Mergers and Acquisitions

Competition Policy Review Panel proposes revised merger approval process

On 22 September 2014, the Competition Policy Review Panel released its draft report which, among other things, sets out recommendations to reform and streamline the clearance process for mergers that substantially lessen competition.

Currently, although there is no mandatory notification procedures, parties can obtain clearance (through an informal or formal process) or authorisation for proposed mergers.  While informal clearance is the most common approach, primarily achieving efficient results, the formal clearance and authorisation processes under the Competition and Consumer Act 2010 (Cth) have been widely criticised and underutilised.

Where formal clearance is sought, the Australian Competition and Consumer Commission ("ACCC") will consider whether the proposed merger would substantially lessen competition.  Parties may also seek authorisation from the Australian Competition Tribunal ("Tribunal"), which will take into account the net public benefit of the proposed merger.  That is, the current system results in the ACCC and Tribunal considering two separate tests.

The draft report recommends various changes to the formal clearance/authorisation process, the most significant of which involves combining the two current tests to make the ACCC the decision-maker in the first instance.  Under such a model, the ACCC would consider both the substantial lessening of competition and net public benefit tests and grant clearance on either ground.  For example, the ACCC could grant approval for a merger which results in a public benefit that outweighs anti-competitive concerns.  The draft report does not suggest any change to the substantial lessening of competition test itself.

The draft report further recommends winding back the requirements to provide up-front information and introducing strict timeframes for the formal clearance process, which would result in an ACCC decision within 3 months.  Under the recommendations, the Tribunal would become the appellate body for ACCC decisions and be subject to the same strict timeframes.  

While the draft report recommends retaining the informal process, it advocates ACCC consultation with business representatives to achieve more timely decisions.

For a full summary of the recommendations, see our article Draft Report in Harper Competition Policy Review below.

For more information, please contact Andrew Parlour or Daniel Bell.

Corporate

Director personally liable for company’s misleading or deceptive conduct

In the recent decision of Grande Enterprises Ltd v Pramoko [2014] WASC 294, the Western Australian Supreme Court found a director personally liable for engaging in misleading or deceptive conduct on behalf of a company.

In September 2008, Grande Enterprises Ltd (“Grande”) entered an agreement to purchase shares in Zen Resources Ltd (“Zen”) from Southern Cross International Investments Ltd (“Southern Cross”) for $2.25 million.  The Letter of Offer contained a buyback clause which provided that if Zen was not taken over by a company listed on the ASX or not itself listed on a major stock exchange within 2 years, Southern Cross would buy back the shares from Grande for the same price.

By May 2010, Zen had not been listed on a major stock exchange or been taken over by an ASX-listed company.  Grande contacted a director of Southern Cross, Mr Pramoko, and notified him that Grande would be invoking the buyback clause.

Southern Cross made no arrangement to buy back the shares, which resulted in Grande commencing legal action to recover the amount paid for the shares.  Grande alleged that the making of such a representation in the absence of any reasonable grounds amounted to misleading or deceptive conduct under the (then) Trade Practices Act 1974 (Cth).  Grande also alleged that Mr Pramoko had made a verbal representation that he would personally buy back the shares if Southern Cross could not.

In determining whether Southern Cross had the capacity to fulfil the promise to buy back the shares in the future, the Court undertook an objective analysis of the commercial likelihood that a third party would advance unsecured funds to Southern Cross.

Mr Pramoko failed to demonstrate that it was reasonable for him to represent that Southern Cross intended to buy back the shares and had the capacity to do so.  Importantly, the Court determined that there was no requirement that Mr Pramoko knew the conduct was misleading or deceptive.  Although Grande failed to prove that Mr Pramoko had promised to personally buy back the shares, he was still found personally liable as a director for the misleading conduct of Southern Cross through the buyback clause. 

The Australian Consumer Law allows a court to grant the relief that it deems appropriate.  The evidence was sufficient to establish that there was no market for the Zen shares, meaning damages would be difficult to determine.  The Court ordered that Mr Pramoko pay Grande $2.25 million with interest at a rate of 6% in exchange for the shares in Zen.  Mr Pramoko was unsuccessful in his bid to have the damages proportionately reduced due to Grande’s failure to undertake due diligence, which could have revealed Southern Cross’ inability to perform the buyback clause.

This case highlights that under the Australian Consumer Law, directors can be held personally liable for engaging in misleading or deceptive conduct when entering a commercial transaction on behalf of a company.

For more information, please contact Rohan HarrisAndrew Parlour or James Murrie.

Proposed amendments to Corporations Act 2001 – member requested general meetings

On 22 October 2014, the Corporations Legislation Amendment (Deregulatory and Other Measures) Bill 2014 (Cth) (“Bill”) was introduced into the Federal Parliament.

