafen Tin Plate Company v Llanelly Steel Company (1907) Ltd [1920] 2 Ch 124; Palazzo Corporation Pty Ltd v Hooper Bailie Industries Ltd (1988) 14 ACLR 684; Gambotto v WCP Ltd [1995] HCA 12; Gambotto v WCP Ltd (1995) 182 CLR 432; Gambotto v WCP Ltd (1995) 16 ACSR 1. See also [18.10].

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Proportional takeover approval provisions [13.30.40] The constitution may contain a provision prohibiting the registration of transfers of shares acquired under a proportional takeover bid unless shareholders who are not associated with the bidder approve the takeover bid either in general meeting or by postal ballot: s 648D. The companies legislation was amended in 1986 to specifically permit these provisions, which are intended to reduce the coercive pressures on shareholders to accept partial offers.31 A company with a proportional takeover approval provision will only be susceptible to a partial bid if the bid is on terms generous enough to win support of the holders of a specified proportion (up to 50%) of issued shares. Many major listed companies in Australia have adopted proportional takeover approval provisions. Inclusion of a proportional takeover approval provision

[13.30.40A] In order to introduce a proportional takeover approval provision, the notice of meeting specifying the resolution to insert the provisions must be accompanied by an explanatory statement that: •

explains the effect of the provisions;

•

explains the reasons for the proposal and the factual matters and principles underlying those reasons;

•

states whether any director is aware of a proposal by any person to acquire or increase a substantial interest in the company and, if so, the extent to which that proposal has influenced the decision to propose the resolution; and

•

discusses the potential advantages and disadvantages of the provisions for the directors and shareholders of the company: s 648G(5).32

The provisions cease to apply at the end of three years after insertion (unless a shorter period is specified in the provisions), but can be renewed: s 648G.33 The notice of meeting to consider the renewal must be accompanied by an explanatory statement which contains the above information and, in addition, reviews the advantages and disadvantages for directors and shareholders of the company of the provisions since their original inclusion: s 648G(4) and 648G(5)(f).

31 Companies and Securities Law Review Committee Report to Ministerial Council on Partial Takeover Bids August 1985 and the Explanatory Memorandum for the Companies and Securities Legislation Amendment Bill 1986 (Cth). These provisions are mentioned in Bigshop.com.au 02 [2001] ATP 24. 32 These requirements apply in addition to s 136. A bidder or intending bidder seems to be able to vote on this resolution, although a bidder may not vote on a resolution to approve its own partial bid. 33 If a meeting at which the provisions are renewed is more than 3 years after the meeting which adopted or last renewed the provisions, there will be a hiatus during which the provisions do not apply.

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If the provisions are adopted (or renewed), shareholders who together hold 10% or more of a class of shares in the company may within 21 days apply to the court to have the adoption (or renewal) set aside, but until the application is determined the provisions are treated as effective: s 648G(6). The court may set aside the adoption (or renewal) if it is satisfied that that is “appropriate in all the circumstances”: s 648G(8). Presumably, a court would act where a majority has abused its position so as to commit a fraud on the minority. Sections 648D and 648G have effect notwithstanding anything contained in the market rules or listing rules of a securities exchange, the constitution of the company or in any agreement: s 648H. The provisions also override s 140(2), which provides a member is not bound by an alteration in the company’s constitution which increases restrictions on the right to transfer shares without his or her written agreement: s 140(2)(c)(ii). Procedure under proportional takeover approval provisions

[13.30.40B] Where offers have been made under a proportional takeover scheme and the target’s constitution contains proportional takeover approval provisions, the directors of the target must ensure a resolution to approve the takeover scheme is voted on before the fourteenth day before the last day of the offer period: s 648D(2). Each director contravenes s 648E if he or she fails to do so. Votes may either be in general meeting or by postal ballot, depending on the takeover approval provisions: s 648D(1)(c). The strict time limit, together with the need to give 21 or 28 days’ notice of the meeting, mean that the directors should prepare to hold a meeting as soon as the bidder’s statement is received. The Act gives no guidance as to the content of a notice of a meeting to approve a partial bid. On the usual principles, the notice should fully and fairly inform and instruct the shareholders about the effect and merits of a vote to approve the partial bid. That is, it should cover much the same issues as a target’s statement, although it must be provided about a month before that statement. It is conceivable a failure by the bidder to extend the offer period so that a satisfactory notice can be given and a meeting held in accordance with these requirements may give rise to unacceptable circumstances. Votes may be cast by each person (other than the bidder and persons associated with it) who held shares in the class subject to the offer as at the end of the first day when the offers were dispatched: s 648D(1).34 A person who has accepted an offer prior to voting is not precluded from voting for that reason only. For one thing, as discussed at [3.80.60], a mere agreement to buy and sell shares does not constitute an association. For another, for a shareholder to be excluded from voting, they must have been associated with the bidder on the first day the offers were dispatched. 34 Accordingly, where bid class shares are transferred after that day, the transferor retains the right to vote on the approval resolution, although the offer itself is taken to be made to the transferee instead.

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The proportional takeover approval provisions may specify a majority of 50% or less to determine if the resolution is passed: s 648D(1). Notice of the result must be given to the bidder and, if the target is listed, to the securities exchange, on or before the fourteenth day before the last day of the offer period: s 648E(2). The resolution to approve the takeover scheme is deemed to have been passed if the vote has not been held by the end of the 15th day before the close: s 648E(3). If the resolution is rejected, all outstanding offers and acceptances which have not given rise to binding contracts are deemed to be withdrawn and the bidder must return documents received by way of acceptance. The bidder and any accepting shareholder may also elect to rescind the binding contract formed by the acceptance and the bidder must do so as soon as practicable after the deadline for the resolution to approve the bid: s 648F.

13.4 Differential voting rights [13.40] The Corporations Act permits a company to issue shares with unequal voting rights. Accordingly, a company may adopt a voting structure which could enable the directors and other insiders to own a small number of shares but have a disproportionately large number of votes. This will have the effect of making it more difficult for an outsider to acquire sufficient shares to achieve control. The main categories of arrangements are: (1) There could be a sliding scale of voting rights. For example, each share-holder would have one vote per share for each share up to 100 shares, one vote for each 100 shares between 100 and 1000 and one vote for each 1000 shares thereafter.35 Sliding scale votes make it particularly difficult to obtain control of a company with a large number of loyal employee shareholders (such as Butler Air Transport) or a co-operative. (2) Some shares could confer enhanced voting rights. For example, A class shares would be given one vote per share and B class shares would confer 20 votes per share. To increase the possibility for voting power to be concentrated after an issue of enhanced voting shares, the rights attaching to the shares could automatically convert to the ordinary voting rights if the shares were transferred. This would mean that a purchaser could not acquire the enhanced voting shares and would favour long-term shareholders. (3) Some shares would confer limited voting rights. For example, they would not confer any right to vote other than on a proposal to affect their rights or certain other limited events (such as the events referred to in the s 9 definition of “voting share”). Generally, to enhance the 35 In Manning River Co-Operative Dairy Company Ltd v Shoesmith [1915] HCA 32; (1915) 19 CLR 714, directors were held to be entitled to refuse to register transfers to nominees intended to split the votes attached to the shares. The listing rules of the Australian Associated Stock Exchanges required sliding scales of voting in the period 1911 to 1959.

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attractiveness of limited voting shares, those shares would confer a higher dividend entitlement than the ordinary shares. (4) The constitution could cap the number of votes that may be exercised by one shareholder and his or her associates. A variation would be to cap their votes in excess of, say, 20% of the issued shares unless the shareholder had made a full takeover bid on terms no less favourable than the best terms upon which the shareholder acquired shares in the previous six months. The steps necessary to implement a differential voting structure will depend on the constitution of the company. A sliding voting scale or a capped voting restriction would require an amendment to the constitution in order to overcome s 250E(1) of the Corporations Act, which provides a replaceable rule that, subject to any rights or restrictions attached to a class of shares, each shareholder has one vote per share. An issue of shares with enhanced or limited voting rights can, however, be effected without an amendment to the constitution if the constitution contains a provision for directors to issue shares with special rights or restrictions36 and the provision dealing with voting entitlements provides that they are subject to any special rights or restrictions attached to a class of shares. The company would then issue the special shares to the existing shareholders by effecting a bonus issue or rights issue. Another way of introducing special classes of shares with differential voting rights would be to enable shareholders with ordinary shares to elect to convert or exchange those shares into the special class of shares. This could be effected by a scheme of arrangement. If the target company is listed, the rules of the ASX provide a significant restriction on the ability for the company to issue shares with differential voting rights. The terms that apply to each class of equity securities must, in the opinion of the ASX, be appropriate and equitable: ASX Listing Rule 6.1. Furthermore, ASX Listing Rule 6.9 provides that the voting rights in respect of fully paid shares must be a on a one-for-one basis. Preference shares are excluded from these restrictions so that a listed company may issue preference shares which have the traditional voting rights for such shares (such as only the right to vote on a reduction of capital, a winding up, a sale of the main undertaking, where rights of the holders are affected or where the dividend is in arrears): ASX Listing Rule 6.3. The rules of the ASX concerning the one share, one vote principle received much attention in the past due to proposals of The News Corporation Limited.37 The News Corporation Limited eventually issued in November

36 In Hogg v Cramphorn [1967] Ch 254 an equivalent provision was accepted as sufficient to authorise an issue of shares with enhanced voting rights. 37 This generated much literature in Australia on the subject of differential voting rights. See, for example, the ASX’s paper, Differential Voting Rights (November 1993), the Report of the Expert Panel of Inquiry into Desirability of Super Voting Shares for Listed

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1994, by way of a bonus issue, preferred shares which have limited voting rights but enhanced dividend rights. The constitution of the company also contained a takeover bid protection provision (known as a “coat-tail” protection), which purports to prevent a person from making a takeover bid in respect of the ordinary shares in the company unless offers are extended on a comparable basis to the holders of the limited voting shares.

13.5 Tactical share allotments [13.50] It is generally thought that a company which has a share register without any major shareholding blocks is most likely to be vulnerable to takeover. Accordingly, one tactic that may be adopted by a company is to issue a significant number of shares to a person who is perceived as friendly. This would then provide a blocking stake before another person could acquire sufficient shares to acquire control of the company. Such a shareholder is sometimes referred to as a “white knight”. The issue also has the effect of diluting existing shareholdings, including those of any potential bidders. Any company considering the use of such a tactic should be extremely careful in proceeding with such a step. There have been many instances in Australian corporate history where a white knight subsequently became hostile and either sold the shares to a bidder or made a takeover bid itself. It is convenient to consider the restrictions that apply to share allotments and examine the range of likely persons to whom an allotment can be made. Restrictions on share allotments [13.50.10] Restrictions on the ability of a company to effect a share allotment come from the ASX Listing Rules, general fiduciary duties on directors, the risk of the Takeovers Panel finding unacceptable circumstances and certain restrictions under the Corporations Act. ASX Listing Rules

[13.50.10A] ASX Listing Rule 7.1 provides, in essence, that a listed company may not issue any shares (or securities convertible into shares) if the nominal value of the shares, when aggregated with the nominal value of shares of the same class issued during the preceding 12 months, exceeds 15% of the total nominal value of that class on issue at the commencement of the 12-month period. There are a number of limited exceptions to this rule (such as where the issue is approved by shareholders in general meeting, where the issue is on a pro-rata basis to existing shareholders, where the issue is pursuant to a takeover offer required to comply with the Corporations Act 2001 or a scheme of arrangement approved under the Companies, Super Voting Shares (March 1994) and Fridman, “Super-voting Shares: What’s all the Fuss About” (1995) 13 C&SLJ 31 and the other articles referred to in those papers. In December 2007, the ASX raised the possibility of allowing non-voting ordinary shares, but the proposal has not gone ahead.

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Corporations Act, or where the issue is pursuant to an employee share plan or dividend reinvestment plan approved by shareholders) and a number of rules relevant to calculating how many shares are regarded as being on issue at the commencement of that 12-month period. Other potential restrictions under the ASX Listing Rules can arise if the shares are to be issued to a director or his or her associates (ASX Listing Rule 10.11) or where the company has already received written notice of an imminent takeover bid: see ASX Listing Rule 7.9,38 discussed at 7.7. Fiduciary duties

[13.50.10B] Directors may only exercise the power to issue shares for a proper purpose. An allotment for improper purposes is a breach of directors’ fiduciary duties and the allotment is liable to be set aside. An allotment will be invalidated if the impermissible purpose was causative in the sense that, but for its presence, the power would not have been exercised.39 The general principles are discussed with particular reference to share issues at 13.2. In brief, the share issue power primarily is to enable capital to be raised when required for the purposes of the company, but there may be occasions when the directors may fairly and properly issue shares for other reasons, so long as those reasons relate to a purpose benefiting the company as a whole, as distinguished from a purpose, for example, of maintaining control of the company in the hands of the directors themselves or their friends. The two best established categories of improper motives for issuing shares are, first, a desire for the directors to give themselves an advantage, such as increasing their own shareholdings so as to enable them to defeat resolutions of other shareholders, and, second, an intention to deprive an existing majority shareholder or group of shareholders of control of the company. Implications that shares have been issued for improper purposes may arise where the shares issued confer full voting rights, notwithstanding they are

38 Under ASX Listing Rule 7.9, the company must not for a period of three months issue any equity securities or securities convertible into equity securities unless: • the issue is first approved by the company in general meeting; • the issue is offered to all ordinary shareholders pro rata to their holdings; • details of the issue of new securities were given to ASX prior to receipt of the notification of the takeover; • the issue is pursuant to an exercise of rights of conversion to equity; • the issue is made as consideration for acquisitions under a takeover offer or scheme of arrangement under the Corporations Act; or • the issue is pursuant to a dividend plan operative at the time. 39 Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285, 293 (Mason, Deane and Dawson JJ), referring to Mills v Mills (1938) 60 CLR 150, 186 (Dixon J).

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only partly paid,40 where shares have been allotted to a single allottee at a lower price than would have been paid by others41 or where the company has acted with great haste in issuing shares or, in doing so, has contravened listing requirements.42 Nevertheless, the mere fact that an unwelcome takeover bid hastened the directors in reaching a decision to expand by acquiring a new business to be financed by issuing shares will not itself vitiate an allotment which is otherwise commercially justifiable.43 In Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821 Ampol Petroleum Ltd and its associate, Bulkships Ltd, controlled 55% of the voting capital of R W Miller (Holdings) Ltd. Ampol announced a takeover bid at $2.27 per share. A rival bidder, Howard Smith Ltd, emerged, offering $2.50 per share. To enable the Howard Smith offer to proceed, the board of directors of R W Miller (Holdings) Ltd resolved to make an issue of shares to Howard Smith of sufficient size to dilute the Ampol and Bulkships’ holding into a minority stake of 37%. The court decided that the share issue was invalid as it was intended to destroy the existing majority. This could not be justified on the ground that it enabled shareholders to obtain a higher offer. The court rejected the directors’ evidence that their primary intention was to raise needed capital. The directors of a company will be better able to defend a decision to issue shares if they can demonstrate that they have been considering the particular share issue or transaction for some time before any takeover bid emerged. They should carefully analyse the proposed capital raising and weigh up the benefits and disadvantages of proceeding with a share issue as compared to other methods of capital raising, including borrowing or a pro-rata issue. For instance, if the company has an opportunity to raise capital in favourable market conditions (such as when the price of a commodity produced by the company is at an historically high price), this may justify the company proceeding by way of a non-renounceable rights issue which will tend to increase the proportionate holdings of existing shareholders who take up the issue, even though it may not necessarily raise as much capital as a renounceable issue, which requires a longer timetable.44

40 Harlowe’s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483. 41 FAI Insurances Ltd v Pioneer Concrete Services Ltd (1986) 13 ACLR 492. 42 Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821. 43 Pine Vale Investments Ltd v McDonnell & East Ltd (1983) 8 ACLR 199, where a 1 for 2 rights issue at $3 per share was made to finance the acquisition of a new business after a partial takeover at $6 per share was announced. In Resource Pacific Holdings Ltd [2007] ATP 26 an entitlement offer launched after a bid was announced was submitted to a general meeting for approval. See also the discussion in 13.20.50 of action to frustrate a transaction detrimental to the company or its shareholders. 44 Kolbach Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533.

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An allotment for improper purposes is voidable, not void.45 Accordingly, even if the target’s directors are motivated by an improper purpose, a court may not set aside the allotment if the allottee was not aware of the impermissible purpose which motivated the directors.46 If the allotment is set aside, an allottee will be able to recover the consideration paid for the share issue and may be able to claim some priority over general unsecured creditors (though the point is not free from doubt and there may be difficulties for the allottee in tracing the money if it has been spent).47 Risk of unacceptable circumstances

[13.50.10C] An issue of securities in order to defeat or impede a takeover bid is likely, depending on circumstances, to constitute unacceptable circumstances because it may have the potential to detract from an efficient market and deprive shareholders of an opportunity to participate in the benefits of a takeover bid. This risk is greater if a bid is expected or has been announced. The Takeovers Panel has said that a placement for legitimate commercial purposes will not necessarily amount to unacceptable circumstances, in particular if the funds are urgently required.48 However, if a bid is expected, it may constitute frustrating action and create unacceptable circumstances: see further MacarthurCook Ltd [2008] ATP 20 and 14.5. General restrictions under the Corporations Act

[13.50.10D] There are very few restrictions in the Corporations Act that may inhibit a company from issuing shares. The company cannot, of course, issue shares to a person which would result in any person’s entitlement increasing in contravention of the 20% rule in s 606. The issue is not automatically void but is liable to be set aside by the Court or the Panel. Apart from that restriction, an allotment in favour of a person who is controlled by the company is void (with certain limited exceptions) under s 259C unless ASIC exempts the company from the operation of the section.49

45 Richard Brady Franks Ltd v Price (1937) 58 CLR 112, 142; Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285. 46 Harlowe’s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483; Ampol Petroleum Ltd v R W Miller (Holdings) Ltd [1972] 2 NSWLR 850, 883 (Street CJ in Eq at 883), where the allottee was tainted by knowledge of the improper purpose as evidenced by an exchange of draft letters regarding the allotment. 47 See Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1981] Ch 105. 48 See Takeovers Panel Guidance Note 12; see also Taipan Resources NL 04 [2000] ATP 16, where the Panel considered that a placement of 11% would not unfairly disadvantage a bidder as the target urgently needed the money and the bidder could rely on a condition or bid for the additional shares. Shareholder approval may be necessary: see Resource Pacific Holdings Ltd [2007] ATP 26 and MacarthurCook Ltd [2008] ATP 20. 49 Something ASIC is very unlikely to do, particularly for a defensive arrangement.

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Potential allottees [13.50.20] As a defensive manoeuvre against a potential takeover, the most effective use of the share allotment power is an allotment to a friendly holder. A frequent source of loyal shareholders is the employees of the company. It is common for companies to establish employee share plans under which shares are issued to employees or to a trustee for employees, usually on generous payment terms or where the company provides financial assistance for the employee or trustee to acquire the shares (such as an interest-free and/or non-recourse loan).50 Such arrangements, if pursuant to a plan approved by shareholders by ordinary resolution, are excluded from a general prohibition against a company giving financial assistance for the acquisition of its own shares: s 260C(4). A variation is where the shares are acquired on market. This has the effect of minimising the dilution of existing shareholdings. It may also be useful in establishing a vehicle which can mop up loose shares which might otherwise be sold into a takeover bid. An issue made to a trustee for employees will generally have a greater defensive effect as it will concentrate the voting power of all shares held for employees into a single block. Occasionally, to avoid any potential criticism that such an arrangement can unfairly benefit the directors, the rules of the employee share plan may prohibit the trustee voting unless it has received specific directions from the relevant employees. If there are a significant number of employees, this may not be practical due to the administrative effort required. One consequence of issuing shares to a trustee is that the trustee must act in the interests of the beneficiaries. If a trustee rejects a bid and the share price subsequently falls, there may be a risk of the beneficiaries suing the trustee for breach of trust. The trustees would be personally liable for all losses caused by the breach of trust. This has lead to trustees of the employee share plans accepting takeover bids even in the face of opposition from the target directors. There is an additional difficulty if directors, particularly executive directors, are appointed trustees of the plan. If they accept a bid, it may be alleged by shareholders that, in doing so, the directors were unduly influenced by their position as trustees and, as such, acting improperly. Directors may also have confidential information which would prevent the trust acquiring or selling shares due to the insider trading legislation. For these reasons, where possible, the trustees should not be directors of the company. Sometimes these potential conflicts can be reduced if the plan allows for the employees, or perhaps a majority of the employees, to decide if their shares should be sold in the event of a takeover bid.

50 See, for example, Hogg v Cramphorn Ltd [1967] Ch 254, where an employee share plan was introduced after the directors were alerted to the possibility of a takeover bid.

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Cross-shareholdings between two or more companies may also be established so that each company may rely on the support of the other in the event of a takeover bid. It may be possible to justify this as being in the interest of the company where there is a rational connection between the companies, such as where one is a supplier of raw materials to the other and it is important to ensure that control of the supply does not change or where the establishment of a shareholding link is a necessary element for the company to gain access to technology and other support. On the other hand, cross-shareholdings can be criticised as they can lead to large passive investments of the company’s capital, which can depress the company’s share price. Cross-shareholdings also adversely affect the ability for the companies to raise additional capital by pro-rata rights issues as companies in the cross-shareholding arrangements may be unable to finance the taking up of their rights. Apart from an allotment of shares to a single person, a pro-rata share issue to existing shareholders may have a defensive effect. A renounceable rights issue pitched below market price will be likely to receive almost full subscriptions. The inflow of additional capital will make the company more valuable and it will be more expensive for a bidder to mount a successful takeover bid. If the rights issue is at or above the prevailing market price, it may be more difficult for the directors to justify, but even if an underwriter would then be likely to take a significant shortfall, that fact by itself would not necessarily invalidate the issue if there is no particular existing shareholder or group of shareholders whose holding would be diluted.51 If the directors can show a proper purpose for the rights issue, a court will be reluctant to question the directors on whether it would have been preferable for the company to raise finance by alternative means, such as a loan.52 Another form of pro-rata issue which may generate loyalty is an issue of bonus shares. In theory, a bonus issue can have no effect on the proportionate shareholding of any particular shareholder or on the overall value of the company. The only effect is to dilute the share price. Nevertheless, bonus issues have, in the past, been popular as a defensive measure on the basis that shareholders are attracted to companies that issue bonus shares. Accordingly, those shareholders may well be more loyal in the face of an unwelcome takeover bid. Occasionally, a company about to undertake a share issue to a particular investor will enter into arrangements with the investor to obtain a measure of control over the investor’s shareholding and with the intention of preserving the target’s independence. These arrangements, known as “standstill” arrangements, may deal with restrictions on the ability of the

51 McGuire v Ralph McKay Ltd (1987) 12 ACLR 107. 52 Pine Vale Investments Ltd v McDonnell & East Ltd (1983) 8 ACLR 199.

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shareholder to dispose of shares53 or to vote shares or to acquire more shares, other than pursuant to a full takeover bid. A well-known example of arrangements with a white knight was considered in Campbell Investment (Aust) Pty Ltd v Arnotts Ltd (1992) 9 ACSR 675. Campbells was introduced as a white knight after a bid for Arnotts was made by Bond Corporation. Under the agreement between Campbells and Arnotts, Campbells was entitled to board representation, but was prohibited from voting more than 14.9% of issued capital to seek to obtain control of the board of Arnotts except where Campbell’s fundamental interest as a substantial shareholder was threatened, for example, by a third party seeking control of the company. The enforceability of this arrangement was upheld by the court, despite Campbells significantly increasing its shareholding and making a takeover bid. Standstill agreements between a company and a shareholder face three main difficulties. First, in the event of a breach, the company may have difficulty enforcing the agreement as it may not have suffered any loss itself. Second, if the agreement gives the company a relevant interest in the shares it may need to obtain shareholder approval under s 611, item 7 if the agreement would result in the company being entitled to more than 20% of its shares. Finally, due to the general prohibition against litigation in takeovers in s 659B, the company may be unable to commence any proceedings once a takeover bid emerges, although some cases suggest that the courts will be open to enforcing contracts notwithstanding s 659B.54 The Corporations Act empowers orders to be made by the Takeovers Panel when a person acquires a “substantial interest” in circumstances which are inconsistent with the Eggleston principles: ss 657A–657H; see generally 21.2.55 This would be relevant to the company’s acquisition of control of its own shares under a standstill agreement.

13.6 Convertible securities [13.60] A company with a complex capital structure is more difficult to take over. One reason is that it may be difficult to value securities of different classes, particularly where securities are convertible into ordinary shares over a long period of time. This may lead to holders being reluctant

53 See, for example, the arrangements referred to in FAI Insurances Ltd v Pioneer Concrete Services Ltd (1986) 13 ACLR 492 and the arrangements in MacarthurCook Ltd [2008] ATP 20. 54 See 21.6 and Lionsgate Australia Pty Ltd v Macquarie Private Portoflio Management Ltd (2007) 62 ACSR 178. 55 Previously, the legislation permitted ASIC to declare an arrangement to constitute an “unacceptable self-acquisition scheme” if the company could control more than 10% of voting shares in itself via a partly owned intermediary. The courts then had broad powers to make remedial orders. These provisions were never used and were repealed in March 2000. They are discussed in Village Roadshow Ltd 02 [2004] ATP 12.

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to sell and may give greater scope for the holders to resist compulsory acquisition.56 Accordingly, one defensive measure that could be adopted by a company is to issue securities which are convertible into ordinary share capital, such as options and convertible notes. The terms of issue of such securities may provide that, in the event of a successful takeover or the announcement of a takeover bid, the securities become convertible which could considerably increase the number of shares the bidder has to acquire before it can achieve control and it will make the takeover bid more expensive for the bidder. Furthermore, the terms of issue of any debt securities (including convertible notes) could provide that the securities will become redeemable at face value (or even at a premium) in the event of a takeover.57 It is also theoretically possible for a company to issue options or confer rights on shareholders which are specifically directed at a takeover scenario. Shareholder rights agreements, usually known as “poison pills”, are not uncommon for companies in the US. In essence, these plans involve a distribution of a special right for each issued ordinary share which, on exercise, would enable the holder to acquire additional shares at an advantageous price (such as a right to buy shares having a market value of twice the exercise price). These rights would be stapled to the original shares. Generally, the rights would become exercisable only after a bidder has acquired a specified threshold percentage (say 15% or 20%) of the target company’s issued shares and, at that point, the rights may become transferable separately from the original ordinary share. Usually, the board of directors of the target would retain the ability to redeem the rights at a nominal price. This feature is designed to encourage a potential bidder to deal with the target’s board of directors before launching a bid. The ability to introduce such a plan for an Australian company will depend, to a large degree, on the attitude of the ASX. Previously, Listing Rule 3G(7) prohibited a company from issuing an option which, in the opinion of the stock exchange, was designed to frustrate a takeover bid or frustrate a person becoming entitled to more than 20% of equity securities in the company or a person already entitled to more than 20% of equity securities acquiring further equity securities in the company. That rule was removed,

56 Before March 2000, the legislation did not provide any simple mechanism for the compulsory acquisition of non-share securities, such as convertible notes or options, even where a bidder was in a position to compulsorily acquire outstanding minority shares. The continued existence of convertible securities meant that the target company could not become a “group company” of the bidder for tax purposes, nor was the bidder able to assume complete control of the target and carry on its business without regard to the interests of the continued minority holders. This also tended to deter a takeover bid. As a bid can now be made for “securities” generally and a successful bidder for shares can now compulsorily acquire securities convertible into shares, this issue has been resolved. 57 An example appears in Bridge Oil Ltd v Parker & Parsley Petroleum (Australia) Pty Ltd (1994) 14 ACSR 240.

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but the ASX maintains a general discretion under ASX Listing Rule 6.1 to decide whether the terms that apply to equity securities are “appropriate and equitable”.

13.7 Share buy-backs [13.70] Periodic purchases by a company of its own shares may be desirable as a long-term defensive measure. This may reduce the existence of loose shares which could otherwise be sold into a bid, return surplus cash to shareholders and add depth to the market for the company’s shares. If the share price is depressed, a buy-back program should also improve the company’s earnings per share and asset backing per share figures. Buy-back activity will also assist to ensure the company’s shares are properly valued in the market and diminish the attractiveness of the company as a takeover target. On the other hand, the cost of the buy-backs could use up valuable cash resources and adversely impact on the ability of the company to respond if a bid emerges. In addition, if the company is seen to have paid too high a price for its own shares, it may lead to a further mark down in the market price. A company may buy back its own shares only if it follows the rules in Pt 2J.1, Div 2 of the Corporations Act: ss 257A, 257B. This provides for several types of buy-backs: •

equal access scheme – an off-market proportional offer extended to all holders of ordinary shares;

•

on-market buy-back – the company buys the shares in the ordinary course of trading on the ASX or another prescribed financial market;58

•

employee share scheme – a buy-back of shares under an employee share scheme approved in general meeting;

•

odd lot buy-back – a buy-back of parcels of shares, each less than a marketable parcel;59 and

•

selective buy-back – a buy-back in any other form, requiring the approval of a special resolution of independent shareholders.

Generally, a company may not buy back any shares (other than odd lots) if the purchase would result in the company having re-purchased shares representing more than 10% of the smallest number of votes attaching to voting shares in the company at any time during the preceding 12 months: s 257B(4), (5). However, this limit can be exceeded with prior approval of shareholders by ordinary resolution: s 257C. Notice of an intended buy-back (other than an odd lot buy-back) must be given to 58 See s 257B(6), 11.3 (on-market) and 19.13 (item 19 in s 611). 59 A listed company’s constitution may enable the company to aggregate and sell holdings less than a marketable parcel, unless the holders opt out after being given notice: ASX Listing Rules 15.13–15.13B. Such a power may not be effective as regards shares already held when the power was added to the constitution: s 140(2), Gambotto v WCP Ltd [1995] HCA 12; (1995) 182 CLR 432.

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ASIC: s 257F. Once the agreement is entered into, the rights attaching to the shares are suspended and the company cannot deal in the shares: s 257H(1), (2). The shares must be cancelled, which occurs automatically on registration of the transfer: s 257H(3). As such, treasury stock is not permitted. There are no restrictions on the price that may be paid, except that an on-market buy-back cannot be at a price more than 5% above the average of the closing prices recorded on the ASX on each of the preceding five days when sales in the shares were recorded: ASX Listing Rule 7.33. In a takeover scenario, there are two uses of the buy-back power that may be considered by the target company directors. First, the company may buy back the shares held by the bidder or potential bidder. This is known as “greenmail”. As with other defensive measures, the directors must be able to justify their action as in the interests of the company as a whole. If the directors act primarily to retain control, the greenmail payment would be improper and they may be personally liable for any loss suffered by the company. In order to effect such a transaction, the procedures for a selective buy-back must be followed, including obtaining a special resolution of shareholders not associated with the seller. If the seller is a substantial shareholder, the requirements of Listing Rule 10.1 may also apply, requiring an independent expert’s report as to whether the transaction is fair and reasonable. A resolution of shareholders may also absolve directors of any allegation of improper purpose.60 Greenmail may be criticised as unfair to non-participating shareholders and, in any event, as ineffective in the long term because, once one raider has received a greenmail payment, others may be encouraged to buy shares with the same objective in mind. Secondly, a buy-back program may enable the company to offer shareholders an alternative to selling into a takeover bid.61 A company could, for example, buy back a portion of its shares in exchange for a payment of surplus cash or an issue of debt or convertible securities. By recapitalising the company in that way, the debt-to-equity ratio of the company would increase and the shareholders could receive a superior financial return. As an added deterrent to future bids, the new securities could be issued on terms that accelerate repayment or enhance the rights of the holders in the event of a takeover. Such arrangements have been implemented in the US, but whether they could be relied upon in Australia is untested.

60 Bamford v Bamford [1970] Ch 212; Winthrop Investments Ltd v Winns [1975] 2 NSWLR 666, but see [13.20.40]. 61 See Coopers Brewery Ltd 03 [2005] ATP 22 for an example of such a strategy.

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13.8 Golden parachutes [13.80] A golden parachute is a contract between a company and an executive which provides for a significant termination payment in the event of the termination of the executive’s employment. To the extent that a golden parachute increases the costs of acquiring full control of the company, as the bidder will have to pay out the relevant executives in order to terminate their employment, a golden parachute may be seen as a defensive measure. The degree to which they can actually deter a takeover is generally fairly marginal as the extra cost to the bidder is usually likely to be insubstantial in relation to the total cost of the bid. Golden parachutes take two main forms. First, it may be a long-term service agreement (either a fixed term or a “rolling” contract) which requires either party (or, at the very least, the company) to give a long period of notice, or requires the company to make payment in lieu of notice, before the executive’s employment can be terminated. Second, an agreement can contain a specific provision giving the executive the right to terminate the agreement in the event of a takeover or change of control and claim a fixed retirement benefit. In considering whether to proceed with such an arrangement, there are a number of factors and restrictions that are relevant. (1) The directors must act in accordance with their fiduciary duties and cannot enter into the service contract for an ulterior motive. In framing the terms of the contract, the directors must carefully consider the benefits that will accrue to the company as compared to the benefits that may accrue to the executive in the event the termination payment is triggered. An excessive payment is likely to be questioned by a successful bidder and may lead to action against former directors or may force the executive to sue the company in order to recover the payment. Nevertheless, it is recognised that entering into a service agreement in the face of a takeover threat may be in the interests of the company as it gives the present executives security of employment so they do not seek employment elsewhere. This factor was accepted in Taupo Totara Timber Co Ltd v Rowe [1978] AC 537 as being a critical factor in upholding the validity of a contract entered into the same day that a takeover bid for the company was announced. (2) A company listed on the ASX is prohibited from entering into a service agreement which provides that termination benefits will, or, at the option of either party, may, become available or increase upon any change in the shareholding or control of the company: ASX Listing Rule 10.18. This rule effectively limits the types of golden parachutes to the first of the two types mentioned above. (3) If the executive is a director of the company and it is a public company, a service contract or agreement providing for a golden parachute payment will constitute the giving of a financial benefit to a

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related party within the meaning of ss 228 and 229. Accordingly, the contract will be in contravention of the legislation unless it can be justified as part of the executive’s “reasonable remuneration” or shareholder approval is obtained for the agreement: ss 208, 211. (4) It is critical to ensure that the directors satisfy, in letter and in spirit, any requirements in the constitution to make full disclosure of any interest they have in a proposed contract. This applies even where the interest of the director is already known by other directors62 or where the director concerned is the sole director.63 If there is insufficient disclosure, the contract may be voidable at the option of the company.64 It has been known for new controllers to examine closely the board minutes relating to retirement payments to outgoing directors and to deny payments if the disclosure requirements have not been strictly satisfied. Clearly, a director of a public company whose contract is being considered will have a material personal interest and must not be present or vote at a board meeting held to consider the matter unless the disinterested directors permit the director to do so by resolution or this is allowed by ASIC: s 195. (5) Termination payments are subject to the limits set out in s 200G of the Corporations Act unless shareholder approval for the amount of the benefit has first been obtained. In essence, subject to certain exceptions, s 200B prohibits a company from making a payment to a director if a payment would exceed seven times the executive’s average final salary during the last three years of his or her employment or, if the executive has been employed for less than seven years, a number determined by reference to the length of employment: s 200G. (6) The court has authority under s 1325C to declare void any agreement which provides for a benefit to be paid to a director or secretary of a body corporate or a related body corporate if the court considers the agreement or benefit to be “unfair or unconscionable having regard to the interests of the body corporate”. This applies only to agreements or benefits entered into or given within 12 months after the start of the bid period for a takeover bid or when the directors have reason to believe that a takeover bid is to be made: s 1325C(1). There is an exception if the arrangement has been approved in general meeting and the relevant officer and their associates did not vote: s 1325C(3). An application to have the arrangement set aside may be made by the body corporate, ASIC or a person or persons together holding not less than 10% of the votes attached to voting shares: s 1325C(4). Nevertheless, if entry into the agreement can be justified as being in

62 Woolworths Ltd v Kelly (1991) 4 ACSR 431. See also Runciman v Walter Runciman plc [1992] BCLC 1084. 63 Neptune (Vehicle Washing Equipment) Ltd v Fitzgerald [1996] Ch 274. 64 Guinness plc v Saunders [1990] 2 AC 663.

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the interests of the company, it is unlikely that s 1325C will be invoked. (7) Disclosure of various benefits to which a director is entitled as well as remuneration and certain aspects of the service contracts of key management personnel is required in the published financial statements of the company. The disclosure required is very detailed: ss 300(11), 300A.

13.9 Crown jewel defences [13.90] A crown jewel defence is essentially an arrangement concerning key assets of the company which, in the event of a takeover bid, may lead to the assets being sold. There are two forms these arrangements may take: •

The company’s key assets would become subject to an arrangement which would require the consent of a third party before the asset could be dealt with. An example is where an asset cannot be sold or redeveloped unless the consent of trustees of a staff superannuation fund has been obtained.65 As such arrangements may be regarded as improper because they deprive shareholders of control over the assets, the sensible course is to obtain shareholder approval.

•

The company’s contracts with third parties may contain a change of control clause which provides for the other party to the contract to have additional rights in the event of a takeover of the company. These arrangements are commonly found in joint ventures, usually at the insistence of the other parties, where, in the event of a takeover, the other parties may have a right to buy the target’s interest in the joint venture at a price determined as fair at the time. A variation is where an option is granted to a third party to acquire an asset for a predetermined price in the event of a takeover. Difficult questions arise in these situations. If the price is perceived as inadequate, there will be a serious question as to whether or not the directors have entered into the option for a proper purpose.66 On the other hand, if the exercise price is fair, the option will not be effective as a deterrent to a takeover as the bidder may be prepared to proceed with the bid and allow the option to be exercised as the company would then have additional cash reserves.

The enforceability of any change of control or pre-emptive rights in relation to key assets of a listed company or listed managed investment 65 This tactic was adopted in relation to the takeover battle for Savoy Hotel Ltd as discussed in Gower, “Corporate Control: The Battle for Berkeley” (1955) 68 Harv LR 1176. 66 In Criterion Properties Plc v Stratford UK Properties LLC [2002] EWHC 496 a company granted an option over a joint-venture interest which could be exercised on uncommercial terms in the event of a change of control or if two individuals ceased to be directors for any reason. This was intended to deter a predator increasing its shareholding in the company. It was held that the option was granted for improper purposes and, as the grantee knew the purpose, the option was declared unenforceable.

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scheme may depend on whether the existence of the provisions has been disclosed to the market. In AMP Shopping Centre Trust 01 [2003] ATP 21 and AMP Shopping Centre Trust 02 [2003] ATP 24, following the announcement of a hostile takeover bid for a managed investment scheme, the responsible entity disclosed that certain key assets of the trust (which were co-owned with another managed investment scheme) were subject to pre-emptive rights in the event of a change in responsible entity. The pre-emptive rights had not been approved by unitholders and their existence had not been disclosed to the market over a number of years, despite several opportunities to do so. There was also some doubt, due to the terms of the provisions, whether the pre-emptive rights were triggered, or were intended to be triggered, on a change of responsible entity. The Panel held that unacceptable circumstances existed for a number of reasons, including lack of disclosure, lack of unitholders consent to the pre-emptive rights and the provisions having the effect of entrenching the responsible entity contrary to the intent of the legislation. The Panel ordered that the pre-emptive rights could not be exercised on a change of responsible entity. In doing so, the Panel put the market on notice that where an entity has contractual arrangements which have change of control clauses which, if triggered, would have a material adverse effect on the entity and the arrangements had not been disclosed, the entity should immediately disclose their existence.67 Apart from fiduciary duties of directors and disclosure issues, another restriction for a company listed on the ASX is Listing Rule 11.2, which requires that a sale or disposal of the company’s main undertaking must be conditional upon approval by shareholders in general meeting. If the assets over which the crown jewel option exists are the “main undertaking”, it is likely that this rule will be operative. A similar restriction is often found in constitutions.

67 See Novus Petroleum Ltd [2004] ATP 2, [30], where the target was criticised for not having disclosed the terms of a break fee in its financing agreements which would be triggered on a change of control following the AMP Shopping Centre Trust decisions.

Chapter 14

Responding to a Bid [14.10] [14.20] [14.30] [14.40] [14.50] [14.60] [14.70] [14.80] [14.90] [14.100] [14.110]

14.1 Advance planning. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319 14.2 Responding to an informal approach . . . . . . . . . . . . . . . . . . . . . . 321 14.3 Immediate action if a formal bid is announced . . . . . . . . . . . 322 14.4 Directors’ duties once a bid is announced. . . . . . . . . . . . . . . . . 323 14.5 Specific defensive responses and themes . . . . . . . . . . . . . . . . . . 327 14.6 Frustrating action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338 14.7 Break fees and other inducements . . . . . . . . . . . . . . . . . . . . . . . . . 343 14.8 Target’s statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351 14.9 Expert’s reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358 14.10 Approval and service of target’s statements . . . . . . . . . . . . . 363 14.11 Supplementary target’s statements and other actions during the bid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364 [14.120] 14.12 Expenses of directors of the target. . . . . . . . . . . . . . . . . . . . . . . . 365 [14.130] 14.13 Indicative timetable for target’s response to takeover bid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366

14.1 Advance planning [14.10] If a company is well prepared for a takeover bid, it will be better able to respond effectively and, hopefully, to reduce the chance of shareholders selling out or control passing before shareholders have an opportunity to consider all material information and any alternatives to selling into the takeover bid. If the takeover is a result of discussions between the bidder and the target, generally the officers and directors of each would have worked together to ensure that the bid is on terms which can be recommended to the target’s shareholders. In this situation, there is generally sufficient time for all strategic alternatives to be considered by both sides and for shareholders to be given sufficient information to consider their position. If the takeover is unsolicited and hostile, on the other hand, time is often critical. Therefore, a company which considers it may be vulnerable to a takeover bid should have in place arrangements so that it is able to quickly and properly respond to a bid. These arrangements will include ensuring that it has (or can quickly put together) a team which can help it respond to a bid. The persons who would usually be involved in preparing the target’s response to a bid would include the following:

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•

Key executives – this would generally include the chief executive officer, the chief financial officer and the company secretary or general counsel.

•

Directors – the directors are ultimately responsible for evaluating the takeover proposal and for recommending action by shareholders. They should ensure they understand their duties in a takeover scenario, are kept informed of any relevant developments and, in the event of a bid eventuating, are available for quick decision making. Often the chairman takes a lead role in the company’s response.

•

Investment banker – an experienced investment banker can assist in assessing the adequacy of any takeover bid which eventuates and evaluating the strengths and weaknesses of the target company, which may be critical in determining a proper response or an alternative to the bid. The investment banker would also be available to assist in seeking out alternative bidders.

•

Lawyer – the lawyer will be responsible for ensuring that the target and the directors fulfil their responsibilities and advise on the legitimacy of any defensive measures taken in the face of a bid.

•

Accountants – a firm of accountants or independent experts may be required in order to prepare a valuation of the target company or review any forecasts issued to assist shareholders in deciding whether or not to accept a bid.

•

Investor relations manager/firm – even before a bid is announced, a company executive or external consultant should be responsible for maintaining strong relationships between the company and significant shareholders. This may lead to the target gaining an important tactical advantage in being alerted before any such shareholder sells his or her shares. Once a bid has been made, the role of the investor relations manager will be to advise on how best to present the response to target shareholders and to seek support for the target company in the financial media.

Generally, a company vulnerable to takeover will have turned its mind to what would happen if a bid was to eventuate. Procedures or defence manuals are often prepared, which include lists of what to do and suggested public announcements. These should not, however, replace proper consideration of the actual bid. The company should also establish systems which will enable it to monitor the pattern of trading in its shares on the stock exchange. This should include monitoring changes in legal and beneficial shareholdings among the top 20 or 50 shareholders, monitoring the share price and monitoring any substantial shareholding notifications received from shareholders. The company should endeavour to determine who are the ultimate controllers of shares held in nominee companies by serving notices under

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s 672A of the Corporations Act: see further 16.2. This may alert it to anyone who is building a strategic or significant stake.

14.2 Responding to an informal approach [14.20] As discussed in 7.5, the majority of takeover bids are preceded by an informal approach by the bidder to the target. This has become more common in recent years, particularly by bidders who require due diligence as a pre-condition to making any formal commitment. The approach is typically made via a brief telephone call followed by a letter setting out the proposed terms of the bid, its conditions and reasons why it is an attractive proposal for the target’s shareholders. The first question for the target is whether or not to announce to the ASX that it has been approached. The listing rules make it clear that information relating to an incomplete proposal or negotiation need not be disclosed, provided it remains confidential and a reasonable person would not expect it to be announced. In order to assist the target to withhold the information, approach letters usually state that the proposal is incomplete and conditional and will be withdrawn if announced to the ASX. In considering the issue, boards will usually take into account the nature of the bidder and whether the fact of the approach is likely to leak, which would force an announcement on the basis that the information is no longer confidential. It may be better to make a short announcement immediately than be seen to have withheld information from the market, particularly as some shareholders appear to consider that all approaches should be immediately disclosed as relevant to the share price.1 Apart from the initial question of disclosure, the key issue for the board is whether or not to engage with the bidder. This will depend on various factors, including price, terms, certainty of funding and the extent of due diligence or exclusivity requested. The board may be in a difficult position if the proposal is at a price higher than recent share market prices but lower than the board’s view as to the value of the company on a control basis. The board may feel unable to recommend the price, but shareholders may be disappointed if the board declines altogether to respond to the approach, particularly if the board does not publicise the approach, the share price subsequently falls, or both things happen. At the same time, it may lead to

1

In 2012, the board of David Jones Ltd received an incomplete proposal to bid for the company from a person not known to them, which the company did not announce for more than four weeks, until the proposal was leaked to a website, when it made a holding announcement. Within a couple of days, other people published information to the effect that the prospective bidder did not have resources commensurate with a bid for David Jones, and the bidder withdrew its proposal. While the board were entitled to withhold news of the proposal until it was leaked, shareholders and the market would have been better informed by being told that the bid was unlikely to proceed.

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a false market if people trade on the mistaken idea that a bid is likely to be made.2 Some boards have attempted to manage expectations by announcing that an approach has been made and saying whether they are in discussions with the prospective bidder. If the directors regard the proposed price as clearly too low, they may simply record that the approach was made and why it was rejected, without naming the bidder.3 If they are prepared to negotiate with the bidder for a higher price, they usually do so in confidence,4 until the negotiations either succeed or fail, when they will announce the result. Exceptionally, some boards have announced that negotiations are under way and mentioned a price which is under discussion. In any such announcement, it is most important to make it abundantly clear that the negotiations may fail and there may be no bid, or no recommended bid.5 Once shareholders learn of the potential bid, they may be motivated to put additional pressure on the board to engage, either directly or via the media. This creates additional pressure for the company as the board tries to satisfy the demands of shareholders with competing views as to the attractiveness of the potential bid. This may lead to shareholders agitating for changes to the board if the incumbent directors are slow to engage or reject the approach.

14.3 Immediate action if a formal bid is announced [14.30] If a formal takeover bid is received, a listed target company must notify the ASX of the bid in accordance with ASX Listing Rule 3.1. This will usually summarise the terms of the bid and include some preliminary advice for shareholders. If the target company has formulated an opinion on the bid, the response may include a recommendation whether to accept or reject.6 However, more common is a statement recommending that

2

Rule 2 of the UK Takeover Code makes very specific provision that a proposed bid should be kept confidential until it is firm, and that it should be announced as soon as it is firm, or if it leaks earlier.

3

There is mixed practice whether companies announce a rejection of a confidential non-binding approach. The ASX takes the view that it is not required by Listing Rule 3.1: see ASX Listing Rules Guidance Note 8: Continuous Disclosure: Listing Rules 3.1–3.1B, at footnote 286. However, many directors take the view that an announcement is required as the directors should be upfront and prepared to justify the rejection. There is often also a concern that details of the approach and rejection may leak, putting the company on the back foot.

4

It may become necessary to announce incomplete negotiations, if they are not kept confidential. In one matter, a reporter noticed a corporate jet at Melbourne airport and correctly guessed that it had brought a negotiating team.

5

See, for instance, the announcements made to the ASX by Spotless Group Ltd on 9 May, 17 November and 1 December 2011.

6

In Coopers Brewery Ltd 02 [2005] ATP 19 the Panel stated that a target board was entitled to reject an offer in its initial response to the bid without disclosing reasons for doing so. The board stated that they would give detailed reasons for their rejection in the target’s

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shareholders take no further action pending further advice from the board. This may be accompanied by a statement that shareholders will have sufficient time to consider the bid due to the minimum offer period required by law. Where external advisers have been appointed, the announcement may mention that appointment. After becoming aware of a bid, the target should convene a meeting of directors and a meeting of those executives and advisers who will assist the target to map out a timetable for a response. If a bidder’s statement has been served, the target must act quickly as formal offers can be sent to shareholders by the bidder after 14 days in an off-market bid and the bidder may commence buying on market immediately in a market bid and in some off-market bids: see [12.10] and 11.3. Usually, the target should at once start collecting the information which will be required to complete the target’s statement: see 14.8. The bidder will also usually serve a notice with, or immediately following service of, the bidder’s statement requesting details as to holders of shares, options and convertible notes. This information must be given to the bidder in accordance with s 641: see 10.1. In the case of a proportional bid, a target with proportional takeover approval provisions in its constitution should commence preparing for a general meeting to consider the bid: see [13.30.40]. Finally, to ensure the target is able to respond to the inevitable telephone queries that will be generated from any letters sent to shareholders, it may set up a shareholder information line: see further 11.1.

14.4 Directors’ duties once a bid is announced [14.40] We have already discussed the general fiduciary duties on directors in the context of long-term defensive measures: see 13.1. Once a bid is announced, the directors’ duties and range of actions which may be considered are largely the same, though there are some important restrictions: •

The scope of a listed target company to allot shares once a bid has been announced is much more limited: ASX Listing Rule 7.9, discussed at 7.6.

•

Any action taken by the directors which denies shareholders a chance to participate, or become entitled to participate, in any benefits accruing from a bid may constitute “unacceptable circumstances” and may lead to an application to the Takeovers Panel: see 14.6.

•

Apart from actions brought to enforce directors’ duties, a minority shareholder may, once the bid period closes, bring an action under s 234 statement, and the Panel considered that the board could wait until the target’s statement to detail their reasons for recommending rejection. See [14.50.10] for the Panel’s approach to a partial explanation of a rejection.

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claiming that the affairs of the company are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, the shareholder: see s 232. This may include action taken to frustrate a takeover.7 There is also a developing view that the duties of directors, once a bid is made, may require them to take active steps to promote shareholders’ interests. As discussed at 13.1, the general law requires directors to exercise their powers and discharge their duties in good faith in the best interests of the company and with due care and diligence. In addition, as fiduciary agents, directors are required to exercise the same care as an ordinary, prudent person of business would exercise in the conduct of that business were it his or her own. This permits some commercial risks to be taken to produce a sufficient return on assets.8 In Australia, neither the courts nor the Takeovers Panel have yet recognised a general duty of directors of target companies to actively seek alternative bidders or to auction control of the company to ensure that shareholders are offered the highest possible price when a takeover bid has been made. Despite this, it seems established that, in some circumstances, it is a permissible exercise of the directors’ fiduciary powers to seek a better price or another bidder, particularly where the directors consider the offer to be inadequate or unsatisfactory.9 Case law suggests that taking steps to seek out a better price for shareholders will not, of itself, constitute acting for an improper purpose (even though such action may have no benefit for the corporate entity itself, as opposed to the shareholders). Directors are under a duty to assess the reasonableness of any takeover bid. This will include obtaining appropriate information to assess the company’s value, including, where necessary, obtaining professional advice. They may also need professional advice to ensure that such information as they do publish, whether voluntarily or pursuant to an obligation, is reasonably based and not misleading, particularly by omission. This expenditure is likely to be considered within the legitimate interests of the company.10 Taking these steps will also help the directors to satisfy the “business judgment” element of their fiduciary obligations. The statutory business judgment rule is limited to decisions concerning the “business operations” of the company: s 180(3). This is probably not broad enough to cover takeover bid responses. Despite this, there is a common law doctrine to

7

Re a Company [1986] BCLC 382, 387 per Hoffmann J.

8

Daniels v Anderson (1995) 16 ACSR 607, 658 per Clarke and Sheller JJA.

9

ICAL Ltd v County Natwest Securities Australia Ltd (1988) 13 ACLR 129, 167. See also Darvall v North Sydney Brick and Tile Company Ltd (1989) 15 ACLR 230, 286 per Mahoney JA and, 249 per Kirby P.

10 Darvall v North Sydney Brick and Tile Company Ltd (1989) 15 ACLR 230, 286 and 14.12.

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similar effect, but wide enough to cover a response to a takeover bid.11 Directors will have a safe harbour if they: •

obtain relevant information to the extent they reasonably believe to be appropriate;

•

act in good faith for a proper purpose;

•

avoid any conflict of interest in the matter; and

•

believe on reasonable grounds that their action will benefit the company as a whole (which, in these circumstances, includes the shareholders).

In the US, directors owe similar fiduciary duties of care and loyalty to the company and its shareholders. Generally, the courts will not interfere with the management decisions of the directors made in good faith, in the best interests of the company and on an informed basis. In the context of a takeover or sale of control transaction, the US courts have also stated that target company directors “must focus on one primary objective – to secure the transaction offering the best value reasonably available for stockholders – and they must exercise their fiduciary duties to further that end”.12 This has translated, in certain circumstances, into an obligation on directors of target companies to seek alternative bidders and facilitate auctions for control. This obligation is known as “Revlon duties”. In the Revlon case,13 the Delaware Supreme Court held that once the board recognised that the company was for sale, the board’s duty changed from the preservation of the company as a corporate entity to the maximisation of the company’s value at a sale for the shareholders’ benefit. Revlon duties will be triggered where: •

a company initiates an active bidding process seeking to sell itself or to break up the company; or

•

in response to a bidder’s offer, a company abandons its long-term strategy and seeks an alternative transaction involving the break-up of the company.14

Importantly, the Revlon duties only apply when the company embarks on a transaction – on its own initiative or in response to an unsolicited offer – that will result in a change of control. They do not apply merely because a

11 Harlowe’s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL [1968] HCA 37; (1968) 121 CLR 483. 12 Paramount Communications Inc v QVC Network Inc 637 A 2d 34 (1993, Del Supr) 44; see also Revlon Inc v MacAndrews & Forbes Holdings Inc 506 A 2d 173 (1985, Del Supr) 182; Mills Acquisition Co v Macmillan Inc 559 A 2d 1261 (1988, Del Supr) 1288; Barkan v Amsted Industries Inc 567 A 2d 1279 (1989, Del Supr) 1286. 13 Revlon Inc v MacAndrews & Forbes Holdings Inc 506 A 2d 173 (1985, Del Supr). 14 Paramount Communications Inc v Time Inc 571 A 2d 1140 (1989, Del Supr).

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company is “in play” because of the actions of third parties, for example, where a third party discloses it has acquired a substantial shareholding.15 Once Revlon duties are triggered, US courts will examine the adequacy of the decision-making process employed by the directors, including the information on which the directors based their decision and the reasonableness of the directors’ action in light of the circumstances.16 The directors have the burden of proving that they were adequately informed and acted reasonably. The Revlon duties do not set out any prescribed tests which the directors must follow. It is not necessary in every instance for the directors to conduct an auction or a market check. What is reasonable will depend on the circumstances. There is no single blueprint. The role of the court is not to substitute its judgment for that of the directors; its role is to determine whether the directors made a reasonable decision, not a perfect decision.17 Will Revlon duties apply in Australia? There has been a trend by Australian courts to follow US decisions in recent years, especially where the law in Australia is unsettled or not as developed.18 Furthermore, the US principles are consistent with the steps that a prudent person would take in managing his or her own affairs (a test which echoes the general approach under Australian law for testing the actions of fiduciaries). Therefore, while it may be going too far to conclude that directors in Australia will be personally liable for failing to facilitate an auction where one may be required under US law, directors who pay no regard to those principles may risk breaching their duties and certainly risk being criticised by shareholders. How then should directors approach their task? While much will depend on the precise circumstances, several guidelines can be suggested for when considering how to respond to a takeover proposal: (a) The directors must carefully assess the offer which has been made. The board should consider all relevant factors, such as the amount of cash involved, the future value of a strategic alliance and practical considerations, including: • an offer’s fairness; • feasibility and financing;

15 Lyondell Chemical Company v Ryan 970 A 2d 235, 242 (2009, Del Supr). 16 Paramount Communications Inc v QVC Network Inc 637 A 2d 34 (1994, Del Supr); see Re Netsmart Technologies, Inc 924 A 2d (2007, Del Ch Crt) where the court determined that the directors had breached their duties in prematurely entering into a merger agreement with private equity buyers without a thorough and robust process; and Re SS&C Technologies Inc 911 A 2d 816 (2006, Del Ch Crt). 17 Paramount Communications Inc v QVC Network Inc 637 A 2d 34 (1994, Del Supr) 45. 18 A good example in the context of a battle for corporate control is Advance Bank Australia Ltd v FAI Insurances Ltd (1987) 12 ACLR 118, where the Supreme Court of New South Wales referred to US decisions on the use of corporate funds in a proxy contest.

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• the risk of non-consummation; • the bidder’s identity and the bidder’s business plans for the target company; • the effects of those plans on shareholder interests; and • the prospects of the bidder increasing its bid price. (b) The directors must ensure their decisions are the product of careful, thorough and informed deliberations based on all material information reasonably available. If outside professional advisers (such as financial and legal advisers) have been retained, this may assist in showing that the directors acted reasonably. (c) In limited situations (such as where the directors have initiated the bid or intend to recommend acceptance of a bid or even if, despite no recommendation, the bid appears likely to succeed), the directors may need to test the market more thoroughly and potentially facilitate an auction occurring. If the directors know of a person who is likely to be an alternative bidder, the directors (or the company’s advisers) may need to approach that person to see if a higher bid might be made. This may involve the board offering inducements, such as access to due diligence information, exclusivity and break fees.19 The directors must be careful not to lose the interest of the original bidder if an alternative is pursued. This requires careful judgment, but ultimately, provided proper steps are taken to assess the position and a reasonable decision is made, it is unlikely that a court would substitute its own decision. (d) Unless special considerations apply, the directors should not undertake any action that may frustrate a legitimate bid and should act neutrally between various bidders so that market forces can operate to obtain the best price for shareholders.

14.5 Specific defensive responses and themes [14.50] A target will usually devise its key defensive themes in the early stages of its defence. These themes will then be repeated in various documents released to the market and sent to shareholders. The main document which sets out the target’s views about the bid is the target’s statement. However, it is common, and acceptable, for other letters and materials to be sent to shareholders before the target’s statement is released. These are often timed to coincide with the dispatch of the bidder’s statement.

19 See 14.7 for discussion of break fees.

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The Takeovers Panel has emphasised on repeated occasions that documents must be prepared to high standards.20 The making of a takeover bid for a company is a critical time for its shareholders and, probably more than at any other time in the company’s history, shareholders will look to their directors to provide advice. Accordingly, the directors must ensure that their advice is reasonably based, clear, concise, objective and not misleading. All information presented must be prepared with the highest degree of care, as it would be if the directors were issuing a prospectus. The directors should consider carefully each statement and be satisfied that it meets this test. Accurate, reliable information and properly reasoned views will best assist the shareholders and promote an efficient, competitive and informed market. Shareholders and the market are not assisted by statements which are emotive, sensationalise any aspect of the bid or the bidder, exaggerate a position or are alarmist or unbalanced.21 In Programmed Maintenance Services Ltd 02 [2008] ATP 9 the Panel was critical of a target that had issued a letter to shareholders which contained defamatory comments about the bidder’s chairman, had used quotations from media commentators incorrectly and had been selective in its presentation of the premium implied by the bid. A declaration of unacceptable circumstances was made. Specific action to defend against an unwelcome bid includes the following. Criticism of the bid [14.50.10] If the directors consider the bid is inadequate, they should make this clear to the shareholders, together with the reasons for their view. Criticism of the bid price may be justified if there are grounds for valuing the shares higher, either based on a valuation of the target’s business and assets or based on historic prices paid for shares on the stock exchange. If the bid is launched at a time when the share price is low due to lower earnings caused by internal rationalisation or reorganisation of the target or due to a recent decline in stock markets generally or due to a perceived overhang of shares held by a major shareholder, the bid may be branded as “opportunistic”. By criticising the bid price with strong supporting reasons, the target will put pressure on the bidder to raise the offer price to win recommendation. If the target refers to the bid as “undervaluing the company”, it may need to be prepared to justify its statement, even if included in an initial letter

20 The Panel has stated that, once a company is subject to a takeover bid, it is required to “take even greater care in ensuring that all its communications to shareholders or the market are not misleading in any way”: Nexus Energy Ltd [2006] ATP 17 [31]. See also Foster’s Group Ltd [2011] ATP 15 [23]–[27]. 21 Programmed Maintenance Services Ltd 02 [2008] ATP 9 [17]–[19].

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sent before the target’s statement. In Universal Resources Ltd [2005] ATP 6 [16] the Panel said: where Universal’s board chose to contact its shareholders in advance of sending its target’s statement, and wished to present arguments or information in relation to shareholders’ decision as to accept or not (rather than merely a holding statement of “Do nothing until we send you the target’s statement”), it was incumbent on Universal’s board to ensure that the relevant correspondence met the same standards as a target’s statement in relation to the areas which it addressed. For instance, where such correspondence addressed questions of value, the correspondence should have set out any underlying assumptions or material limitations on the analysis presented.22

Release of forecasts and other favourable information [14.50.20] There is often little information that can be released to encourage shareholders not to sell. All material information should have been released under the continuous disclosure obligations on listed and unlisted companies and, in any event, it is better to release such information before any bid emerges.23 Nevertheless, it may be possible for the target to release new information without leading to allegations of contraventions of disclosure obligations. This may include forecasts of improved profits or projections of future production for future periods, increases in future dividend payments and financial results for trading periods which have recently concluded. Any announcement must be accurate and justifiable or the target may be liable for misleading shareholders or the subject of a Takeovers Panel application seeking corrections.24 While the provision of a forecast showing robust earnings and profit growth can be a powerful defence, it can also be met with a degree of cynicism as to what has changed in the circumstances of the company since the bid was announced to allow the release of new information showing a positive future. Releasing forward-looking statements also creates greater legal and commercial risks for directors.

22 In Foster’s Group Ltd [2011] ATP 15 [23]–[27] the Panel reviewed its decisions on adverse recommendations given before dispatch of the target’s statement and confirmed that a deficient explanation of a rejection may be unacceptable. In effect, it treats valuations as the Act treats statements about the future: they are taken to be misleading, unless they are made on reasonable grounds. In a preliminary letter, however, a bare rejection without any explanation, as in Coopers Brewery Ltd 02 [2005] ATP 19 seems to be acceptable, because in effect it invites shareholders to await the target’s statement. It would probably be preferable to make that invitation expressly. 23 Continuous disclosure is no substitute for a valuation of the target, however. Unlike a valuation, neither the company’s accounts nor announcements under ASX Listing Rule 3.1 capture the component of its value that is made up of goodwill. 24 In Foster’s Group Ltd [2011] ATP 15, a target released a presentation on its full-year financial results, which included discussion of financial objectives for several years. The Panel declined to treat that discussion as an inadequately supported financial forecast. It did, however, find unacceptable a net debt figure calculated by setting off contingent future tax benefits against present debt.

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To avoid liability, a profit forecast should set out the methodology used and the assumptions made.25 If these are reasonable, it is unlikely a court will regard it as misleading.26 If the target does not have reasonable grounds for the forecast, it is taken to be misleading.27 It is not always necessary for a forecast to be supported by an independent expert’s report, though that is common. However, if no such report is provided, a higher onus is placed on the directors to set out their methodology, assumptions and data and it may also be important to provide information about the identity and experience of the persons who have prepared the forecast, even where the directors themselves have prepared it.28 In some cases, the failure to include a forecast may amount to unacceptable circumstances. In PowerTel Ltd 02 [2003] ATP 27 it was alleged that a bidder’s statement did not include all information material to target shareholders as it did not include forecasts provided by the target to the bidder as part of due diligence. The forecasts in question were budgeted earnings for four years and had been made available to a number of potential bidders, but were not in a form disclosable to shareholders as they did not contain assumptions and qualifications. The Panel stated that comparable information should be available to shareholders, but in an appropriate form. It noted that a failure by a target or a bidder to provide prospective financial information to shareholders where it could be responsibly provided may amount to unacceptable circumstances. The issue was resolved by the target undertaking to include a discussion of its prospects, including prospective financial performance (though not necessarily including numerical forecasts or extending for four years) in its target’s statement.29 Criticism of the bidder [14.50.30] This is particularly relevant if the consideration for the bid involves shares or securities issued by the bidder. The target may be able to demonstrate that the value attributed by the bidder to its shares and securities offered as consideration is unrealistic.30 This tactic may involve

25 Nexus Energy Ltd [2006] ATP 17 [30]. Also see ASIC Regulatory Guide 170: Prospective financial information. 26 Bell Resources Ltd v Broken Hill Proprietary Company Ltd (1986) 8 ATPR 40-702. See also ASIC Regulatory Guide 170: Prospective financial information; Nexus Energy Ltd [2006] ATP 17. 27 Section 670A(2), if the forecast is in the target’s statement, a supplementary target’s statement, or a report issued with either; s 769C, if it is oral, or in another document, such as an announcement to the Stock Exchange. See also [9.30.60] for general discussion of forecasts in the context of a bidder’s statement. 28 Goodman Fielder Ltd 02 [2003] ATP 5. 29 PowerTel Ltd 02 [2003] ATP 27. 30 An example of a target making a Panel application to dispute the valuation attributed by a bidder to its scrip bid is Consolidated Minerals Ltd 03 [2007] ATP 20.

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the target commissioning an expert to prepare a report on the bidder, known as a “hostile report”,31 attacking the financial information presented by the bidder in the offer document or making a Takeovers Panel application seeking an order for additional or corrective disclosure by the bidder. Even if the bid is for a cash consideration, criticism of the bidder may be appropriate. The bidder may be criticised for poor management ability, poor industrial relations or the possibility that it is likely to break up the target if it assumes control. If the bidder is not seeking complete ownership of the target, the financial position of the bidder, especially if it is highly geared, should be highlighted as the future performance of the target could be adversely affected by having a potentially unstable controlling shareholder. Appeal to loyalty or patriotism [14.50.40] Some shareholders, especially long-term small shareholders, may be influenced by an appeal to not let control of the company pass to a particular bidder, especially where the bidder is likely to amalgamate the company’s business with the bidder’s own so that the target loses its identity or where the bidder is a foreign corporation. Legal action to restrain the bid [14.50.50] Even though court litigation is now largely prohibited by s 659B,32 applications and complaints to ASIC and the Takeovers Panel remain a common tactic in defending against a hostile bid. The Panel may declare circumstances relating to the affairs of a company to be unacceptable on the application of any affected person, including the target, and is empowered to make a range of remedial orders: see 21.3. If there is a defect in the structure of a bid or in the bidder’s takeover documents (including the bidder’s statement, ASX announcements and other correspondence with target shareholders), the target can apply to the Panel for an order preventing the bid from proceeding until the defect is remedied.33 If this relates to misleading or deceptive statements or non-disclosure of material information, this may buy valuable time 31 In 1988, the Bond Corporation was severely damaged by such a report: The Bond Group of Companies: A Financial Analysis by Lonrho plc. 32 Previously, litigation in the courts was the key weapon for a target seeking to resist a takeover bid: see, generally, Vrisakis, “Litigation in Contested Takeovers” (1987) 61 ALJ 645; Tomasic and Pentony, “Resisting to the Last Shareholders’ Dollar: Takeover Litigation – A Tactical Device” (1992) 1 AJCL 154. Section 659B is discussed in detail at 21.6. 33 See also Sydney Gas Ltd 01 [2006] ATP 9, where the bidder dispatched its bidder’s statement to target shareholders before proceedings in relation to alleged deficiencies in the bidder’s statement could run their course. In that case, the Panel ultimately found that unacceptable circumstances existed in relation to the defective bidder’s statement and ordered that any acceptances under the original bidder’s statement be revoked and a new replacement bidder’s statement be sent to target shareholders.

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(possibly only a few days) during which the target can consider alternative strategies or during which a rival bidder may emerge. Accordingly, it is standard practice for the target and its advisers to comb through the bidder’s statement and other announcements and public statements by the bidder looking for anything that may be the subject of a Panel application. Assertions that a bidder’s statement is defective are generally made via letters between lawyers for the bidder and the target in the first instance.34 If a compromise cannot be reached, the target may make an application to the Takeovers Panel. Examples of disclosure issues which have been the subject of Panel applications include: •

valuation methodology used in relation to the target;35

•

use of broker valuations of the target company;36

•

failure to provide forecasts37 or complete forecasts (including a discussion of risk and volatility factors);38

•

statements of the industry experience of an investor in a bidding consortium;39

•

statements of the value of a scrip offer or a premium payable under a bid which did not disclose the most recent stock prices;40 and

•

the presentation of the implied premium which was not on a “like-for-like” basis.41

34 The Panel has stated that it regards the use of media to publicise complaints as unhelpful in the speedy resolution of disputes and discourages each party from providing detail about a complaint to the press, even before it has commenced Panel proceedings: see Takeovers Panel Guidance Note 16: Correction of Takeover Documents, [16.52]. This does not preclude the target from complying with its continuous disclosure obligations, or from issuing a corrective statement. 35 EPHS Ltd [2002] ATP 12. 36 AurionGold Ltd [2002] ATP 13 [79]–[83]; see also Takeovers Panel Guidance Note 18: Takeovers Documents, [18]. 37 Aztec Resources Ltd [2006] ATP 28. 38 Sydney Gas Ltd 01 [2006] ATP 9. 39 Qantas Airways Ltd 01 [2007] ATP 1. 40 General Property Trust [2004] ATP 30; Consolidated Minerals Ltd 03 [2007] ATP 20. 41 Programmed Maintenance Services Ltd 02 [2008] ATP 9. In that case, the target compared the implied bid price calculated on a spot price for the bidder with its own six-month and 12-month volume weighted average prices. The Panel said it would not limit the ways in which market value or premia might be calculated. However, an explanation of why a particular presentation had been chosen would normally be required if a method of calculation is chosen to the exclusion of a more reasonable method, if the result is compared with a result calculated on a different basis (ie, not on a “like-for-like” basis) or if the different basis of calculation is not reasonable and clear. See also Hastings Diversified Utilities Fund 01 [2012] ATP 1, where an ex-dividend price was compared with a cum-dividend price.

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A target may take action over matters other than defects in documentation, such as serious defects in the structure of the bid42 or breaches of other legislation, such as the Competition and Consumer Act 2010 (Cth) or industry-specific legislation which may impose ownership restrictions (see Ch 4). In those cases, successfully proving a breach can often be a knockout blow to the bidder.43 A target must be careful to ensure that it can justify any action it brings as not merely being designed to frustrate the bid or it will be criticised and may lose credibility in the eyes of the shareholders. Bearing in mind the tendency of target companies to overstate the importance of alleged defects, the Takeovers Panel is cautious in making any order that may impede the progress of a bid. In fact, generally the Panel is reluctant to restrain dispatch of a bidder’s statement.44 Factors that will influence its decision include: •

whether the complaints are sufficiently clear and serious to justify restraint;

•

whether any mischief could be overcome by a subsequent additional disclosure. In general, the Panel prefers that mere omissions be dealt with in supplementary statements, unless the bidder’s statement is positively misleading;

•

whether the target has acted promptly in raising its concerns and commencing proceedings.45 The Panel would expect an application to be made at least five calendar days before a decision is required, unless there is a serious reason not to do so; and

•

whether the parties have genuinely attempted to resolve their differences.46 The Panel encourages bidders and targets to resolve disagreements concerning the completeness and accuracy of information to be sent to shareholders without recourse to the Panel’s

42 For example, Multiplex Prime Property Fund 01 and 02 [2009] ATP 18 where an on-market bid for partly-paid securities of a target in breach of its loan covenants would have triggered the obligation to pay the unpaid portion of the issue price. The bidder also proposed a resolution to wind up the target which would have triggered a prescribed occurrence allowing the bidder to withdraw unaccepted offers under s 652C. The Panel found that the combination of these (and other) factors would have a coercive effect on shareholders considering the bid and was contrary to the principles of s 602, made a declaration of unacceptable circumstances and ordered that the bid be withdrawn. 43 For instance, the bidder in Austock Group Ltd [2012] ATP 12 did not have the necessary licences to conduct the target’s businesses. 44 Perilya Ltd [2008] ATP 28 [14]. 45 AurionGold Ltd [2002] ATP 13 [75]; Perilya Ltd [2008] ATP 28 [14]. Also, while not in the context of a takeover bid (rather in the context of a recapitalisation proposal resulting in a shareholder increasing its voting power to 49%), note the comments of the Panel in Financial Resources Ltd [2007] ATP 27 [46] regarding the lateness of the Panel application. 46 Email Ltd 02 [2000] ATP 04; Taipan Resources NL 03 [2000] ATP 17. The Panel’s policy is set out in Takeovers Panel Guidance Note 5: Specific Remedies—Information Deficiencies, [9].

