This article was first published in the Australian Financial Review on 20 March 2015

Activist investors have made changes for the better across the Australian market in recent times. Indeed positive changes forced through at companies such as Spotless and Newcrest by the late Simon Marais of Allan Gray are now testament to the merits of shareholder activism.

Unfortunately, a decision by the securities regulator Australian Securities and Investments Commission to redefine what constitutes "association" or "relevant interest" in its recently released consultation paper on collective action by investorscreates further uncertainty and unnecessary ammunition to incumbent boards on board spill disputes.

The intended or unintended potential result of ASIC's guidance is to make it harder for investors to join together to call a general meeting and propose a board spill resolution. 

This is because ASIC's draft updated regulatory guide includes the analysis that a group of investors signing a board spill notice is likely to have a voting understanding which will give each signatory a relevant interest in all of the other signatories' shares. If the total shareholding within the group exceeds 20 per cent then the signatories will breach the takeover threshold.

First things first, ASIC's legal analysis should be questioned. Secondly, it is likely that ASIC's position will give incumbent boards further ammunition to reject calls for a board spill and will lead to a reduction in collective investor activism, at least in relation to board spills.

But the mere fact of an investor signing a board spill notice does not of itself amount to an agreement or understanding with every other investor who signs to vote in any particular way. It is merely a request to the company to hold a shareholder meeting to consider the board spill resolution. The Corporations Act gives this right to any investor or group of investors with 5 per cent or more of the voting power in a company.

An investor signing a board spill notice is not legally obliged to attend the meeting or vote in any particular way. The investor is merely exercising a right under the Corporations Act to request a shareholders' meeting to spill the board.

In practice this proposed change will make board spills harder to achieve.

If it goes ahead incumbent boards will no doubt go straight to ASIC and the Takeovers Panel alleging a breach of the takeovers threshold if they get a board spill notice signed by more than 20 per cent of investors (by voting power). 

Activist investors seeking board renewal will need to limit a board spill notice to less than 20 per cent of the investors (by voting power) to protect against an accusation that they are breaching the takeovers threshold.

With its new guidance, ASIC is tipping the playing field in favour of incumbent boards and against investor activists seeking board spills.

ASIC has already provided extensive guidance on the takeovers threshold and would have been better placed to include any new guidance in that regulatory guide rather than having a specific regulatory guide just for the subset of the topic dealing with collective actions by investors.