This article was written by Michelle Siekierka.
There has continued to be considerable activity in the takeovers regulatory space over the last 3 months. This activity has involved both decisions of the Takeovers Panel (Panel) on applications made to it, and reviews of pre-existing guidance relevant to takeovers published by the Panel and by ASIC.
This article provides a snapshot of applications made to the Panel and guidance provided by the Panel and ASIC since 1 July 2018.
Recent Panel matters
The applications considered by the Panel in the last 3 months have predominantly centred on association, disclosure and rights issues. The Panel’s consideration of these matters is depicted in the table and key themes arising from the applications are explored below.
Activity (1 July 2018 – 30 September 2018)
Applications made to the Panel (including 1 review application)
Applications in which the Panel declined to conduct proceedings
Formal undertaking accepted
Declaration of unacceptable circumstances made
Applications being considered as at 30 September 2018
Association in the context of requisitioned shareholder resolutions
2018 has brought a spate of applications alleging association in the context of shareholders requisitioning a general meeting (or resolutions to be considered at a general meeting). This trend continued in the third quarter of 2018, with applications in relation to the affairs of Bullseye Mining Limited (Bullseye) and Baraka Energy and Resources Limited (Baraka). The Panel declined to conduct proceedings in respect of both of these applications, citing an insufficient body of material and noting the timing of the applications.
The application in relation to Baraka involved alleged associations that (if proven) would have amounted to the associates having a combined holding of 5.96% in Baraka. The Panel has consistently declined to make declarations of unacceptable circumstances where a combined holding of less than 20% is alleged to exist, and a similar approach was taken in Baraka.
In Bullseye, the applicant alleged a number of shareholders in aggregate controlled a parcel of 35.54% shares. The Panel considered there was very little material to support this conclusion and that the material that was provided had little probative value – merely pointing to business relationships between shareholders of unlisted companies was not considered sufficient by the Panel to underpin allegations of association.
Substantial holding disclosure
The Panel has recently displayed some reluctance to declare circumstances unacceptable, or to conduct proceedings, solely in relation to substantial holding disclosure. However, the Panel’s decision in relation to the affairs of Tribune Resources Limited (Tribune) is an example of stricter treatment and arises, unsurprisingly, where the disclosure is more likely to relate to the ‘control’ of a company.
The Panel in Tribune made a declaration of unacceptable circumstances on 14 September 2018,  concluding that, on the material before the Panel:
- the 3 largest shareholders of Tribune had provided false responses to tracing notices issued by ASIC; and
- there have been numerous contraventions of the substantial holder provisions in relation to Tribune shares, including by:
▪ one individual (Mr Billis), who has voting power of 60.49% in Tribune, through having a relevant interest in each of the 3 largest shareholders of Tribune (for example, by the shares being held as nominee or bare trustee for him), as well as other minority shareholders;
▪ Tribune, in relation to having an interest in its own shares (Tribune has 43.85% voting power in (and controls, contrary to s259D of the Corporations Act 2001 (Cth)) Rand Mining Limited, and Rand Mining Limited in turn has a relevant interest of 26.32% in Tribune); and
▪ Mr Billis and Ms Wichaikul being associated, which the Panel had to infer (they were married, had structural links and uncommercial dealings connected with Tribune, such as Mr Billis selling a valuable shareholding to his wife for a nominal amount). Note that the Panel does not automatically treat married couples as associates.
The Panel made interim orders prohibiting the disposal of shares in Tribune and is considering what final orders it will make.
Two applications made to the Panel in this quarter related to alleged deficiencies in disclosure in the notice of meeting (and explanatory material) regarding resolutions to approve rights issues.
In Bullseye 02, the applicant submitted that the notice of meeting relating to 2 resolutions seeking shareholder approval of 2 related and inter-conditional transactions, being the issue of convertible notes and the grant of an option to provide funding, was deficient. The Panel accepted an undertaking to withdraw the resolutions from the shareholder meeting, and is still considering the matter.
The application in relation to the affairs of Tikforce Limited (Tikforce) also raised disclosure issues – these were rectified by Tikforce withdrawing (in response to a letter issued by the ASX) the resolutions to approve the rights issue, obviating the need for the Panel to make a declaration of unacceptable circumstances. The resolutions sought approval to issue shares and options to holders of convertible notes upon conversion (if all the shares were issued, they would represent approximately 78.5% of Tikforce’s issued capital). The main issue with the notice of meeting and explanatory statement was that they did not identify who would receive the shares proposed to be issued and did not provide shareholders any information to enable them to assess the merits of the proposed share issue.