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procedures. It prefers parties, in the first instance, to communicate with each other directly or to make their own corrective releases to the ASX rather than applying to the Panel.47 Seeking a rival bidder [14.50.60] Under Australian law, directors of a target are not under a duty to seek an alternative bidder or to ensure that a bidder offers the highest price possible.48 However, as discussed at 14.4, it is legitimate for directors faced with a bid to pursue opportunities which may lead to a better offer or may lead to a rival bid emerging49 (though this will not justify action which would otherwise be beyond the power of the directors, such as issuing shares to a potential rival bidder to dilute an existing bidder).50 An important restriction on a target seeking a rival bidder comes from the insider trading rules contained in s 1043A of the Corporations Act. The prohibitions arise when the target has information which is not generally available but which, if it was available, a reasonable person would expect it to have a material effect on the price or value of shares in the target: ss 1042A, 1043A. The scope for this to apply to the company itself may be thought to have diminished due to the continuous disclosure obligations on listed and unlisted companies (see ASX Listing Rule 3.1A and ss 674 and 675), but those disclosure obligations are subject to carve-outs, which means that certain confidential information, including current trading information and forecasts, may not be generally available. There are two relevant prohibitions. First, a person with confidential price-sensitive information cannot, among other things, procure a person to purchase securities: s 1043A(1). This includes encouraging a person to do so: s 1042F. Second, a person with confidential price-sensitive information cannot communicate that information to another person if the 47 See Takeovers Panel Guidance Note 5: Specific Remedies—Information Deficiencies at [9], [23]–[29]; BreakFree Ltd 02 [2003] ATP 30; Aztec Resources Ltd 02 [2006] ATP 30; Magna Pacific (Holdings) Ltd 04 [2007] ATP 10. See also Alpha Healthcare Ltd [2001] ATP 13 and Skywest Ltd 01 [2004] ATP 10 as examples of the Panel encouraging the parties to negotiate an outcome even after an application was made. 48 See 14.4; see also Barrett, “Companies—Proposed Takeovers” (1988) 62 ALJ 817; Baxt, “Second Guessing Directors’ Decisions on Takeovers—A Mixed Message from the NSW Court of Appeal” (1990) 8 C&SLJ 26; Carracher, “Takeovers, Directors and Auctions: A Duty to Sell” (1991) 7 Aust Bar Review 75. Compare NCSC Policy Statement 403, which refers to such a duty. In Heron International Ltd v Lord Grade [1983] BCLC 244 the Court of Appeal held that the duty of the target’s directors was to ensure that shareholders received the best price, but that decision must be limited to the special situation where, as in that case, the constitution governing approval of share transfers required the directors to consider rival bidders: see Dawson International Ltd v Coats Patons plc (1988) 4 BCC 305, 314 per Lord Cullen; Re a Company [1986] BCLC 382, 389 per Hoffmann J. 49 Darvall v North Sydney Brick & Tile Co Ltd (1989) 15 ACLR 230, especially comments of Mahoney JA at 286. 50 Howard Smith Ltd v Ampol Ltd [1974] AC 821.

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other is likely to purchase securities or procure a third person to do so: s 1043A(2). When the insider trading legislation was reviewed and amended in 1991 the Griffith Committee considered this point, but it concluded that it was not necessary to amend the legislation to introduce an exception for a target company soliciting rival bids.51 How then should the directors proceed if they wish to solicit a rival bidder and are possessed of confidential price-sensitive information? In theory, the safest course is to release the information generally, either in the target’s statement or direct to the stock exchange. Alternatively, some protection may be obtained by ensuring that the information is only provided to a potential rival bidder under a confidentiality agreement which includes a covenant from the potential bidder not to take any action in breach of the insider trading provisions. Nevertheless, disclosure only to selected potential rival bidders may lead to complaint by the existing bidder that the disclosure is improper and gives an advantage to the rival in contravention of ss 183 and 184 or that it is unfairly discriminatory against the bidder and, accordingly, contravenes s 232. In practice, however, target directors appear to ignore the problem. Some support for this approach comes from ICAL Ltd v County Natwest Securities Aust Ltd (1988) 13 ACLR 129. In that case, a merchant bank acting for the target company had given a potential rival bidder profit and loss projections, details of variations between the book and market value of the target’s assets and details of an undertaking given by a 19% shareholder that it would not sell its shares for 12 months without first informing the target. Bryson J accepted that it was within the scope of the target directors’ duties to seek a better price or another bid and that the insider trading legislation could, if it applied, prevent the directors performing this duty. His Honour declined to make an order against the directors, however, as the information had become generally available as it had been admitted to evidence. Apart from that, he said (at 167) that he would be reluctant to restrain such action if it is undertaken with a view to widening the area of interest in the shares as that is in the interests of all shareholders. Although this shows a somewhat relaxed attitude, it does not mean there is an exception for directors of target companies. If a target decides to seek a rival bidder, it may undertake a number of actions as part of a formal sales process, including sounding out potential 51 House of Representatives Standing Committee on Legal and Constitutional Affairs, Fair Shares for All (October 1989), p 38. See also Hannes, McKeon and Wikramanayake, “Yet Another Reason Why Target Directors Don’t Sleep Very Well at Night” (1989) 7 C&SLJ 209. In November 2003, the Companies and Securities Advisory Committee released its Insider Trading Report. It discusses the issue and concludes that target company directors may not need any specific defence, where they communicate information merely for the purpose of encouraging a person to act as a white knight and obtain an enforceable undertaking that the white knight will not purchase shares from uninformed shareholders before that information becomes generally available.

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bidders and supplying them with a package of publicly available information and, if genuine interest is shown, allowing thorough and fulsome due diligence investigations to be carried out.52 The process may include providing an information memorandum, management presentations, access to a data room (generally electronic) and vendor due diligence reports. A target may also be able to encourage a potential rival bidder to launch a bid by offering an inducement such as a break fee, no shop or no talk agreement or asset lock-up. These are considered in more detail in 14.7. Where discussions are held by the target with a potential rival bidder, the target may wish to disclose that information publicly and may take the view that it is material and must be disclosed in the target’s statement (with appropriate cautionary language that no alternative offer or transaction may eventuate). This may have the effect of delaying acceptances until the outcome of the discussions is known. However, where a target does so, it will be incumbent on the target to update the market about the status of the discussions and the target’s assessment of a rival bid eventuating. In particular, disclosure may be required immediately if discussions break down and ASIC and the Panel will generally require a statement of the position to be released at least seven days before the bid closes.53 Finally, the mere fact that information has been given to a potential rival bidder will not mean that the same information must be given to the original bidder, even if withholding the information triggers a defeating condition of the bid. The target is able to discriminate if it considers that it is in the interests of its shareholders;54 although, if the potential bidder is an insider, the target will need to have sound reasons.55 Internal restructure and other alternative transactions [14.50.70] A target company may propose an alternative transaction, which may maximise shareholder value. This may provide “internally generated” competition to an existing bid. Some examples may include one (or a combination) of the following:

52 Access to due diligence information should only be provided after the prospective bidder has executed a confidentiality agreement. In drafting the confidentiality agreement, the target should give careful thought to restrictions on the prospective bidder, including standstills, preventing the prospective bidder from talking to, and colluding with, other bidders and non-solicitation of target executives. 53 See ASIC Regulatory Guide 25, Takeovers: False and Misleading Statements, RG 25.51; Andean Resources Ltd [2006] ATP 21; Auspine Ltd [2007] ATP 18 [55]. 54 This applies particularly to providing confidential information to a business competitor or counterparty. See Goodman Fielder Ltd 02 [2003] ATP 6, and Langley, “Information Access Denied … Is the Australian Takeovers Market Really ‘Efficient, Competitive and Informed’?” (2009) 27 C&SLJ 344. 55 Takeovers Panel Guidance Note 19: Insider Participation in Control Transactions, [25].

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•

demerging an existing business to shareholders;

•

sale of a business with or without a capital return to shareholders;

•

recapitalisation of the company (such as introducing additional gearing and returning capital to shareholders to create a more efficient balance sheet);

•

introduction of a cornerstone investor providing a new management team;

•

introduction of a majority shareholder providing additional capital;56

•

taking the company private; and

•

a special dividend,57 buy-back58 or a capital return.

Many of these transactions would require shareholder approval under the Corporations Act. Even if they did not, proceeding with the transaction while the takeover bid is on foot is likely to breach a condition of the takeover bid and, unless it is subject to a shareholder vote, may risk a declaration of unacceptable circumstances under the Takeover Panel’s policy on frustrating action: see 14.6. In addition, even where the pursuit of an alternative transaction does not breach a condition of a takeover (and therefore is not strictly frustrating action within the Panel’s policy), the Panel may be prepared to take action if it considers that conduct of the target is likely to preclude an auction for control of the target.59 Even where a target announces that an alternative transaction will only be progressed if an existing takeover bid is not successful, it may give rise to unacceptable circumstances if it could have a coercive effect on shareholders, as shareholders may feel obliged to accept the takeover bid or else be locked into the other transaction. In those circumstances, the Panel has said that it may be appropriate for the alternative transaction to be subject to shareholder approval.60 Counter-bid [14.50.80] The target may propose a takeover bid of its own for the bidder. In the US, this is known as a “Pac-Man defence”, in reference to the 1980s computer game. This strategy raises various issues concerning the motivation for the bid and whether it is being proposed to entrench the board of the target in breach of their duties. Announcing a bid may also breach a bid condition and, accordingly, fall foul of the frustrating actions policy: see 14.6. A final legal issue arises under s 259C which renders void 56 Perilya Ltd 02 [2009] ATP 1. 57 See Wattyl Ltd [2006] ATP 11, where the target raised the possibility of a special dividend being paid if no takeover bid for it was successful. 58 See 13.7. 59 Babcock & Brown Communities Group [2008] ATP 25 concerning a large issue of securities and novation of a management agreement. 60 Wattyl Ltd [2006] ATP 11 [85]–[89].

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any transfer of shares in a company to an entity it controls. As there may be debate and uncertainty as to when one entity is “controlled” by another, to avoid a declaration of unacceptable circumstances, each bid should be subject to a defeating condition preventing the bid from becoming unconditional unless more than 50% of the target’s shares have been acquired and the target has acquired less than 50% of the shares in the bidder.61 Seek suspension of trading [14.50.90] This can be a devastating response to an on-market bid. As it denies a market for shareholders, the stock exchange will require cogent evidence that there is some danger in allowing trading to continue. Information that the target can release will not be sufficient. However, this may be an appropriate response if the bidder has failed to disclose significant and material information.

14.6 Frustrating action [14.60] In 2001, the Takeovers Panel developed a policy which can have a significant effect on the conduct of a target’s business once a bid is announced and on its response to a takeover bid. In several decisions, the Panel decided that, in general, a transaction or conduct by a target board that has the effect of triggering a bid condition which is likely to lead to the defeat of a bid must be submitted promptly to the target’s shareholders for approval. The policy is formalised in Takeovers Panel Guidance Note 12: Frustrating Action.62 The Panel considers that the policy follows from s 602(a) and (c) and s 657A(3); that is, that acquisitions of control take place in an efficient, competitive and informed market and shareholders have reasonable and equal opportunities to participate in benefits from a bid proposal.63 The Panel considers that decisions about control and ownership of a company are properly made by its shareholders. A transaction which may frustrate a bid may deny shareholders that opportunity. The Panel’s policy represents a significant departure from the approach of the courts in challenges to transactions which may affect the progress of a bid. The courts have emphasised the duty of directors to conduct the business of the target as they see fit, irrespective of the effect this could have on a takeover bid. The Panel’s policy reverses this so that the right of

61 Alinta Ltd 01 [2006] ATP 15. 62 The Guidance Note was first issued in June 2003, and the current fifth issue was published on 1 December 2016. A similar policy has been a principle of United Kingdom takeovers policy since 1959. 63 Takeovers Panel Guidance Note 12: Frustrating Action, [9].

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shareholders to consider a bid will prevail over the duties of directors to manage the company.64 The policy applies not only to a current takeover offer, but also to a potential offer if the terms of the offer have been communicated (publicly or privately) to the target’s directors by a genuine bidder.65 A potential offer may be genuine, notwithstanding that it is described as non-binding, indicative or incomplete and may not require disclosure to the market, if it sets out key details such as price and conditions in sufficient terms: see MacarthurCook Ltd [2008] ATP 20. The policy operates where the actions of the target trigger a defeating condition of a bid or a pre-condition of a potential offer66 so that the offer or potential offer lapses, is withdrawn or does not proceed.67 However, actions which breach a defeating condition which is not commercially critical to the bid, is anti-competitive or is overly restrictive, are unlikely to be considered unacceptable,68 nor are actions which lead to alternative proposals allowing shareholders a choice. The Guidance Note 12 gives several examples of actions which may give rise to unacceptable circumstances (assuming they breach a bid condition or allow a bid to be withdrawn under s 652C), including: •

issuing or repurchasing shares (or convertible securities or options), if significant in the context of the target’s issued capital;69

•

acquiring or disposing of a major asset, including making a takeover bid;

•

undertaking significant liabilities or changing the terms of its debt;

•

declaring a special or abnormally large dividend;

•

significantly changing company share plans; and

•

entering into joint ventures.70

64 The case which first espoused the policy, Pinnacle VRB Ltd 08 [2001] ATP 17, is discussed in more detail in Levy, “Pinnacle 8 New Duties for Target Directors” (2001) 19 C&SLJ 329; Mescher, “Power of the Takeovers Panel and their Effect Upon ASIC and the Court” (2002) 76 ALJ 119. 65 Simply being in talks is not enough; the terms of the offer must be made clear to the target: see Takeovers Panel Guidance Note 12: Frustrating Action, [10]. 66 Action which triggered a condition of a proposed acquisition by scheme of arrangement, which the target board had rejected, was not frustrating action: Transurban Group [2010] ATP 5. Neither was action which may have frustrated a requisitioned meeting; Rivkin Financial Services Ltd [2004] ATP 14 at [29]. 67 The policy may be wider than this: in Pinnacle VRB Ltd 08 [2001] ATP 17, the frustrating action so completely defeated the commercial objectives of the bid that the bidder could reasonably have obtained ASIC approval to withdraw its offers. 68 Takeovers Panel Guidance Note 12: Frustrating Action, 12(b); see also Pinnacle VRB Ltd 08 [2001] ATP 17. 69 As occurred in MacarthurCook Ltd [2008] ATP 20. 70 Takeovers Panel Guidance Note 12: Frustrating Action, [3].

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The policy has attracted criticism for being too restrictive on target directors and as inhibiting the directors from carrying on the target’s business and pursuing opportunities that may arise during the bid period. In response to this, after consultation, the Panel reissued the Guidance Note in December 2016 to provide greater certainty for directors and to rebalance the playing field, which was criticised as being too favourable for bidders. The Guidance Note now sets out a clarified number of factors that will guide the Panel’s consideration of any action and a decision whether circumstances are unacceptable. Factors which may be relevant include: •

how long the bid had been open and its likelihood of success;71

•

any clearly stated objectives of the bidder and whether the triggered condition is critical to the bid;

•

whether the action was undertaken by the target in the ordinary course of business;

•

in the case of a potential bid, whether the bidder has failed to make its bid within a reasonable time of becoming aware of the target’s intention to undertake the action.

The revised Guidance Note also states that the policy may not apply of the bid or potential bid does not give shareholders a genuine opportunity to dispose of their shares. This may be the case if, due to a condition or structural feature, the bid cannot be implemented or completed. Two examples are given: a bid made without funding72 and a bid subject to a condition incapable of satisfaction (such as a change of control condition where the relevant third party has ruled out giving consent).73 A bid may also fail to give shareholders a genuine opportunity to dispose of their shares if there are reasonable grounds to conclude it will not be successful, such as where a bid is opposed by key shareholders or there is a superior bid or where the bid is dependent on target directors recommend it.74 If a bid condition is breached and the bidder has not disclosed within a reasonable time whether or not it will rely on the

71 In a former Issue of the Guidance Note, the Panel said: “Triggering action that is undertaken several weeks into a bid where the bid has received few acceptances would be less at risk of a declaration of unacceptable circumstances than action taken before target shareholders had adequate time to consider the takeover bid. However, the Panel will take into account market experience that shareholders are often likely to wait until the end of the bid period before deciding whether or not to accept the offer.” 72 Austock Group Ltd [2012] ATP 12. 73 Takeovers Panel Guidance Note 12: Frustrating Action, [20(a)]. 74 Takeovers Panel Guidance Note 12: Frustrating Action, [20(b)].

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condition or waive the breach, the bidder may lose the protection of the policy.75 Actions of the target which were announced, or are pursuant to agreements entered into, before the target was aware of the bid will not give rise to unacceptable circumstances.76 Similarly, actions are unlikely to be unacceptable if there is a legal or commercial imperative for them.77 If a transaction emerges which the directors consider may produce a better outcome for shareholders, but which breaches a defeating condition, target directors must proceed with caution. The Guidance Note recommends proceeding in a way which allows shareholders to make a choice between the takeover offer and the proposed alternative transaction by:78 •

announcing that they will enter into an agreement after a specified reasonable time, unless control has by then passed to the bidder;

•

seeking prior shareholder approval for the transaction or making the transaction conditional on obtaining shareholder approval; or

•

entering into an agreement which is subject to a condition that the bid fails or which contains a cooling-off clause which a new management might exercise.

In seeking shareholder approval, the following requirements may be relevant: •

the need to ensure the meeting is held promptly, with shareholders being given full information and, if appropriate, an expert’s report comparing the benefits under the transaction and the benefits under the bid;

•

the possibility that only disinterested shareholders may vote, possibly excluding votes by the directors and their associates if the transaction was entered into for improper purposes; and

•

the need to ensure that, if the approval is not obtained, the transaction may terminate with no consequential liability to any party.79

The Panel’s policy has been developed and applied in a number of cases, including: •

Pinnacle VRB Ltd 05 [2001] ATP 14 and Pinnacle VRB Ltd 08 [2001] ATP 17, where the policy was first established. In this case, the Panel required shareholder approval for a licensing transaction which

75 Takeovers Panel Guidance Note 12: Frustrating Action, [21(e)]. 76 Takeovers Panel Guidance Note 12: Frustrating Action, [21(a)]; Pinnacle VRB Ltd 08 [2001] ATP 17. Similarly, Selwyn Mines Limited [2003] ATP 33, where a receiver sold assets of the target. 77 Takeovers Panel Guidance Note 12: Frustrating Action, [21(b)]. See MacarthurCook Ltd [2008] ATP 20 where the Panel rejected an argument along these lines. 78 Takeovers Panel Guidance Note 12: Frustrating Action, [15]. 79 Pinnacle VRB Ltd 08 [2001] ATP 17, Lion Selection Ltd 02 [2008] ATP 16.

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would effectively have changed a major part of the target’s operations and was likely to breach a condition of a takeover bid on foot.80 •

Bigshop.com.au. Ltd 02 [2001] ATP 24, where the Panel decided that a proposal to place shares with a new investor during a bid period would constitute frustrating action and should be submitted to shareholders for approval. This was despite the placement representing less than 8% of issued shares (on a diluted basis), as the placement would make it more difficult for the bidder to acquire its desired holding of about 25%. The Panel said a material fact was that the target had had many months to seek shareholder approval for the placement but had not done so.81

•

Coopers Brewery Ltd 03 [2005] ATP 22 [102]–[111], where the holding of an extraordinary general meeting to consider a proposal to amend the constitution to prevent a bidder being registered as a shareholder was not frustrating action as it enabled the shareholders, via an adequately informed meeting with adequate time to consider the information, to decide whether or not to accept the alternative course which might prevent or frustrate the proposed takeover offer.82

•

BreakFree Ltd 01 [2003] ATP 29, where the Panel was concerned that the entry into franchise agreements by the target, which included a provision allowing the counterparty to terminate parts of the arrangement which were favourable to the target if a particular bidder gained control of the target, may have given rise to unacceptable circumstance. However, it did not need to decide on the matter due to the undertakings offered by the target to undo the entire arrangement without liability to the target.

•

GoldLink Growthplus Ltd [2007] ATP 23, where a board restructure was not considered to be frustrating action.

•

Resource Pacific Holdings Ltd [2007] ATP 26, where shareholders were asked to approve a capital raising notwithstanding it would trigger a bid condition. Subject to provision of additional disclosure to shareholders, the Panel considered that the terms on which shareholder approval was sought were not unacceptable. This decision was in part influenced by the target having an immediate need of funds. It is not unusual for a bidder to attempt to dissuade a target which is in difficulties from taking action to improve its financial or commercial position by arguing that the proposed action will frustrate the bid.

80 Similarly Babcock & Brown Communities Group [2008] ATP 25. 81 Interestingly, the Panel at first instance was prepared to allow the placement to proceed: Bigshop.com.au Ltd 01 [2001] ATP 20. 82 In Coopers Brewery Ltd 03R [2005] ATP 23 the Panel allowed the bidder the opportunity to send target shareholders a response and to allow shareholders a week before the extraordinary general meeting to consider the information.

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The Panel has rebuffed attempts to use the policy to compel distressed targets to submit to opportunistic bids.83 •

MacarthurCook Ltd [2008] ATP 20, where a target company, having received a confidential non-binding and indicative offer (but which set out key terms including price and conditions) from a potential bidder (who had also secured pre-bid acceptance commitments), entered into a strategic alliance which included the issue of a 13% stake to a strategic partner, who agreed not to dispose of the shares for two years except in limited circumstances. The Panel declared unacceptable circumstances and ordered that the target company seek shareholder approval (and, if approval was not obtained, the cancellation of the shares issued under the placement).

•

Transurban Group [2010] ATP 5, where the policy was inapplicable because the proposed acquisition was by scheme of arrangement, with no indication that the proposed acquirers would consider making a bid. The issue was proportionately as large as in MacarthurCook (1 for 11), but the Panel thought it would have no frustrating effect on control, as it was by way of pari passu rights issue.

•

Austock Ltd [2012] ATP 12, where the Panel required the break fee which the target would incur by rejecting the competing proposal to be halved.

Also see [14.50.70] for a discussion of circumstances where the Panel may be prepared to take action where conduct of the target does not amount to frustrating action but may still impede an auction for control.

14.7 Break fees and other inducements [14.70] A break fee is a sum of money payable by the target to a bidder if certain specified events occur which cause the bid to fail (such as the directors failing to recommend acceptance or changing their recommendation, a third party acquiring a specified shareholding – for example, 10% or 50% – or a rival bid being successful). The payment is intended to compensate the bidder for costs and expenses of making the bid (often including an element of opportunity costs). As such, the arrangement acts as an inducement for the bidder to make its bid in the first place. This may be crucial if the bidder is concerned about launching a bid which may not be successful, leaving the bidder with significant costs and expenses (which may run to many millions of dollars), not to mention possible adverse reputational risk.

83 Similarly, Taipan Resources NL 04 [2000] ATP 16 (decided before Pinnacle VRB 08, but on substantially similar policy), Sydney Gas Ltd 02 [2006] ATP 18, Rey Resources Ltd [2009] ATP 14, Powerlan Ltd [2010] ATP 2 and Perilya Ltd 02 [2009] ATP 1.

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Break fee arrangements became more common in Australia after 2000, following trends in the US and the UK.84 In both Australia and the UK, they came under scrutiny, and the UK has largely prohibited them.85 In Australia, the legitimacy of a break fee must now be considered from several perspectives. Directors’ duties [14.70.10] As discussed at 13.2, there is an unresolved question whether the general duty of directors to act in good faith in the best interests of the “company as a whole” refers to the interests of the company as a commercial entity or to the interests of the current shareholders as a general body. A break fee which induces a bid will normally be in the interests of the shareholders, but may not necessarily be in the interests of the commercial entity (unless encouraging the bid may enable the company to access benefits that would arise from being controlled by the bidder). As stated at 14.4, case law suggests that taking steps to seek out a better price for shareholders will not, of itself, constitute acting for an improper purpose. On that basis, it seems likely that agreeing to a break fee to induce an attractive takeover offer will be a proper exercise of directors’ powers.86 Further, even if the directors have not acted properly, the agreement would still be enforceable by the bidder if the bidder did not have notice of the directors’ breach of duty.87 In practice, break fees sometimes provide that the fee is not payable if the payment would be in breach of directors’ duties (known as a “fiduciary out” clause). A bidder agreeing to such a provision puts itself in a much riskier position as the fee may not be recoverable. It seems, however, that it is not necessary for a break fee arrangement to include a fiduciary out

84 See Mannolini and Rich, “Break Fee Agreements in Takeovers” (2001) 19 C&SLJ 222 for examples of break fees in Australia and detailed consideration of relevant legal issues. See also Reichel and Dyer, “Developments in Break Fees” (2004) 22 C&SLJ 439 and Re APN News & Media Ltd [2007] FCA 770 for a general discussion of relevant considerations in determining the legitimacy of a break fee (in the context of a scheme of arrangement). 85 Rule 21.2 of the UK Takeover Code, which came into effect on 19 September 2011, and PCP 2010/2, which described the proposed changes. Break fees up to 1% are still permitted to be paid to white knights and under formal sale processes, but other deal protection devices are only permitted on a case-by-case basis and only for a formal sale process: Notes 1 and 2 to the Rule. 86 In Idameneo (No 123) Pty Ltd v Symbion Health Ltd (2007) 64 ACSR 680, Lindgren J (701) stated that the merits of agreeing to a break fee to secure a merger proposal was a matter for the commercial judgment of the directors and the plaintiff had failed to produce sufficient evidence that the directors had not complied with their fiduciary duties in agreeing to a break fee. 87 Winthrop Investments Ltd v Winns Ltd (1975) 2 NSWLR 666.

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provision, nor need a fiduciary out provision be implied into the agreement.88 Corporations Act [14.70.20] A break fee arrangement must also be considered from the perspective of the financial assistance prohibition (s 260A) and the reduction of capital rules (s 256B) in the Corporations Act. It would seem that financial assistance prohibition cannot be attracted if the break fee is only payable in circumstances where the bid fails and, as a result, the bidder does not acquire any shares in the target.89 In any event, it is unlikely that a break fee would “materially prejudice” the interests of the company or its shareholders or the company’s ability to pay creditors. Furthermore, a breach of the prohibition does not affect the ability and enforceability of the relevant agreement: s 260D. The rules requiring the maintenance of share capital are also unlikely to be breached. First, if the payment is out of profits otherwise available for distribution to shareholders, the payment will not be out of the company’s capital. Second, if the payment is made in the legitimate course of business, it should not be regarded as a reduction of capital.90 Contract law [14.70.30] A break fee agreement will generally satisfy the basic requirements for a legally enforceable contract. In particular, consideration will move from both parties. The target promises to pay the fee in certain circumstances and the bidder agrees to proceed with its bid.91 However, if a break fee is a specified sum which exceeds any genuine pre-estimate of the loss the bidder may suffer, the fee may be unenforceable as being in breach of the law against penalties.92

88 See Takeovers Panel Guidance Note 7: Lock-Up Devices, [26]; ABN AMRO Private Equity Ltd v Forward Technology Industries plc (unreported Eng HC/Ch Div, Patten J, 24 October 2000). In Re Arthur Yates & Co Ltd (2001) 36 ACSR 758, Santow J suggested, in obiter dicta, that it was important that an exclusivity clause be drafted so that it is subject to an overriding obligation not to breach fiduciary duties or be otherwise unlawful, implying a need for a fiduciary out provision. This reasoning has been quoted and followed many times since in the scheme of arrangement context. See also Normandy Mining Ltd 03 [2001] ATP 30 and Re APN News & Media Ltd [2007] FCA 770. 89 Under rather different provisions of the Companies Act 2006 (UK), it was held in Paros plc v Worldlink Group plc [2012] EWHC 294 (Comm) that a break fee was unenforceable because it breached the prohibition on a public company providing financial assistance for the acquisition of its own shares, although it was only payable if the relevant bid failed. 90 Trevor v Whitworth (1887) 12 AC 409. 91 Radiant Shipping Company Ltd v Sea Containers Ltd [1995] BCLC 976. 92 Dunlop Pneumatic Tyre Company Ltd v New Garage and Motor Company Ltd [1915] AC 79.

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Takeovers Panel [14.70.40] Takeovers Panel Guidance Note 7: Lock-Up Devices93 considers break fees, asset lock-ups, no-talk agreements and no-shop agreements and gives an indication of factors which the Panel considers would assist in determining whether a particular arrangement is acceptable or not. The Panel states that it does not regard lock-up devices to be prima facie unacceptable. However, a device may be unacceptable if it prevents the acquisition of control taking place in an efficient, competitive and informed market. The Panel applies two criteria in considering whether a lock-up device is unacceptable: •

Is the arrangement anti-competitive? The arrangement must not have a deterrent impact on the competition for control of the company or on current or potential counterproposals.

•

Is the arrangement coercive? The arrangement must not have a substantial coercive effect on target shareholders making them unlikely to consider other alternatives on their merits.94

Specifically, the Panel has stated that it is good practice for the target to negotiate a cap to the fee. It regards a cap of 1% of the bid or equity value as a reasonable guideline.95 One per cent is suggested as an amount which would not ordinarily deter rival bidders or be coercive.96 Therefore, a break fee within the 1% guideline is not unacceptable unless it can be shown that the lock-up arrangements are actually anti-competitive or coercive because of the fee amount, structure or effect. Conversely, a break fee of more than the 1% guideline will be unacceptable unless the Panel is satisfied that the arrangement is neither anti-competitive nor coercive. This may be established if a higher bid emerges after the break fee is agreed, the fee is agreed only after a public and transparent auction process has been run or if the bidder has incurred disproportionate cost, effort or risk in preparing and making its bid.97 The

93 The current issue is the fourth, published on 11 February 2010. 94 Takeovers Panel Guidance Note 7: Lock-Up Devices, [7]; Bolnisi Gold NL [2007] FCA 2078, per Lindgren J. For an example of a break fee considered to be coercive, see Ballarat Goldfields NL [2001] ATP 7. 95 Takeovers Panel Guidance Note 7: Lock-Up Devices, [9]: 1% of the equity value is the “aggregate of the value of all classes of equity securities issued by the target, where relevant having regard to the value of the consideration under the bid, as at the date the bid is announced”. As noted at [14.70], the UK Takeover Panel has largely banned break fees, and other deal protection devices (Rule 21.2), but break fees were formerly restricted to 1% of the bid value, which still applies where they are still allowed. In the US, the practice has been to allow fees of up to 5% of the bid value: see Mannolini and Rich, “Break Fee Agreements in Takeovers” (2001) 19 C&SLJ 222, 239 for examples. 96 National Can Industries Ltd 01R [2003] ATP 40 [33]; Guidance Note 7: Lock-Up Devices, [9]. 97 Takeovers Panel Guidance Note 7: Lock-Up Devices, [10].

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Panel accepts that, in some cases, it may be appropriate for the 1% guideline to apply to enterprise value rather than equity value (for example, highly leveraged targets).98 The Panel has considered that a break fee of 1% which was equal to almost 30% of the target’s cash reserves99 was not unacceptable nor was a break fee of more than the profit after tax of the target company for the previous financial year.100 The courts, when considering break fees in the context of schemes of arrangement, have also had regard to the 1% guideline in the Takeovers Panel Guidance Note. While the 1% guideline is generally followed, the courts have on occasion allowed a break fee of more than 1% in circumstances where, among other matters, the break fee was a genuine pre-estimate of the bidder’s costs, the size of the fee was unlikely to coerce shareholders to vote in favour of the scheme, the fee had been negotiated at arm’s length, or the acquirer agreed to pay a break fee to the scheme company.101 The triggers for payment of a break fee commonly include: •

one or more of the directors withdrawing their recommendation of the proposal or recommending a rival transaction;

•

another person acquiring control of the target (although, occasionally, this trigger may specify a lower shareholding, such as 10% or 20%); or

•

the takeover bid (or scheme) implementation agreement being terminated because of a material breach by the target.

The Panel considers that whether a trigger is appropriate needs to be considered in light of the stage that negotiations or the transaction have reached. In National Can Industries Ltd 01 [2003] ATP 35 and National Can Industries Ltd 01R [2003] ATP 40, which involved a proposal by the controlling shareholder to take the target private, the Panel did not consider it appropriate for a break fee to be payable on a change of board recommendation as a result of the findings of the independent expert, whose report was required and had not yet been obtained when the break fee was agreed.102

98 Takeovers Panel Guidance Note 7: Lock-Up Devices, [9]. See Ausdoc Group Ltd [2002] ATP 9 and Austock Group Ltd [2012] ATP 12 for examples of break fees higher than 1% (1.87% and about 1.5%), which were not unacceptable (after the break fee in Austock was halved from 3.33%). 99 Sirtex Medical Ltd [2003] ATP 22. 100 Wattyl Ltd [2006] ATP 11 [68]. 101 Re eircom Holdings Ltd [2009] FCA 1418 involving a break fee of $4 million or 1.9% of equity value and Cytopia Ltd [2009] VSC 560 involving a break fee of $500,000 or 4.6% of equity value. Similar factors were considered by Lindgren J in deciding to approve a “naked no” break fee in Re Bolnisi Gold NL (No 2) [2007] FCA 2078. 102 In Ross Human Directions Ltd [2010] ATP 8, the Panel required a break fee agreement to be altered to exclude payment if the board changed its recommendation following a change in opinion by the independent expert.

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The break fee may reimburse the bidder for its internal costs, third party outgoings and reasonable opportunity costs (but not profit expected on the success of a proposed bid). In addition, the Panel considers that the existence and nature of any lock-up device should normally be announced when the proposal is required to be announced under the continuous disclosure provisions.103 The terms of the arrangement should be fully disclosed in the bidder’s statement and target’s statement (or other relevant document). The main focus of the Panel will be whether the break fee has assisted or inhibited competition. The Panel will have regard to factors including whether the fee was necessary to induce the bid, what bids were expected at the time, whether those bids were regarded as inadequate, whether the target sought out other prospective bidders and the effect of the fee on the conduct of other bidders. In Normandy Mining Ltd 03 [2001] ATP 30, the Panel had to consider a break fee which was granted to induce a rival bid to be made at a higher price than an existing bid for the target. The break fee was payable if another bidder acquired more than 50% of the target or if the target’s board failed to recommend the bid or recommended or supported a competing bid. The Panel decided that the break fee, which was equal to 1% of the pre-announcement value of the scrip bid made by the new bidder (although it exceeded 1% later due to falls in the share price of that bidder), was not unacceptable because, subsequent to the arrangement, the first bidder increased its initial bid by a significant sum. The break fee represented a cost of $0.013 per share compared to the first bidder’s increase of $0.20 per share. The break fee was not subject to a fiduciary out clause, but the Panel considered that this did not invalidate the arrangement and that it was open to the directors to enter into such arrangements. The Panel accepted that it was difficult to show that other (unknown) bidders had been deterred by the break fee arrangement. The result of this decision suggests that, once a break fee has been agreed, a rival bidder should consider challenging the break fee before launching a higher offer (or make any higher offer conditional on the break fee being set aside). In Ballarat Goldfields NL [2002] ATP 07, the target company agreed to a break fee payable in shares (equivalent to about 10% of the company on a diluted basis) if the shareholders of the target rejected a proposal for a sale of the target’s gold mining assets. The Panel decided that the break fee was unacceptable and ordered that it not be paid. The fee was considered likely to have a coercive effect on the decision of shareholders when they voted on the proposal. It was likely that those shareholders would feel inhibited in voting against the sale as their shareholdings in the target would have been diluted by approximately 10%. The fee was unacceptable even though

103 Takeovers Panel Guidance Note 7: Lock-Up Devices, [35].

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it had not deterred other parties from putting competing proposals to the target company. In Ausdoc Group Ltd [2002] ATP 09, the Panel decided that a break fee in excess of 1% of the bid value that would become payable if the bid was not recommended or if a higher bid emerged was acceptable. This was because there had been a long public tender process seeking a bidder and no alternative bids seemed likely, the complexity of the target’s business added to the cost of making a bid and the bid price was at a significant premium to the pre-bid share price. The fact that the bidder was a financial buyer, not a trade buyer, did not itself justify a higher break fee. However, the Panel decided that a break fee that was payable if there was no higher bid but the bidder’s 90% minimum acceptance condition was not satisfied or waived would not be acceptable. The Panel was concerned that such a trigger may have had the effect of coercing target shareholders to accept the bid even where, without the break fee, they did not consider acceptance to be in their best interests. This was because, in that event, the existing shareholders, rather than a successful rival bidder, would bear the cost of the break fee.104 In Wattyl Ltd [2006] ATP 11 [68]–[74], the Panel found that a break fee was unacceptable given the length of time it could operate and the lack of an exception in the situation where a key ACCC approval condition was not satisfied. This was in the context of a takeover bid, where there was real uncertainty whether the acquisition would receive ACCC approval. In this case, the Panel required that the break fee agreement be amended so that a break fee would not be payable if the ACCC condition was not satisfied within six months of the announcement of the bid and the (usual) triggers for payment were not otherwise triggered. Apart from break fees, other inducements that may be offered to a bidder include: •

A “no shop” obligation under which the target agrees not to solicit a competing transaction for a certain period of time.105 The Takeovers Panel has said that these agreements may be acceptable, but directors need to be convinced of the proper commercial and competitive benefits of the bid proposal and that the period of restraint must be limited and reasonable. No fiduciary carve out is required. If the target has already conducted an effective auction process, that may enhance the legitimacy of such an arrangement.106

104 Contrast this decision with that in Re Bolnisi Gold NL (No 2) [2007] FCA 2078 noted above in this section. In general, although there is no absolute rule against such a fee, both the Panel and the court examine more closely a break fee which is payable on a “naked no” ie. where the bid or scheme fails because it is not supported by the offeree shareholders, but no alternative control transaction succeeds. 105 Dawson International plc v Coats Patons plc [1990] BCLC 560. 106 See Takeovers Panel Guidance Note 7: Lock-Up Devices, [19]–[21]. A no-shop clause may be more problematic if it inhibits the target in responding to another approach, or is coupled with a notification right.

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•

A variation on a “no shop” clause is a “go shop” clause, which allows the target to seek a rival proposal for a limited period of time (say, 30 or 45 days) before a stricter no solicitation and break fee obligation applies. This is intended to assist the directors to satisfy their duties when committing to a proposal without testing the market. These clauses appear to be unusual in Australia.

•

A “no talk” obligation under which the target agrees not to negotiate with any third party or provide due diligence access, even if the third party’s approach to the target is unsolicited. The Takeovers Panel has said that is essential that such an agreement is subject to a fiduciary out clause which permits the target to negotiate with a third party who approaches the company on an unsolicited basis, provided that the directors determine that those discussions are necessary for the directors to discharge their fiduciary duties.107 The terms of the exception may require the target to obtain financial advice that a third party approach is superior to the existing bid and legal advice that the target directors would be likely to breach their fiduciary duties if they did not discuss the proposal with the third party.108 The Panel has also expressed concerns about target directors interpreting fiduciary exceptions strictly or in a restrictive way such that they have no practical operation.109

•

An obligation on the target to disclose details of any competing proposals to the initial bidder may exacerbate the anti-competitive effect of a no-talk clause.110 This may be less of an issue if the disclosure clause itself contains a fiduciary exception, or provides for disclosure of only the fact of the competing approach, not the details.

•

A “matching right” under which the initial bidder has a short period following receipt of a competing proposal to make a matching or superior proposal, and the target may not enter into any binding agreement, or make a public recommendation, in relation to the competing proposal, may also exacerbate the anti-competitive effect of

107 See Takeovers Panel Guidance Note 7: Lock-Up Devices, [25]–[29]; Axiom Properties Ltd 01 [2006] ATP 1. For example, the clause should enable the board to allow due diligence if it receives a proposal that could reasonably be expected to lead to a superior proposal: Ross Human Directions Ltd [2010] ATP 8, Fantastic Holdings Ltd [2016] FCA 1302. 108 Magna Pacific Holdings Ltd 02 [2007] ATP 3 [27]–[32], where the Panel considered that a “no talk” clause requiring legal advice that “failing to respond would breach fiduciary duties” (emphasis added) to be overly onerous and that this may have rendered the fiduciary duty exception meaningless. The Panel preferred “would be likely” to breach the fiduciary duties, and this wording seems to have become usual: Fantastic Holdings Ltd [2016] FCA 1302. 109 See Becker Group Ltd [2007] ATP 13 [108]–[110] and Queensland Cotton Holdings Ltd [2007] ATP 05 [28]. However, see Babcock & Brown Communities Group 02 [2008] ATP 26, where the Panel considered that the question of what was a “superior proposal” was for the independent directors, not the Panel, to determine (while not in the context of a fiduciary carve out to a no shop agreement, it is indicative of the Panel’s approach). 110 See Takeovers Panel Guidance Note 7: Lock-Up Devices, [15].

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a no-talk clause, though this is less problematic if the second bidder will also have an opportunity to match.111 The Panel has said that a matching right cannot be for a duration that removes any practical likelihood that a potential competing bidder will be prepared to put a proposal to the target.112 •

An “asset lock up agreement” under which the target grants an option over key assets to a potential bidder to induce it to make an offer. The option would become exercisable if the bid was later overbid. If this produces a bid materially higher than an existing bid, this tactic may be acceptable as a legitimate exercise of directors’ powers. However, if it precludes an existing bidder from competing, it may be harmful to shareholders and challenged by the existing bidder.113 The Takeovers Panel has said that, if the arrangement involves an agreement to sell an important asset of the target, it can have the effect of making the target a less attractive acquisition candidate and, therefore, it is likely to be unacceptable on the basis that it would detract from an efficient, competitive and informed market. In addition, such an arrangement may also constitute frustrating action for any existing bid if it would breach the conditions of that bid.114

The Panel has indicated that a clause which gives a target a limited opportunity to solicit competing bids will reduce the anti-competitive effect of lock-up clauses, but should not be used to confine fiduciary exceptions.115

14.8 Target’s statements [14.80] A target’s statement is a disclosure statement prepared by the directors of the target for the information of shareholders in response to a bidder’s statement. It is intended to provide guidance for offerees and is subject to content requirements and rules for its preparation as described below. General content [14.80.10] The statement must set out all of the information required by s 638. It should be prepared to a standard comparable to that of a

111 See Takeovers Panel Guidance Note 7: Lock-Up Devices, [16]. 112 Ross Human Directions Ltd [2010] ATP 8, where, in the circumstances of that matter, a matching period of five clear business days was acceptable. 113 There are a number of US cases which have considered such tactics. See, for example, Revlon Inc v MacAndrews & Forbes Holdings Inc 506 A 2nd, 173 (1986); Hanson Trust plc v ML SCM Acquisition Inc 781 F 2d 264 (1986). See also Perilya Ltd 02 [2009] ATP 1 and 14.5. 114 Takeovers Panel Guidance Note 7: Lock-Up Devices, [30]. 115 See Takeovers Panel Guidance Note 7: Lock-Up Devices, [17].

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prospectus116 and must not contain information which is misleading or deceptive or omit required material: s 670A.117 A target’s statement must include all the information that holders of bid class securities and their professional advisers would reasonably require to make an informed assessment whether to accept the offer under the bid: s 638(1). The statement must contain this information: (a) only to the extent to which it is reasonable for investors and their professional advisers to expect to find the information in the statement; and (b) only if the information is known to any of the directors of the target: s 638(1A).118 In determining what it is reasonable to expect to be included, regard may be had to the nature of the bid class securities, the nature of the scheme (if the target is a managed investment scheme), matters the holders or their advisers may know already and the time available to prepare the statement: s 638(2). In practice, the target’s statement, with any accompanying report, is usually the most important source of information received by shareholders in relation to a takeover bid. Information which may be relevant will depend on the circumstances of the takeover bid, but will generally include information about the present value of the target shares, financial information (asset backing, current and future profitability), dividends and other benefits a shareholder may be likely to receive if the takeover succeeds or fails.119 It may also include details of the directors’ personal shareholdings and whether they intend to accept the bid, any shareholdings or relationships with the bidder, the views of a minority director who disagrees with his or her fellow directors, recent dealings in shares in the target and retirement or other benefits that may accrue to the directors if the bid is successful. Examples of information which the Panel has considered to be material include: •

a summary of any payments the company may have to make on a change of control including the timing and other terms of repayment (for example, debt becoming repayable, break fee payments);120

116 Takeovers Panel Guidance Note 5: Specific Remedies—Information Deficiencies at [17], echoing a principle long part of the UK Takeover Code. 117 Section 670A is discussed at length at 11.1. 118 This presumably includes information known to a shadow director. 119 Unity APA Ltd v Humes Ltd (1986) 13 ACLR 501. 120 Novus Petroleum Ltd [2004] ATP 2.

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•

the effect that takeover defence costs may have on forecast earnings, if the costs are material;121

•

how the directors of the target would exercise their powers to enforce limits in the constitution on the number of shares a person may hold or vote, where the directors had a discretion to vary the limits;122

•

an explanation of why certain contracts, which had not yet been signed but for which the target had been named “preferred supplier”, had been included in forecasts;123

•

the history of ACCC opposition to a merger between two leading businesses in a market, the risk that the outcome of the ACCC review of a proposed takeover bid (and therefore satisfaction of a key condition to a takeover) would not be known before close of a rival offer and advice received from the ACCC in relation to the takeover offer;124

•

risk factors associated with an investment in a mining exploration company;125

•

implications of a major shareholder’s 42.6% shareholding on the control premium which may be paid as part of an offer price;126

•

implications of adjustments to the sale price of a substantial asset in the context of a takeover offer conditional on the sale of such asset;127and

•

the dilutive effect of fundraising necessary to develop assets on which a valuation was based.128

In general, however, the target’s statement need not assess a possible course of action other than accepting the bid for one’s shares or retaining them,129 though it usually reminds holders to consider selling on market, if the target is listed.

121 Australian Leisure & Hospitality Group Ltd 02 [2004] ATP 21. 122 Mildura Co-operative Fruit Company Ltd [2004] ATP 5. 123 Volante Group Ltd 02 [2006] ATP 7. 124 Wattyl Ltd [2006] ATP 11. 125 Marathon Resources Ltd [2006] ATP 31. 126 Becker Group Ltd [2007] ATP 13. 127 Becker Group Ltd [2007] ATP 13. 128 Northern Energy Corporation Ltd [2011] ATP 2. 129 AuIron Energy Ltd [2003] ATP 31 [57]–[62] (notice of meeting for an item 7 resolution) applied to a bidder’s statement in Australian Leisure and Hospitality Group Ltd 01 [2004] ATP 19 [14]–[15]. If another bid for the target is current, the target’s statement generally assesses each bid, or each target’s statement refers to the other, and similarly for another proposed control transaction.

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The Panel considers that s 638 requires some guidance be given as to the value of target shares. However, in Tully Sugar Ltd 01,130 concerning a hostile takeover for an unlisted company, the Panel did not require the target to provide a valuation, as the directors had neither a current valuation nor the skills to produce one.131 The Panel regarded this situation as unsatisfactory, and required the target to disclose the net tangible assets per share and a short-term profit forecast. In the event that statements as to value are included in a target’s statement, a reasonable basis for the statements needs to be disclosed.132 The target directors are not required to disclose information which is not suitable to be relied upon. For example, a highly qualified indicative share valuation without assumptions and limitations was not information suitable for disclosure,133 nor is speculation about the likely outcome of an ACCC review.134 This requirement to include information known to any director differs from the corresponding disclosure in bidder’s statements, in that it covers information known to any director, rather than information known to the target company.135 This difference is important if a director has special knowledge in another capacity, such as being a director of the bidder or another company. For this reason, unlike the bidder’s statement disclosure, it is not possible to isolate a director common to the bidder and target company so he or she is not part of the “directing mind” of the target company in order to avoid having to disclose his or her special knowledge under this disclosure requirement. In practice, this may not cause a problem as the information held by such a director would ordinarily be disclosed in the bidder’s statement. However, a difficulty may arise if the relevant information is acquired after the date of the bidder’s statement or the common director was isolated from forming part of the bidder’s directing mind and his or her information was accordingly not disclosed in the bidder’s statement.136 Similar obligations arise for a liquidator or administrator if the target is under external administration. As a rule, the content of the target’s statement should be as up to date as possible. This will mean, for example, that the statement may need to

130 Tully Sugar Ltd 01 [2009] ATP 26 and Tully Sugar Ltd 01R [2010] ATP 1. 131 Also see Re BNQ Sugar Ltd (1994) 12 ACSR 695. 132 Origin Energy Ltd 02 [2008] ATP 23 [19]–[22]. 133 Mildura Co-operative Fruit Company Ltd [2004] ATP 5 [74]–[81]. Also see PowerTel Ltd 02 [2003] ATP 27. 134 Wattyl Ltd [2006] ATP 11 at [50]–[53]; see also SA Liquor Distributors Ltd [2002] ATP 22. 135 Section 636(1)(m), the general disclosure test for a bidder’s statement, requires information which “is known to the bidder”. 136 Such a director should be asked to review the target’s statement in draft for errors and omissions, without taking part in the board meeting which approves the statement.

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disclose the value implied by a scrip bid at the date of the statement and not just at the date the scrip bid was announced.137 Directors’ recommendations [14.80.20] Section 638(3) requires that the target’s statement138 contains a statement by each director of the target: •

recommending that offers under the bid be accepted or not accepted, with reasons for this recommendation; or

•

giving reasons why a recommendation is not made.139

The legislation therefore does not require that a director must make any recommendation,140 nor is there a general fiduciary duty to do so. The directors’ duty is merely to supply proper information and, if they choose to give advice, to do so honestly and without being misleading.141 If directors breach this duty, a shareholder may seek to restrain the directors’ action and possibly acceptances of the bid. The rule in Foss v Harbottle (1843) 2 Hare 461 does not apply in those circumstances.142 An example of advice which may be misleading is contained in FAI Investments Pty Ltd v Mercantile Mutual Holdings Ltd (1982) 1 ACLC 434. The target’s statement included advice from the target company’s directors that the offer price was “wholly unrealistic” and “not fair and reasonable”. Needham J considered that this may be misleading as barely one month prior to the date of that statement one of the directors had, as a professional adviser, sold a large parcel of shares at a price the same as the offer price and, at that time, described that price as “satisfactory”. The target’s statement should have included an explanation of the two views. If a director does not desire to make a recommendation, his or her reasons must be stated but the other directors are not required to explain, justify or comment upon the director’s reasons.143 If the directors are unable to reach a view on the merits of the offer or are unable to give a firm recommendation, the target’s statement should set out the arguments for

137 Normandy Mining Ltd 01 [2001] ATP 27 and Goodman Fielder Ltd 03 [2003] ATP 5 [75]–[83]. 138 A target’s statement will be defective if the directors have expressed reasons for their recommendation in a separate document which is not contained in or incorporated by reference in the formal statement: Mount Edon Gold Mines (Aust) Ltd v Burmine Ltd (1993) 12 ACSR 417. 139 In Gladstone Pacific Nickel Ltd 01 [2010] ATP 12 [21] the Panel emphasised the importance of these recommendations. 140 Audimco Ltd v Euralba Mining Ltd (1985) 13 ACLR 451, 425 per Needham J. 141 See Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821, 838; Gething v Kilner [1972] 1 WLR 337. See also Tully Sugar Ltd 01 [2009] ATP 26 [52]–[57] and Tully Sugar Ltd 01R [2010] ATP 1 which discusses the need for target directors to equip themselves with all relevant information to provide a recommendation. 142 Heron International Ltd v Lord Grade [1983] BCLC 244. 143 Scott v H S Lawrence & Sons Pty Ltd (1982) 6 ACLR 579, 597 per Jacobs J.

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and against accepting the bid and emphasise those facts considered important. This may be appropriate, for example, if all the directors are associated with the bidder. It is open for directors to agree in advance with a bidder to recommend a bid,144 but the directors must be able to demonstrate that they were acting honestly in fulfilment of their overriding duty to promote the best interests of the shareholders. The courts tend to read down contractual terms to give greater scope for the directors to revise their recommendations if circumstances change. Accordingly, in John Crowther Group plc v Carpets International plc [1990] BCLC 460 an agreement by a board of directors to recommend an offer, irrespective of any later offer which may be made, was held to be subject to general fiduciary duties to make full and honest disclosure to shareholders. A recommendation in favour of a later higher bid was accordingly not a breach of the original agreement. In Payne v The Adelaide Steamship Co Ltd (1976) 14 ACLR 252 an agreement by two directors who had sold their shares to the bidder to “do all that is proper” to impress a belief that the offer is in the interests of shareholders was held to be acceptable. The reference to “proper” in the agreement permitted the directors to change their support for the offer if circumstances changed. Commonly, an agreement to recommend a bid (and the actual recommendation) will be qualified by the words “unless a higher bid is received” in order to avoid allegations of breach of fiduciary duties. Where there are rival bids and the directors take the view that it is in the interests of the company for an outsider to take over the company, the directors’ duty may require them to favour the higher bid unless it is conditional on an event which is unlikely to be satisfied.145 Where rival bids exist and one is better for current shareholders and the other is better for the ongoing business of the company, the duty on directors is put in sharp focus. On one hand, it is said that the interests of the company must be the interests of the shareholders; that is, the current shareholders and the directors owe no duty to the successful bidder or the company once it has passed under control of the bidder.146 On the other hand, it is said that the duty is owed to present and future shareholders and the directors should have regard to the interests of the company as a commercial entity.147 As shareholders will generally accept the highest bid, the directors may well be obliged to support that bid so that the shareholders can sell their shares at the highest available price. 144 Dawson International plc v Coats Patons plc [1990] BCLC 560; see discussion in Gower, Principles of Modern Company Law (5th ed, 1992), pp 712ff and the decision of the English Court of Appeal in Fulham Football Club Ltd v Cabra Estates plc [1992] BCC 863 citing Thorby v Goldberg (1964) 112 CLR 597 with approval. 145 Heron International Ltd v Lord Grade [1983] BCLC 244, 265, 269 per Lawton LJ; Re a Company [1986] BCLC 382, 386 per Hoffmann J. 146 Heron International Ltd v Lord Grade [1983] BCLC 244, 265 per Lawton LJ. 147 Darvall v North Sydney Brick & Tile Co Ltd (1987) 12 ACLR 537, 554 per Hodgson J. See further [13.10].

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A director who is also a shareholder is not precluded by fiduciary duties from exercising his or her rights as a shareholder to refuse to accept a particular bid or to accept a competing lower bid (even one made by an associate), notwithstanding that the director’s actions may have a dramatic effect on the other bid (such as ensuring that a minimum acceptance condition is not satisfied). The only restriction is on the exercise of fiduciary powers in the interests of the company. This does not affect the director’s decisions made in a personal capacity.148 A director who has a conflict of interest, such as being a director of both bidder and target, is not precluded from including a recommendation in the target’s statement, though he or she generally abstains from doing so. However, to avoid an allegation of misleading conduct, full disclosure should be made of the nature of the conflict.149 If a director has a material personal interest in the outcome of the bid (such as being a major shareholder or a holder of executive incentive rights or termination benefits that will vest if control passes), usual practice is for the director to disclose the interest but still make a recommendation. This may require the other directors to resolve to permit the interested director to participate at the relevant board meeting under s 195(2). If the other directors consider the interested director’s views should not be given prominence, it is possible they could prepare the target’s statement in a way which avoided that but still included the recommendation somewhere in the document (to satisfy s 638(3)) or they could seek an ASIC exemption allowing the interested director’s views to be omitted. Use of third-party statements [14.80.30] It is common in takeovers that directors may wish to quote or re-publish a statement made by a third person, such as a journalist, analyst or expert. Under s 638(5), a target’s statement may only include a statement based on a statement of a third party with that person’s consent.150 This is similar to the equivalent rule for bidder’s statements in s 636(3).151 The Panel has stated that if the target quotes a third person, even in a document other than the target’s statement, several matters follow, including: •

the directors are effectively adopting the statement as their own (unless they clearly indicate otherwise) and must ensure that it meets the same standards as if it were the directors’ own statement;

148 Re a Company [1986] BCLC 382 where the directors accepted a takeover offer made by a company they had set up and the effect of their acceptance was to defeat a higher rival bid. 149 See 6.2 and Hay, “Common Directors of Offeror and Target Companies” (1990) 8 C&SLJ 260 for further discussion. 150 See, for example, Normandy Mining Ltd 01 [2001] ATP 27; Mildura Co-operative Fruit Company Ltd [2004] ATP 5. The rule applies, whether or not the person is an expert. 151 See 9.4 and the class orders there discussed, which apply equally to target’s statements.

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•

the quote must not be presented in a misleading fashion, such as by being taken out of context, by omitting any qualification that was in the original or presenting an extreme view not consistent with the general views expressed by other commentators (without explanation of its difference); and

•

the quote should not be included without substantiation if the directors would have been required to substantiate it had they made it themselves (for example, a comment about value). In those cases, it is no answer to simply say that the quotation was accurate.152

14.9 Expert’s reports [14.90] A report by an expert can assist shareholders in determining how much their shares are worth and can assist directors in determining whether or not to recommend acceptance. Even where an expert’s report is not required by the legislation, it is common for directors to provide one. A target’s statement must, in the circumstances set out in s 640(1), be accompanied by or include a copy of a report made by an expert153 stating whether, in the expert’s opinion, the takeover offers are fair and reasonable and giving reasons why.154 This is required where: •

the bidder’s voting power in the target is 30% or more;

•

the bidder is a natural person who is a director of the target; or

•

the bidder is a body corporate which has a director in common with the target.

The bidder’s voting power is tested at the time the bidder’s statement is given to the target: s 640(2). The Panel has also suggested that if a target board was too beholden to a bidder to provide an independent and critical assessment of a bid, it would

152 Programmed Maintenance Services Ltd 02 [2008] ATP 9 [28]. The points about misleading presentation apply equally to a quotation used in the target’s statement with the author’s consent, since consent does not cure any misleading tendency of the quotation: see paras [20]–[21] of the decision. The Panel has stressed that a target needs to prepare other documents which may influence shareholders with as much care as it does its target’s statement: Universal Resources Ltd [2005] ATP 6 [16]; Fosters Group Ltd [2011] ATP 15; and Australian Industrial REIT [2015] ATP 10 [22]. 153 An “expert” is defined broadly in s 9 as a person whose profession or reputation gives authority to a statement made by him or her. The expert cannot be an associate of the bidder or the target: s 648A. See also ASIC Regulatory Guide 112: Independence of experts. 154 See ASIC Regulatory Guide 111: Content of expert reports which sets out ASIC’s views on the content of expert’s reports including the methodology and assumptions for reports concerning company valuations, profit forecasts and asset valuations. See also Lonergan, “Fair and Reasonable” in Hill and Austin (eds), The Takeovers Panel After 10 Years (2011), p 101 and the commentary by Durbridge, p 111. “The Independent Expert and the Regulatory System – A Commentary”.

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be consistent with the policy of s 640 for the Panel to require an independent expert’s report.155 “Fairness” and “reasonableness” are usually treated as two different concepts. An offer is “fair” if its value is greater than the value of the securities which are the subject of the offer. If an offer is fair, it will also be “reasonable”, but, even if the offer is not fair, it may also be reasonable if, due to other factors, shareholders should accept the offer.156 It is usual for experts’ reports to give a range of values for the target company.157 In determining value, it is usual to exclude any special value which may be unique to a particular bidder (for example, particular synergy benefits).158 However, reference to any special value should be made in the report, failing which the report may be misleading.159 Of key importance in an expert’s report is maintaining the independence of the expert.160 Section 648A provides that the expert cannot be an associate of the bidder or the target and requires that the report sets out the following details, each of which is intended to assist shareholders in assessing the independence of the expert: •

particulars of the expert’s relationship (if any) with the bidder, the target or an associate of either, including circumstances in which the expert advises or acts on behalf of that person in the performance of a professional or business relationship;

•

particulars of any financial or other interest that could reasonably be regarded as capable of affecting the expert’s ability to give an unbiased opinion; and

•

particulars of any fee or other benefit, direct or indirect, that the expert has received or will or may receive in connection with the report.

Furthermore, it will be misleading for a report presented as independent to fail to disclose that draft versions of the report have been discussed

155 See Sirtex Medical Ltd [2003] ATP 22 at [66]. Section 640 itself requires a report if the bidder, or one of its directors, is a shadow director of the target: s 9, definition of “director”. 156 See ASIC Regulatory Guide 111: Content of expert reports, RG 111.55–RG 111.62. See also Hulme, “Section 640 of the Corporations Law: Independent Experts’ Reports and the RTZ Ltd Takeover of Comalco Ltd” (2001) 19 C&SLJ 133 for critical analysis of these concepts and their interpretation, and Elkington v CostaExchange Ltd [2011] VSC 501 [12]–[19]. 157 ASIC Regulatory Guide 111: Content of expert reports, RG 111.78–RG 111.79. 158 An approach rejected, however, in Bruning v MMAL Rentals Pty Ltd [2004] NSWSC 60 and on appeal in MMAL Rentals Pty Ltd v Bruning [2004] NSWCA 451. 159 Australian Leisure & Hospitality Group Ltd 02 [2004] ATP 21 [29]–[35]. 160 See ASIC Regulatory Guide 112: Independence of experts generally and also at RG 112.42–RG 112.58.

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with the target company and extensive revisions made as a consequence161 or to fail to disclose all associations between the expert and the target including those which go beyond the strict requirements of the legislation.162 Due to the obvious importance of independent advice during a takeover bid, the courts require particularly high standards from those involved in the preparation of an expert’s report; preliminary discussions on matters, other than the factual circumstances of the target’s assets and business, may well lead to the final report being misleading and, as such, in breach of the legislation.163 In an attempt to curtail the practice of shopping for experts’ opinions, s 648A(1) requires the target’s statement to include copies of each report the target obtains, if the target has obtained two or more reports.164 Previously, the law required that the statement must include a complete copy of any expert’s report if the statement made any reference to it. This operated if the reference was contained in the target’s statement itself or in a report made by another expert and contained in the statement.165 It also operated where the reference was indirect, such as where the statement refers to the advice received without naming the expert,166 and where the advice was given orally.167 These rules have now been omitted and the governing rule requires disclosure if that is needed to avoid the document being misleading. Merely stating that a conclusion is supported by an expert will not require disclosure of the content and basis for the expert’s advice.168 Where an expert’s report has been prepared for another purpose but has some relevance to a takeover, there is no general requirement for the report itself to be included in a bidder’s or target’s statement. However, where the 161 It is acceptable (and common practice) to provide a draft report to the target for factual review: see Australian Leisure & Hospitality Group Ltd 02 [2004] ATP 21 [15]–[25] and ASIC Regulatory Guide 112: Independence of experts, RG 112.54–RG 112.58. 162 ANZ Nominees Pty Ltd v Wormald International Limited (1988) 13 ACLR 698; Phosphate Co-operative Co of Australia Ltd v Shears (No 3) (1988) 14 ACLR 323. See Nicholson, “The Pivot Case – New Standards for Schemes of Arrangement” (1989) 7 C&SLJ 277. 163 ASIC Regulatory Guide 112: Independence of experts sets out in detail the ASIC’s views on the appointment of experts in order to maintain independence. See also Ehrlich and Twomey, “Regulating the Independence of Expert’s Reports” (1990) 8 C&SLJ 182. 164 ASIC Regulatory Guide 112: Independence of experts, RG 112.59. 165 See Re BNQ Sugar Pty Ltd (1994) 12 ACSR 695. 166 Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1996) 20 ACSR 637. 167 Ridley MI Pty Ltd v Joe White Maltings Ltd (1996) 22 ACSR 319. See also Levy, “Obligations of Target Companies to Disclose Financial Advice” (1998) 16 C&SLJ 139. 168 Brickworks Ltd 01 [2000] ATP 06, where the directors of a major shareholder of the target stated to the ASX that the offer “undervalued” the shareholder’s investment and that a named expert had reached a similar conclusion. The Panel said this raised a possibility of the announcement being misunderstood as it could be read as implying a valuation had been concluded, but that such a misunderstanding was not material in the circumstances of the bid (given that the bid’s success depended on the major shareholder accepting). The Panel might be stricter now: see Guidance Note 22 Recommendations and Undervalue Statements.

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information in the report is material to target shareholders, it may be appropriate to disclose in takeover documents the existence of the report and a summary of its content. In doing so, the target should make clear the reason for which the report was prepared and any limitations of it.169 ASIC Regulatory Guide 111: Content of expert reports sets out ASIC’s views on the standards it expects in a report concerning the valuation or profitability of a corporation or its assets.170 It outlines valuation methodologies for the expert to consider, including:171 (a) discounted cashflow method and the estimated realisable value of any surplus assets; (b) application of earnings multiples (appropriate to the relevant industry or business) to the estimated future maintainable earnings or cashflows of the entity added to the estimated realisable value of any surplus assets; (c) the amount that would be distributed to shareholders on an orderly realisation of assets; (d) the most recent quoted price of listed securities where there is a liquid and active market; and (e) any recent genuine offers received by the target for any business units or assets. In addition, ASIC has stated that it would also be open to an expert to have regard to the amount which an alternative acquirer might be willing to offer if all the securities on issue in the company were available for purchase.172 However, an expert should not take into account highly speculative alternative proposals.173 An expert should, where possible, use more than one methodology and compare the values derived from different methodologies. The expert should explain and justify its choice of the methodologies used.174

169 Great Mines Ltd [2004] ATP 1 [52] and Chequepoint Securities Ltd v Claremont Petroleum NL (1986) 4 ACLC 711, where reports prepared for shareholders of one company were provided also to shareholders in the counterparty, without sufficient caution that advice that the proposed transaction was advantageous to one company might have the opposite implication for the counterparty. See also Novus Petroleum Ltd [2004] ATP 2 [48]–[53]. 170 ASIC Regulatory Guide 111: Content of expert reports, RG 111.64–RG 111.83. 171 ASIC Regulatory Guide 111: Content of expert reports, RG 111.64–RG 111.73. 172 ASIC Regulatory Guide 111: Content of expert reports, RG 111.70. 173 ASIC Regulatory Guide 111: Content of expert reports, RG 111.71. 174 ASIC Regulatory Guide 111: Content of expert reports, RG 111.67; Bowen Energy Ltd 02R [2009] ATP 19.

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In producing expert’s reports in the mining sector, experts should also comply with industry codes such as the JORC Code175 and the VALMIN Code.176 Experts should base opinions on reasonable assumptions and disclose these assumptions specifically and definitely.177 The Panel has stated that experts are “required to provide information about the information and assumptions used, the methods applied, the risks of error and the expertise and identity of those preparing the figures”.178 If there is a material change in circumstances after the report is prepared, depending on the circumstances, an expert may need to prepare a supplementary report if the failure to do so renders the initial report incomplete, misleading or deceptive.179 Under s 670C(2), the expert will also need to inform the target of any errors or significant changes of which it learns after the date of the report. It is acceptable for an expert to receive an indemnity from the company for any claims arising from information provided by the company or from non-disclosure of material information. However, an expert has a statutory liability for any misleading or deceptive statements or omissions of required material: s 670A. Any purported disclaimer included in the report would itself be misleading.180 An expert’s report is subject to the rules in the Corporations Act prohibiting misleading and deceptive statements: see 9.8.181 Experts’ reports may also be the subject of Panel proceedings. The Panel will assess each case on its merits, recognising that often issues in dispute may well be matters upon which experts might validly disagree.182 In Bowen Energy Ltd 02R [2009] ATP 19, the review Panel determined that a technical expert’s report, which formed the basis of an opinion that a takeover offer price was fair and reasonable, had material deficiencies. The Panel ordered the target to procure a new expert’s report and if the new report had determined that the bid price was not fair and reasonable, the 175 The JORC Code is the industry code issued by the Joint Ore Reserves Committee of the Australian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia, and set out in Appendix 5A of the ASX Listing Rules. See Universal Resources Ltd [2005] ATP 6 [17]–[18]; Midwest Corporation Ltd [2007] ATP 33 [28]; Namakwa Diamond Company NL 02 [2001] ATP 9 [19]–[26] (declaration specifies failure to comply with JORC Code); Northern Energy Corporation Ltd [2011] ATP 2. 176 Code for the technical assessment and valuation of mineral and petroleum assets and securities for independent expert reports. See Bowen Energy Ltd 02R [2009] ATP 19. 177 ASIC Regulatory Guide 111: Content of expert reports, RG 111.74–RG 111.77. 178 Goodman Fielder Ltd 02 [2003] ATP 5 at [67]. Also see Bowen Energy Ltd 02R [2009] ATP 19. 179 ASIC Regulatory Guide 111: Content of expert reports, RG 111.102–RG 111.104. 180 ASIC Regulatory Guide 111: Content of expert reports, RG 111.106–RG 111.110. 181 See Re BNQ Sugar Pty Ltd (1994) 12 ACSR 695 for an example of a case concerning issues arising out of an expert’s report. 182 Auspine Ltd [2007] ATP 18 [52].

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bidder would have been required to give shareholders who had accepted the bid the right to buy back their shares at the bid price.183 Separate to the Panel making orders in relation to expert’s reports, experts have given undertakings in connection to Panel proceedings.184

14.10 Approval and service of target’s statements [14.100] A target’s statement must be approved by the board of the target: s 639. It need not be approved by unanimous resolution, although, in that case, it may be material to spell out any difference in opinion or any refusal of a director to agree to the statement. The target’s statement (and any accompanying report) must be: •

sent to the bidder no later than 15 days after it receives notice that the offers have been sent;

•

sent to target shareholders within the same time frame, but not earlier than it has been sent to the bidder; and

•

sent to the securities exchange and lodged with ASIC on the same day it is sent to the bidder: s 633(1), items 10 – 14.

The better view is that the requirement for it to be “sent” within 15 days of the offer date does not require it to be posted with sufficient time so that it may be received in the ordinary course of post by the required date despite the definition of “sent” in s 29 of the Acts Interpretation Act 1901 (Cth): see [10.2]. Where factors that lead to delay in preparing the target’s statement are beyond the target’s control, ASIC is prepared to extend the time for dispatch of a target’s statement to ensure that all information relevant for offerees can be assembled.185 If the target’s statement contains price-sensitive information, it may be necessary to release that information before the target’s statement is completed in order to comply with continuous disclosure obligations. This may necessitate a summary of the parts of the document or an expert’s report or conclusion to be released in advance of the completed document.

183 See also WMC Resources Ltd [2005] ATP 3, where the presentation of, and methodology contained in, an expert’s report were unsuccessfully challenged. See also ASIC Regulatory Guide 111: Content of expert reports, RG 111.128–RG 111.130. 184 See EPHS Ltd [2002] ATP 12; Volante Group Ltd 02 [2006] ATP 7, where the independent expert provided an undertaking to include in a supplementary target’s statement further information, including the basis for considering that a forecast excluding revenue for a certain contract was not material information for shareholders and a clear explanation of the adjustments used to produce a normalised forecast. 185 ASIC Regulatory Guide 9: Takeover bids, RG 9.462–RG 9.471.

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14.11 Supplementary target’s statements and other actions during the bid [14.110] If the target becomes aware of: (a) a misleading or deceptive statement in the target’s statement; or (b) an omission of information required by s 638; or (c) a new circumstance that has arisen since the statement was lodged, that is material from the point of view of holders of bid class securities, it must prepare a supplementary target’s statement to remedy this defect: s 644.186 The supplementary statement must comply with certain formal requirements.187 It must be given to the bidder, ASIC and the stock exchange as soon as practicable,188 but need not be sent to shareholders if the securities are quoted: s 647. If there are rival bids and one may close before the other opens, it may be appropriate for the target to issue a supplementary statement shortly before the first bid is due to close.189 If there is a change in the terms of the bid, such as a price increase, or other conditions are satisfied or cease to apply, or it becomes inevitable that control will pass, it will be appropriate for directors to issue a statement to shareholders commenting on the development. If the directors change their recommendation, they should communicate that to shareholders or they may be criticised for failing to look after the interests of shareholders. All communications with shareholders should be reviewed carefully to avoid any misleading statements: see 9.8 and 11.1. If the bid is or becomes unconditional and the bidder reaches a shareholding level which confers control, it is usual for the incumbent directors to resign in favour of persons nominated by the bidder. Until the bidder achieves 100% ownership of the company, however, it may be appropriate for at least one independent director to remain on the board to protect the interests of minority holders. This also ensures that there will be a director who is able to act when some measure of independence is required (such as at a board meeting to consider a contract between the bidder and the target, or to commission an expert to make a report in the event of a subsequent bid being made to mop up the minority holdings).

186 Once the supplementary statement has been lodged with ASIC, it is taken together with the original for the purposes of Chs 6 and 6B (liability for omissions and misstatements): s 646. 187 See s 645. The Panel’s preferred format for corrective statements is set out at Guidance Note 5: Specific Remedies – Information Deficiencies, [19]–[22]. 188 See Patrick Corporation Ltd 04 [2006] ATP 16, where the Panel had concerns that Patrick was not prepared to release a supplementary target’s statement until a date 27 days after Toll’s revised bid was announced and 22 days after Patrick had announced that shareholders should reject the bid. The Panel was concerned that these time periods did not satisfy the “as soon as practicable” requirement in s 647. 189 Normandy Mining Ltd 01 [2001] ATP 27.

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14.12 Expenses of directors of the target [14.120] The directors of the target company are entitled to have refunded to them by the company any expenses reasonably incurred by them in the interests of the target company shareholders in relation to the takeover bid: s 642. This applies regardless of anything contained in the target company’s constitution. In practice, the recovery of expenses is rarely an issue. However, if control of the company has passed before the expenses are claimed, s 642 may be important. There are two aspects of the provision which should be noted: •

It is debatable whether the provision would enable a single director (perhaps a minority one) to recover expenses he or she has incurred. The provision is drafted in the plural which suggests it only covers actions taken by the directors collectively as the target board.190 However, this is contrary to the general presumption that the plural includes the singular191 and there seems no policy reason why a minority director should not be able to recover his or her expenses. In any event, apart from s 642, it would seem that if the director is properly discharging his or her fiduciary duty, any expenses in doing so should be recoverable from the company.192

•

The expenses must be “reasonably incurred” in the interests of the shareholders of the target company in relation to the takeover. This will cover expenses in complying with statutory requirements and expenses incurred in connection with gathering information for directors to make a proper decision whether or not to recommend that shareholders accept the takeover offers. It would also cover costs incurred in countering propaganda by the bidder calculated to influence the shareholders’ decision and costs incurred in keeping shareholders informed of developments which might affect the value of their shares.193 It would seem, however, that if a director decided to commission a separate expert to prepare a report on the merits of the offer at the same time as the company commissions its own expert report, the expenses of the second expert are arguably not reasonably incurred and therefore may not be recoverable either under s 642 or under general principles at common law.

