Chris Bowen (Prospect, Australian Labor Party, Shadow Assistant Treasurer) Share this | Hansard source

Labor will be supporting the Corporations Amendment (Takeovers) Bill 2007, though I will be moving an amendment in the consideration in detail stage. The Takeovers Panel was established as a replacement for the Corporations and Securities Panel as part of the Corporations Law Economic Reform Program in 1999. Labor welcomed the introduction of the Takeovers Panel. It does a good job. The panel takes a lot of litigation out of the process of takeovers and it ensures as smooth a process as possible as takeovers occur. It has been an effective forum in resolving disputes and reducing litigation during the bid period. These would otherwise increase costs of takeovers, which is not good for the Australian economy or, in the end result, consumers. The role of the panel, however, should not restrict companies involved in takeover disputes from the right to judicial review of its decisions.

The amendments in this bill arise out of two court cases, Glencore International AG v Takeovers Panel of both 2005 and 2006—the Glencore cases. The Glencore cases construed more narrowly than had previously been the case the jurisdiction of the panel. This bill seeks to amend the Corporations Act to ensure that the panel will continue in its role of resolving disputes during the takeover period. The panel has the power to make declarations in circumstances in relation to the takeover or the control of an Australian company it finds to be unacceptable during the bid period. In determining whether activities by companies involved in takeover bids are unacceptable, the panel has relied on the definition of ‘substantial interest’. In the Glencore cases the panel decided that equity swap arrangements to indirectly purchase shares through two investment banks was a substantial interest, which gave them jurisdiction over the bid. However, the Federal Court took a different approach. The Federal Court found that the equity swap did not increase Glencore’s substantial interest and therefore precluded the panel from making any declarations with regard to this bid.

The disclosure of equity derivatives, although an issue arising out of the Glencore cases, is not dealt with explicitly in this bill. Labor supports the view of the Parliamentary Joint Committee on Corporations and Financial Services—on which I serve—that there should be consultation with stakeholders to amend chapter 6C of the Corporations Act on the issue of disclosure of equity derivatives. We also support the view that this should happen as a matter of priority. So the specific issue which arose out of the Glencore cases is not addressed in this bill. We recognise that this will take considerable consultation. We recognise that it is important to get this right. We say that consultation should occur on an urgent basis and that more legislation should be introduced in the future to deal specifically with the issue of equity derivatives.

The bill seeks to clarify the definition of a substantial interest in section 602 by inserting a new section, 602A, which gives an indirect definition, so that the panel’s role should not be limited to the matters described in the section. It also amends section 657A so that the panel’s jurisdiction when making a declaration of unacceptable circumstance is not restricted to looking at current circumstances but includes past and future circumstances of the control of the company. This amendment effectively expands the jurisdiction of the panel by allowing it to prevent likely future effects of circumstances that it reviews.

The bill repeals the requirement to give each person to whom the panel’s order relates an opportunity to make a submission on the matter and substitutes this with a new requirement to receive submissions only from those people directly affected. It also creates a time limit for concluding reviews on panel decisions.

Currently, there is no definition of a ‘substantial interest’ in the act, and this is an anomaly which has given rise to the Glencore case. Labor supports the insertion of the section 602A definition of substantial interest. We note that there were a number of concerns raised with the Parliamentary Joint Committee on Corporations and Financial Services in relation to the indirect definition. The indirect definition of substantial interest is said to have the potential to be misinterpreted, to increase uncertainty and to raise the possibility of the panel inventing its own jurisdiction. This issue was raised by the Australian Institute of Company Directors with the joint committee. The explanatory memorandum states that there are limits to the definition of the substantial interest. The amendment is not intended to include, for example, the interests of employees, suppliers and customers who are involved in the company.

The bill also seeks to expand the jurisdiction of the panel, as I said, so that it can consider the likely future effects of the current circumstances. This matter was addressed in some detail by the joint standing committee, of which I am a member. The Treasury and the panel itself made the point to the joint committee that a prescriptive definition would encourage people to dance around the definition and to find loopholes. Rather, a non-prescriptive definition allows the panel more scope to roam. On balance, the Treasury’s argument is one that we find persuasive.

There were also concerns raised that the amendment would allow the panel to consider the effects of circumstances in the past, present and future, which would increase the jurisdiction of the panel in a way which could not be foreseen. Paragraph 657A(2) qualifies the jurisdiction of the panel by using the words ‘having regard to the purposes of this Chapter set out in section 602’. Submissions to the joint committee suggested that this may not adequately address the uncertainty of the panel’s jurisdiction. The Australian Institute of Company Directors submitted that this change could bring about the prospect of a constitutional challenge because it is in effect giving the panel the right to determine its own jurisdiction.

In the inquiry into the bill, the Law Council proposed that the words ‘having regard to’ be replaced with ‘because they are inconsistent with or contrary to the purposes as set out in section 602’. This would create more certainty about the scope of the panel. After some consideration, Labor has supported the Law Council’s suggestion. This was also a bipartisan and unanimous recommendation of the joint committee. When the bill moves to the consideration in detail stage, I will move an amendment to give effect to Labor’s position, which is to support the submission of the Law Council of Australia to the joint standing committee.

Concerns were also raised that the new proposal would allow the panel to receive only submissions from parties who will be directly affected by the proposed order. Labor understand these concerns and the motivations of the people who raise them; however, we support this change as it will increase the efficiency of the panel’s proceedings.

We acknowledge that there may be a range of ways in which shareholders increase their interest in targeted companies that may not trigger a review by the panel. Labor are of the view that there needs to be a review of chapter 6C of the Corporations Act to consider separately the issue of the disclosure of equity derivatives. Again, this was a bipartisan recommendation of the joint standing committee, and we call on the government to adopt it.

Labor believes that the Takeovers Panel has an important role to ensure that change in the control of a company occurs in as smooth an operation as possible and with the market having the best information possible, as set out in section 602 of the act. Labor supports the bill as part of a corporate regime that will increase the efficiency of the takeover process without restricting the right of parties to access the courts to review its decisions in accordance with the principles of administrative law. Labor believes that the amendment, which I will move in the consideration in detail stage, could make this a better bill. However, Labor supports it as a good bill.

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