The Bill proposes to change the “5%/100-member rule” to reduce red tape for large companies and not-for-profits.  TheCorporations Act 2001 (Cth) currently requires a company to hold a general meeting at the request of 100 voting members or members with 5% of all votes that may be cast at the meeting.  If the Bill is passed, only members holding 5% of the votes will be entitled to request a general meeting.  However, 100 members entitled to vote will still be entitled to add agenda items for a general meeting.

The Bill also proposes amendments to the provisions concerning auditor appointments (see our article Proposed amendments to Corporations Act 2001 – auditor appointments below)

To view the Bill, click here.

Competition

Draft report by Harper and Competition Policy Review Panel

On 22 September 2014, the Competition Policy Review Panel, headed by Professor Ian Harper, released its draft report of its wide-ranging competition review.

The panel assessed whether Australia’s competition policy is “fit for purpose” and made recommendations in three main areas – competition policy, competition laws and competition institutions.

The recommendations of the draft report include:

  • introducing a revised set of competition principles to apply to all activities of Commonwealth, State, Territory and local governments;
  • a review of regulations restricting competition to remove unnecessary restrictions on competition and ensure they take into account the public interest;
  • broadly simplifying competition law and, in particular, the cartel conduct provisions;
  • amending the misuse of market power provisions to remove the “taking advantage of market power” limb and replace it with a “substantial lessening of competition” test, along with a defence to exempt from the prohibition conduct involving a “rational business decision” which are in the long-term interests of consumers;
  • streamlining the merger clearance process (see our article Competition review panel proposes revised merger approval process above);
  • simplifying the authorisation and notification provisions;
  • enhancing the governance structure of the ACCC with the addition of a Board, including independent members representing, for example, business, consumer and academic perspectives;
  • establishing the Australian Council for Competition Policy, a body to oversee and implement the evolving competition policy agenda; and
  • establishing an access and pricing regulator (to undertake functions currently exercised by the ACCC, National Competition Council and Australian Energy Regulator).

Along with its recommendations, the draft report poses a number of questions and encourages input from stakeholders.  Submissions on the draft report are due by 17 November 2014.

For more information, please contact Rohan HarrisChris Kent or Daniel Bell.

Trusts and Taxation

Commissioner of Taxation considers excess GST provisions

We previously reported on the introduction of the Tax Laws Amendment (2014 Measures No 1) Act 2014 (Cth) (“Amending Act”), which amended the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (“GST Act”) and the Taxation Administration Act 1953 (Cth) to ensure that excess GST is not refunded where an entity would obtain a windfall gain.

The Commissioner of Taxation recently released a draft ruling that considers the meaning of the terms “passed on” and “reimburse” for the purposes of determining whether Division 142 of the GST Act applies to excess GST.

The draft ruling provides that “excess GST” is the amount of GST in excess of the amount payable by a taxpayer within a given tax period.  Typically, a taxpayer accumulates excess GST by either mischaracterising a sale or arrangement as taxable (for example, incorrectly treating a GST-free or input taxed supply as a taxable supply) or miscalculating GST (for example, under the margin scheme).

The new Division 142 of the GST Act states that an entity is not entitled to a refund of excess GST where the entity has “passed-on” the GST to another entity and has not reimbursed that other entity for an amount equivalent to the passed-on GST.  An entity is taken to have reimbursed the recipient for the passed-on excess GST in circumstances where the reimbursement:

  • takes the form of a payment of money or the setting off of mutual liabilities;
  • corresponds to the amount of excess GST passed on to the recipient; and
  • has actually been made and is not merely planned to be made.

To view the draft ruling, click here.

To view our article on the Amending Act, click here.

Charities

The Hunger Project decision and fundraising public benevolent institutions

We previously reported on the Full Federal Court’s decision in Commissioner of Taxation v Hunger Project Australia, which confirmed that a fundraising organisation can be recognised as a public benevolent institution (“PBI”) even where it does not provide direct relief.  In light of this decision, the Australian Charities and Not-for-profits Commission (“ACNC”) released an Interpretation Statement that provides an insight into how the ACNC will assess similar PBI applications moving forward.

The Interpretation Statement adopts the decision and reasoning of the Court. It is enough if the benevolent relief is delivered indirectly with fundraising proceeds through related or associated entities.  Fundraising will be an activity recognised for being an “institution”, and is more than merely administering a trust or fund.

The Interpretation Statement also reiterates, based on past Court decisions, that a PBI is an institution that promotes the relief of poverty or distress, which has:

  • principal objectives of benevolent relief;
  • clear mechanisms for delivering benevolent relief; and
  • a relationship of collaboration and a common public benevolent purpose.

The Australian Taxation Office has released a Decision Impact Statement addressing whether an organisation, which principally carries out fundraising activities, is a PBI to access fringe benefits tax exemptions.  The Australian Taxation Office has agreed to adopt the decision and reasoning of the Court and to endorse an entity as a PBI, such as those fundraising PBIs registered by the ACNC.