190 This view is taken by Renard and Santamaria, Takeovers and Reconstructions in Australia (LexisNexis subscription service), [1142]. 191 Section 23 of the Acts Interpretation Act 1901 (Cth), as at 1 January 2005. 192 As part of their general power to conduct the company’s business, the directors may incur expenses on the company’s behalf to inform shareholders about a decision which they must make, which extends to informing and advising shareholders about control transactions: Advance Bank Australia Ltd v FAI Insurances Ltd (1987) 9 NSWLR 464, and cases there discussed. In that case, the directors failed: although they had acted honestly and bona fide, they had mistaken their own interests for those of the company. 193 Canterbury Frozen Meat Company Limited v Waitaki Farmers’ Freezing Company Limited [1972] NZLR 806.

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14.13 Indicative timetable for target’s response to takeover bid [14.130] The timetable is indicative only. For simplicity, it does not take account of non-trading days of the ASX, Saturdays, Sundays or public holidays. Table 14.1: Indicative timetable for target’s response to takeover bid Day

Activity

0

Bidder’s statement received from bidder. Convene meeting of directors to consider bid and possible announcement to securities exchange and shareholders. Appoint advisers and independent expert if required. Commence preparation of target’s statement. If bid is proportional and target has a proportional takeover approval provision in its constitution, commence preparation of notice of meeting to consider bid. Meeting must be held before 14 days before end of bid period. Last day for bidder to be supplied with details of shareholders, option-holders and convertible note-holders (assuming request made when bidder’s statement served and fee paid). Last day for target’s statement to be provided to bidder and sent to shareholders (assuming offers sent to shareholders by the bidder on the earliest possible date). Copy to be given to ASIC and securities exchange.

2

29

Chapter 15

Substantial Holding Notices [15.10] 15.1 Application of provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 367 [15.20] 15.2 What is a “substantial holding”?. . . . . . . . . . . . . . . . . . . . . . . . . . . 368 [15.30.10] 15.3 Notification of interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370 [15.40] 15.4 General considerations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373 [15.50] 15.5 Documents accompanying notices . . . . . . . . . . . . . . . . . . . . . . . . . 374 [15.60] 15.6 Required disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378 [15.70] 15.7 Disclosure of substantial holder notices . . . . . . . . . . . . . . . . . . . 379 [15.80] 15.8 Penalty and court orders for breach of provisions. . . . . . . . 380 [15.90] 15.9 Compensation for breach of provisions . . . . . . . . . . . . . . . . . . . 381 [15.100] 15.10 Notification of voting power in unlisted target. . . . . . . . . . 381 [15.110] 15.11 Relief from provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381

15.1 Application of provisions [15.10] A person who, together with their associates, has a relevant interest in 5% or more of voting shares in a listed company or interests in a listed managed investment scheme, or who has made a takeover bid for securities in the company or scheme must lodge a substantial holding notice with the company or scheme and the relevant stock exchange under Pt 6C.1 of the Corporations Act. The objective of these provisions is to ensure that members and directors of the company or scheme are provided with sufficient information to enable them to: (a) identify controllers of substantial blocks of voting shares or interests, and the associates of those persons, (b) know the details of any special benefits a person may have received for disposing of his or her interest, and (c) know the details of any agreements or special conditions or restrictions which may affect the disposal of shares or interests or the way in which they are voted.1 1

ASIC Regulatory Guide 5: Relevant interests and substantial holding notices, RG 5.281–RG 5.285. See, for example, Corporate Affairs Commission v Orlit Holdings Ltd (1983) 8 ACLR 164; Re Kern Corporation Ltd (1988) 15 ACLR 302, Corporate Affairs Commission v Engelbrecht (1989) 15 ACLR 13, Industrial Equity Ltd v Commissioner for Corporate Affairs (1989) 1 ACSR 153; oOh!media Group Limited [2011] ATP 9; ASIC v Terra Industries Inc [1999] FCA 525 [96]–[102], per Merkel J; ASC v Bank Leumi Le-Israel [1995] FCA 1744 [206]–[210], per Sackville J; Re North Broken Hill Holdings Ltd (1986) 10 ACLR 270, 282–83; Brunswick NL v Blossomtree Pty Ltd (1992) 7 WAR 226, 234, 235.

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The provisions are limited to relevant interests in voting shares2 in a listed3 company or in interests in a listed managed investment scheme.4 For these purposes, “company” means a company registered under the Corporations Act (s 9).5 Therefore, the provisions will apply to holdings in an entity which is formed and listed in Australia, but not to a foreign incorporated entity, even if listed in Australia. In practice, the preparation of substantial holding notices is often difficult due to the width of the concepts of relevant interests and associations. Although the complexity of an arrangement is unlikely to be an excuse for non-compliance, a technical error is unlikely to result in serious consequences provided the market is generally well informed as to who controls parcels of shares and there is no deliberate attempt to conceal information.

15.2 What is a “substantial holding”? [15.20]

A person has a substantial holding if:

•

the total votes attached to voting shares in the company (or voting interests in the scheme) in which they and their associates have relevant interests are 5% or more of the total number of votes attached to voting shares in the company (or interests in the scheme);6 or

•

the person has made a takeover bid for voting shares in the body (or voting interests in the scheme) and the bid period7 has started and not ended (irrespective of whether the 5% threshold is held): s 9.

Although the concepts are related, the 5% threshold and 1% increments for s 671B purposes capture some categories of relevant interests that would not be counted for the purposes of s 606. A relevant interest is counted for s 671B, although it is not counted (or is exempt) for the purposes of s 606, where the interest is: 2

See discussion at 2.6. The concept of a relevant interest was first formulated for the purposes of the substantial shareholding provisions: see Durbridge and Rich “The Origin of the Australian Takeovers Code” in Damian and James (eds) Towns Under Siege: Developments in Australian takeovers and schemes (Sydney, Ross Parsons Centre 2016), at 2.20.3, 2.2.6(c) and 2.6.2.

3

Defined effectively as listed on the ASX, Asia Pacific Exchange Limited, Chi-X Australia Pty Ltd, National Stock Exchange of Australia Limited or SIM Venture Securities Exchange Ltd: see s 9, reg. 1.0.02A and 2.2.

4

As noted at [2.60.20], all interests in a scheme constituted under Chapter 5C are voting interests.

5

Section 671A extends the operation of the legislation to listed bodies that are not companies but are incorporated or formed in Australia. However, at present, there seem to be no such bodies: see 2.2.

6

See the definition of “substantial holding” in s 9. This threshold is not 5% or more of the votes attached to shares in a particular class, but 5% of all the votes attached to shares in the company.

7

“Bid period” is discussed below. It starts when a bidder’s statement for an off-market bid is served or a market bid is announced to the relevant financial market: s 9.

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•

disregarded under s 609(6) (market traded options) or s 609(7) (conditional agreements);8

•

conferred on a listed company by an escrow under the Listing Rules (which does not create a relevant interest);9

•

exempt from s 606 under item 20 of s 611;10 or

•

held by a participant in an exchange traded fund, by virtue of a withdrawal facility.11

One point of contention is whether holders of equity derivatives over 5% or more of voting shares are substantial holders and required to give a notice. The accepted notion is that a properly structured cash settled equity swap (or other equity derivative which can only be settled in cash) in relation to 5% or more of a company’s voting shares, will not give the holder of the derivative a relevant interest in the underlying shares or give rise to an association such that disclosure is required under the substantial holding provisions. However, given the relevance of such a holding to the market’s understanding who controls parcels of shares, the Takeovers Panel expects that, where there is a “control transaction”, all long equity positions (aggregating relevant interests in physical holdings with long derivatives) which exist, or which are created, are disclosed unless they are below 5%. The Panel does not consider that disclosure of derivatives needs to be made by lodgement of a substantial holder notice. Rather, disclosure may be made by a note annexed to a substantial holding notice where one is required because of the holding of shares or otherwise by written notice to the target.12 Since a company may have a relevant interest in its own shares, a company may be a substantial shareholder in itself.13

8

See the definition of “substantial holding” in s 9 and s 671B(7): these exceptions are discussed at [3.60.60] and [3.60.70].

9

See [3.60.110] and [3.60.120]. ASIC Class Order [CO 11/272] (securities lending—see [3.60.120]) exempts from s 671B, but see ASIC Regulatory Guide 5: Relevant interests and substantial holding notices, RG 5.304.

10 See reg 6.2.01 and 6.2.02 and Schedule 3 to the regulations, which list bodies corporate and public officers in respect of which s 606 does not apply. Exceptionally, ASIC’s relevant interest and voting power in shares (other than shares held on behalf of the Commonwealth) are disregarded for all purposes under Class Order [CO 12/1209]. 11 See ASIC Regulatory Guide 222: Substantial holding disclosure: securities lending and prime broking, RG 222.67 and Class Order [CO 13/721]. 12 See 7.2 and Takeovers Panel Guidance Note 20: Equity Derivatives. 13 Section 608(9), the successor to a provision enacted to reverse Rendoel Pty Ltd v Campbell Investment Co (1985) 9 ACLR 659. See Condor Blanco Mines Ltd [2016] ATP 8.

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15.3 Notification of interests Initial notice of 5% interest [15.30.10] A person must give a substantial holding notice if they begin to have a substantial holding in a relevant company or scheme: s 671B(1)(a). The notice must be given in accordance with s 671B and Form 603 before the end of two business days after the day on which the person becomes “aware” of the information triggering the obligation: see [15.30.50]. The obligation to notify of a new substantial holding continues even if the person ceases to be a substantial holder within that two-day period.14 Bidder’s initial notice [15.30.20] A person making a takeover bid for securities in a relevant company or scheme is taken to have a substantial holding, and must give a substantial holding notice. This obligation is triggered when the person makes a takeover bid and the “bid period” has commenced. This requirement can sometimes require a “nil” notice to be filed.15 After this point, the bidder must file notifications of 1% movements even before it has reached the usual 5% threshold. Although the bid period starts when the bidder’s statement is given to the target in an off-market bid (or when the bid is announced in a market bid – see definition of “bid period” in s 9), the bidder does not become a substantial holder until it has made the bid, that is, until it has sent the bidder’s statement and offers to shareholders.16 On the face of it, s 671B(1)(c) requires a bidder to lodge a substantial holding notice, even if the bid is only for non-voting shares. Since s 9 includes a bidder for voting shares or voting interests in the definition of a substantial holder (but not a bidder for non-voting securities), and s 671B(1) does not require either a bidder or a 5% holder to disclose its relevant interests in non-voting shares (or changes in those relevant interests), the view is open that s 671B(1)(c) should be read as applying only to a bidder for interests or voting shares. See [15.30.50] for when these notices must be given.

14 See s 671B(1)(a), Note 2 to s 671B(1), and ASIC Regulatory Guide 5: Relevant interests and substantial holding notices, RG 5.289 and RG 5.300. 15 A bidder usually lodges an updating notice when it dispatches offers, even if it is already a substantial holder, whose notices are up to date. 16 For a market bid, when offers are made on market: see s 671B(1)(c), the definition of “substantial holding” in s 9, the chapeaux to ss 633(1) and 635(1), and the definition of the date of a bid in s 9. ASIC Regulatory Guide 5: Relevant interests and substantial holding notices, RG 5.293 seems to be incorrect on this point.

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Notice of a 1% change in substantial holding [15.30.30] A person must give a substantial holding notice if they have a substantial holding and there is a movement of at least 1% in their holding from the percentage last disclosed by substantial holding notice: s 671B(1)(b) and Form 604. For this purpose, there is a “movement of at least 1%” in a person’s holding if the aggregate votes of the person and their associates has increased or reduced by one or more percentage points of total votes in the company or scheme: s 671B(2). A change in substantial holding notice may be required, even if the person’s holding has not altered at all and even if the person has not entered into any transaction. This may occur as a result of an issue of new shares to another person or as a result of a cancellation of shares held by another person.17 Conversely, a person who participates strictly pro rata with other holders in a new issue or buy-back by the company or scheme will not need to lodge a further notice as that situation ought not give rise to any change in the person’s percentage holding,18 although the change in the number of shares held must be disclosed in any subsequent notice that is filed. The obligation to give the notice is triggered by the 1% movement, and continues even if the substantial holding moves again, to within 1% of the percentage disclosed in the most recent notice.19 The 1% movement test only has regard to the percentage holding and is not affected by any change in the nature of the relevant interest. For instance, if there is a purchase of shares pursuant to the exercise of an option over existing shares, there would be no movement in the person’s percentage holding (as the person would already have a relevant interest in the shares) and therefore no notice need be given. However, the change in the nature of the relevant interest must be disclosed in any subsequent notice that is filed. The notice of change in interests must be given before the end of two business days after the day on which the person becomes aware of the information triggering the obligation: see [15.30.50]. In practice, there may be some uncertainty as to when a person ceases to have a relevant interest in securities it sells, because the relevant interest only ceases on completion of the sale, or at least payment for the securities.20 This is often dealt with by giving the notice within two days

17 In this case, the person giving the notice may not be able to give the required particulars and copies, except by referring to documents published by the third party. 18 In practice, this needs to be watched, as rounding of numbers of shares and the exclusion of foreign shareholders usually mean that these processes are only approximately pro rata. 19 See s 671B(1)(b), Note 2 to s 671B(1), and ASIC Regulatory Guide 5: Relevant interests and substantial holding notices, RG 5.289 and RG 5.300. 20 NCSC v FAI Investments Pty Ltd (1982) 7 ACLR 152.

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after entry into the contract of sale, but giving a notice two business days after completion of the sale would comply with the law. Notice of cessation of substantial holding [15.30.40] A person must give a notice if they cease to have a substantial holding in a relevant company or scheme, because of a change in relevant interests or associations: s 671B(1)(a) and Form 605. The notice must be given before the end of two business days after the day on which the person becomes aware of the information triggering the obligation: [15.30.50]. Time for giving notices [15.30.50] In general, a person must give the required notice before the end of two business days21 after the day on which the person becomes aware of the information triggering the obligation: s 671B(6)(a). ASIC has power to vary this time limit under ss 673 and 70, even if the application is made after the time has expired. Special provisions apply during a takeover. If a person has served a bidder‘s statement or announced a market bid for voting shares of the relevant company or voting interests of the relevant scheme, s 654B requires a person to give notice of a 1% movement in voting power by 9.30 am on the first trading day on the relevant exchange22 after the person becomes aware of the relevant information during the bid period.23 This applies to all notices and all substantial holders, not just the bidder. This stricter time limit is applied because the control of strategic parcels of shares can be crucial in a contest for control and quick disclosure is thought to be in the interests of all concerned. Because this shorter limit applies to any change in voting power of which a bidder learns during the bid period, it may require a bidder to give a notice on the first trading day after its bid closes, although that is after the end of the bid period. This will apply if the bidder was aware of the change 21 Business day means a day which is not a Saturday, Sunday or public holiday or bank holiday in the place concerned: s 9. The “place concerned” is presumably the place where the target company’s head office is located, or where notice must be given to the relevant market operator. 22 A trading day is a day on which the relevant market is open for trading in financial products: s 9. In s 654B and ASIC Regulatory Guide 5: Relevant interests and substantial holding notices, RG 5.299 and RG 5.302 “business day” should be “trading day”: cf s 671B(6)(b), noting that there appear to be several oversights in the drafting of s 654B. 23 The provisions are not straightforward: s 654B operates from the time a bidder’s statement is served or a takeover announcement is made, and brings forward the time to give a notice which s 671B requires to be given. Neither section applies to a person who has served a bidder’s statement (or made a takeover announcement) but has not yet made offers under the bid, because s 671B(1)(c) only applies once those offers are made: [15.30.20]. A bidder which has yet to make offers may prefer to notify changes in holdings in the target by substantial holding notice, rather than by supplementary bidder’s statement, however.

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when the bid closed: for instance, if it then knew of last-minute acceptances, or that a condition had not been satisfied, and that s 650G had avoided all of the acceptances.24 Combined notices [15.30.60] Because the provisions use the concepts of “relevant interests” and “association”, frequently a number of persons or companies will be substantial holders in relation to the same shares (or interests) because each will be an associate of the others, and many or all of them will need to be mentioned in a notice under s 671B(3)(d). In practice, a composite notice is often given on behalf of all – a practice which is accepted by ASIC, provided the notice identifies each person on whose behalf it is given and provides all of the information that person would have been obliged to give in a notice of their own.25

15.4 General considerations [15.40] The provisions have extraterritorial operation (s 5) and an obligation of confidentiality under foreign law is not an excuse for non-compliance, but it may affect the Court‘s discretion as to remedy.26 In general, a company is “aware” of information if the information is known to those officers of the company who are responsible for obtaining and acting on that information.27 It will also be aware of the information if it is known to the directors or executives to whom the board has delegated authority to act with full discretion and without instructions.28 Knowledge may also be imputed where an officer has a duty to disclose the information to the company, whether or not the company has a duty to receive the information.29 The general duty of an officer to inform the 24 See also ASIC Regulatory Guide 5: Relevant interests and substantial holding notices, RG 5.290. 25 ASIC Regulatory Guide 5: Relevant interests and substantial holding notices, RG 5.317–RG 5.320. If each substantial holder causes or authorises the giving of the composite notice, this satisfies the holder’s obligation to give a notice: s 52. 26 In Australian Securities Commission v Bank Leumi Le-Israel (Switzerland) [1996] FCA 1789 shares were vested in the ASC for sale, but the Swiss bank involved was not ordered to give a substantial holding notice in breach of Swiss law. See also Corporate Affairs Commission v Orlit Holdings Ltd (1983) 8 ACLR 164; Re North Broken Hill Holdings Ltd (1986) 10 ACLR 270, 282 (Fullagar J); Village Roadshow Ltd [2004] ATP 4. 27 Krakowski v Eurolynx Properties Ltd [1995] HCA 68 [38]; (1995) 183 CLR 563. In Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 (PC), it was held, in the context of equivalent New Zealand legislation, that the knowledge of the chief investment officer concerning certain share acquisitions represented the knowledge of the company, even though the officer was not a director. 28 Tesco Supermarkets Ltd v Nattrass [1972] AC 153, 170 (Lord Reid). 29 See ZBB (Australia) Ltd v Allen (1991) 4 ACSR 495, 506 (Waddell J). This does not apply where the director receives the information in confidence: Harkness v Commonwealth Bank of Australia Ltd (1993) 32 NSWLR 543. A director is obliged to give notice to the company of information relating to the director for the purposes of the company’s compliance with Ch 6 of the Corporations Act, as soon as practicable after becoming aware that the

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company of any impending illegality (recognised in ZBB (Australia) Ltd v Allen (1991) 4 ACSR 495) applies to executives as well as directors, but its operation in this context may be limited to a situation where the officer was aware of a potential breach of the substantial holding provisions, rather than merely being aware of certain facts. In determining whether a contravention was due to a person not being aware, ignorance or a mistake concerning the law is disregarded: s 671C(2). Therefore, a failure to appreciate the subtleties of the legislation is not an excuse for non-compliance.

15.5 Documents accompanying notices [15.50] The substantial holding notice must be accompanied by certain documents: s 671B(4). This requires annexing a certified copy of any document which sets out the terms of any relevant agreement30 that “contributed to” the situation giving rise to the person needing to provide the information. The “situation” is the acquisition or change in interests, not the commercial background to the relevant transaction. If no document which contains the terms is readily available to the person giving the notice, they should provide instead a statement giving full and accurate details of any contract, scheme or arrangement, which has contributed to the situation in which the person must give the notice.31 There are two exceptions from this requirement. Documents setting out the terms of the transaction that gave rise to the person needing to give the notice need not be provided if the transaction: •

took place on the stock exchange; or

•

was the acceptance of a takeover offer.32

The requirement to append documents has given rise to a great deal of consternation by shareholders in situations where the documents contain sensitive commercial information, which is arguably not relevant to the market, yet within the documents required to be appended.

information is relevant for those purposes: s 205F. There is no equivalent provision for an executive officer or a secretary. A director of a listed company is also obliged to disclose changes in his or her relevant interests in securities of the company under s 205G, and commonly does so by providing the necessary information to the company secretary. 30 This is defined as including an agreement, arrangement or understanding: s 9. 31 Section 671B(4)(b). Such a statement need only contain full and accurate details of the relevant agreement in question. The paragraph and the continuation paragraph following it use “contract, scheme or arrangement” in place of “relevant agreement” or “arrangement, agreement or understanding”, but the meaning seems to be the same. 32 Section 671B(5) and ASIC Regulatory Guide 5: Relevant interests and substantial holding notices, RG 5.313 and 5.323 and Class Order [CO 13/524]. This relief does not affect the content of the notice proper, however.

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The test for inclusion is causal: a document must be provided if it sets out terms of a relevant agreement which contributed to the change in relevant interests which must be disclosed, whatever else it may contain, and even if another agreement also contributed to that situation. The expression “contributed to” is wide and imprecise, but it has been read as picking up any relevant agreement through which a person has a relevant interest, and any other relevant agreement on which the first agreement is conditional or dependent.33 This requirement takes further the requirement to set out in the notice details of any relevant agreement through which the person giving the notice, or an associate, has a relevant interest in securities. It deals with the case where the relevant interest is brought into being by, or pursuant to, interlocking agreements, by requiring a document setting out the terms of each such agreement to be attached to the notice. Given how widely this requirement has been read, it is worth noting that: (a) it applies only to a document which sets out the terms of a relevant agreement: a letter of offer should not be provided (unless the offer was simply accepted); (b) it applies only in respect of a relevant agreement which contributes to the situation: whether the document itself contributes to the situation (except as embodying such an agreement) is irrelevant;34 (c) “any document” which sets out the terms of a relevant agreement does not mean each and every document which sets out some or all of those terms: it means some document, of whatever kind, which sets out the terms. To continue the previous example, a letter of offer should not be attached, as well as a contract which repeats the same terms; (d) the document which sets out the terms may not be the agreement itself.35 For instance, where parties deal on the basis of a template agreement, that template will set out many of the terms of their

33 New Ashwick Pty Ltd v Wesfarmers Ltd (2000) 35 ACSR 265: the expression “through which” was taken from s 671B(3)(c) and (d)(iii). Provisions of the former Corporations Law referred to “any [relevant] agreement, or any other circumstances, because of which the person or the associate acquired that interest or has that interest”. 34 New Ashwick Pty Ltd v Wesfarmers Ltd (2000) 35 ACSR 265. In Investa Office Fund [2016] ATP 8 [85] a submission was made that s 671B(4) had required emails and presentations relevant to a transaction to accompany the resulting notice: the Panel did not pursue this proposal, but it did not give its reasons for rejecting it. The vice of the proposal seems to have been that it overlooked this point. 35 Section 671B(4)(b) and the continuation paragraph following it appear to assume that s 671B(4)(a) requires a copy of the “contract, scheme or arrangement” itself to be provided, as does RG 5.305, but the words of s 671B(4)(a) are clear.

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agreement, to be supplemented on particular occasions by specifics of date, quantity, class, price and so on;36 (e) if no one document sets out all of the terms of the relevant agreement in question, copies of documents which between them set out all of those terms should be provided; and (f) the document (or documents) provided as setting out the terms of the relevant agreement (or agreements) should not be redacted.37 Point (e) above is critical, and is based on two decisions:38 •

In New Ashwick, shares were issued under detailed heads of agreement, but only a simple subscription letter was attached to the resulting notice. The Court held that the relevant agreement through which the obligations to subscribe for and issue the shares arose was the heads of agreement, a copy of which should have been attached.

•

In Austar, a notice was lodged while shareholding arrangements (including detailed provision about the board and management of the listed company) were being settled. No details of the arrangements were provided. The Panel said that those arrangements should have been described in a statement under s 671B(4)(b), if a final agreement was not available in time to be attached to the notice. More generally, the Panel said that where (a) a transaction is effected by various connected agreements; and (b) the obligation to give a substantial shareholding notice is triggered by entry into the first agreement, s 671B(4)(b) will usually require disclosure of the other written agreements or, if they have not yet been finalised, a written description of the other agreements still under negotiation.

A relevant agreement contributed to the situation which gave rise to the need to give the notice (an increase or reduction in disclosable interests) if it brought about the issue of shares included in those interests.39 Otherwise, a relevant agreement contributes to the need to give a notice if it affects disclosable interests by conferring powers or rights which directly or indirectly constitute relevant interests, or by constituting an association, in one of the ways discussed in Ch 3. An ancillary agreement executed at the same time, which does not affect those interests, does not “contribute” and need not be disclosed.

36 In practice, however, notices generally do not include copies of standard template agreements, which would probably not assist users of the notices. 37 Investa Office Fund [2016] ATP 6 [78]–[93]. 38 New Ashwick Pty Ltd v Wesfarmers Ltd (2000) 35 ACSR 265; Austar United Communications Ltd [2003] ATP 16 [39]–[45]; KBL Mining Ltd [2015] ATP 3, KBL Mining Ltd v Kidman Resources Ltd [2015] NSWSC 515 [82] per White J. 39 New Ashwick Pty Ltd v Wesfarmers Ltd (2000) 35 ACSR 265. No doubt an agreement to cancel shares formerly included in that voting power, or to issue or cancel shares which diluted or concentrated that voting power also contributes.

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Understood in this way, s 671B on occasion requires the disclosure of unrelated information, which happens to be included in a document which must be lodged as an attachment to a notice. The document must be lodged, because it contains terms of an agreement needed for the purposes set out at 15.1. The policy evident in s 671B requires no more information than it specifies for those purposes: anything else it happens to require in particular circumstances is unspecified by-catch. In this context, it is impossible to support the position taken by ASIC (and to a lesser extent, the Panel), that it is unacceptable to make any redaction at all from a document which a person attaches to a substantial holding notice in compliance with s 671B(4)(a). Obviously, any redaction may require an exemption from ASIC, and where material contributes to the objective of the section, to redact it may be unacceptable.40 If the giver of the notice has a document (or prepares a statement) which sets out the required terms but does not include any additional material, however, the letter and policy of the section are satisfied by attaching that document to the notice, so it is not per se unacceptable to omit extraneous information. Accordingly, the omission to lodge every document that contributed, however indirectly and immaterially, to the situation giving rise to the notice requirement will not mean that the notice does not comply with s 671B, let alone that unacceptable circumstances will arise within the meaning of s 657A.41 That would only be the result if the omitted documents contained information material to the policy of the section, not already disclosed to the market, not merely information of marginal relevance.42 Where a broad arrangement may give rise to a disclosable change in relevant interests, it may be prudent to divide it into agreements which affect the policies mentioned above, which are liable to be disclosed, and agreements which deal with other matters, which the parties may properly withhold, unless an agreement which must be disclosed is dependent on an agreement which it is proposed to withhold. The Panel has suggested that, in some cases, where all material information is disclosed to the market and disclosing the actual underlying documents may cause considerable commercial detriment to parties, there would not be any utility in parties being required to lodge relevant documents. In those circumstances, the Panel suggested that a modification of the requirement to lodge documents could be sought from ASIC. However, while ASIC has exercised such a power before, it appears that it will generally be reluctant to grant such a modification.43 40 As mentioned in Investa Office Fund [2016] ATP 6 [91]. 41 Austar United Communications Ltd [2003] ATP 16; Bowen Energy Ltd [2007] ATP 22 [38]. 42 Normandy Mining Ltd 02 [2001] ATP 28; National Foods Ltd 01 [2005] ATP 8; and National Foods Ltd 02 [2005] ATP 10. 43 National Foods Ltd 01 [2005] ATP 8; ASIC Regulatory Guide 5: Relevant interests and substantial holding notices, RG 5.305–RG 5.308.

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15.6 Required disclosures [15.60] A substantial holding notice must disclose the information specified by the legislation. Section 671B(3) requires the notice to disclose the following information:44 (1) The name and address of the substantial holder. This requires disclosure of each person or company holding a relevant interest in the securities and relevant associates. It will generally include all related bodies corporate (due to the deeming provision in s 608(3)). Strictly speaking, therefore, each time a subsidiary is formed, acquired or sold, the subsidiary would be obliged to give a notice; (2) Details of their relevant interests in voting shares in the company or interests in the scheme. This should be answered by reference to the definition of relevant interest in s 608, which includes such items as “holder,” “power to vote in respect of a share” or “power to dispose of a share”. It should not be answered by generic references to provisions of the legislation (such as “relevant interest under s 608”) or in vague terms.45 Accordingly, “beneficial ownership” is not necessarily a correct answer by itself. Any qualification of the power of a person to exercise, control the exercise of, or influence the exercise of, the voting power or disposal of the securities to which the relevant interest relates must be disclosed (indicating the securities to which the qualification applies). The class and number of shares in which each holder has a relevant interest should be stated, and broken down if there are various holders named; (3) Details of any relevant agreement through which the holders have their relevant interest. It is not clear what details are required, though it would seem necessary to disclose the nature of the right or power constituting the relevant interest, and the consideration given to acquire that right or power, which are the details that are most relevant in light of the objectives of the provisions; (4) The name of each associate who has a relevant interest in voting shares in the company or interests in the scheme, together with details of the nature of the association,46 the relevant interest of the associate and any relevant agreement through which the associate has the relevant interest; (5) If the notice is being given because of a movement in the relevant holding, the size and date of that movement; (6) If the notice is being given because a person has ceased to be an associate, the name of that person; and 44 See ASIC Regulatory Guide 5: Relevant interests and substantial holding notices, RG 5.309–RG 5.312 and the detailed discussion in Table 12.1. 45 National Can Industries Ltd 01 [2003] ATP 35 [69]. 46 Grand Hotel Group [2003] ATP 34 [33]–[45], where the Panel stated that merely referring to the limb of the s 12 definition which applied was insufficient.

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(7) Any other particulars that are prescribed. Further information is prescribed in the relevant forms contained in Corporations Regulations, Schedule 2, Forms 603–605. In addition to the information above, these forms require disclosure of the following: (a)

The name of each person registered as holder of any of the shares in which the relevant interest is held and the name of any person entitled to become registered as a holder of those shares. In a takeover situation, strictly speaking, this requires that all accepting shareholders must be listed. Generally, a person is only “entitled to become registered” if the person has lodged a duly executed transfer and the relevant share certificates (if any) with the company.47 However, in the context of the right of third parties to accept takeover offers, it has been held that a person is entitled to become registered at the time of purchasing shares on the market.48 The question of whether this approach will apply to the substantial holding provisions remains open. A person is not “entitled to become registered” merely because he or she is the beneficial owner of shares held by a nominee where there is no intention to transfer the shares to the owner;

(b) The consideration paid for each relevant interest disclosed in the form, though if the notice being given is the initial notice, only acquisitions in the four months prior to the day the person became a substantial holder need be disclosed; (c)

Any qualification of the power to exercise, or control the exercise of, the voting power or disposal of the relevant shares;49

(d) For notices other than the initial notice, identification of any persons who have become associates or have changed the nature of their association since the last notice. Also see 15.5 for a discussion of documents which must accompany a substantial holding notice.

15.7 Disclosure of substantial holder notices [15.70] A substantial holding notice must be given to the operator of the market on which the relevant company is listed, which publishes the notice as an announcement concerning the company. A company is no longer obliged to maintain a separate register of substantial holding notices, though it may be useful in order to have a convenient record of major 47 Commissioner of Taxation (Cth) v Patcorp Investments Ltd (1976) 140 CLR 247, 303 (Jacobs J); TNT Australia Pty Ltd v Normandy Resources NL (1989) 53 SASR 156 [172]–[173] (Jacobs J). 48 GIA (Nominees) Pty Ltd v Bacdilet Pty Ltd (1989) 15 ACLR 501; see also criticism of the case in Barrett, “Company Takeovers: Acceptance of Offers by Buyers of Shares – Companies (Acquisition of Shares) Act 1980 s 25” (1990) 8 C&SLJ 130. 49 ASIC appears to take the view that, where the shares are held for a third party who can control the voting rights, details of the voting rights must be disclosed and the relevant shares identified.

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holdings in the company and to enable the company to include details in its annual report under ASX Listing Rule 4.10.4. It is an open question whether a company or responsible entity is, because of the giving of a substantial holding notice, taken to have notice of, or put on inquiry as to, a person’s right in relation to a share in a company or interest in a managed investment scheme.50 The previous provision negating this implication was repealed, but the corresponding provision concerning tracing notices has been re-enacted (see s 672E, discussed in 16.4).

15.8 Penalty and court orders for breach of provisions [15.80] A person who fails to lodge a substantial holding notice in accordance with the relevant provisions is guilty of an offence and liable to a fine of $4,500 or six months jail or both.51 In addition, the court may make such orders as it thinks fit, including a remedial order:52 s 1325A(1).53 The application can be made by ASIC,54 the company, the responsible entity of the scheme, a member or a former member, a person from whom securities were acquired or by any person whose interests are affected: s 1325A(3).55 The court must not make an order, other than an order freezing voting or other rights attached to the relevant shares or directing any exercise of such rights to be disregarded, if it is satisfied, in all the circumstances, that the contravention ought be excused: s 1325D(3). Failure to comply may also constitute unacceptable circumstances and lead to an order by the Takeovers Panel if the breach is material.56 Examples of 50 Left open by Finkelstein J in Immobilari Pty Ltd v Opes Prime Stockbroking Ltd [2008] FCA 1920 [23] and by Barrett J in Melewar Steel Ventures Ltd v Opes Prime Stockbroking Ltd [2009] NSWSC 22 [39]–[44]. 51 Section 1311, item 228 of Schedule 3 and Crimes Act 1914 (Cth)s 4AA. If a body corporate is in breach, the maximum penalty is a fine of five times as much as applies to an individual: s 1312. 52 See discussion of remedial orders in 21.6. 53 In New Ashwick Pty Ltd v Wesfarmers Ltd (2000) 35 ACSR 265 the court ordered disclosure of agreements omitted from the formal notice. 54 ASIC’s approach to enforcement of the substantial holding provisions is set out in ASIC Regulatory Guide 5: Relevant interests and substantial holding notices, RG 5.321–RG 5.324. In practice, more (and more successful) enforcement action has been taken under these provisions than under any other part of the takeovers code. 55 See also 16.5. The considerations relevant to a breach of the substantial holding provisions tend to be the same as for a breach of the tracing notice provisions, and the facts very often involve both. 56 See Normandy Mining Ltd 02 [2001] ATP 28; Village Roadshow Ltd [2004] ATP 4; Rivkin Financial Services Ltd [2004] ATP 14; Rusina Mining NL [2006] ATP 13 for examples of the Panel dealing with a failure to comply with the substantial holder provisions. In Citect Corporation Ltd [2006] ATP 6, a substantial holding notice in respect of the off-market purchase of 15% of the target was lodged at 10.41 am on the second trading day after the purchase. The Panel made a declaration of unacceptable circumstances saying the breach was not merely technical or trivial.

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orders made, where the Takeovers Panel has made a declaration of unacceptable circumstances in relation to a breach of the substantial holding provisions, includes orders that relevant shares not be voted for a period of two months (which was considered sufficient time for the market to absorb corrective disclosure)57 and that the relevant shares be vested in ASIC and sold down via a bookbuild. These powers are protective or remedial in nature, not punitive.58

15.9 Compensation for breach of provisions [15.90] A person who fails to lodge a substantial holding notice in accordance with the relevant provisions may be liable to pay damages to any person who suffers loss or damage as a result, unless it is proved the failure was due to inadvertence or mistake or lack of awareness of a relevant fact or circumstance, though not a matter of law: s 671C.

15.10 Notification of voting power in unlisted target [15.100] If the target is not a listed company, the bidder must give the target a notice stating the bidder’s voting power in the target if, during the bid period, the bidder’s voting power in the target reaches 25%, 50%, 75% or 90%: s 654C(1).59 The notice must be given as soon as practicable, and in any event within two business days after the increase in voting power occurred: s 654C(2). The target must make notices received by it available for inspection at the registered office by any holder of bid class securities during the bid period and must lodge the notices with ASIC: s 654C(3). There is no prescribed information required about the securities acquired, nor is there a prescribed form.

15.11 Relief from provisions [15.110] ASIC has power to exempt a person from ss 671B, 654B and 654C, or to apply those sections with modifications: see ss 673 and 655A and 16.7. A decision under s 655A is reviewable on the merits by the Takeovers Panel, as is a decision under s 673 which relates to securities of the target of a takeover bid and is made during the bid period. Other decisions under s 673 are reviewable by the Administrative Appeals Tribunal: ss 656A and 1317B.

57 Azumah Resources Ltd [2006] ATP 34. In Northern Iron Ltd [2014] ATP 11, the Panel did not order a voting freeze (noting that no meeting could be held for at least 28 days) but froze the ability to creep under item 9 of s 611 for six months. 58 Village Roadshow Ltd [2004] ATP 4. See 21.6: in Flinders Diamonds Ltd v Tiger International Resources Ltd [2003] SASC 158, acting under a similar power in s 1325A, Williams J vested shares acquired in breach of s 606 in ASIC for sale, but in Flinders Diamonds Ltd v Tiger International Resources Ltd [2004] SASC 119 the Full Court, while upholding the findings as to breach, held that this order went further than was appropriate for remedial purposes, and revested the shares. 59 As defined in s 610: none of the refinements of the voting power concept which are mentioned in 15.2 apply to these notices.

Chapter 16

Tracing Beneficial Ownership [16.10]16.1 [16.20]16.2 [16.30]16.3 [16.40]16.4 [16.50]16.5 [16.60]16.6 [16.70]16.7

Purpose and scope of the provisions . . . . . . . . . . . . . . . . . . . . . . . . 383 Tracing notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383 Response to tracing notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 386 Disclosure of responses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389 Penalty and court orders for breach of provisions. . . . . . . . . . 390 Compensation for breach of provisions . . . . . . . . . . . . . . . . . . . . . 391 Relief from provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 391

16.1 Purpose and scope of the provisions [16.10] Pt 6C.2 of the Corporations Act, entitled “Tracing Beneficial Ownership of Shares”, enables ASIC or a listed company or managed investment scheme to compel disclosure of the identities of persons who stand behind a registered member.1 The objectives of the provisions are: to assist the company or scheme and the market in becoming informed as to the identity of controllers of substantial blocks of shares; to assist in determining whether the substantial holding provisions are being observed and whether the securities were acquired legally.2 The provisions apply in relation to listed companies, listed managed investment schemes and other listed bodies incorporated in the jurisdiction.3 The provisions have extraterritorial operation: s 5.4

16.2 Tracing notices [16.20] Under s 672A, a disclosure notice may be given by a listed company or a listed managed investment scheme. ASIC may also give a 1

Acre Developments Pty Ltd v NCSC (1987) 12 ACLR 187, 193 (O’Loughlin J). Although the heading to Pt 6C.2 is “Tracing beneficial ownership of shares”, the heading is historical, and the provisions focus on relevant interests, not beneficial interests: see Durbridge and Rich “The Origin of the Australian Takeovers Code” in Damian and James (eds) Towns Under Siege: Developments in Australian takeovers and schemes (Sydney, Ross Parsons Centre 2016), at 2.2.3, 2.2.6(c) and 2.6.2.

2

See ASIC Regulatory Guide 86: Tracing beneficial ownership at [86.11] and Brunswick NL v Blossomtree Pty Ltd (1992) 10 ACLC 658, 667.

3

Sections 671A and 672A: this is the same as for the substantial holding provisions in s 671B. See 15.1 and 2.2 for discussion of companies to which those provisions apply.

4

See 2.3 and 15.3.

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direction on its own volition and must give a direction when requested to do so by a member of the company or scheme, unless ASIC considers that it would be unreasonable to do so in all the circumstances: s 672A(2).5 ASIC has stated that it will normally issue a direction at the request of a member if the request demonstrates that the information sought will contribute to an informed market in the relevant securities and if the request states that the member will take action to enforce the direction if it is not complied with.6 ASIC may also issue a direction following a request by a person who is not a member (in reliance on its power to issue directions on its own volition). In making such a request, the non-member needs to explain its interest in the information sought, whether it would have standing to enforce compliance with the direction and why it does not become a member and make a request to ASIC as a member. ASIC considers that it may be more difficult for a non-member to persuade it to issue a direction. Much will depend on whether ASIC is concerned that the market will be uninformed without the information sought.7 ASIC considers that the market’s need of information, and its preparedness to issue a direction, will be greater if the relevant company or scheme is involved in “an active takeover situation”.8 The initial disclosure notice may only be given to a “member” of the company or the scheme: s 672A(1)(a). This is sometimes referred to as a primary direction or a primary tracing notice. This requires the person to be currently registered as the holder of shares or interests.9 This limitation means that the procedure often cannot be invoked successfully until a transfer is registered. A person acquiring shares off-market may be able to escape detection for some time by delaying the submission of transfers for registration. A primary notice can be given in respect of voting or non-voting shares (unlike a secondary notice which can only be given in respect of voting shares).10 As the provisions only require disclosure of relevant interests in shares11 or instructions about the acquisition or disposal of shares or the exercise of voting or other rights attached to shares, the provisions would not uncover a derivative which provides for

5

For instance, if to give the notice would be unnecessary or vexatious—ASIC Regulatory Guide 86: Tracing beneficial ownership, [86.11].

6

ASIC Regulatory Guide 86: Tracing beneficial ownership, [86.5] and see [86.7], which sets out details ASIC expects in an application. ASIC prefers a member to make a request via a form 6071A: see [86.16]. See 16.5.

7

ASIC Regulatory Guide 86: Tracing beneficial ownership, [86.8]–[86.10].

8

ASIC Regulatory Guide 86: Tracing beneficial ownership, [86.18].

9

Sections 231 and 601ED(4), Re Murchison Holdings Ltd [2009] VSC 528, Kingston v Keprose Pty Ltd (1987) 12 ACLR 609. In Viento Group Ltd [2011] ATP 1 [145], the Panel criticised notices given to the principals of the companies which were the relevant members.

10 Village Roadshow Ltd 01 [2004] ATP 4. 11 Relevant interests under market traded options or conditional contracts appear to be excluded from these provisions by s 609(6) or (7): s 671B(7) applies only for the purposes of s 671B. The other exemptions mentioned at 15.2 do not affect Pt 6C.2.

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a cash settlement only.12 However, ADR holdings are likely to be uncovered as they typically give the holder power to control the voting of an underlying share. A disclosure notice may also be given to a person who has been named in a response to an earlier notice as having a relevant interest in, or as having given instructions about, voting shares13 in the company or interests in the scheme: s 672A(1)(b). This is sometimes referred to as a secondary direction or secondary tracing notice. The information must have been received in response to an earlier valid primary or secondary notice. Information received pursuant to a personal inquiry or other communication, such as a substantial holding notice, is not sufficient, nor may a notice be given based on a response which merely suggests a person “may” have a relevant interest. It is necessary for the person to be named as actually having a relevant interest, or having given instructions.14 There is a question whether a person who receives a notice as a member or as a person named in an earlier response can be required to disclose details regarding all shares15 in which the person may hold a relevant interest or only about the shares identified in the notice. The legislation is not explicit. Section 672A(1) identifies a person to whom a secondary notice may be given by reference to particular voting shares, but identifies a person to whom an initial notice may be given simply as a member, with no express reference to any shares. Section 672B(1)(a) requires disclosure of the recipient’s relevant interest in “the shares”, a phrase which implies that the shares in question have already been identified and is inconsistent with the disclosure being required in respect of all shares in the company. In its application to a secondary notice, “the shares” in s 672B(1)(a) refers to the shares identified in the notice as shares in respect of which the recipient has been named as having a relevant interest or as having given relevant instructions, and the response need only relate to those shares.16 It would be odd if an initial notice required a broader response, as “the shares” should have the same meaning, as near as possible, in relation to an initial notice, and can be taken as referring to the shares of which the recipient of the initial notice is the registered holder. The relevant explanatory materials are silent on the point, but this was the clear effect of the

12 Takeovers Panel Guidance Note 20: Equity Derivatives does not require writers of cash settled equity derivatives who also hold shares to disclose, in response to a tracing notice, information about any equity derivatives they have written in relation to the securities. 13 As noted above, this rule only covers voting shares, so that a secondary notice in respect of non-voting preference shares is invalid. 14 Re Henderson’s Industries Ltd (1986) 13 ACLR 506. 15 Limited to “voting shares” in a secondary notice. 16 Under predecessor sections, although the response to a notice disclosed that another person had a relevant interest in some only of the relevant voting shares, it was possible to give a secondary notice in respect of all of the shares specified in the first notice: Re North Broken Hill Holdings Ltd (1986) 10 ACLR 270, 281 (Fullagar J).

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predecessor provisions17 and it is arguable that Parliament should not be taken to have altered the effect of legislation upon a re-enactment unless such an intention is expressed. Therefore, the better view appears to be that the recipient need only respond in relation to the shares identified in the notice. On this interpretation, several consequences follow: •

a notice which seeks disclosure in relation to other shares or which does not identify particular shares may be invalid (or partially invalid);

•

a notice which relates to shares which the relevant member no longer holds is invalid;18 and

•

if the number of shares held by the recipient of the first notice increases after the notice is given, a notice to a person named in the response may not be validly given in respect of the increased number unless another notice in respect of the additional shares has been given to the registered holder.19

There is no form prescribed for the disclosure notice. In Crosley Ltd v North Broken Hill Holdings Ltd [1987] VR 119, the court considered the validity of a notice under predecessor legislation which required that a prescribed form be used. The court decided that the notice was invalid as it omitted a statement that exemption from compliance could be sought. This statement was regarded as an essential element of the prescribed form. Even though the law has now changed, the strictness applied by the court suggests that, to be effective, a disclosure notice must particularise the disclosures required by s 672B, together with any exceptions, in order for it to constitute a valid notice. In any event, it is prudent to set out the requirements of the legislation to ensure that a recipient understands the obligation and that a correct response is received. A notice may be given by facsimile.20 The company or scheme must pay a $5 fee to the recipient if it gives a notice: s 672D; Corporations Regulations, Schedule 4, item 5. A fee of $540 is also payable where a member requests ASIC to give the notice: Corporations (Fees) Regulations, 2001 (Cth), item 23.

16.3 Response to tracing notices [16.30] A person who receives a notice must disclose to the person giving the notice:

17 Former Pt 6.8 of the Corporations Law provided for a primary notice about shares to be given to the holder of the shares, and to require disclosures about the shares. 18 Re Murchison Holdings Ltd [2009] VSC 528. 19 As appears to have occurred in Re North Broken Hill Holdings Ltd (1986) 10 ACLR 270. A secondary notice given to a person who was named in respect of some only of a particular holding would be valid, if it was limited to that part of the holding. 20 ASC v Bank Leumi Le-Israel Switzerland (1996) 21 ACSR 474.

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(1) full details of their own relevant interest in the shares or interests in the scheme to which the notice relates and of the circumstances that gave rise to that interest; (2) the name and address of each other person who has a relevant interest in any of those shares or interests (together with full details of the nature and extent of the interest and circumstances that gave rise to the other person’s interests); and (3) the name and address of each person who has given the person instructions about the acquisition or disposal of those shares or interests, the exercise of any voting or other rights attached to the shares or interests or any other matter relating to the shares or interests, together with full details of those instructions (including the date or dates on which they were given): s 672B(1). The information referred to in paragraph (1) or (2) need only be disclosed to the extent to which it is known to the person required to make the disclosure: s 672B(1A).21 The disclosures required to comply strictly are potentially extremely onerous especially in relation to the obligation to disclose instructions, which is not expressly limited in time. They are, however, probably limited to presently existing relevant interests and current instructions, relating to shares presently held.22 Upon receipt of the disclosure notice, the recipient has two business days23 to reply: s 672B(2). However, if the disclosure notice is given by a company (or a responsible entity), this time limit is extended until two business days after the applicable fee has been paid to the recipient (which can extend the time significantly if the notice and payment must be sent overseas).24 Alternatively, the recipient may apply to ASIC for an exemption under s 673 from the obligation to make the disclosure.25 This suspends the obligation to comply until two business days after a request for exemption is refused: s 672B(2)(b). Some indication of the approach ASIC may take to such an application comes from the previous law which expressly required that a request for exemption set out the “special reasons” relied upon. This required facts or circumstances special to the particular instance which are

21 But if the recipient says it does not know any of those matters, a vesting order can be sought under s 1325A(1): see 16.5. 22 Re Murchison Holdings Ltd [2009] VSC 528 [77]–[79], per Robson J. 23 Business day means a day which is not a Saturday, a Sunday, a public holiday or bank holiday in the place concerned: s 9. The “place concerned” is presumably the place where the company or scheme’s head office is located. 24 Delivery of a cheque is regarded as actual payment subject to a condition subsequent that the cheque will be honoured when presented: Felix Hadley & Co v Hadley [1898] 2 Ch 670. If payment was regarded as having occurred when the cheque was presented or honoured, a direction under the legislation could be circumvented by the recipient delaying presenting the cheque to his or her bank. 25 This power is discussed 16.7.

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extraordinary, unusual or atypical.26 A claim that a notice is invalid, even if the subject of court proceedings as to its validity, is not a special reason. ASIC is entitled to leave such questions for the court to decide.27 ASIC has stated that it will not regard the confidentiality requirements of nominees and/or their principals or the cost and inconvenience of providing information as special reasons.28 ASIC has stated that in considering whether to grant an exemption it must consider the purposes of Ch 6 as set out in s 602. These include ensuring that acquisitions of control take place in a fully informed market. In this respect, ASIC envisages that it will not often grant an exemption.29 Interference in the course of justice in actual litigation may be sufficient grounds to excuse compliance. This would be the case if the direction would compel disclosure of such extensive information that the recipient would, as a result, be unable to simultaneously comply with his or her obligations as a litigant in a court action, or if the remedies are sought to be invoked for non-compliance when another court action is on foot to determine the same issue.30 Where the response to a notice may involve the provision of a wide range of information, such as for a nominee company, ASIC has suggested that the company and the recipient attempt to reach informal agreement as to the nature and extent of information to be provided. ASIC considers that the purpose of the legislation may be satisfied, and it would not take enforcement action in such a case, if the nominee discloses: •

the persons on whose behalf the shares are held;

•

any other person who has a relevant interest, including, for example, a person who has the power to give instructions to the nominee; and

•

any current instructions and their date of issue in relation to voting and dividend rights and to the holding and disposal of the shares.31

If a statement made in response to a notice is incorrect or incomplete, a person who authorised the making of the statement may be guilty of an

26 Acre Developments Pty Ltd v NCSC (1987) 12 ACLR 187, 193 (O’Loughlin J). This language is used in ASIC Regulatory Guide 86: Tracing beneficial ownership, [86.24] when discussing ASIC’s current policy on granting exemptions. 27 Acre Developments Pty Ltd v NCSC (1987) 12 ACLR 187, 193 (O’Loughlin J). 28 ASIC Regulatory Guide 86: Tracing beneficial ownership, [86.24] and Regulatory Guide 51: Applications for relief at [51.58]. ASIC does not envisage that exemptions will be readily granted unless the information is already available or the direction was vexatious. 29 ASIC Regulatory Guide 86: Tracing beneficial ownership, [86.28]–[86.30]. 30 Adsteam Building Industries Pty Ltd v Queensland Cement and Lime Co Ltd (No 3) (1985) 9 ACLR 46. For a case in which it was argued that a request made to a company by a shareholder could be an abuse of process, see Blossomtree Pty Ltd v Brunswick NL (1991) 4 ACSR 677. 31 ASIC Regulatory Guide 86: Tracing beneficial ownership, [86.58].

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offence if he or she knew it to be incorrect or failed to take reasonable steps to ensure it was not incorrect: s 1308(2). A person does not have to comply with a notice if they can prove that the giving of the notice is vexatious: s 672B(3). The common legal meaning of “vexatious” is something which is insupportable in law, disclosing no cause of action or groundless.32 In this context, however, it would seem to refer to the situation where a notice is repeatedly given without a reasonable basis to do so or intended to cause trouble or annoyance.33 Non-compliance with the tracing provisions is not, however, excused by a holder’s compliance with foreign legislation.34 Where ASIC receives information in response to a direction given at the request of a person, it may provide the information to the company or scheme and must provide it to the person who requested that the notice be sent, unless it considers that to do so would be unreasonable: s 672C. ASIC’s usual policy is to provide all information obtained to the company and to the person at whose request it issued the notice.35

16.4 Disclosure of responses [16.40] A company which has received information under a notice may need to disclose that information to the ASX if it would be price sensitive information.36 A listed company or managed investment scheme must maintain a register of information received pursuant to a tracing notice on or after 1 January 2005 (whether the information is received pursuant to a notice given by the company or scheme or received from ASIC pursuant to a notice given by it): s 672DA(1). The register must contain:37 (1) the name of each holder of shares in a company or interests in a scheme to whom the information relates; (2) against the name of each such holder the name and address of each:

32 Dey v Victorian Railways Commissioners (1949) 78 CLR 62, 91. 33 Aspar Autobarn Cooperative Society v Dovala Pty Ltd (1987) 74 ALR 550, 554 (Woodward J) (not a case dealing with these provisions). 34 See 15.4; ASC v Bank Leumi Le-Israel Switzerland (1996) 21 ACSR 474; Village Roadshow Ltd [2004] ATP 4; Rusina Mining NL [2004] ATP 13 [32]. 35 ASIC Regulatory Guide 86: Tracing beneficial ownership, [86.36]–[86.38]. The policy actually says the “member” who requested the notice be issued, but seems to mean “person”. ASIC policy is not to disclose the identity of a person who requested it to issue a notice. 36 ASX Listing Rule 3.1. 37 Section 672DA(6). Also see ASIC Regulatory Guide 86: Tracing beneficial ownership, [86.31].

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• other person who has a relevant interest in the shares (together with details and circumstances of the relevant interest); and • other person who has given relevant instructions in relation to the shares (with details of those instructions); and (3) the date on which an item of information was entered on the register. Information must be entered in the register within two business days of it being obtained: s 672DA(9).38 The register must be kept at the company’s (or the responsible entity of the scheme’s) registered office, principal place of business in the jurisdiction, a place where the work involved in maintaining the register is done (for example, a company’s share registry) or another place approved by ASIC: s 672DA(2) and (3). The register must be open for inspection by any member without charge and by any other person on payment of a fee (if the company or scheme requires payment of a fee for inspection): s 672DA(7).39 The company (or responsible entity of a scheme) must give a copy of the register (or any part of it) within 21 days of the request (or, where the payment of a fee is required40, within 21 days after the day on which payment of the fee is received): s 672DA(8).41 A company or entity is not to be taken for any purpose to have notice of, or to be put on inquiry as to, a right a person has in relation to a share or interest because of any information received under Pt 6C.2: s 672E.

16.5 Penalty and court orders for breach of provisions [16.50] A person who contravenes s 672B is guilty of an offence and liable to a fine of $4,500 or six months jail or both.42 In addition, an application may be made for a court order if there has been a contravention or a person states in a response to a notice that they do not know particular information concerning shares or who has a relevant

38 See s 1306 for requirements on the form of the register. 39 See item 1, Schedule 4 of the Corporations Regulations. If the register is not kept on a computer the fee is $5. If on a computer, the fee is a reasonable amount not to exceed the marginal cost to the company of providing an inspection. 40 See item 3, Schedule 4 of Corporations Regulations. If the register is not kept on a computer, the fee is $0.50 per page (or part of a page). If on a computer, the fee is a reasonable amount not exceeding the marginal cost to the company of providing a copy, and see Direct Share Purchasing Corporation Pty Ltd v AXA Asia Pacific Holdings Ltd [2008] FCA 935 per Finkelstein J. 41 Section 672DA(8) allows for ASIC to approve a longer period for the information to be provided. It will only be in exceptional circumstances that ASIC will allow a longer period: ASIC Regulatory Guide 86: Tracing beneficial ownership, [86.43]. 42 Section 1311, Schedule 3, item 229 and Crimes Act 1914 (Cth), s 4AA. If a body corporate is in breach, the maximum penalty is a fine of five times as much as applies to an individual: s 1312.

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interest or has given relevant instructions: s 1325A(1). The application can be made by ASIC,43 the company, the responsible entity of the scheme, a member or former member, a person from whom securities were acquired or by any person whose interests are affected: s 1325A(3).44 The court may make such orders as it thinks fit, including a remedial order45: s 1325A(1). In some matters, the court has ordered that the relevant shares be sold on-market, or cancelled.46 The court must not make an order, other than an order freezing voting or other rights attached to the relevant shares or directing any exercise of such rights to be disregarded, if it is satisfied, in all the circumstances, that the contravention ought be excused: s 1325D. It is also possible to apply to the Takeovers Panel if non-compliance gives rise to unacceptable circumstances: see 21.2.47 In different cases where the Takeovers Panel has made a declaration of unacceptable circumstances, it has ordered that the relevant shares: •

not be voted for a period of two months (which was considered sufficient time for the market to absorb corrective disclosure);48 and

•

be vested in ASIC and sold down via a bookbuild process (subject to a minimum sale price).49

16.6 Compensation for breach of provisions [16.60] A person who contravenes s 672B may be liable to pay damages to any person who suffers loss or damage as a result, unless it is proved the contravention was due to inadvertence or mistake or lack of awareness, though not of a matter of law: s 672F.

16.7 Relief from provisions [16.70] ASIC may exempt a person from compliance with the tracing provisions, or modify the provisions in their application to a person: s 673. This power extends to class orders, but ASIC appears not to have made any 43 ASIC’s approach to enforcement of the beneficial ownership tracing provisions is set out in ASIC Regulatory Guide 86: Tracing beneficial ownership at [86.44]. 44 See also 15.8. The considerations relevant to a breach of the substantial holding provisions tend to be the same as for a breach of the tracing notice provisions, and the facts very often involve both. 45 See discussions of remedial orders in 21.6 and of enforcement of the substantial holding provisions at 15.8. 46 ASC v Bank Leumi Le-Israel Switzerland (1995) 21 ACSR 474, ASIC v Craigside Company Ltd (No 2) [2014] FCA 371. 47 See Village Roadshow Ltd 01 [2004] ATP 4; Rivkin Financial Services Ltd [2004] ATP 14; Rusina Mining NL [2004] ATP 13 for examples of the Panel dealing with a failure to comply with tracing notices. 48 Azumah Resources Ltd [2006] ATP 34. 49 Village Roadshow Ltd 01 [2004] ATP 4, Viento Group Ltd [2011] ATP 1 [144]–[149] and [156]–[165], though there were other issues in that matter.

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class orders in respect of the tracing provisions. Merits review of a decision under s 673 may only be sought from the Administrative Appeals Tribunal (ss 1317A–1317C), unless the decision relates to securities of the target of a current bid, in which case the Panel may review the decision on the merits (s 656B(1)(b)). ASIC takes the view that it cannot give relief from the obligation to provide information within two business days after a notice (or the relevant fee) is received, unless an application is made within those two days,50 but it has power to extend time for compliance retrospectively, even if the application is made out of time: s 70.

50 ASIC Regulatory Guide 86: Tracing beneficial ownership, [86.26].

Chapter 17

Compulsory Acquisition Following a Takeover [17.10]17.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393 [17.20]17.2 Preconditions for compulsory acquisition following a takeover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394 [17.30]17.3 Compulsory acquisition notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397 [17.40]17.4 Obligation to acquire securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398 [17.50]17.5 Obligations of target company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 399 [17.60]17.6 Court proceedings by holders of securities. . . . . . . . . . . . . . . . . . 400 [17.70]17.7 Compulsory buy-out of remaining bid class securities . . . . . 406 [17.80]17.8 Compulsory buy-out of convertible securities . . . . . . . . . . . . . . 408 [17.90]17.9 Determination of price by the court . . . . . . . . . . . . . . . . . . . . . . . . . 409

17.1 Introduction [17.10] There are various reasons why a bidder will desire complete ownership of the target. These include savings in administrative expenses by avoiding the need for separate share registry expenses, elimination of potential conflicts of interests between majority and minority members and potential taxation benefits if the target becomes part of a consolidated group with the bidder.1 In recognition of the benefits that flow and of the potential for a small minority to unfairly thwart the bidder’s plans, the legislation has long provided a procedure whereby a bidder who has satisfied certain tests may compulsorily acquire any outstanding shares. The current post-takeover compulsory acquisition provisions are contained in Pt 6A.1.2 In addition, the law provides a procedure to enable compulsory 1

These benefits are discussed in Digby, “Eliminating Minority Shareholdings” (1992) 10 C&SLJ 105, 107. See also Elkington v Shell Australia Ltd (1993) 32 NSWLR 11, 16 per Kirby P.

2

The provisions were derived originally from a recommendation of the Greene Committee in England in 1926 (Report Cmd 2657). Their early history is outlined in Durbridge and Rich “The Origin of the Australian Takeovers Code” in Damian and James (eds) Towns Under Siege: Developments in Australian takeovers and schemes (Sydney, Ross Parsons Centre, 2016), at 2.2.2, 2.2.3, 2.2.6(d) and 2.4.2(c). The philosophy behind the provisions is discussed in Kent and Vary, “Compulsory Acquisition of Shares” (1991) 9 C&SLJ 261; Grave, “Compulsory Share Acquisition: Practical and Policy Considerations” (1994) 12 C&SLJ 240. The law has also been the subject of consideration by the Legal Committee of the Companies and Securities Advisory Committee: Companies and Securities Advisory Committee, Legal Committee, Compulsory Acquisitions Report (Sydney: Companies and Securities Advisory Committee, January 1996).

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acquisition whenever a person reaches a 90% ownership level, irrespective of whether that follows a takeover bid: see 18.2. Apart from statutory compulsory acquisition, a bidder may be able to acquire shares held by remaining holders by offering them a higher price. If the bidder has voting power of at least 90% of voting shares in the company, the general prohibition in s 606 is inapplicable. Furthermore, the prohibition against providing collateral benefits to shareholders under s 623 does not apply to transactions after the offer period closes.3

17.2 Preconditions for compulsory acquisition following a takeover [17.20] A bidder4 under a takeover bid may compulsorily acquire any securities in the bid class if: (1) the bid is a market bid or a full off-market bid;5 and (2) during, or at the end6 of, the offer period the bidder and their associates have: (a)

relevant interests in at least 90% (by number) of the securities in the bid class; and

(b) acquired at least 75% (by number) of the securities that the bidder offered to acquire under the bid (whether under the bid or not): s 661A(1).7 This 90% measure differs from voting power because (a) it counts the number of securities and not the votes attached to them; (b) it is a percentage of the bid class and not of the voting securities issued by the target; and (c) it disregards a relevant interest that the bidder or an

3

This would need to be an alternative to proceeding under compulsory acquisition provisions as an acquisition at a higher price made in conjunction with the statutory procedure may contravene s 661C(1) or influence the court’s decision as to what is a fair price for compulsory acquisition: Catto v Ampol Ltd (1989) 15 ACLR 307.

4

As to the availability of the provisions to joint bidders, see 5.5. The procedure is available in respect of securities of companies, whether or not listed or having over 50 members, of listed bodies other than companies and of listed managed investment schemes: see s 660A and 660B, and 2.2, 2.4 and 2.6.

5

To satisfy this requirement, the bidder need only make a full (not proportional) takeover bid within the meaning of s 618, and does not need to offer to acquire bid class securities issued during the offer period. See also ASIC Regulatory Guide 10: Compulsory acquisitions and buyouts, RG 10.34–RG 10.40.

6

On when a bid closes, see [11.50.20].

7

These tests were introduced in March 2000 and replaced previous requirements which, apart from a general 90% shareholding test, also included a headcount test, namely that 75% of offerees had accepted the bid or ceased to be registered as holders. That test was often liable to manipulation, especially by holders seeking to avoid compulsory acquisition. See the examples in Peninsula Gold Pty Ltd v Australian Securities Commission (1996) 19 ACSR 703; Peninsula Gold Pty Ltd v Australian Securities Commission (1996) 21 ACSR 246.

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associate has under s 608(3) through holding a 20% interest in a body corporate.8 All acquisitions of bid class securities, whether or not under the formal offers, are counted towards satisfying the 90% threshold in paragraph (2)(a) above. The precondition in paragraph (2)(b) above will generally only have an impact if the takeover bid commences from a holding of more than 60% as, at lower levels, the 75% threshold will necessarily be satisfied once the 90% threshold is reached. ASIC has issued a class order so that securities in which the bidder or its associates already have a relevant interest at the start of the offer are excluded from the calculation.9 This means that the bidder cannot satisfy the test by acquiring those securities, but it also means that those securities will not prevent the test being satisfied.10 Effectively, the bidder and its associates are treated as a single group. Acquisitions of shares after the bid closes are disregarded in determining whether the threshold has been satisfied. This is contrary to the position under previous law which enabled the test to be satisfied at any time after the end of the offer period until the time the compulsory acquisition notice was given.11 The test remains satisfied even if the relevant interests of the bidder and their associates subsequently fall below 90% because of the issue of further securities in the bid class: s 661A(1).12 In recognition of the fact that shareholders (particularly in old companies) may often be difficult to contact, the legislation enables a bidder to proceed to compulsory acquisition even where the thresholds are not reached if court approval is obtained: s 661A(3).13

8

Section 661A(2), as modified by ASIC Class Order [CO 13/522]. Relevant interests held through holding a controlling interest are not disregarded given the specific reference to the 20% rule in that provision. See Recommendation 6 of the Compulsory Acquisitions Report, ASIC Regulatory Guide 10: Compulsory acquisitions and buyouts, RG 10.46 and Class Order [CO 13/522].

9

ASIC Class Order [CO 13/522], which also adjusts the 75% test where the bid class securities are convertible securities, some of which are converted during the bid: see also ASIC Regulatory Guide 10: Compulsory acquisitions and buyouts, RG 10.50–RG 10.66.

10 The bidder must make offers for bid class securities held by associates, but it may be impossible for the bidder and associates to acquire 75% of the securities which the bidder offers to acquire, if the associates already hold a large number of those securities. 11 Brierley v Dextran Pty Ltd (1990) 3 ACSR 455. Acquisitions of bid class shares after the offer closes and before the notices are given may, however, be relevant to the bidder’s power to acquire compulsorily bid class shares which are issued after the notices are given, but the bidder may not be free to acquire shares during that interval except by compulsory acquisition, if it is diluted to below 90%. 12 But not if the bidder’s and associates’ relevant interests fall below 90% because acceptances are withdrawn. 13 The relevant Explanatory Memorandum commented that “The power has been added to the Bill to give additional flexibility to the compulsory acquisition procedure and to

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If the procedure is invoked, the bidder must proceed with compulsory acquisition for all securities in the bid class that were issued before the end of the offer period and in which the bidder does not have a relevant interest: s 661A(4)(a). The bidder cannot be selective in deciding which of these securities it will acquire. In addition, the bidder may (but is not obliged to) compulsorily acquire other securities in the bid class, namely: (1) securities issued after the bid closed and before the compulsory acquisition notices were issued, in which the bidder does not have a relevant interest: s 661A(4)(b); (2) securities that come to be in the bid class during the six week period after the compulsory acquisition notice is given, if they have arisen from a conversion or exercise of rights attached to securities that existed when the compulsory acquisition notice was given: s 661A(4)(c); (3) securities in which the bidder already has a relevant interest (no matter when they were issued or granted): s 661A(4)(d); and (4) securities issued to employees which would be in the bid class, except that transfers of them are restricted.14 The bidder may only acquire later-issued shares (groups 1 and 2 above) if it and its associates have relevant interests in at least 90% of the securities in the bid class (by number) when the compulsory acquisition notice is given.15 If the bidder is diluted to below 90% during or after the bid, it retains the power to compulsorily acquire bid class shares on issue at the close of the bid, but may not be able to acquire later-issued shares. The ability to compulsorily acquire securities issued after the close of a takeover offer was introduced in March 2001. Previously, it was remove some of the arbitrariness of the 90 per cent threshold, particularly at the margin. The power is not confined merely to cases where shareholders cannot be traced, but might also be applied to other situations, for example: where a target dilutes the interests of a majority securities holder during a takeover bid by issuing additional shares; and where a bidder’s interest is marginally below the threshold.” See Sylvania Resources Ltd [2009] FCA 955, where the bidder was able to proceed after it reached the 90% threshold just after the bid closed after receiving acceptances intended to be given before the closing time. 14 ASIC Regulatory Guide 10: Compulsory acquisitions and buyouts, RG 10.67–RG 10.84 and Class Order [CO 13/522], which also clarifies that non-transferable securities may be acquired compulsorily and makes other consequential provisions. The relief only applies if the number of employee securities is less than one-ninth of the number of securities in the bid class proper at the end of the bid period, but this may be relaxed case-by-case: RG 10.82–RG 10.83. 15 This requirement is consistent with Recommendation 4 of the Compulsory Acquisition Report. Acquisitions of bid class securities after the bid closes and before the notice is given may affect whether it is satisfied. Section 661B(1)(c) appears to require all notices under s 661B in relation to one bid to be given at the same time. It may allow a second round of notices to be given, after the issue of securities to which s 661A(4)(c) applies.

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problematic whether a bidder could compulsorily acquire such securities.16 Now, a bidder can invoke the simple post-takeover procedures. Where the target has options on issue, it may be worthwhile extending the closing date of the takeover bid so that the compulsory acquisition notices can be sent within six weeks of the expiry of the options to permit acquisition under s 661A of any shares issued or exercised. A bidder should avoid being diluted to below 90% of the bid class, particularly in the interval between the bid closing and compulsory acquisition notices being issued.

17.3 Compulsory acquisition notices [17.30] The compulsory acquisition procedure requires the bidder to give a notice in the prescribed form.17 The notice informs the holders of the securities that the bidder is entitled to compulsorily acquire their securities and informs them of certain rights they have under the procedure. If the bidder offered alternative forms of consideration under the bid, the notice should specify which form of consideration the bidder will provide under the compulsory acquisition procedure, should the shareholder not elect which form of consideration to take: s 661B(1). Often the form is accompanied by an explanatory letter from the bidder which may include an offer that shareholders who do not wish to wait until compulsory acquisition may send their original acceptance form back within a certain period. Such an offer is permitted if the bidder’s voting power exceeds 90%, so that the 20% rule in s 606 does not apply.18 The form must be lodged with ASIC and then given to each holder of securities in the bid class or (where applicable) to each holder of convertible securities.19 If the target is listed, a copy must be given to the relevant securities exchange on the same day it is lodged with ASIC: s 661B(1). A copy must also be given to ASX Settlement.20 In order to be able to comply with the requirements for completion of the compulsory

16 See ASIC v DB Management Pty Ltd (2000) 199 CLR 321. 17 No form is prescribed, but ASIC has approved Form 6021 for this purpose: see s 350(1)(b) and Re New Hampton Goldfields Ltd [2002] FCA 391 [25], on a previous version of the form. The form must be signed by the bidder personally if a natural person or by a director or secretary if a corporation, but the signature of an authorised agent of that individual is sufficient: s 52A (power of attorney); Re Chez Nico (Restaurants) Ltd [1992] BCLC 192 (Ch), 205 (Sir Nicholas Browne-Wilkinson V-C). 18 This is usually the case, but not always: the 90% for compulsory acquisition is not measured in the same way as voting power; and the bidder may have been diluted to less than 90% by a subsequent issue. 19 The notice must be sent to the registered holder, and in the following discussion of the compulsory acquisition procedure, references to holders of securities are to the registered holders from time to time see Kingston v Keprose Pty Ltd (No 3) (1987) 12 ACLR 609 and 17.7. 20 ASX Settlement Operating Rule 14.21.2.

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acquisition procedure under s 666B, the bidder should keep a copy of each notice dispatched.21 The notices must be dispatched during the offer period or within one month after the end of the offer period22 and must be dispatched on the same day the notice is lodged with ASIC or on the next business day: s 661B(2). The notice may be given personally or by mail and, if sent by post, is taken to be given three days after it is posted: s 661B(3).23 The notice is given to the registered holder of the securities for the time being, but is binding upon any later registered transferee. A holder of securities is entitled to ask the bidder within one month after a compulsory acquisition notice is lodged with ASIC for a written statement of the names and addresses of everyone else to whom the bidder has given the notice and the bidder is obliged to provide that information within seven days after receiving the request: s 661D.24 This is to enable dissenting offerees to contact each other and consider whether to take any joint action to prevent the compulsory acquisition of their shares.

17.4 Obligation to acquire securities [17.40] If there is no court order to the contrary, the bidder must proceed with the acquisition. They must either: (1) pay, issue or transfer the consideration to the holder in exchange for a signed transfer which is then registered; or (2) execute a transfer on behalf of the holder of the relevant securities and give a copy of that transfer together with a copy of the compulsory acquisition notice to the target company together with the relevant consideration: s 666A(1). Usually, the bidder will proceed under (2) as that does not rely on the dissenting shareholders participating. The bidder must proceed within 14 days after the latest of:

21 Although s 661B(1) requires the bidder to lodge “the notice” with ASIC and give a copy of “the notice” to ASX, it is usual to provide one pro forma notice to each of ASX and ASIC, omitting individual details: cf ss 635, 650D, 662B(1), 663B(1), 664C(1) and 665B(1). ASIC takes the view that lodging a pro forma notice is sufficient:ASIC Regulatory Guide 10: Compulsory acquisitions and buyouts, RG 10.176–RG 10.180. 22 That is, the last day to post the notices is the day in the following month with the same date as the day on which the bid closes, or the last day of the following month, if there is no day with the same date. ASIC can extend this period by granting a modification to the legislation as occurred in Brierley v Dextran Pty Ltd (1990) 3 ACSR 455. 23 This deemed posting rule overcomes any uncertainty that would apply under the general rule in Acts Interpretation Act 1901 (Cth), s 29, that a notice sent by post is taken to be given when the notice would have been delivered in the ordinary course of post. 24 The list may be posted but is taken to have been received when it would have been delivered in the ordinary course of post: Acts Interpretation Act 1901 (Cth), s 29. This may affect the time when compulsory acquisition can be completed.