Molopo – an ongoing saga
In the 12th Panel decision regarding the affairs of Molopo Energy Limited (Molopo) the Panel made orders against former directors of Molopo personally. These orders were made following an application for review of the Panel’s decision on orders in Molopo 10 & 11.
The Panel in Molopo 10 & 11 ordered the company (Molopo) to pay costs in connection with the Panel’s declaration that unacceptable circumstances arose from Molopo not keeping shareholders informed of transactions that Molopo had entered into – over a 4 month period – during which Molopo was the subject of an off-market takeover bid by Aurora Funds Management Ltd in its capacity as responsible entity of the Aurora Fortitude Absolute Return Fund.
On review, the Panel commented that the Panel does not often make orders against directors personally, however found, among other things, that the former directors “blatantly disregarded Molopo's disclosure obligations on numerous occasions, at times over extended periods, and were directly responsible for the actions taken, or purportedly taken, by or on behalf of Molopo giving rise to the unacceptable circumstances”. The review Panel considered it was appropriate to make orders against former directors of Molopo personally including because “such orders would protect the rights or interests of Molopo shareholders who had been affected by seriously deficient disclosure in relation to transactions of great significance that caused or contributed to proposed acquisitions of substantial interests in Molopo not proceeding”.
Truth in takeovers
Revisions to Panel guidance
The Panel published a revised Guidance Note 1: Unacceptable Circumstances (GN 1) on 11 July 2018, in which it sought to provide further certainty in relation to “truth in takeover” statements. The revisions focus on last and final statements made in relation to a takeover bid.
Footnote 39 of the revised GN 1 relevantly states “For example, unacceptable circumstances are likely to arise if, after making a no increase statement, the bidder (or an associate) announces another bid (or a scheme) within 4 months after the bid closes and offers increased consideration (unless that is contemplated by a clear qualification to the no increase statement)”.
With the addition of this sentence, the Panel has provided greater clarity – there was previously debate in the market regarding whether the “waiting period” was 4, 6 or 12 months (or some other period altogether). While only guidance, targets (and other potential bidders) now have greater comfort that bidders will be locked out from making a higher bid for 4 months, and bidders have greater certainty as to when they can come back at a higher price.
The Panel applies a principles-based approach to its decision-making, and therefore the example now provided in footnote 39 is likely to be extrapolated into other truth in takeover circumstances.
The revisions were being considered around the time that a series of controversial matters in relation to statements made by Taurus Management Pty Ltd (a manager of two vehicles who, together, held a substantial holding in Finders Resources Limited (Finders)) during a takeover bid for Finders were before the Panel. ASIC made the initial application to the Panel regarding these statements, and the bidder for Finders – Eastern Field Developments Limited (Eastern Field) – sought a review of the initial Panel’s decision.
The initial Panel contentiously made orders holding Taurus to its statement, which the review Panel varied in a happier result for Taurus to allow Taurus to accept Eastern Field’s offer under the takeover bid (on deferred terms), although requiring Taurus to pay compensation to affected shareholders.
Proposed review of ASIC guidance
ASIC has since reported that it has decided to review Regulatory Guide 25 Takeovers: False and misleading statements (RG 25), “due to the frequent reliance on the policy and market practices that have emerged since the guidance was published in 2002”. ASIC will consider how RG 25 could be updated to provide greater certainty to the market about the application and enforceability of the ‘truth in takeovers’ policy.
We consider it unlikely that ASIC will narrow the sphere of its guidance on truth in takeovers in its review. ASIC may seek to extend RG 25 in line with its submissions in Finders to:
- statements made by directors, by expanding the examples given of ‘market participants’;
- statements made by shareholders, other than substantial holders, in circumstances where those statements are aggregated;
- clarify whether circumstances such as control of the target passing affects whether market participants are bound by last and final statements previously made during the bid; and
- specify that compensation is not an adequate remedy in relation to intention statements by substantial holders.
Notwithstanding any revisions that ASIC makes to RG 25, RG 25 is and will remain a statement of ASIC’s enforcement policy; the Panel will have regard to RG 25 in considering applications made to it, however it will still need to make a wider assessment as to whether circumstances are unacceptable.
