Consolidation of Australia’s takeovers law

Last month we discussed the complexity in finding Australia’s takeovers law due to the need to consider a combination of legislation and various ASIC class orders which modify the legislation. This complexity appears to have been a contributing factor in an error in a recently published ASIC class order. This article continues the discussion on this point.

In brief

• Australia’s takeovers laws are a combination of legislation and various ASIC class orders which modify the legislation. The class orders are needed because the legislation has not kept up with modern takeovers practice.
• Issuing various class orders is a great way to achieve legislation that works, but it inevitably makes finding the relevant rules difficult and can lead to error when things are missed.
• An (obvious) solution would be to issue a new single class order which would consolidate how the law is presented (though not affecting the source of the legislative powers).

Complexity in finding Australia’s takeovers laws

I received a lot of positive feedback about the article that I published in the HSF Deal Talk newsletter last month about the problems and complexity in the structure of Australia’s takeovers law.

In a nutshell, this is caused by the law being set out in a combination of more than 15 separate ASIC class orders and the primary legislation they modify. The class orders are needed because the legislation has not kept up with developments in takeovers practice over the last 20 years and because of technical shortcomings in the legislation that Parliament has not found time to correct.

The class orders are very important, but none of them (nor the legislation) sets out an authoritative consolidated version of the law. Anyone searching for the law must consult several places and piece together the relevant rules. It is very complex and can lead to errors by lawyers and sometimes even ASIC itself.

In my previous article, I suggested a solution where ASIC would restate the entirety of Chapter 6 (and related provisions) in a single class order which would contain all of the operative provisions of the law. It would enable people to just look in one place (as we did in the good old days).

This article explains a recent error by ASIC in a class order and gives more detail on my proposed solution.

The error in the class order regarding shareholder addresses

After a long gestation period, the Corporations Act, section 641, was finally amended in September to give bidders access to the email addresses of target shareholders and to enable the bidder to send emails to them for the purposes of the takeover bid.

Unfortunately, at about the same time, ASIC was reissuing many of its class orders on takeovers (as they were about to sunset). One of the class orders amended section 641 to broaden the bidder’s rights of access to details about derivatives, such as convertible securities. To achieve this, the ASIC class order replaced section 641, but the class order was prepared (and consulted on) months before the legislative amendment was passed. Consequently, the replacement provision did not contemplate access to email addresses. The net effect was that the recently amended legislation to enable access to email addresses was effectively repealed by ASIC.

Since this error was pointed out to ASIC (by Andrew Rich at HSF, incidentally), ASIC has quickly moved to correct the error. Well done to ASIC for acting so promptly.

However, even though there is no ongoing issue, this simple example demonstrates that complexity in the legislation is creating the potential for errors, even by ASIC.

How could my suggestion be implemented?

My suggestion was that ASIC should “restate” Chapter 6 (and the related provisions in Chapters 6A-6C) in a single class order. This would be similar to consolidated versions of the law that some law firms have produced for their internal purposes. There is also an excellent consolidation publicly available on Bruce Dyer’s website: see www.conisante.com.au. My suggestion was to build on this approach with a consolidated class order which would be given legal force.

Some people have queried if this is possible and whether ASIC can simply replace all of Chapter 6. In this regard, I make the following comments:

• I am not suggesting that Chapter 6 be repealed and replaced. I am merely suggesting that the ASIC class orders be presented in a single cohesive document which shows all of the provisions of Chapter 6. It would be a consolidated version of all of the relevant rules.
• To the extent that the class order contained modifications to the legislation, the class order would be operative, but, importantly, to the extent the provisions in Chapter 6 are not modified, the legislated provisions would continue to operate. That would mean, for example, that the powers of the Takeovers Panel, ASIC and the courts under Chapter 6 would not derive from the ASIC class order, but from the primary legislation.
• This distinction could be made clear in the new class order. For example, the unmodified Chapter 6 text could be presented in one style and the provisions modified by class orders presented in a different style (for example, in a mark-up, something that everyone in the market would understand). Bruce Dyer’s version on www.conisante.com.au shows how this would look.
• The class order could recite, for the avoidance of doubt, that only the identified provisions are given effect by the class order and the remaining provisions are presented for completeness but continue to derive their effect from the Corporations Act.
• In this way, the consolidated class order should have the same constitutional and legal effect as the existing class orders.

Comment

When I started as a lawyer many years ago, the practice was for lawyers negotiating an agreement to exchange letters setting out the precise changes to each clause of the agreement they were seeking for their client. For example, the letter might have said: In clause 14, remove the words ‘not to be unreasonably withheld’ and insert the words ‘to be determined in the vendor’s absolute discretion’. You then had to go to the draft document and work out what was being proposed. There was no exchange of a marked-up document setting out all of the agreement (essentially because the technology did not exist). The process was fiddly and grasping the import of a suggested change took a bit longer (though it tended to keep documents shorter, but that is another story).

The evolution of the ASIC class orders reminds me of the old lawyers’ practice. It works, but it is clunky and, like the old legal agreements, it is inefficient (and unnecessarily expensive for clients!) compared to presenting a restated (authoritative) version of the relevant document, in this case, the takeovers legislation.

I would welcome any further suggestions or comments from anyone on this issue.