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•

the end of one month after the compulsory acquisition notice was lodged with ASIC: s 666A(2)(a)

•

14 days after the last list of dissenting shareholders was given s 666A(2)(b), or

•

any court application to stop the acquisition is finally determined: s 666A(2)(c).

On one reading of s 666A(2)(c), no shares can be acquired, or their holders’ consideration provided, until all applications to the court under s 661E have been finally completed, although the outcome of those proceedings will only affect shareholders who have not applied to the court. The better view is that s 666A(2)(c) and 666B apply distributively to each dissenting shareholder, so that completion of compulsory acquisition of a parcel is only held up while an application to the court to stop the acquisition of that particular parcel is on foot.25 The terms of the compulsory acquisition will be those that applied to the acquisition of the securities under the takeover bid.26 This will permit the bidder to deduct any dividends paid since the end of the offer period if the terms of the takeover offers reserved that right to the bidder.27 If alternative forms of consideration were offered, the holder may elect which form of consideration they wish to receive.28 Otherwise they receive the default consideration specified by the bidder in the notice of compulsory acquisition.29 The court has power under s 1322(4) of the Corporations Act 2001 to shorten the time periods involved, which may be critical to ensure the bidder obtains all the benefits of the compulsory acquisition procedure (for example, to complete the process before the next relevant tax year commences).30

17.5 Obligations of target company [17.50] Upon compliance by the bidder with the statutory obligations, the target company is, subject to payment of any stamp duty,31 obliged to register the bidder as the holder of the shares.

25 Contrast s 666A(3), reflecting the difference between ss 664E(1)(a) and 661E(3). 26 The terms of the bid when it closed, if the notice is given after it closed, or those in effect when the notice is given, if it is given before the bid closes: s 661C(1). 27 Brierley v Dextran Pty Ltd (1991) 3 ACSR 455 and see 18.3. 28 s 661C: if the securities are held on an electronic register, this election must be made in electronic form: reg 6A.1.01. ASX Settlement Rules seem not to specify a form. 29 In the UK, if one type of consideration is not available, the bidder may be obliged to provide a cash equivalent: Re Carlton Holdings Ltd [1971] 1 WLR 918; [1971] 2 All ER 1082 (Ch). Query whether this complies with s 661C, however. 30 Village Roadshow Broadcasting Pty Ltd v Austereo Ltd (1997) 24 ACSR 185. 31 If the target is a land rich entity and the transfer is subject to stamp duty (see 23.1), the transfer may be served on the target company before it is stamped, but the target should

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The consideration paid, issued or transferred to the target by the bidder must be held by the target in trust for the person who held the securities immediately before registration.32 The target is obliged, as soon as practicable, to give written notice to the holders that the consideration is being held pending instructions as to how the consideration is to be dealt with: s 666B(2). If the consideration consists of (or includes) money, the target must pay that money into a bank account opened and maintained for that purpose only: s 666B(3). Any rights or distributions accruing in respect of the consideration (such as dividends or interest) belong to the beneficiaries of the trust. The target is subject to the normal duties of a trustee and may exercise the rights attaching to any shares held as it thinks fit in accordance with those duties.33 The consideration should be invested and any income derived may be used to pay the expenses of the target acting as trustee. If the expenses off-set the income, that may avoid the target having to include the interest as net income in a tax return filed in its capacity as trustee. If the target has not received instructions concerning the consideration for 12 months, it must follow the procedure under Pt 6A.5 for dealing with the money or other property. This involves maintaining a register of unclaimed property, advertising in the Government Gazette and eventually remitting the property to ASIC. A former holder does not lose his or her right to the property and may claim it even after it has been remitted to ASIC.

17.6 Court proceedings by holders of securities [17.60] A holder of securities may apply to the court34 for a declaration that a compulsory acquisition notice is invalid, or for an order preventing the compulsory acquisition of their securities, even if the notice is valid. A holder may apply for a declaration that the notice is invalid, because the preconditions in the legislation have not been satisfied35 or the notice is

then return the original to the bidder to arrange for payment of stamp duty prior to being registered in accordance with the stamp duty legislation. 32 Under s 259B, a subsidiary cannot be a member of its holding company and a purported issue to a subsidiary is void: s 259C. However, s 259C(1)(b) provides an exemption to this prohibition where, as here, the shares are held by the subsidiary as trustee. 33 Hespe v Surfers Paradise Forests Ltd (1985) 10 ACLR 182, where shares held on trust for dissenting offerees were voted in favour of a resolution of some contention between the board and other shareholders. 34 “Court” is defined in s 9 to mean the Federal Court of Australia or the Supreme Court of any jurisdiction in Australia. The holder is the person registered as the holder of the relevant securities from time to time: see discussion at 17.7. 35 See Elkington v Vockbay Pty Ltd (1993) 10 ACSR 785, 799–801.

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defective in form.36 This would affect all remaining holders, not just the applicants, and is not subject to the time limit in s 661E.37 The application for an order to stop compulsory acquisition under a valid notice must be made before the later of the end of one month after the compulsory acquisition notice was given and the end of 14 days after the day on which the holder was given a list of the names and addresses of the other relevant holders: s 661E(1). The court has discretion to extend these periods under s 1322(4)(d).38 If an order is made by a court in relation to an acquisition of securities, the order applies to all holders who have applications before the court: s 661E(3). However, the compulsory acquisition for other holders must still proceed. The court does not have jurisdiction to make an order varying the terms of the proposed acquisition. It may either allow compulsory acquisition or prevent it.39 The court may only order that the securities not be compulsorily acquired if it is satisfied that the consideration is not “fair value” for the securities: s 661E(2). This test replaces the previous law which did not specify a test for the court. Instead, the courts” approach was to assess whether the applicant could establish that the acquisition was not fair for any reason. The change to the law was intended to limit the scope for challenges to compulsory acquisition.40 For this reason, court decisions under the previous law must be approached with caution. Two matters are critical in compulsory acquisition cases – first, establishing who bears the onus of proof and how much evidence is required to discharge it and, secondly, establishing “fair value”. Onus of proof [17.60.10] The dissenting holder who instituted the proceedings bears the onus of showing the consideration proposed is not fair value.41 Under 36 Re New Hampton Goldfields Ltd [2002] FCA 391. The court has power to cure a defect in the notice by an order under s 1322(4) or s 1325D. 37 In Re New Hampton Goldfields Ltd [2002] FCA 391, Finkelstein J first dealt with objections to the validity of the notice, and then refused an extension of time to object on the fair value ground. 38 See Freeland (Singapore) Private Ltd v Consolidated Home Industries Ltd (1977) CLC 29,891 for discussion of principles involved in exercising this discretion, and Re New Hampton Goldfields Ltd [2002] FCA 391, where an order was refused. 39 Under the Companies Act 2006 (UK), s 986(3), the court has specific authority to vary the terms of acquisition. It has been held in New Zealand that the corresponding provision in the New Zealand legislation authorises a court to vary the terms of the acquisition: Re Deans [1986] 2 NZLR 271, 278 (Hardie Boys J); Plaza Fabrics (Tauranga) Ltd v National Airlines Co Ltd [1992] 1 NZLR 584, 588 (Henry J). However, the legislation is in different terms and that approach would not seem to be available under s 661E. 40 Explanatory Statement for the Corporate Law Economic Reform Program Bill 1999. 41 See s 661E(2) and Teh v Ramsay Centauri Pty Ltd [2002] NSWSC 456 [4], referring also to decisions under previous legislation, for which see 18.6.

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previous legislation, this onus was said to be a very heavy one because acceptance by a large majority is a strong indication that the offer is fair.42 Under the current provisions, however, the only issue is whether the bid represents “fair value” for the securities, in a tightly defined sense. “Fair value” [17.60.20] To determine what is fair value, s 667C(1) requires the valuer or the court to: (1) first, assess the value of the company as a whole; (2) then allocate that value among the classes of issued securities in the company (taking into account the relevant financial risk, and voting and distribution rights, of the classes); and (3) then allocate the value of each class pro rata among the securities in the class (without allowing a premium or applying a discount for particular securities in the class). Any price paid for securities in the previous six months must also be taken into account: s 667C(2). In practice, this is used as a check that a valuation based on fundamentals appears to be correct, and not to override such a valuation in the interests of fairness.43 The expert should address the reasons why the earlier price is not relevant to the fair value of remaining securities.44 As Barrett J observed in Teh v Ramsay Centauri, this provision defines exhaustively what is meant by “fair value” and how shares are to be valued for this purpose, to the exclusion of general and legal concepts of fairness.45 The starting point is to value the company as a whole, not the securities, and s 667C does not control how this is to be done. In practice, the court has had to value a company by reference to valuations provided by experts commissioned by the parties, but has been critical of the methods adopted by the valuers.46 Generally, the “value” of an asset is the price notionally agreed by voluntary bargaining between vendor and purchaser, each of whom is both 42 Re Hoare & Co Ltd (1933) 150 LT 374; [1933] All ER Rep 105. In Re Sussex Brick Co Ltd [1961] Ch 289, 291, Vaisey J referred to the applicant’s task of discharging the onus as “undoubtedly the heavy one of showing that he, being the only man in the regiment out of step, is the only man whose views ought to prevail”. 43 Teh v Ramsay Centauri Pty Ltd [2002] NSWSC 456 [7], cf Catto v Ampol Ltd (1989) 15 ACLR 307. 44 CCPI Holdings Pty Ltd v Hose [2011] VSC 34. 45 Teh v Ramsay Centauri Pty Ltd [2002] NSWSC 456 [11]–[12]. 46 In several of the cases cited in this section, the court has had to choose between competing valuations. In a case arising under a contract, the court rejected both valuations offered to it: Bruning v MMAL Rentals Pty Ltd; Bruning v Kingmill (Australia) Pty Ltd [2004] NSWSC 60 (Young CJ in Eq), MMAL Rentals Pty Ltd & Ors v Bruning [2004] NSWCA 451 (CA), where a valuation based on net assets was rejected as being “as useful as valuing the Sydney Harbour Bridge on its scrap metal value”.

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willing and able, but not anxious, to trade, and has full knowledge of all the circumstances which might affect value.47 This is the traditional approach of the courts in cases of enforced sale of property. It requires the property to be given a value even though, as is frequently the case for unique assets, particularly minority shareholdings, there may not be any market for the property. Typically, when valuing a company as a whole, this approach is applied by reference to standard valuation methodology, such as discounted cash flow analysis, capitalisation of earnings or liquidation value of assets.48 The elimination of minority holdings will give rise to benefits and synergies. Some of these are available to all acquirers, such as cost savings that will flow from delisting the company from the stock exchange or from no longer being required to hold general meetings. Other benefits may not be available to all potential acquirers. These may include things such as: •

cost savings that may flow from avoiding duplication of functions carried out by the acquirer and the target (such as combining accounting or marketing departments); and

•

benefits that may arise from combining business activities or, in many cases, combining competitors in the same market.

In a number of cases, judges have held that the value of benefits which would be available to purchasers of the business generally, such as reduction of head office costs, ought to be included in the value of the company, and allocated pro rata across all shares in the company. There has been general agreement in these cases that no special value should be recognised for forcible taking or for the value to the majority of eliminating a minority, however small, which was referred to by one judge as “ransom value”.49 A more controversial question is whether the value of such benefits, if they are available to only one buyer, is to be counted in assessing the value of the company under s 667C. There are conflicting dicta50 in cases concerning the acquisition of securities under the general compulsory acquisition

47 Holt v Cox (1994) 15 ACSR 313 and Teh v Ramsay Centauri Pty Ltd [2002] NSWSC 456 following the classic formulation in Spencer v Commonwealth (1907) 5 CLR 418, 432 (Griffith CJ). 48 For valuation methodology generally, see Lonergan, The Valuation of Businesses, Shares and Other Equity (4th ed, Longman, 2003). 49 Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd [2000] NSWSC 728 [69], followed in Pauls Ltd v Dwyer [2001] QSC 67 [29]; Re Goodyear Australia Ltd; Kelly-Springfield Australia Pty Ltd v Green [2002] NSWSC 53 [87]; Capricorn Diamonds Investments Pty Ltd v Catto [2002] VSC 105 [56]–[87], followed in Austrim Nylex Ltd v Kroll (No 2) [2002] VSC 193 [14]–[19]; Teh v Ramsay Centauri Pty Ltd [2002] NSWSC 456 [16]–[19]. 50 There is no conflict in the actual decisions, however.

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power in Pt 6A.2. In a decision under s 664F,51 Santow J followed Melcann v Super John52 in which McLelland CJ in Eq had declined to sanction a reduction of capital because the consideration for the cancellation of the minority’s shares did not reflect any part of the special value to the controlling shareholder of the elimination of the minority. That decision in turn applied a finding of the Court of Appeal had held that “if property has some special potentiality which only one person would buy, it is to be valued on the basis of a notional sale to that person”.53 While Santow J held in terms that the company should be valued on the basis of its special value to one person, in fact the only special value his Honour took into account was a reduction in administration costs, which would be have been available to most or all prospective acquirers.54 In separate decisions, Douglas J of the Supreme Court of Queensland and Warren J of the Supreme Court of Victoria, after stating that the purpose of the legislation was to outlaw the practice of greenmailing where the minorities seek to extract an excessive or nuisance value for their shares, rejected the application of the Mordecai principle to s 667C.55 In their view, any special benefits attach to the individual securities, not to “the company as a whole”, which should primarily be determined having regard to the enterprise value and any “ransom value” must be excluded. These dicta were reconciled by Barrett J, who said that: It is important to recognise that s.667C(1)(a) is not concerned with the “value of the company as a whole” to any particular person. It has been said that if something has a particular potentiality which only one person would buy, it is to be valued on the basis of a notional sale to that person: Mordecai v Mordecai. That may well mean that a small parcel of shares which, for a majority owner, means the difference between total freedom to impose its will and the need to be duly attentive to the interests of a minority possesses a special value: Melcann v Super John. But s 667C(1)(a) is not concerned with valuing parcels of shares, whatever may be their strategic significance to a particular person. It is concerned only with valuing the enterprise, with the result

51 Re Goodyear Australia Ltd (2002) 20 ACLC 983, following his Honour’s earlier decision concerning a capital reduction under s 256B in Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd (2000) 34 ACSR 737, affirmed by the Court of Appeal in (2001) 40 ACSR 221. 52 Melcann Ltd v Super John Pty Ltd (1995) 13 ACLC 92. Former s 195 of the Corporations Law required court sanction of a reduction of capital, but without any provisions corresponding with ss 661E and 667C. 53 Mordecai v Mordecai (1988) 12 ACLR 751, applied with other authorities to like effect in MMAL Rentals Pty Ltd & Ors v Bruning [2004] NSWCA 451. Although Commonwealth v Milledge (1953) 90 CLR 157 and Boland v Yates Property Corp Pty Ltd (2000) 167 ALR 575; 74 ALJR 209, are cited in this connection, they are irrelevant, as they deal with the special value of an asset to the seller. 54 At [69]–[80]. 55 Pauls Ltd v Dwyer (2001) 19 ACLC 959; Capricorn Diamonds Investments Pty Ltd v Catto (2002) 41 ACSR 376 [68], Austrim Nylex Ltd v Kroll (No 2) (2002) 42 ACSR 18. In Capricorn Diamonds at [59], Warren J distinguishes carefully between the “special value” of 100% of a company to the present acquirer, and the “special value” that 100% of the company would have to another purchaser, but in view of MMAL Rentals Pty Ltd & Ors v Bruning [2004] NSWCA 451 and the cases there cited, it is doubtful if this distinction can be maintained.

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that, if some element of value is said to come from a particular potentiality of the kind to which Hope JA referred in Mordecai, it must be an element which, on the evidence, is shown to attach to the overall enterprise, viewed in the commercial context in which it operates.56

Once the value of the company has been determined, s 667C(1)(b) directs that it be divided between the different classes of securities in the company, taking into account the relative financial risk and voting and distribution rights of the different classes. For this purpose, a “class” of securities seems to have its usual meaning: shares held by a minority and subject to acquisition are not a separate class from shares to which the same rights are attached, but which are held by the majority shareholder.57 Finally, under s 667C(1)(c), the value of each class is to be allocated pro rata among the securities in that class, without allowing a premium or discount for particular securities in that class. This prevents a disproportionate part of the value of the class as a whole being attributed to either the securities held by the controller, or those held by the minority. Warren J said this “serves to prevent the compensation becoming artificially inflated to take into account the ransom value that minority security holders might otherwise be able to extract for their securities by reason of their minority status”, but it equally prohibits a minority discount being applied.58 A few final comments can be made. First, while it is clear that no premium is payable to compensate for the forcible taking in a compulsory acquisition, a “liberal estimate” of the value in favour of the holder is appropriate.59 Secondly, while s 667C applies equally to compulsory acquisition following a takeover and under the general compulsory acquisition power, it would seem that a court may be inclined to put greater weight on a successful takeover bid price as an indication of the value of the target company.60 Costs [17.60.30] Generally speaking, a successful party is entitled to an order for costs unless some element of unreasonable conduct or other special factor warrants the exercise of the court’s discretion to make some other

56 Teh v Ramsay Centauri Pty Ltd [2002] NSWSC 456 [17], citations omitted. 57 Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd (2000) 34 ACSR 737 [58]; Capricorn Diamonds Investments Pty Ltd v Catto (2002) 41 ACSR 376 [68]; contrast Elkington v CostaExchange Ltd [2011] VSC 501. 58 Capricorn Diamonds Investments Pty Ltd v Catto (2002) 41 ACSR 376 [67]. 59 Holt v Cox (1994) 15 ACSR 313; Capricorn Diamonds Investments Pty Ltd v Catto (2002) 41 ACSR 376. 60 This is consistent with the comments of Barrett J concerning the heavy onus on the dissenting shareholder in Teh v Ramsay Centauri Pty Ltd [2002] NSWSC 456.

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order or no order for costs.61 However, there have been instances where an unsuccessful applicant who has not alleged fraud or otherwise acted unreasonably, has received an order that the bidder pay his or her costs or at least was not required to pay the bidder’s costs.62

17.7 Compulsory buy-out of remaining bid class securities [17.70] In order to avoid the remaining holders of bid class securities being locked into a small minority after a successful takeover bid, they can compel the bidder to acquire their securities under Pt 6A.1.63 These rights are attracted where, at the end of the offer period, the bidder and its associates have relevant interests in at least 90% of the securities (by number) in the bid class: s 662A(1).64 The relevant interests need not have been acquired by acceptances under the takeover bid – securities acquired outside the takeover will be relevant. The test will remain satisfied even if the bidder’s relevant interests, having reached 90%, are reduced due to an issue of further securities in the bid class. The 90% test has regard to all the securities in the bid class including those issued during the offer period. The buy-out right does not apply, however, to the holders of securities issued after the end of the offer period (if the takeover bid was unconditional) or issued after the status of conditions notice is published (if the bid was conditional): s 662A(2). Where the provisions apply, the bidder must give a notice in a prescribed form during, or within one month after the end of, the offer period: s 662B(2).65 The notice requires relevant information to be set out, including the aggregate relevant interests of the bidder and its associates and the rights 61 Teh v Ramsay Centauri Pty Ltd [2002] NSWSC 456, where the unsuccessful dissenting shareholder was ordered to pay the bidder’s costs, though payment could be delayed until the consideration for the shares was received. 62 Re Evertite Locknuts Ltd [1945] Ch 220; Re Allen Taylor and Co Ltd [1971] 1 NSWLR 896; Re Sheldon (1987) 3 NZCLC 96–152. Costs of an appeal were awarded against a dissenting shareholder who appealed unsuccessfully in Elkington v Shell Australia Ltd (1993) 32 NSWLR 11. 63 This provision was derived originally from a recommendation of the Cohen Committee in England in 1945 (Board of Trade: Report of the Committee on Company Law Amendment (1945) Cmd 6659, paragraph 141). See Durbridge and Rich “The Origin of the Australian Takeovers Code” in Damian and James (eds) Towns Under Siege: Developments in Australian takeovers and schemes (Sydney, Ross Parsons Centre, 2016), 2.2.3. 64 For this purpose, relevant interests are determined in accordance with ss 608 and 609, as s 661A(2) does not apply. 65 The discussion at 17.3 is largely applicable to this process. Form 6022 has been approved by ASIC for this purpose: see s 350(1)(b). ASIC has modified this section so that it does not require a buy-out notice to be lodged, where the bidder has given compulsory acquisition notices in respect of all outstanding bid class securities: ASIC Regulatory Guide 10: Compulsory acquisitions and buyouts, RG 10.143–RG 10.147 and Class Order [CO 13/522].

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of the remaining holders under the legislation. The notice must be lodged with ASIC on the same day or on the business day before it is given to each person who is a remaining registered holder on the day the bidder lodges the notice and who has not been given a compulsory acquisition notice under s 661B.66 If the target is listed, a copy must also be given to the stock exchange on the same day as it is lodged with ASIC: s 662B(1). The requirement to give the notice to “holders” of securities means people registered as holders.67 The right conferred by the legislation to require the bidder to buy remaining shares is expressed to be conferred on the holder of those shares. Read in isolation, it is unclear whether that right is conferred only on the person who, as registered holder, received the notice under s 662B or whether it can be exercised by a transferee who becomes the holder during the relevant period. Under the predecessor legislation, only the registered holder to whom the notice was given could exercise the right, even if another person was subsequently registered as the holder of the shares.68 Notes to s 662B and the approved form, however, state that anyone who acquires securities after the date of the notice can invoke the provisions.69 The language is strictly open to either reading, and the note may not be determinative, but it is supported by the similarity of the wording of s 662C(1)70 to that of ss 661D(1), 661E(1), 664C and 664E, which clearly do apply to subsequent registered holders. The holder of the relevant securities has one month after the notice is given to provide written notice to the bidder requiring the bidder to acquire the securities: s 662C(1). By giving notice, a contract is formed between the holder and the bidder for the sale of those securities on the terms that applied under the takeover immediately before the end of the offer period or, if the holder and the bidder agree on other terms, those terms: s 662C(2).

66 Accordingly, a notice should be given to a holder, other than the bidder itself, of bid class securities in which the bidder has a relevant interest and which it elects not to acquire compulsorily: see 17.2. 67 Kingston v Keprose Pty Ltd (No 3) (1987) 12 ACLR 609. 68 Kingston v Keprose Pty Ltd (No 3) (1987) 12 ACLR 609: neither a beneficial owner of the shares nor a subsequent registered holder could give what is now a s 662C notice. This rule did not prevent an unregistered transmittee of shares from giving notice, including a legal personal representative of a deceased holder: Kingston v Keprose Pty Ltd (No 3) (1987) 12 ACLR 609, 618, following A L Campbell & Co Pty Ltd v Federal Commissioner of Taxation (1951) 82 CLR. Similarly, a person who owned securities beneficially before the takeover and was in the nature of a “transmittee” of the securities pursuant to a scheme of arrangement: Mercantile Mutual Life Insurance Co Ltd v Actraint No 85 Pty Ltd (No 2) (1990) 1 ACSR 569, 586 (Jacobs J). 69 There are notes in much the same terms to ss 661B(1), 662B(1), 663B(1), 664C(2), and 665B(1). 70 Under each provision, notice must be given to the holder of the relevant securities, meaning the registered holder when the notice is sent. The holder of those securities has the right to respond, which appears to mean the registered holder when the response is sent.

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Under previous legislation, if the holder and the bidder could not reach agreement on the terms of acquisition, either party could apply to the court for a determination of the terms which were to apply. This ability no longer exists.

17.8 Compulsory buy-out of convertible securities [17.80] Holders of convertible securities also have rights to protect them in the event that the bidder and their associates become the holders of relevant interests in at least 90% of the securities (by number) in a bid class. In that event, the bidder must offer to buy out the holders of all securities that are convertible into the bid class: s 663A. This obligation does not apply if a takeover bid has been made for those convertible securities and a compulsory acquisition notice has been given under s 661B or a compulsory buy-out notice has been given under s 662B: s 663A. The concept of “convertible securities” is extended by s 9.71 Securities are treated as convertible into another class if the holder may, by the exercise of rights attached to those securities, have the other class of securities issued to them or have the securities transform into securities of that other class and an option may be a convertible security even if it is non-renounceable. Unlike the predecessor legislation, however, the section has no general application to the position of a holder of securities which are not “convertible”. Therefore, a holder of non-convertible preference shares would not be protected by these provisions (or any other in Chs 6 and 6A). Where the provisions apply, the bidder must give a notice in prescribed form to each holder of convertible securities.72 The notice explains the provisions and the rights of the holders affected. The notice must propose terms for the acquisition of the securities and must be accompanied by a copy of a report made by an expert stating whether the terms give fair value for the securities and giving the reasons for that opinion: s 663B(1). If the bidder has obtained two or more reports relating to the terms of acquisition, a copy of each report must be sent with the notice: s 667A(3). A copy must be lodged with ASIC and given to the stock exchange if the target is listed. It must be given within one month after the end of the offer period: s 663B. The requirement to obtain an expert’s report makes these deadlines very tight. The expert is chosen from a list nominated by ASIC: s 667AA. The expert must not be an associate of the bidder or of the target company and the report must set out particulars of: (a) any relationship the expert has with the bidder or the target company or any of their associates; 71 As modified by ASIC Class Order [CO 13/521] to cover securities which convert without an issue taking place. 72 The discussion at 17.3 is largely applicable to this process. Form 6023 has been approved by ASIC for this purpose: see s 350(1)(b).

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(b) any financial or other interest of the expert that could reasonably be regarded as being capable of affecting the expert’s ability to give an unbiased opinion; and (c) any fee or other benefit that the expert will receive in connection with the making of the report: s 667B(2). Within a month of receiving the notice, the holder73 may give a notice requiring the bidder to acquire the securities. Giving this notice creates a contract between the holder and the bidder for the sale of the securities on the terms agreed to by the bidder and the holder or on the terms determined by the court on the application of the holder: s 663C. If no notice is given, the bidder has no power to compel the holders to dispose of their securities and it would seem to be beyond the power of ASIC to modify the legislation to enable such an acquisition.74

17.9 Determination of price by the court [17.90] The legislation requires the bidder to provide with a notice under s 663B an expert report, which provides an opinion as to whether the terms proposed by the bidder give fair value for the securities, in the sense discussed in [17.60.20]. It does not, however, require the court to take account of that report, and provides no other guidance as to how a court should determine the terms on which the convertible securities should be acquired by the bidder under s 663C. Accordingly, the court may have regard to any consideration which is not extraneous to the purposes of the provision and attribute to it such weight as the court thinks fit.75 InKingston v Keprose Pty Ltd (No 2) (1987) 12 ACLR 599, Bryson J of the Supreme Court of New South Wales made a number of observations about the procedure to be followed. These included: (a) if the great majority of shareholders have accepted the offer, it may be fair to treat the remaining shareholders in the same way and to treat holders of options in the same way after making adjustments for the expenditure they would have to incur to achieve the position, but this is an inexact method as, by the time the compulsory acquisition notice is given, the value of the securities may have changed dramatically; (b) the value at or around the date of the notice requiring the bidder to purchase is the most important factor; (c) market prices may be relevant unless the transactions involved persons associated with the bidder or the minority holder; 73 See 17.7 on the identity of the holder. 74 See ANZ Executors & Trustees Ltd v Humes Ltd (1989) 15 ACLR 392, 414 (Brooking J), though that case was decided before Chapter 6 was extended to apply to acquisitions of “securities”, not just “shares”. See also ASIC v DB Management Pty Ltd (2000) 199 CLR 321, where a similar restriction was worked around, and some doubt was cast on ANZ Executors v Humes Ltd. 75 Kingston v Keprose Pty Ltd (No 2) (1987) 12 ACLR 599.

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(d) the bidder should not obtain a benefit of any decrease in value because of the bidder’s dominant position; (e) the value of the target’s assets will not be determinative unless that has an effect on market prices; and (f) in the case of options, the compulsory acquisition procedure removes uncertainties and contingencies of various kinds, which reduce the price to be paid. Bryson J valued the options by determining the net asset basis of the target per share on a fully diluted basis, subtracting the exercise price, adding a time value for the option and then deducting an amount equal to the value of being released for uncertainties of speculation.76 In Mercantile Mutual Life Insurance Co Ltd v Actraint No 85 Pty Ltd (No 2) (1990) 1 ACSR 569, Jacobs J of the Supreme Court of South Australia had to consider the terms upon which convertible non-redeemable preference shares were to be acquired.77 Jacobs J adopted a valuation method which added the present value of the dividends payable on the preference shares until conversion to ordinary shares (discounted at an appropriate rate), and adding the present value of expected dividends on ordinary shares after conversion (similarly discounted).

76 This procedure has been criticised for not following the Black and Scholes model: Marks, “Valuation of Options: s 43(6)(b) Companies (Acquisition of Shares) Code” (1988) 6 C&SLJ 295. For valuation methodology in general, see Lonergan, The Valuation of Businesses, Shares and Other Equity (4th ed, Longman, 2003), which deals with valuation of convertible notes and preference shares. 77 In Mercantile Mutual Life Insurance Co Ltd v Actraint No 85 Pty Ltd (1989) 1 ACSR 73, Jacobs J refused to give an interim order that the bidder pay an estimate of the value (based on a separate offer made by an associate of the offeror) as permitted by the court rules as the real value of the preference shares was in dispute. Jacobs J may have been more inclined to make such an order if the financial position of the bidder was precarious (see comments at 1 ACSR 73, 77).

Chapter 18

Other Methods of Mopping Up Minorities [18.10] 18.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411 [18.20] 18.2 General compulsory acquisition power – pre-conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 412 [18.30] 18.3 Procedure for general compulsory acquisition . . . . . . . . . . . . 413 [18.40] 18.4 Rights of remaining holders under general power . . . . . . . 415 [18.50] 18.5 Compulsory buy-out by 100% holder . . . . . . . . . . . . . . . . . . . . . 416 [18.60] 18.6 Compulsory acquisition under s 414 . . . . . . . . . . . . . . . . . . . . . . 416 [18.70] 18.7 Disallowance by the court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 417 [18.80] 18.8 Selective reduction of capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419 [18.90] 18.9 Schemes of arrangement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423 [18.100] 18.10 Amending the constitution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 425 [18.110] 18.11 Sale of assets and liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 427 [18.120] 18.12 Transfer under deed of company arrangement . . . . . . . . . . 428

18.1 Introduction [18.10] The thresholds for compulsory acquisition under Pt 6A.1 following a takeover can be difficult to achieve. Accordingly, often a critical step in advising a bidder who wishes to own 100% of the target is to assess the possibility of proceeding by alternative means if the bid was to close with less than the 90% ownership required to invoke compulsory acquisition. In this Chapter, the following methods are canvassed: •

compulsory acquisition under the general power in Pt 6A.2;

•

compulsory acquisition under s 414;

•

selective reduction of capital;

•

scheme of arrangement;

•

amending the constitution;

•

sale of assets and liquidation; and

•

transfer of shares pursuant to a deed of company arrangement.

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18.2 General compulsory acquisition power – preconditions [18.20] The Corporations Act contains a general compulsory acquisition power which may be invoked by a person who is the overwhelming owner of a particular class of securities or of the company in general.1 This power was introduced in March 2000 under Pt 6A.2, and, in general terms, enables compulsory acquisition without a takeover bid being made, provided the acquirer owns at least 90% of the company and the terms of acquisition are supported as fair by an independent expert.2 The power can be invoked in two circumstances. First, where a person holds, either alone or with a related body corporate, full beneficial interests in at least 90% of the securities (by number) in a particular class, the person may compulsorily acquire all the outstanding securities in that class: s 664A(1) and (3). Secondly, where a person has voting power in the company of at least 90%3 and the person holds, either alone or with a related body corporate, full beneficial interest in at least 90% (by value) of all the securities in the company that are either shares or convertible into shares,4 that person may compulsorily acquire all outstanding securities in the company which are shares or convertible into shares: s 664A(2) and (3).5 The legislation does not define a “full beneficial interest”,6 but such an interest exists where a person is the owner of the relevant number of shares (whether registered in their name or that of a nominee), even if a security interest has been granted to a third person (provided that interest has not crystallised).7 The test is, however, unlikely to be satisfied if the owner has agreed to sell the shares or granted an option to a third party, as, normally, the law would regard that as conferring on the third party a proprietary 1

It applies to the same bodies as s 661A (see ss 660A and 660B and 17.2) and the same securities, other than shares that give their holders rights to occupy real property: s 664A(5).

2

This power was introduced following a report of the Legal Committee of the Companies and Securities Advisory Committee entitled Compulsory Acquisitions Reform Proposal (November 1994). Its constitutional validity was upheld in Pauls Ltd v Dwyer & Ors [2002] QCA 545 and in several decisions at first instance.

3

This expression seems to have the same meaning as in s 610, that is, s 608(3)(a) is not excluded.

4

In Espasia Pty Ltd; in the matter of Farm by Nature Pty Ltd [2009] FCA 1599 [46]–[55], Gordon J applied this provision to securities which the expert regarded as worthless by applying the s 9 definitions of “value” and “amount”. Her Honour declined to treat the price offered in the notice as the value of the securities, noting that the acquirer is free to offer a price higher than their value.

5

In theory, unrelated parties might transfer their holdings to a special purpose vehicle to satisfy these tests, but see Re Bugle Press [1960] Ch 260 and 18.7.

6

The Explanatory Memorandum to the Corporate Law Economic Reform Program Bill 1999 ([7.37]) merely says it covers “direct ownership or ownership through a nominee”.

7

Austrim Nylex Ltd v Kroll (No 2) [2002] VSC 193 [85]–[91]; (2002) 42 ACSR 18.

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interest in the shares.8 Nor is it likely to be met where securities are held by the responsible entity or custodian of a managed investment scheme, since the members of the scheme will generally have beneficial interests in the scheme property9. ASIC has stated that it may give relief to responsible entities and custodians and, in cases of doubt, to a person who has given a mortgage, charge or other security over the relevant securities. The underlying principle is that relief is appropriate where the person owns 90% of the securities “in a commercial sense”, meaning they have both the benefit and risk attached to the securities.10 By invoking these powers, a bidder who has been successful in a takeover bid for ordinary shares may, for example, be able to proceed to mop up any outstanding preference shares or options on issue in the target company (assuming they represent less than 10% of the company by value). The 90% holder may only exercise its powers within six months after becoming a 90% holder in relation to the class of securities subject to the acquisition notice: s 664AA. ASIC will extend this deadline if, during the six-month period, court action is taken objecting to the procedure or if the person ceases to be a 90% holder for a period for reasons beyond its control (for example, if convertible securities are converted).11

18.3 Procedure for general compulsory acquisition [18.30] The procedure to invoke these powers involves several steps: (1) A notice in the prescribed form (Form 6024)12 must be prepared by the bidder. It must set out a cash sum13 for the acquisition and explain the rights the recipients have under the legislation. It must disclose information about the price paid for any securities in the relevant class in the last 12 months and disclose any other information that is

8

Lysaght v Edwards (1877) 2 Ch D 499.

9

Charles v Federal Commissioner of Taxation (1954) 90 CLR 598. In Espasia Pty Ltd; in the matter of Farm by Nature Pty Ltd [2009] FCA 1599, Gordon J held that the trustee of a superannuation fund had a full beneficial interest in shares it held: the beneficiaries had future rights to certain cash sums, but at the time of the notice their interests were inchoate and uncrystallised.

10 ASIC Regulatory Guide 10: Compulsory acquisitions and buyouts, RG 10.93–RG 10.101. 11 ASIC Regulatory Guide 10: Compulsory acquisitions and buyouts RG 10.114–RG 10.123. The court may also extend the time limit under s 1322: Mitsui & Co Ltd v Hanwha (HK) Co Ltd [No 2] [2007] FCA 2071. 12 See s 350(1)(b) and 17.3. 13 It is sufficient to specify a nominal sum for a parcel of securities, even if the price per security is not a denomination capable of payment (that is, it represents a fraction of a cent): Re New Hampton Goldfields Ltd (2002) FCA 391. A “cash sum” means either a specified sum of money or a stated mechanism or formula which is capable of being applied at the date of the notice according to some objective standard so that the sum payable can be calculated or ascertained definitely: Mitsui & Co Ltd v Hanwha (HK) Co Ltd (2007) 65 ACSR 409, where the notice was invalid because the formula depended on the outcome of future contingencies.

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known to the 90% holder that is material to deciding whether to object to the acquisition: s 664C(1).14 (2) The notice must be accompanied by a report produced by an expert nominated by ASIC: s 667AA. The report must state whether, in the expert’s opinion, the terms proposed for the compulsory acquisition give fair value for the securities concerned and set out the reasons for forming that opinion.15 The expert must also state whether, in the expert’s opinion, the person has full beneficial ownership in at least 90% by value of all the relevant securities.16 The expert cannot be an associate of the person giving the notice or of the target company and the report must set out relevant details which may be relevant to assessing the independence of the expert: s 667B. In determining what is “fair value” for securities, s 667C requires the expert to assess the value of the company as a whole, allocate that value among the classes of issued securities, then allocate the value of each class pro rata among the securities in that class (without allowing a premium or applying a discount for particular securities in the class). This is discussed in detail in 17.6. (3) The notice must be lodged with ASIC and given to the stock exchange if the target company is listed: s 664C(2). (4) The notice must be despatched to the remaining holders on the same day that it is lodged with ASIC or on the next business day: s 664C(3).17 (5) The 90% holder must then wait for the objection period (see below) to expire and then may proceed with the compulsory acquisition within 14 days after the end of the objection period or, if the matter is brought before the court, after the application is finally determined: s 666A(3). To complete the compulsory acquisition, the 90% holder gives the target company a copy of each compulsory acquisition notice together with a transfer of the relevant securities signed on behalf of the transferor by someone appointed by the 90% holder. The consideration is paid to the 14 If the notice does not include all material information, the court may validate the notice under s 1322 or s 1325D. 15 The value must be assessed at or about the date of the compulsory acquisition notice: Capricorn Diamonds Investments Pty Ltd v Catto (2002) 41 ACSR 376; Dolby Australia Pty Ltd v Catto (2004) 52 ACSR 204; Winpar Holdings Ltd v Austrim Nylex Ltd (2005) 54 ACSR 562; Batoka Pty Ltd v ConocoPhillips WA – 248 Pty Ltd (2006) 54 ACSR 646. 16 In Espasia Pty Ltd; in the matter of Farm by Nature Pty Ltd [2009] FCA 1599, the expert failed to provide this opinion in its initial report. After the expert provided the opinion in a supplementary report, the court validated the notice under s 1322. The ASIC relief referred to in 18.2 in relation to “full beneficial interest” will extend to this requirement. 17 The notice may be given personally or by sending it by post and a notice sent by post is taken to be given three days after it is posted: see s 664C(4), Re New Hampton Goldfields Ltd (2002) 20 ACLC 744 and 17.3. Once given, a notice cannot be withdrawn or replaced: s 664C(6).

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target company which is then obliged to register the acquirer as the holder, hold the consideration on trust for the former holders and seek their instructions as to how the consideration should be dealt with: s 666B(1) and (2), discussed in 17.5.18 If a compulsory acquisition notice is given, the 90% holder and its associates must not offer, give or agree to give a benefit to a person during the objection period (see 18.4) and one month after the end of the objection period or during any court proceedings to determine an objection if the benefit is not provided for under the compulsory acquisition notice and is likely to induce that person or an associate of the person to dispose of securities in the class or not object to the acquisition: s 664D(1) and (3). Furthermore, in the four months leading up to commencing the procedure, no other collateral benefits can be given to the relevant holders or their associates: s 664D(2). The 90% holder’s power of compulsory acquisition lapses if it contravenes these provisions: s 664A(6). These provisions are designed to ensure equal treatment, raising similar concepts to those under s 623: see discussion in 11.4.

18.4 Rights of remaining holders under general power [18.40] The legislation allows for the remaining holders to object to the procedure. This requires an objection notice to be given: s 664E. The objection must be made within a time specified in the notice, which must be not less than one month after the notice is received: s 664C(1).19 Each objection notice must be lodged with ASIC by the 90% holder once it is received: s 664E(2) and, as soon as practicable after the end of the objection period, the 90% holder must prepare a list of the holders who have objected, lodge a copy of the list with ASIC, give a copy to the target company and, if the target is listed, give a copy to the relevant securities exchange: s 664E(3). If the objectors hold at least 10% of the outstanding securities by number, in order to proceed, the 90% holder must apply to the court for the court to approve the acquisition and must notify everyone to whom the compulsory acquisition notice was sent that it has done so: s 664E. This must be done within one month after the end of the objection period. If the 90% holder establishes that the compulsory acquisition gives “fair value”,

18 The acquisition is effective from the time of the compulsory acquisition notice and therefore the 90% holder is entitled to any distributions in the meantime or entitled to off-set any sums paid to the holders since the notice: Capricorn Diamonds Investments Pty Ltd v Catto (2002) ACSR 376; Dolby Australia Pty Ltd v Catto (2004) 52 ACSR 204; Winpar Holdings Ltd v Austrim Nylex Ltd (2005) 54 ACSR 562; Batoka Pty Ltd v ConocoPhillips WA – 248 Pty Ltd (2006) 54 ACSR 646. 19 This period is the “objection period” mentioned but not defined in Pt 6A.2. Consistently with s 661B and 661C, it is usual to allow a month from when the notice is taken to have been received. Notices which did so were noted without objection in Dolby Australia Pty Ltd v Catto [2004] NSWSC 1222 (Campbell J) and Resource Surveys Pty Ltd v Harmony Gold (Australia) Pty Ltd [2002] FCA 391 (Finkelstein J).

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the court must approve the acquisition. Otherwise it must confirm the acquisition will not take place.20 See the discussion of fair value at [17.60.20]. The onus of proving “fair value” is on the 90% holder: s 664F(3). The 90% holder must bear its own costs, and those of a dissenting holder, unless that holder acts unreasonably or improperly: s 664F(4).

18.5 Compulsory buy-out by 100% holder [18.50] The legislation also provides a compulsory buy-out right whereby holders of convertible securities21 may compel a person to acquire their securities if, as a result of compulsory acquisition under the general power, a person (either alone or with a related body corporate) holds full beneficial interests in all of the securities in the class of securities into which their securities would convert.22 In that event, the 100% holder must, within one month of becoming the 100% holder, give a notice in the prescribed form setting out the cash sum for which the holder is willing to acquire the convertible securities and attaching a copy of an expert’s report stating whether the cash sum gives fair value.23 Once the notice is given, the remaining holders have one month during which to give the 100% holder a notice requiring their securities to be acquired. This occurs on terms agreed to by the parties or on terms determined by the court on the application of the holder of the convertible securities: s 665C.24

18.6 Compulsory acquisition under s 414 [18.60] Section 414 provides a procedure for compulsory acquisition of shares in situations where usual post-takeover provisions in s 661A and s 662A do not apply. The provision is essentially the forerunner to those sections and contains a number of differences in approach, in particular in determining whether thresholds have been reached.25 It is rarely used in practice, its meaning is frequently uncertain,26 its use has been confined by 20 Section 664E. The Court appears not to have power to allow compulsory acquisition to proceed at an adjusted price: cf 17.6. 21 This concept is discussed at 17.8. 22 Section 665A. The concepts used in this provision are discussed at 18.2 and 18.3. 23 Section 665B: the person need not give a buy-out notice under s 665B if they have given a compulsory acquisition or buy-out notice under s 661B, 662C or 664B. ASIC has approved Form 6025 for this purpose: see 17.3 for posting rules. 24 See 17.9 for discussion of principles applicable to determination by the court. 25 The Report of the House of Representatives Standing Committee on Legal and Constitutional Affairs, Corporate Practices and the Rights of Shareholders (November 1991), 80, recommended s 414 be amended to harmonise its requirements with the general post-takeover provisions. 26 Dixon CJ described an earlier version as “a badly drawn provision, untechnical and imprecise in its expression and exhibiting no very certain purpose or policy”: Australian Consolidated Press Ltd v Australian Newsprint Mills Holdings Ltd [1960] HCA 53 [9]; (1960) 105 CLR 473, 480. Fullagar and Menzies JJ said much the same, though less robustly, and Windeyer J concurred in the result. In that case, the High Court had to decide whether the section referred to a process resembling a scheme of arrangement, or one resembling a takeover bid.

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a decision of the High Court and a case for its repeal has been made a number of times over the last 50 years. The section seems to have fallen into well-merited disuse, and accordingly, it is here described only briefly: for a fuller account see 18.5–18.7 of the third edition of this book. To acquire shares in a class of shares in a company under s 414, a person must first make a bid or proposal to acquire shares in that class.27 The bid must be one to which Ch 6 does not apply, that is, the shares must not be voting shares, the bidder must have over 90% voting power in the company, or the company must have 50 or fewer members. The bidder may issue compulsory acquisition notices to those holders who have not accepted, if (a) the bid is approved by the holders of 90% (by votes) of those shares, other than the bidder, its subsidiaries and nominees;28 and (b) if the bidder, its subsidiaries and nominees between them hold 10% (by votes) of the shares in the class, the bid offered the same terms to all other holders of shares in the class, and those terms were approved by 75% of those other holders.29 These thresholds are high, particularly for a bid reliant on acceptances from non-associated shareholders in a company with only small minorities. A controlling shareholder bidding to remove a minority is more likely to satisfy the requirements of s 661A, by making a follow-up bid under Ch 6, although acceptances under two successive bids cannot be aggregated to satisfy the 75% test. Although the requirements of Ch 6 are extensive, they are more certain than those mentioned by the High Court as appropriate to a s 414 scheme, and may not be much more extensive in the end.30

18.7 Disallowance by the court [18.70] Dissenting shareholders may apply to the court to disallow the acquisition of their shares (s 414(3)), but the section gives the court no guidance on when to disallow compulsory acquisition. In practice, the court regards 90% acceptance of the bid as casting an onus on the dissenting minority to show that compulsory acquisition would be unfair, and disallows the acquisition only if there is some defect in the process which raises real doubt as to whether it is fair to allow the minority shares to be acquired on the same terms as have been accepted by the majority.31 27 The section applies only to acquisitions of shares in companies in the strict sense. 28 Section 414(2). It is uncertain what form the approval may take, but settled that acceptance of an offer to purchase is sufficient and that approval by a shareholder meeting is not required: Australian Consolidated Press Ltd v Australian Newsprint Mills Holdings Ltd [1960] HCA 53; (1960) 105 CLR 473. 29 Section 414(5). In Re Simo Securities Trust Ltd [1971] 1 WLR 1455, offers to acquire shares were treated as having been accepted by offerees who had returned certificates for convertible securities with completed notices of conversion. 30 See Gambotto v WCP Ltd (1995) 182 CLR 432 and the discussion at [18.10]. 31 For the basic approach, see Re Hoare & Co Ltd (1933) 150 LT 374; [1933] All ER Rep 105. In Re Sussex Brick Co Ltd [1961] Ch 289, 291, Vaisey J referred to the applicant’s task of

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In particular, notices have been set aside in several cases where the majority was contrived by exploiting the deficiencies of the section: if the bid is made by the holding company of one or more shareholders who hold 90% of the shares, or by a subsidiary of the same holding company, the requirements of the section may appear to be satisfied without the bid being approved by anyone independent of the holding company. Schemes structured in this way have fallen out of use since the decision in Gambotto v WCP Ltd.32 A number of other factors may reduce the onus on dissenting shareholders, such as where the offerees have been misled by misleading statements made by directors of the target who were interested in the bid,33 where independent advice to shareholders was in some way flawed,34 where the bidder is a director and has failed to disclose all relevant information to offerees,35 or where the target was controlled by the bidder prior to the takeover and operated in such a way as to reduce the value of the shares.36 In previous decisions, certain factors have been disregarded in assessing the onus, such as the fact that better offers could have been formulated,37 the bidder gave little information about its own financial position in a scrip bid,38 offerees had insufficient information about the target’s affairs,39 other classes of shareholders received proportionately better offers,40 or an expert preparing a report for the target’s statement concluded that the price was

discharging the onus as “undoubtedly the heavy one of showing that he, being the only man in the regiment out of step, is the only man whose views ought to prevail”. See also Eddy v W R Carpenter Holdings Ltd (1985) 10 ACLR 316, 318 (Rowland J). Vaisey J’s comments have been criticised as being too favourable for the bidder: Elkington v Shell Australia Ltd (1993) 32 NSWLR 11 (Kirby P). They were however approved in Teh v Ramsay Centauri Pty Ltd [2002] NSWSC 456 by Barrett J. 32 Gambotto v WCP Ltd (1995) HCA 12, applying Re Bugle Press Ltd [1960] Ch 270, where two shareholders formed a separate company to make a takeover offer for the company and the scheme was described as a fraud on the power. See [18.10] and also Re Rees’ Application [1972] QWN 47 where a share issue diluted a minority to less than 10% and takeover was made by a stockbroker’s nominee company acting for shareholders who controlled over 90% of issued shares. 33 Gething v Kilner [1972] 1 WLR 337. 34 Re Lifecare International plc [1990] BCLC 222. 35 Re Chez Nico (Restaurants) Ltd [1992] BCLC 192. See also Bhagat v Royal & Sun Alliance Life Assurance Australia Ltd (2000) 33 ACSR 472. 36 Re Sheldon (1987) 3 NZCLC 96–152. 37 Re Grierson, Oldham & Adams Ltd [1968] Ch 17, 32. 38 Re Sussex Brick Co Ltd [1961] Ch 289, 292. A court is likely to be stricter on this issue today: it has long been legislative policy that disclosure about scrip offered under a bid should be to prospectus standards. 39 Re Evertite Locknuts Ltd [1945] Ch 220; Re Press Caps Ltd [1949] Ch 434; Elkington v Vockbay Pty Ltd (1993) 10 ACSR 785. 40 Re Grierson, Oldham & Adams Ltd [1968] Ch 17, 38.

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neither fair nor reasonable.41 In view of the decision in Gambotto v WCP Ltd, these decisions should be applied with caution where a majority uses s 414 to eliminate a minority.42 If the bid leads to the bidder becoming beneficially entitled to 90% or more (by votes) of the shares in the bid class (including shares to which a related body corporate is beneficially entitled), remaining shareholders may require the bidder to acquire their shares on the terms of the bid: ss 414(9)–(10), broadly corresponding with ss 662A–662C. It was held that an earlier form of this section was not available to joint bidders, because the wording impliedly excluded the usual interpretation provision that the singular form includes the plural.43 Since that time, however, the section has been amended to remove the words which were then taken to imply that it could only be utilised by one “transferee company” of which the target would become a wholly-owned subsidiary.

18.8 Selective reduction of capital [18.80] Section 256B allows a company to reduce its share capital if the reduction: (a) is fair and reasonable to the company’s shareholders as a whole; (b) does not materially prejudice the company’s ability to pay its creditors; and (c) is approved by shareholders under s 256C. On the basis that a company may cancel shares in a class selectively,44 the reduction of capital procedure has been used to cancel shares held by a minority.45 The technique may also be used for eliminating shareholdings which are less than a marketable parcel.46

41 Elkington v Shell Australia Ltd (1993) 32 NSWLR 11. 42 Gambotto v WCP Ltd (1995) HCA 12, per Mason CJ and Brennan, Deane and Dawson JJ [29] and per McHugh J [17]–[22]: see [18.10]. The case concerns the expropriation of shares by amending a company’s constitution, but the High Court treats the relevant principles as being the same as apply to the acquisition by a majority of a minority’s shares under s 414. 43 Colonial Sugar Refining Co Ltd v Dilley [1967] HCA 34; (1967) 116 CLR 445; Blue Metal Industries Ltd v Dilley [1969] UKPCHCA 2; (1969) 117 CLR 651. 44 British and American Trustee and Finance Corp v Couper [1894] AC 399; Thornett v FCT (1938) 59 CLR 787; Re Elders IXL Ltd (1984) 9 ACLR 280. 45 Nicron Resources Ltd v Catto (1992) 8 ACSR 219; Ramsay Health Care Ltd v Elkington (1992) 7 ACSR 73. See, generally, McLaughlan and Balazs, “Corporate Privatisations by Selective Capital Reduction: The Third Way” (2005) 23 C&SLJ 347. 46 Re Deniliquin Corporation Ltd (1994) 13 ACSR 623.

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If the reduction is selective,47 it must be approved by either: (a) a special resolution passed in general meeting (with no votes cast in favour of the resolution by any persons who are to receive consideration as part of the reduction or by their associates); or (b) a unanimous resolution at a general meeting of ordinary shareholders; and (c) if it involves cancellation of shares, a special resolution passed at a meeting of shareholders whose shares are to be cancelled: s 256C(2).48 The requirement in (a) that there be “no votes cast in favour of the resolution” by any person who is to receive consideration as part of the reduction creates some issues. It is intended to ensure that those receiving consideration do not vote themselves a generous payment, but it creates an argument that, if any of those persons vote, the resolution is ineffective. Following a suggestion in Re Tiger Investment Company Ltd (1999) 33 ACSR 439, per Santow J, it was held in Village Roadshow Ltd v Boswell Film GmbH [2004] VSCA 16; (2004) 49 ACSR 27 that this provision authorises and requires the company to disregard votes cast in favour of the resolution (though not votes against) by a person who would receive consideration under the reduction.49 If the selective reduction involves the cancellation of shares, it must also be approved by a special resolution passed at a meeting of shareholders whose shares are to be cancelled: s 256C(2). This means that the previous unilateral ability of ordinary shareholders to vote to retire preference capital no longer exists.50 In Winpar Holdings Pty Ltd v Goldfields Kalgoorlie Ltd (2001) 40 ACSR 221, a company convened one meeting at which two resolutions were put relating to a selective reduction (though only members whose shares were to be cancelled were permitted to vote on the second resolution which was 47 An equal reduction can relate only to ordinary shares and must treat all holders equally. It requires only an ordinary resolution and there are no voting exclusions: s 256C(1) and (2). A reduction may be equal although it includes what Santow J called “the usual provision for shareholders with foreign addresses having their pro rata allocation of shares allotted or transferred to a nominee for sale and the proceeds accounted for to the shareholder with the foreign address”: Etrade Australia Ltd [1999] NSWSC 254 [3]. See also Idameneo (No 123) Pty Ltd v Symbion Health Ltd (2007) 64 ACSR 680. 48 This last requirement means that ordinary shareholders no longer have the unilateral ability to vote to retire preference capital: Re Saltdean Estate Co Ltd [1968] 3 All ER 829; House of Fraser plc v ACGE Investments Ltd [1987] 1 AC 387; Levy, “Is a Separate Meeting of Preference Shareholders Necessary on a Reduction of Capital?” (1987) 5 C&SLJ 262. 49 The case related to a selective buy-back (but the same principles apply). It decided that approval of a buy-back of preference shares was not effective because the notice of meeting was defective as it stated that preference shareholders could not vote on the resolution at all. 50 Re Saltdean Estate Co Ltd [1968] 3 All ER 829; House of Fraser plc v ACGE Investments Ltd [1987] 1 AC 387; Levy, “Is a Separate Meeting of Preference Shareholders Necessary on a Reduction of Capital?” (1987) 5 C&SLJ 262.

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intended to satisfy s 256C(2)). The Court of Appeal (reversing Santow J on this point) held that compliance with s 256C required two separate meetings to be held – a general meeting at which all shareholders could attend and a separate meeting of those members whose shares were to be cancelled. The presence of other members or strangers may not necessarily invalidate the separate meeting, but it was necessary that it be convened separately. Ultimately, the procedure was validated under s 256D (which provides that non-compliance does not invalidate the proceedings, though this is subject to any court order to the contrary under s 1324).51 In the same case, the Court of Appeal rejected an argument that the Gambotto52 principles apply to a reduction of capital. The court said that the legislation provided its own framework which protected the interests of shareholders and, accordingly, the Gambotto principles have no room to operate. Previous legislation required a reduction of capital to be confirmed by the court, which had a wide discretion, and often placed no great weight on the wish of a minority shareholder to keep his or her shares, or on the possibility that the expropriation could have been achieved using a different method.53 Confirmation could be refused, however, if the minority would have received a significantly better offer under a takeover bid complying with Ch 6. Although a reduction of capital no longer requires confirmation by the court, a person affected may apply to the court for an order under s 1324 preventing the company from carrying it out.54 If the person objects to the reduction on the ground that it does not comply with the requirement that it be fair and reasonable to the shareholders as a whole, the company bears the onus of establishing that it does comply: s 1324(1B).55 There is some divergence in the cases as to whether the definition of “fair value” in s 667C is applicable to the “fair and reasonable” test in s 256B(1)(a).56 To be effective, the reduction must involve a real reduction in the company’s capital and be financed from the company’s own resources.57 The reduction may be effected by a payment of cash or a transfer of assets. 51 Davies AJA held that the failure to hold a separate meeting was a substantive (not procedural) irregularity which could not be cured under s 1322, but agreed that s 256D would cure the defect. 52 Gambotto v WCP Ltd (1995) 182 CLR 432. See [18.10] for further discussion. 53 Nicron Resources Ltd v Catto (1992) 8 ACSR 219. 54 The company may not carry out the reduction until 14 days after it lodges a copy of the resolution with ASIC: s 256C(3). 55 On the valuation issues this raises, see 17.6 and Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd [2000] NSWSC 728 [57]–[78] per Santow J and [2001] NSWCA 427 (CA) [106]–[117]. 56 Initially reflected in dicta in cases under Pt 6A.2 which are mentioned at 17.60.20, but now more seriously in a materially divergent decision: Elkington v CostaExchange Ltd [2011] VSC 501. 57 Re Hunter Resources Ltd (1992) 7 ACSR 436 where shares were to be cancelled in consideration for the distribution of shares in the company’s ultimate parent company.

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It seems that a reduction cannot compel shareholders to take up shares in another company, even if those shares are assets of the company whose shares are being reduced. This is said to follow from s 231 of the Corporations Act which effectively provides that a person can only become a member of a company if he or she agrees to do so.58 To overcome this restriction, a compulsory share distribution could be effected under a scheme of arrangement (which binds non-assenting shareholders under s 411)59 or under a specific provision in the constitution of the company which authorises the company to give the necessary consent as agent on behalf of all members (and is binding on all members under s 140).60 Apart from ensuring the price is fair, the two things that are critical in using the procedure to eliminate minority shareholdings are the disclosures made to shareholders and the voting procedures adopted. The explanatory memorandum should contain all information known to the company which is material to the decision how to vote on the resolution, unless it would be unreasonable to require the company to repeat information it has already disclosed to shareholders (s 256C(4)). In particular, it must disclose all interests of directors in the proposal.61 ASIC has stated in a summary of case law in relation to a previous provision62 that a company must disclose: (a) all facts and information reasonably necessary to enable shareholders to make an informed decision as to how to vote; (b) a reasonable description of what is actually proposed to be done; and (c) all (not just some) of the material reasons for the proposal. Usually, an independent expert’s report is included stating whether the proposal is fair and reasonable between the departing and the remaining shareholders. The report should be prepared as if the requirements under Ch 6 for experts’ reports were applicable.

58 Re Hunter Resources Ltd (1992) 7 ACSR 436, 443 (Lockhart J). It may be possible to escape this restriction by allowing shareholders to elect whether to take cash or scrip, but this seems not to have been tested. 59 Nine Entertainment Group Ltd (No 1) [2012] FCA 1464; Re Crusader Ltd (1995) 17 ACSR 336. This is the standard way to effect a selective reduction of capital in England: Re Robert Stephen Holdings Ltd [1968] 1 WLR 522. Schemes of arrangement are discussed in 5.4 and 18.9. 60 As appears to be accepted by Santow J in Winpar Holdings Pty Ltd v Goldfields Kalgoorlie Ltd (2000) 34 ACSR 737. The constitution could be amended at the same general meeting to introduce such a provision, if necessary. 61 Re Campaign Holdings Ltd (1989) 15 ACLR 762, ASIC Practice Note 29: Selective Capital Reductions at [29.24]. This Practice Note related to former s 195 and has been withdrawn but would still represent current ASIC policy on the points on which it is cited here. For current policy, see ASIC Regulatory Guide 60: Schemes of arrangement, RG 60.18–RG 60.19, to the effect that similar standards of disclosure apply, mutatis mutandis, to takeover bids, schemes of arrangement and selective reductions of capital. 62 See former ASIC Practice Note 29: Selective Capital Reductions at [29.20].

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The law does not prohibit the instigator of the proposal, often the controlling shareholder or its associates, from voting. However, ASIC has said that those persons’ interests should be disclosed and that they should not vote.63 In practice, the votes of a controller and its associates are segregated. An explanatory memorandum is more likely to be regarded as adequate if the importance of the minority holders’ votes is spelt out. A selective reduction of capital remains a viable way for a company to become a wholly owned subsidiary of another company and the technique may confer advantages compared to other methods of achieving that result given that the approval required by s 256C is typically only 75% of votes cast at the relevant meetings. The technique is particularly effective where there are one or two significant minority shareholders (who can effectively guarantee delivery of the necessary votes on the “minority resolution”) because, once they are happy with the price being offered, the procedure is unlikely to be defeated. The procedure also has the advantage of being relatively simple and certain. On the other hand, where there is a well-organised minority group which has more than 25% of the minority’s shares, using the procedure is problematic. In that case, the majority shareholder may then need to try to get to a 90% shareholding with a view to exercising the general compulsory acquisition power (discussed in 18.2). Like a scheme of arrangement, a reduction of capital cannot be the subject of a requisition: it must be proposed by the company’s board.64

18.9 Schemes of arrangement [18.90] A scheme of arrangement is essentially an agreement which, by virtue of having been approved by the statutory majorities, is binding on non-assenting members: s 411.65 In some respects, the requirements for a scheme are easier to satisfy than the thresholds in order to compulsorily acquire minorities under s 661A. All that is required is the assent of members of the class holding 75% in value of the securities voted at the meeting who together represent 50% in number of those voting on the scheme, as opposed to the 90% value and

63 Former ASIC Practice Note 29: Selective Capital Reductions at [29.34]. This was much more of an issue before separate votes were required of continuing shareholders and shareholders whose shares are to be cancelled, but the court may still discount votes of shareholders whose shares are to be cancelled but who appear to be associated with continuing shareholders: Re Shine Fisheries Ltd (1994) 12 ACSR 627. In the context of buy-backs (which have some similarities), see [19.130] and Village Roadshow Ltd 02 [2004] ATP 12 and 03 [2004] ATP 22. 64 Molopo Energy Ltd [2014] NSWSC 1864, per White J, [47]–[83]. 65 Schemes of arrangement are discussed in more detail in 5.4 and in Damian and Rich, Schemes, Takeovers and Himalayan Peaks (3rd ed, University of Sydney, 2013).

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75% by number tests under s 661A.66 However, as a method of eliminating minority shareholdings, in practice, schemes are not resorted to very often. This is because the steps involved can be fairly onerous (especially when compared to other methods). In brief, the steps required to use a scheme to eliminate minority holdings are as follows: (1) The scheme documentation, including an explanatory memorandum, is prepared. This disclosure is regulated by Schedule 8 of the Corporations Regulations. A report from an expert stating whether the scheme is fair and reasonable is required. (2) A copy of the draft document is provided to ASIC. (3) The court is approached for an order to convene the necessary meetings of members. (4) The meetings are held. (5) The court is approached again for an order approving the scheme. Separate meetings must be held of each “class” of member affected by the scheme. The general test is that separate classes exist where members are being treated differently or have rights or interests which make it impossible for them to consult together with a view to their common interest.67 This means that a separate class meeting is required for the minority shareholders alone.68 Only one meeting is required if all minority shareholders are treated in the same way. Unlike a selective reduction of capital, no meeting of continuing shareholders is required. A scheme of arrangement may provide an alternative way to compulsorily acquire outstanding convertible notes and options. Option-holders have been accepted by courts as creditors for the purposes of the scheme of arrangement provisions in the legislation on the basis that they have a contingent right to damages in the event the company were to refuse to 66 However, if the bidder starts holding more than 60% of the relevant class, s 661A requires only 75% acceptances, and may be easier to satisfy. For difficulties in determining whether the tests are satisfied in a scheme of arrangement, see Levy, “Voting on Schemes of Arrangement” (1995) 13 C&SLJ 533. 67 Sovereign Life Assurance Co v Dodd [1892] 2 QB 573. Recent authorities are discussed in Boart Longyear Ltd [2017] NSWSC 567, per Black J and an appeal in First Pacific advisors LLC v Boart Longyear Ltd [2017] NSWSC 116. This is a different concept from a class of securities, used in Ch 6. People who hold securities in the same class may be placed in different classes of members, because the scheme treats them differently (above all, the bidder vis-à-vis members whose securities will be acquired); but people who hold securities in different classes may be placed in the same class of members, if the scheme offers them different benefits that are proportionate to the securities they hold. 68 See Re Hellenic & General Trust Ltd [1976] 1 WLR 123 and the discussion in 18.8 of Winpar Holdings Pty Ltd v Goldfields Kalgoorlie Ltd (2001) 40 ACSR 221. If all holders of a particular class are treated equally, the fact that one holder has an overwhelming number of securities will not mean it is in a separate class: Re Crusader Ltd (1995) 17 ACSR 336.

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allot a share upon the exercise of the option.69 However, this point is not free from doubt and could provide a weakness to be exploited by a determined minority.70 In conjunction with a scheme under s 411, the court has wide powers under s 413 to make orders to effect a merger of two companies. The court is able to transfer assets and liabilities without requiring deeds of conveyance and assumption. Apart from schemes of arrangement under s 411, often trust deeds and other instruments under which securities are issued contain provisions which enable a majority resolution (usually supported by holders of 75% in value of the securities) to bind a non-assenting minority.71 These provisions will enable a majority to agree to compromise any outstanding claims or rights attached to securities or to accelerate the repayment or redemption date for the securities. Depending on the terms of the provision, this may enable the majority to compel all holders in the class to exchange their securities for other securities in the company72 or in another company.73 If the governing instrument does not contain such a provision, it may be possible to amend the instrument to insert such a provision or a provision effecting the scheme.74 Similar techniques were used in the past to effect the compulsory acquisition of units in unit trust schemes.

18.10 Amending the constitution [18.100] A company in general meeting may, by special resolution, amend its constitution to authorise the expropriation of shareholdings or to abrogate rights attached to shares: ss 136, 246B. This is a relatively simple and inexpensive manner of changing the ownership structure of the company because there are no statutory requirements for experts’ reports or court or ASIC approval. However, there are onerous tests which must be

69 Re Asia Oil and Minerals Ltd (1986) 5 NSWLR 42; Re BDC Investments Ltd (No 2) (1988) 13 ACLR 201; see also Santamaria, “Optionholders and Outsiders in Schemes of Arrangement under Companies Act and Codes” (1985) 3 C&SLJ 7. 70 Compare Re Compania De Electricidad de la Provincia de Buenos Aires [1980] 1 Ch 146; Re BDC Investments Ltd (No 2) (1988) 13 ACLR 201, 203 (Young J). See Re Niagara Mining Ltd [2002] FCA 1651 where Lee J refused to allow option holders to be treated as creditors and concluded that option holders should be treated as members for the purposes of a scheme. This decision has not been followed with the courts reverting to the usual practice of treating option holders as creditors: see Re KAZ Group Ltd [2004] FCA 738 and Re MIA Group Ltd [2004] NSWSC 712. Also see Damian and Rich, Schemes, Takeovers and Himalayan Peaks (3rd ed, University of Sydney, 2013), at [3.40.10]. 71 Cox Moore v Peruvian Corporation [1908] 1 Ch 604; British America Nickel Co Ltd v O’Brien [1927] AC 369. 72 Shaw v Royce Ltd [1911] 1 Ch 138; Northern Assurance Ltd v Farnham United Breweries [1912] 2 Ch 125; Re Crusader Ltd (1995) 17 ACSR 336. 73 Sneath v Valley Gold Co Ltd [1893] 1 Ch 477. 74 Re TMOC Resources Ltd (1989) 15 ACLR 368; ANZ Executors & Trustees Co Ltd v Humes Ltd [1990] VR 615.

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satisfied. As a result, this method of proceeding will only rarely be available. To be valid, a resolution to amend the constitution or abrogate rights must satisfy the following tests.75 The onus of satisfying these tests rests with those who are supporting the amendment.76 (a) The amendment must be for a proper purpose.77 In a situation where the provision would lead to differential treatment of shareholders, an expropriation may be justified where it is reasonably apprehended that the continuing shareholding of the minority is detrimental to the company, its undertaking or the conduct of its affairs – resulting in detriment to the interests of the existing shareholders generally – and expropriation is a reasonable means of eliminating or mitigating that detriment.78 Accordingly, expropriation may be possible in the case of a shareholder who is competing with the company79 or where it is necessary to ensure that the company can continue to comply with a regulatory regime governing its principal business (eg to comply with broadcasting legislation).80 Expropriation of a minority will not be justified merely because the commercial interests of the company will be advanced.81 In Gambotto v WCP Ltd (1995) 182 CLR 432, the High Court of Australia declared invalid a resolution purporting to introduce an expropriation provision because the only reasons for the resolution were taxation advantages and administrative benefits which would flow to the company if it was wholly owned by its majority shareholder. This was regarded as insufficient justification. Similarly, an expropriation provision cannot be justified merely because the company requires additional capital which the majority shareholder will only provide if the minorities are eliminated82 or to eliminate minorities merely because they have ceased to carry on a certain business.83 It would seem that an amendment to the constitution which does not discriminate between shareholders is not tested against such strict 75 These tests do not apply if the expropriation provision was contained in the company’s constitution at the time of incorporation: Phillips v Manufacturers Securities Ltd (1917) 116 LT 290. By parity of reasoning, the same approach should apply if the constitution is amended to contain the provision with the consent of all members. 76 Gambotto v WCP Ltd (1995) 182 CLR 432. 77 Gambotto v WCP Ltd (1995) 182 CLR 432. 78 Gambotto v WCP Ltd (1995) 182 CLR 432, 445 (Mason CJ, Brennan, Deane and Dawson JJ). 79 Sidebottom v Kershaw Leese & Co [1920] 1 Ch 154. 80 This would justify provisions requiring divestment by shareholders in excess of statutory limits imposed under broadcasting and banking legislation. 81 In Gambotto v WCP Ltd (1995) 182 CLR 432, McHugh J dissented on this point, saying that it was sufficient that the expropriation would benefit the company vis-à-vis non-members. 82 Brown v British Abrasive Wheel Co Ltd [1919] 1 Ch 290. 83 Gray Eisdell Timms Pty Ltd v Combined Auctions Pty Ltd (1995) 17 ACSR 303.

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requirements. All that would need to be shown is that the amendment will advance the proper interests of the company. This easier test will apply, for instance, where all members are affected equally, such as in a demutualisation of a mutual company. In that instance, all things being equal, there would be no aggrandisement of, or personal gain by, a majority.84 (b) The amendment must be substantively fair.85 This requires that the amount paid to the expropriated shareholders must be fair. An expropriation at less than market price is prima facie unfair, though it would be unusual for a court to be satisfied that a price substantially above market would be unfair. However, market price is not necessarily a decisive test. Other factors such as asset backing, earnings and future prospects must be considered. A stock market price may be an unreliable barometer.86 A price may be unfair if it is out of line with the price paid by a majority holder in amassing its stake, even if that occurred a significant time before the expropriation.87 (c) The amendment must be procedurally fair.88 This requires shareholders to be given adequate information to make a considered and informed decision as to how to vote. This will usually require a valuation prepared by an independent expert and reasons why alternative means of achieving the purpose of the transaction were rejected. It is an open question whether the majority shareholder is precluded from voting to ensure procedural fairness. Generally, the votes of a majority would be counted separately so that, if necessary, it can be demonstrated that the resolution would have succeeded anyway. If a majority votes so as to appropriate to itself an advantage which properly belongs to all shareholders, the vote will be tainted as an abuse of the majority’s position and may be disregarded.89

18.11 Sale of assets and liquidation [18.110] A company may, by special resolution, resolve that it be wound up: s 491. A majority of the directors must make out written declarations to the effect that, having made due inquiry into the affairs of the company, they believe the company will be able to pay its debts in full within a 12 month period after the commencement of the winding up: s 494(1). This 84 This was a critical factor in the High Court’s analysis in Gambotto v WCP Ltd (1995) 182 CLR 432, and in the earlier case of Peters’ American Delicacy Co Ltd v Heath (1939) 61 CLR 457. 85 Gambotto v WCP Ltd (1995) 182 CLR 432. Although McHugh J dissented on the proper purpose test, he seems to be in agreement with the majority on substantive fairness, which he discusses in more detail than do the majority. 86 Gambotto v WCP Ltd (1995) 182 CLR 432, 458 (McHugh J). 87 Catto v Ampol Ltd (1989) 16 NSWLR 342, 361 (Rogers AJA). 88 Gambotto v WCP Ltd (1995) 182 CLR 432. 89 British American Nickel Co Ltd v O’Brien [1927] AC 369.

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can be made easier by the majority shareholder agreeing to assume or satisfy the relevant debts. Once the company is in voluntary liquidation, the liquidator may distribute the company’s assets and, with the sanction of a further special resolution to amend the constitution may distribute those assets selectively, so that the majority shareholder receives the assets of the company and the minority holders receive a cash payment: s 501. In this way, the minority holders are effectively eliminated. Further flexibility comes from s 507 which enables the liquidator to transfer or sell the company’s business to another company in return for shares or securities in the other company for distribution to members of the company in liquidation. A disgruntled minority member can dissent from the arrangement and require the purchase of the member’s shares at a price determined by agreement or, failing that, by arbitration: s 507(4).90 Using a liquidation to eliminate minority holdings raises some difficulties, at least if the company is completely wound up.91 It generally creates tax disadvantages because of the disposal of assets and because, upon liquidation, any tax losses in the company are effectively lost. A variation to these techniques is where the majority shareholder purchases the main business undertaking of the company and then puts the company into liquidation. In this way, the controller will receive back most of the consideration paid for the assets with the balance being distributed to the minority holders. This method requires the directors to form the view that the sale is in the interests of the company as a whole. This may be the case if the controlling shareholder is willing to pay a premium or where the controller forms the view that it will no longer provide any necessary support to the company or its business. There is a limitation if the company is listed on the ASX. ASX Listing Rules 10.1, 10.10, 11.2 and 14.11 will require a general meeting at which the controller will be unable to vote. So long as the company remains listed, therefore, the minority has an effective right to prevent the transaction.