To view the Interpretation Statement, click here.

To view the Decision Impact Statement, click here.

To view our previous alert on the case, click here.

Guidance on the application of charity law to housing providers

On 23 September 2014, the ACNC released a Draft Interpretation Statement to provide guidance on the application of charity to housing providers.

The Draft Interpretation Statement provides that an organisation that was charitable in the provision of housing prior to the commencement of the Charities Act 2013 (Cth), remains charitable under the new regime. Since the Act commenced, the provision of housing in pursuit of promoting the advancement of health, social or public welfare, or for any other purpose beneficial to the general public, may be deemed charitable.

For example, in the context of relieving poverty, the provision of housing assistance to those who cannot afford, from their own resources, such accommodation as would give them a modest standard of living could be considered charitable. ‘Housing’ includes accommodation provided through hostels, crisis accommodation, shared accommodation, units or houses, and may be temporary or permanent. Shared equity housing purchase schemes would be assessed on a case-by-case basis.

Further, it is acceptable for charitable housing providers to fund the provision of charitable housing by a variety of means, including commercial operations, so long as the income generated is solely directed to that charitable purpose. Despite being commercial in nature, such activities are seen as intrinsically charitable in character as they are carried out in furtherance of a charitable purpose.

The ACNC intends to finalise the Draft Interpretation Statement by the end of October 2014.

To view the Draft Interpretation Statement, click here.

Proposed amendments to Corporations Act 2001 – auditor appointments

We reported on the proposed amendments to the “100 member rule” in our article, Proposed amendments to Corporations Act 2001 – member requested general meetings, above.

The Bill also proposes removing the requirement for certain companies, such as charities, to appoint an auditor.  Under the current legislation, such organisations are required to appoint an auditor even though their financial statements only need to be reviewed and not audited. 

To view the Bill, click here.

Personal Property Securities

Review of the Personal Property Securities Act 2009

We previously reported on the statutory review of the Personal Property Securities Act 2009 (Cth) (“PPS Act”), as required by section 343 of the PPS Act.

The review Secretariat, Bruce Whittaker, received 37 submissions on issues particular to small businesses, including a submission made by Adam Colabufalo of Russell Kennedy who proposed modifications to the PPS Act to assist in generating transaction efficiency by removing unnecessary exclusions when acquiring and disposing of serial-numbered goods.

The interim report identified two consistent themes arising from the stakeholder submissions.  Firstly, that there was a general lack of awareness of the PPS Act within the community; in particular, many small businesses do not understand the extent to which the PPS Act can impact their activities.  Secondly, the PPS Act is overly complex, which means those individuals and businesses aware of the potential impact of the PPS Act have been unable to determine what this impact is and how they can respond to it.

Mr Whittaker did not recommend any priority legislative action for Government consideration at this stage; rather, he announced that a series of consultation papers would be released for consideration and feedback by stakeholders.  The interim report identifies several topics that the consultation papers may address, including transactions to which the PPS Act applies, priority rules, modes of perfection and enforcement of a security interest.

To view the interim report, click here.

To view our submission, click here.

Correcting the PPS Register – a case study

In the recent case of SFS Projects Australia Pty Limited v Registrar of Personal Property Securities [2014] FCA 846, the Federal Court held that the Personal Property Securities Registrar (“Registrar”) has the power under the PPS Act to restore registrations in circumstances where a registration is incorrectly removed as a result of an error on the part of the person who made the application.

On 22 July 2014, in a transaction involving the transfer of security interests, the assignor incorrectly applied to amend the PPS Register to record that the security interests were released.  The PPS Register was amended accordingly.

The assignor’s error was identified within an hour of lodging the application and the assignor and the assignee (“Applicants”) applied to have the entire registration restored under section 186 of the PPS Act.  The Registrar contended that section 186 of the PPS Act was only enlivened where the mistake had been made by the Registrar, not the parties.

The issue before the Federal Court was whether the Registrar had power under the PPS Act to restore data to the PPS Register, having been incorrectly removed as a result of an error on the part of the party who made the application.

Under the PPS Act, the Registrar has the power to restore data where it appears that the data was “incorrectly removed” from the PPS register.  Gleeson J held that data may be incorrectly removed because of a mistake made by a person submitting an application to the Registrar.

Section 186(2) provides that registrations are restored as if they had “never been removed from the Register”. This decision confirms that parties may be able to undo errors made in applications to amend the PPS Register.

For more information, please contact Adam Colabufalo.

Employment

Commonwealth Bank of Australia v Barker [2014] HCA 32

The High Court of Australia’s decision in Commonwealth Bank of Australia v Barker on 10 September 2014 confirmed that a term of mutual trust and confidence should not be implied by law in employment contracts.

Russell Kennedy’s Workplace Relations, Employment and Safety Team recently reported on this decision.  

To view the article, click here.