Darvall v north sydney brick

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LAW00004 Company Law

SCHOOL OF LAW & JUSTICE

Session 2, 2018

TOPIC 7 TAKEOVER REGULATION

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Topic 7 Takeovers AIM: At the end of this topic you

should understand:

•  Legal concept of ‘takeover’ • Ch 6 Corporations Act’s application to regulation of

takeovers •  Takeover bids •  Takeover defensive strategies •  Role of Takeover Panel •  Potential conflict with directors’ duties

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Topic 7

•  Takeovers: Chapter 6 Corporations Act •  Substantial Shareholdings; Part 6C.1 •  Share ownership tracing; Part 6C.2 •  Takeovers Panel •  (Securities Regulation; Chapter 7 Corporations Act )

Gaining control over a company’s business Acquire business Acquire company

• Takeover bid • Scheme of arrangement • Merger

Reasons for takeovers

•  to expand •  to diversify •  to ensure constant/adequate supplies •  to achieve economies of scale •  to add links in the chain of distribution •  to acquire assets cheaply •  to utilise tax losses

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Takeovers

= acquisition of sufficient shares to gain control of a company • Generally refers to change in control of a

company •  By transfer of shares •  Target company continues to exist with assets

unaffected by the takeover •  Sellers = shareholders who transfer shares to the

bidder

Concept of ‘control’

•  100%? •  75%? •  51%?

Regulation of takeovers

• Chapter 6 Corporations Act entitled ‘Takeovers’. •  ‘Chapter 6 … in regulating takeovers, seeks to preserve

an efficient, competitive and informed capital market, and to protect the legitimate interests of investors in that market.’; AG (Cth) v Alinta (2008) 233 CLR 542 Gleeson CJ at [6]

Section 602 purposes of the takeover rules • all participants are treated equally and fully informed • protection of the shareholders of the target company

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To whom do provisions apply? Acquisitions in Australian incorporated companies: •  Listed • Unlisted with more than 50 members

Acquisitions in listed managed investment schemes

Chapter 6 is set out as follows: Purpose of Chapter 6 section 602 Provisions extending rules to other bodies sections 603-604 Classes of securities section 605 (note that section 92(3) defines ‘securities’ for the purposes of Chapter 6.) Part 6.1 – Prohibited acquisitions of relevant interests in voting shares sections 606-610 Part 6.2 - The exceptions to the prohibition sections 611-615 Part 6.3 - The different types of takeover bid (off-market bids and market bids section 616 Part 6.4 - The formulating the takeover offer sections 617-630 Part 6.5 – The takeover procedure sections 631-648U Part 6.6 – Variation of offers sections 649A-651C Part 6.7 – Withdrawal and suspension of offers sections 652A-652C Part 6.8 – Acceptances sections 653A-653B Part 6.9 – Other activities during bid period sections 654A-654C Part 6.10 – Review and intervention sections 655A-659C esp. Div 1 – ASIC’s power to exempt and modify AND Div 2 – The Takeovers Panel (note standing to bring an application before the takeovers panel is “any person whose interests are affected by the decision” section 656A(2)

Overview of takeover regulation

• Acquisition > 20% restricted under Ch 6 section 606 exceptions outlined in section 611

•  Strict rules - terms and conditions of takeover (eg, minimum price and duration)

•  Both bidder and target companies - formal explanatory statements to target shareholders

• Disputes resolved by the Takeovers Panel • Once takeover completed bidder may compulsory

acquire up to 10% of the bid-class of securities if they have obtained 90%

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Prohibited acquisitions of relevant interests in voting shares

•  Section 606 provides a general prohibition on the acquisition of shares > 20% of the voting shares in target company

•  Implied in 20% threshold – exceed it > take control of a company;

• Note section 606(1)(c)

•  Part 6.2 (sections 611-615) exceptions

Key concepts in the prohibition ‘Relevant interests in securities’ = •  holder of the securities or power to vote or dispose of the

securities section 608 •  situations not giving rise to relevant interests section 609 Bodies corporate - person has a relevant interest if •  hold more than 20% of the voting power section 608(3) • deemed to ‘control’ a body corporate if have capacity

to determine outcome of decisions about financial and operating policies section 608(4)

Note also ‘deemed’ relevant interests in anticipation of agreements section 608(8) (see Text [23.60], 10th ed p.692)

Section 610 - how the voting power is determined: Person’s + Associates’ votes _____________________________ x 100 Total votes in designated body

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‘associate’ defined in section 12: Associate of body corporate 1)  Any other body corporate controlled by first body corporate

(eg subsidiary company) 2)  Any other body corporate that controls first body corporate

(eg holding company) 3)  Any other body corporate that is controlled by entity that

also controls first body corporate (eg sibling subsidiary company)

‘control’ defined section 50AA ‘Relevant agreement’ – controlling/influencing Board of Directors or conduct of company’s affairs Definition ‘relevant agreement’ section 9 Definition ‘conduct of the body’s affairs’ section 53 ‘Acting in concert’ in conduct of body’s affairs Adsteam Building Industries Pty Ltd v Queensland Cement & Lime Co (No 4) [1985] 1 Qld R 127

Prohibited acquisitions of relevant interests in voting shares

•  Section 606 provides a general prohibition on the acquisition of shares > 20% of the voting shares in target company

•  Implied in 20% threshold – exceed it > take control of a company;

• Note section 606(1)(c)

•  Part 6.2 (sections 611-615) exceptions