Case

Australian Securities and Investments Commission vs Mariner Corporation Limited [2015] FCA 589

Useful law, but business as usual

  • This case relates to a hostile takeover bid in 2012 that was ultimately withdrawn during proceedings before the Takeovers Panel. The key issue at the time was whether Mariner’s proposed bid was properly funded.
  • Useful law has been developed because it is the first time a court has considered s631(2) of the Corporations Act regarding reckless bids.
  • The Federal Court acknowledged the Panel had a different focus (ie, whether there were “unacceptable circumstances”) but also criticised the Panel’s analysis of the funding issue.
  • However, given the Panel’s power to make declarations of unacceptable circumstances (which has nothing to do with the recklessness test in s631(2)), we don’t think the case will give rise to any practical changes to how takeover bids are prepared. As always, bidders need to ensure they have a reasonable basis to expect they will have the necessary funding in place to pay for all acceptances or they risk their bid being blocked by an adverse Panel decision.

Context

  • Key players were Mariner Corporation Limited (ASX:MCX) (the proposed bidder), Austock Group Limited (ASX:ACK) (the proposed target) and ASIC.
  • In 2012, Mariner announced an intention to make a takeover bid for Austock.
  • After that announcement, Austock announced an agreement to sell one of its key business units to a third party (subject to shareholder approval).
  • Mariner took Austock to the Takeovers Panel, alleging frustrating action.
  • Mariner’s application to the Panel backfired – the Panel looked at Mariner’s proposed bid and decided that Mariner did not have a reasonable basis to expect that it would have the funding in place to pay for all acceptances when its proposed bid became unconditional.
  • ASIC was getting ready to apply to the Panel anyway – it had already raised concerns with Mariner regarding the funding of its proposed bid and wanted the Panel to prevent the proposed bid.
  • Mariner ended up withdrawing its proposed bid by invoking one of its announced conditions that Austock should not make any material disposal (although the Panel stayed involved and made certain orders of unacceptable circumstances regarding Mariner’s funding and provision of information to the market).
  • In the aftermath, ASIC took Mariner to the Federal Court, alleging among other things that Mariner was reckless as to whether it would be able to perform its obligations relating to the takeover bid if a substantial proportion of the offers under the bid were accepted.

Legal issue

Section 631(2) of the Corporations Act prevents a person from publicly proposing to make a takeover bid if they have no intention of actually bidding or if they are being reckless as to whether:

  • the proposed bid is made; or
  • they will be able to perform their obligations relating to the takeover bid if a substantial proportion of the offers under the bid are accepted.

ASIC wanted the court to determine that Mariner had been reckless.

Court’s decision

The test for “reckless” conduct under s631(2)(b) of the Corporations Act is a subjective test. Applying that test, the court found Mariner was not “reckless”. A breach of s631(2)(b) requires actual awareness of a substantial risk that a bidder would not be able to perform the relevant obligations. In addition, having regard to the circumstances known to the bidder, it must be unjustifiable to take that substantial risk (or the bidder must consciously disregard or be indifferent to the risk). The mindset of the directors of the bidder and the commercial context are important factors in assessing whether “recklessness” has occurred.