18.12 Transfer under deed of company arrangement [18.120] A limited power of compulsory acquisition of shares in a company92 is conferred by s 444GA, one of the provisions of Pt 5.3A dealing with voluntary administration. It empowers the administrator of a 90 This section is now very rarely used. Its history and effect were discussed by Young J in Application of Theatre Freeholds Ltd [1996] NSWSC 189, but the courts do not seem to have considered it since then. 91 Under s 482, the court may terminate a winding-up and make consequential orders concerning the company’s resumption of business. Companies were frequently put into temporary liquidation when s 507 was the only source of power for a members’ scheme of arrangement. 92 This is limited to a “company” as defined in s 9, which extends to unlisted companies with 50 or fewer members, but not to registered schemes or non-companies.

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deed of company arrangement to transfer shares in the company, with the consent of their holders or the leave of the court. The court may only give leave if it is satisfied that the transfer would not unfairly prejudice the interests of members of the company.93 Pt 5.3A allows the directors of a company, if they have decided that it is insolvent or in danger of becoming insolvent, to institute a process which forestalls winding-up proceedings and provides an opportunity to enter into a deed of company arrangement, which is in many respects similar to a creditors’ scheme of arrangement. Its objective is to enable the business, property and affairs of the company to be administered in a way which maximises the chances of the company (or its business) continuing in existence or, if it cannot continue, brings about a better return for the company’s creditors and members than an immediate winding-up. Accordingly, when s 444GA applies, the members will have little equity in the company, often nil,94 and a proposal to refinance or reconstruct the company will have been adopted. Although s 444GA does not specify to whom the shares may be transferred, or require that the deed provide for the transfer, it is usual for the deed to provide for the shares to be transferred to a person who will provide funds to pay the company’s debts, but who requires unfettered control of the company in return or to be conditional on there being no continuing minority interest. Usually, the section has been used where a deed provides for the administrator to transfer all of the shares in the company to a buyer who will invest an amount which will pay part or all of the company’s debts, and the alternative to the sale is a liquidation in which creditors will receive less than under the deed, and shareholders will receive nothing at all. In cases of this kind, the administrator has had to satisfy the court that the shares to be transferred would have no economic value to their holders, if the deed was not implemented. Where this is made out, the courts have held that divestment of shares for no consideration does not constitute prejudice to their holders, let alone unfair prejudice, and accordingly have given leave to transfer shares for no consideration. For this purpose, they accept valuation evidence, though not uncritically. The loss of an opportunity to exploit the tactical value of the shares,95 or of a speculative 93 The section was inserted by the Corporations Amendment (Insolvency) Act 2007. Its genesis is Recommendation 42 of the Report of the Legal Committee of the Companies and Securities Advisory Committee on Corporate Voluntary Administration Sydney 1998, repeated as Recommendation 22 of the Report of the Corporations and Markets Advisory Committee on Rehabilitating large and complex enterprises in financial difficulties, Sydney 2004. The relevant explanatory memorandum adds nothing to the CAMAC reports, and the fullest discussion is by Martin CJ in Weaver v Noble Resources Ltd [2010] WASC 182. 94 But not necessarily: because insolvency for this purpose is the company’s inability to pay its debts as they fall due, it is possible for a company to go into administration although it is solvent on the balance sheet test, so that shareholders have some equity in it. 95 The section is designed to prevent “blackmail” by exploiting that tactical value: Lindholm, in the matter of Munday Group Pty Limited (Receivers and Managers Appointed) (In

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hope that the company may restore value to the shares by trading out of its difficulties,96 is not prejudicial for this purpose. In other cases, the court has given leave to transfer shares on terms which reflected that they did have some economic value, by transferring part of each parcel (with the value of the residual holdings benefiting from the refinancing of the company) or by transferring shares to a trustee, to retransfer them in two years’ time, after the refinancing had taken effect.97 Under most forms of compulsory acquisition, the shares subject to acquisition are a small residue held by dissentients from a proposal in which most shareholders have acquiesced. By contrast, the decision to adopt a deed of company arrangement is made by creditors, without reference to the members affected, whose recourse is to the Court, and there is no limit on the number of shares to be acquired.98 There is no express or implied exemption from s 606 for a transfer under s 444GA: CAMAC considered and rejected a proposal to exempt an acquisition of shares under a voluntary administration from Ch 6. In two reported matters, ASIC gave exemptions from s 606 under s 655A to allow transfers, and it has intervened to assist the court hearing applications under s 444GA, but it has not published policy on the section.99

Liquidation) v Tsourlinis Distributors Pty Ltd [2010] FCA 1488 at [10], per Finkelstein J: contrast the dissent in Pasminco Ltd (Administrators Appointed) [2002] ATP 6. 96 In the matter of Nexus Energy Ltd (subject to deed of company arrangement) [2014] NSWSC 1910. 97 Mirabela Nickel Ltd [2014] NSWSC 836 and Shepard, in the matter of Quest Minerals Limited v Mutual Holdings Pty Ltd [2016] FCA 1559 (in effect a compulsory escrow). 98 In one case 49% of the shares in the relevant company were to be transferred, although the holders of 19% had consented to the transfer: Lewis, in the matter of Diverse Barrel Solutions Pty Ltd (Subject to a Deed of Company Arrangement) [2014] FCA 53. 99 Report of the Legal Committee of the Companies and Securities Advisory Committee on Corporate Voluntary Administration (Sydney, 1998), at [9.1]–[9.9]; Mirabela Nickel Ltd [2014] NSWSC 836; and Nexus Energy Ltd [2014] NSWSC 1910, on which see ASIC Report 423 ASIC regulation of corporate finance: July to December 2014 at [100]–[105].

Chapter 19

Exempt Acquisitions [19.10] 19.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 431 [19.20] 19.2 Acquisitions of bid class securities under a bid. . . . . . . . . . . 433 [19.30] 19.3 On-market purchase of convertible securities during bid period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 434 [19.40] 19.4 Acceptance of scrip offered as takeover consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 434 [19.50] 19.5 Acquisition in connection with the provision of financial accommodation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 435 [19.60] 19.6 Approval by resolution of company . . . . . . . . . . . . . . . . . . . . . . . 436 [19.70] 19.7 3% creep in six months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 441 [19.80] 19.8 Rights issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 442 [19.90] 19.9 Underwriting rights issues and prospectuses . . . . . . . . . . . . . 445 [19.100] 19.10 Dividend reinvestment plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448 [19.110] 19.11 Acquisition through listed company (downstream acquisition). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448 [19.120] 19.12 Acquisition under compromise or arrangement and liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 451 [19.130] 19.13 Acquisition that results from a buy-back or redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 451 [19.140] 19.14 Discretionary relief for selling shareholders . . . . . . . . . . . . . 453 [19.150] 19.15 Miscellaneous exemptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 456 [19.160] 19.16 Downstream acquisitions generally. . . . . . . . . . . . . . . . . . . . . . . 457 [19.170] 19.17 Small companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 458

19.1 Introduction [19.10] Takeover bids represent only one exception to the general prohibition in s 606 against a person increasing his or her voting power beyond the 20% level. Section 611 of the Corporations Act provides another 19 exemptions, and ASIC has created several more by class order. Some of these can only be relied on by a person who has already made a bid. However, most operate independently and represent real choices for a person seeking to acquire or increase a controlling stake in a company. Each of these exceptions applies to an acquisition of interests in a listed managed investment scheme, other than items 17, 18 and 19, which depend on provisions of company law regarding schemes, liquidators and

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buy-backs which are not translated by s 604, but for which there are appropriate alternatives. The exceptions are as relevant as the inclusive terms of s 606 in identifying the conduct sought to be controlled by Ch 6. They go hand-in-hand in understanding the policy of Ch 6. Comprehensive legislation governing acquisitions of shares has always been based on a sweeping prohibition which would have been unjustifiably wide, had it not been mitigated from the outset by statutory and administrative exceptions.1 One issue is whether the exceptions apply to an indirect or “downstream” acquisition of shares which results from the transaction to which the exception applies directly (quite apart from the specific exception in item 14). If a person increases their voting power in company A to over 20% in reliance on one of these exceptions, but A holds, say, 30% of the voting shares in company B, that person would breach s 606 in relation to company B, unless they could rely on another exception. While most exceptions appear to have a downstream operation, several of them cannot be applied to exempt the downstream acquisition. Each section of this chapter indicates whether the relevant exception has a downstream operation, and the issue is discussed generally at 19.16.2 Each exception, other than item 20 (prescribed acquisitions), applies to an acquisition which “results from” a specified transaction or event. Therefore, each of them will apply to an upstream acquisition, where a person acquires a relevant interest on behalf of a controller or other principal: the acquisition by the principal “results from” the agent’s entry into the relevant transaction. In general, it should not be assumed that, where a provision in another chapter of the Act provides for an acquisition of shares, it impliedly exempts that acquisition from the 20% rule in s 606: for instance, where s 606 is relevant, a transfer of shares under s 444GA (transfer of shares by an administrator of deed of company arrangement) requires an exemption granted by ASIC: see 18.12. Compulsory acquisition under s 661A appears to be excluded, however, even where the bidder has less than 90% voting power.3

1

Some of the very early history is set out at 2.8.4 of Durbridge and Rich “The Origin of the Australian Takeovers Code” in Damian and James (eds) Towns Under Siege: Developments in Australian takeovers and schemes (Sydney, Ross Parsons Centre, 2016). Similarly, the exclusions now in s 609 form part of the definition of a relevant interest: Haughton Properties Pty Ltd (Receiver and Manager Appointed) v Sandridge City Development Company Pty Ltd (1994) 13 ACLC 1, 5, per Hayne J.

2

ASIC takes a conservative view as to whether exceptions have a downstream application: see 19.16 and ASIC Regulatory Guide 71: Downstream Acquisitions, RG 71.23–RG 71.26.

3

This could happen if the bidder’s holding of bid class securities is diluted to less than 90% (see the continuation clause in s 661A(1)) or if the target has voting securities which are not in the bid class.

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These provisions do not confer an exemption from the requirement to lodge a substantial holding notice under s 671B. An acquisition of a relevant interest which would contravene s 606, were it not excluded by one of these provisions, generally requires the acquirer and its associates to give substantial holding notices.

19.2 Acquisitions of bid class securities under a bid [19.20] An acquisition of a relevant interest in securities which results from the acceptance of an offer under a takeover bid is exempt from s 606: s 611, item 1. This exception and those in items 2, 3 and 4 are only available if the bid complies with the requirements of Pt 6.4 which are listed in s 612.4 These requirements concern the basic structure and timing of a bid. This exception appears to have a downstream operation: see 19.16. An acquisition in relation to bid class securities which results from an on-market transaction5 by or on behalf of a bidder during the bid period6 at a time when the bid is unconditional or subject only to a prescribed occurrence condition, a quotation condition implied by s 625(3), or both, is also exempt from s 606: s 611, item 2, discussed in 11.3.7 The bid may be a market bid, or a full off-market bid. If the bid is off-market, it may previously have been subject to additional conditions, of which it has been declared free. This exception is also subject to s 612 (formal bid requirements). In addition, if a person serves a bidder’s statement or makes a takeover announcement and then acquires securities under this exception, but does not make offers under the bid, they may not vote the securities so acquired: s 613. The words “an acquisition in relation to bid class securities” are unclear. They appear to mean something other than a simple purchase of bid class securities, but do not specify how the acquisition must relate to bid class securities. Having regard to item 1,8 to the predecessor provision,9 to the terms of the note preceding the table and other secondary materials, they

4

See also ASIC Regulatory Guide 9: Takeover bids, RG 9.653–RG 9.666 on case-by-case relief where these requirements are breached inadvertently.

5

On-market transaction is defined in s 9 by reference to the market rules of the relevant prescribed financial market. See 11.3.

6

The bid period for an off-market bid commences with service of the bidder’s statement; for a market bid, it commences with the announcement of the bid to the market. In each case, it ends when the offers under the bid close.

7

A prescribed occurrence condition is a condition that an event listed in s 652C not take place. ASIC Class Order [CO 13/520] remedies some drafting deficiencies in s 611 items 2 and 3: see Regulatory Guide 6: Takeovers: Exceptions to the general prohibition Table 1.

8

It would be anomalous if a bidder could acquire downstream relevant interests through acceptances of a bid, whether on market or off market, but not by on market buying permitted as part of such a bid. The secondary materials do not indicate an intention to restrict this exclusion.

9

Which permitted a bidder to buy bid class securities on market in much the same circumstances.

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appear to refer to a purchase of bid class securities, but to allow the provision to have a downstream operation: see also 19.16.10

19.3 On-market purchase of convertible securities during bid period [19.30] An acquisition of a relevant interest in bid class securities that results directly from the exercise of rights of conversion attached to a convertible security11 is exempt from s 606, but only where the bidder acquired the convertible security through an on-market transaction during the bid period for a full takeover bid for the company and at the time the convertible security was acquired, the bid was unconditional or subject only to conditions mentioned in 19.2: s 611, item 3.12 The conversion must be made by the bidder, but need not take place during the bid. This exemption is subject to ss 612 and 613. The exemption does not require a correlation between the bid price and the price paid for the convertible security. This exemption is fairly limited in operation. If it does not apply, the holder would have to rely on another exemption, before it could exercise options over the 20% threshold.13 ASIC is prepared to give relief to permit an exercise of options where, for example, the bidder has made a bid for the target and has acquired the options under a separate off-market bid made to option holders, the price of which is equitable in relation to the price for other securities in the target.14 Because the exemption applies only to an acquisition of a relevant interest in bid class securities which results directly from conversion, this exemption does not apply to a downstream acquisition.

19.4 Acceptance of scrip offered as takeover consideration [19.40] An acquisition of voting shares as consideration for accepting a takeover offer is exempt from s 606: s 611, item 4.15 This permits a reverse

10 Had it been intended to allow only an acquisition of bid class securities by on market purchase, wording such as that of item 3 would have been appropriate. 11 Defined in s 9, as modified by ASIC Class Order [CO 13/520], as covering a security, which gives the holder the right to have the security transform into, or to be issued, another class of security. 12 These concepts are the same as in 19.2 See also Green v Crusader Oil NL (1985) 10 ACLR 120, but note that paragraph (b) of item 3 reverses Young J’s decision as to “acquire”. 13 See ASIC Regulatory Guide 5: Relevant interests and substantial holding notices, RG 5.144–RG 5.148. 14 ASIC Regulatory Guide 9: Takeover bids, RG 9.120–RG 9.146 and see Pinnacle VRB Ltd 03 [2001] ATP 2. 15 Like the exceptions previously mentioned, this exception is subject to s 612. Unusually, this means that the offeree is concerned whether the bid complies. Paragraph (b) of item 4 refers to item 5, which was omitted in Parliament.

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takeover, where the new shares issued will confer control of the bidder.16 Unless the shareholders of the bidder approve the acquisition, the Panel may declare the reverse takeover unacceptable, because control of the bidder will change without those shareholders being given an opportunity either to reject the proposal, or to participate in the benefits resulting from it. The bid has no objectionable effect on control, however, if the bidder disperses a majority of its shares between people not associated with one another, without creating a control block.17 ASIC has granted a case-by-case modification of this provision so that only shareholders registered at the date of the bidder’s statement can rely on the rule. This modification is designed to prevent a person acquiring shares in the target in order to receive a controlling stake in the bidder as consideration under the bid, without contravening s 606. It accordingly protects the bidder from an involuntary reverse takeover. Another way for the bidder to protect against this risk is to make its bid conditional on no other person acquiring more than a certain percentage of the target or itself, say 20% or 50%, or making a rival bid. Because the exemption applies only to the acquisition of the voting shares offered as consideration, it does not apply to a downstream acquisition.18

19.5 Acquisition in connection with the provision of financial accommodation [19.50] The s 606 prohibition does not apply to an acquisition that results from the exercise by a person of a power, or appointment as a receiver, or receiver and manager, under an instrument or agreement creating or giving rise to a security interest,19 such as a mortgage or charge if: (a) the person’s ordinary business includes the provision of financial accommodation; and

16 See examples in Rossfield Group Operations Pty Ltd v Austral Group Ltd [1981] Qd R 279; Re Australian Development Ltd (1973) 6 SASR 197; Television New England Ltd v Northern Rivers Television Ltd (1971) CLC 27,128. The issue of shares in excess of 15% of the bidder’s capital is protected by an exception in ASX Listing Rule 7.2. This exception has been controversial and criticised as out of step with overseas jurisdictions. At the time of writing, there is a proposal that the Listing Rule exception be amended to limit its operation to where the shares issued represent less than 100% of shares already on issue in the bidder. 17 Takeovers Panel Guidance Note 1: Unacceptable Circumstances, Gloucester Coal 01 [2009] ATP 6; Gloucester Coal 01R [2009] ATP 9, ASIC Regulatory Guide 60: Schemes of Arrangement, RG 60.35–RG 60.37 and see also 5.7. 18 The note before the table implies that item 4 applies to a downstream acquisition, however: see 19.16. If the bidder is listed, item 14 may be available: see 19.11. 19 For “security interest”, see s 51A and 3.6.

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(b) the person took or acquired the security interest in the ordinary course of their business of the provision of financial accommodation and on ordinary commercial terms: s 611, item 6.20 The exemption is in similar terms to the exclusion from the relevant interest concept under s 609(1) (discussed at 3.6). It covers an acquisition by a receiver appointed by a financial services provider.21 Once a power under a security is exercised, the relevant interest flowing from the mere existence of that security is no longer disregarded, and the financier must give substantial holding notices under s 671B. If a receiver has acquired a stake in excess of 20%, the disposal of the stake raises similar strategic questions as would apply for any significant shareholder (see 19.14). This exception appears to have a downstream operation: see 19.16.

19.6 Approval by resolution of company [19.60] An acquisition of shares in a company is exempt if it is approved by an ordinary resolution of independent shareholders of that company: s 611, item 7.22 This enables the shareholders to give up one of their basic protections under Chapter 6, the right to participate equally where a person acquires a substantial shareholding. In practice, such resolutions are common when there is a proposal to reconstruct the company or to issue new capital to a new investor (for example, as a recapitalisation proposal23 or in exchange for the acquisition of a major asset for the company). It is rare, however, for the procedure to be used where a major shareholder is selling out to another person as minority holders are usually inclined to vote against such a proposal as they may be giving up any chance of receiving a bid for their shares.24 The 20 This provision was amended in 2011 by the Personal Property Securities (Corporations and Other Amendments) Act 2010. It is substantively modified by ASIC Class Order [CO 13/520], to extend it to a security interest held by a trustee and to ensure that it applies to the appointment of a receiver and to enforcement of a negative pledge. See 3.6 and ASIC Regulatory Guide 5: Relevant interests and substantial holding notices, RG 5.67–RG 5.76. 21 Haughton Properties Pty Ltd (Receiver and Manager Appointed) v Sandridge City Development Company Pty Ltd (1994) 13 ACLC 1. 22 See also ASIC Regulatory Guide 74: Acquisitions approved by members (re-issued December 2011). 23 As occurred, for example, in Golden Circle Ltd 02 [2007] ATP 24. 24 An example of a proposal to transfer a majority holding appears in Ainsworth Game Technology Ltd 01 and 02 [2016] ATP 9. In PowerTel Ltd 02 [2003] ATP 27 it was argued that minority shareholder approval should be required for the acceptance of a takeover bid by a major shareholder (holding 48% on a fully diluted basis) where the takeover bid was at a price which may be attractive to the major shareholder (which also had loans to the target) but not the other shareholders. The Panel rejected this argument as the takeover offer was available to all target shareholders (and the offer was not a mechanism to avoid shareholder approval of a private transaction) and there is no requirement that a bid be made at a full price or a premium to the market value.

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procedure is also open to disruption by another person making a bid after the notice of meeting has been released. If that happens, provided the bid is on reasonable terms, there is very little prospect of the minority approving the sale and, in any event, the seller will usually be able to sell into the bid. There are a number of aspects in considering the use of this exemption. Scope of the exemption [19.60.10] Following amendments to the legislation in March 2000, the range of transactions to which this exemption may apply has been extended.25 Item 7 simply refers to an “acquisition,” which, in light of s 611(a), means an “acquisition of a relevant interest”. Therefore, the exemption may apply to acquisition by new issue or purchase or by more technical means, such as a relevant interest acquired under a standstill agreement regulating disposals and voting by a major shareholder, an acquisition of a body corporate which owns a strategic stake or the conversion of non-voting securities into voting shares. The exemption requires the particular acquisition to be identified. It is not enough for the resolution to approve the future placement of shares “at the directors” discretion’26 or to purport to approve the exercise of options irrespective of who may hold them at the time.27 Nevertheless, it seems that it is possible to approve the future exercise of identified options by a specific person, even if the voting power of that person may increase in the meantime, although it is necessary to state the maximum voting power the person may have after the exercise. The New South Wales Court of Appeal in NCSC v Consolidated Gold Mining Areas NL (No 2) (1985) 9 ACLR 768, 770 stated that the meeting should know the allottee’s existing shareholding at the time of the allotment which was to be approved and that, accordingly, the exemption procedure would not permit a person to acquire an option over 19% of unissued shares with shareholder approval, then purchase 19% in the market and then exercise the option. This issue was addressed in subsequent amendments by requiring the notice of meeting to disclose the voting power of the acquirer and its associates, and the maximum increase in their voting power, which would result from the acquisition. An acquisition which is within the maximum voting power disclosed to the meeting appears to be validly approved, and not to be unacceptable, merely because the acquirer had acquired other shares in the meantime. If the acquirer does propose to acquire other shares in the meantime, it would be prudent to spell that out

25 The former legislation applied only to an allotment or purchase of shares. 26 Hamilton v Property Investments Ltd (1983) 7 ACLR 932. 27 NCSC v Consolidated Gold Mining Areas NL (No 2) (1985) 9 ACLR 768. ASIC Regulatory Guide 74: Acquisitions approved by members at [74.92].

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in the notice of meeting to provide against subsequent allegations that unacceptable circumstances had occurred.28 Because it applies only to an acquisition which has been approved by shareholders of the company in which the acquisition is made, this exemption does not apply to a downstream acquisition: although company A approves an acquisition of 25% of its voting shares, if A holds 30% of the shares in company B, the acquisition can only proceed if the acquirer is covered by an exemption in respect of the shares in B.29 Pre-meeting agreements [19.60.20] It is possible to agree to purchase shares without immediately obtaining a relevant interest in those shares if the agreement is conditional on shareholder approval under s 611, item 7: s 609(7). The agreement may not restrict the vendor from disposing of the securities for more than three months and may not control its power to vote the shares at all. This overcomes problems under the previous law where the agreement, even though conditional on approval, gave rise to a relevant interest: see [3.60.70].30 It is also possible for the agreement to deal with ancillary matters. For example, the vendor can agree to convene the meeting and to do everything to facilitate the passage of the resolution (other than vote in favour). This could include agreement as to who would bear the costs of the meeting. It is also possible for the vendor to agree that, if it sells the shares before the resolution is passed, it will pay the costs of the meeting or pay to the purchaser an amount equal to the sum by which the sale price exceeds the original price. Although this may give an economic incentive to the vendor not to sell, it may fall short of conferring a relevant interest on the purchaser (though it may give rise to unacceptable circumstances if it is anti-competitive within the tests relevant to an assessment of a break fee: see 14.6). Disclosure [19.60.30] The exemption is only available if certain disclosures are made to shareholders. Section 611, item 7 requires that shareholders be given all information known to the person proposing to make the acquisition or their associates, or known to the company, that was material to deciding how to vote on the resolution, including:

28 See Australian Pipeline Trust 01 [2006] ATP 27 [68] and Australian Pipeline Trust 01R [2006] ATP 29 [62]. 29 Australian Pipeline Trust 01R [2006] ATP 29 [82]. 30 The Panel was critical of an acquirer who took no steps to arrange a meeting to approve the acquisition: Firestone Energy Ltd [2013] ATP 4.

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•

the identity of the acquirer and its associates;31

•

the maximum extent of the increase in the person’s voting power and each associate’s voting power that would result from the acquisition; and

•

the voting power the person and each associate would have as a result of the acquisition.

Apart from this information, ASIC has indicated that additional information should be included.32 In practice, this is typically provided, including: •

information concerning the acquirer’s intentions for the company’s business activities;

•

details of how the directors intend to vote on the proposal, their reasons and any personal interests; and

•

an analysis of whether the proposal is fair and reasonable when considered in the context of the independent shareholders’ interests. This will generally require an independent expert’s report on whether the independent shareholders would be better off if the proposal went ahead compared to if it did not.33 This requires a comparison of advantages and disadvantages under both scenarios.34 A comparison of the value of the shares under the proposal and the value of the consideration proposed to be paid is only one element of this assessment.35

The effect of an approval depends on the terms in which it is sought and may depend on how it is explained. In STI-Global Ltd [2013] ATP 12, the Panel found that entry into a share sale agreement and the grant of a

31 In Moreton Resources Ltd [2013] ATP 14, the Panel thought it unacceptable that a notice of meeting for an item 7 approval did not provide details of the owners of a private company, which could acquire 24.7% of Moreton. The Panel has been similarly critical of disclosure in a rights issue prospectus (about the underwriter—Coppermoly Ltd [2013] ATP 8) and a bidder’s statement offering scrip (Firestone Energy Ltd [2013] ATP 4). 32 ASIC Regulatory Guide 74: Acquisitions approved by members, [74.17]–[74.44]. In addition, if a change of the nature or scale of the company’s activities is planned, a listed company may have to comply with ASX Listing Rule 11.1. 33 Generally see ASIC [74.29]–[74.37].

Regulatory

Guide

74:

Acquisitions

approved

by

members,

34 In general, the notice of meeting should discuss the advantages and disadvantages of approving or rejecting the relevant acquisition, against the those of the status quo, and need not consider other possible courses of action: Aulron Energy Ltd [2003] ATP 31, Macarthur Coal Ltd [2010] ATP 3. Where, however, approving the acquisition would have led to the abandonment of a proposed takeover bid, the Panel required the notice of meeting to deal with the advantages and disadvantages of that bid: Golden Circle Ltd 02 [2007] ATP 24. 35 Aulron Energy Ltd [2003] ATP 31.

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proxy over the same shares36 had been unacceptable, although members had previously approved a shareholders’ agreement under which each of the parties had a relevant interest in the shares in question. The parties agreed to support the election of certain people as directors and granted rights of first refusal. One party could have bought shares from another without breaching s 606. The approval, however, did not contemplate one party granting another a general proxy or selling them shares, other than pursuant to the rights of first refusal. All disclosures must also satisfy the directors’ common law duty to provide shareholders with proper and full disclosure to enable shareholders to assess the merits of the proposal and to decide how to vote. If this common law standard is not met, the notice of meeting may be invalid.37 The content of disclosure in notices of meeting may also be the subject of Takeovers Panel scrutiny. In Axiom Properties Ltd 01 [2006] ATP 1, the Panel required disclosure of the potential for conflicts of interest which may arise if a new investor became a controlling shareholder (such conflicts potentially arising as the nominee directors of the new investors controlled the joint venture partner of the target company). If circumstances change after the notice of meeting has been sent, it may be necessary to send supplementary information to members, possibly including an updated expert’s report.38 Voting [19.60.40] The resolution must be passed with no votes cast in favour of the resolution by the person proposing to make the acquisition and their associates or by the persons (if any) from whom the acquisition is to be made and their associates: s 611, item 7, paragraph (a).39 If such a person votes40, the resolution is not invalidated, but their votes should be 36 It is implicit that consideration was provided for the proxy. The shareholders’ agreement was honoured in the breach, but the Panel was able to resolve the matter without deciding whether it was still in effect. 37 Bulfin v Bebarfald’s Ltd (1938) 38 SR (NSW) 423; Devereaux Holdings Pty Ltd v Pelsart Resources NL (1985) 9 ACLR 879. 38 ASIC v Solution 6 Holdings Ltd (1999) 30 ACSR 605; Troy Resources NL v Taipan Resources NL (2000) 36 ACSR 197, ASIC Regulatory Guide 74: Acquisitions approved by members, [74.81]–[74.86]. 39 LV Living Ltd [2005] ATP 5 [102]–[104] where the shareholder resolutions passed did not satisfy item 7 of s 611. In McMillan Properties Pty Ltd v WC Penfold Ltd [2001] NSWSC 1173, Young CJ in Eq held that an associate of the issuing company was not excluded from voting to approve an acquisition of shares by subscription, because the shares would not be acquired from the company. 40 This requirement may be impossible to satisfy where the proposal is to acquire shares from all shareholders in the company or on-market, as on one view nobody may vote on the proposal. In such a matter, ASIC may modify item 7 to allow shareholders who are involved only as prospective vendors to vote in this situation but this relief appears to be exceptional, except as regards trust schemes: ASIC Regulatory Guide 74: Acquisitions approved by members at [74.53]–[74.57] and [74.62]–[74.65], Colonial First State Trust Group [2002] ATP 15.

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excluded.41 In Ainsworth Game Technology Ltd 01 & 02 [2016] ATP 9, the Panel considered that the wife of a vendor was sufficiently interested in the outcome of the resolution, by virtue of her connection or closeness of relationship with her husband, that her voting in favour of the resolution would give rise to unacceptable circumstances. This was despite the Panel not finding an association between them. The Panel, however, declined to make a similar finding in relation to the adult sons of the vendor, who appeared to be more independent than the vendor’s wife. This decision extends the range of shareholders who may be prevented from voting on an item 7 resolution.

19.7 3% creep in six months [19.70] Where a person has had voting power of at least 19% in a company for a continuous period of at least six months, an acquisition is exempt42 if it increases that person’s voting power to no more than 3% higher than the person’s voting power six months previously: s 611, item 9.43 All acquisitions leading to increases in percentage voting power during that period (including those under other exemptions) are counted.44 The rule relates to net increases. A person may sell or dispose of shares, or suffer dilution, and then re-build their original percentage voting power plus another 3% (provided the their voting power does not drop below 19% at any time).45 Acquisitions may have to be timed precisely, because the 3% increment is measured relative to the day six months before the day on which the acquisition takes place. Because shares are counted towards a person’s voting power until the person ceases to have a relevant interest in them, any sale of shares must be completed before the shares cease to be part of the seller’s voting power.46 ASIC may modify the rule to exclude

41 Village Roadshow Ltd v Boswell Film GmbH (2004) 49 ACSR 27; Tiger Investment Co Ltd (1999) 33 ACSR 438; Bateman v Newhaven Park Stud Ltd (2004) 49 ACSR 597. See also 18.8. 42 This exception is discussed in ASIC Regulatory Guide 6: Takeovers: Exceptions to the general prohibition, RG 6.47-RG 6.67. It is now out of step with other takeovers codes, and its repeal is often mooted. For its policy and origin, see RG 6.48 and Durbridge and Rich “The Origin of the Australian Takeovers Code” in Damian and James (eds) Towns Under Siege: Developments in Australian takeovers and schemes (Sydney, Ross Parsons Centre, 2016), at 2.6.4 and 2.8.3. 43 The acquisition may be made by someone other than a 19% holder, and it may be necessary to consider its effects on the voting power of more than one 19% holder. 44 Under the corresponding provision in force until March 2000, shares acquired under a rights issue were not counted towards the 3% creep. ASIC will not give relief to reinstate this exception, which is obsolete because of differences between item 9 and the previous provision: Regulatory Guide 6: Takeovers: Exceptions to the general prohibition, RG 6.51–RG 6.54. 45 ASIC policy is to relieve a person from the 19% requirement, though not the 6 month limit, if the shortfall resulted from the person’s holding having been diluted by an issue in which they did not have an opportunity to take part on equal terms: ASIC Regulatory Guide 6: Takeovers: Exceptions to the general prohibition, RG 6.59–RG 6.67. 46 NCSC v FAI Investments Pty Ltd (1982) 7 ACLR 152.

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voting power arising from associates’ relevant interests if the association is technical and the persons are not likely to act together.47 The rule focuses on percentage voting power, not the absolute number of shares controlled. Accordingly, an increase in the issued share capital will increase the scope to rely on the exemption, a decrease in capital will reduce the scope, and an acquisition fully covered by the “rising tide” principle will use none of the acquirer’s 3% creep entitlement. The 3% test does not apply only to the person who makes the relevant acquisition: it must be applied to the voting power of every person whose voting power is affected. This is usually not a problem as regards related bodies, but needs to be watched where a group company is associated with a person by concert or relevant agreement. In The President’s Club Ltd,48 the Panel found that an acquisition to which item 9 applied was nonetheless unacceptable, because the acquirer only met the requirements of item 9 because of a prior acquisition which had been made in breach of s 606. This exemption assumes that disclosure of a progressive accumulation of shares enables the market to adjust to increases and the tightening of control by the purchaser and therefore is consistent with the objectives in s 602.49 Accordingly, an acquisition to which item 9 applies may be unacceptable if the acquirer has “banked” creep shares by entering into cash swaps50 or has not given the relevant substantial holding notices.51 Because the acquirer must satisfy the requirements of item 9 in relation to the company in which it acquires shares, this exemption does not apply to a downstream acquisition.

19.8 Rights issues [19.80] The s 606 prohibition does not apply to an acquisition pursuant to a rights issue available to all security holders in a particular class: s 611,

47 San Miguel Corporation v ASC (1998) 16 ACLC 1432. 48 The President’s Club Ltd [2012] ATP 10 [99]–[102] and [108]–[110]. This decision was set aside because the Panel had failed to accord natural justice to the acquirer, without prejudice to this reasoning. 49 See Anaconda Nickel Ltd 15 [2003] ATP 17 [44]–[55] where the Panel rejected an argument that on-market acquisitions by a major shareholder in reliance on s 611, item 9 at prices above the bid price of a current bid by a third party amounted to unacceptable circumstances. 50 Virgin Australia Holdings Ltd [2013] ATP 15 [47], not mentioning John Fairfax Holdings Ltd [1997] ATP. 51 Orion Telecommunications Ltd [2006] ATP 23 [117]; World Oil Resources Ltd [2013] ATP 1 [229]–[231]; Northern Iron Ltd [2014] ATP 11, ASIC Regulatory Guide 6: Takeovers: Exceptions to the general prohibition, RG 6.58. Although the policy of item 9 assumes that creep acquisitions will be disclosed by substantial holder notice, the exception applies in relation to unlisted companies with more than 50 members.

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item 10.52 This means that a security holder can take up their rights even if other security holders fail to do so, resulting in a proportionate increase in their holding. The exemption is also available to an underwriter of the issue: see 19.9. The following conditions must be met: (1) Each person must be offered an issue of new securities on a pro-rata basis determined by reference to each person’s holding of securities in the same class.53 An offer of existing securities will not satisfy this requirement as it will not result in an “issue”. (2) The acquisition must be pursuant to the offer. This means that securities acquired on taking up renounceable rights purchased on-market during the offer period are outside the exemption. (3) All offerees must have a reasonable opportunity to participate and agreements to issue the securities must not be entered into until a specified time for acceptance has closed. (4) The terms of all offers must be the same. The requirement for pro rata offers is relaxed in respect of foreign holders. Section 615 allows a company not to extend the offer to holders resident in overseas jurisdictions to avoid incurring the often disproportionate cost of satisfying foreign prospectus registration requirements. In lieu of making an offer to some or all foreign holders, the company must issue the securities (or the rights to those securities) to a nominee approved by ASIC54 who must then sell the securities (or rights) and remit the net proceeds to the foreign holders.55

52 The Panel discussed the policy and workings of item 10 in InvestorInfo Ltd [2004] ATP 6 [25]–[39], and in Guidance Note 17: Rights Issues. 53 This excludes rights to additional shares to allow holders of less than a marketable parcel to round up their holdings, though this could be incorporated into a shortfall facility. An offer made to only one of several classes of securities may attract the exemption, even if it would lead to that class increasing its proportionate voting power. 54 ASIC Class Order [CO 13/520] ensures that an issuer may use the nominee procedure for some but not all foreign shareholders. In ASIC’s view, it may be unacceptable to use the nominee procedure in respect of a foreign holder to whom an offer can legally and practically be made: Regulatory Guide 6: Takeovers: Exceptions to the general prohibition at RG 6.114–RG 6.117. See also Listing Rule 7.7. 55 This provision raises a question whether the issuing company has a duty to have a nominee approved by ASIC as failure to do so will preclude the exemption being available. See Dromana Estate Ltd 01 [2006] ATP 4 [36]–[40], Emperor Mines Ltd 01 [2004] ATP 24 [102] and Altius Mining Ltd [2012] ATP 17 [25]–[27] where the exemption in item 10 was not available, because foreign shareholders were excluded and no nominee was appointed on their behalf. ASIC may give case-by-case relief to dispense with the nominee procedure where the rights issue is non-renounceable and the issue price is close to the market price: see ASIC Regulatory Guide 6: Takeovers: Exceptions to the general prohibition, RG 6.128–RG 6.132. The decision in Emperor Mines Ltd 01 was reversed in Emperor Mines Ltd 01R [2004] ATP 27, partly on the basis of changes in the relevant facts, but also reflecting a different view on how the discount and non-renounceability were likely to affect take-up of the rights.

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A shortfall facility is sometimes used to place securities not taken up under a rights issue. The securities are offered to holders for subscription, usually on the same terms as the rights issue and in proportion to their holdings.56 Shortfall shares are in addition to a holder’s pro rata entitlement, and the Takeovers Panel does not consider that the exemption for an underwriter in s 611, item 10 applies to an acquisition under a shortfall facility. A person applying under a shortfall facility does not have the same exposure to risk as an underwriter.57 ASIC may give relief from s 606 for a shortfall facility.58 The requirement that all offers be the same excludes accelerated rights issues where an offer to institutional shareholders is made some time before a follow-on offer to retail shareholders, so that the times of the offers and allotments are different. ASIC granted class order relief which inserts an item 10A into s 611, under which these timing differences can be disregarded in determining whether the terms of all offers are the same. It requires that the allotment of shares under the retail offer be made not more than two months after the allotment to institutional shareholders.59 It applies to an underwriter of the accelerated issue and retains the exception allowing foreign holders’ rights to be issued to a nominee. The Panel has dealt with many applications concerning unacceptable circumstances alleged to arise from rights issues and particularly their underwriting.60 This exception appears to have a downstream operation: see 19.16.

56 QR Sciences Ltd [2003] ATP 37. If it may affect control, it may be important that the company’s board not have a discretion in the allocation of shortfall shares: Dromana Estate Ltd [2006] ATP 4 [30]–[32]; Redflex Holdings Ltd [2009] ATP 17 [28]; Powerlan Limited [2010] ATP 2 [43]; and Altius Mining Ltd [2012] ATP 17 [30]. In Virgin Australia Holdings Ltd [2013] ATP 15, the Panel accepted a cap on shortfall subscriptions in proportion to each holder’s previous holding and close to the proportional increases available to the holders who underwrote the issue. In Regal Resources Ltd [2016] ATP 17, the Panel found unacceptable a shortfall cap, which was intended to limit the number of rights which could be exercised by short-term holders. 57 Dromana Estate Ltd 01R [2006] ATP 8 [36]–[48], Guidance Note 17: Rights Issues [22]–[24]; Lachlan Farming Ltd 02 [2005] ATP 02. 58 See ASIC Regulatory Guide 6: Takeovers: Exceptions to the general prohibition, RG 6.100–RG 6.109. ASIC will only give this relief where the facility is not being used for control purposes and where shareholders receive adequate information about the terms of the facility and the potential effect on the control of the company. This relief does not extend to underwriting a shortfall facility (see RG 6.109), but the underwriter does not appear to need relief, as it underwrites the rights issue. 59 See s 9A, ASIC Regulatory Guide 6: Takeovers: Exceptions to the general prohibition, RG 6.73–RG 6.80 and ASIC Corporations (Takeovers - Accelerated Rights Issues) Instrument 2015/1069 (which replaces Class Order [CO 09/459], referred to in RG 6). Although s 9A does not require the company to appoint a nominee for foreign shareholders, Instrument 2015/1069 will not be available, unless it does so. If a general meeting is held after the institutional allotment and before the retail allotment, ASIC may refer the matter to the Panel. 60 See 19.9, ASIC Regulatory Guide 6: Takeovers: Exceptions to the general prohibition, RG 6.81–RG 6.96 and Takeovers Panel Guidance Note 17 Rights Issues.

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19.9 Underwriting rights issues and prospectuses [19.90] There are exemptions for acquisitions by an underwriter of a rights issue and of an issue under a disclosure document, where the disclosure document disclosed the effect the acquisition would have on the person’s voting power in the company.61 Since these have a lot in common, it is convenient to take them together. “Underwrite” is only defined to the extent of including “sub-underwrite”. The term “underwriting” requires some element of risk for the underwriter so that, if there is a shortfall, the person will be required to take the securities.62 In ASIC’s view, whether an arrangement constitutes underwriting for these purposes depends on its commercial substance as an assumption of the risk of a shortfall, rather than its legal form. In particular, although an underwriter may arrange sub-underwriting, and a sub-underwriter is an underwriter for the purposes of these provisions, a condition which allows the underwriter to withdraw at its own option, or if the sub-underwriting agreement is terminated,63 is inconsistent with the notion of underwriting. For the opposite reason, so is an agreement to “take firm”, under which the underwriter will obtain securities, whether or not there is a shortfall, without any obligation to relinquish the securities to satisfy public demand.64 A rights issue which is a device to pass control to the underwriter is likely to constitute unacceptable circumstances. The underwriting exemptions have been have been the subject of many applications to the Takeovers Panel, which led to the Panel issuing Guidance Note 17: Rights Issues.65 The Guidance Note sets out a number of principles which the Panel may take into account in determining if unacceptable circumstances exist in relation to any rights issues and underwriting. These include:

61 Section 611, items 10 and 13, ASIC Corporations (Takeovers - Accelerated Rights Issues) Instrument 2015/1069 and 19.8. 62 Aberfoyle Ltd v Western Metals Ltd (1998) 28 ACSR 187 and Takeovers Panel Guidance Note 17: Rights Issues. 63 This may be too widely expressed: often the named underwriter merely arranges the underwriting, so that the sub-underwriters are the true underwriters, and are the only people intended to acquire shares in case of a shortfall. If they are at risk, subject to only usual exceptions, any acquisition of shares by them as sub-underwriters will be within the letter and intention of the exception. 64 ASIC Regulatory Guide 6: Takeovers: Exceptions to the general prohibition, RG 6.81–RG 6.93 and RG 6.141–RG 6.156. 65 The policy is based on InvestorInfo Ltd [2004] ATP 6, which at [38] lists various factors relevant to determining whether participation in the rights issue is “genuinely accessible” to shareholders in general. See also ASIC Regulatory Guide 6: Takeovers: exceptions to the general prohibition Table 4.

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•

the need for funding66, the financial situation and solvency of the company,67 the amount to be raised, whether the company has explored other capital raising alternatives;

•

whether the company has received advice from financial advisers, sought professional underwriters and whether the rights issue is underwritten by professional underwriters;68

•

whether the rights issue is structured as a whole to minimise any unnecessary effect on control of the company;69

•

pricing – a deep discount is an inducement to existing shareholders to exercise their rights, but means that more shares must be issued to raise a given amount of money: in assessing what effect the discount will have on control, these factors have to be weighed in context;70

•

renounceability of the rights issue: unless there are good reasons for non-renounceability, more rights are likely to be exercised if they are renounceable;71

•

use of related party underwriters–the nature, size or market following of a company may make it difficult or costly to engage a professional underwriter.72 In considering this point, it may be important to consider if the underwriter has assumed any risk or is taking the shares “firm”;73

66 See Phosphate Resources Ltd [2003] ATP 03, where the proximity of a rights issue under-written by the major shareholder to an earlier buy-back without “cogent commercial reasons” gave rise to concerns that the corporate actions was an artifice designed to give the major shareholder control; Anaconda Nickel Ltd 02-05 [2003] ATP 4; Lachlan Farming Ltd [2004] ATP 31; and Rivkin Financial Services Ltd 02 [2005] ATP 1. 67 Guidance Note 17: Rights Issues at [6]–[8]. 68 Guidance Note 17: Rights Issues at [6]; SteriCorp Ltd [2005] ATP 9, accepting that not every company can secure professional underwriting. 69 Guidance Note 17: Rights Issues at [9]–[24]; QR Sciences Ltd [2003] ATP 37. In Bisalloy Steel Group Ltd [2008] ATP 29, the Panel decided that the company did not take all reasonable steps to minimise the potential control impact by a rights issue and sub-underwriting as sub-underwriting was offered to one key shareholder but not to two others. Also see DataDot Technology Ltd [2009] ATP 13; Multiplex Prime Property Fund 03 [2009] ATP 22; Real Estate Capital Partners USA Property Trust [2012] ATP 6, MacarthurCook Property Securities Fund 01 & 02 [2012] ATP 7. 70 Guidance Note 17: Rights Issues at [10]–[13]; Emperor Mines Ltd 01 [2004] ATP 24 and Emperor Mines Ltd 01R [2004] ATP 27 [26]–[27]; DataDot Technology Ltd [2009] ATP 13. 71 Guidance Note 17: Rights Issues at [15]–[18]; Emperor Mines Ltd 01 [2004] ATP 24 [53]–[66]; Dromana Estate Ltd 01R [2006] ATP 4 [49]–[50]; SteriCorp Ltd [2005] ATP 9 [55]–[58]. 72 Guidance Note 17: Rights Issues at [19]-[21]; InvestorInfo Ltd [2004] ATP 6 [42]; Emperor Mines Ltd 01 [2004] ATP 24; Dromana Estate Ltd 01 [2006] ATP 4 [23]. Where the underwriter is a related party, the company will need to consider the requirements of Ch 2E of the Corporations Act in relation to related party transactions: ASIC Regulatory Guide 6: Takeovers: exceptions to the general prohibition, RG 6.157–RG 6.168. 73 Emperor Mines Ltd 01 [2004] ATP 24 [97], [108].

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•

use of shortfall facilities and other methods of dispersing a shortfall will reduce the possible control effects,74 although this may depend on how they are structured. For example, it is more likely to be acceptable to scale back applications under a shortfall facility by formula than for the directors to reject applications at discretion75 or by setting a restrictive numerical cap or other unnecessary or limiting conditions on eligibility (where directors controlled the issue of shares not taken up);76 and

•

whether the effect on control exceeds what is reasonably necessary for the fundraising purpose.77

While the Panel seeks to avoid or minimise unnecessary effect on control of a company arising from an underwriting, it also recognises that in the case of a smaller company, or one with an urgent need for cash, there may need to be some “trade-off between certainty of funding and issues of concentration of control”.78 The Panel has also emphasised the increased importance of full and meaningful disclosure of the possible control implications of a rights issue, including the reasons behind the choice of any underwriter and, where known, the intentions of any person who may obtain control as a result of the rights issue79 and the ability of the underwriter to fund its underwriting obligations.80 The exception for an underwriter in item 10 appears to have a downstream operation (see 19.16) but the exception in item 13 is limited to an acquisition of securities in the company which issues the disclosure document. 74 Guidance Note 17: Rights Issues at [22]–[23]; Emperor Mines Ltd 01 [2004] ATP 24; DataDot Technologies Ltd [2009] ATP 13. 75 Lachlan Farming Ltd [2004] ATP 31; Dromana Estate Ltd 01 [2006] ATP 4; Redflex Holdings Ltd [2009] ATP 17; Powerlan Ltd [2010] ATP 2 [43] and Altius Mining Ltd [2012] ATP 17 [30]. 76 Multiplex Prime Property Fund 03 [2009] ATP 22. In Virgin Australia Holdings Ltd [2013] ATP 15 [33]–[42], a proportional cap on shortfall applications was structured so as to maintain parity between the substantial shareholders who sub-underwrote the issue and applicants under the shortfall facility. The Panel found that this was acceptable in all the circumstances, because it “would not disadvantage retail shareholders on a proportionate basis”. It also accepted an arrangement whereby the sub-underwriting took the form of cash-settled swaps between the underwriter and the substantial holders, who were temporarily prevented by the Foreign Acquisitions and Takeovers Act 1975 from subscribing for the shares. The Panel did not find this arrangement unacceptable, as the sub-underwriters would have been able to rely on item 10A to acquire the shares outright. 77 Guidance Note 17: Rights Issues at [6]; Anaconda Nickel Ltd 02-05 [2003] ATP 4. 78 Emperor Mines Ltd 01R [2004] ATP 27 [30]; Multiplex Prime Property Fund 03 [2009] ATP 22. 79 Guidance Note 17: Rights Issues at [30]; QR Sciences Ltd [2003] ATP 37; Rivkin Financial Services Ltd 02 [2005] ATP 1; iP3 Systems Ltd [2005] ATP 7; Bisalloy Steel Group Ltd [2008] ATP 29 [36]–[39]; DataDot Technologies Ltd [2009] ATP 13 (regarding sub-underwriters). 80 Emperor Mines Ltd 01 [2004] ATP 24 [47]; InvestorInfo Ltd [2004] ATP 6.

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19.10 Dividend reinvestment plan [19.100] Shares acquired under a dividend reinvestment plan or bonus share plan (where the shareholder waives dividends in lieu of an allotment of bonus shares) and interests in a managed investment scheme acquired under a distribution reinvestment plan or switching facility81 are exempt from s 606: s 611, item 11. For the exemption to apply, the plan or facility must be available to all members (other than foreign holders). The exemption in item 11 does not extend to an underwriter of the plan (unlike item 10 for rights issues). However, ASIC may give relief to broaden item 11 to extend to an acquisition by a person who is acting as a genuine underwriter (that is, the exception is not being used for control purposes), if the shareholders are given adequate information about the terms of the underwriting, the identities of any sub-underwriters and any associations the underwriters and sub-underwriters may have with substantial holders and controllers of the company.82 This exception appears to have a downstream operation: see 19.16.

19.11 Acquisition through listed company (downstream acquisition) [19.110] The s 606 prohibition does not apply to an acquisition of shares in a company (the “downstream company”) that results from an acquisition of a relevant interest in voting shares in another body corporate (the “upstream company”), if the upstream company is listed on the ASX, another prescribed financial market83 or an ASIC approved foreign exchange:84 s 611, item 14.85 This is known as the exemption for downstream acquisitions. It is required because, when a person acquires a controlling interest, or more than 20% of 81 This is not a defined term. 82 See ASIC Regulatory Guide 6: Takeovers: exceptions to the general prohibition, RG 6.1609–RG 6.177. 83 See 11.3 and reg 1.0.02A of the Corporation Regulations. 84 The following stock exchanges have been approved by ASIC: London, New Zealand, NYSE, American Stock Exchange, NASDAQ, Tokyo, Frankfurt Stock Exchange, Toronto, Swiss Stock Exchange, Euronext Paris, Euronext Amsterdam, Italian Exchange, JSE Securities Exchange (Johannesburg), Hong Kong Stock Exchange, Singapore Exchange and Bursa Malaysia: ASIC Corporations (Approved Foreign Markets) Instrument 2015/1071. ASIC has modified the exemption such that item 14 only applies if the body corporate has its primary listing on the ASX, other prescribed financial market or an ASIC approved foreign exchange: ASIC Class Order [CO 13/520]. ASIC will consider granting case-by-case relief where the upstream company’s only listing on a relevant exchange is a secondary listing: see ASIC Regulatory Guide 71: Downstream Acquisitions, RG 71.21. 85 The Panel considered this exemption in some detail in Leighton Holdings Ltd 01, 02 and 03 [2010] ATP 13 and Leighton Holdings Ltd 02R [2010] ATP 14. In August 2016, ASIC re-issued Regulatory Guide 71: Downstream Acquisitions, for the most part restating and consolidating existing policy: see also ASIC Consultation Papers 170 and 234.

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the voting shares, in a body corporate or managed investment scheme, that person also acquires a relevant interest in shares controlled by the body or scheme: s 608(3).86 Unlike the downstream operation of some of the other exemptions, item 14 applies however the upstream shares are acquired, even if that acquisition is unlawful or unregulated. Where the exemption does not operate, for example, in a downstream acquisition via a takeover of, or scheme of arrangement with, an unlisted upstream company,87 ASIC may be prepared to grant either unrestricted or restricted relief by modifying the law.88 Unrestricted relief may be granted if: •

the shares in the downstream company do not comprise a substantial part of the assets of the upstream company (ie less than 50% of the market value of its assets);

•

control of the downstream company is not one of the main purposes or consequences of the takeover of the upstream company;

•

the upstream acquisition is by way of a takeover or merger which is legal in the jurisdiction in which it occurs and which affords a comparable level of investor protection to that under the Corporations Act and the ASX listing rules; and

•

the applicant does not propose any restrictions or conditions to the relief.

Restricted relief may be granted in other cases.89 If the downstream shareholding is less than a 50% holding, relief may be granted conditional on the bidder not acquiring any more shares or exercising any votes attached to the shares acquired pursuant to the upstream acquisition for a period equivalent to the minimum period that the bidder could have acquired the same number of shares relying on the 3% creeping rule. If the downstream shareholding is a controlling interest and the conditions for unrestricted relief cannot be met, relief may be granted conditional on

86 The downstream company is an Australian company or registered scheme. The upstream company may be a body incorporated in another country. Because s 604 assimilates such a scheme to a listed company, the upstream company may also be a managed investment scheme, registered in Australia and listed on a prescribed market in Australia, though not a trust formed or listed in another country. 87 See Austar United Communications Ltd [2003] ATP 16 where the acquisition was pursuant to a foreign court approval as part of a debt restructuring. 88 See ASIC Regulatory Guide 71: Downstream Acquisitions at [71.30]–[71.86]. Earlier policy is discussed in Sabatica Pty Ltd v Allstate Explorations NL (2000) 33 ACSR 51. See also Australian Pipeline Trust 01 [2006] ATP 27 and 01R [2006] ATP 29 [104]–[112]; Leighton Holdings Ltd 01, 02 and 03 [2010] ATP 13; Leighton Holdings Ltd 02R [2010] ATP 14; and Cape Lambert MinSec Pty Ltd [2009] ATP 12 for discussion of the policy of s 611, item 14. 89 Possible conditions and restrictions are discussed in ASIC Regulatory Guide 71: Downstream Acquisitions, RG 71.49–RG 71.85.

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the bidder making a downstream bid.90 The bid’s terms will usually be negotiated with ASIC and this may involve conferring with the target company. The bid will usually be priced on a “see-through” basis, that is, determined by reference to the pricing for the upstream bid as is attributable to the downstream shareholding. This will usually involve expert valuations being prepared. The bid must remain open for at least two weeks after the bidder reaches 20% of the upstream company. The only conditions that can be imposed on the bid are that the upstream bid is successful, no prescribed occurrences occur in relation to the target company and any necessary regulatory approvals are obtained. ASIC is concerned that some downstream acquisitions which are strictly within item 14 may nonetheless give rise to unacceptable circumstances.91 In one class of matters the requirements of item 14 are satisfied, but in a way which does not meet its policy objectives: in Cape Lambert MinSec Pty Ltd [2009] ATP 12 the Takeovers Panel affirmed a decision of ASIC not to grant relief for downstream acquisitions where the upstream company was a wholly owned subsidiary of another company but by an oversight was still on ASX’s Official List. A more difficult class is where control of the downstream company is not merely incidental to the upstream acquisition, but is “a significant purpose” of that acquisition. ASIC has said that, in those circumstances, it may consider applying to the Panel for a declaration of unacceptable circumstances, despite the exemption applying.92 It is unclear whether such an application would succeed. The Panel declined in Leighton Holdings to apply a version of this test, that is, whether “securing control of the downstream company might reasonably be considered to be a significant purpose of the upstream acquisition”,93 because that test does not adequately reflect item 14‘.94 The Panel did not explain this remark, but it had considered the history of item 14 and emphasised that the item is wide and intended to confer a clear exemption.95 The Panel said that the policy of item 14 turns on whether the upstream acquisition was an artifice to acquire shares in the downstream company without making a bid.96 It did, however, recognise that ASIC might apply more objective, but broadly

90 See ASIC Regulatory Guide 71: Downstream Acquisitions, RG 71.52–RG 71.69 and BTR plc v Westinghouse Brake & Signal Co (Australia) Ltd (1992) 7 ACSR 122; Magellan Petroleum Australia Ltd v ASC (1993) 11 ACSR 306. In the context of an acquisition pursuant to a court and creditor approval under the US Chapter 11 bankruptcy procedure, see Austar United Communications Ltd [2003] ATP 16. 91 Regulatory Guide 71: Downstream Acquisitions, RG 71.26–RG 71.28 and see RG 71.37–RG 71.41. 92 Regulatory Guide 71: Downstream Acquisitions, RG 71.28. 93 An expression taken from the London Takeover Code and now used in Regulatory Guide 71: Downstream Acquisitions, RG 71.37(a). 94 Leighton Holdings Ltd 02R [2010] ATP 14 [77]–[78]. 95 See particularly at [55]–[59]. 96 At [63].

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consistent, considerations to decisions whether to grant relief on the analogy of item 14.

19.12 Acquisition under compromise or arrangement and liquidation [19.120] An acquisition that results from a scheme of arrangement approved by a court under Pt 5.1 of the Corporations Act, or entered into by a liquidator under s 507, is exempt from the s 606 prohibition: s 611, items 17 and 18. These exemptions extend to downstream acquisitions: see 19.16.97 In general, a court is precluded from approving a scheme of arrangement unless it is satisfied that the scheme has not been proposed to avoid the operation of Chapter 6: s 411(17). However, a court may approve a scheme if a certificate is produced that ASIC has no objection or if the scheme involves the acquisition of control of a company where some feature of the scheme could not have been effected under a takeover scheme, such as a cancellation of shares. The choice of proceeding by scheme or takeover bid is discussed at 5.4. The exemption extends to a creditors’ scheme of arrangement, but not an acquisition under the terms of a deed of company arrangement. However, in Pasminco Ltd (Administrators Appointed) [2002] ATP 6, the Takeovers Panel was, by majority, prepared to grant a modification to exempt from s 606 proposed share issues under debt for equity swaps proposed by the administrator. The majority of the Panel accepted that the debts of the company exceeded the value of its assets to such a degree that the shareholders had no interests to be protected. The majority said it would have rejected the application if there had been a possibility of the shares having some value. There was a strong dissenting view from one Panel member who said that it was not clear this was a fair decision, there were other ways for the administrator to proceed and granting the relief was tantamount to law reform.98

19.13 Acquisition that results from a buy-back or redemption [19.130] An acquisition that results from a buy-back authorised by s 257A is exempt from the s 606 prohibition: s 611, item 19. The exemption recognises that generally buy-backs are regulated by Pt 2J of the Corporations Act. The problem it addresses may appear somewhat 97 On schemes of arrangement, see 5.4, 18.11 and Damian and Rich, Schemes, Takeovers and Himalayan Peaks (3rd ed, University of Sydney, 2013). On downstream application of item 17, see Re Stockbridge Ltd (1993) 9 ACSR 637; (1993) 11 ACLC 201, decided under a more restrictive provision. Section 507 is nearly disused, but see Application of Theatre Freeholds Ltd [1996] NSWSC 189. 98 See also Cape Lambert MinSec Pty Ltd [2009] ATP 12, s 444GA and Munday Group Pty Ltd [2010] FCA 1488, discussed at 18.12.

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theoretical, as a company does not obtain any real control over voting or disposal of shares it agrees to buy back.99 A buy-back of shares may nevertheless affect control of a company, by concentrating the percentage voting power of remaining parcels of shares. For example, a large buy-back of shares may result in a person holding less than 20% of the share capital increasing their percentage holding to more than 20%, or having started with a holding of more than 20% increasing their percentage holding, without acquiring any shares.100 The effects of buy-backs on the control, or potential control, of a company were considered by the Takeovers Panel in Village Roadshow Ltd 02 [2004] ATP 12 and 03 [2004] ATP 22. In Village Roadshow Ltd 02, Village Roadshow Ltd announced a proposal for an on-market buy-back of up to 10% of its issued ordinary share capital.101 If this was effected, the shareholding of the major shareholder, Village Roadshow Corporation, could have increased from 47.6% to 52.9%. The Panel considered that there was a deficiency of information disclosed by Village Roadshow Ltd about the buy-back, including a lack of statements about: the company’s capital management objectives and how the buy-back fitted into them, the effect of the buy-back on the company’s ability to pay dividends, the extent and source of borrowings to fund the buy-back, the effect of the buy-back on the company’s financial position and the major shareholder’s intentions in respect of the buy-back.102 The Panel considered that this information deficiency taken together with the major shareholder’s likely increase in voting power was unacceptable.103 In Village Roadshow Ltd 03, Village Roadshow Ltd proposed an on-market buy-back of up to 20% of its ordinary shares. As this would result in more than 10% of the votes attaching to voting shares being bought back in 12 months, approval by an ordinary resolution of the company’s shareholders was required under s 257C. Section 257C does not preclude any shareholder from voting on the resolution. A 20% buy-back could have resulted in the shareholding of the major shareholder, Village Roadshow Corporation, increasing from 53% to 68%. The Panel gave detailed 99 When a company agrees to buy back shares, all rights attaching to the shares are suspended, the company cannot dispose of the shares, and they are cancelled as soon as the company registers a transfer of them to itself: s 257H. 100 There is no breach, because nobody acquires a relevant interest in a voting share, when a person’s voting power is similarly enhanced by the company redeeming its own shares: see 3.2. 101 Section 257B(6) requires an on-market buy-back to be made by a listed corporation, in the ordinary course of trade. Since the section does not use the defined term “on market”, it appears that the market operating rules do not determine whether the buy-back complies in this respect: see also 11.3. 102 Village Roadshow Ltd 02 [2004] ATP 12 [69]. 103 In Lantern Hotel Group Ltd [2014] ATP 6, the Panel deferred a decision on whether to prevent a shareholder whose voting power would be increased from 30% to 40% from voting on approval of a selective buyback, though stated that that was a “potential issue”.

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consideration to whether shareholders had received sufficient information on the buy-back and, on balance, decided they had, in doing so rejecting an argument that an expert’s report should be obtained.104 Nevertheless, the Panel was of the view that it would have been unacceptable for Village Roadshow Corporation to both vote in favour of the resolution and have its voting power increase as a result of the buy-back. The Panel considered that it would not be unacceptable for either to occur without the other. However, if both occurred, this would conflict with the equality of opportunity principle.105 The Panel said it would adopt a similar policy on a case-by-case basis where a shareholder who already has a substantial measure of control would consolidate such control by voting through a resolution to approve a buy-back.106 Because item 19 applies only to a buy-back authorised by s 257A, which applies only to a buy-back of shares by a company stricto sensu, it appears that s 604 does not apply item 19 to a buy-back or redemption of units in a listed managed investment scheme. In Re Real Estate Capital Partners Managed Investments Limited as Responsible Entity of the Real Estate Capital Partners USA Property Trust [2013] NSWSC 190 at [55]-[58] White J (who decided the matter on another basis) inclined to the view that s 606 did not apply to an off-market redemption of units by the responsible entity of a registered scheme, without relying on item 19, or on s 609(4), because Pt 5C.6 of the Act contemplates that the responsible entity will redeem interests in the scheme. ASIC has given class order relief to exempt from s 606 an on-market buy-back which complies with requirements similar to those which apply to companies.107 This exception appears to have a downstream operation: see 19.16.

19.14 Discretionary relief for selling shareholders [19.140] A shareholder who holds more than 20% of the voting shares in a company and who wishes to sell out is often placed in a difficult position. There are several courses open to effect a sale. Two of these can involve ASIC giving relief so that an acquisition may be exempt from s 606. •

The shareholder could seek independent shareholder approval under s 611 to enable it to sell the shares to a single buyer without a takeover bid being made: see 19.6.

104 Village Roadshow Ltd 03 [2004] ATP 22 [18]–[33]. 105 Village Roadshow Ltd 03 [2004] ATP 22 [34]–[36]. 106 Village Roadshow Ltd 03 [2004] ATP 22 [43]. As the holding company of Village Roadshow Ltd, Village Roadshow Corporation was associated with that company. In Lantern Hotel Group [2014] ATP 6 [28]–[29], however, the Panel contemplated excluding a nonassociated substantial holder from voting to approve a buy-back. 107 ASIC Regulatory Guide 101 On-market buy-backs by ASX-listed schemes and ASIC Corporations (ASX-Listed Schemes On-market Buy-backs) Instrument 2016/1159, notionally inserting an item 19A, replacing Class Order [CO 07/422].

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•

The shareholder could seek to elicit a takeover offer for the whole of the company. The difficulty with this approach is that the potential bidder is not permitted to make an agreement with the shareholder to accept the offer for shares representing more than 20% of shares on issue as that would increase the bidder’s voting power in breach of s 606. Often a bidder will be reluctant to launch a full takeover bid unless it is confident that the major shareholder would accept. In Alpha Healthcare Ltd [2001] ATP 13, a receiver had control over 37.5% of issued shares in the target and a significant outstanding debt owed by the target. In order to maximise the sales proceeds, after extensive marketing, the receiver entered into a pre-bid agreement under which he agreed to sell 19.9% and the debt for a certain price, with settlement to occur only after the purchaser had made a takeover bid. The receiver could compel the purchaser to announce the bid and to waive any remaining conditions once the receiver accepted for the balance of the shares. The Panel upheld the legitimacy of this approach.

•

The shareholder could conduct a sale of the shareholding by tender. ASIC will grant relief to allow a successful tenderer to enter into a firm agreement to acquire more than 20% of the voting shares of the company provided the acquirer makes a takeover offer for the rest of the target company within 30 days.108 In this regard, ASIC considers that the minorities will be protected because the major shareholder will have an interest in extracting the highest possible price for its controlling parcel and this price will then be extended to minority shareholders. ASIC will only grant the relief if it is satisfied that the tender is conducted on an arm’s length basis and is a serious “test of the market”.109 This will generally require advertising the tender widely and inviting tenders on the basis of publicly available information or non-public information provided equally to all interested parties. The takeover offer which the successful tenderer is obliged to make must include a cash only consideration, must be at a price no less than that agreed to be paid under the tender and subject to no conditions other than that none of the events referred to in s 652C(1) or (2) happens.110

108 ASIC Regulatory Guide 102: Tender offers by vendor shareholders and Re Australian Metals Holdings Pty Ltd (1995) 15 ACSR 573. A proposal to introduce a similar exemption to the legislation, known as the “mandatory bid rule” was pursued as part of the CLERP amendments introduced in 2000, but was omitted late in the process: see Levy and Pathak, “The Mandatory Bid Rule – Where we are at and can it be made to work” (2002) 20 C&SLJ 424. 109 ASIC Regulatory Guide 102: Tender offers by vendor shareholders at [102.44]. 110 Proceeding with a sale and purchase followed by a scrip takeover bid for other shares may prevent scrip bid roll-over relief for selling shareholders. In that situation, it may be preferable to structure the transaction as a commitment by the shareholder to accept the bid, not a firm sale.

Exempt Acquisitions

•

455

The shares could be offered for sale in blocks of 20% or less. This could be undertaken with the assistance of a broker and with or without underwriting and with or without a bookbuild process. In recent years, it has been usual to conduct such a sale via a bookbuild process.111 Two issues arise with an offer for sale in this manner which may require further consideration.

First, s 707(2) prohibits the offer of securities for sale by a controller without a disclosure document if the securities are either not quoted or not offered for sale in the ordinary course of trading on a relevant financial market. An exception to this prohibition is a sale to a professional or sophisticated investor (s 708(8) and (11)). However, s 707(5) will generally prohibit the on-sale of securities by a person to whom a controller sold the securities within 12 months after the initial sale without a disclosure document. In broad terms, the purpose of these restrictions is to ensure a controller cannot sell the securities generally when the market may not be fully informed. In 2007 the law was amended to provide an exemption from the on-sale restriction in s 707(5) for a sell-down by a controlling shareholder subject to certain conditions.112 The key condition is that each of the controller and the company whose shares are being sold issue a notice under s 708A(5)(e) and 708A(6), commonly known as a “cleansing” notice or statement, which confirms that the company has complied with its financial reporting obligations and its continuous disclosure obligations (and that there is no information being withheld from the market under the exceptions to the continuous disclosure obligation). In this respect, the co-operation of the company whose shares are being sold is required to comply with the conditions of the exemption. Secondly, as the shares represent more then 20% of the voting shares, a stockbroker (or a syndicate of stockbrokers) acting as principal (or underwriter) in respect of the acquisition and disposal of the shares will need an ASIC exemption to avoid any breach of s 606 (and the substantial holder provisions).113 ASIC gives this relief on the basis that the broker is acting as a market maker, not as an investor and, once the major parcel has been on sold to a range of investors, the register of the relevant company will be more open. Various conditions are attached to the relief, including requirements that the broker reduce its entitlement to voting shares to less than 20% within 111 In general terms, a bookbuild process involves a broker contacting potential investors over a limited period (for example, two days) seeking bids or offers to buy a number of shares at a price specified by the investor. The offers or bids comprise a “book” (hence “bookbuild”) and can generally be withdrawn at any time prior to the “closing” of the book, when the offers become binding. 112 See s 708A, which is extensively modified by ASIC Corporations (Sale Offers by Controllers) Instrument 2016/81, replacing former Class Order 08/25. 113 ASIC Regulatory Guide 6: Takeovers: Exceptions to the general prohibition, RG 6.178–RG 6.195.

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14 days, not vote any shares over the 20% limit without prior ASIC approval, use its best endeavours to obtain as wide a placement of the shares as practicable and for the highest practicable price and provide a written listing of sales of the shares to ASIC at the end of the procedure (including details of the purchasers, if known, and the manner in which the sale was transacted). No person participating should acquire shares which would constitute more than 5% of the shares in the company under the procedure. A sale of a major shareholding in this way may not give the best result for the seller as the shares would generally have to be sold at a discount to market and breaking up the parcel of shares will dissipate the value of the control premium attached to them. However, if no takeover bid for the entire company is forthcoming, it may be the only alternative open to a shareholder who desires to sell its holding.

19.15 Miscellaneous exemptions [19.150]

Section 606 does not apply in relation to:

•

an acquisition of shares in a company that results from an issue of securities in that company, if it has not started to carry on business or borrow money: s 611, item 8. This exemption does not apply to a downstream acquisition: cf [19.60.10];

•

an acquisition of shares in a company by a promoter under an initial public offering disclosure document if the disclosure document was the first issued by that company and it disclosed the effect that the acquisition would have on the promoter’s voting power in the company: s 611, item 12. This exemption does not apply to a downstream acquisition: cf [19.60.10];114

•

an acquisition through a will or by operation of law: s 611, item 15;115

•

an acquisition of forfeited shares at an on-market auction: s 611, item 16; or

•

an acquisition made in a manner or in circumstances prescribed by the Corporations Regulations (these may include acquisitions of relevant interests in voting shares in a specified body or class of bodies): s 611, item 20 and Corporations Regulations, reg 6.2.01116 and reg 6.2.02.117

114 This exception does not apply to an acquisition of interests in a managed investment scheme unless s 604 has the effect that a reference to a disclosure document includes a product disclosure statement. 115 See The President’s Club Ltd [2012] ATP 10 [94]–[96]. 116 Regulation 6.2.01 prescribes acquisitions of shares in certain bodies, none of which is a listed scheme. It is not expressed so as to apply to a downstream acquisition resulting from a prescribed acquisition. 117 Regulation 6.2.02 prescribes an acquisition of shares in a body corporate, which results from holding a certain office. Section 604 applies to the regulation, so that “body

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ASIC is prepared to give conditional case-by-case relief to allow joint bidders to acquire relevant interests in one another’s shares by entering a joint bidding arrangement.118 The exceptions in items 15 and 16 appear to have a downstream operation: see 19.16.

