Queensland North Australia Pty ltd v Takeovers Panel  FCAFC 68
The Full Federal Court has delivered a judgment that will change the way the Australian Takeovers Panel (the Panel) approaches declarations of unacceptable circumstances. Departing from the historically broad view of "ongoing circumstances" applied by the Panel and Courts alike, the Full Court has made it clear that there must be no confusion between circumstances the subject of the declaration and the effect those circumstances have on the affairs of the company. The decision also highlights the strict approach to be taken in relation to the time limitations imposed on the Panel by the Corporations Act 2001 (Cth) (the Act).
The Panel is tasked with protecting the rights of shareholders and ensuring that takeovers take place in an efficient, competitive and informed market. To achieve this, the Act empowers the Panel to declare circumstances in relation to the takeover or control of a company or managed investment scheme as unacceptable.
In July 2011 and March 2012, Queensland North Australia Pty Ltd (QNA) acquired interests in The Presidents Club Limited (PCL), an unlisted public timeshare company operating at the former Hyatt Coolum Resort in Queensland, Australia. The Panel (on application by PCL) found that the acquisitions were made in contravention of s606 of the Act and proceeded to make a declaration of unacceptable circumstances in July 2012. In so doing, the Panel placed a number of restrictions on QNA's ability to deal with its interests in PCL.
QNA sought judicial review of the Panel's decision but was unsuccessful at first instance. It subsequently appealed to the Full Federal Court.
The primary issue for consideration on appeal was whether PCL's application to the Panel and the Panel's declaration had been made outside the time limitations imposed by ss. 657B and 657C of the Act, which relevantly required the application to be made within two months, and any declaration to be made within three months, "after the circumstances occur".
The primary judge had concluded that PCL's application and the Panel's declaration was not made outside of time limitations because the unacceptable circumstances were ongoing circumstances. This was said to be because at the time of the application and the declaration, QNA continued to hold interests in the PCL which created a continuing state of affairs. Her Honour relied on a number of cases and Panel decisions in support of the position that the "circumstances claimed by PCL were far broader than the share acquisitions in July 2011 and March 2012".
Setting aside the decision of the primary judge, the Full Court unanimously held that her Honour erred by failing to distinguish between the circumstances and their effect. The Full Court found that the unacceptable circumstances were the acquisitions in July 2011 and March 2012. The fact that the effects of those acquisitions were ongoing did not render the circumstances themselves as "continuing to occur". In arriving at this position, the Full Court placed emphasis on the past tense of the word "occur" in ss. 657B and 657C and distinguished it from phrases such as "are occurring" or "have been occurring" which do not appear in the section.
The Full Court also commented that Parliament could not have intended the time limits in s657B to"reset on a daily basis" by relying on the ongoing effects of the circumstances found to exist.
In allowing the appeal, the Full Court held that the latest share acquisition occurred in March 2012 and accordingly, time had expired by the time of PCL's application in June and the Panel's declaration in July.
The orders of the primary judge and the decision of the Panel were set aside and the matter remitted to the Panel to consider whether an extension of time to bring the application should be granted.
The decision of the Full Federal Court emphasises the need for applicants, whether bidders or shareholders of the target company, who consider that unacceptable circumstances exist, to bring an application before the Panel, and for the Panel to make any declaration promptly and within the statutory time limits.
In dealing with an application, the Panel must clearly identify and distinguish between the circumstances said to be unacceptable and their effect on the state of the company's affairs. It is no longer possible for the Panel to rely on ongoing circumstances as a basis for extending the time limitations imposed by the Act when those circumstances are, in truth, merely the effects of the unacceptable circumstances. If the Panel considers that it requires an extension of time to make a declaration, it should do so pursuant to s657C(3)(b) and must afford the parties natural justice in that process.