The Takeovers Panel declined to conduct proceedings in relation to the affairs of Knights Capital Group Limited (Knights). Knights applied to the Panel for a determination of unacceptable circumstances on the grounds that the acquisition of a 70.7% interest in Knights by Australian Executor Trustees Limited (AET) constituted a prohibited acquisition under section 6061. AET held its Knights shares as trustee or custodian for various beneficial owners. Knights submitted that AET’s actions in seeking to remove and appoint directors to the Knights board meant AET was not holding the shares as a bare trustee and therefore could not rely on the section 609(2) “bare trustee” exception to the prohibition in section 606.

In considering whether AET’s actions had an unacceptable impact on the control of Knights, the Panel determined that any unacceptable circumstances would be resolved provided AET acted in accordance with the instructions of the relevant beneficial owners of the shares. In this respect, the Panel accepted an undertaking by AET that it would only act in accordance with instructions from the beneficial owners in voting its Knights shares.

The Panel referred the question of whether AET held its shares in Knights as a “bare trustee” to the Australian Securities and Investments Commission, which the Panel considered to be best placed to make further enquiries into AET’s role and the bare trustee exemption.


Knights is an unlisted public company with more than 50 shareholders.

At the time of the Panel decision, AET held a 70.7% interest in Knights shares on behalf of various beneficial owners across four categories of funds:

  • Kingston Superannuation Trust – AET in its capacity as trustee had full discretion on decisions relating to corporate actions;
  • AET Small APRA Fund – AET in its capacity as trustee had to act as directed by the financial advisers of the beneficiaries;
  • Portfolio Management Service – AET in its capacity as custodian had to act as directed by the beneficiaries and their financial advisers, including voting the Knights shares at any meeting of Knights as so directed; and
  • AET Self Managed Super Fund – AET as custodian had to act as directed by the beneficial holders or their financial advisers.

The structure of the relationships is as follows:

Click here to view chart.

AET acquired its holding through various share acquisitions beginning on 30 June 2001.

When acquiring a relevant interest in voting shares in Knights which was greater than 20%, to overcome the prohibition in section 606 AET relied on the exception set out in section 609(2), which provides that no relevant interest will be acquired where a person who would otherwise have a relevant interest acquires the shares as a “bare trustee”.

In June 2012, AET wrote to Knights requesting the removal of a Knights director. AET alleged that Knights’ constitution entitled a shareholder with more than 50% of Knights shares to request a director be removed. Knights did not comply as it had concerns about the validity of the request. AET then requisitioned a Knights shareholders’ meeting under section 249D to remove two non-executive directors and appoint three new directors.

Knights proposed to put the resolutions to Knights shareholders at the 2012 annual general meeting. AET agreed with this proposal and withdrew the requisition notice.

Panel application and consideration

On 29 November 2012, Knights made an application to the Panel seeking a declaration of unacceptable circumstances.

Knights submitted:

  • section 606 prohibits the acquisition of more than 19.99% of voting shares in Knights by AET unless such acquisition is as a bare trustee;
  • AET, seeking to have the board resolutions to remove directors and appoint new directors to the Knights board put to Knights shareholders, without express authorisation from the relevant beneficial owners of the underlying AET shares, meant AET was acting outside the scope of a bare trustee; and
  • the acquisition by AET of the Knights shares constituted a prohibited acquisition under section 606.

Knights submitted that therefore:

  • there was an existing and continuing unacceptable effect on the control of Knights which prejudiced Knights shareholders; and
  • AET did not acquire the Knights shares in an efficient, competitive and informed market.  

The Panel considered that a bare trustee was one “with no active duties to perform” (referring to the Panel decision in AuIron Energy Limited [2003] ATP 31 at [95]).

The Panel noted that whilst AET was generally required to act upon direction by the financial advisers to the relevant beneficial owners of the underlying shares when making decisions regarding the Knights shares, AET did have full discretion to act in relation to corporate matters for shares held on trust for the Kingston Superannuation Trust. The Panel found that this implied AET could vote the Knights shares held on behalf of Kingston Superannuation Trust independently of the beneficiaries. The Panel considered that such unfettered discretion may go beyond the role of a bare trustee.


The Panel concluded there was no reasonable prospect that it would make a declaration of unacceptable circumstances upon accepting an undertaking by AET that it would only vote the shares it held at the 2012 annual general meeting in accordance with directions given by the relevant beneficial owners (which, AET submitted, it had always intended to do). Accordingly, the Panel determined that it did not need to resolve whether AET:

  • acted as a bare trustee; or
  • contravened section 606 by acting outside of its capacity as bare trustee by taking action without obtaining the instructions of the beneficial owners.  

The Panel did however refer the above questions to ASIC for its consideration on the basis that the investigation into whether AET was a bare trustee or had contravened section 606 was likely to take some time and raised broader issues of regulatory policy regarding the bare trustee exemption that ASIC was best placed to consider.


Shareholders relying on the bare trustee exemption in section 609(2) when acquiring shares which would otherwise be in contravention of section 606, should ensure their actions when dealing with such shares are authorised by the relevant underlying beneficial owner.

Trustees should be aware that if they are entitled to act with “full discretion” concerning decisions relating to the shares which they hold in trust, or if they may vote shares independently of the relevant beneficiary, this may indicate that their role as a trustee has exceeded that of a bare trustee.

It will be interesting to see the outcome of the Panel’s referral of this matter to ASIC, and whether ASIC provides any additional guidance in relation to the appropriate scope of the role of a trustee seeking to rely on the section 609(2) bare trustee exemption.