19.16 Downstream acquisitions generally [19.160] A downstream acquisition is said to occur when a transaction by which a person acquires shares in one company has the indirect result that the person also acquires a relevant interest in shares in another company. By acquiring more than 20% of the shares in Company A, a person may also acquire a relevant interest in a parcel of shares in Company B, in which Company A has a relevant interest. If that parcel exceeds 20% of Company B, the person may contravene s 606 in relation to Company B, quite apart from any possible breach in relation to Company A.119 As noted above in this chapter, a number of the exemptions in s 611 are drafted so as not to apply to downstream acquisitions. Items 14 (downstream acquisition) and 17 (scheme of arrangement), however, do apply to downstream acquisitions. The remaining items, which have not been limited so as to exclude resulting downstream acquisitions, are items 1 (takeover bid), 2 (access to market), 6 (security holder), 10 (rights issue), 11 (dividend reinvestment plan), 15 (will or operation of law), 16 (auction of forfeited shares), 18 (s 507 scheme), and 19 (buy-back). Each of these exemptions extends to an acquisition of a relevant interest in voting shares in a company “that results from” an event of a specified kind, but “result” is defined in section 9 to include indirectly result. The wording of item 3, which limits that exemption to an acquisition “that results directly from” conversion of specified securities, shows that the drafter had this definition in mind. A downstream acquisition is fairly described as an indirect result of an upstream acquisition, and “results from” has been used in item 14 to convey precisely this concept, and in item 17, which does extend to downstream acquisitions. Accordingly, this group of exemptions extend on their face to downstream acquisitions.120

corporate” includes a listed scheme: Legislative Instruments Act 2003, s 13. ASIC has also executed a class order which has the effect that ASIC is taken not to have a relevant interest in securities for the purposes of Chs 6 and 6C, unless ASIC holds them on behalf of the Commonwealth, or the Commonwealth holds them on trust: [CO 12/1209]. 118 See 5.5 and ASIC Regulatory Guide 9: Takeover bids, RG 9.626–RG 9.644. 119 See “The Tracing Rule” in 3.5 and BTR plc v Westinghouse Brake & Signal Co (Aust) Ltd [1992] FCA 55; (1992) 7 ACSR 122. 120 This reading is supported by a note immediately preceding the table, to the effect that items 7, 8, 12 and 13 apply only to “activities in relation to the company itself”, but the other items apply to indirect acquisitions. Unfortunately, the note is incorrect as much as item 4 is drafted so as not to apply to a downstream acquisition; see 19.4. The note is not part of the Act: s 13 of the Acts Interpretation Act 1901 (Cth), as at 1 January 2005. In Takeovers: Proposal for Simplification, the Simplification Task Force proposed to extend the

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These items do not duplicate item 14, which applies in relation to any acquisition of shares in a relevant upstream company, irrespective of how the upstream acquisition is made and whether or not it is lawful. One of these items, on the other hand, applies in relation to a downstream acquisition, only if the relevant upstream acquisition complies with that item. On this reading, a downstream acquisition is exempt under item 1 (takeover bid), for instance, if it results from an upstream takeover bid for an unlisted Australian company. ASIC has disclosed doubts over whether a downstream acquisition which results from an upstream acquisition of a kind mentioned in this chapter is exempt, but acknowledges that there are differing views on the issue. It may, however, take regulatory action in the Panel or court over such an acquisition.121

19.17 Small companies [19.170] The takeovers legislation does not restrict a share acquisition in an unlisted company with no more than 50 members,122 unless the acquisition would result in a contravention regarding shares in another company (eg a downstream acquisition): s 606(1), 606(2). If an unlisted company has less than 50 members, a defence against a person building a significant stake may be to issue or transfer shares to additional persons so that the company has more than 50 members. The acquirer would then have to make a bid (or rely on another exemption) to increase its interest. If a company has more than 50 members, a strategy to reduce the number below 50 to avoid the application of Ch 6 may give rise to unacceptable circumstances, though that is unlikely if the reduction is a side-effect of some other action.123

downstream exemption to acquisitions resulting from all lawful acquisitions of shares in upstream Australian companies and in foreign upstream companies covered by what is now item 14. 121 ASIC Regulatory Guide 71: Downstream acquisitions at [71.23]–[71.26]. No doubt this reflects a proper concern that the downstream operation of these provisions may be misused, and not a mistaken view that it results from a drafting oversight. 122 Joint holders are deemed to be a single member: s 606(3). 123 Careers Australia Group Ltd [2012] ATP 5.

Chapter 20

The Role of ASIC in Takeovers [20.10]20.1 Policy aspects. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 459 [20.20]20.2 Power to exempt from compliance . . . . . . . . . . . . . . . . . . . . . . . . . . 461 [20.30]20.3 Power to modify the legislation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 463 [20.40]20.4 Application of rules of natural justice . . . . . . . . . . . . . . . . . . . . . . . 464 [20.50]20.5 Investigations by ASIC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 466 [20.60]20.6 Review of ASIC’s decisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 470

20.1 Policy aspects [20.10] ASIC has an important role to play in the regulation and conduct of takeovers in Australia due to its role in enforcing the legislation and its wide discretionary powers to exempt persons from compliance with, or to modify the provisions of, Chapters 6, 6A and 6C of the Corporations Act in particular cases.1 The detailed, prescriptive nature of the legislation often gives rise to the need to exercise these discretions in order to reduce the cost of compliance and improve efficiency and fairness in the conduct of takeovers.2 Each of these provisions also empowers ASIC to make “class orders”, instruments which confer exemptions or modifications affecting all people or a class of people, and relate to all securities, or to a class of securities.3 The class aspect of these powers is now regulated by the Legislative Instruments Act 2003 (Cth), which sets out a regime of consultation, consideration of regulatory impacts, exposure to Parliamentary disallowance and sunsetting, which also applies to regulations. Recent class orders are referred to as ASIC Corporations Instruments. 1

This is provided under s 655A (modifications of Ch 6), s 669 (modifications of Ch 6A) and s 673 (modifications of Ch 6C). There is no power to modify Ch 6B (“Rights and liabilities in relation to Chs 6 and 6A matters”).

2

These objectives are consistent with the general objectives of ASIC set out in s 1(2) of the Australian Securities and Investments Commission Act 2001 (Cth).

3

The Eggleston Committee proposed the exemption and class order powers to enable the authorities administering the legislation to adapt it to particular cases and classes of cases: Company Law Advisory Committee First Interim Report to the Standing Committee of Attorneys-General on Accounts and Audit Canberra, AGPS, 1970, Section D–Proposal for a Companies Commission, particularly [52(d)]. The expression became current when class order powers were conferred by s 162C of the Uniform Companies Acts (from 1971) and s 273 of the Companies Act 1981 (Cth) and Codes.

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Although the validity of the exemption and modification provisions has been questioned on the basis that they may represent an invalid abdication by the Parliament of its legislative power,4 the better view would appear to be that the provisions are valid on the ground that neither a power given to an authority to relax a legislative requirement in appropriate circumstances,5 nor a power which remains subject to the Parliament’s ability at any time to repeal the legislation, constitutes an abdication of legislative power.6 In exercising its powers under s 655A in relation to Ch 6 (takeovers generally) or under s 673 in relation to Ch 6C (information about ownership of listed companies and managed investment schemes)7, ASIC must consider the general objectives set out in s 602 to ensure: (1) that the acquisition of control over voting securities in a company, body or scheme takes place in an efficient, competitive and informed market; (2) that the shareholders, interest holders and directors know the identity of any person who proposes to acquire a substantial interest in the company, body or scheme, have a reasonable time to consider the proposal and are supplied with sufficient information to enable them to assess the merits of the proposal; (3) that, as far as practicable, all shareholders or other interest holders have equal opportunities to participate in any benefits accruing to holders under any proposal under which a person would acquire a substantial interest in the company, body or scheme;8 and (4) that an appropriate procedure precedes the compulsory acquisition of securities under Pt 6A.1. These factors do not require ASIC to exercise its powers in a particular way in a particular case. Provided consideration is given to the relevant factors, a decision contrary to them will nevertheless be valid.9 In exercising a power to grant relief, however, ASIC must ensure that the final form of relief is not too vague: a degree of precision is required to

4

These issues have largely been resolved by the Legislation Act 2003 (Cth) (as regards class orders) and Australian Securities and Investments Commission v DB Management Pty Ltd; Southcorp Wines Pty Ltd v DB Management Pty Ltd [2000] HCA 7; (2000) 199 CLR 32 and Australasian Memory Pty Ltd v Brien [2000] HCA 30; (2000) 200 CLR 270 (as regards case-by-case relief).

5

Giris Pty Ltd v Federal Commissioner of Taxation (1969) 119 CLR 356.

6

Cobb & Co Ltd v Kropp [1967] 1 AC 141.

7

Curiously, s 669 in relation to Ch 6A (“Compulsory acquisitions and buy-outs”) does not expressly require ASIC to take these policies into account.

8

For discussion of how this principle applies in a takeover of an upstream company, see BTR plc v Westinghouse Brake & Signal Co (Aust) Ltd (1992) 7 ACSR 122; but see Intercapital Holdings Ltd v National Companies & Securities Commission (1987) 12 ACLR 684.

9

OPSM Industries Ltd v NCSC (1982) 7 ACLR 192, 196 (Needham J).

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ensure that ASIC does not abdicate its authority to control a matter in a way which would be inconsistent with the Eggleston principles: see 1.2.10 Where ASIC considers it has no specific power to grant relief by way of exemption or modification, it may grant a no-action letter. In a no-action letter, ASIC states to a particular person that it does not intend to take regulatory action over a particular state of affairs or particular conduct.11 ASIC rarely issues no-action letters and the benefit of such a letter is limited as it is only a statement of ASIC’s intention on the information available at a particular time. While it may be unlikely, ASIC may still take action and will reserve the right to do so and to withdraw or revise the letter. The issue of a letter does not prevent a third party (for example, the Director of Public Prosecutions or a person who claims to have suffered loss from the conduct) from taking legal action in relation to the relevant conduct.12 In addition to its powers to exempt and modify, ASIC has specific discretionary administrative powers under Chs 6 and 6A, such as the powers to permit a bidder to withdraw offers (s 652B), to approve a nominee to dispose of rights or securities on behalf of holders with addresses overseas (s 615 or s 619(3)), and to nominate a panel of experts for the purposes of general compulsory acquisition (s 667AA).13 It also has a power to approve the operator of a foreign financial market for the purposes of item 14 of s 611.14

20.2 Power to exempt from compliance [20.20] ASIC may exempt a person from compliance with Chapter 6 or specified provisions of it: s 655A(1)(a).15 ASIC may impose conditions on the exemption, or limit it to a specified situation: s 655A(4).16 Breach of a condition is an offence, and compliance with conditions may be enforced by court order: s 655A(4). If a person does not bring their conduct within the situation specified in the instrument, the exemption will not apply to that conduct.17 This power does not depend on a person affected seeking the exemption. In principle, ASIC may act on its own volition, though it 10 Re Australian Metals Holdings Pty Ltd and ASC (1995) 15 ACSR 573, where the Full Tribunal of the AAT set aside three instruments granting relief in a situation involving a proposed sale by tender of a majority shareholding. 11 ASIC Regulatory Guide 108: No-action letters, [108.8]. 12 ASIC Regulatory Guide 108: No-action letters, [108.16]. 13 Although these powers are administrative in nature, the Takeovers Panel does not have power to review decisions under them, so that applications for merits review of those decisions must be made to the Administrative Appeals Tribunal. 14 This power is legislative in nature, so governed by the Legislative Instruments Act 2003. It has been exercised by the making of the ASIC Corporations (Approved Foreign Markets) Instrument 2015/1071: see 19.11. 15 Generally see ASIC Regulatory Guide 51: Applications for relief. 16 If the conditions are not observed, any irregularity may be cured by a court under s 1325D: Elkington v Vockbay Pty Ltd (1993) 11 ACLC 591. 17 Elkington v Vockbay Pty Ltd (1993) 11 ACLC 591.

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would have to consult the persons affected, particularly if the instrument might impose onerous obligations on them. The exemption must be in writing and a copy must be published in the Gazette: s 655A(5). The interpretation provisions in the Corporations Act 2001 apply to the interpretation of an exemption or modification instrument.18 ASIC considers that it cannot lawfully exercise its discretion to grant relief for breaches of the Corporations Act 2001 which have already taken place. This follows, it is said, from provisions authorising a court to excuse non-compliance. For ASIC so to act would be an usurpation of the court’s role.19 This approach is contrary to the decision in Re Kornblums Furnishings Ltd [1982] VR 123, where it was held that the Commissioner for Corporate Affairs could extend the time for giving a substantial holding notice notwithstanding that the time for giving it had expired.20 Furthermore, the provision does not contain any suggestion of such a limitation nor is there any policy reason to read in such a limitation. It would seem, therefore, that it is possible for the discretion to be exercised retrospectively.21 The exemptions which ASIC may give by class order are similar in content to those which it can give case-by-case. The instruments must be registered in the Federal Register of Legislative Instruments, and only take effect upon registration, but are subject to disallowance by either house of the Commonwealth Parliament. ASIC generally makes class orders of its own volition. When Ch 6 was extensively revised in 2000,22 ASIC made a number of class orders to overcome the uncertain or unintended operation of the new provisions.23 These instruments are of very general application, many of them applying to all takeover bids, or all off-market bids.

18 Acts Interpretation Act 1901 (Cth) (as in force on 1 January 2005—see s 5C), s 46, Burmine Ltd v Mount Edon Gold Mines (Aust) Ltd (1994) 13 ACSR 60. 19 ASIC Regulatory Guide 51: Applications for Relief, [51.16] and [51.67]–[51.70]. This approach is criticised in Digby, “The Principal Discretionary Powers of the National Companies and Securities Commission under the Takeover Code” (1984) 2 C&SLJ 216, 221. 20 Where ASIC has power to extend time, s 70 enables it to exercise that power retrospectively. Presumably, this applies where a broader power such as s 673, is relied upon to extend time. See also Brierley v Dextran Pty Ltd (1991) 3 ACSR 455 where a modification to the compulsory acquisition provisions was made after the takeover offer had closed, but before notices of compulsory acquisition were issued. 21 See also Howard, “Current Takeover Law” (1985) 15 MULR 31, 48; Russell, “Regulating with Discretion: The NCSC and Sections 12(o) and 58 of the Companies (Acquisition of Shares) Act 1980” (1988) 16 MULR 548, 557. 22 On the commencement on 13 March 2000 of the Corporate Law Economic Reform Program Act 1999. 23 These class orders were renewed in 2013, when the relevant policy was consolidated. Now see new regulatory guides RG 5 Relevant interests and substantial holding notices, RG 6: Takeovers: exceptions to the general prohibition, RG 9 Takeover bids (re-issued December 2016) and RG 10: Compulsory acquisitions and buyouts, and principal class orders [CO 13/520], [CO 13/521] and [CO 13/522]. Other instruments are cited in the text.

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The general law does not require ASIC to afford natural justice before making class orders, but the Legislation Act 200324 requires ASIC to consult interested members of the public. In practice ASIC consults widely. The interpretation provisions in the Corporations Act apply to the interpretation of a class order.25

20.3 Power to modify the legislation [20.30] ASIC may declare that Chapter 6 shall apply to a person as if any provision in Chapter 6 was omitted, varied or modified: s 655A(1)(b).26 Again, ASIC may act on its own volition without an application from any person affected. The declaration must be in writing and a copy must be published in the Gazette: s 655A(5). It is not necessary for there to be “special or extraordinary reasons” for granting a modification.27 It may be done in order to provide greater certainty in the market.28 Section 655A also empowers ASIC to declare that Ch 6 will apply to a class of persons or cases as if modified in ways specified in the instrument. The comments in 20.20 on exemptions by class order apply equally to modifications by class order. This power confers a very wide authority on ASIC which is not to be read down as unavailable to effect a modification or variation of any so-called “fundamentals” of the legislative scheme.29 However, Chapter 6 is concerned with takeovers30 and it would appear that a modification concerned with an unrelated matter may be beyond the power conferred by s 655A. Based on this reasoning, when Chapter 6 was titled “Acquisition of shares”, Brooking J in ANZ Executors & Trustees Ltd v Humes Ltd [1990] VR 615, 638 agreed with the NCSC’s view that the modification power

24 See ss 5 and 7 (item 6) for which ASIC instruments are legislative instruments and ss 17–19 for consultation. 25 Legislation Act 2003, s 13. 26 And s 9 defines “modifications” to include additions, omissions and substitutions. See s 18A of the Acts Interpretation Act 1901 (Cth) (as in force on 1 January 2005) on how definitions affect different parts of speech. 27 Magellan Petroleum Australia Ltd v ASIC (1993) 11 ACLC 811, 824. Generally see ASIC Regulatory Guide 51: Applications for relief. 28 See ASIC media release 07-120 where ASIC states that it executed an instrument to make clear that the APA bid for Qantas closed unsuccessfully. This was said to be done in the interests of market certainty in light of various speculation concerning the circumstances of the end of the bid – see Qantas Airways Ltd 02R [2007] ATP 7 for a discussion of matters relating to the close of the bid. 29 TNT Ltd v NCSC (1986) 11 ACLR 59; Peninsula Gold Pty Ltd v Australian Securities Commission (1996) 19 ACSR 703; Australian Securities and Investments Commission v DB Management Pty Ltd; Southcorp Wines Pty Ltd v DB Management Pty Ltd [2000] HCA 7; (2000) 199 CLR 32. 30 The title of Chapter 6, “Takeovers”, is part of the legislation: Acts Interpretation Act 1901 (Cth) (as in force on 1 January 2005), s 13(1).

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could not be used to authorise a compulsory acquisition of convertible notes.31 The power may be used in order to harmonise regulatory requirements when a takeover offer is regulated by foreign laws as well as Australian law.32 The exercise of this power is not limited to situations where the rights of third parties are unaffected. ASIC may, for example, create a right to compulsorily acquire shares issued after the close of a takeover bid resulting from an exercise of options.33 In practice, ASIC uses the modification power extensively. There seems to be a preference to use this power instead of the exemption power. Under the modification power, ASIC may alter the legal effects of an act in ways other than simply removing a prohibition or requirement, so that this power is much more versatile than the exemption power. Although, unlike an exemption, a modification cannot be made on conditions, ASIC may achieve much the same result by limiting the case in which the modification applies, or by writing requirements into the modified provisions.34 In applying for a modification or an exemption, ASIC’s policy, which is supported by the Panel,35 is that full and clear disclosure must be made by the applicant to ensure ASIC can properly consider the issues and can form a clear view of the regulatory consequences of granting relief.36 If it is later found that full disclosure has not been made, ASIC could revoke or vary the modification or exemption or the Panel could declare that unacceptable circumstances exist.

20.4 Application of rules of natural justice [20.40] There is a question whether ASIC is required to follow the rules of natural justice and seek and hear submissions from persons who may be affected by the exercise of ASIC’s discretion to grant an exemption or modify the legislation before reaching a decision.37 Generally, when a

31 Because of changes in the legislation, this particular example is no longer valid: ASIC v DB Management Pty Ltd; Southcorp Wines Ltd v DB Management Pty Ltd [2000] HCA 7; (2000) 199 CLR 321 [47]. 32 Memtec Ltd v Australian Securities Commission (1997) 15 ACLC 1,784. 33 Australian Securities & Investments Commission v DB Management Pty Ltd; Southcorp Wines Pty Ltd v DB Management Pty Ltd [2000] HCA 7; (2000) 199 CLR 321. 34 These aspects of the power are illustrated by Elkington v Vockbay Pty Ltd (1993) 11 ACLC 591, and by Australian Securities & Investments Commission v DB Management Pty Ltd; Southcorp Wines Pty Ltd v DB Management Pty Ltd [2000] HCA 7; (2000) 199 CLR 321, respectively. 35 Australian Pipeline Trust 01R [2006] ATP 29 [98]. 36 ASIC Regulatory Guide 51: Applications for relief. 37 This discussion concerns case-by-case relief: as noted in 20.20, before making class orders, ASIC must seek submissions from the public, but need not also afford natural justice to people affected.

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decision is to be made which will affect the rights, interests or legitimate expectations of a person, that person is to be accorded the procedural fairness of knowing about the pending decision and having an opportunity to make a submission.38 In Hawker de Havilland Ltd v Australian Securities Commission (1991) 6 ACSR 579, the Full Tribunal of the Administrative Appeals Tribunal (AAT) held that this principle applied to the exercise of the ASC’s discretion to modify the legislation under the predecessor to s 655A in a way which would affect the terms of a proposed takeover offer to be received by minority shareholders. It was also held that the target company may be seen as representatives of the shareholders who may be affected by the decision, it being impracticable for ASIC to receive submissions from all of the affected shareholders. The AAT took a similar approach in Magellan Petroleum Australia Ltd v Australian Securities Commission (1993) 11 ACSR 306 and was critical of the ASC’s failure in that case to consult with the target company before granting a modification to permit an upstream takeover subject to a requirement on the bidder to make a bid for the downstream target company. However, the AAT held that the failure to consult did not vitiate the ASC’s decision as the decision nevertheless satisfied the Eggleston principles as then set out in the legislation: see now s 602. Based on this approach, ASIC has adopted a policy of giving third parties an opportunity to make a submission before making a decision if the decision will obviously adversely affect that party’s interests or that party has given ASIC anticipatory notice of a wish to be heard.39 In practice, this means the target company will be alerted to applications for relief by the bidder before they are made. This is an obvious disadvantage for the bidder, especially if the bid has not been publicly announced. ASIC is obliged not to disclose information provided to it in confidence in the course of its functions, which includes information provided in confidence in support of an application. There is, however, an exception for disclosure by an ASIC delegate in the course of performing a function, which applies to disclosure for the purpose of affording natural justice in connection with performing the function, since the general law implies that obligation into the Act.40

38 Kioa v West (1985) 159 CLR 550, Johns v Australian Securities Commission (1993) 178 CLR 408; [1993] HCA 56. The contrary decision in McGirr v Dextran Pty Ltd (1990) 3 ACSR 471 must now be regarded as obsolete. 39 See ASIC Regulatory Guide 92: Procedural Fairness to Third Parties. 40 See ss 127(1)(a) and 127(3) of the Australian Securities and Investments Commission Act 2001. In practice, ASIC asks the applicant to disclose the necessary information (or for consent for ASIC to disclose it) to the person to be afforded natural justice: ASIC Regulatory Guide 92: Procedural Fairness to Third Parties at [92.29].

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20.5 Investigations by ASIC [20.50] ASIC has extensive powers in relation to investigations and enforcement, which are outlined below. Informal investigations [20.50.10] ASIC may make inquiries of an informal nature before deciding on a more formal course of action. Where a lawyer, investment adviser, stockbroker, investment banker or other professional is requested to provide information that relates to the affairs of a client, a question arises whether the duty of confidence owed to the client prevents the disclosure of information. This duty is implicit in the relationship with the client. A professional must keep the client’s affairs confidential and not disclose them except in exceptional circumstances.41 If information is volunteered without the consent of the client, the professional may breach this duty. The duty remains unless there is a contrary obligation imposed by statute.42 If an ASIC officer is seeking the information without exercising specific statutory powers, the duty of confidentiality will usually be paramount.43 At common law, except where a person is under an obligation to answer questions, he is entitled to remain silent or give a no comment response and no inference of guilt may be drawn from this response in later judicial proceedings.44 This remains the case whether or not the person has been cautioned that anything they say may be recorded and later used in evidence.45 Any information ASIC receives in confidence in connection with the performance of its functions must be kept confidential.46 This obligation is not absolute, as ASIC may (and sometimes must) use or disclose such information in the performance of its own functions or disclose it to a court, another government body (Australian or foreign) or under the Freedom of Information Act 1982 (Cth).

41 Tournier v National Provincial and Union Bank of England [1924] 1 KB 461. 42 Crowley v Murphy (1981) 34 ALR 496, 500–501, 517; O’Reilly v State Bank of Victoria (1983) 153 CLR 1, 22, 35. 43 For this reason, where ASIC asks for personal information (such as the common enquiry as to who had knowledge of a bid before announcement), it may be appropriate to decline to answer and instead require a formal notice compelling disclosure. 44 R v Ireland (1970) 126 CLR 321. 45 Petty v R (1991) 173 CLR 95. 46 ASIC Act, s 127. This includes information obtained under compulsion, and where ASIC has a discretion to disclose information, it generally has to afford natural justice to a person whose interests would be affected by the disclosure: Johns v Australian Securities Commission (1993) 178 CLR 408; [1993] HCA 56.

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Formal investigations [20.50.20] If ASIC suspects there has been a contravention of legislation or unacceptable circumstances, it may commence a formal investigation.47 There must be “reason to suspect” that a contravention may have been committed. This requires both a subjective suspicion and a just cause for that suspicion.48 A suspicion is more than a mere idle wondering whether it exists or not; it is a positive feeling of actual apprehension or mistrust, amounting to a slight opinion, but without sufficient evidence.49 ASIC is not required to provide reasons for commencing an investigation or to disclose the material upon which it is relying.50 ASIC may conduct compulsory private examinations of, and require assistance from, relevant persons51 and may require information to be disclosed about securities.52 At an investigation, the examinee may be required to answer under oath or affirmation all questions put to him by an inspector which are relevant to any matter under investigation.53 It is an offence to give information or make a statement which is false or misleading in a material particular, unless the examinee proves that, when giving the information or making the statement, he or she believed on reasonable grounds that it was true and not misleading.54 There are two aspects which should be noted: (1) At common law, a person is entitled to refuse to answer the question if the answer might tend to incriminate or expose the person to a civil penalty. These common law rights are modified by the legislation. A person cannot refuse to give information because the information might tend to incriminate the person or make the person liable to a penalty.55 However, if the person (other than a body corporate) claims that a statement might tend to incriminate the person, the statement is not admissible in evidence against the person (though not against third parties).56 Therefore, there is a distinction between direct evidential immunity and derivative evidential immunity. Direct evidential immunity remains available, though only to natural persons.

47 ASIC Act, s 13. 48 CAC v Guardian Investments Pty Ltd [1984] VR 1019, 1025; NCSC v Sim (No 1) [1987] VR 411, 416. 49 Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266, 303 per Kitto J. 50 The News Corporation Ltd v NCSC (1983) 8 ACLR 338, 351. 51 ASIC Act, ss 19 (notice requiring appearance for examination) and 32A (notice to produce books about financial services) and Pt 3 Div 2 in general. 52 ASIC Act, Pt 3 Div 4. 53 ASIC Act, s 21. 54 ASIC Act, s 64. 55 ASIC Act, s 68(1). 56 ASIC Act, ss 68(2), (3).

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(2) The obligation to answer questions overrides any duty of confidentiality owed by a professional to a client, but the examinee is protected from civil liability that may otherwise arise in consequence of providing the information.57 However, it may be possible to claim legal professional privilege in limited circumstances. The communication between a client and legal adviser claimed as privileged must be brought into existence for a dominant purpose either to enable the client to obtain, or for the adviser to give, legal advice or assistance or for use in litigation, current, pending or within the reasonable contemplation or apprehension of the client.58 In general, only the lawyer, not the client, may claim the legal professional privilege.59 In practice, preservation of legal professional privilege in limited circumstances may be illusory, as whist the lawyer might be able to resist production of documents to ASIC on this basis, the client will not be able to resist production of such documents. That is, ASIC may obtain a given document from the client, notwithstanding that the lawyer has been able to resist production of a copy of that same document on the grounds of legal professional privilege. However, the client may claim legal professional privilege in relation to documents brought into existence for the dominant purpose of enabling legal advisers to represent the person at the examination.60 This would not extend to documents previously created merely because they are provided to the lawyer to assist in preparing for the examination. A further issue is whether legal professional privilege, in material disclosed to ASIC, is retained as against persons other than ASIC. In general, waiver of legal professional privilege will be established where a person has disclosed part or all of the privileged communication and it would be unfair for them to continue to rely upon legal professional privilege.61 It is difficult to see how a waiver could be established purely because a person has been compelled by ASIC to disclose the material. Accordingly, legal professional privilege should continue to subsist in material disclosed to ASIC as against persons other than ASIC, as long as that material remained confidential.62 However, an ASIC investigator is not necessarily obliged to keep the material, disclosed pursuant to ss 19 or 33, confidential. The ASIC Act gives ASIC powers to use and disclose information it has received in confidence, 57 ASIC Act, s 92. 58 Esso Australia Resources Ltd v Commissioner of Taxation (1999) 201 CLR 49. 59 ASIC Act, s 69; CAC v Yuill (1991) 172 CLR 319. 60 Commonwealth v Frost (1982) 41 ALR 626. 61 See Osland v Secretary to the Department of Justice [2008] HCA 37 which generally discusses the circumstances where privilege may be lost. 62 Johns v Australian Securities Commission (1993) 178 CLR 408; [1993] HCA 56. Although this case related to commercial confidences, the same principles should apply to privileged information.

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for the purposes of performing its functions under the Act.63 If ASIC chose to give the material to another person in this manner, or used the material itself in proceedings, then the confidentiality required for legal professional privilege may no longer exist. Inspection of books and documents [20.50.30] ASIC has extensive powers under ASIC Act, Pt 3 Div 3 to require production of books and to require an explanation of their contents and, if necessary, to seize them by search warrant. ASIC may at any time inspect any books required to be kept by the Corporations Act.64 This power can be used to conduct random inspections without having to show any suspicion that an offence may have been committed. “Books” is defined broadly to cover financial reports or records, registers, documents and any other record of information.65 If books are not required to be kept under the Corporations Act, ASIC may only inspect them in order to perform its functions, to ensure compliance with the Corporations Act or to assist in the investigation of any alleged or suspected contravention of the Corporations Act.66 It has power to obtain information from persons who are not suspected of any wrongdoing themselves, provided the information relates broadly to a suspected contravention by another person.67 A person must comply with a notice to produce books unless a “reasonable excuse” can be established.68 A person may have a reasonable excuse if the documents are insufficiently specified, a notice is defective, the time for compliance is unreasonable, the documents are protected by legal professional privilege or the investigation is being improperly conducted. ASIC may apply for a search warrant under the ASIC Act, s 35 or under the Crimes Act 1914 (Cth). Hearings [20.50.40] ASIC may hold hearings for the purposes of the performance or exercise of any of its functions and powers.69 Access to information held by ASIC [20.50.50] ASIC has discretionary powers to provide information it holds in confidence to certain Australian and foreign public authorities and stock exchanges. It may be obliged to consult an affected person before doing 63 ASIC may be required to consult an affected person first: see [20.50.50]. 64 ASIC Act, s 29. 65 ASIC Act, s 5(1). 66 ASIC Act, s 28. 67 ASIC v Lucas (1992) 7 ACSR 676. 68 ASIC Act, s 63. 69 ASIC Act, s 51, see ASIC Hearings Manual.

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so.70 ASIC may also be obliged to disclose information it holds in confidence, under court order, administrative powers, the Freedom of Information Act 1982 or to the Parliamentary Joint Committee. Where such disclosure may lead to the information being published, ASIC should notify the person whose confidences are involved, to enable them to oppose the release.71 Enforcement Proceedings [20.50.60] ASIC may institute criminal or civil proceedings in the Court or apply to the Panel for a declaration and orders in relation to a takeover, whether or not it has conducted a formal investigation.72 It may also intervene in proceedings initiated by other people.73 Although Corporations Act, s 659A does not prevent ASIC from applying to the court for orders affecting how a takeover or the target’s response is conducted, its policy is to apply to the Panel for such orders. Information ASIC holds in confidence may be used and disclosed in such proceedings.

20.6 Review of ASIC’s decisions [20.60] A decision of ASIC under Corporations Act, s 655A to grant or refuse an exemption or modification of Chapter 6 or under s 673 to grant or refuse an exemption or modification of Ch 6C during a takeover bid may be reviewed by the Takeovers Panel: s 656A(1).74 Any person whose interests are affected by the decision may apply for such a review: s 656A(2). The Panel may exercise all the powers and discretions conferred on ASIC by Chapters 6 or 6C of the Corporations Act 2001 and, accordingly, may substitute its own decisions.75 The Panel formerly agreed with ASIC that,

70 See s 127(4) of the ASIC Act, Johns v Australian Securities Commission (1993) 178 CLR 408; [1993] HCA 56 and ASIC Regulatory Guide 103: Confidentiality and release of information. 71 Marcel v Commissioner of Police [1992] Ch 225. 72 Sections 1325A, 1325C and 657C(2)(c). 73 Sections 1330, 657A(4)(c), 657D(1)(c) and 657EA(1)(b). 74 The AAT has no power to review these decisions: s 1317C. The Panel held that an in principle decision to refuse relief (an “informal refusal”) (in Cape Lambert MinSec Pty Ltd [2009] ATP 12 [32]) and the exercise of the power to consent to early dispatch of a bidder’s statement created by former ASIC Class Order [CO 00/344] (in Breakfree Ltd 02 [2003] ATP 30 [12]) were “decisions” capable of review. 75 See s 656A(3) and Rinker Group Ltd [2006] ATP 35 [106]–[116] for a discussion as to the Panel’s powers in reviewing a decision of ASIC. See also Takeovers Panel Guidance Note 2: Reviewing Decisions. For examples of Panel review of an ASIC exemption and modification, see Anaconda Nickel Ltd 04 [2003] ATP 4 (where the Panel revoked the ASIC relief in relation to a takeover bid for rights); Taipan Resources NL 06 [2000] ATP 15; Infratil Australia Ltd 01 [2000] ATP 2; Anaconda Nickel Ltd 12 [2003] ATP 11; Cape Lambert MinSec Pty Ltd [2009] ATP 12; Lion Asia Resources Pte Ltd [2009] ATP 25; Leighton Holdings Ltd 01, 02 and 03 [2010] ATP 13 (where decisions by ASIC not to grant relief were reviewed and upheld); Pinnacle VRB Ltd 03 [2001] ATP 2; and Rinker Group Ltd [2006] ATP 35 (where the Panel varied the original modification instrument). See also Pasminco

The Role of ASIC in Takeovers 471

in a review of an ASIC decision, it will seek to apply existing ASIC policy unless there is cogent reason not to do so.76 An application to the Panel for review of an ASIC decision does not prevent that decision being implemented, unless the Panel orders otherwise: s 656B. The Panel is empowered to make orders in urgent situations without giving any person a reasonable opportunity to make a submission in relation to the matter if the Panel is satisfied that it is not practicable to give that person such an opportunity. If ASIC does not have the opportunity to make a submission, the order will not be operative until a notice setting out its terms is served on ASIC: s 656B(4). The Administrative Appeals Tribunal (AAT), rather than the Panel, is the proper forum for merits review of decisions of ASIC under: •

s 669 (relating to exemptions and modifications to Ch 6A dealing with compulsory acquisition, at any time);

•

s 673 (relating to exemptions and modifications to Ch 6C dealing with substantial holding notices, but only outside a takeover period); and77

•

the specific discretionary powers under Chs 6 and 6A which are mentioned at 20.1, at any time.

The Administrative Appeals Tribunal Act 1975 (Cth), s 27(1) enables a “person aggrieved” to make an application for such a review. A person will be regarded as a “person aggrieved” if he or she has a genuine grievance because an order has been made which prejudicially affects his or her interests.78 A target company will generally be within this category,79 as would a rival bidder or target shareholder. Upon review, the AAT has all of the powers and discretions of ASIC and, accordingly, may vary the

Ltd [2002] ATP 6, Brisbane Broncos Ltd [2002] ATP 4 and Prudential Investment Company of Australia Ltd [2003] ATP 6 where the Panel agreed to grant modifications which ASIC had declined to grant. 76 See Memorandum of Understanding between ASIC and the Takeovers Panel, August 2001. This was superseded by a Memorandum of Understanding dated 27 March 2017 between ASIC and the Executive of the Takeovers Panel, which instead “acknowledges” the desirability of “a clear and consistent regulatory framework”, but which cannot affect the Panel’s obligations under Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577. 77 See ASIC Regulatory Guide 57: Notification of rights of review in relation to ASIC’s practice when dealing with decisions which are reviewable. 78 Attorney-General for Gambia v N’Jie [1961] AC 617. 79 The Broken Hill Proprietary Company Ltd v NCSC (1986) 10 ACLR 470.

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decision of ASIC or remit the matter for reconsideration by ASIC in accordance with its directions or recommendations.80

80 BTR plc v Westinghouse Brake & Signal Co (Aust) Ltd (1992) 7 ACSR 122, where the Federal Court, on an “appeal” on a question of law under s 44 of the AAT Act, held that the Tribunal’s decision to redraft an instrument modifying Chapter 6 was a proper exercise of its authority. In that case, the Tribunal said it would not normally redraft instruments and the case should be regarded as “special and unique”: see Hawker de Havilland Ltd v Australian Securities Commission (1991) 6 ACSR 579, 593.

Chapter 21

The Takeovers Panel [21.10]21.1 [21.20]21.2 [21.30]21.3 [21.40]21.4 [21.50]21.5 [21.60]21.6

Role of the Takeovers Panel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 473 Proceedings before the Panel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 476 Orders by the Panel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 489 Review of Panel’s decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 495 The Panel’s power to make rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . 496 Jurisdiction and powers of the court . . . . . . . . . . . . . . . . . . . . . . . . 496

21.1 Role of the Takeovers Panel [21.10] The Takeovers Panel was established as the Corporations and Securities Panel in 1991.1 It was originally established to take over the NCSC’s previous powers to declare that “unacceptable conduct” had occurred after concerns were raised about the NCSC being the prosecutor and the adjudicator on such matters. In 1991, the Panel had a limited role of assessing whether “unacceptable circumstances” or “unacceptable conduct” had occurred in relation to an acquisition of a substantial interest in a company, or the acquisition was an “unacceptable acquisition”. The Panel was directed to assess whether circumstances, conduct or an acquisition were unacceptable against the Eggleston principles now set out in s 602(b) and (c). It was intended to be a commercial decision making body comprised of business people, to provide a “peer review” of conduct relating to the acquisition of shares. However, it could only act after a reference from ASIC. The parties to a takeover could not bring proceedings, but were free to litigate in the courts (which was very common in contested bids). As a consequence of these factors, in the period 1991 to 2000, ASIC referred only four matters to the Panel, which had mixed success in dealing with those matters. The Panel was, accordingly, reinvigorated under the CLERP reforms in March 2000. The main reforms were to: •

give any interested party standing to commence Panel proceedings;

1

The Panel is established and its proceedings regulated under Pt 10 of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), ss 170–201A. See generally Ramsay (ed), The Takeovers Panel and Takeovers Regulation in Australia (Melbourne University Press, 2010); Hill and Austin (eds), The Takeovers Panel After 10 Years (University of Sydney, 2011). The Panel was renamed the Takeovers Panel on 11 March 2002 under the Financial Services Reform Act 2001 (Cth).

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•

prohibit court litigation during a takeover bid (except litigation commenced by ASIC or another government body);

•

constitute the Panel as the main forum for review of relevant ASIC decisions;

•

confer on the Panel a rule making power;

•

give the Panel a full time executive staff; and

•

broaden the Panel’s jurisdiction to consider any matter that may give rise to “unacceptable circumstances”, not just those relating to an acquisition.

Since the March 2000 reforms were implemented, the Panel has shown itself to be a very active participant in the takeover process. Its decisions and guidance to the market have established new standards of conduct and introduced significant changes to the way takeovers and takeover defences are conducted.2 The Panel Executive and ASIC entered into a Memorandum of Understanding in March 2017. This provides for both entities to co-operate in the exercise of their functions, such as sharing information and consulting each other on policy developments prior to public release. This replaced an earlier one between the Panel and ASIC dated August 2001, under which the Panel also agreed to seek to apply ASIC policy when reviewing ASIC decisions unless there was a cogent reason to depart from that policy. The 2017 Memorandum was between ASIC and the Panel Executive (not the Panel itself) to avoid any administrative law argument that the Panel was not discharging its statutory functions. It does not specifically deal with following ASIC policy. The power of the Panel to declare circumstances unacceptable and make consequential orders has raised the question whether the Panel exercises the judicial power of the Commonwealth. Since the commencement of the Corporations Act and the ASIC Act on 15 July 2001, the Panel derives its power from Commonwealth legislation (rather than from State application Acts). Under s 71 of the Constitution, the judicial power of the Commonwealth may only be vested in a court.3 The 1991 Corporations and Securities Panel was the subject of the constitutional challenge in Precision Data Holdings Ltd v Wills (1991) 173 2

For a critique of some of the Panel’s processes and whether it is fulfilling its objectives, see Kriewaldt, “The First 6 Years of the Reconstituted Takeovers Panel – an Assessment” (paper given at the Hartnell Colloquium on Corporate Accountability and Public Access to Corporate Information, ANU, 7 July 2006). For a further examination of the Panel and its processes and suggestions for reform, see Levy and Pathak, “The Takeovers Panel of the Future – Proposals to Enhance the Effectiveness and the Role of the Panel” in Ramsay (ed), The Takeovers Panel and Takeovers Regulation in Australia (Melbourne University Press, 2010).

3

There has never been as much doubt about the validity of the Panel’s power to review ASIC decisions under ss 655A and 673: see 20.1.

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CLR 167. In that case, the High Court decided that the Panel was not exercising judicial power because the object of its proceedings was to determine what legal rights and obligations should be created, rather than to ascertain and enforce existing rights and obligations. The legislation establishing the present Panel has been drafted with the Precision Data decision in mind and with the objective of avoiding conferring judicial power on the Panel.4 There are various features which are designed to establish that the Panel’s power is not judicial in nature, including the obligation on the Panel to exercise discretions and to have regard to considerations of commercial policy and to the public interest in making any decisions, the Panel’s inability to enforce its own orders and the Panel’s ability to declare circumstances unacceptable regardless of whether they contravene the law. On the other hand, there are some features which are suggestive of judicial power. For example, it is arguable that the true essence of a Panel matter is a dispute resolution proceeding to effectively determine once and for all the consequences of parties’ actions. In addition, during the course of a takeover, the parties are prohibited from resorting to the courts for resolution: s 659B.5 These factors were taken to support the view that the Panel exercises judicial power by the Full Federal Court in Australian Pipeline Ltd v Alinta Ltd (2007) 62 ACSR 196. By a majority, the Federal Court held that the power to make a declaration in relation to a contravention of the takeover provisions of the Corporations Act was invalid as an attempt to confer the judicial power of the Commonwealth on a body other than a court. The Federal Court’s reasoning implied that the Panel’s remaining powers to make declarations of unacceptable circumstances and orders related to those declarations were also invalid, though the court did not make a declaration to that effect. The High Court unanimously upheld an appeal from the Federal Court’s decision, resolving the question of the constitutional validity of the Panel’s unacceptable circumstances power, in Attorney-General (Cth) v Alinta Ltd (2008) 233 CLR 254. The High Court ruled that the power of the Takeovers Panel to declare circumstances unacceptable because they involved a breach of the takeover provisions was valid as it did not involve a conferral of judicial power on the Panel, for the following reasons: •

the limitation on the commencement of court proceedings is temporary to the bid period and not permanent. It is also neither absolute nor unrestricted;

4

See further Mescher, “Powers of the Takeovers Panel and Their Effect Upon ASIC and the Court” (2002) 77 ALJ 119, 136–38 and Santow and Williams, “Taking the Legalism Out of Takeovers” (1997) 71 ALJ 749.

5

Similarly, in Attorney General v Breckler (1999) 197 CLR 83, a majority of the High Court decided that the Superannuation Complaints Tribunal did not exercise judicial power, essentially because it did not make a conclusive determination as to the existing rights and entitlements of members.

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•

the width of the Panel’s powers makes it clear that the Panel’s function is to create new rights and obligations rather than to determine controversies over existing rights and obligations;

•

a determination of a contravention of Chs 6, 6A, 6B or 6C of the Corporations Act is only one basis for determining what rights and obligations should be created in the future. The Panel has other bases on which to make a declaration of unacceptable circumstances;

•

while the Panel needs to inform itself as to existing rights and obligations, it does not do so in order to declare them authoritatively or to enforce them, but as a step along the way to deciding whether to vary them; and

•

the Panel has no power to enforce its own orders. It is for the courts to make orders ensuring compliance with the Panel’s orders.

21.2 Proceedings before the Panel [21.20] The primary function of the Takeovers Panel is to hear complaints from parties to a takeover that “unacceptable circumstances” exist due to some action or inaction of another party. If the Panel declares that unacceptable circumstances exist, it can then make a wide range of remedial orders. The procedures taken by the Panel involve the following steps.6 These are generally identical whether the matter involves a dispute between parties or a review of an ASIC decision. Application [21.20.10] ASIC,7 the bidder, the target or any other person whose interests are affected by the relevant circumstances8 can apply to the Panel 6

See Takeovers Panel, Takeovers Panel Rules for Proceedings. Takeovers Panel Guidance Note 8: Matters Procedures is now superseded, but remains available on the Panel’s website.

7

A decision of ASIC to apply to the Panel is not reviewable by the AAT: s 1317C(ga).

8

The Panel has tended not to dismiss applications for lack of standing by the applicant. In Qantas Airways Ltd 01 [2007] ATP 01, the Panel made a preliminary decision that an organisation of pilots employed by the target was a person whose interests were affected by the relevant circumstances and, therefore, had standing. The issue was not fully considered as the bidder volunteered to make additional disclosures to address the substantive issues: see [2007] ATP 01 [14] and [53]–[56]. See also LV Living Ltd [2005] ATP 5 [54] where the Panel tended to the view that it was irrelevant whether the relevant circumstances had a positive or negative effect on the applicant’s interests. In Bowen Energy Ltd [2007] ATP 22, a 4.2% shareholder was regarded as having standing to apply to the Panel. In Virgin Australia Ltd [2013] ATP 15, a shareholder with 27 shares worth $11 was accepted as having standing. In Lantern Hotel Group [2014] ATP 6, the holder of a call option over 12% of issued securities was held to have standing, despite not holding any securities directly. In Innate Immunotherapeutics Ltd [2017] ATP 2, the Panel queried whether a person who bought a small parcel of shares after all material information about the circumstances the subject of the application were in the market had standing but did not have to decide the issue.

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for a declaration of unacceptable circumstances: s 657C(2). The Panel cannot act without an application: s 657C(1).9 Any person whose interests are affected by a decision by ASIC whether to grant relief under s 655A (or a decision under s 673 concerning securities of a company, during a takeover bid for that company) may apply to the Panel to review ASIC’s decision. The Panel’s function is then to reconsider ASIC’s decision on the merits.10 There is no required form for the application although the Panel’s website has a pro forma application designed to assist applicants. The application for a declaration of “unacceptable circumstances” must be made within two months after the circumstances have occurred, or a longer period determined by the Panel: s 657C(3). For this purpose, the Panel formerly distinguished between an act or event which brings circumstances into existence and the circumstances themselves. It took the view that while the circumstances continued to exist, an application was not be out of time even if it was made more than two months after the act or event which brought about the circumstances.11 This approach was rejected by the Federal Court, which in effect held that the time when circumstances occur for this purpose is the time of the acts or events which bring those circumstances into existence.12 The Panel has discretion to extend the two month time limit: s 657C(3)(b). However, it is a discretion which the Panel will not exercise lightly, the policy of the legislation being that any Panel intervention should be sought and made quickly. That policy does not mean that the Panel should decline to extend time where evidence of unacceptable circumstances had only emerged after the two months had expired, but there is a credible allegation of clear, serious and ongoing unacceptable circumstances.13 A 9

Once an application has been made, however, it seems that it is possible for parties to raise fresh issues without necessarily commencing a fresh application: Re Pinnacle VRB Ltd 9B [2001] ATP 26.

10 See s 656A and 20.6. Like decisions under s 673 which do not concern the target of a current bid, ASIC decisions under ss 652B, 615, 619(3), 667AA and 669 are reviewable by the Administrative Appeals Tribunal, not the Panel: 20.1. 11 Brickworks Ltd 01 [2000] ATP 6. The Panel also said in that matter that, if necessary, it would extend the time for making the application as the state of affairs still existed and it was within the three months allowed by s 657B. See also Advance Property Fund [2000] ATP 7 for an example of the Panel’s approach to an extension. Blue Energy Ltd [2009] ATP 15 [25] is an example of an application made out of time, distinguishing Brickworks Ltd 01 [2000] ATP 6. 12 The Panel’s approach was adopted by Collier J in Queensland North Australia Pty Ltd v Takeovers Panel [2014] FCA 591, but rejected by the Full Court on appeal in Queensland North Australia Pty Ltd v Takeovers Panel [2015] FCAFC 68; (2015) FCR 150. The Full Court seems to have thought that the Panel had confused the enduring state of affairs that resulted from the initiating events with the enduring unacceptability of that state of affairs, which is not what the Panel said, or how Collier J read their reasons. 13 See Austral Coal Ltd 03 [2005] ATP 14 and Austral Coal Ltd 03R [2005] ATP 15, where the Panel considered various allegations of association, collateral benefits and defective

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person affected must be afforded procedural fairness before the Panel determines to extend time.14 Separately, the Panel is likely to take into account the timeliness of an application in determining whether or not to conduct proceedings. What is timely is considered against the background of the facts of the matter.15 Once an application is made, the Panel will generally issue a media release outlining the issues of contention.16 The President of the Panel then appoints a sitting Panel of three members from the members available, having regard to any conflicting interests members may have in the matter: ASIC Act, s 184, 185. The Panel requires an applicant to identify other people who are potentially interested. Each of them is given a copy of the application and may become a party to the proceedings by giving a notice of appearance. That enables them to receive and make submissions. The notice of appearance contains undertakings to respect the confidentiality of information disclosed in the proceedings and not to canvass in the media the issues in the proceedings.17 The Panel objects strongly to media canvassing of issues raised in an application to the Panel. It believes that its ability to resolve disputes as quickly and efficiently as possible will be adversely affected if parties seek to use publicity to influence a decision or to influence shareholders during Panel proceedings. The Panel disapproves of any attempt by a party to use publicity to influence a decision of the Panel or to detract from its authority.18

substantial holding notices which the applicant asserted were hidden until more than two months after the relevant act had occurred. The application did not present any reasonable basis for any of the allegations (only inferences based on circumstantial evidence), however, and was accordingly dismissed. The Panel has applied the Austral Coal 03 reasoning in more recent matters. 14 Queensland North Australia Pty Ltd v Takeovers Panel [2015] FCAFC 68; (2015) FCR 150. 15 Takeovers Panel Guidance Note 8: Matter Procedures, [86]–[88] (this Guidance Note has been withdrawn, but remains available on the Panel’s website); Multiplex Prime Property Fund 04 [2009] ATP 21. 16 In the case of application for a review of an ASIC decision, the Panel may elect not to issue a media release while a matter remains commercially sensitive: see Takeovers Panel Guidance Note 2: Reviewing Decisions, [20] and Cape Lambert MinSec Pty Ltd [2009] ATP 12; Lion-Asia Resources Pte Ltd [2009] ATP 25. 17 The need for these undertakings is discussed in The President’s Club Ltd [2012] ATP 10 [54]–[63]. In Avalon Minerals Ltd [2013] ATP 11, the Panel received submissions from several individuals who would have been adversely affected by the declaration and orders, which had been sought. Those individuals did not provide notices of appearance and the Panel gave them directions under s 190 of the ASIC Act to the same effect as the undertakings in a notice of appearance. Given the direction the proceedings took, the Panel would have had to allow them to make submissions under one or other of s 657A(4)(a) and s 657D(3)(a), whether they were parties or not. 18 Qantas Airways Ltd 01 [2007] ATP 01 [60]. See also iP3 Systems Ltd [2005] ATP 7 [85]–[91] and Austock Group Ltd [2012] ATP 12 [21], where undertakings were breached.

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The Panel is not obliged to conduct proceedings merely because an application has been made: Australian Securities and Investments Commission Regulations 2001 (Cth) (ASIC Regulations), reg 20. The Panel may decline to do so if, for example, the allegations if proven would not give rise to unacceptable circumstances,19 if the application is made prematurely,20 the application is frivolous or vexatious, there is insufficient evidence to support the application, or the matter is already legitimately before the courts. Section 658A also enables the Panel to dismiss a matter after it has commenced if the application is frivolous or vexatious.21 It is also possible that the Panel may decline to hear an application if it considers the application is purely tactical. In Taipan Resources NL 07 [2001] ATP 18 at [54], the Panel said: We also note the Panel’s concern at the serial and adversarial nature of the matters which have been brought it by Troy and Taipan in relation to these transactions. The Parliament’s intention in introducing the recent changes to the Panel’s legislation was to reduce the incidence of tactical litigation in takeovers. The applications brought by the parties to these transactions so far place the parties at serious risk of breaching those intentions. The Panel expects that parties will raise only material issues with the Panel, will make serious attempts to resolve issues with other parties before raising them with the Panel, and will provide responses to each other that are designed to resolve issues rather than give the minimum amount of information possible. The Panel is interested to resolve material disputes between parties where genuine attempts at negotiation have failed and to ensure that it is not used for purely tactical purposes.

The Panel will generally decline to hear a matter where a court has jurisdiction and has already commenced proceedings,22 unless the Panel application concerns distinct issues not raised in the court proceedings.23 Furthermore, the Panel will generally decline to hear matters which do not focus on issues arising under Ch 6, a takeover bid or another transaction likely to affect voting power in a company. A strong Panel emphatically rejected an indefinite wider jurisdiction: As a Panel, our functions are limited to applying the updated, enacted Eggleston principles set out in s 602 as essential elements in a wider public interest discretion. We are not empowered to enforce compliance with the law or to set aside contracts on equitable grounds or for non-compliance with Chs 2D or 2E of the Corporations Law. We do not have the powers which a court of law has to perform any of those functions (including for example, the powers to order discovery between parties and

19 For example, if it is trivial: Pinnacle VRB Ltd 07 [2001] ATP 10. 20 Focus Technologies Ltd [2002] ATP 08, where the Panel decided that there was no basis for intervention as matters then stood. 21 The Panel dismissed the application in Precious Metals Australia Ltd [2002] ATP 5 without a decision on the merits, having decided in effect that the application was an abuse of its process. 22 Taipan Resources NL 02 [2000] ATP 13 and Taipan Resources NL 04 [2000] ATP 16; Precious Metals Australia Ltd [2002] ATP 5; and Richfield Group Ltd [2003] ATP 41; Kaefer Technologies Ltd 02 [2004] ATP 16. 23 Taipan Resources NL 04 [2000] ATP 16. The Panel may request that issues in matters before it be withdrawn from court proceedings: Taipan Resources NL 09 [2001] ATP 4.

480 Takeovers Law & Strategy to punish for contempt, like a court); parties and witnesses do not have the protections which they would have in court proceedings … The commercial community is seeking in the Panel, not for a second-rate court, but for a first-rate commercial Panel.24

On that basis, the Panel has declined to hear: (a) matters solely related to a change of directors or control of the board of directors (or a change of responsible entity of the managed investment scheme) as this is not control of the company itself within the policy aims of Ch 6;25 (b) matters relating to compliance with the ASX Listing Rules, which is considered to be a matter for the ASX;26 (c) matters which may impact on the control of a target but which concern schemes of arrangement.27 The courts are considered to be the appropriate forum to hear such matters, though the Panel will hear matters involving schemes of arrangement in “exceptional cases”;28 (d) a dispute over whether the terms of a bid (which complied with Ch 6, but was rejected as neither fair nor reasonable) gave effect to an undertaking to procure a liquidity event;29 24 Pinnacle VRB Ltd 08 [2001] ATP 17 [52] and [55] concerning an alleged breach of directors’ duties. 25 Grand Hotel Group [2003] ATP 34 (which related to the responsible entity of a managed investment scheme); St Barbara Mines Ltd 02 [2004] ATP 13; Bowen Energy Ltd [2007] ATP 22; GoldLink Growthplus Ltd [2007] ATP 23; Redflex Holding Ltd [2009] ATP 17, which involved a share placement prior to a shareholder meeting to consider resolutions to remove some of the existing directors. The Panel would, however, intervene if such matters were accompanied by an acquisition of voting power in breach of the Act or which was otherwise unacceptable. 26 Kaefer Technologies Ltd 02 [2004] ATP 16; Accent Resources Ltd [2007] ATP 14; Bowen Energy Ltd [2007] ATP 22 [22]. 27 See Magna Pacific (Holdings) Ltd 05 [2007] ATP 16 where the Panel declined to consider whether a proposed placement of up to 15% of the target’s issued capital made following the close of a takeover offer (but in the month prior to shareholders voting on a proposed scheme of arrangement) constituted unacceptable circumstances. The Panel said that the appropriate forum to consider such matters was the court. 28 St Barbara Mines Ltd 01 [2000] ATP 10; National Can Industries Ltd 01 [2003] ATP 25, National Can Industries Ltd 01R [2003] ATP 40, Ludowici Ltd 01 [2012] ATP 3 and Ludowici Ltd 01R [2012] ATP 4. None of these strayed into the Court’s function of considering the process by which the scheme is approved, or the associated documentation, but in Citect Corporation Ltd [2006] ATP 6 the Panel restrained a member from voting at a scheme meeting. In Ross Human Directions Ltd [2010] ATP 8 and RHG Ltd [2013] ATP 10, the Panels looked at issues concerning schemes, which had not yet come to court. In Ross, the Panel required amendments to lock-ups in a scheme implementation agreement, and in RHG, it found nothing unacceptable in the matter: in neither case did it intervene in the scheme itself. 29 Careers Australia Group Ltd 02 [2013] ATP 5, confirmed in Careers Australia Group Ltd 02R [2013] ATP 6. The Panel said that the court would be the appropriate forum to consider the undertaking, and that s 659B appeared not to preclude court proceedings.

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(e) an application which was in substance an action for damages for misleading disclosure in a bid which had closed 18 months previously;30 and (f) matters focused on whether conduct complained of constitutes a breach of the statutory and common law duties to a company,31 the insider trading provisions, the related party provisions or any other provisions of the Corporations Act (other than the provisions of Chs 6, 6A, 6B and 6C). These are matters for the courts.32 The fact that conduct may contravene provisions of the Corporations Act other than the takeovers provisions, or of other statutes or of the general law and could therefore be subject to review by the courts or other regulatory bodies, does not mean that the Panel cannot hear the matter. However, the matter would need to involve circumstances likely to be adverse to the s 602 principles and be relevant to the control, or potential control, of a company. For example, while the Panel is not concerned with the enforcement of the insider trading provisions themselves, the facts relevant to determining whether the insider trading provisions have been breached may also indicate the existence of unacceptable circumstances due to an uninformed market.33 In The President’s Club Ltd [2012] ATP 10, the Panel considered it had jurisdiction, although the shares to which the matter related were effectively stapled to interests in land, and the shares were conventionally treated as having only nominal value. All of the valuable rights in relation to the land were actually conferred on shareholders by the constitution of the company. The Court concurred with this approach.34 In two decisions in 2008, the Panel appeared to be carving out a broader jurisdiction for itself. They have not been followed and now appear to be isolated exceptions •

In Lion Selection Ltd 02 [2008] ATP 16, the Panel decided that it had jurisdiction to consider the collection and processing of proxies in relation to a shareholder meeting convened to approve an alternative proposal to an existing takeover bid (in order to comply with the Panel’s policy on frustrating action). The Panel stated that “the integrity of the corporate electoral process is important to the operation of an efficient, competitive and informed market in cases of

30 Careers Australia Group Ltd 03 [2015] ATP 2, application for consent to review rejected in Careers Australia Group Ltd 03R [2015] ATP 3. 31 Multiplex Prime Property Fund 04 [2009] ATP 21 [34]. 32 Skywest Ltd 03 [2004] ATP 17 [45]. 33 The insider trading provisions are designed to ensure that dealing in securities occurs in an informed market and this is one of the policies to which the Panel is obliged to have regard: see Advance Property Fund [2000] ATP 7; Skywest Ltd 03 [2004] ATP 17 [45] and [47]. 34 Queensland North Australia Pty Ltd v Takeovers Panel [2014] FCA 591 [134]–[139]. This finding was not disturbed on appeal.

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the approval of frustrating action”.35 It is arguable that this reasoning over-states the Panel’s jurisdiction, though the actual decision in that matter can be justified on the basis that the Panel’s jurisdiction over frustrating action extends to verifying that action has been approved by target shareholders.36 •

In Midwest Corporation Ltd 02 [2008] ATP 15, the Panel considered that it had jurisdiction to consider the effect on the market of a breach of the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA). In that case, a foreign person acquired 9.3% of the target of a takeover bid, in circumstances which suggested that the acquisition breached the 15% threshold in FATA, due to the extended deeming provisions in that legislation. The Panel considered that the acquisition was a factor in maintaining the target’s share price above the bid price, which influenced the market’s view on the relative merits of the hostile bid and a rival control transaction, and gave the acquirer a stake which was effectively sufficient to block compulsory acquisition. In the Panel’s view, this put the bidder at an unfair competitive disadvantage, contrary to one of the principles of s 602, namely that the acquisition of control over voting shares take place in an efficient, competitive and informed market (see also [21.20.30]). The Panel made a declaration of unacceptable circumstances and made orders restraining the exercise of voting rights for the duration of the takeover bid and requiring the disposal of shares acquired in breach of FATA if formal approval under FATA was not obtained by a specified date.37 The Panel suggested that the market in which the 9.3% acquisition was made was uninformed, perhaps because market participants would reasonably have assumed that the buyer would comply with FATA.

Proceedings [21.20.20] Proceedings of the Panel are regulated by the ASIC Act, Pt 10 Div 3, ASIC Regulations, Pt 3 and the Takeovers Panel Rules for Proceedings. Proceedings are to be held with as little formality, in as timely a manner and as fairly and reasonably as the circumstances allow38 and will generally be held in private unless the Panel directs that they be public.39 The Panel may restrict publication of evidence.40 It can require documents

35 Lion Selection Ltd 02 [2008] ATP 16 [25]. 36 Similarly, the Panel in Austock Group Ltd [2012] ATP 12 [28]–[36] reviewed a break fee in an agreement for the sale of a business, since the sale was subject to approval by shareholders, to prevent it unacceptably frustrating a proposed bid. 37 See further discussion of this case in Durbridge, “The Writ of Middlesex Revived” (2009) 27 C&SLJ 45. 38 ASIC Regulations, reg 16(2). 39 Takeovers Panel, Takeovers Panel Rules for Proceedings, r 10. 40 ASIC Act, s 190(1).

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to be produced41 and this cannot be refused on the basis of legal professional privilege.42 The Panel can summon witnesses to appear.43 A person is entitled to be represented at proceedings by his or her legal adviser only with leave of the Panel.44 The rules of procedural fairness apply to proceedings to the extent they are not inconsistent with the legislation.45 The ASIC Regulations and Takeovers Panel Rules46 set out how the Panel is to conduct its proceedings and how it is to provide procedural fairness while at the same time coming to timely decisions concerning takeover conduct. Once proceedings are commenced, the Panel executive must issue a brief to the relevant parties setting out the scope of the proceedings, the issues to be addressed and the timetables for submissions. The Panel can conduct a conference to clarify matters relating to documents, to resolve inconsistent statements or to otherwise inform itself.47 However, conferences are rare.48 The emphasis is on written submissions by parties.49 This is done by email and is thought to assist the Panel fulfil its legislative charter of quick commercial decisions. The intention is for the Panel, through its brief, to request the parties to provide the information it requires rather than depending only on the parties to provide appropriate information in the presentation of their cases. The Panel must give each person to whom the declaration may relate, each party to the proceedings and ASIC an opportunity to make submissions in relation to the matter: s 657A(4). The Panel may also invite submissions from persons who are not party to the proceedings.50 The timeframes for submissions are typically very tight. Normally, parties are allowed two business days from receipt of the brief to lodge a submission and a further business day to lodge a rebuttal submission.51 The Panel has been critical of parties who have missed deadlines, particularly if the Panel perceives

41 ASIC Regulations, reg 16(1)(d). 42 Corporations and Securities Panel v Bristile Investments Pty Ltd (1999) 32 ACSR 677. 43 ASIC Act, s 192(1). 44 ASIC Act, s 194 and Procedural Rule 4.3.1. The Panel typically allows a party to be represented by its commercial solicitors as a matter of course. In Avalon Minerals Ltd [2013] ATP 11, it refused to allow one party to be represented by solicitors who were acting for another party, and appeared to have a conflict, which must have affected their submissions to the Panel. 45 ASIC Act, s 195(4). 46 Takeovers Panel, Takeovers Panel Rules for Proceedings made under ASIC Act, s 195. 47 ASIC Regulations, reg 35. 48 The first one for many years was held in Yancoal Australia Ltd [2014] ATP 24. 49 ASIC Regulations, reg 28(1). 50 ASIC Regulations, reg 24(2). 51 These timings are often extended by a day where a party is in a widely different time zone, or there are other special reasons why they would be unfair or impractical. They may also be shortened, where a decision is needed urgently.

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this as having been done for tactical reasons.52 In order to preserve procedural fairness, the Panel’s policy is not to accept evidence or submissions on the basis that they are not to be provided to other parties, other than in exceptional circumstances.53 “Unacceptable circumstances” [21.20.30] The Panel’s power to declare circumstances in relation to the affairs of a company to be unacceptable is extremely broad. “Unacceptable circumstances” is not defined, other than by stating that it does not require a breach of the Corporations Act: s 657A(1).54 The Panel is largely left on its own to decide this question. The only restriction is that the Panel may only declare circumstances to be unacceptable if it appears that the circumstances are: •

unacceptable with regard to their effect, or likely effect55 on the control56 or potential control of a company,57 or the acquisition or proposed58 acquisition of a substantial interest in a company;

52 See, for example, Re Email Ltd 03 [2000] ATP 5 [121]–[122]. 53 Taipan Resources NL 03 [2000] ATP 16 and Procedural Rule 2.3.1. Exceptions have been made where the evidence or submissions include material, the disclosure of which could adversely affect the commercial interests of a party. A request for the Panel to receive material in confidence must be copied to other parties, and it is often necessary to obtain their agreement, or to provide them with redacted documents or a summary. 54 In Attorney-General (Cth) v Alinta Ltd (2008) 233 CLR 254, Crennan and Kiefel JJ (with whom Gleeson CJ and Gummow J agreed, Kirby, Hayne and Heydon JJ agreeing in the result) said at [169] that a declaration means that the identified circumstances ‘are “unacceptable” in the sense that they cannot remain as they are’. 55 See Glencore International AG v Takeovers Panel (2005) 54 ACSR 708 and Glencore International AG v Takeovers Panel (2006) 56 ACSR 753 for a discussion on the previous form of s 657A(2). In those cases, the Federal Court decided that the Panel did not have sufficient evidence to show that the “effect” of the circumstances on the bid was as the Panel had found. Following these decisions, s 657A was broadened with effect from May 2007 so that the Panel could take into account the past, present or likely future effect of circumstances in considering whether to make a declaration. 56 Although s 9 provides that “control” has the meaning set out in s 50AA, which is concerned with capacity to determine the outcome of decisions about financial and operating policies, this definition is displaced by a contrary intention. The Panel has stated that Ch 6 “manifests a different concept of control and which constitutes a contrary intention … Chapter 6 regulates acquisitions of shares conferring voting power across the whole of the range from 20% to 90% voting power”: Village Roadshow Ltd 02 [2004] ATP 12 [30]–[37] and 3.5. 57 The reference to a “company” includes a listed managed investment scheme (s 604), but means the Panel will not have jurisdiction in a matter involving the takeover of a foreign entity unless there is some downstream effect on a “company”. 58 For this purpose, a “proposal” require more than a mere decision to purchase shares; there should be an understanding, arrangement or plan beyond a mere hope: Elders IXL Ltd v NCSC [1987] VR 1, 17.

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•

otherwise unacceptable having regard to their effect, or likely effect, in relation to a company or its securities, having regard to the purposes of Ch 6 set out in s 602;59 or

•

unacceptable because they contravene or are likely to contravene a provision of Chs 6, 6A, 6B or 6C of the Corporations Act: s 657A(2).

It will be relatively easy to satisfy the first part of this test in the context of a takeover bid as any conduct is likely to have an effect on the outcome of the bid and, therefore, on the “control or potential control” of the target. If there is no takeover on foot, however, this may be more difficult to establish as the conduct will not necessarily relate to a control transaction.60 The reference to “acquisition or proposed acquisition of a substantial interest in a company” existed under the previous law. It was decided that what constitutes a “substantial interest” will be determined according to the circumstances of the case, but it must be relevant to the control of a company or the stability of that control61 and that a connected series of share acquisitions may be regarded as an acquisition of a substantial interest.62 This would seem to remain good law. In addition, with effect from May 2007, s 602A was inserted to broaden the definition of “substantial interest” so that it is not confined by concepts of “relevant interest”, legal or equitable interest in securities or by powers or rights in securities.63 59 The references to the likely effects of circumstances were inserted by the Corporations Amendment (Takeovers) Act 2007 (Cth), with effect from May 2007 in response to shortcomings exposed by the Federal Court decisions in Glencore International AG v Takeovers Panel (2005) 54 ACSR 708 and Glencore International AG v Takeovers Panel (2006) 56 ACSR 753. 60 See Accent Resources Ltd [2007] ATP 14 where the Panel did not consider that an application relating to a proposed shareholder meeting to obtain approval for the issue of more than 15% of the company’s capital under ASX Listing Rule 7.1 raised issues relating to control or potential control of, or the acquisition or proposed acquisition of a substantial interest in, the target. 61 Elders IXL Ltd v NCSC [1987] VR 1, 18, where Marks J decided that a holding of 4.4% in a company was not a substantial interest. In NCSC v Alexanders Laing and Cruickshank (1988) 6 ACLC 142, a parcel of 8% was accepted as a substantial interest. As the substantial shareholding threshold has been reduced to 5%, courts may be more inclined to regard smaller parcels as substantial interests in future, especially if there are no other significant holdings in the company. In Brierley Investments Ltd v ASC (1997) 24 ACSR 629 an incremental parcel of 3% of issued shares was sufficient to constitute a “substantial interest”. In Re ASIC and Wesfi Ltd (1999) 32 ACSR 686, a 1.9% holding was insufficient given other shareholdings in the company. In Pinnacle VRB Ltd 11 [2001] ATP 23, an increment of 3% was regarded as likely to affect control in the circumstances of a finely balanced takeover bid. 62 Keygrowth Ltd v Mitchell (1990) 3 ACSR 476. Where the acquisition of a small parcel takes place under a concerted scheme and brings about a material change in control, that parcel may constitute a substantial interest, for this purpose, unlike a similar parcel held on a standalone basis. 63 This is another of the changes made by the Corporations Amendment (Takeovers) Act 2007 (Cth) to overcome difficulties identified in the Federal Court decisions in Glencore International AG v Takeovers Panel (2005) 54 ACSR 708 and Glencore International AG v

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There are two further restrictions on the Panel’s power. First, the Panel can only make or decline to make a declaration of unacceptable circumstances if it considers that doing so is not against the public interest, having taken into account any policy considerations that the Panel considers relevant: s 657A(2). Secondly, in exercising its power to declare “unacceptable circumstances”, the Panel must have regard to the factors in s 602 which include ensuring: •

that the acquisition of control over voting shares or interests in a company, body or scheme takes place in an efficient, competitive and informed market;

•

that the shareholders, interest holders and directors know the identity of any person who proposes to acquire a substantial interest in the company, body or scheme, have a reasonable time to consider the proposal and are supplied with sufficient information to enable them to assess the merits of the proposal;

•

that, as far as practicable, all shareholders or other interest holders have equal opportunities to participate in any benefits accruing to them under any proposal under which a person would acquire a substantial interest in the company, body or scheme;64 and

•

that an appropriate procedure precedes the compulsory acquisition of securities under Pt 6A.1.

These factors are sufficiently broad to cover most matters that arise in a takeover bid. The Panel has jurisdiction to examine matters that relate to disclosure requirements under the ASX Listing Rules and the Corporations Act generally.65 The Panel must also consider the other provisions of Ch 6, the rules made by the Panel under s 658C and s 195 of the ASIC Act and matters specified in the regulations made under s 195(3)(c) of the ASIC Act: s 657A(3).66 The Panel may have regard to any other matters it considers relevant and take into account the actions of the directors of the target company (including

Takeovers Panel (2006) 56 ACSR 753 which involved a person holding a cash settled equity swap in relation to securities in the target. The court determined that the holder of the swap did not have a “substantial interest” in the target shares as that term was considered to involve more than being in a position to release an entity from a contingent contractual obligation. Rather, an interest in, or power or right in relation to, voting power over the relevant securities was necessary to constitute a substantial interest. 64 For discussion of how this principle applies in a takeover of an upstream company, see BTR plc v Westinghouse Brake & Signal Co (Aust) Ltd (1992) 7 ACSR 122; but see Intercapital Holdings Ltd v National Companies & Securities Commission (1987) 12 ACLR 684. 65 Taipan Resources NL [2000] ATP 11 and see [21.20.10]. 66 At present, no rules have been made under s 658C and no regulations have been made under s 195(3)(c).

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actions that caused the acquisition or proposed acquisition not to proceed): s 657A(3). In practice, the legislative provisions have not, on the whole, created any difficulty for the Panel in assessing whether circumstances are “unacceptable”. The factors to which the Panel must have regard are wide-ranging and any questionable conduct can usually be fitted within the stated policy objectives of the law, potentially leading to a declaration by the Panel.67 The fact that a decision may result in a degree of law reform will not, by itself, be sufficient basis to preclude the Panel making a decision,68 though the Panel may be cautious about introducing a new principle or rule in the context of proceedings.69 One area where the Panel appears on occasion to have strained the limits of its powers relates to the objective in s 602(a) that the acquisition of shares or interests takes place in an “efficient, competitive and informed market”. Sometimes this has been treated as a convenient summary of the other principles in s 602 – the so-called “fusion fallacy”.70 In one matter, the Panel found that that unacceptable circumstances existed when a bidder refused to reverse acceptances, which materially affected control of the target of a finely balanced takeover, but which had been made by an administrative error, because the acceptances (and possible change of control) did not reflect the holders’ attitude to the bid.71 In another matter, however, the expression appears to have been given a meaning of a “fair market”. In Midwest Corporation Ltd 02 [2008] ATP 15 at [73], the Panel said that: a necessary aspect of an efficient, competitive and informed market is a level playing field for all market participants. That includes market participants complying with Australian laws of general application, particularly those relating to the acquisition of securities, so that all participants can assume that all are complying with those laws.72

The meaning of the expression “efficient, competitive and informed market” has not been determined authoritatively and there is little

67 Various examples of conduct which might be unacceptable are given in the Panel’s Guidance Note 1: Unacceptable Circumstances. 68 Pasminco Ltd (Administrators Appointed) [2002] ATP 06, where the Panel, by majority, agreed to grant a modification to introduce a novel and unprecedented exemption from the 20% rule in s 606. 69 Australian Leisure & Hospitality Group Ltd 03 [2004] ATP 25. 70 See Mannolini, “Convergence or Divergence: Is there a Role for the Eggleston Principles in a Global M&A Environment?” (2002) Syd LR 336. 71 As occurred in Pinnacle VRB Ltd 11 [2001] ATP 23. 72 As discussed in [21.20.10], the Panel decided in that matter that unacceptable circumstances existed when shares were purchased on-market in breach of the Foreign Acquisitions and Takeovers Act 1975 and the purchases influenced the views that market participants would be likely to take the relative merits of competing transactions and put one party at an unfair competitive disadvantage.

