The Takeovers Panel is the ‘go to venue’ of choice for resolving disputes in takeovers given its establishment was designed to facilitate timely and commercial outcomes – but this has limits. The recent decision in Careers Australia Group Limited 03  ATP 1 (Careers 03), as confirmed in Careers Australia Group Limited 03R  ATP 2, provides further guidance as to those limits.
Careers Australia Group Limited (Careers Australia) is an unlisted public company that was the subject of competing off-market takeovers bids in 2013. A competitive auction process saw the price rise from $0.66 per share to $0.87 per share, and Cirrus Business Investments Limited (Cirrus) emerge as the successful bidder. Cirrus was the holder of 45.2% of the shares in Careers Australia before it made the takeover offer which triggered the auction. The successful Cirrus bid closed in July 2013 and on completion, Cirrus held 99.99% of Careers Australia.
The application to the Panel was made a full 16 months after the offer closed. The applicants were former shareholders in Careers Australia, who held over 19% of its shares in aggregate before accepting into the Cirrus bid.
In November 2014, the applicants obtained a copy of the audited annual financial statements for Careers Australia for the 2013/2014 financial year. The financial statements revealed that Careers Australia had paid dividends and made a capital return to Cirrus during that year (i.e. after the offer closed). The applicants sought a declaration of unacceptable circumstances, arguing that the disclosure made to Careers Australia shareholders during the takeover process was misleading and deceptive and contained material omissions as:
- Cirrus failed to disclose all information that was material and known to it in its bidder’s statement and five supplementary bidder’s statements; and
- two Cirrus nominated directors of Careers Australia caused the target’s statement to be misleading and deceptive.
The applicants submitted that, as a result of the above, Cirrus’s acquisition of control of Careers Australia did not take place in an efficient, competitive and informed market and Careers Australia shareholders had not been given sufficient information to make an informed decision about the merits of the offer. Orders were sought to compensate the applicants and those former Careers Australia shareholders who had accepted into the Cirrus bid.
In alleging that unacceptable circumstances were demonstrated by the payment of dividends and the capital return, the applicants pointed to statements in the Cirrus bidder’s statement where Cirrus stated that the financial position of Careers Australia was such that it was unlikely that Careers Australia would pay any dividends for some time and that further capital from shareholders may be required. Further, Cirrus made intention statements to the effect that, due to its belief that Careers Australia management should continue to conduct the business to seek growth, Cirrus did not presently intend to seek dividends from Careers Australia and would recommend against any dividends being paid for the foreseeable future.
In a letter that was included in the Careers Australia target’s statement, the Cirrus-nominated Careers Australia directors made statements to the effect that it was their belief that the target’s statement gave a misleading and incorrect picture of Careers Australia, in particular the value of its shares and overall operating and financial condition. The Cirrus-nominated Careers Australia directors stated, in their letter, that the target’s statement was overly optimistic by focusing on earnings based multiples while ignoring operating cashflow, which they considered was the most important driver of value, and they noted Careers Australia’s inability to consistently generate positive operating cashflows.
Decision and comment
The Panel declined to conduct proceedings on the basis that the application was not made within the statutory two month time limit for making applications. This two month limit was established to underline the Panel’s purpose of providing timely and commercial outcomes. The Panel did not accept the applicants’ submissions that the two month timeframe should have started only after the applicants received Careers Australia’s financial statements and became aware of the dividend and capital return. The Panel reached the view that the relevant circumstances the subject of the application occurred in 2013 and therefore the application was out of time.
In considering whether to extend time for an application to be made, the Panel may consider the merits of the application, particularly where the existence of the alleged unacceptable circumstances is able to be hidden for more than two months. In the present application, the Panel noted that the time since the Cirrus bid closed was considerable and it was apparent that many intervening events had changed the business landscape for Careers Australia in that time. These events included a change in business structure, changes in market demand for Careers Australia’s products and Careers Australia having undertaking a round of debt financing. Importantly, the Panel took the view that it would be hard for the Panel to respond to the alleged unacceptable circumstances given the intervening events which resulted in the creation of new rights and obligations to third parties in respect of Careers Australia in the 16 months between the Cirrus bid closing and the application being made.
The two month time limit, along with other time limits on the Panel’s powers, exists to provide certainty to the market. This swift decision making process is crucial for takeovers and the speed with which the Panel can take action gives it a significant advantage over the Courts as the appropriate avenue for aggrieved parties in circumstances where there is a live control transaction or where there may be an effect on the control of a company. While the Panel may extend this two month deadline, the circumstances in this application were not sufficient to warrant the Panel exercising its discretion to do so in the interests of public policy. Relevantly, the Panel continued on to say that even if the application had been made within the time limit, the Panel would have declined to conduct proceedings. The Panel also referred to the applicants’ ability to apply to the Court rather than the Panel, particularly where the bid period has ended (as was the case here) and where an order seeking compensation is sought following the end of the bid period (also the case here). In addition, the Panel commented that the circumstances surrounding the application, including the intervening events in the 16 months since the Cirrus bid closed, would likely require a level of information gathering and forensic analysis for which the Panel is not best equipped. Taken in combination with the application being significantly out of time, the Panel declined to conduct proceedings.
The decision in Careers 03 affirms the reasonable limits that are imposed to preserve the Panel’s efficacy given the aims for which it was established. The decision also serves as a reminder that given the limitations on the scope of the Panel’s review powers, there may be circumstances arising from takeovers that may ultimately have to be addressed by the Courts if redress is to be sought.