This decision by the Takeovers Panel illustrates the importance of sufficient and timely disclosure in substantial shareholder notices of the identity and interests of shareholders in a position to influence or control a listed entity, ensuring that the market is not misled about ownership and control of shareholders. Ongoing non-disclosure following the issue of a tracing notice may prevent an argument that the non-disclosure was the result of inadvertence or mistake, particularly if there have been repeated further requests for information. As stressed by the Panel, shareholders should seek timely and appropriate professional advice to ensure compliance with the requirements of Chapter 6C in giving substantial holder notices and responding to tracing notices.
In March 2013, Northern Iron Limited (Northern Iron) issued a tracing notice under section 672A of theCorporations Act 2001 (Cth) (Corporations Act) to its largest shareholder, Dalnor Assets Ltd (Dalnor). The tracing notice related to a substantial shareholder notice lodged by Dalnor which did not include all of the information about relevant interests in the shares required under section 672B of the Corporations Act. Dalnor repeatedly failed to provide the information despite several subsequent requests by Northern Iron. Following a further acquisition of shares, Dalnor lodged a notice of change of interests of substantial shareholder on 13 May 2014 (and 9 days later on 22 May 2014, a revised notice of change of interests of substantial shareholder) which disclosed some more details of parties holding a relevant interest in the shares. On 20 May 2014, Dalnor also separately responded to Northern Iron’s request for information required by the original tracing notice, disclosing the information in the revised substantial holding notice (plus some additional information) and advised that it was not aware of any other person who had given it instructions in respect of the shares.
The Takeovers Panel:
- firstly noted that the legislative purpose of Chapter 6C is to ensure that transactions in listed securities occur in an efficient, competitive and informed market and is designed to ensure that people cannot conceal their control of substantial parcels of listed securities from other market participants;
- found no unreasonable delay by Northern Iron in making its application on the basis that the application was brought on by developments (Dalnor wanted to propose a resolution to appoint a nominee director to the Northern Iron board) rather than being merely tactical;
- did not accept Dalnor’s submission that the breaches were “genuinely the result of inadvertence or mistake” and that further proposed disclosure removed the need for a declaration of unacceptable circumstances. There had been a long period of non-disclosure and while there had been a number of iterations of substantial holder notices with increasing disclosure, complete disclosure had still not been made; and
- stressed the importance of obtaining proper professional advice to ensure compliance with the requirements of Chapter 6C in giving substantial holder notices and responding to tracing notices. Dalnor did not appear to have taken advice from an Australian law firm until late in the piece.
In light of the above, the Panel found that:
- the disclosure by Dalnor in its 20 May 2014 letter and 22 May 2014 revised substantial holding notice was deficient because it did not disclose all information required under the tracing and substantial holding notice provisions in the Corporations Act, including the names and addresses of every person who had a relevant interest in the shares and details of any relevant agreement through which the parties that were disclosed had a relevant interest, or provide a copy of relevant documents; and
- Dalnor’s deficient disclosure was unacceptable because the acquisition of control over voting shares in Northern Iron had not taken place in an efficient, competitive and informed market and also the Northern Iron board and shareholders and the market in general had not known, and continue not to know, the identity of the persons that acquired a substantial interest in Northern Iron.
The Panel thus made orders to the effect that Dalnor:
- lodge a new substantial holding notice;
- not be eligible to rely on the “creep” exception in item 9 of section 611 of the Corporations Act until 6 months after the lodgement of the new substantial holding notice; and
- pay ASIC’s costs and part of Northern iron’s costs (reduced on the basis of a “commercial approach” to costs by the Panel).
The Panel declined to impose a general voting restriction on Dalnor on the basis that as there was no currently proposed meeting of the Northern Iron shareholders, there would be at least 28 days (ie the notice period) for the market to digest Dalnor’s corrective disclosure.
See the reasons for decision.