ASIC’s current focus
ASIC published Report 589: ASIC regulation of corporate finance: January to June 2018 on 31 August 2018. In addition to stating its intentions to review RG 25 (discussed above), ASIC also notably cautioned bidders in relation to:
- A bidder’s (or its expert’s) analysis as to what the target’s expert should have concluded had different assumptions been adopted, noting that this may not fairly represent the original statement and therefore is unlikely to fall within the scope of relief given by ASIC from the consent provisions (see ASIC Corporations (Consents to Statements) Instrument 2016/72). This focus of ASIC may provide bidders with more limited opportunities to critique a target’s expert’s report, especially in circumstances where the Panel has set a high threshold for it to question the correctness of an independent expert’s report and has specifically noted that it is open to bidders to publish a critique of an expert’s report.
- Pre-bid acceptance agreements that contain a ‘top-up’ clause – the prohibition on escalators in s622 of the Corporations Act 2001 (Cth) has for over 30 years driven very creative structures in pre-bid agreements with major shareholders. One structure involves topping-up the holder where the potential bidder “flips” the securities into a higher competing bid. ASIC’s concern is that, because these clauses aim to compensate pre-bid holders if the bidder ends up selling the shares into a higher competing bid, they are a different offer to the one given to all other holders and therefore could be contrary to the equality principle and the purposes underpinning s619(1), and the framework established by ss621(3) (the minimum bid price rule), 622 and 623 (prohibition on collateral benefits).
 An application was also made to the Takeovers Panel on 26 June 2018 in relation to the affairs of Atlas Iron Limited. The Panel declined to conduct proceedings in relation to this matter and published a media release advising of this decision on 2 July 2018 (TP18/47).
 An application was made for review of the Panel’s decision on final orders in Molopo Energy Limited 10 & 11 (TP18/54). The review Panel in Molopo Energy Limited 12R varied the final orders by making further orders against certain former directors personally (TP18/69).
 Poseidon Nickel Limited (see TP18/68).
 Tikforce Limited  ATP 17; Bullseye Mining Limited  ATP 16; Baraka Energy and Resources Limited  ATP 15.
 Bullseye Mining Limited 02 (see TP18/65).
 Tribune Resources Limited (see TP18/67).
 Bullseye Mining Limited 02 (see TP18/65).
 Bullseye Mining Limited  ATP 16 at , ; Baraka Energy and Resources Limited  ATP 15 at -.
 Bullseye Mining Limited  ATP 16 at  (the Panel noted that most of the structural links, which Bullseye submitted were based on material supporting an inference of association, arose in 2014 or earlier); Baraka Energy and Resources Limited  ATP 15 at - (Baraka submitted that the application was timed to gain a tactical advantage at the general meeting. While not deciding this point, the Panel did comment that the application could have been made earlier to allow more time for a decision to be made before the general meeting).
 Baraka Energy and Resources Limited  ATP 15 at .
 See, for example, Caravel Minerals Limited  ATP 8 at -; Auris Minerals Limited  ATP 7 at -.
 Bullseye Mining Limited  ATP 16 at .
 See, for example, Tap Oil Limited  ATP 23 at , where the Panel stated “it is not desirable in the circumstances to continue making enquiries solely to determine this issue… We note that ASIC has oversight in relation to compliance with Chapter 6C”.
 See TP18/67.
 See TP18/62.
 See TP18/64.
 See TP18/65.
 Tikforce Limited  ATP 17.
 See TP18/59.
 Finders Resources Limited 03R  ATP 11; Finders Resources Limited 02  ATP 9 (Finders 02). King & Wood Mallesons advised Taurus in respect of these Panel matters. The Panel published a Consultation Paper in relation to the revisions to GN 1 on 14 March 2018 (see TP18/20) and received an application from ASIC in relation to Finders Resources Limited 02 on 28 March 2018 (see TP18/22).
 Notwithstanding that Taurus held only 11% of Taurus shares – shareholders representing over 38% of Finders shares in aggregate made statements that they did not intend to accept the offer from Eastern Field at the offer price.
 See RG 25 at [25.1] and ASIC’s submissions that the departure of 2 directors from their ‘last and final statements’ were unacceptable (Finders 02 at [15(a)], ).
 ASIC made submissions to this effect in the Finders Resources matters (see Finders 02 at ).
 RG 25 states that compensation is not an adequate remedy in the cases where bidders depart from no increase and no extension statements (RG 25 at [25.23] and [RG 25.26]). By way of contrast, in relation to intention statements by substantial holders, RG 25 does not specify that compensation is not an adequate remedy (RG 25 at [25.29]).
 See Finders 02 at .
 See Mungana Goldmines Limited 01R  ATP 7 at .
 See, for example, Bulletproof Group Limited  ATP 3 at .