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guidance in the explanatory memoranda to the legislation. However, given its background, it is intended to have an economic meaning and focus.73 For those purposes, an “efficient market” is one which allows effective price discovery for informed buyers and sellers. It is not a concept that normally would lend itself to notions of fairness or a level playing field. The Panel’s mandate is to consider the objectives in s 602, in the context of Ch 6. It is not obliged to have regard to other rules, regulations or laws. In fact, if it does, to the extent they are inconsistent with the s 602 objectives, the Panel would be acting beyond power. This was arguably the case in Midwest Corporation Ltd 02. The importance of acting in accordance with the s 602 principles can create a conflict with the normal obligations of parties, for example, where a party is contractually or legally obliged to act in a certain way, but that may be contrary to s 602. In that situation the Panel has suggested the party should approach the Panel for assistance.74 A declaration of unacceptable circumstances must be made within three months after the circumstances occur, or one month after the application for the declaration was made, whichever ends last. The court may extend this period on application by the Panel: s 657B.75 After the decision [21.20.40] If a declaration or order is to be made, the parties are usually given the opportunity to make further submissions or offer undertakings which may avoid the need for a formal order.76 This opportunity can be important as it may involve some informal negotiation as to the form of order or undertaking which can make a difference to the way the Panel decision is presented to the market.

73 Leigh Masel, the inaugural chairman of the NCSC, set out his perception of what the expression entailed in an address entitled “Towards an Efficient, Competitive and Informed Market”, published in JASSA, August 1980, p 10. 74 Pinnacle VRB Ltd 11 [2001] ATP 23. The Panel does not have power to exempt from compliance with Ch 6, except on review under s 656A of an ASIC decision whether to grant an exemption. 75 This has been done on a number of occasions, where the court was satisfied that the proceedings had some utility: In the matter of the Takeovers Panel [2002] FCA 1120 (Online Advantage), Takeovers Panel v Glencore International AG [2005] FCA 1628 (Austral Coal), Palmer Leisure Coolum Pty Ltd v Takeovers Panel [2015] FCA 1498 (The President’s Club), and McCann v Pendant Software Pty Ltd [2006] FCA 1129 (Tower Software). An extension was refused in Chaudhri v Takeovers Panel [2011] FCA 1488. 76 An example of extensive undertakings to avoid declarations is contained in Pinnacle VRB Ltd 08 [2001] ATP 17. The Panel may enforce an undertaking given to it by application to the court: ASIC Act, s 201A. For an example of the Panel seeking to enforce an undertaking, see McCann v Pendant Software Pty Ltd (2006) FCA 1129, where the court held the undertaking had not been breached, but granted an extension of time for the Panel to make a declaration of unacceptable circumstances in relation to the original application.

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A copy of the declaration and written reasons must be given to each person to whom the declaration relates, each party to the proceedings, ASIC and the company (if the order relates to its securities). A copy of the declaration is to be published in the Gazette: s 657D(4). The Panel will usually issue a media release once the matter is decided. Written reasons for the decision will follow. If a party has indicated it may seek a review, the Panel will endeavour to provide draft reasons within two or three business days to enable the review application to be prepared. The Panel will also generally conduct a post-matter review with the parties or their advisers. This forms the basis of feedback to the Panel members generally and may lead to changes to the Panel’s procedures. Withdrawing an application [21.20.50] In general, proceedings conclude when the Panel declines to conduct proceedings or, having conducted proceedings, either makes a declaration and orders, or declines to do so. The Panel may permit an applicant to withdraw its application, ending the proceedings: Procedural Rule 3.4.1. It generally consents to withdrawal, where it is satisfied that there are no ongoing unacceptable circumstances, such as where parties have agreed satisfactory disclosure or a rights issue is restructured. Panels have twice refused an applicant leave to withdraw its application, however, because the issues raised by the application had not been satisfactorily resolved, and affected a section of the public, as well as the applicant.77

21.3 Orders by the Panel [21.30] The Panel may make an interim order without any finding that unacceptable circumstances exist, and even if no application for such a declaration has been made: s 657E(1). The range of orders is the same as for a final order under s 657D(2). The Panel has said that it may use interim orders to preserve the subject-matter of proceedings or to prevent unacceptable circumstances from developing78 and that the reference to protecting the rights and interests of any person may include protecting those of a bidder.79 An interim order lapses on completion of the proceedings in which it is made, or after a time specified by the Panel (no more than two months), whichever is first: s 657E.

77 See Takeovers Panel Procedural Rule 3.4.1, Online Advantage Ltd [2002] ATP 14 [50]–[52] and Austock Group Ltd [2012] ATP 12 [22]. The Panel’s power to insist that a matter remain on foot has been disputed, but it appears to be justified by the analogy with provisions governing representative litigation, such as s 33V of the Federal Court of Australia Act 1976 (Cth). Every Panel matter is in substance a representative proceeding. 78 Taipan Resources NL 04 [2000] ATP 16. 79 Australian Liquor Group Ltd 01 [2001] ATP 18.

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The Panel may make a final order where it has made a declaration of unacceptable circumstances: s 657D(1). It may make any order it thinks appropriate to: •

protect the rights or interests of any person affected by the circumstances; or

•

ensure that a takeover bid (or proposed bid) proceeds unaffected by the circumstances.

It may also make ancillary and consequential orders, and an order to specify in greater detail the requirements of another order, but not an order which it is satisfied would unfairly prejudice any person (s 657D(1) and (2)).80 This power specifically includes, but is not limited to, making remedial orders, as defined, but not an order directing a person to comply with a requirement of Chs 6, 6A, 6B or 6C: s 657D(2). This last limitation is to minimise the argument that the Panel is exercising judicial power contrary to the Constitution. However, it does not mean that an order requiring some action that would accord with a legislative requirement is beyond power (for example, an order requiring offers to be posted under a bid is not necessarily an order directing a person to comply with s 631).81 A “remedial order” is defined in s 9 to cover various orders including: •

an order restraining the exercise of any voting or other rights attached to securities;82

•

an order restraining the acquisition or disposal of securities;83

•

an order requiring the disposal of securities;84

80 This constraint is not expressly applied to interim orders. Unfair prejudice is to be distinguished from mere prejudice: see AMP Shopping Centre Trust 02 [2003] ATP 24 [54]–[56]; Orion Telecommunications Ltd [2006] ATP 23 [160]–[161]; Australian Pipeline Trust 01R [2006] ATP 29 [138]–[144]. See also Waldron v MG Securities (Australasia) Ltd [1975] VR 508, 532, where the court stated that: “the fact that a person is prejudiced by an order does not, of itself, establish that the order is unfair” and Gjergja v Cooper [1987] VR 167. 81 Brisbane Broncos Ltd 03 [2002] ATP 03. 82 Anzoil NL 01 [2002] ATP 19 and Anzoil NL 02 [2002] ATP 21; Emperor Mines Ltd [2004] ATP 24; Orion Telecommunications Ltd [2006] ATP 23; Azumah Resources Ltd [2006] ATP 34; Midwest Corporation Ltd 02 [2008] ATP 15. For an example of an order preventing the exercise of options until shareholder approval was obtained, see Trysoft Corporation Ltd [2003] ATP 26. 83 Skywest Ltd 03 [2004] ATP 17 and Skywest Ltd 03R [2004] ATP 20; Orion Telecommunications Ltd [2006] ATP 23; Australian Pipeline Trust 01R [2006] ATP 29. In MYOB Ltd [2008] ATP 27 the Panel released shareholders together holding 34% of the target from commitments to accept the takeover bid and prevented them from accepting the bid for three weeks. This was intended to undo the harm caused by a breach of s 606 and to allow any potential rival bidder an opportunity to assess and announce a bid. In Austock Group Ltd [2012] ATP 12, the Panel ordered a party not to announce or make a bid for a company without having obtained ASIC approval of its financing of the bid. 84 Skywest Ltd 03 [2004] ATP 17 and Skywest Ltd 03R [2004] ATP 20; Anaconda Nickel Ltd 16–17 [2003] ATP 15 and Anaconda Nickel Ltd 19 [2003] ATP 20 where shares were vested

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•

an order vesting securities in ASIC;85

•

an order that an exercise of the voting or other rights attached to shares be disregarded;86

•

an order cancelling an agreement87 or a takeover offer, or any other agreement or offer in connection with the acquisition of shares;88

•

an order declaring an agreement or offer relating to a takeover scheme or takeover announcement, or a proposed takeover scheme or proposed takeover announcement, or any other agreement or offer in connection with the acquisition of shares to be voidable or cancelled;89 and

in ASIC and then to be sold via bookbuild; Village Roadshow Ltd 01 [2004] ATP 4; Australian Pipeline Trust 01R [2006] ATP 29 where the securities to be divested had to be sold via a bookbuild or into a cash takeover bid which was, or had become, unconditional; MYOB Ltd [2008] ATP 27 where the Panel ordered that, if a superior proposal was announced for the target prior to a specified date, certain institutional shareholders had to accept that proposal in respect of all of their shares in the absence of a superior proposal; DataDot Technologies Ltd [2009] ATP 13 where sub-underwriters had to divert their shares to shareholders who applied for shares in a shortfall facility set up after the capital raising had closed. 85 Examples are contained in Taipan Resources NL 09 [2001] ATP 4, where shares acquired in breach of the 20% rule in s 606 were vested in ASIC to be held on a trust for sale; Anaconda Nickel Ltd 16–17 [2003] ATP 15 and Anaconda Nickel Ltd 19 [2003] ATP 20 where shares were vested in ASIC and then to be sold via bookbuild; Orion Telecommunications Ltd [2006] ATP 23; Australian Pipeline Trust 01R [2006] ATP 29. 86 Where the Panel makes this type of order, the issuer is obliged to disregard the purported exercise of the rights: s 657D(5). For examples, see Skywest Ltd 03 [2004] ATP 17 and Skywest Ltd 03R [2004] ATP 20. See also Citect Corporation Ltd [2006] ATP 6 where, while an order was not made, a bidder gave an undertaking not to vote its shares in the target at a forthcoming shareholders’ meeting to consider a scheme of arrangement involving a rival acquirer. In The President’s Club Ltd [2012] ATP 10, the Panel ordered a party not to vote shares it had acquired in unacceptable circumstances, unless it had made a bid for the remaining shares on certain terms. 87 Skywest Ltd 04 [2004] ATP 26. See also Axiom Properties Ltd 01 [2006] ATP 01, where the Panel ordered that a no-talk clause without a fiduciary exception was cancelled. See also MYOB Ltd [2008] ATP 27. 88 Skywest Ltd 03 [2004] ATP 17 and Skywest Ltd 03R [2004] ATP 20, where the Review Panel reversed the order of the initial Panel to terminate a takeover bid on the basis of different circumstances existing at the time of the review hearing: similarly Pinnacle VRB Ltd 04 [2002] ATP 7 and Pinnacle VRB Ltd 06 [2002] ATP 11. 89 Where the Panel makes an order of this kind, the agreement in question is cancelled (s 657D(6)). Examples are Trysoft Corporation Ltd [2003] ATP 26; Emperor Mines Ltd [2004] ATP 24; Sydney Gas Ltd 01 [2006] ATP 9 at [108]. Orders may also be made giving withdrawal rights to shareholders who have accepted a bid: see Goodman Fielder Ltd 01 [2003] ATP 1 for an example of an undertaking to similar effect. Also see Multiplex Prime Property Fund 01 and 02 [2009] ATP 18 where the Panel ordered the withdrawal of a proposed on-market bid.

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•

an order directing a person to give specified information to shareholders of a body corporate.90

The definition of “remedial order” does not specifically include a payment or compensation order but the Panel does not consider this a restriction of its power to make a payment or compensation order given the wide terms of s 657D.91 In Rinker Group Ltd 02R [2007] ATP 19, the bidder argued that s 657D did not give the Panel power to make compensation orders as a court might do. The Panel rejected this argument stating that the payment order made by the Panel created new rights to protect the interests of persons affected by the relevant conduct92 and as such would not be the exercise of judicial power. The Panel’s power to make orders is very wide. Orders which have been granted include: •

where there were serious concerns about the content of oral communications with target shareholders, an order preventing the

90 See Takeovers Panel Guidance Note 5: Specific Remedies – Information Deficiencies, [13]–[22] for the Panel’s approach to ordering corrective disclosure. Examples of relevant cases include: an order requiring dispatch of a replacement bidder’s statement to remedy specified information deficiencies: Sydney Gas Ltd 01 [2006] ATP 9 at [107]; an order requiring dispatch of a supplementary bidder’s statement to shareholders in the case of a listed company (where the Act only requires supplementary statements to be announced, there being no need to send them to shareholders): Qantas Airways Ltd 01 [2007] ATP 01; Consolidated Minerals Ltd 01 [2007] ATP 20; Coopers Brewery Ltd 03 [2005] ATP 22 (where the Panel recommended that the target consider the format and information in the corrective supplementary target’s statement issued as a result of Goodman Fielder Ltd 02 [2003] ATP 5 when forming its own supplementary disclosure). See also Magna Pacific (Holdings) Ltd [2007] ATP 02 [53]–[55] as to the desirability of identifying corrective statements in corrective disclosure and Takeovers Panel Guidance Note 5: Specific Remedies – Information Deficiencies, [19]–[22] for standard statements which need to be made with corrective disclosure. The Panel’s preference is for one consolidated bidder’s statement to be sent to target shareholders rather than a document with supplementary documents amending it: Guidance Note 5: Specific Remedies – Information Deficiencies, [10]; Sydney Gas Ltd 01 [2006] ATP 9; Golden West Resources Ltd 01 [2007] ATP 31. 91 Rinker Group Ltd 02R [2007] ATP 19 [119]–[124]. See also Citect Corporation Ltd [2006] ATP 6 and Austral Coal Ltd 02RR [2005] ATP 20. Section 657D was amended with effect from May 2007 so that, where the Panel is satisfied that the rights or interests of any person, or group of persons, are or are likely to be affected by the circumstances, the Panel can make any order to protect those rights or interests, or any other rights or interests, of that person or group of persons. That is, the order made by the Panel to protect certain rights or interests of a person does not need to correspond exactly with the right or interest affected by the unacceptable circumstances. This is another of the changes made by the Corporations Amendment (Takeovers) Act 2007 (Cth) to overcome issues highlighted by the decisions of Emmett J of the Federal Court in Glencore International AG v Takeovers Panel (2005) 54 ACSR 708 and Glencore International AG v Takeovers Panel (2006) 56 ACSR 753. 92 Rinker Group Ltd 02R [2007] ATP 19 [119]–[126], affirmed in Cemex Australia Pty Ltd v Takeovers Panel [2009] FCAFC 78.

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bidder from communicating with target shareholders other than in writing;93 •

an order restraining the holding of an extraordinary general meeting to consider resolutions to amend the constitution in ways which would frustrate a takeover offer until shareholders had been given sufficient time to consider corrective disclosure from the target (and the bidder’s view on subjective matters raised in that disclosure);94

•

an order restraining the exercise of pre-emptive rights of a third party on the change of a responsible entity of a managed investment scheme following a takeover bid;95

•

an order requiring a bidder to declare its bid free from all conditions; and96

•

where an expert’s report contained material deficiencies, an order requiring a target to obtain a new expert’s report and, should that report determine the bid price was not fair and reasonable, the bidder must offer shareholders who had accepted the bid the right to buy back their shares at the bid price.97

Generally, the Panel’s main objective in making an order will be to get the takeover proposal back on the track it would have been on but for the unacceptable circumstance.98 This may require, for example, a misleading statement to be clarified, further information to be sent to shareholders and possibly enabling shareholders to withdraw any acceptances in the meantime or extending the bid period.99 If it is impossible to restore the parties to the position they would be in if the unacceptable circumstances had not occurred, such as where events move on, the Panel may be unable to make effective orders. In Australian Liquor Group Ltd 01 [2001] ATP 18, the bidder complained that the target had failed to keep the market properly informed as to its financial position and sought orders to reduce the price payable under takeover contracts which had become unconditional. The Panel declined to make such an order as it was impossible to decide what price would have been offered or

93 Skywest Ltd 04 [2004] ATP 26. 94 Coopers Brewery Ltd 03R [2005] ATP 23 and Coopers Brewery Ltd 04R [2005] ATP 24. The Review Panel decided that the shareholders having the documents for six days before the extraordinary general meeting was sufficient time for the shareholders to consider and digest the information (effectively extending the time the initial Panel would have allowed). 95 AMP Shopping Centre Trust 01 [2003] ATP 21 and AMP Shopping Centre Trust 02 [2003] ATP 24. See further discussion of this case in 13.9. 96 Citect Corporation Ltd [2006] ATP 6. 97 Bowen Energy Ltd 02R [2009] ATP 19. 98 This is discussed in Takeovers Panel Guidance Note 4: Remedies – General. 99 An example of an order covering all of these items is contained in Namakwa Diamond Company NL 02 [2001] ATP 9.

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accepted if the market had been adequately informed, nor was it feasible to return shares to the previous owners. In that case, the Panel made interim orders permitting the bidder not to pay the directors pending a court action against them.100 The Panel may make an order which requires a party to do something, even if that would normally be in contravention of Ch 6, such as an order that a bidder dispose of shares contrary to s 654A.101 Some Panel orders have direct effects: an order cancelling an offer or agreement, or declaring an agreement voidable cancels the offer or agreement, or renders the agreement voidable, and an order that voting rights attached to securities be disregarded requires the issuer to disregard the exercise of those rights.102 If a person contravenes or proposes to contravene a final or interim order, ASIC, the President of the Panel, any person to whom the order relates or any party to the proceedings may apply to the court for an order to secure compliance with the Panel’s order: s 657G. The Panel has power to make a costs order, but only if it has made a declaration of unacceptable circumstances: s 657D(1). This means that the Panel generally cannot award costs to a successful respondent. The Panel has, however, suggested that it could seek an undertaking to pay costs as a condition of proceeding with an application.103 This approach has been taken in review applications.104 In general, the Panel will only make costs orders in exceptional circumstances, such as against a party whose case was not arguable, who engaged in delay or obstruction, abused process, made unsubstantiated assertions, unreasonably refused to negotiate, wasted time on a particular issue or sought a review without merit.105

100 In Rinker Group Ltd 02 [2007] ATP 17 and Summit Resources Ltd [2007] ATP 9 (see discussion at [11.70.50]) irreversible changes took place while applications were under consideration. Regis Resources Ltd [2009] ATP 7 [24]–[27] is an example of where the Panel considered that the orders sought by the applicant would not have remedied any remaining unacceptable circumstances. 101 Pinnacle VRB Ltd 11 [2001] ATP 23. 102 Sections 657D(5) and (6). 103 Takeovers Panel Guidance Note 4: Remedies – General, [29]–[31]. 104 See Taipan Resources NL 11 [2001] ATP 16. 105 Takeovers Panel Guidance Note 4: Remedies – General, [28]. While the Panel has this power it has rarely been exercised. For an example of its exercise, see AMP Shopping Centre Trust 01 [2003] ATP 21 [117] where a party’s initial reluctance to be joined as a party and subsequent change of mind to become a party resulted in delays and increased costs. See also Skywest Ltd 03 [2004] ATP 17 and Skywest Ltd 03R [2004] ATP 20, where the bidder was said to have “participat[ed] in an inappropriate course of behaviour” which included receiving confidential information about the target from an officer of the target over a course of time (including during the time at which pre-bid acquisitions were made and the time at which the bid was made) where the provision of such information was unauthorised by the target board. See also Skywest Ltd 04 [2004] ATP 26 where the Panel noted that four prior decisions of the Panel had found fault with the bidder’s actions following which the bidder proceeded down a course of action

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21.4 Review of Panel’s decisions [21.40] One Panel may review the decisions at first instance of another Panel on an application under s 657C.106 ASIC or a party to the proceedings in which a Panel decision is made may apply to the Panel for a review of that decision: s 657EA.107 A review application must be made within two business days after the date on which the decision was made.108 A Panel reviewing the first instance decision of another Panel will consist of a fresh group of members. Only one review of an original Panel decision is permitted. The review is a de novo reconsideration of the matter on the merits, on the facts as they stand at the time of the review proceedings.109 The review Panel should, however, apply the same policy as the original Panel unless there is a cogent reason not to do so.110 A person aggrieved by an act, omission or decision of the Panel may apply to the Federal Court for judicial review of the Panel’s decision under s 5 of the Administrative Decisions (Judicial Review) Act 1977 (Cth).111 The available grounds include breach of natural justice, improper exercise of power, error of law or lack of evidence to justify the decision.112 An application under s 5 cannot be made during the bid period of a takeover in view of the prohibition against court litigation under s 659B (see 21.6). It is possible, however, to seek review during the bid period in the original jurisdiction of the High Court: s 659B(5) and s 75(v) of the Constitution, on the basis that against the principles of equality. Panels made costs orders in Minemakers Ltd [2012] ATP 8 (because of time-wasting) and in Austock Group Ltd [2012] ATP 12, because the applicant had itself brought about the unacceptable circumstances disclosed by the proceedings. 106 See, generally, Takeovers Panel Guidance Note 2: Reviewing Decisions. One Panel cannot review another Panel’s decision on review of an ASIC decision under s 656A, and no Panel decision may be reviewed by the Administrative Appeals Tribunal. 107 Where the relevant decision of the Panel is not a decision to make a declaration of unacceptable circumstances or orders, a person may apply for a review of that decision only with the consent of the President of the Panel: s 657EA(2) and see Austral Coal Ltd 03R [2005] ATP 15; Coopers Brewery Ltd 03R [2005] ATP 23. A review Panel may make a declaration under s 657A up to one month after the review application was made, or three months after the relevant circumstances occurred: s 657EA(5), an amendment made by the Corporations Amendment (Takeovers) Act 2007 (Cth) to resolve an issue which emerged in Takeovers Panel v Glencore AG [2005] FCA 1628 [9]–13] per Finkelstein J. 108 Section 657EA(3), Corporations Regulations, reg 6.10.01. Neither this time limit nor that in s 657EA(5) applies to a matter concerning a Panel decision which is referred by a court to the Panel for internal review: s 657EB. 109 See National Can Industries Ltd 01R [2003] ATP 40 [21]; BreakFree Ltd 04R [2003] ATP 42 at [35]; Skywest Ltd 03R [2004] ATP 20. 110 Email Ltd 02 [2000] ATP 4, applying Drake v Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634. 111 See Black, “The Control of Discretionary Power as to Unacceptable Acquisitions and Unacceptable Conduct under the Companies (Acquisition of Shares) Act and the Corporations Bill” (1989) 7 C&SLJ 226, 231–235. 112 Examples of review proceedings include Glencore International AG v Takeovers Panel (2005) 54 ACSR 708 and Australian Pipeline Ltd v Alinta Ltd (2007) 62 ACSR 196.

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Panel members are “officers of the Commonwealth” . While the High Court itself is reluctant to hear such a matter, it can and will remit it to the Federal Court to be heard: Judiciary Act 1903 (Cth) s 44.113

21.5 The Panel’s power to make rules [21.50] The Takeovers Panel has power to make rules, not inconsistent with the Corporations Act or Corporations Regulations, to clarify or supplement the operation of Ch 6: s 658C(1). The rules may be disallowed by the Treasurer: s 658C(4). Any rules prevail over an exemption or modification granted by ASIC under s 655A to the extent of the inconsistency: s 658D. The Panel also has the power to make procedural rules to be followed in the Panel proceedings: ASIC Act, s 195. Other than its Rules for Proceedings, no rules have yet been made. The Panel has said that, in general, any rules will encapsulate policy that has already been applied in particular cases and that the Panel would consult widely before making a rule.114 This is to ensure, as far as possible, that the rules are widely understood when they commence.

21.6 Jurisdiction and powers of the court [21.60] A necessary consequence of the legislative policy that the Takeovers Panel is to be the main forum for resolution of disputes during takeovers115 is a prohibition against commencing court proceedings in relation to a bid until the bid closes. This is achieved by s 659B which provides that: •

only ASIC (or certain other Commonwealth or State entities) may commence court proceedings in relation to a takeover bid, or proposed takeover bid, before the end of the bid period; and

•

a court may stay any such proceedings that have already commenced.

For this purpose, the key expression is “court proceedings in relation to a takeover bid or proposed takeover bid”. This expression is defined in s 659B(4) to mean any proceedings before a court in relation to: •

an action taken or to be taken as part of, or for the purposes of, the bid or the target’s response to the bid; or

113 The remedies available in the High Court under s 75(v), or from the Federal Court on referral from the High Court, are the constitutional writs of certiorari, mandamus and prohibition, not the comparatively straightforward remedies provided for in the Administrative Decisions (Judicial Review) Act 1977 (Cth). It is doubtful whether the legislation achieves anything useful by requiring an applicant to take this circuitous route and seek these archaic remedies. 114 Takeovers Panel Guidance Note 3: Making Rules: this Guidance Note has been withdrawn and not replaced, but remains available on the Panel’s website. Rules would be subject to the Legislation Act 2003: see 20.20. 115 The policy does not affect schemes of arrangement: St Barbara Mines Ltd 01 [2000] ATP 10.

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•

497

a document prepared or to be prepared, or a notice given or to be given, under Ch 6.

It expressly includes: •

proceedings to enforce an obligation imposed by Ch 6;

•

proceedings for the review of a decision, or the exercise of a power or a discretion, under Ch 6;

•

proceedings for the review of a decision, or the exercise of a power or discretion, under Ch 6C in relation to securities of the target of a takeover bid during the bid period; and

•

proceedings under Pt 2F.1A (the statutory derivative action) for leave to bring, or to intervene in, proceedings referred to the items above.

Furthermore, it is expressly not limited to proceedings brought under Ch 6 of the Corporations Act but includes proceedings under any other Commonwealth and State laws (including the general law). Because the High Court’s judicial review powers under the Constitution cannot be excluded, there is a separate saving provision which enables parties to bring judicial review proceedings in the High Court under s 75(v) of the Constitution: s 659B(5) and 21.4. The key issue under s 659B is determining the scope of the prohibition against private parties commencing litigation.116 It seems clear the rule would cover matters closely connected to the takeover process, such as disputes relating to disclosures in a bidder’s statement, compliance with the requirements of Ch 6, or other provisions of the Corporations Act, or other legislation (such as the Competition and Consumer Act 2010 (Cth)) and share acquisitions during the bid. At first blush, it would also appear to prevent a bidder or target applying to court to validate an irregularity in the takeover process under s 1322, s 1325A or s 1325D.117 It is also clear that it does not preclude litigation regarding Ch 6 matters that do not involve a formal takeover bid, such as a dispute about a breach of the 20% rule in s 606.118 However, there is room for debate about other matters which may have a connection with a bid, such as the enforcement of private contractual obligations (for example, those under a confidentiality agreement, a standstill agreement or a pre-bid acceptance agreement), the enforcement of fiduciary duties (such as duties of target directors concerning the management of the target or the issue of new securities) or enforcement of other legal rights (such as defamation proceedings concerning statements made in bid documents). Are these proceedings “in relation to a takeover 116 See generally, Austin, “The Courts and the Panel” in Hill and Austin (eds), The Takeovers Panel After 10 Years (2011), p 131 and the comments on that article by Damian, “The Courts and the Panel – A Commentary”, p 147. 117 See below in this section. 118 McMillan Properties Pty Ltd v WC Penfold Ltd (2001) 40 ACSR 319.

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bid”? On the broadest interpretation of s 659B, these examples could be regarded as within the prohibition as the subject matter may be viewed as an action “taken as part of” the takeover bid. The contrary narrow view is that s 659B is not intended to affect matters which are merely ancillary to a takeover bid. Based on various court cases, it appears that the courts are likely to read down the wording of the Corporations Act to retain their jurisdiction. This approach appears from a series of cases which touched on the point119 and in some recent cases where the point was considered in detail. In Tower Software Engineering Pty Ltd; Pendant Software Pty Ltd v Harwood (2006) 57 ACSR 653, the bidder brought court proceedings seeking orders requiring the directors of the target to register transfers of shares relating to acceptances under the takeover bid. It was argued that s 659B prevented the bidder from bringing the court proceedings. Goldberg J rejected that argument and decided that registration of the share transfers was not an action “taken for the purposes of the bid”. It was considered that the bidder should be able to enforce the specific right to seek registration of the transfers under s 1071F, despite the general language of s 659B.

119 In Troy Resources NL v Taipan Resources NL (2000) 35 ACSR 663, the chairman of the target company had written a letter to shareholders seeking to persuade them that a proposed scheme of arrangement should be supported in preference to a proposed takeover bid. The bidder alleged that the letter was misleading. It was argued that s 659B precluded the court from hearing the matter on the basis that the application was part of action by the bidder to promote its bid. The judge felt it was not necessary to decide the issue as he declined to hear the matter on the general grounds that it should be more appropriately dealt with by the Takeovers Panel. Therefore, the case was decided on the basis of which was the more convenient forum, not on s 659B. 119 In St Barbara Mines Ltd v ASIC (2001) 37 ACSR 92, ASIC refused to register a bidder’s statement as it considered that the fully paid and partly paid shares in a company were a single class. This was disputed by the bidder who sought a review of the decision in court. It was argued that this was not a proceeding in relation to a takeover bid, but rather a proceeding in relation to the non-acceptance of bid documents by ASIC. The Federal Court rejected this argument based on s 659B, but the judge seemed to imply that there may well be cases where the court’s jurisdiction was not ousted. 119 During the Smorgon Steel bid for Email in 2000, Smorgon sought an injunction from the Supreme Court of Victoria to restrain a particular valuer from appearing as an expert witness in proceedings before the Takeovers Panel due to an alleged conflict of interest (Proceedings No 5492 of 2000, unreported). Section 659B was raised during the proceedings, but Mr Justice Beach said it did not apply as s 659B was not intended to deal with breaches of contract or fiduciary duty and matters ancillary to takeovers. This statement was made during the course of argument and not as part of a judgment, but it is at least indicative of that judge’s preliminary view. 119 During the Toll Holdings bid for Patrick in 2005–2006, a number of matters were the subject of litigation, including Toll bringing proceedings against Patrick claiming it had breached an exclusivity or no shop undertaking in an agreement between the parties when they had reached agreement on final bid terms and separate proceedings against Patrick’s chairman seeking to enforce a promise to accept the bid on a particular date. The courts did not have to consider the scope of s 659B in detail as the cases were discontinued before the point could be argued.

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Separately, a shareholder in the target applied to the Takeovers Panel seeking a declaration of unacceptable circumstances about various aspects of the bid. The application covered similar, though not identical, issues to the court proceedings. The target argued before the court that the shareholder should not be allowed to continue the Panel application as to do so would affect the integrity of the court process. Goldberg J contrasted the jurisdiction of a court, which is to determine legal disputes between the parties, and the jurisdiction of the Panel, which is to determine if the facts give rise to unacceptable circumstances. His Honour considered these two questions were very different. The court did not have consideration of all matters raised before the Panel. Therefore, the court declined to restrain the shareholder from continuing with the Panel matter. In Lionsgate Australia Pty Ltd v Macquarie Private Portfolio Management Ltd (2007) 62 ACSR 178, the bidder brought court proceedings seeking specific performance of a pre-bid acceptance agreement it had entered into with an 11.2% shareholder. The shareholder argued that the court proceedings were in relation to a takeover bid or a proposed takeover bid and therefore s 659B applied. Austin J did not agree that s 659B ousted the jurisdiction of the court in this case. His Honour was of the view that the circumstances of the bidder’s case fell outside the conduct that s 659B was intended to address. One of the main purposes of the provision was to do away with tactical takeover litigation which sought to disrupt and delay takeover bids. Here, the bidder’s case only dealt with the meaning, and enforceability, of a private contract and not whether a takeover should be disrupted or allowed to proceed.120 In this case, the takeover bid would still proceed even if the shareholder was not required to sell into the bid. Austin J held that the proceedings did not fall within the terms of s 659B(4), as it was not in relation to a document or notice prepared, or given, under Ch 6 of the Corporations Act, nor was it a proceeding in relation to an action taken, or proposed to be taken as part of, or for the purposes of, a takeover bid. The proceeding was properly characterised as one in relation to the agreement between the bidder and the shareholder and in relation to the enforcement of contractual obligations. Although the agreement contemplated that a takeover bid would subsequently be made, that a bidder’s statement would be subsequently issued, and that the time limits for the contractual obligations were set by reference to the bid period, these factors were not enough to render the proceeding to be one in relation to a document or notice prepared or given under Ch 6. The fact the obligation to sell into the bid was triggered by the dispatch of the bidder’s statement did not make the proceeding one in relation to that document, but “merely accidental” to it.

120 In support of this proposition it should be noted that s 659AA states that the object of s 659B is to make the Panel the main, not the exclusive, forum for disputes during a bid. The intention does not seem to have been to oust the jurisdiction of the courts in cases not directly relating to the takeover process.

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There have been a number of applications to the court under s 1325A where a bidder has failed to apply for quotation of securities offered as consideration, as required by s 625(3). On the face of it, such an application is within s 659B, as it relates to action to be taken by the bidder for the purposes of the bid.121 In Venturex Resources Ltd [2009] FCA 677, McKerracher J held that s 659B does not prevent such relief being applied for and granted during a bid: s 1325A overrides s 659B, because it is the more specific provision, because it was intended to be available to the parties concerned during a bid, and because it does not involve the mischief which s 659B was enacted to address. To have stayed the application under s 659B(2) would have been to frustrate one of the purposes of Ch 6, since the Panel could not give the necessary relief. Based on these decisions, some matters, such as disputes over disclosure in a bidder’s statement or other matters relating to the interpretation of provisions in Ch 6 will, because of s 659B, clearly be within the Panel’s exclusive jurisdiction during a takeover. However, it seems clear that the courts will consider that their jurisdiction to hear contractual disputes and enforcement of rights under parts of the Corporations Act other than Ch 6 is not ousted by s 659B, even where a takeover bid is current. This means that there is an overlap between the jurisdiction of the courts and the Panel which will not necessarily lead to either forum declining to act. For these reasons, court litigation will have a continuing role to play in takeover bid tactics. In this respect, it should be kept in mind that, as is often the case with litigation, running a case to a final decision may not be crucial to achieve a commercial result. Most court cases are settled by the parties before they proceed to final hearing or judgment. Litigation, with its various processes (including the onerous and intrusive discovery of documents), high costs and time-intensive requirements, often forces parties to reassess their positions. Frequently, this means that merely commencing litigation can lead to commercial settlement. Another possible avenue for a takeover dispute to come before the courts is the Panel’s ability to refer a question of law arising in a Panel proceeding to the court for a decision: s 659A. The Panel may be inclined to do so where the issue is not one of takeovers law and does not directly concern the Panel’s own procedures or powers, for example, whether a bidder is entitled under its constitution to issue securities under a scrip bid.122 However, the Panel’s general approach is to consider matters of law itself. 121 In Re Cabcharge Australia Ltd [2007] FCA 421; Re MacMahon Holdings Ltd [2008] FCA 1079; and Re GrainCorp Ltd [2008] FCA 996 the Federal Court heard applications of this kind, and made orders under s 1325A correcting the errors, but in none of the cases did the court appear to consider the application of s 659B. Contrast the similar applications concerning defective extensions of bids, below in this section. 122 Colonial First State Ltd 03 [2002] ATP 17. In this matter, the Panel obtained a binding ruling on a matter of law from the Federal Court, but then had to deal with the application before it on the basis of that ruling and other materials: the referral did not transfer the proceedings to the Federal Court, but had the effect that two successive proceedings were required to dispose of the application.

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It considers that referring all matters to court would defeat its mandate of being the “main forum” for resolving disputes about takeovers.123 The Panel does not regard itself as usurping the courts’ role by expressing views on whether circumstances or actions constitute a breach of the law.124 Section 659B does not prevent the courts hearing cases after the end of the bid period.125 However, if the Panel receives an application for a declaration under s 657A that certain conduct is unacceptable, but refuses to make such a declaration126 yet a court considers the conduct contravened the Act, the court’s powers under the Corporations Act are limited to imposing a penalty on a person found guilty of an offence under the Act, ordering one person to pay money to another person where it determines that the first person was involved in conduct contravening the Corporations Act, or relieving a person from liability or correcting an irregularity in relation to the conduct (s 659C(1), referring specifically to ss 1318 and 1322). The only type of remedial order that the court can make in such a matter is an order requiring one person to pay money to another person: s 659C(2). Section 1325A gives the court considerable discretion to make any orders it thinks appropriate,127 where a person has contravened a provision of Chs 6, 6A, 6B or 6C,128 or a condition of an ASIC consent to withdraw takeover offers, or states in a response to a tracing notice that they do not know some of the necessary information. The court can make orders upon application by ASIC, the target, a member of the target, or the person from whom the shares were acquired. A shareholder of the bidder does not have standing under s 1325A of the Corporations Act, nor can a person obtain standing by acquiring shares in the target after the breach of s 606 of the Corporations Act occurred.129 Generally, associates of a shareholder are proper parties for a proceeding in which relief is sought regarding the shares.130 Where the 123 Email Ltd 01 [2000] ATP 03. 124 Brisbane Broncos Ltd 03 [2002] ATP 03. 125 For this reason, s 659B does not prevent a person other than ASIC from applying to the court under s 1322 to remedy a defective extension of a bid. In that event, the bid has technically closed: see Diamond Rose NL v Striker Resources NL [1998] FCA 1169; (1998) 28 ACSR 749; Pinnacle VRB Ltd v Reliable Power Inc (2001) 39 ACSR 8; Primelife Corporation Ltd v Aevum Ltd (2005) 53 ACSR 283; Blaze Asset Pty Ltd v Target Energy Ltd [2009] FCA 698, where earlier cases are collected. 126 To avoid the complication if the Panel “refuses” to make a declaration, it may instead stand the matter over pending further developments: see Australian Liquor Group Ltd 02 [2001] ATP 19. Interim orders would lapse if the applicant withdrew the application. 127 Gjergja v Cooper [1987] VR 167. See also Re Cabcharge Australia Ltd [2007] FCA 421; Re MacMahon Holdings Ltd [2008] FCA 1079; and Re GrainCorp Ltd [2008] FCA 996. 128 Including a provision as modified by ASIC and a condition of an ASIC exemption: s 655A(1) and (4). 129 Panfida Ltd v Hartogen Energy Ltd (1988) 14 ACLR 601; Niord Pty Ltd v Adelaide Petroleum NL (1990) 2 ACSR 347. 130 National Companies & Securities Commission v Monsoon Nominees Pty Ltd (1990) 3 ACSR 491.

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court believes the acquirer’s breach is a result of inadvertence or mistake or of ignorance of a relevant fact, and that under all the circumstances the breach should be excused, the court is directed to make only orders restraining the exercise of voting rights: s 1325D(3). In addition to its primary enforcement powers under s 1325A, the court may make certain other orders in various situations, such as where offers are not sent within time: s 1325B. The court will not require ASIC or any other entity to give an undertaking as to damages in situations where ASIC applies for an interim order under s 1323 or the sections mentioned above: s 1323(4). The Act does not articulate how the court’s powers under ss 1325A–1325E are affected by s 659C. The very specific terms of s 659C would appear to preclude relief under those sections concerning conduct in respect of which the Panel has refused to make a declaration. Where, however, s 659C does not apply, because no application has been made to the Panel,131 the decisions in Venturex and similar cases indicate that the Courts will consider applications in appropriate matters. Unfortunately, there remain certain gaps: for instance, if the Panel refuses to make a declaration in respect of a breach of Ch 6, a private party is unable to apply to the Court for a declaration that the breach does not invalidate an act, document or matter under s 1325D(1), although such a declaration might logically complete the Panel’s decision not to intervene. The court has additional general enforcement powers. These general powers include the power to issue an injunction or pay damages: s 1324. The court may also make certain orders due to the fact that takeover legislation is law relating to dealing in securities: s 1101B.132

131 And perhaps, where an application was made, which did not result in a declaration being made, because the application was not dealt with on the merits: for instance, the Panel declined to conduct proceedings. 132 But see National Companies and Securities Commission v Industrial Equity Ltd (1981) 6 ACLR 1, 21 per Needham J.

Chapter 22

After the Offer Closes [22.10]22.1 Immediate action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 503 [22.20]22.2 Further takeover bid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 505 [22.30]22.3 Appointing new directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 506 [22.40]22.4 Review of directors’ service contracts . . . . . . . . . . . . . . . . . . . . . . . 507 [22.50]22.5 Delisting and other steps to encourage sales by the minority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 507 [22.60]22.6 Re-financing the takeover after the bid closes . . . . . . . . . . . . . . 510 [22.70]22.7 Retirement of auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 513

22.1 Immediate action [22.10] Once the offer has closed, the bidder should address the following issues: (1) determine whether it has reached the thresholds necessary to proceed with compulsory acquisition under s 661A: see 17.2; (2) ensure that holders who have accepted the bid are paid in accordance with the payment terms under the offer documents (see s 620(2), discussed in [8.40.50]),1 which is required to be: (a)

if the bidder is given the necessary transfer documents with the acceptance, within 21 days after the closing date;

(b) if the bidder is given the necessary transfer documents after acceptance, within 21 days after that occurs; (3) where bid class shares are unquoted, prepare a master share transfer relating to the shares acquired under the bid and submit for payment of any stamp duty: see 23.12; and

1

The bidder may have undertaken to pay earlier than this date, by an announcement attracting the truth in takeovers principle.

2

If bid class securities are quoted, the bidder must instead request ASX Settlement to transfer the shares to itself, or direct it to transfer them to a specified person: Listing Rules 8.12.1 and 8.12.2 and ASX Settlement Operating Rules 14.11–14.20.

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(4) if the bid has closed with a defeating condition neither satisfied nor waived, return any acceptances and scrip or notify ASX Settlement to release securities for which the bid was accepted, as appropriate.3 The bidder must give the target and ASX a substantial holding notice if its voting power has changed by 1% since it last gave a notice. This might result from acceptances, which increase its voting power4 or from a defeating condition remaining unsatisfied at the close of the bid, which will decrease its voting power as all contracts formed on acceptance then become void under s 650G. The notice must be given by 9.30 am on the first business day after the close of the bid, if the bidder became aware of the 1% change during the bid period.5 Apart from the need to give a substantial holding notice, there is no formal requirement to give any notice that the bid has closed, though this may be appropriate if the market is not fully informed about the bid. Typically, a bidder (and often the target) will inform the market about whether the bidder intends to proceed with compulsory acquisition. If the bidder will not proceed with compulsory acquisition, a listed target company is required to provide to the ASX within 10 business days after the close of the offer, a distribution schedule of each class of equity security showing the number of holders in various categories, the names of and the percentage holding of the 20 largest holders and of the 20 largest holders of each class of equity security: ASX Listing Rule 3.4. Once the offer closes, the bidder is free from the restriction in s 654A against disposing of shares. If the takeover closes in the months following the end of the target’s financial year some thought may need to be given to the holding of the target’s annual general meeting. Under s 250N, a company’s annual general meeting must be held within five months of the end of its financial year. However, a public company which only has one shareholder need not hold an annual general meeting. If a target cannot be sure that all shares in it will be compulsorily acquired by the date by which the meeting must be held, it may need to commence preparations well in advance of that date to hold the general meeting (bearing in mind the requirement that a listed 3

Exceptionally, if the bid closed still subject to a prescribed occurrence condition, the bidder has up to three days after the bid closes to declare the bid free of that condition: s 650F(1)(a). ASIC has modified s 650G to make it consistent with s 650F in this respect: Class Order [CO 13/521].

4

An acceptance form received by the bidder before the bid closes is within time, even if the appropriate message is not sent to ASX Settlement until after the bid closes: [10.30]; ASIC Regulatory Guide 9 Takeover bids, RG 9.589–RG 9.595 and ASIC Class Order CO 13/521, reversing one effect of Australian Pipeline Ltd v Alinta Ltd [2007] FCAFC 55.

5

See s 671B(6)(b) and [15.30E] for this issue. The bid period ends when offers under the bid close (generally not at midnight on that day). Information is received during the bid period, even if it is only perfected at the moment the bid closes (such as non-satisfaction of a condition), but this may not apply to late acceptances received before the bid closes but not processed until after it has closed.

After the Offer Closes

505

company give 28 days’ notice of any meeting). ASIC will grant relief to extend the time for the holding of an annual general meeting where it is likely but not certain that the target would be wholly owned by the last date that the annual general meeting would otherwise need to be held. This relief assists in avoiding what may be unnecessary expense in preparing for the meeting.

22.2 Further takeover bid [22.20] There is no restriction preventing a bidder or any associate of the bidder launching a new takeover bid for the target within any time period after a takeover bid has closed. Accordingly, a bidder who has not achieved 100% ownership of the target may launch a follow-up takeover bid immediately.6 A follow up bid within four months must generally be at a price no less than the price paid under the first bid due to the general rule for determining minimum bid prices by reference to prices the bidder has paid or agreed to pay for shares in the same class during the last four months: s 621(3), see [8.40.30]. ASIC has stated that it may grant an exemption from s 621(3) so purchases made under a previous takeover bid do not set a floor price.7 This is on the basis that the earlier bid price was available to all shareholders and, therefore, disregarding those acquisitions does not breach the s 602 objective of equality of opportunity. The relief may be clearly justifiable if a material adverse event has occurred to the target’s business or where equity markets have fallen generally so that the bid price under the original bid is no longer be appropriate.8 If the bid is made at a higher price, the bidder is not required to pass on the additional consideration to those who have accepted the earlier bid. Therefore, if there is a significant number of shares outstanding or a significant strategic shareholder who has not accepted, one strategy may be to allow the current bid to lapse and for a further bid to be made at a higher price. An issue may arise where the bidder has publicly represented that the offer will close on a specified date and “will not be extended” or “will not be increased”. In the event, a follow-up bid shortly after the bid closes, or one at a higher price, may give rise to unacceptable circumstances. However, the mere fact that a bidder has stated a specific intention for one bid does

6

The Panel rejected a submission that a bidder should be precluded from bidding again for one year in Brickworks Ltd 02 [2000] ATP 8. In the light of policy developments since 2000, the Panel may not apply the frustrating action policy in its most stringent form to a follow-on bid.

7

ASIC Regulatory Guide 9: Takeover bids, RG 9.228–RG 9.230.

8

The relief may also be appropriate where the later bid offers the same ratio of shares as the first bid, but the bidder’s share price has fallen or if there is an all cash alternative at a higher price. However, special relief would be required in view of the comments in ASIC Regulatory Guide 9: Takeover bids, RG 9.156.

506 Takeovers Law & Strategy

not prevent it from allowing that bid to lapse and then start with a new bid with a different intention: Taipan Resources NL 06 [2000] ATP 15. One potential disadvantage with a follow-up bid is that, while the bidder may aggregate acceptances under the first bid and the second bid for determining whether it has reached the 90% compulsory acquisition threshold in s 661A(1)(b)(i), the acceptances cannot be aggregated for the purposes of the 75% test in s 661A(1)(b)(ii).9 Similarly, although the bidder may continue buying bid class shares without making a fresh bid if it has 90% voting power when the bid closes, those shares do not count towards the 75% test.

22.3 Appointing new directors [22.30] Following a successful takeover bid, the bidder will generally seek to have its nominees appointed to the board of the target. Usually, the bidder and the directors of the target work out an arrangement whereby the board will be re-constituted to reflect the bidder’s proportionate shareholding in the target company. This usually involves some or all of the existing directors tendering their resignations and nominees of the bidder being appointed to fill casual vacancies. It is not uncommon for this to happen during the bid once the bid is unconditional and the bidder has more than 50% of the target. If a change of directors cannot be achieved by negotiation, the bidder may be forced to requisition a general meeting of the target to propose resolutions for the removal of directors and appointment of replacement directors. Section 203D of the Corporations Act provides a statutory procedure for the removal of directors which operates irrespective of any contrary provisions in the company’s constitution. This statutory procedure requires the giving of special notice and entitles the director who is sought to be removed to include representations to shareholders with the notice of meeting. It is unclear whether a company’s constitution may provide for the removal of a director by a procedure other than s 203D. It would seem that the better view is that this is possible on the grounds that shareholders should be able to determine via the constitution whatever method they choose for removing directors.10 9

If acceptances are close to the compulsory acquisition thresholds, and the close of the bid has shut off a flow of acceptances, ASIC may be willing to give a modification to allow the bidder to re-open the bid, so that fresh acceptances can be aggregated with existing acceptances for s 661A(1)(b)(ii), or to allow acquisitions under s 662C to be counted for the same purpose. Any such relief should be sought immediately, before the market trades on the information that the bid closed short of the thresholds.

10 In Scottish & Colonial Ltd v Australian Power & Gas Co Ltd (2007) 25 ACLC 1497, it was held that s 203D is a code. This was followed in Mortimer v Proto Resources & Investments Ltd [2015] FCA 654 but not in State Street Australia Ltd v Retirement Villages Group Management Pty Ltd [2016] FCA 675 [15]–[36], where Beach J held that a company’s constitution may provide for an alternative mechanism, though it cannot exclude s 203D. In Dalkeith Resources Pty Ltd v Regis Resources Ltd [2012] VSC 288, the court reached the same conclusion, without the same consideration of the cases. There are no recent

After the Offer Closes

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In an unlisted company, it is possible for weighted voting rights to effectively protect the incumbent directors, notwithstanding that the holders of a majority of the issued shares vote for their removal.11 The appointment of new directors is governed by the company’s constitution. If the constitution is silent in this respect, it is likely that the company will have an inherent power to appoint directors by a resolution in general meeting, though it is possible for that power to be excluded or limited.12

22.4 Review of directors’ service contracts [22.40] As part of the general review of key contracts of the target company, the bidder will need to review carefully the terms of any agreements with directors or senior executives for retirement or severance payments. This will especially be the case following a hostile takeover battle which has been contested fiercely by both sides. The legality or enforceability of a service contact may be challenged on a number of grounds, including: •

the correct procedures were not followed when the service contract was agreed. Factors to consider when entering into a service agreement are canvassed in 13.8;13 or

•

the director has acted in breach of the agreement entitling the company to terminate the agreement.

If a payment has already been made, the bidder should review whether the payment exceeds the amounts that the company can pay under Div 2 of Pt 2D.2. Any amount paid in excess of those requirements will be held by the director on trust for the company: s 200J. It may also be possible to recover any illegal payments from the directors responsible, who may be jointly and severally liable for any such payment.14

22.5 Delisting and other steps to encourage sales by the minority [22.50] A bidder who is left with a rump of minority shareholders after the completion of a takeover bid should examine ways of acquiring the outstanding shares or taking steps which may encourage the remaining appellate decisions, and Holmes v Life Funds of Australia Ltd [1971] 1 NSWLR 860 is probably no longer authoritative, as it dealt with a predecessor provision which differed from s 203D in important respects. 11 See Bushell v Faith [1970] AC 1099. 12 Worcester Corsetry Ltd v Witting [1936] 1 Ch 640; Kraus v J G Lloyd Pty Ltd [1965] VR 232; DVT Holdings Ltd v Bigshop.com.au Ltd (2002) 42 ACSR 378. 13 Examples of bidders challenging directors’ retirement agreements are contained in Woolworths Ltd v Kelly (1991) 4 ACSR 431 and Runciman v Walter Runciman plc [1992] BCLC 1084. See also Guiness plc v Saunders [1990] 2 AC 663. 14 See Re Duomatic Ltd [1969] 2 Ch 365.

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shareholders to sell. Methods of mopping up minority shareholdings are discussed in detail in Chs 17 and 18. One common step is for the bidder to seek to have the target delisted from any stock exchange. This will significantly reduce the marketability of the remaining shares in the company and will overcome any continuing restrictions that would apply to the company under the ASX Listing Rules. Delisting is generally simple once compulsory acquisition has commenced. Quotation of securities is suspended five business days after compulsory acquisition notices are sent to the remaining shareholders and the ASX will delist after that, generally on a date which is agreed with the company: ASX Listing Rules 17.4, 17.4A and 17.14.15 If the bidder has not achieved the necessary thresholds to compulsorily acquire the minorities, delisting the company is more problematic. There is a general requirement that a listed company shall at all times maintain a spread of security holdings which in the opinion of the stock exchange is sufficient to ensure an orderly and a liquid market in those securities: ASX Listing Rule 12.4. ASX will generally require that there remain at least 500 shareholders holding parcels of shares worth more than $2,000 each: Listing Rule 1.1, condition 7.16 However, a company which does not meet this requirement will not necessarily be removed from the Official List as the general policy of the ASX is to seek to continue to provide a market for shares wherever possible. In practice, therefore, the key step in delisting a company, is to request that the company be delisted: ASX Listing Rule 17.11. This will generally lead to ASX delisting the company if the bidder holds a large proportion of issued shares, though ASX may require advance notice to be given to minority shareholders and may request that a share sale facility be offered. Delisting a company is a difficult decision for directors as it has an obvious detrimental effect on the company’s shareholders, many of whom would not have purchased their shares if the company had not been listed.17 However, that fact alone does not, of itself, mean that a decision to delist is improper. It would simply be one of a series of factors for the directors to take into consideration. Other factors to be considered may include: •

the direct and indirect costs of being listed;

•

the advantages to the company that would be lost by being delisted;

•

the disadvantages to the shareholders of delisting, including loss of protections under the listing rules;

15 The note to ASX Listing Rule 17.14 states that the securities will be removed from the list on the 3rd business day following suspension. However, in practice it appears the ASX delists on a date discussed and agreed with the target company. 16 For these purposes, persons holding via a nominee company may be counted separately if it can be demonstrated to the ASX that they are independent. 17 There are fuller discussions of directors’ duties at 13.2 and 14.3.

After the Offer Closes

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•

any restrictions under the listing rules that may affect the company’s operations that would cease to apply;

•

the level of share trading in the company’s securities; and

•

any expectations that shareholders may have that the listing will continue.

The directors must not take into account irrelevant considerations. It would be improper, for example, to seek a delisting to gain a collateral benefit for the new holding company or to cause a particular disadvantage for the minority or a third party. In general, courts are reluctant to substitute their views on the merits of a board decision. This recognises that directors are best placed to make decisions affecting a company and that the courts will not review their decisions.18 However, when a decision will impact shareholders differently, such as a decision to delist, the courts may then consider the merits of a board decision. This jurisdiction arises from s 232 where a decision is oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a shareholder or shareholders. The relevant test is whether the decision imposes a disadvantage, disability or burden on a shareholder that, according to ordinary standards of reasonableness and fair dealing, is unfair. The test of unfairness is objective and the court must determine whether reasonable directors, having any special skill, knowledge or acumen possessed by the directors of the company and having in mind the importance of furthering the corporate object on the one hand and the disadvantage, disability or burden which their decision will impose on a shareholder on the other, would have decided that it was unfair to make that decision.19 Another possible approach to the issue is for the company to cease paying annual listing fees. Failure to pay the fees will lead to removal under ASX Listing Rule 17.15. However, in that case too, the directors must be able to justify that the failure to pay the listing fees is in the interests of the company as a whole.

18 This has been summarised in an often quoted statement of the High Court in Harlowe’s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483, 493 as follows: Directors in whom are vested the right and duty of deciding where the company’s interests lie and how they are to be served may be concerned with a wide range of practical considerations, and their judgment, if exercised in good faith and not for irrelevant purposes, is not open to review in the courts. 19 Wayde v NSW Rugby League Ltd (1985) 180 CLR 459, where a decision to exclude a football club from a competition was regarded as prejudicial to the club, but not unfairly prejudicial.

510 Takeovers Law & Strategy

It has been held in England that minority shareholders are not entitled to make representations to the stock exchange on the question of whether or not to cancel the company’s listing.20 Other steps a bidder may contemplate to reduce the marketability of minority shareholdings include reducing dividends, undertaking a heavy rights issue and potentially amending the constitution to incorporate pre-emptive rights governing the future sales of shares.21 In considering any of these actions, the bidder must ensure that steps can be demonstrated to have been made in the interests of the company as a whole and not to unfairly discriminate against any particular member within the meaning of s 232.22

22.6 Re-financing the takeover after the bid closes [22.60] The prohibition in s 260A against a company financially assisting a person to acquire shares in the company or its holding company can be attracted, even if the financial assistance is given after the shares are acquired: s 260A(2).23 This raises questions regarding the operation of the law and availability of exceptions to the prohibition, discussed below. Nexus [22.60.10] The key question is when will financial assistance given after an acquisition have a sufficient nexus to attract the prohibition? This question frequently arises when, after a takeover closes successfully, the bidder seeks to re-finance a credit facility used in the takeover and the target is required to give a guarantee and charge its assets. The giving of such a guarantee and charge may have been an obligation under the original credit facility. Such activities were clearly within the contemplation of the drafters of the original English legislation from which s 260A is derived, yet, the takeover having been completed, it is difficult to contemplate how s 260A operates. There would appear to be several approaches. First, it can be argued that the expression “acquisition” includes all of the terms and conditions relating to the purchase including repayment of any borrowing and discharge of any securities given. On that basis, one would look to whether the bidder had paid the accepting shareholders for their shares and had repaid any borrowings made to finance the acquisition (though not necessarily all lenders to a group of companies). 20 R v International Stock Exchange of the United Kingdom and Republic of Ireland Ltd, ex parte Else (1992) Ltd [1993] QB 534. 21 Subject to s 140(2). 22 A decision to reduce dividends may constitute conduct which is oppressive or unfairly prejudicial against a minority within the meaning of s 232, even though all shareholders are treated equally: Re Sam Weller & Sons Ltd (1989) 5 BCC 810. 23 See also Juniper Pty Ltd v Grausom (1983) 8 ACLR 212 and Tallglen Pty Ltd v Optus Communications Pty Ltd (1998) 16 ACLC 1526 in relation to predecessor legislation.

After the Offer Closes

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Secondly, it could be argued that it is necessary to establish that, at the time of acquisition of the shares, there is a contract or arrangement in existence which would deliver the financial assistance, even if the assistance is only provided after the acquisition has occurred. Thirdly, it could be argued that the prohibition is attracted whenever there is a link between the acquisition and the financial assistance which draws the transaction within the policy concerns that s 260A addresses. A fourth approach is to have regard to the intentions of the bidder (and, if relevant, the target). On this approach, s 260A would apply if, at the time of the takeover, the bidder had an intention or a legitimate expectation to re-finance borrowings using assets of the target.24 In Law Society of New South Wales v Milios (2000) 33 ACSR 396, Austin J stated a preference for the third approach over the first and the second approaches. However, his Honour did not have to finally decide the issue because, in that case, there had been a complete severance between the circumstances of the acquisition and the circumstances of the financial assistance. The fourth approach above (which is essentially a refinement of the third approach) was not argued. In practice, given the uncertainty in the law, it is safest to proceed on the basis that s 260A may be attracted if there is a link between the acquisition and the re-financing, including an intention or legitimate expectation that some financial assistance would eventuate from the target. This may be established, for example, if the finance facility for the bid contemplates or requires the bidder to endeavour to procure that the target gives a guarantee of the borrowings. Material prejudice [22.60.20] If it is concluded there is, or may be, financial assistance for the acquisition of the shares, the next question is whether the giving of the assistance would “materially prejudice” the interests of the company or its shareholders or the company’s ability to pay its creditors: s 260A(1)(a). This test was introduced on 1 July 1998. According to the Explanatory Memorandum, it was: intended to minimise the difficulties the current rule (ie s 205) causes for ordinary commercial transactions … Material prejudice to the company, its shareholders and the company’s ability to pay its creditors may occur if the company withdraws a large amount of money from its bank and lends it to a company bordering on insolvency, or if it guarantees a loan to a company that is likely to default.25

This passage suggests that the directors of the relevant company must consider whether, overall, the target’s shareholders and creditors are 24 This approach was suggested by P S Cameron in an unpublished paper, Post-Acquisition Re-Financing, given at the University of Sydney on 20 June 1988 and favoured, in obiter dicta, by Young J in Tallglen Pty Ltd v Optus Communications Pty Ltd (1998) 16 ACLC 1526. 25 Explanatory Memorandum to the Company Law Review Bill 1998, [12.76] and [12.77].

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better or worse off if the target enters into the transaction which gives the financial assistance. In Re HIH Insurance Ltd; ASIC v Adler (2002) 41 ACSR 72, Santow J approved an earlier dictum that it was necessary to look at all interlocking elements in a commercial transaction as a whole and determine where the net balance of financial advantage lay.26 Santow J said that this required impoverishment to be caused (and that the onus is on the person seeking to defend the transaction). In that case, the company had suffered material prejudice by investing cash on an unsecured basis in a unit trust, which it did not control and which was intended to purchase shares in the relevant company to support its share price. In the context of post-takeover re-financing, typically, the transaction involves the target company giving a guarantee of borrowings by the bidder. Prima facie, this would materially prejudice the interests of the target as the target would then be exposed to additional liabilities, which could be significant in the context of its own asset base. However, having regard to the Explanatory Memorandum, all aspects of the transaction and its risks and advantages must be considered. For instance, if there are reasonable grounds to expect that the guarantee would not be called upon (such as where the bidder is demonstrably solvent), giving a guarantee may not “materially prejudice” the company’s interests, especially if, as part of the overall transaction the target was to receive other benefits, tangible and intangible, from its new holding company. This countervailing aspect may be strengthened if the guarantee provides for cross guarantees of all of the liabilities within the wider group of companies comprising the bidder and its other subsidiaries. In that situation, the target’s shareholders and creditors obtain the additional benefit of a guarantee from the other members of the group, which may be a significant advantage.27 Similarly, if the guarantee is given in the context of the replacement of the target’s own facilities, which often becomes necessary as a result of the change of control. The payment of a dividend may constitute financial assistance: s 260A(2)(b). However, generally speaking, the payment of a dividend, especially one out of ordinary revenue profits, would not materially prejudice the interests of the company, its shareholders or the company’s ability to pay its creditors. It is within each shareholder’s normal expectations that profits are available for distribution and not necessarily available for creditors. In Re Wellington Publishing Company Limited [1973] 1 NZLR 133 and in Rossfield Group Operations Pty Ltd v Austral Group Ltd (1980) 5 ACLR 290, large dividends were paid to successful bidders out of ordinary revenue profits after each of them had acquired shares in the

26 This approach was approved on appeal: Adler v Australian Securities and Investments Commission [2003] NSWCA 131 [359]. 27 An example of such arrangements was considered in Batoka Pty Ltd v Jackson (1998) 30 ACSR 67 (though it was assumed in that case that the arrangements did cause material prejudice).

After the Offer Closes

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target company. The dividends were used to pay for the shares acquired. In both cases, it was clear the companies would remain solvent after the dividend was paid. The courts decided that the payments did not breach the relevant financial assistance prohibitions under the law at the time. Under the present law, the question to be asked is whether the payment of the dividend would cause material prejudice in the terms of s 260A(1)(a).28 Shareholder approval and exemptions [22.60.30] In cases where there remains doubt whether the transaction involves “financial assistance” and whether it would “materially prejudice” interests of the company or its shareholders or its ability to pay its creditors, the prudent cause is to seek shareholder approval under s 260B. This requires either a special resolution (with no votes being cast by the bidder or its associates) or a resolution agreed to by all ordinary shareholders: s 260B(1). In addition, a matching approval is required by special resolution passed by any listed or unlisted Australian holding company: s 260B(2), (3). This may require a resolution of the bidder. If the procedure is not followed precisely, this will not invalidate the approval: s 260D.29 Section 260C provides a number of other exemptions from the prohibition, including exemptions for transactions in the ordinary course of commercial dealing, special exemptions for financial institutions and subsidiaries of debenture issuers and an exemption for employee share schemes. In addition, a reduction of share capital or a share buy-back is exempt: s 260C(5). This opens the possibility of the bidder seeking to re-finance its borrowings by extracting money from the target company under either of those methods.

22.7 Retirement of auditors [22.70] A person or firm acting as auditor of a company in which control changes must retire at the next annual general meeting, but is eligible for re-appointment: s 327H. This provision is intended to facilitate a group of controlled entities having the same auditor.

28 Payment of the dividend must in any case meet the tests in s 254T that the company will have a surplus of assets over liabilities and its ability to pay its creditors will not be materially prejudiced: [5.60.40] and [5.60.50]. 29 See Batoka Pty Ltd v Jackson (1998) 30 ACSR 67, where the notice stated that the resolution would be put as a “special resolution”, instead of a resolution agreed to by all ordinary shareholders. As the objecting preference shareholders had no right to vote on the matter, the court held that s 260D meant that the financial assistance resolution stood unaffected.

Chapter 23

Stamp Duty and Tax Aspects [23.10]23.1 [23.20]23.2 [23.30]23.3 [23.40]23.4

Stamp duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 515 Taxation implications for the bidder . . . . . . . . . . . . . . . . . . . . . . . . . 516 Taxation implications for target shareholders . . . . . . . . . . . . . . . 520 Taxation implications for the target . . . . . . . . . . . . . . . . . . . . . . . . . . 523

23.1 Stamp duty [23.10] Historically, stamp duty was payable in each Australian State and Territory at ad valorem rates on all transfers of marketable securities. This applied to transfer of shares and units under takeover bids. However, from July 2016, stamp duty is no longer payable on transfers of shares or units in a listed or unlisted entity, except where landholder duty applies. Landholder duty will be relevant if the target holds land over a certain value or if the target is a private trust that holds any property in Queensland (land or non-land) or South Australia (land). The relevant stamp duty provisions vary between each Australian State and Territory, are complex and are beyond the scope of this book. However, some brief comments can be made: •

Generally speaking, the landholder duty provisions apply to a target with landholdings satisfying a threshold value. For example, the target must have landholdings in Victoria with a value of $1 million or more to be a landholder in Victoria, or landholdings of $2 million or more in New South Wales to be a landholder in New South Wales. Complex rules apply to determine what is a landholding of the target.

•

Historically, the landholder duty provisions did not apply to a target that was listed on a recognised stock exchange. This has largely changed, with listed landholder duty now imposed in all Australian jurisdictions, other than in the Australian Capital Territory.

•

Generally speaking, landholder duty is payable if a person acquires an interest of 50% or more in an unlisted target, or an interest of 90% or more in a listed target. Aggregation rules also apply to aggregate interests of associated persons and interests acquired under associated transactions.

516 Takeovers Law & Strategy

•

If landholder duty is payable in a particular jurisdiction, it is calculated by reference to the market value of the target’s landholdings in that jurisdiction. In some cases, the duty base also extends to the market value of the target’s goods (that is, plant and equipment, but not intangible assets such as goodwill and intellectual property) in the jurisdiction.

•

More onerous rules can also apply to trusts. For example, in Victoria the dutiable acquisition threshold is 20% or more for an acquisition in a private unit trust, and in Queensland and South Australia an acquisition of any interest in certain private trusts with property in those States (whether land or non-land in the case of Queensland) can attract duty.

•

If duty is payable, it is calculated at land transfer rates of duty (up to 5.75% for non-residential land). However, concessional rates (up to 0.575%) may apply in some States to a takeover of a target that is listed on a recognised stock exchange.

As stamp duty can add a significant cost to the takeover, it is important that stamp duty is considered in detail and well in advance, if the target has any interests in Australian land (whether held directly or indirectly through investments in downstream entities). The issue is important for both the bidder and the target, and each can be statutorily liable for payment of duty (again, the position varies between jurisdictions).

23.2 Taxation implications for the bidder [23.20] In general terms, the bidder’s objective from a taxation perspective is to effect the takeover in a way which has the best outcome for the bidder and, where possible, to frame the bid so as to promote or protect the interests of the target shareholders. Deductibility of expenses [23.20.10] Expenses and outgoings incurred by a taxpayer are generally deductible to the extent to which they are incurred in gaining or producing assessable income or necessarily incurred in carrying on a business for the purpose of gaining or producing such income. However, the expense or outgoing is not deductible to the extent to which it is of a capital, private or domestic nature.1 In the context of a takeover, consideration paid for the shares will generally be of a capital nature and therefore non-deductible, but will form part of the capital gains tax cost base of the shares.2

1

Section 8-1 of the Income Tax Assessment Act 1997 (Cth).

2

This general rule may be inapplicable if the bidder is regarded as a share trader rather than a long-term investor. In that event, the shares acquired may be treated as trading stock and their cost deductible under s 8-1 of the Income Tax Assessment Act 1997 (Cth). The change in values of the shares at the start and end of the tax year must be taken into

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Interest on money borrowed to acquire shares will be deductible where it is reasonably expected that dividends will be derived from the investment.3 This remains the case even if the interest initially exceeds the dividends.4 Where the target forms part of the bidder’s consolidated group, the relevant nexus is whether the target’s assets are expected to produce assessable income. If the shares are intended to be resold at a profit, the interest may still be deductible if the profit on the resale is assessable as income.5 If the bidder issues convertible notes as consideration under the takeover, interest will generally only be deductible on the notes if the “debt test” in the tax legislation is satisfied.6 Where a takeover attempt is unsuccessful, the bidder’s costs incurred will generally be deductible over five years.7 Capital gains and cost base [23.20.20] It is preferable for the cost base of the shares acquired to be as high as possible so as to optimise the possible “step up” the tax cost of the target’s assets on consolidation (see [23.20.30] below) and to reduce any net capital gains on sale. The cost base will equal the consideration paid for the acquisition plus all incidental costs of the acquisition and the disposal.8 Where shares of the bidder (or the bidder’s head company) are used as part of the consideration for the takeover, the bidder’s cost base will include the market value of the shares provided.9 Any amount that would qualify as deductible is excluded.10

account in determining the taxable income under s 70-35 of the Income Tax Assessment Act 1997 (Cth). There are also special rules for long-term investors that are banks or life insurance companies. 3

FCT v Total Holdings (Australia) Pty Ltd 79 ATC 4279. The Commissioner’s views are discussed in Income Tax Ruling IT 2606 and in Pre-Ruling Consultative Document PCD2. Non-residents are taxed differently on dividends, so deductibility of interest may be inapplicable for a non-resident bidder.

4

FCT v Janmor Nominees Pty Ltd 87 ATC 4813. Deductibility would be jeopardised if it were not expected that the “assessable income” from the shares would ultimately exceed the interest: Fletcher v FCT 91 ATC 4950.

5

Section 6-5(1) of the Income Tax Assessment Act 1997 (Cth).

6

See Div 974 of the Income Tax Assessment Act 1997 (Cth).

7

Section 40-880 of the Income Tax Assessment Act 1997 (Cth). The Canadian Tax Court held in Rio Tinto Alcan Inc v The Queen (2016 TCC 172) that advisor costs incurred before a definitive decision was made to undertake a bid were deductible. It is not clear whether the ATO would accept a similar reasoning.

8

Section 110-25 of the Income Tax Assessment Act 1997 (Cth).

9

Section 110-25(2)(b) of the Income Tax Assessment Act 1997 (Cth). However, special rules apply to limit the cost base where shares are acquired from a significant stakeholder, a common stakeholder or the shares are acquired under a “restructure” or certain debt or equity structures are utilised.

10 Section 110-45 of the Income Tax Assessment Act 1997 (Cth).

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Tax consolidation [23.20.30] If the bidder and target are Australian tax resident companies and the bidder acquires 100% of the shares in the target, the bidder may elect to form a tax consolidated group. If the bidder has already elected to form, or is already a member of, a tax consolidated group, the target will automatically join the bidder’s consolidated group upon the bidder’s acquisition of 100% of the target’s shares. The major implications of the target joining the bidder’s consolidated group are summarised below. Upon joining the bidder’s consolidated group, the tax cost for each of the target’s assets (except for retained cost base assets such as cash) will be reset.11 In addition, if the target is either the head company of a consolidated group or is not a subsidiary member of a consolidated group: •

the tax losses of the target will be transferred to the bidder provided the company satisfies the continuity of ownership test12 or the modified same business test.13 However, if the tests are failed, the target’s losses will be lost forever;

•

the target’s franking credits will be transferred to the bidder’s franking account;14 and

•

the target’s foreign tax offsets and controlled foreign corporation (CFC) attribution surpluses will be transferred to the bidder’s consolidated group.15

The process of resetting the tax cost of the target’s assets can result in a step-up of the cost of those assets to approximately their market value. The tax costs are reset by allocating the “Allocable Cost Amount” (ACA) across the assets of the target in proportion to their respective market values. In broad terms, where the bidder acquires 100% of the target pursuant to a single bid, the ACA is the total of: •

the bidder’s cost base in the shares;

•

plus the liabilities of the target at the time of acquiring 100% of the shares;

•

less 30% of any tax losses that are transferred to the bidder’s group.16

11 Division 705 of the Income Tax Assessment Act 1997 (Cth). 12 This test is unlikely to be satisfied unless the bidder already holds more than 50% of the target at the commencement of the takeover bid. 13 Division 707 of the Income Tax Assessment Act 1997 (Cth). In broad terms, the modified same business test only requires the same business to have been carried on in the last 12 months. 14 Subdivision 709-A of the Income Tax Assessment Act 1997 (Cth). 15 Subdivisions 717-A and 717-D of the Income Tax Assessment Act 1997 (Cth) respectively. 16 See Div 705 of the Income Tax Assessment Act 1997 (Cth). However, subdiv 124-784B of the Income Tax Assessment Act 1997 (Cth) provides that where there is a scrip takeover bid (or

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The “re-setting” of the tax costs is extremely important as it potentially minimises any capital gain where assets of the target are sold shortly after the takeover. In addition, it allows the bidder’s group to step up the tax cost of depreciating assets to their market value. Where the bidder previously held less than 50% of the shares in the target at the start of the takeover (which will usually be the case), losses which are transferred to the head company of the bidder’s group are treated as having been made by the head company at the time of transfer.17 This effectively “refreshes” the losses so that they can continue to be carried forward provided the head company satisfies the continuity of ownership test or the same business test at the time the losses are used. However, the rate of utilisation of the transferred losses is limited by the “available fraction” of the losses.18 The purpose of the available fraction is to ensure that the head company uses the losses at approximately the same rate as the losses could have been used had the target remained outside the bidder’s group. The available fraction can also be impacted by post-acquisition transactions and capital injections.19 As mentioned above, the after tax value of the losses transferred reduces the amount of the target’s ACA. If the available fraction is minimal, it may be preferable for the bidder’s head company not to accept a transfer of the losses so that the ACA is not adversely affected and higher depreciation deductions are obtained. Alternatively, it may be preferable for the target to remain outside the group until the losses have been utilised. This can be achieved by having one share held by an entity that is not a member of the bidder’s group. CGT Non-Resident Withholding Tax [23.20.40] Finally, the bidder will need to consider whether the CGT Non-Resident Withholding Tax rules will apply to the transaction. In summary, where: •

the seller is a non-resident and holds, or has held for a 12-month period in the last two years, a 10% or greater interest in the target; and

scheme of arrangement) where the market value of the bidder’s assets is less than 20% of the market value of its total assets after the acquisition (that is, a reverse takeover), the bidder’s cost base of the target will be the existing cost base of the target’s assets less its liabilities. This means that for certain reverse takeovers the bidder will generally not be able to “step up” the cost base of the target’s shares to the market value of the net assets of the target, resulting in a reduced ACA. This reduced ACA could reduce the tax cost of the target’s depreciable assets and, therefore, reduce the target’s depreciation deductions following the acquisition. 17 Section 707 of the Income Tax Assessment Act 1997 (Cth). 18 Section 707-310 of the Income Tax Assessment Act 1997 (Cth). The available fraction is essentially the market value of the target compared to the market value of the bidder’s group at the time the target joins the group. 19 Section 707-320(2) of the Income Tax Assessment Act 1997 (Cth).

