ASIC has been active over the past few months in releasing new policy guidance and enforcing its standards in corporate control transactions.
Consolidated takeover guidance
Over the course of late last year, ASIC focused on consolidating the existing regulatory guidance on takeovers to establish a more logical body of takeover policy and which would provide ASIC’s current view on various takeover issues.
On 21 June 2013, ASIC consolidated 17 of the existing regulatory guides into four new regulatory guides and 11 new class orders. ASIC is of the view that the revised guidance on takeovers is now clearer, more certain and more accurate for investors and companies.
The new regulatory guides cover takeover bids, substantial holdings, compulsory acquisition and buy-outs and address discrete issues for ASIC’s administration of the law.
ASIC intervention in corporate control transactions
As part of ASIC’s invigorated focus on takeovers policy and market integrity, it recently intervened in transactions impacting the control of two companies. In one case, an entitlement offer was made to eligible shareholders to raise approximately $22.2m. The company had sought to rely on the so called “rights issue” and “underwriting” exceptions to the prohibition against the acquisition of interests in more than 20% of voting shares in a company. Under the offer, which was being underwritten by entities related to the company’s Chairman, the Chairman and his related entities could have potentially controlled up to 86.45% of the company’s voting shares.
ASIC raised concerns that that proposal “was an abuse of the rights issue and underwriting exceptions under the law”. After the company did not address ASIC’s concerns, ASIC then applied to the Takeovers Panel for a declaration of unacceptable circumstances and orders requiring the company to obtain shareholder approval if it was to proceed with the offer and underwriting arrangements. The offer was subsequently withdrawn so no declaration was made, but the Takeovers Panel commented that the entitlement offer would have given rise to unacceptable circumstances.
The second case related to a takeover by scheme of arrangement. As part of the scheme of arrangement process, the company proposing the scheme must apply to the courts for approval of the scheme. One factor the court will take into account is whether ASIC has provided a “no objection letter”.
In this case, ASIC did not provide this letter and the court therefore declined to approve the scheme. ASIC’s concern was that the company’s audited accounts had not been lodged ahead of the shareholder meeting to approve the scheme as promised in the scheme booklet and that therefore the shareholders did not have all the information they needed to decide the future of the company.
Three things to take from ASIC’s recent enforcement activity are that:
- ASIC can and will actively take steps (including applying to the Takeovers Panel) in relation to corporate control transactions if it is concerned that unacceptable circumstances may exist in relation to the transaction.
- In a scheme of arrangement, ASIC will closely review the scheme documentation and subsequent conduct of a company the subject of the scheme before providing its “no objection letter”.
- In the words of ASIC Commissioner John Price, “these two cases are a reminder to those seeking to acquire control of companies of the importance of ensuring all shareholders have the opportunity to have a say or participate in the benefits of a control transaction and also ensuring that they are given sufficient information to make an informed decision”.
Electronic prospectus guidance
In April 2011, ASIC released a consultation paper in order to improve disclosure documents under the Corporations Act, including asking whether ASIC guidance may be needed to facilitate the use of the internet and other electronic technologies to distribute disclosure documents.
Following this consultation, on 17 June 2013, ASIC released a further consultation paper and draft regulatory guide on the distribution of offers of securities by email and the internet. ASIC has stated that the revised guidance aims to ensure that ASIC’s guidance reflects current market practices and technological advances made since its previous guidance on this point was released.
The proposed guidance clarifies that ASIC relief to make electronic offers is not needed in many instances. Also, the guidance includes an explanation of ASIC’s view on the way the internet and other means of electronic distribution can be used in making offers of securities, good practice guidance to assist persons using electronic distributing offers of securities via electronic means and continuation of relief for the use of personalised or AFS licensees created application forms. Submissions to this consultation are due by 12 August 2013.
External dispute resolution (EDR) schemes for small business borrowers
The Financial Service Ombudsmen and the Credit Ombudsmen Service Limited are two approved schemes that provide a free, independent dispute resolution service if you have a complaint with one of its members (i.e. a lender or mortgage broker). These are typically used for complaints of hardship or where a lender is seeking to enforce their loan to recover the debt (by repossession).
On 13 June 2013, ASIC released a report and updated regulatory guidance refining the rules for access to EDR schemes for small business borrowers. One of the key changes is that even where the lender has already commenced court proceedings against the small business borrower, if the credit contract is $2m or less, the small business borrower will continue to be able to take the matter to the EDR scheme.
In addition, ASIC has also updated its regulatory guidance to remove out-dated transitional references for consumer credit and traditional trustee company services and update timeframes for handling complaints at internal dispute resolution to reflect legislative changes made to the hardship regime.