The Australian Takeovers Panel has ordered the sale of shares by two connected parties that were seeking to exert control over a target company, even though the parties were not associates and their action did not contravene the law.
The parties' conduct did, however, breach two policies of the Australian takeover provisions - and that was enough to ground both the adverse finding, and orders that the parties must sell shares in their target.
The decision and orders are a forceful reminder of the primacy of fundamental takeover policies in the Australian market. Avoiding contraventions of the law does not create a safe harbour for parties seeking influence or control over Australian public companies. Contraventions of fundamental policies can lead to adverse orders.
In Molopo Energy Limited 01 & 02, the Panel at first instance found insufficient evidence to decide that Keybridge and Aurora were associates. This meant that their shareholdings (of 19.95% and 17.92% respectively) were not aggregated for the purposes of applying the Australian core takeover prohibition (section 606 of the Corporations Act), of not passing through a 20% shareholding unless a permitted transaction structure is used. But the Panel did declare that Keybridge's and Aurora's conduct was unacceptable. Having made that declaration, it was empowered to make the orders requiring the sale of some of Keybridge's and Aurora's shares.
The declaration was made on the basis that the Panel determined that:
(a) the acquisition of control over voting shares in Molopo had not taken place in an efficient, competitive and informed market and
(b) the holders of shares in Molopo did not know the identity of persons who had acquired a substantial interest in Molopo.
Keybridge and Aurora therefore contravened two of the fundamental takeover policies (section 602 of the Corporations Act). That was the basis on which the Panel made its declaration of unacceptable circumstances.
Of course, the fact that the Panel found that there was insufficient evidence to determine that there was an associate relationship does not mean that there was no such relationship. Given the Panel's limited forensic resources, there is a risk that the evidence was incomplete. Even if complete, the evidence may have allowed scope for different conclusions as to whether there was an associate relationship.
Such challenges are not uncommon in cases concerned with possible associate relationships. In this context, the making of a declaration and orders where the outcome of the conduct complained of infringes policy but falls short of a legal contravention is particularly potent .
The Panel's decision in Molopo Energy Limited 01 & 02 was appealed. The Review Panel has made its decision and orders, but has not yet published its reasons.
The Review Panel found that Keybridge and Aurora were associates, and therefore that they had contravened the core takeover law prohibition (section 606 of the Corporations Act), of not passing through a 20% aggregated shareholding unless a permitted transaction structure was used. It will be interesting to see, when the reasons are published, whether this finding was based on new evidence, or a different view of the existing evidence.
Importantly of the purposes of this note, the Review Panel also found that there were unacceptable circumstances based on the conduct of the parties, independently of the contravention of section 606, 'as the initial Panel found'. It therefore endorsed an approach which can lead to sanctions including sale orders, even when there has been no contravention of the law.