Searching for Australia’s takeovers law

Recently, the takeovers legislation was amended to deal with a number of technical points, but it did not deal with all known issues. As a consequence, ASIC has reissued a number of class orders necessary to make the legislation work, perpetuating the need to look in multiple places to find the law.

In brief

• Legislation has been enacted to correct some technical issues in the takeovers legislation. However, it does not deal with all known issues, so ASIC has reissued its class orders to fix some further anomalies and issues.
• This means that, unfortunately, anyone looking for Australia’s takeovers laws will need to review both sources of law, adding to costs and creating uncertainties.
• Surely it is time to put everything in the legislation or in a single ASIC class order.

Searching for Australia’s takeovers law

A lot of people would be forgiven for thinking that Australia’s takeovers legislation is contained in the Corporations Act.

In fact, the Corporations Act only tells part of the story. As problems and uncertainties have arisen with the legislation, ASIC has supplemented the legislation by using the power it was given in 2000 to issue class orders. These class orders have typically dealt with technical issues. They have had the effect of amending the legislation. It has been effective and very useful, especially given the apparent lack of enthusiasm in Canberra to passing legislation in the area.

ASIC should be commended for its efforts to issue class orders when required as, without them, market participants would need to seek relief on a case-by-case basis for issues that are not controversial.

However, it has meant that the law is not in a single place. And, apart from the legislation, there are other sources of policy guidance from ASIC and the Takeovers Panel that deal with some basic points that should also be consulted to understand how takeovers are regulated and conducted.

Recently, there have been two developments in this space - some new legislation and the re-issue of the ASIC class orders.

The legislation

In September, the Treasury Laws Amendment (2023 Law Improvement Package No 1) Act 2023 (Cth) was passed and came into effect. It amended various provisions in the takeovers legislation. The changes are very technical and they cover items that were previously the subject of the ASIC class orders. This includes:

• allowing a takeover acceptance facility to be conducted without creating a relevant interest;
• ensuring that an escrow arrangement on an IPO is not caught by the relevant interest concept;
• ensuring no association is created between parties to an agreement for the disposal of shares; and
• other items that are even more technical.

This legislation is in addition to the recent legislation that permits takeover documents to be sent by email and entitles a bidder to request email addresses of target company shareholders.

ASIC class orders

On 28 September 2023, ASIC remade seven legislative instruments relating to takeovers, compulsory acquisitions and relevant interests. The relief previously contained in earlier versions of these instruments was due to sunset on 1 October 2023 if they were not remade. The remade instruments are:

• ASIC Corporations (Changing the Responsible Entity) Instrument 2023/681.
• ASIC Corporations (Takeover Bids) Instrument 2023/683.
• ASIC Corporations (Compulsory Acquisitions and Buyouts) Instrument 2023/684.
• ASIC Corporations (Bidder Giving Substantial Holding Notice) Instrument 2023/685.
• ASIC Corporations (On-Sale Disclosure Relief for Scrip Bids and Schemes of Arrangement) Instrument 2023/686.
• ASIC Corporations (Warrants: Relevant Interests and Associations) Instrument 2023/687.
• ASIC Corporations (Replacement Bidder’s and Target’s Statements) Instrument 2023/688.

The relief is in substantially the same terms as under the previous instruments, other than certain amendments that:

• extend the scope of section 617(2) to derivatives to addresses an ambiguity where certain performance rights may not meet the definition of "securities" under section 92(3) and therefore fall outside the scope of section 617(2) (ASIC Instrument 2023/683);
• provide that a bidder may nominate a shorter period for payment of bid consideration than is otherwise required by section 620(2) (ASIC Instrument 2023/683);
• provide that securities acquired on-market by the bidder in reliance on the exemption provided in item 2 of section 611 are included for the purposes of the 75% calculation in section 661A(1)(b)(ii) (ASIC Instrument 2023/684);
• remove the requirement to lodge a supplementary bidder’s statement in order to lodge and dispatch a replacement bidder’s statement (ASIC Instrument 2023/688);
• allow the lodgement and dispatch of a replacement target’s statement (ASIC Instrument 2023/688); and
• clarify the timing for dispatch of the target’s statement in a market bid where a replacement bidder’s statement is lodged (ASIC Instrument 2023/688).

Comment

On the whole, the amendments made by the ASIC class orders and the legislation are sensible and necessary for the takeovers legislation to work smoothly.

However, I can’t help but feel that this is adding complexity to the law unnecessarily. The combination of class orders and legislation means that there is no single authorised source of the law. Anyone picking up a copy of the Corporations Act might be misled into thinking that they have the relevant rules in their hands. But they would be wrong. They would need to find the class orders and piece together how the whole picture fits together. That is no easy task.

This approach adds to costs. It reminds me of a comment made by Leigh Masel, the inaugural chairman of the NCSC, when he gave his well-known speech in 1980 about the importance of an ‘efficient, competitive and informed market’ for corporate control. He said that anything that causes extra costs to the market creates inefficiencies and should be avoided.

What are the solutions?

One solution would be for all of the ASIC class orders to be given effect by legislation. The Treasury Laws Amendment (2023 Law Improvement Package No 1) Act 2023 (Cth) shows that, contrary to the usual assumption, there is some willingness to amend Chapter 6 when required. While Parliament was amending the law under the Treasury Laws Amendment (2023 Law Improvement Package No 1) Act 2023 (Cth), it could have easily included the other class order amendments too. The fact that it did not do that suggests that Parliament does not see a need to simplify the law, a view that I do not share.

Another solution would be to restate the entirety of Chapter 6 (and related provisions) in a single ASIC class order. It would then be a single standalone version of the law. It would retain all of the current section numberings and notes. This would be very convenient for anyone searching for the relevant rule and would reduce compliance costs, not to mention errors which may occur when people do not locate the correct rule. ASIC could do this without troubling Parliament. It would be an exercise of the power given to ASIC in 2000 to make class orders. Any time a new problem emerged with the legislation, ASIC could reissue the class order and keep it up to date.