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•

more than 50% of the assets of the target are referable to Australian land

•

the bidder must pay to the ATO, 10% of the gross purchase price (unless varied by the ATO).20

It is therefore incumbent on the bidder to determine the target shareholders’ residency and shareholding percentage and proportionate value of assets of the target. The bidder can rely on declarations as to these matters from shareholders, unless it knows them to be false.21 As these rules only came into effect from 1 July 2016, bidders are still determining how to manage this process in public takeovers. The terms of the offer should be drafted to allow the bidder to withhold part of the purchase price to comply with these rules.

23.3 Taxation implications for target shareholders [23.30] Any gain derived by an Australian tax resident on disposal of shares acquired after 19 September 1985 will generally be subject to capital gains tax.22 Where the shareholder acquired his or her shares before 20 September 1985, capital gains tax will generally not apply. Alternatively, if the shareholder makes a capital loss on sale then that loss can only be used to offset current or future capital gains. Where the shareholder held the share on revenue account (that is, in the ordinary course of carrying on his or her business or where the shares have been acquired with the intention to resell at a profit), any profit on sale will be subject to tax as income.23 A liability for capital gains tax (CGT) will crystallise when the share is disposed of. This will generally be at the time of making the contract.24 A contract is formed when the acceptance becomes effective, the time of which will usually be specified in the offer documentation. This is usually the date of receipt by the bidder (though occasionally mere posting of the acceptance may be specified in the offer as sufficient). This is the position even if the bid is conditional at that point in time.25 A share compulsorily acquired under the Corporations Act (Cth) is not subject to a contract and

20 Subdivision 14-D of the Taxation Administration Act 1953 (Cth). 21 Section 14-210(3) of the Taxation Administration Act 1953 (Cth). 22 Section 104-10 of the Income Tax Assessment Act 1997 (Cth). 23 Section 6-5(1) of the Income Tax Assessment Act 1997 (Cth). See also Taxation Determination TD 2010/21, which outlines the Australian Taxation Office’s views that profit on the sale of shares in a company acquired in a leveraged buyout will generally be taxable as ordinary income. 24 Section 104-10(3)(a) of the Income Tax Assessment Act 1997 (Cth). 25 This is because most conditions are drafted as conditions precedent to performance rather than formation of the contract: see 8.5. However, where the condition is drafted as a condition precedent to formation, if an acceptance is received prior to satisfaction or waiver of the condition, the time of disposal for CGT purposes will be the date on which the condition is satisfied or waived.

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would accordingly be regarded as disposed of when the change in ownership occurred.26 This would be the time the procedure specified in the Corporations Act (Cth) is completed. If shares (or other securities) are issued as consideration and scrip-for-scrip rollover relief is not available, the new shares will be deemed for capital gains tax purposes to have been acquired on the date the contract was made.27 If there is no contract, as in the case of an issue after compulsory acquisition, the date of acquisition is when the share (or other security) was issued, as before that date there is no asset of which the beneficial ownership can change. If the gain derived on disposal of a share is taxed as a capital gain, the taxpayer is an individual, superannuation fund or trust and the shares were owned by the taxpayer for at least 12 months, only half of the capital gain (or two-thirds in the case of a superannuation fund) is included in the taxpayer’s assessable income.28 The CGT discount is not available to companies. Shareholders, including companies, who acquired the shares at or before 11.45 am (by legal time in the Australian Capital Territory) on 21 September 1999, can choose to index their cost base. Indexation for this purpose was “frozen” as at 30 September 1999; that is, the cost base cannot be increased for indexation after that date.29 Non-corporate shareholders can either apply the CGT discount or indexation, but not both. If the takeover effects a swap of shares (that is, a scrip-for-scrip bid or a share exchange offer), it is possible for the seller to obtain rollover relief from capital gains tax. This is possible where (amongst other requirements): •

the bidder holds 80% or more of the shares on issue in the target at the end of the takeover bid;

•

the issuer of the shares provided as consideration for the transfer is the ultimate head company of the issuer’s group;

•

the bid is part of a “single arrangement” — that is, it is on the same terms for all shareholders and is one in which all shareholders could participate.30 However, amendments were made in 2010 to this requirement so that rollover relief will be available even if participation was not on the same terms or one in which all shareholders could participate, provided that the shares were acquired under an arrangement which included either:

26 Section 104-10(3)(b) of the Income Tax Assessment Act 1997 (Cth). 27 Section 109-5 of the Income Tax Assessment Act 1997 (Cth). 28 Division 115 of the Income Tax Assessment Act 1997 (Cth). 29 Section 110-36 of the Income Tax Assessment Act 1997 (Cth). 30 Section 124-780 of the Income Tax Assessment Act 1997 (Cth). For this purpose, differences in treatment for foreign shareholders may be disregarded.

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(i) a takeover bid that does not contravene s 612(a) – (g) of the Corporations Act ; or (ii) a compromise or arrangement approved by a court under Pt 5.1 of the Corporations Act (Cth) (that is, a scheme of arrangement).31 These changes facilitated the acquisition by AMP of AXA APH enabling AMP to offer different consideration to the major AXA APH shareholder and the remaining AXA APH shareholders. Where rollover relief is available, the capital gain is deferred until the replacement shares are disposed of. In the case where a mix of shares and cash is offered by the bidder, rollover relief is available but only to the extent that the bidder’s shares are accepted in exchange for the target’s shares.32 In addition, for capital gains tax purposes, in particular for the purposes of applying the CGT discount, the new shares are deemed to have been acquired on the date that the original shares in the target were acquired.33 Although not common, occasionally the offer is structured to facilitate the payment of a special franked dividend around the time the offer is expected to go unconditional.34 There are a number of complex tax rules that need to be considered if this approach is to be taken including whether the dividend will form part of the capital proceeds received by the seller for CGT purposes and whether the seller is entitled to the benefit of the franking credit.35 It is recommended that a bidder apply for a class ruling from the ATO to confirm the tax outcomes and take this process into account in determining timelines for the bid A shareholder who is not an Australian tax resident will only be subject to Australian CGT on disposal of shares in a company where: •

the shareholder holds, or has for at least 12 months in the last 24 months held, 10% or more of the shares in the target (or options to acquire such an interest) where more than 50% of the value of the target is attributable to direct or indirect interests in Australian real property. For this purpose, Australian real property includes mining and exploration tenements; or

•

the shares are used in carrying on a business through an Australian permanent establishment.36

31 Section 124-780(2A) of the Income Tax Assessment Act 1997 (Cth). These provisions are more readily useable in a scheme rather than takeover. 32 Section 124-790 of the Income Tax Assessment Act 1997 (Cth). 33 Section 115-30(1), item 2 of the Income Tax Assessment Act 1997 (Cth). 34 See for example, Staples takeover of Corporate Express, DuluxGroup Limited’s takeover of Alesco Corporation Limited and Archer Daniels Midland’s bid for GrainCorp. 35 These include confirming the availability of franking credits, whether the dividend constitutes a “related payment” and the shareholder is a “qualified person” in respect of the dividend and whether the franking credit streaming rules apply to the dividend. 36 Subdivision 855-A of the Income Tax Assessment Act 1997 (Cth).

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In this respect, in most cases, a shareholder who is not resident in Australia will not be subject to Australian capital gains tax. However, the bidder may still seek to withhold up to 10% of the purchase price under the CGT Non-Resident Withholding Tax rules unless the shareholder gives the bidder a declaration as outlined above.

23.4 Taxation implications for the target [23.40] This section only applies where the target does not become a member of a consolidated group on completion of the takeover. Expenses incurred by the target in defending itself against a takeover are deductible over five years.37 Prior year tax losses of the target may often be an important consideration in determining whether and how to proceed with a takeover. To preserve these after a takeover, the target must be able to satisfy the same business test in ss 165-13 and 165-15 of the Income Tax Assessment Act 1997 (Cth).38 This test requires that: •

the target carried on at all times during the relevant year of income the same business as it carried on immediately before the takeover (or other change of ownership); and

•

the target did not, at any time during the year of income, derive income from a business of a kind that it did not carry on, or from a transaction of a kind that it had not entered into in the course of its business operations before the takeover (or other change of ownership) took place.

The same business test is interpreted strictly.39 On 30 March 2017, the Government introduced a bill into Parliament40 to allow companies which fail the “same business test” to continue to carry forward losses if it passes the “similar business test”. In summary, a company will satisfy the similar business test if the business it carries on throughout the income year when it wants to use a loss is similar to the business it carried on at the time immediately before the change of ownership or control that caused the company to fail the continuity of ownership test. In working out whether the current business is similar to the former business, regard must be had to: •

the extent to which the assets (including goodwill) used in the current business to generate assessable income were also used in the company’s former business to generate assessable income;

37 Section 40-880 of the Income Tax Assessment Act 1997 (Cth). 38 The primary test, continuity of ownership, in s 165-12 of the Income Tax Assessment Act 1997 (Cth) will generally not be satisfied after a successful takeover. 39 Avondale Motors (Parts) Pty Ltd v FCT 71 ATC 4101; Tax Ruling TR 1999/9. Note that similar tests apply to current year losses. 40 Treasury Laws Amendment (2017 Enterprise Incentives No 1) Bill 2017 (Cth).

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•

the extent to which the activities and operations from which the current business generates assessable income were also the activities and operations from which the former business generated assessable income;

•

the identity of the current business and the identity of the former business; and

•

the extent to which any changes to the former business resulted from the development or commercialisation of assets, products, processes, services, or marketing or organisational methods, of the former business.41

Finally, under Div 149 of the Income Tax Assessment Act 1997 (Cth), assets of the target company acquired before 20 September 1985 will be deemed to have been acquired after that date (and hence subject to the capital gains tax provisions) if there is a change in the majority underlying ownership of the company. This will generally be the case after a successful takeover, unless the bidder already had a majority shareholding at 19 September 1985.

41 Proposed section 269-105(3) of the Income Tax Assessment Act 1997 (Cth).

Index Accountants target’s response, preparation of ............................................. [14.10] team to prepare bid ...................... [5.20] Acquisition by or on behalf of relevant person ............................................... [3.20] corporate control, of sources of regulation .............. [1.20] exempt — see Exempt acquisitions increasing voting power .............. [3.10] meaning ........................................... [3.20] transaction ...................................... [3.20] Alternative bidder confidential price-sensitive information ........................................ [14.50.60] encouraging bid from ............ [14.50.60] insider trading rules .............. [14.50.60] target directors seeking ............. [14.40], [14.50.60] Announcement of bid ....................... [7.60] bidder’s statement including conditions not in .......... [7.60.30] bluffing ....................................... [7.60.10] failing to proceed with bid ..... [7.60.20] defences ................................. [7.60.30] penalties ............................... [7.60.40] false bid ...................................... [7.60.10] issue of shares by target after ..... [7.60] market bid .................................... [12.30] misleading or deceptive ......... [7.60.10], [7.60.40] publicly propose, meaning ..... [7.60.10] response — see Target’s response to bid sending of offers after ................ [10.20] Anti-competitive takeovers .............. [4.20] authorisation ........................... [4.20.40C] application for .................. [4.20.40C] contract conditional on ... [4.20.40C] civil pecuniary penalties ......... [4.20.50] clearance from ACCC .............. [4.20.40] formal ................................. [4.20.40B] informal ............................. [4.20.40A] Competition and Consumer Act prohibition .......................... [4.20] extraterritorial operation ... [4.20.30] factors to be considered .......... [4.20.20] foreign entity, effected by ....... [4.20.30] injunction against ..................... [4.20.50]

market, definition ..................... [4.20.10] outside Australia, effected ...... [4.20.30] penalties ..................................... [4.20.50] public benefit .......................... [4.20.40C] relevant market ......................... [4.20.10] remedies ..................................... [4.20.50] substantial market, former requirement for ............. [4.20.10] substantially lessening competition .............................. [4.20], [4.20.20] Asset lock-up agreement ........... [14.70.40] Takeovers Panel guidance .... [14.70.40] unacceptable, whether ........... [14.70.40] Associate acting in concert ....................... [3.70.30] body corporate, of .................... [3.70.10] definition ............................. [1.30], [3.70] exclusions ........................................ [3.80] honorary proxies ................ [3.80.40] intentional investors .......... [3.80.50] offerees under takeovers ... [3.80.30] professional advisers/agents .......................................... [3.80.10] securities dealers ................ [3.80.20] share sales ............................ [3.80.60] warrants ............................... [3.80.70] particular fact situations ......... [3.70.50] proof of association .................. [3.70.40] relevant agreement, through .. [3.70.20] composition of body’s board .......................................... [3.70.20] conduct of body’s affairs ... [3.70.20] shares counted in determining control ............................................... [1.30] substantial holding notice and association ................... [5.60.30E] test of association ..................... [3.70.30] ASX Listing Rules amendments to constitution ...... [13.30] differential voting rights ............ [13.40] disclosure of information by target ............................................... [7.50] disposal of asset of value more than 5% of shareholders’ funds ............................ [5.60.30A] distribution schedule .................. [22.10] notification of bid .......... [14.20], [14.30] relevant interest exclusion .... [3.60.110] share allotments ..... [13.50.10A], [14.40] share issue restrictions ............ [5.30.20] shareholder approval for sale of assets ....................................... [5.60.30A]

526 Takeovers Law & Strategy Auditors retirement after takeover ........... [22.70] Australian Communications and Media Authority (ACMA) ........... [4.30] media acquisitions — see also Television and radio companies advance opinion from ....... [4.30.20] approval of temporary breach ......................... [4.30.40], [4.30.50] licence conditions, imposition of ............................................... [4.30] monitoring role ................... [4.30.20] notification to ..... [4.30.10], [4.30.30] Australian Competition and Consumer Commission (ACCC) anti-competitive takeovers ........... [4.20] authorisation from .................. [4.20.40], [4.20.40C] clearance from ........................... [4.20.40] formal ................................. [4.20.40B] informal ............................. [4.20.40A] merger guidelines .................... [4.20.10], [4.20.20] Australian Securities and Investments Commission (ASIC) bidder’s statement, lodgment with ................................... [9.10], [9.50] market bid .............................. [12.80] statement as to ........ [9.30.40], [9.60] declaration as to application of Corporations Act, Ch 6 .. [20.30] financial information from ASIC records ............................ [5.30.10] investigations by .......................... [20.50] enforcement proceedings ........................................ [20.50.60] formal ................................. [20.50.20] hearings .............................. [20.50.40] informal .............................. [20.50.10] information confidentiality ........................................ [20.50.50] inspection of books and documents ........................................ [20.50.30] Memorandum of Understanding with Takeovers Panel ............... [21.10] natural justice, rules of ............... [20.40] no-action letter ............................. [20.10] no objection notice re scheme .......................................... [5.40.20] opportunity to make submissions to ............................................. [20.40] policy ............................................. [20.10] power to exempt from compliance ............................................. [20.20] power to grant relief ..... [20.10], [20.20] power to modify legislation ...... [20.30]

review of decisions AAT, by ................................... [20.60] Takeovers Panel, by .. [1.30], [20.60] role of ................... [1.30], [20.10]-[20.60] Bare trustee definition ................................. [3.60.10A] relevant interest exclusion .......... [2.10], [3.60.10A] shares purchased as ...................... [2.10] “Bear hug” ........................................... [7.50] Beneficial ownership — see Tracing beneficial ownership Bid — see Takeover bid Bid class shares acquisitions of bid class securities ............................................. [19.20] Bid planning — see Strategic planning Bidder common directors of target and . [6.20] criticism by target ................... [14.50.30] foreign — see Foreign bidders share disposals by ....................... [10.60] statement — see Bidder’s statement taxation ......................... [23.20]-[23.20.40] voting power ................................ [14.90] Bidder’s statement ....... [1.30], [9.10]-[9.80] approval ........................................ [12.80] bidder’s intentions ................... [9.30.30] cash flow statements ................ [9.30.60] commercial desirability of offer .. [9.10] common directors of bidder and target .......................................... [6.20.20] conditions not in announcement of bid .......................................... [7.60.30] confidential information from target ........................................ [9.30.130] consideration cash, sources of ................... [9.30.50] managed investment products as .......................................... [9.30.70] securities as ......................... [9.30.60] convertible securities ............. [9.30.100] date ............................................. [9.30.20] defective, target’s action to remedy ........................................ [14.50.50] Eggleston principles ...................... [9.10] format .............................................. [9.10] Forward-looking Statements .. [9.10.30] funding arrangements ............. [9.30.50] general approach ........................... [9.20]

Index 527 Bidder’s statement — cont identity of bidder ..................... [9.30.10] inducements .............................. [9.30.90] information to assist assessment of offer ............................... [9.30.130] injunction restraining despatch of ........................................ [9.30.130] intentions ................................... [9.30.30] joint bid ........................................... [5.50] lodgment with ASIC .... [9.30.40], [9.50] market bid .............................. [12.80] statement as to ........ [9.30.40], [9.60] market bid .................................... [12.70] marketing message .................. [9.10.10] material information .............. [9.30.130] misleading statements .................. [9.20] notice of service ............................. [9.60] planned asset sales ................... [9.30.30] pre-bid benefits ......................... [9.30.90] pre-bid purchases ..................... [9.30.80] profit forecasts .......................... [9.30.60] purpose ............................... [9.10], [9.20] replacement .................................... [9.70] request for shareholder details after service of ....................... [5.30.60], [10.10] requirement for ......................... [9.30.50] securities as consideration ...... [9.30.60] securities on issue ................... [9.30.110] sending to offerees..................... [9.10.10] market bid .............................. [12.90] service of ......................................... [9.60] market bid .............................. [12.80] offer period after — see Offer period specific disclosure requirements . [9.30] supplementary ............................... [9.70] Takeovers Panel ............................. [9.20] third party statement with .......... [9.40] broker’s valuation ................... [9.40] consent ...................................... [9.40] timetable market bid ............................ [12.150] off-market bid ........................ [10.70] value of securities .................... [9.10.20] vesting shares in ASIC ................. [9.80] voting power ........................... [9.30.120] wrap information ..................... [9.10.10] Break fees ........................................... [14.70] contract law ............................. [14.70.30] directors’ duties ...................... [14.70.10] “fiduciary out” clause ........... [14.70.10] financial assistance prohibition ........................................ [14.70.20] Takeovers Panel guidance .... [14.70.40] triggers for payment on ........ [14.70.40] unacceptable, whether ........... [14.70.40]

Broker handling fees ....................... [11.90] Buy-backs — see Share buy-backs Capital gains tax bidder ....................................... [23.20.20] target .............................................. [23.40] target shareholders ...................... [23.30] Capital reduction pre-bid asset sale agreement .. [5.60.40] selective ......................................... [18.80] Capital structure ............................ [5.30.20] Change of control clause ................ [13.90] Cleansing notice ............................. [19.140] Clearing houses relevant interest exclusion ...... [3.60.80] Close of offer administrative issues .................. [22.10] auditors, retirement of ................ [22.70] delisting ......................................... [22.50] directors appointment of new ............. [22.30] review of service contracts .. [22.40] distribution schedule to ASX .... [22.10] further takeover bid .................... [22.20] immediate action ......................... [22.10] procedure after ............... [22.10]-[22.70] re-financing takeover . [22.60]-[22.60.30] Collateral benefits ............................ [11.40] benefit, definition .................... [11.40.10] benefit referable to takeover bid ......................................... [11.40.30] breach of s 623 ..................... [11.40.50C] efficient, competitive and informed market principle ....... [11.40.50B] equality principle ................ [11.40.50A] net benefit ............................. [11.40.50D] offering .......................................... [11.40] prohibition .................. [11.40], [11.40.20] application of .................... [11.40.20] exceptions .......................... [11.40.40] speculative benefit .................. [11.40.10] Takeovers Panel approach .... [11.40.50] unacceptable circumstances . [11.40.50], [11.40.50D] Communication during bid ........... [11.10] misleading statements ....................... [11.10.10]-[11.10.30]

528 Takeovers Law & Strategy Communication during bid — cont defences ............................... [11.10.20] legislative restrictions ...... [11.10.30] liability for ......................... [11.10.10] penalties ............................. [11.10.20] statements to target’s shareholders .............................................. [11.10] “truth in takeovers” policy ............ [11.70]-[11.70.50], [11.100] unqualified prediction ........... [11.10.10] Company 20% prohibition applicable to .... [2.10], [2.20] what constitutes ............................. [2.20] Compulsory acquisition disallowance by court ................ [18.70] general power, under ................ [18.10], [18.20] compulsory buy-out of convertible securities ........................... [18.50] expert’s report ........................ [18.30] fair value, determining ......... [18.30] full beneficial interest ........... [18.20] notice ....................................... [18.30] objection notice ...................... [18.40] preconditions .......................... [18.20] procedure ................................ [18.30] rights of remaining holders . [18.40] 90% ownership reached ............ [17.10], [17.20], [18.20] during or at end of offer period ............................................. [17.20] scheme of arrangement as alternative ............................................. [18.90] section 414, under ......... [18.10], [18.60] disallowance by court .......... [18.70] preconditions .......................... [18.60] takeover, following — see Compulsory acquisition following takeover terms .............................................. [17.40] Compulsory acquisition following takeover application for order preventing ............................................. [17.60] compulsory buy-out convertible securities ............ [17.80] price determination by court ............................................. [17.90] remaining securities .............. [17.70] Corporations Act, Pt 6A.1 .......... [17.10] court proceedings by dissenting holder ............................................. [17.60] consideration not “fair value” ........................................ [17.60.20] costs .................................... [17.60.30] fair value, determining .... [17.60.20] onus of proof ..................... [17.60.10]

court’s power to shorten time periods under Pt 6A.1 ................... [17.40] difficulty of meeting threshold . [18.10] explanatory letter from bidder . [17.30] notice ............................................. [17.30] lodgment with ASIC ............. [17.30] request for information about recipients ........................... [17.30] obligation to acquire securities . [17.40] off-market bid .............................. [17.20] offer period, during or at end of ............................................. [17.20] preconditions ................................ [17.20] target company’s obligations .... [17.50] terms .............................................. [17.40] Compulsory buy-out convertible securities ................. [17.80], [18.50] notice ....................................... [17.80] price determination by court ............................................. [17.90] remaining securities .................... [17.70] notice ....................................... [17.70] Conditional agreements relevant interest exclusion ...... [3.60.50] Conditions of offer — see Terms of offer Confidentiality bidder’s statement, confidential information in ............. [9.30.130] code name for target ..................... [5.20] initial discussions with target ..... [7.50] Conflicts of interest ............................ [6.10] common directors of bidder and target ............................................... [6.20] bidder’s statement preparation .......................................... [6.20.20] planning phase ................... [6.20.10] target company perspective .......................................... [6.20.30] target’s statement preparation .......................................... [6.20.40] public-to-private takeover bid .... [6.40] insider perspective ............. [6.40.10] private equity firm perspective .......................................... [6.40.30] target company perspective .......................................... [6.40.20] shareholder’s sale, conflicts arising in ............................................... [6.30] Consideration accepting scrip as ........................ [19.40] cash ............................................ [8.40.10], [8.40.30]

Index 529 Consideration — cont bidder’s statement disclosure of sources ............................ [9.30.50] criticism of bid price .............. [14.50.10] financial assistance ................... [8.40.20] foreign currency ........................ [8.40.10] form of ........................................ [8.40.10] increase, variation of offer to ......................................... [11.50.10] managed investment products as .......................................... [9.30.70] market bid .................................... [12.60] minimum price ......................... [8.40.30] non-cash .................... [8.40.10], [8.40.30] pre-bid share acquisition ........ [8.40.30] scrip ........................... [8.40.10], [8.40.30] acceptance as exempt acquisition ............................................. [19.40] securities .................................... [8.40.10] bidder’s statement disclosure .......................................... [9.30.60] terms of offer .................................. [8.40] time for payment, specification .......................................... [8.40.50] undervaluing company ......... [14.50.10] variation of offer to increase . [11.50.10] Constitution amendment of .............................. [13.30] abrogation of rights ............ [18.100] general meeting to consider proposal, whether frustrating action ................................. [14.60] proper purpose .................... [18.100] shark repellents................................... [13.30]-[13.30.40B] special resolution ................... [13.30] directors, restrictions on appointment of ................................... [13.30.10] general meetings, regulations for ........................................ [13.30.20] proportional takeover approval provisions .................... [13.30.40] inclusion of ..................... [13.30.40A] procedure under ............ [13.30.40B] restrictions in ............................. [5.30.30] share acquisitions, restrictions on ........................................ [13.30.30] shark repellents ....... [13.30]-[13.30.40B] statutory contract ........................ [13.30] Control over shares ............................ [3.10] Controller sale of shares by ........................ [19.140] Convertible securities ...................... [13.60] compulsory buy-out .................. [17.80], [18.50]

notice ....................................... [17.80] price determination by court ............................................. [17.90] defensive strategies ..................... [13.60] definition ....................................... [17.80] on-market purchase during bid period ............................................. [19.30] Co-operative voting shares ............................. [2.60.10] Corporations Act, Ch 6 ASIC declaration as to application of ............................................. [20.30] avoidance ................................... [5.40.20] bid documentation ........................ [1.30] central rule ...................................... [1.30] companies, application to ............ [2.20] Crown, application to ................... [2.50] exceptions ....................................... [1.30] extraterritorial application ........... [2.30] foreign companies, application to ............................................... [2.30] managed investment schemes, application to ..................... [2.40] overview ......................................... [1.30] purposes .......................................... [1.20] regulation of acquisitions ............. [1.20] scheme of arrangement, avoidance of .................................... [5.40.20], [5.40.30H] securities to which applies ......... [2.60], [2.60.10] 20% prohibition ............................ [1.30], [2.10]-[2.60.30] unacceptable circumstances where breach of ...................... [21.20.30] Counter-bid ................................... [14.50.80] Counter share trading activity ..... [11.100] Cross-media ownership ................... [4.30], [4.30.50] — see also Television and radio companies approval of temporary breach .......................................... [4.30.50] breach of provisions ................. [4.30.50] 5/4 rule ...................................... [4.30.50] media diversity requirements .... [4.30], [4.30.50] 2 out of 3 rule ........................... [4.30.50] Crown purchaser, as .............................. [2.50.20] target company, as ................... [2.50.10] 20% prohibition, application .. [2.50.20] vendor, as ................................... [2.50.30]

530

Takeovers Law & Strategy

Crown jewel defences ...................... [13.90] Deed of company arrangement exempt acquisition under ........ [19.120] Defensive strategies ......................... [13.10] approval of shareholders ........... [13.10] change of control clause ............. [13.90] convertible securities .................. [13.60] crown jewel defences ................... [13.90] differential voting rights ............ [13.40] directors’ duties and ................... [13.20] benefit, obtaining .............. [13.20.50] benefit of company as a whole ............................ [13.20.10] frustrating effect ............... [13.20.30] general meeting authorisation................. [13.20.40] preventing actual detriment ........................................ [13.20.50] proper purpose ................. [13.20.20] golden parachutes ....................... [13.80] poison pills ................................... [13.60] pre-emptive rights ....................... [13.90] share allotments ........................... [13.50] potential allottees............... [13.50.20] restrictions on .................... [13.50.10] share buy-backs ........................... [13.70] shareholder rights agreements .. [13.60] shark repellents ............................ [13.30] directors, restrictions on appointment of ........... [13.30.10] general meetings, regulations for ........................................ [13.30.20] proportional takeover approval provisions .................... [13.30.40]-[13.30.40B] share acquisitions, restrictions on .................................. [13.30.30] suitability ...................................... [13.10] tactical share allotment ............... [13.50] unequal voting rights ................. [13.40] Delisting target company ............... [22.50] Differential voting rights ............... [13.40] Directors close of offer appointment of new directors ............................................. [22.30] review of service contracts ............................ [22.40] common directors of bidder and target ............................................... [6.20] bidder’s statement preparation .......................................... [6.20.20] planning phase ................... [6.20.10] target company perspective .......................................... [6.20.30]

target’s statement preparation .......................................... [6.20.40] conflict of interest .......................... [6.10] constitution restricting appointment of ................................... [13.30.10] duties — see Directors’ duties recommendations in target statement ........................................ [14.80.20] relevant interest exclusion ...... [3.60.70] sole director ......................... [3.60.70] target company assessing reasonableness of bid ............................................. [14.40] duties once bid announced . [14.40] expenses ................................ [14.120] meeting .................................... [14.30] response to bid — see Target’s response to bid seeking alternative bidders . [14.40], [14.50.60] team to prepare bid ...................... [5.20] Directors’ duties benefit of company as a whole ..................... [13.20.10], [14.70.10] break fee arrangements ......... [14.70.10] conflict of interest, avoiding ........ [6.10] defensive tactics and ................... [13.20] benefit, obtaining .............. [13.20.50] benefit of company as a whole ........................................ [13.20.10] frustrating effect ............... [13.20.30] general meeting authorisation................. [13.20.40] preventing actual detriment ........................................ [13.20.50] proper purpose ................. [13.20.20] share allotments ............. [13.50.10B] pre-bid asset sale agreement ....................................... [5.60.30D] promotion of shareholders’ interests ............................................. [14.40] proper purpose .. [13.20.20], [13.50.10B] target company, after bid announced ............................................. [14.40] Disposal meaning ............................. [3.30], [10.60] share disposals by bidder .......... [10.60] Dividend reinvestment ................. [19.100] Downstream acquisitions ............ [19.110], [19.160] Dual-listed company mergers ......... [5.90] Due diligence planning bid ................................... [5.30]

Index 531 Due diligence — cont public to private takeover bid ........................................ [6.40.30B] Duty landholder .................................... [23.10] marketable securities .................. [23.10] stamp ............................................. [23.10] Efficient, competitive and informed market principle collateral benefits ................. [11.40.50B] fusion fallacy ........................... [21.20.30] meaning .................................... [21.20.30] unacceptable circumstances .. [21.20.30] Eggleston principles ............. [1.20], [9.10], [20.10] Employees share plans ............... [13.50.20] share buy-backs ........................... [13.70] Equity derivatives .............................. [7.20] substantial holdings .................... [15.20] Escalator agreements prohibition .......................... [7.30], [7.40] Exchange-traded options relevant interest exclusion ...... [3.60.40] Exempt acquisitions ......................... [19.10] accepting scrip as consideration ............................................. [19.40] acquisitions of bid class securities ............................................. [19.20] convertible securities, of ...... [19.30] takeover announcement ....... [19.20] approval by resolution of target ............................................. [19.60] acquisition of relevant interest ........................................ [19.60.10] disclosure ........................... [19.60.30] identification of precise acquisition ........................................ [19.60.10] pre-meeting arrangements ........................................ [19.60.20] scope of exemption .......... [19.60.10] voting .................................. [19.60.40] company not yet carrying on business ........................................... [19.150] compromise, under ................... [19.120] Corporations Regulations prescribed circumstances ................. [19.150] discretionary relief for selling shareholders ................... [19.140] blocks, sale in ....................... [19.140] controller ............................... [19.140]

stockbroker as principal ..... [19.140] tender, sale by ...................... [19.140] dividend reinvestment ............. [19.100] downstream acquisitions ......... [19.110], [19.160] financial accommodation, provision of ............................................. [19.50] forfeited shares, at on-market auction ........................................... [19.150] liquidation, under ..................... [19.120] listed company, through ........... [19.110] operation of law, through ........ [19.150] promoter, by, under initial public offering ............................ [19.150] rights issues .................................. [19.80] underwriting .......................... [19.90] scheme of arrangement, under ........................................... [19.120] share buy-back ........................... [19.130] small companies ........................ [19.170] 3% creep in six months .............. [19.70] will, through ............................... [19.150] Expert opinion compulsory acquisition .............. [18.30] independent expert access as condition of offer ............................ [8.50.60] misleading statement about ............................. [11.10.10] profit forecast, supporting .... [14.50.20] scheme of arrangement, expert’s report for ..................... [5.40.30F] shopping for ................................. [14.90] target’s statement ........................ [14.90] valuation of company ................. [14.90] False or bluffing bid ..................... [7.60.10] Federal Court review of Panel decisions .......... [21.40] Financial accommodation exempt acquisition in connection with ............................................. [19.50] Financial aspects of bid .............. [5.30.10], [8.40] Financial assistance break fee arrangements ......... [14.70.20] holding company ..................... [8.40.20] post-takeover re-financing — see Re-financing after takeover pre-bid asset sale agreement .. [5.60.50] prohibition ................................ [8.40.20], [14.70.20] exceptions ............. [22.60]-[22.60.30] terms of offer ............................. [8.40.20] Financial institutions acquisition of shares in ................ [4.40]

532 Takeovers Law & Strategy Financial institutions — cont 15% threshold ................................ [4.40] financial sector company, definition ............................................... [4.40] practical control ............................. [4.40] Financiers public-to-private takeover bid .... [6.40] private equity firm perspective ........................................ [6.40.30C] relevant interest exclusion ...... [3.60.10]

20% prohibition, whether applies ............................................... [2.30] Foreign investment policy ........... [4.10.10] Foreign Investment Review Board .......................................... [4.10.10] Franchise agreement frustrating action ......................... [14.60]

Follow-up bid .................................... [22.20]

Frustrating actions ............................ [14.60]

Foreign bidders ................................... [4.10] acquisitions of substantial interests .......................................... [4.10.10] acquisitions of urban land ................................. [4.10.10] application for approval ......... [4.10.60] Foreign Acquisitions and Takeovers Act, subject to .................... [4.10] penalties for non-compliance .......................................... [4.10.70] foreign governments, investments by .......................................... [4.10.10] foreign investment policy .............................. [4.10.10] foreign person, definition ........................ [4.10.20] national interest, acquisition contrary to ...................................... [4.10.70] non-portfolio investments ....... [4.10.10] notification of company takeovers .......................................... [4.10.30] exceptions ............................ [4.10.40] substantial shareholding ... [4.10.30] offshore company takeovers ....................... [4.10.10], [4.10.50] orders prohibiting takeovers ....... [4.10] portfolio investments ............... [4.10.10] proposals requiring approval . [4.10.10] substantial shareholding approval for acquisition of .......................................... [4.10.10] notification before acquiring .......................................... [4.10.30] what constitutes .................. [4.10.30] Takeovers Panel, power to make orders .............................. [4.10.80] target appeal to shareholder patriotism ........................................ [14.50.40] Treasurer’s power to make orders .......................................... [4.10.70]

Golden parachutes ........................... [13.80]

Foreign company bid by — see Foreign bidders regulation of acquisitions ............. [2.30]

Goodwill determining if takeover involves .......................................... [5.30.10] post-acquisition amortisation .. [5.30.10] Greenmail .......................................... [13.70] Hedge fund ...................................... [11.100] counter share trading activity ............................. [11.100] short selling ................................ [11.100] High Court administrative review proceedings ............................................. [21.60] review of Panel decisions .......... [21.40] Inducements to bidder asset lock-up agreement ........ [14.70.40] break fees — see Break fees no-shop agreement ................. [14.70.40] no-talk agreement ................... [14.70.40] Insider involvement common directors of bidder and target ............................................... [6.20] bidder’s statement preparation .......................................... [6.20.20] planning phase ................... [6.20.10] target company perspective .......................................... [6.20.30] target’s statement preparation .......................................... [6.20.40] conflict of interest .......................... [6.10] public-to-private takeover bid .... [6.40] insider perspective ............. [6.40.10] private equity firm perspective .......................................... [6.40.30] target company perspective .......................................... [6.40.20] shareholder’s sale, conflicts arising in ............................................... [6.30]

Index 533 Insider trading target seeking alternative bidder ........................................ [14.50.60] Institutional acceptance facilities ............................ [11.80] Investigations by ASIC ................... [20.50] enforcement proceedings ...... [20.50.60] formal ....................................... [20.50.20] hearings .................................... [20.50.40] informal .................................... [20.50.10] information confidentiality ... [20.50.50] inspection of books and documents ........................................ [20.50.30] legal professional privilege ... [20.50.20] obligation to answer questions ..................... [20.50.10], [20.50.20] reason to suspect contravention ........................................ [20.50.20] Investment banker target’s response, preparation of ............................................. [14.10] team to prepare bid ...................... [5.20]

team to prepare bid ...................... [5.20] Legal action to restrain bid ....... [14.50.50] Legal professional privilege ASIC investigations ................ [20.50.20] waiver of .................................. [20.50.20] Licensing transaction frustrating action ......................... [14.60] Liquidation exempt acquisition under ........ [19.120] minority shareholders, eliminating ............................................ [18.110] Listed company ASX Listing Rules — see ASX Listing Rules delisting target company ........... [22.50] dual-listed company mergers ...... [5.90] exempt acquisition through ..... [19.110] relevant interest exclusion .... [3.60.110] tracing beneficial ownership ..... [16.10] Lock-up devices ........................... [14.70.40]

Investor relations manager/firm .... [14.10] Investors associate, whether .................... [3.80.50] Joint bids .............................................. [5.50] aggregate number of shares ........ [5.50] bidder’s statement ......................... [5.50] joint bidding agreement ............... [5.50] legal implications .......................... [5.50] one of bidders shareholder in target ............................................... [5.50] unacceptable arrangement declaration ............................................... [5.50] Joint venture agreement target subject to ........................ [5.30.50] Key executives target’s response, preparation of ............................................. [14.10] team to prepare bid ...................... [5.20]

Major shareholder pre-bid negotiations with ............ [7.40] sale by, conflicts arising in ........... [6.30] Managed investment product consideration, as ....................... [9.30.70] bidder’s statement disclosure .......................................... [9.30.70] definition .................................... [9.30.70] Managed investment scheme .......... [2.40] buy-back of shares ........................ [2.40] deed, takeover restrictions in ...... [2.40] definition ......................................... [2.40] tracing beneficial ownership ..... [16.10] trust scheme, acquisition under . [2.40] unitholder resolutions ............ [2.40] 20% prohibition, application ....... [2.40] unlisted unit trust ......................... [2.40] acquiring controlling interest ............................................... [2.40] units as securities .................... [2.40] voting interests ......................... [2.60.20]

Landholder duty ............................... [23.10] Law reform proposals ....................... [1.40] Lawyer target’s response, preparation of ............................................. [14.10]

Market bid .......................... [12.10]-[12.150] acceptances ................................. [12.110] acquisitions after announcement ........................................... [12.100] announcement of bid .................. [12.30] ASX rules governing ................... [12.30]

534 Takeovers Law & Strategy Market bid — cont bidder’s statement ....................... [12.70] approval .................................. [12.80] content ..................................... [12.70] lodgment with ASIC ............. [12.80] nature ....................................... [12.70] sending .................................... [12.90] service ...................................... [12.80] consideration ................................ [12.60] definition ....................................... [12.10] launching ...................................... [12.20] nature of offer .............................. [12.10] off-market bid, distinguished ...... [8.30] offer period ................................... [12.50] extension .......................... [12.120.20] securities to which offer relates ............................................. [12.40] suspension of offer .................... [12.130] Target’s statement and supplementaries ............. [12.140] variation of offer ........................ [12.120] extension of offer period ...................................... [12.120.20] price increase ................... [12.120.10] reduction of price ........... [12.120.30] who can launch ........................... [12.20] withdrawal of offer ................... [12.130]

Misleading or deceptive conduct failure to proceed with bid ..... [7.60.40] false bid ...................................... [7.60.10] Misleading or deceptive statements bidder’s statement ......................... [9.20] communications during bid ....................... [11.10.10]-[11.10.30] defences ..................................... [11.10.20] legislative restrictions ............ [11.10.30] material statement or omission ......................................... [11.10.10] penalties ................................... [11.10.20] statements to target’s shareholders ......................................... [11.10.10] target’s statement ................... [14.80.10] “truth in takeovers” policy ............ [11.70]-[11.70.50], [11.100] Natural justice, rules of .................. [20.40] No-action letter ................................. [20.10] No-shop agreement ..................... [14.70.40] No-talk agreement ....................... [14.70.40]

Material adverse change conditions .......................................... [8.50.40] Media ownership — see Cross-media ownership; Television and radio companies

Non-voting shares ......................... [2.60.10] bids for ....................................... [2.60.30] general compulsory acquisition power .......................................... [2.60.30] Odd lot buy-back ............................. [13.70]

Minimum acceptance conditions .......................................... [8.50.30] non-waivable 90% ................... [9.30.30], [9.30.130] Minority shareholders action by ....................................... [14.40] compulsory acquisition — see Compulsory acquisition counter share trading activity . [11.100] denial of chance to participate in benefits .............................. [14.40] eliminating .................................... [18.90] amendment of constitution ........................................... [18.100] compulsory acquisition — see Compulsory acquisition liquidation ............................. [18.110] sale of assets ......................... [18.110] scheme of arrangement ........ [18.90] selective capital reduction ... [18.80] encouraging sales by .................. [22.50] Transfer under deed of company arrangement ................... [18.120]

Off-market bid announcement of — see Announcement of bid bidder’s statement — see Bidder’s statement conditions ....................................... [8.50] market bid, distinguished ............ [8.30] offer period — see Offer period single class of securities .......... [8.20.10] terms of offer — see Terms of offer timetable ........................................ [10.70] uniform offers ................................ [8.60] variation of offer — see Variation of offer warranties as to title ..................... [8.70] withdrawal of offer ..................... [10.50] Offer acceptance facility for institutional investors .............................................. [11.80] form of ....................................... [8.80] market bid ............................. [12.110]

Index 535 Offer — cont non-complying, treated as valid ............................................... [8.70] broker handling fees ................... [11.90] close of — see Close of offer collateral benefits — see Collateral benefits consideration — see Consideration date of ............................................ [10.20] institutional acceptance facilities .............................................. [11.80] market bid .................................... [12.10] partial ......................................... [8.20.40] period — see Offer period securities to which relates ........... [8.20] full and partial offers ......... [8.20.40] issued and unissued securities .......................................... [8.20.30] market bid .............................. [12.40] multiple classes ................... [8.20.20] single class ........................... [8.20.10] sending ............................ [10.20], [10.40] suspension .................................. [12.130] tender offers ................................. [5.100] terms — see Terms of offer unconditional, declaring ............. [11.60] uniform offers ................................ [8.60] variation — see Variation of offer withdrawal ................................... [10.50] market bid ............................ [12.130]

bidder’s statement, sending to ... [9.10], [9.60] nominee, securities held as ....... [10.40] sending offer to .............. [10.20], [10.40] subsequent purchasers of securities ............................................. [10.40] trustee, securities held as ........... [10.40] who is ............................................ [10.40] Offshore takeovers ........................ [4.10.50] application for approval ......... [4.10.60] approval, requiring ................. [4.10.10], [4.10.50] Foreign Acquisitions and Takeovers Act governing .............. [4.10.10], [4.10.50] Treasurer’s power to make orders in relation to ....................... [4.10.50] On-market buy-back ........................ [13.70] On-market transaction acquisition of additional shares in target .................................. [11.30] ASX Market Rules ....................... [11.30] definition ....................................... [11.30] special crossing ............................ [11.30] Pac-Man defence........................... [14.50.80]

Offer period ....................................... [10.30] bidder’s strategy during ............................... [11.10]-[11.100] communication during ............... [11.10] misleading statements ....................... [11.10.10]-[11.10.30] statements to shareholders .. [11.10] counter share trading activity . [11.100] date of offers ................................ [10.20] extension .................................. [11.50.20] conditional ......................... [11.50.50] market bid ....................... [12.120.20] off-market bid .................... [11.50.20] hedge fund activity ................... [11.100] market bid .................................... [12.50] sending of offers ............ [10.20], [10.40] share disposals by bidder .......... [10.60] shareholder list, obtaining ......... [10.10] start of ........................................... [10.30] target’s shareholders, statements to .............................................. [11.10] misleading ........ [11.10.10]-[11.10.30] variation of offer — see Variation of offer waiting period before ................. [10.20] withdrawal of offer ..................... [10.50] Offeree.................................................. [10.40] associate, exclusion .................. [3.80.30]

Poison pills ........................................ [13.40] Pre-bid activity acquisition and acceptance agreements and shareholder intention statements ........................... [7.30] announcement of bid .................... [7.60] approaching target ........................ [7.50] buying initial stake ....................... [7.10] equity derivatives .......................... [7.20] escalator agreements, prohibition ................................... [7.30], [7.40] negotiating with major shareholder ............................................... [7.40] Pre-bid asset sale agreement ........... [5.60] ASX Listing Rule 10.1 ........... [5.60.30A] ASX Listing Rule 11.2 ........... [5.60.30B] directors’ duties ..................... [5.60.30D] distribution of sale proceeds .. [5.60.40] capital reduction ................. [5.60.40] dividend ............................... [5.60.40] financial assistance ................... [5.60.50] related party transactions .... [5.60.30C] risk of not achieving 100% ..... [5.60.30] shareholder approval for sale of assets ....................................... [5.60.30A]

536 Takeovers Law & Strategy Pre-bid asset sale agreement — cont shareholder as purchaser ........ [5.60.20] substantial holding notice and association ................... [5.60.30E] transaction steps ....................... [5.60.10] Pre-bid benefits and inducements bidder’s statement disclosure ....................... [9.30.90] Pre-bid purchases bidder’s statement disclosure . [9.30.80] building strategic stake ................ [7.10] initial stake, acquiring .................. [7.10] minimum price ......................... [8.40.30] Pre-emptive rights crown jewel defences ................... [13.90] relevant interest, whether ........... [3.50], [3.60.60] shares in target subject to ....... [5.30.30] Preference share voting share, whether .............. [2.60.10] Prescribed occurrence conditions .......................................... [8.50.20] Professional adviser/agent associate, whether .................... [3.80.10] Profit forecasts bidder’s statement .................... [9.30.60] independent expert’s report ............................ [14.50.20] target’s statement ................... [14.50.20] Proportional bid ............................ [8.20.40] Proportional takeover approval provisions in constitution ........................................ [13.30.40] inclusion of ..................... [13.30.40A] procedure under ............ [13.30.40B] Proxy associate, whether .................... [3.80.40] relevant interest exclusion ...... [3.60.30] Public-to-private takeover bid ........ [6.40] agreements with management ....................................... [6.40.30A] conflict of interest .......................... [6.40] definition ......................................... [6.40] due diligence .......................... [6.40.30B] financing .................................. [6.40.30C]

independent committee ........... [6.40.20] insider perspective ................... [6.40.10] private equity firm perspective .......................................... [6.40.30] private equity model .................... [6.40] protection against transaction not proceeding ................... [6.40.30B] Takeovers Panel guidance note ......................... [6.40.10], [6.40.20] target company perspective ... [6.40.20] transaction costs risk ............. [6.40.30B] Radio companies — see Television and radio companies Re-financing after takeover ............ [22.60] dividend, payment of ............ [22.60.20] guarantee of borrowings ....... [22.60.20] prohibition against financial assistance ............................................. [22.60] exceptions ............. [22.60]-[22.60.30] exemptions ......................... [22.60.30] material prejudice ............. [22.60.20] nexus ................................... [22.60.10] shareholder approval ............. [22.60.30] Regulation of takeovers .................... [1.10] ASIC powers — see Australian Securities and Investments Commission (ASIC) Ch 6, Corporations Act ................ [1.20] Eggleston principles ......... [1.20], [9.10], [20.10] Foreign Acquisitions and Takeovers Act ............................ [1.20], [4.10] foreign companies ......................... [2.30] sources of ........................................ [1.20] specific industries .......................... [1.20] Relevant interest ................................. [3.50] acceleration ................................. [3.50.20] agreement to purchase share . [3.50.30] associate, meaning ........................ [3.70] exclusions .................................. [3.80] control of securities ....................... [3.50] examples of operation of rules ... [3.90] exclusions ........................................ [3.60] acceptance facilities .......... [3.60.120] bare trustees ..................... [3.60.10A] clearing houses ................... [3.60.80] conditional agreements ..... [3.60.50] directors ............................... [3.60.70] exchange-traded funds .... [3.60.160] exchange-traded options ... [3.60.40] financiers .............................. [3.60.10] honorary proxies ................ [3.60.30] Institutional investors’ collective voting arrangements .. [3.60.140] investor directed portfolio services ........................................ [3.60.130]

Index 537 Relevant interest — cont listing rule escrows .......... [3.60.110] pre-emptive rights ............. [3.50.10], [3.60.60] prescribed exclusions ......... [3.60.90] securities dealersand derivatives brokers ......................... [3.60.10B] securities lending ............. [3.60.150] share buy-backs .................. [3.60.20] jointly exercisable power ........ [3.50.10] meaning ...................................... [3.50.10] pre-emptive right .................... [3.50.10], [3.60.60] substantial holding notice — see Substantial holding notice tracing ......................................... [3.50.10] trustee ......................................... [3.50.10] voting shares, in ........................... [2.10], [3.10] Reverse takeovers ............................... [5.70] Rights issues ...................................... [19.80] exempt acquisition ...................... [19.80] pro-rata basis ................................ [19.80] underwriting ................................ [19.90] Scheme of arrangement ...... [5.40], [18.90] agreement to implement, not relevant interest ............................ [3.60.50] alternative to compulsory acquisition ............................................. [18.90] alternative to takeover bid .......... [5.40] avoidance of Corporations Act, ... Ch 6 [5.40.20], [5.40.30H] certainty ................................... [5.40.30B] control effected by ......................... [5.40] control of transaction ............ [5.40.30A] deciding between takeover bid and .......................................... [5.40.30] exempt acquisition under ........ [19.120] expert’s report ......................... [5.40.30F] key steps .................................... [5.40.10] minority shareholdings, eliminating ............................................. [18.90] no objection notice from ASIC .......................................... [5.40.20] procedural rigidity ................ [5.40.30D] structural flexibility ............... [5.40.30G] threshold to reach 100% ....... [5.40.30E] time to implement ................. [5.40.30C] trust schemes ............................. [5.40.40] Scrip bid .......................................... [8.40.10] acceptance of scrip as exempt acquisition ......................... [19.40] failure to proceed ..................... [7.60.30] foreign holders ............................... [8.60]

minimum price ......................... [8.40.30] misleading statement about .. [11.10.10] Securities bid class, acquisitions of ............ [19.20] bidder’s statement disclosure convertible securities ....... [9.30.100] securities as consideration .......................................... [9.30.60] securities on issue ............. [9.30.110] class, meaning ........................... [8.20.10] classes on issue, determining . [5.30.20] consideration, as ....................... [8.40.10] bidder’s statement disclosure .......................................... [9.30.60] convertible ............................... [9.30.100] definition ......................................... [8.20] non-voting shares ..................... [2.60.10] offer, securities to which relates . [8.20] full and partial offers ......... [8.20.40] issued and unissued securities .......................................... [8.20.30] market bid .............................. [12.40] multiple classes ................... [8.20.20] single class ........................... [8.20.10] stamp duty on transfer of .......... [23.10] voting interests ......................... [2.60.20] voting shares ............................. [2.60.10] Securities dealersand derivatives brokers associate, whether .................... [3.80.20] relevant interest exclusion .... [3.60.10B] Selective capital reduction ............. [18.80] Share acquisitions in target building strategic stake ............... [7.10], [11.20] initial stake ..................................... [7.10] on-market transactions ............... [11.30] outside bid .................................... [11.20] prior to bid ..................................... [7.10] consideration ....................... [8.40.30] nominee company, in name of ............................................... [7.10] restrictions in constitution .... [13.30.30] service of bidder’s statement, after .............................................. [11.20] Share allotments ............................... [13.50] ASX Listing Rules . [13.50.10A], [14.40] bonus shares ............................ [13.50.20] cross-shareholdings ................ [13.50.20] defensive strategies ..................... [13.50] employees share plans .......... [13.50.20] fiduciary duties .................... [13.50.10B] potential allottees..................... [13.50.20] pro-rata issue .......................... [13.50.20] proper purpose ..................... [13.50.10B]

538 Takeovers Law & Strategy Share allotments — cont renounceable rights issue ...... [13.50.20] restrictions on .......................... [13.50.10] standstill agreements ............. [13.50.20] tactical ............................................ [13.50] trustee, issue to ....................... [13.50.20] 20% rule compliance ........... [13.50.10D] unacceptable circumstances, risk of ................................. [13.50.10C] Share buy-backs ............... [13.70], [19.130] defensive strategies ..................... [13.70] employee share scheme ............. [13.70] equal access scheme .................... [13.70] exempt acquisition resulting from ........................................... [19.130] greenmail ...................................... [13.70] odd lot buy-back ......................... [13.70] on-market buy-back .... [13.70], [19.130] relevant interest exclusion ...... [3.60.20] rules ............................................... [13.70] selective buy-back ....................... [13.70] Share sales association, whether ................ [3.80.60] Shareholders approval for sale of assets ... [5.60.30A] defensive strategies requiring approval of ........................................ [13.10] minority — see Minority shareholders rights agreements ........................ [13.60] sale by major, conflicts arising in ............................................... [6.30] selling, discretionary relief for ........................................... [19.140] blocks, sale in ....................... [19.140] controller ............................... [19.140] stockbroker as principal ..... [19.140] tender, sale by ...................... [19.140] substantial holding notice — see Substantial holding notice target’s — see Target’s shareholders Shark repellents ................................ [13.30] amendment of constitution ....... [13.30] directors, restrictions on appointment of ................................... [13.30.10] general meetings, regulations for ........................................ [13.30.20] proportional takeover approval provisions .................... [13.30.40] inclusion of ..................... [13.30.40A] procedure under ............ [13.30.40B] share acquisitions, restrictions on ........................................ [13.30.30]

Short selling .................................... [11.100] Stamp duty ........................................ [23.10] Standstill agreement ................... [13.50.20] failure to proceed with bid ..... [7.60.30] Statement of intention .................... [11.70] change of circumstances ........ [11.70.30] clarity ........................................ [11.70.10] correction .................................. [11.70.20] remedies ................................... [11.70.50] Statutory quotation condition .... [8.50.70] Strategic planning capital structure ........................ [5.30.20] classes of securities on issue, determining ................... [5.30.20] code name for target ..................... [5.20] downstream interests ............... [5.30.70] dual-listed company mergers ...... [5.90] due diligence .................................. [5.30] examination of all information ... [5.30] existing shareholdings ............. [5.30.60] financial aspects ........................ [5.30.10] importance of ................................. [5.10] inspection of books, order authorising ...................... [5.30.60] joint bids ......................................... [5.50] key contracts ............................. [5.30.50] pre-bid asset sale agreement ....... [5.60] pre-emptive rights, shares in target subject to ........................ [5.30.30] register of shareholdings ......... [5.30.60] restrictions in constitution ...... [5.30.30] reverse takeovers ........................... [5.70] sale of main undertaking ............. [5.80] scheme of arrangement, consideration of .......................................... [5.40] deciding between bid and scheme .......................................... [5.40.30] shareholding limits .................. [5.30.30] special legislation ..................... [5.30.40] team to prepare bid ...................... [5.20] accountants ............................... [5.20] investment banker ................... [5.20] key executives .......................... [5.20] lawyer ........................................ [5.20] public relations firm ............... [5.20] stockbroker ............................... [5.20] tender offers ................................. [5.100] trust schemes ............................. [5.40.40] Substantial holding notice application of provisions ........... [15.10]

Index 539 Substantial holding notice — cont breach of provisions compensation ......................... [15.90] court orders ............................ [15.80] ignorance or mistake not defence................................ [15.40] penalty ..................................... [15.80] unacceptable circumstances . [15.80] cessation notice ......................... [15.30D] disclosure of ................................. [15.70] disclosures required .................... [15.60] documents accompanying ......... [15.50] equity derivatives ........................ [15.20] extraterritorial operation ............ [15.40] information awareness, what constitutes ......................... [15.40] interest notification bidder’s initial notice ......... [15.30B] combined notices ................. [15.30F] 5% interest, initial notice of .......................................... [15.30A] 1% change in substantial holding, notice of .......................... [15.30C] substantial holding cessation notice .......................................... [15.30D] time ........................................ [15.30E] 1% change in substantial holding, notice of .......................... [15.30C] non-compliance excuses, not ..... [15.40] preparation of .............................. [15.10] register of ...................................... [15.70] relevant interests in voting shares ............................................. [15.10] relief from provisions ............... [15.110] requirement to lodge .................. [15.10] takeover, during ........................ [15.100] unlisted targets .................... [15.100] what constitutes substantial holding ............................................. [15.20] Substantial shareholding foreign bidders approval for acquisition of .......................................... [4.10.10] notification before acquiring .......................................... [4.10.30] notice — see Substantial holding notice voting shares/interests . [15.10], [15.20] what constitutes .......... [4.10.30], [15.10] Suspension of trading by target ........................................ [14.50.90] Tactical share allotments .... [13.50] — see also Share allotments Takeover bid acceptance form of ....................................... [8.80]

mistake in ................................. [8.80] non-complying, treated as valid ............................................... [8.70] order to return ......................... [8.80] announcement of — see Announcement of bid bidder’s statement — see Bidder’s statement bluffing ....................................... [7.60.10] close of offer — see Close of offer collateral benefits — see Collateral benefits conditional bid .......................... [7.60.20] consideration — see Consideration counter-bid .............................. [14.50.80] failing to proceed with ............ [7.60.20] defences ................................. [7.60.30] penalties ............................... [7.60.40] false bid ...................................... [7.60.10] finality of bid, declaration of .... [11.70], [11.100] new bid after ..................... [11.70.40] formal bid ....................................... [1.30] exception to central rule ........ [1.30] off-market or on-market ......... [1.30] further bid .................................... [22.20] joint bid ........................................... [5.50] market bid — see Market bid off-market bid — see Off-market bid offeree, who is .............................. [10.40] offer period — see Offer period planning — see Strategic planning proportional bid ....................... [8.20.40] responding to — see Target’s response to bid sending of offers .......................... [10.20] Takeovers Panel, role of ............... [1.30] terms of offer — see Terms of offer timetable market bid ............................ [12.150] off-market bid ........................ [10.70] Takeovers Panel ................... [21.10]-[21.60] application to .......................... [21.20.10] ASIC powers and discretions, exercise of ........................................ [20.60] CLERP reforms ............................ [21.10] collateral benefits, guidance on ......................................... [11.40.50] constitutionality ............................ [1.30], [21.10] declining to hear matter ........ [21.20.10] Foreign Acquisitions and Takeovers Act no power to enforce ........... [4.10.80] orders where breach of ..... [4.10.80] frustrating actions, guidance on ............................................. [14.60] interim orders .............................. [21.30] jurisdiction ............................... [21.20.10]

540 Takeovers Law & Strategy Takeovers Panel — cont main forum for takeover disputes ............................................. [21.60] Memorandum of Understanding with ASIC ................................... [21.10] notice of appearance .............. [21.20.10] orders ............................................. [21.30] contravention of ..................... [21.30] proceedings ............... [21.20], [21.20.20] remedial orders ............................ [21.30] review of ASIC decisions ............ [1.30], [20.60] review of decisions of ................. [21.40] role of ................................ [1.30], [21.10] rules, power to make .................. [21.50] unacceptable circumstances declaration ............ [1.30], [21.10] application for ................... [21.20.10] copies to parties ................ [21.20.40] further submissions after ........................................ [21.20.40] inquiries ............................. [21.20.20] proceedings ......... [21.20], [21.20.20] restrictions on Panel’s power ........................................ [21.20.30] “unacceptable circumstances” — see Unacceptable circumstances unacceptable circumstances order ............................................. [21.30] urgent orders, power to make .. [20.60] withdrawing an application . [21.20.50] Target company announcement of bid, issue of shares after ...................................... [7.60] approaching .................................... [7.50] approval of acquisition by resolution of ........................................ [19.60] acquisition of relevant interest ........................................ [19.60.10] disclosure ........................... [19.60.30] identification of precise acquisition ........................................ [19.60.10] pre-meeting arrangements ........................................ [19.60.20] scope of exemption .......... [19.60.10] voting .................................. [19.60.40] “bear hug” ...................................... [7.50] change-of-control clauses ........ [5.30.50] code name ....................................... [5.20] common directors of bidder and target, perspective on .. [6.20.30] constitution, restrictions in ..... [5.30.30] counter share trading activity . [11.100] Crown as .................................... [2.50.10] defensive strategies — see Defensive strategies delisting ......................................... [22.50] directors’ expenses .................... [14.120]

disclosure of information bidder’s statement, use in ........................................ [9.30.130] condition of offer requiring .......................................... [8.50.60] request for, after service of bidder’s statement ........................ [5.30.60] stock exchange, to ................... [7.50] downstream interests ............... [5.30.70] examination of information from ............................................... [5.30] initial discussions with ................. [7.50] interests in other companies .. [5.30.70] joint venture agreement, subject to .......................................... [5.30.50] key contracts ............................. [5.30.50] register of shareholdings ......... [5.30.60] response to bid — see Target’s response to bid share acquisitions in — see Share acquisitions in target shareholders — see Target’s shareholders special legislation, subject to .. [5.30.40] statement — see Target’s statement takeover recommended by directors of ............................................... [7.50] unlisted, voting power in ........ [15.100] Target’s response to bid advance planning ........................ [14.10] alternative transaction, proposal of ........................................ [14.50.70] appeal to shareholder loyalty ........................................ [14.50.40] asset lock-up agreement ........ [14.70.40] break fees ...................................... [14.70] contract law ....................... [14.70.30] directors’ duties ................ [14.70.10] financial assistance prohibition ........................................ [14.70.20] Takeovers Panel guidance ........................................ [14.70.40] counter-bid .............................. [14.50.80] criticism of bid ........................ [14.50.10] criticism of bidder .................. [14.50.30] defective bidder’s statement allegations .................... [14.50.50] defensives themes ....................... [14.50] directors assessing reasonableness of bid ............................................. [14.40] duties once bid announced . [14.40] expenses ................................ [14.120] meeting .................................... [14.30] preparation of response ....... [14.10] seeking alternative bidders . [14.40], [14.50.60] favourable information, release of ........................................ [14.50.20] forecasts, release of ................ [14.50.20]

Index 541 Target’s response to bid — cont foreign bidder appeal to shareholder patriotism ........................................ [14.50.40] formal bid announcement, action following ........................... [14.30] frustrating actions ....................... [14.60] hostile report ........................... [14.50.30] hostile takeover ............................ [14.10] immediate action ......................... [14.30] inducements to bidder ........................... [14.70]-[14.70.40] informal approach ...................... [14.20]. internal restructure ................. [14.50.70] legal action to restrain bid .... [14.50.50] no-shop agreement ................. [14.70.40] no-talk agreement ................... [14.70.40] notification to ASX ........ [14.20], [14.30] persons involved in preparation ............................................. [14.10] profit forecasts ........................ [14.50.20] seeking alternative bidders ....... [14.40], [14.50.60] standard of documents ............... [14.50] suspension of trading ............ [14.50.90] target’s statement — see Target’s statement timetable ...................................... [14.130] unsolicited takeover .................... [14.10] Target’s shareholders bidder obtaining list of ........... [5.30.60], [10.10] bidder’s statements to ................. [11.10] misleading or deceptive ....................... [11.10.10]-[11.10.30] penalties for misleading statements ......................................... [11.10.20] “truth in takeovers” policy ............ [11.70]-[11.70.50], [11.100] collateral benefits, offer of .......... [11.40] counter share trading activity . [11.100] defensive strategies requiring approval of ........................................ [13.10] denial of chance to participate in benefits .............................. [14.40] minority — see Minority shareholders taxation .......................................... [23.30] Target’s statement ................ [1.30], [14.50], [14.80] approval by board ..................... [14.100] bidder’s voting power ................ [14.90] common directors of bidder and target .......................................... [6.20.40] content ...................................... [14.80.10] definition ....................................... [14.80] directors’ recommendations . [14.80.20] expert’s report .............................. [14.90]

extension of time for sending . [14.100] material omission ................... [14.80.10] supplementary statement to remedy ............................. [14.110] misleading or deceptive information ........................................ [14.80.10] supplementary statement to remedy ............................. [14.110] price-sensitive information ...... [14.100] purpose ......................................... [14.80] service .......................................... [14.100] supplementary ........................... [14.110] third party statements ........... [14.80.30] Taxation implications bidder ............................................ [23.20] capital gains tax ................ [23.20.20] consolidation ..................... [23.20.30] deductibility of expenses ........................................ [23.20.10] stamp duty ................................... [23.10] target .............................................. [23.40] capital gains tax ..................... [23.40] CGT Non-Resident Withholding Tax ................................. [23.20.40] same business test ................. [23.40] target shareholders ...................... [23.30] capital gains tax ..................... [23.30] Television and radio companies acquisition of shares in ................ [4.30] notification to ACMA ........ [4.30.10] Australian Communications and Media Authority ................ [4.30] advance opinion from ....... [4.30.20] approval of temporary breach ......................... [4.30.40], [4.30.50] licence conditions, imposition of ............................................... [4.30] monitoring role ................... [4.30.20] notification to ..... [4.30.10], [4.30.30] breach of approval condition . [4.30.40] changes in control .................... [4.30.30] notification to ACMA ........ [4.30.30] control, meaning ....................... [4.30.20] cross-directorships .................... [4.30.40] cross-media mergers .... [4.30], [4.30.50] cross-media ownership ............ [4.30.50] approval of temporary breach .......................................... [4.30.50] breach of provisions ........... [4.30.50] 5/4 rule ................................ [4.30.50] media diversity requirements .............................. [4.30], [4.30.50] 2 out of 3 rule ..................... [4.30.50] foreign ownership restrictions .... [4.30] licence conditions .......................... [4.30] media ownership laws ................. [4.30] multiple licence restrictions .... [4.30.40] approval of temporary breach .......................................... [4.30.40]

542 Takeovers Law & Strategy Television and radio companies — cont breach of prohibitions ....... [4.30.40] restrictions on acquisitions ..... [4.30.10] Tender offers ...................................... [5.100] Terms of offer acceptance form of ....................................... [8.80] non-complying, treated as valid ............................................... [8.70] conditions ....................................... [8.50] accounting information ..... [8.50.60] certainty of finance ............ [8.50.50] common conditions ............ [8.50.80] disclosure of information by target .......................................... [8.50.60] equal access to information .......................................... [8.50.60] independent expert access .......................................... [8.50.60] material adverse change ... [8.50.40] minimum acceptance ......... [8.50.30] precedent ................................... [8.50] prescribed occurrence ........ [8.50.20] restrictions ........................... [8.50.10] statutory quotation ............. [8.50.70] waiver ................................... [8.50.90] consideration .................................. [8.40] bidder’s statement disclosure ......................... [9.30.50], [9.30.60] cash ...................................... [8.40.10], [8.40.30] financial assistance ............. [8.40.20] foreign currency .................. [8.40.10] form of .................................. [8.40.10] increase ............................... [11.50.10] market bid .............................. [12.60] minimum price ................... [8.40.30] non-cash ............................... [8.40.10] , [8.40.30] pre-bid share acquisition .. [8.40.30] scrip ..................... [8.40.10], [8.40.30] , [19.40] securities .............................. [8.40.10] time for payment, specification .......................................... [8.40.50] waiver or satisfaction ............ [11.60] criticism by target ................... [14.50.10] date for publication of notice ...... [8.70] entitlement to dividends and rights ............................................... [8.70] financial assistance ................... [8.40.20] financing aspects ........................... [8.40] framing ............................................ [8.10] market bid ...................................... [8.30] minimum price ......................... [8.40.30] off-market bid .................... [8.30], [8.70] power of attorney .......................... [8.70] proportional offer ..................... [8.20.40] scrip bid .................................... [8.40.10], [8.40.30]

securities to which offer relates .. [8.20] full and partial offers ......... [8.20.40] issued and unissued securities .......................................... [8.20.30] market bid .............................. [12.40] multiple classes ................... [8.20.20] single class ........................... [8.20.10] two-tier offers ............................ [8.40.40] uniform offers ................................ [8.60] variation of offer to improve ......................................... [11.50.30] conditional price increase ......................................... [11.50.50] consideration increase ...... [11.50.10] waiver of conditions ................ [8.50.90] warranties as to title ..................... [8.70] 3% creep in six months ................... [19.70] Timetable market bid .................................. [12.150] off-market bid .............................. [10.70] target’s response to bid ............ [14.130] Transfer under deed of company arrangement creditors’ scheme of arrangement ........................................... [18.120] funds to pay ............................... [18.120] Tracing beneficial ownership breach of provisions .................... [16.50] compensation ......................... [16.60] court orders ............................ [16.50] penalty ..................................... [16.50] unacceptable circumstances . [16.50] disclosure notice .......................... [16.20] form ......................................... [16.20] person given to ...................... [16.20] response to .............................. [16.30] vexatious ................................. [16.30] listed company or managed investment scheme .......... [16.10] objectives of provisions .............. [16.10] register of information received ............................................. [16.40] relief from provisions ................. [16.70] response to notice ........................ [16.30] disclosure of responses ......... [16.40] time limit ................................ [16.30] scope of provisions ..................... [16.10] “Truth in takeovers” policy ............ [11.70] final bid ........................................ [11.70], [11.100] new bid after ..................... [11.70.40] statement of intention ................. [11.70] change of circumstances .. [11.70.30] clarity .................................. [11.70.10]

Index “Truth in takeovers” policy — cont correction ............................ [11.70.20] remedies ............................. [11.70.50] 20% prohibition ................................. [1.30], [2.10]-[2.60.30] acquisition, meaning ..................... [3.20] acquisition not invalid because of breach .................................. [2.10] bare trustee, shares purchased as ............................................... [2.10] body or class of bodies excluded ............................................... [2.20] central rule ..................................... [1.30], [2.10] company, what constitutes .......... [2.20] co-operative .................................... [2.20] Crown, application to .............. [2.50.20] exceptions ....................................... [1.30] exemptions — see Exempt acquisitions foreign companies ......................... [2.30] incorporated associations ............. [2.20] managed investment schemes ............................................... [2.40] voting interests ................... [2.60.10] public authorities ........................... [2.20] relevant interests in voting shares .................................. [2.10], [3.10] securities to which applies ..... [2.60.10] voting share, definition ........... [2.60.10] Unacceptable circumstances break fees ................................. [14.70.40] collateral benefits ................... [11.40.50], [11.40.50D] contravention of Corporations Act ........................................ [21.20.30] control or potential control of company, effect on ...... [21.20.30] court jurisdiction and powers ............................................. [21.60] declaration by Takeovers Panel ...................... [1.30], [21.10] application for ................... [21.20.10] copies to parties ................ [21.20.40] further submissions after ........................................ [21.20.40] inquiries ............................. [21.20.20] proceedings ........................... [21.20], [21.20.20] restrictions on Panel’s power ........................................ [21.20.30] time limit to apply ........... [21.20.10] disclosure, inadequate ............. [9.30.50] efficient, competitive and informed market principle ......... [21.20.30] frustrating actions ....................... [14.60]

543

funding arrangements, inadequate .......................................... [9.30.50] interim orders .............................. [21.30] joint bid ........................................... [5.50] lock-up devices ....................... [14.70.40] meaning .................................... [21.20.30] orders by Takeovers Panel ......... [21.30] remedial order ............................. [21.30] review of Panel decisions .......... [21.40] share allotments, risk of ..... [13.50.10C] shareholders denied chance to participate in benefits ..... [14.40] substantial holding notice, failure to lodge .................................. [15.80] tracing notice, non-compliance with .................................... [16.50] what are ................................... [21.20.30] withdrawing an application ........................................ [21.20.50] Unconditional offer .......................... [11.60] Underwriter exempt acquisitions .................... [19.90] Uniform offers .................................... [8.60] Variation of offer .............................. [11.50] ASIC approval ............................. [11.50], [11.50.30] conditional ............................... [11.50.50] extension of offer period ....... [11.50.20] conditional ......................... [11.50.50] market bid ....................... [12.120.20] formal ....................................... [11.50.40] improving terms ..................... [11.50.30] increase of consideration ....... [11.50.10] conditional ......................... [11.50.50] market bid ....................... [12.120.10] market bid .................................. [12.120] extension of offer period ...................................... [12.120.20] price increase ................... [12.120.10] reduction of price ........... [12.120.30] notice ......................................... [11.50.40] procedure ................................. [11.50.40] virtual variations .................... [11.50.50] Voting power acquisition increasing ................... [3.10] meaning of acquisition ........... [3.20] associates, transaction between ............................... [3.40] bidder’s statement disclosure ........................................ [9.30.120] definition ......................................... [3.40] measuring ....................................... [3.40]

544 Takeovers Law & Strategy Voting power — cont unlisted target company, in ....................................... [15.100] warehousing ................................... [3.40]

substantial holding notice — see Substantial holding notice unequal, constitution conferring .......................................... [2.60.10]

Voting shares ....................... [2.60]-[2.60.20] bids for securities that are not .......................................... [2.60.30] definition .................................... [2.60.10] managed investment scheme, voting interest in ....................... [2.60.20] option over issued share ......... [2.60.10] preference share ........................ [2.60.10] present voting right ................. [2.60.10]

Warehousing ........................................ [3.40] Will exempt acquisitions through ... [19.150] Withdrawal of offer ......................... [10.50] market bid .................................. [12.130] Wrap information .......................... [9.10.10]