Danna Vale (Hughes, Liberal Party) Share this | Hansard source

The purpose of the Corporations Amendment (Takeovers) Bill 2007 is to implement legislative amendments to the provisions of the Corporations Act 2001 that relate to the Takeovers Panel. It is designed to allow the panel to continue to act in an effective, efficient and expeditious manner, relying on the specialist expertise of its members, so that the outcome of any takeover bid can be resolved by the target shareholders on the basis of its commercial merits.

The Takeovers Panel is the primary forum for resolving disputes about a takeover bid until the bid period has ended. The panel is a peer review body with part-time members appointed from the active members of Australia’s takeovers and business communities. The panel is established under section 171 of the Australian Securities and Investments Commission Act—the ASIC Act. It is given various powers under part 6.10 of the Corporations Act. The panel has a full-time executive based in Melbourne to assist members of the panel and the takeovers community, draft policy and provide support to the panel in its decisions.

The panel has wide powers. Its primary power is to declare circumstances in relation to a takeover or to the control of an Australian company to be unacceptable circumstances. The panel has the power to make orders to protect the rights of persons, especially target company shareholders, during a takeover bid and to ensure that a takeover bid proceeds in the way that it would have proceeded if the unacceptable circumstances had not occurred.

The Australian panel is similar and yet different to those in various other jurisdictions which have takeovers panels. The most commonly known jurisdiction is in the United Kingdom, which has the London Panel on Takeovers and Mergers. There are also takeovers panels in Ireland, South Africa and Hong Kong. Singapore has a Securities Industry Council, which administers a takeovers code in a very similar manner to London. An important role for the panel executive is to liaise with market practitioners, discussing current and prospective takeover matters and policy issues in order to provide a real-time perspective on the panel’s guidance notes and decisions as they may apply to current or prospective takeovers. However, the panel’s executive are not delegates of the panel and therefore do not perform any of its discretionary or adjudicative roles. In other words, the panel executive does not make decisions in panel proceedings regarding the merits of an application or circumstance. Those decisions are made by sitting panel members. Advice which the panel executive may give as to its assessment of any real or hypothetical circumstance discussed with market participants or parties is not binding on the panel or on any sitting panel. The panel executive routinely prefaces any discussions with market practitioners with such a disclaimer.

Panel members are appointed by the Governor-General on the nomination of the minister under section172 of the ASIC Act. There is a minimum of five members. The members are currently all part-time members. They are nominated by the minister on the basis of their knowledge or experience in one or more of the fields of business, administration, finance, law, economics or accounting. State ministers may give the federal minister submissions on nominations to the panel. The panel is intended to have an appropriate mix of professions, business expertise and geographic and gender representation. The Governor-General may also appoint one member to be the president of the panel under section 173 of the ASIC Act.

The fundamental objective underlying the takeovers law is to ensure that the purposes set out in section 602 of the act are achieved, and in particular that the acquisition of control over the voting shares or voting interests in companies takes place in an efficient, competitive and informed market. The panel requires broad and flexible powers to perform the role envisaged for it, which includes being the main forum for resolving disputes about a takeover bid until the bid period has ended in accordance with those principles.

However, two Federal Court of Australia decisions relating to the panel, the 2005 case of Glencore International AG v Takeovers Panel and the 2006 case of Glencore International AG v Takeovers Panel—case 1290 and case 274, known as the Glencore cases—have interpreted the limits of the jurisdiction of the panel as set out in the current legislation. As a result of those cases, concerns were raised that it may be open to read the panel’s powers and jurisdiction in the current legislation in a way that is too narrowly formulated to enable the panel to perform effectively the role envisaged for it by the parliament. In particular, there were concerns that the interpretation of the term ‘substantial interest’ in the decision based on existing defined provisions may prevent the panel from being able to deal with new and developing interests and tactics in relation to takeovers.

There was also a concern that the panel may not be able to act to prevent the effects of unacceptable circumstances even if they are clearly apprehended, but rather may need to wait until those effects and the consequent harm have actually occurred. There was also concern that the panel may not be able to address all the circumstances which impair or affect the efficient, competitive and informed market for control of voting securities in companies. Further, there were concerns that under the interpretation set out in the Glencore cases the panel’s power to make orders to protect the rights or interests of persons affected by unacceptable circumstance may be too confined, with the result that the panel may not be able to properly address the effects that the circumstances have on the interests of those persons.

This bill responds to those concerns and also addresses other concerns about the limits of the orders that the panel can make and the time limit for concluding a review of a panel decision. Looking at this bill, an inclusive definition of ‘substantial interest’ is inserted as section 602A of the act. The definition does not define all the interests that will be considered ‘substantial interests’ but provides that a substantial interest is not confined to the three specified forms of interest. These are: a relevant interest as defined, legal or equitable interests in securities and powers or rights in relation to a company, body or scheme or securities in it. The definition is intended to ensure that the term ‘substantial interest’ is broad enough to encompass new and evolving instruments and developments in takeovers and to deter avoidance of the purposes of the takeovers law. It is not intended that every involvement with a company, listed body or listed managed investment scheme will be a substantial interest. The definition also provides for regulations to specify that particular interests may constitute or do not in themselves constitute substantial interests. This provision should allow any future uncertainty about the application of the term in particular circumstances to be addressed.

In regard to item 3, paragraph (2)(a) of section 657A of the act currently provides that the panel may declare circumstances to be unacceptable if it appears to the panel that they are unacceptable having regard to their effect on the matters specified in subparagraphs (i) and (ii). The amendment allows the panel to make a declaration having regard to what the panel is satisfied is the past, present, future or likely effect of the circumstances. This makes it clear that it is for the panel to satisfy itself as to the effect or the likely effects and that the panel can make a declaration before any effect has actually occurred. In regard to item 4, the new paragraph (2)(b) is inserted in the act to give the panel jurisdiction to declare circumstances unacceptable having regard to the purposes of chapter 6 of the act set out in section 602. This is a significant change, designed to ensure that the panel can address circumstances which impair those purposes without having to also establish either a contravention of the act or an effect on control or potential control of a company on the acquisition or proposed acquisition of a substantial interest in a company.

The intention is to give the panel a wider power to give effect to the spirit of the act. The new paragraph also ensures that the panel can make a declaration of unacceptable circumstances in relation to the affairs of one company, being the company referred to in subsection 657A(1), where the effect of the unacceptable circumstances relates to or is primarily manifest on another company or the securities of either company.

Paragraph 657A(2)(c) is a replacement for the current paragraph 657A(2)(b), expanded so it covers past, present, future and likely contraventions, for consistency with the amended paragraph 657A(2)(a) and the new paragraph 657A(2)(b). Each of paragraphs 657A(2)(a), (b) and (c) are worded to cover past, present, future and likely effects and contraventions.

In item 5, paragraph 657D(1)(a) of the act currently requires the panel, before making an order, to give an opportunity to make submissions to each person to whom the proposed order relates. If this is interpreted to include more than just persons on whom the order imposes obligations there could be tens of thousands of such people in some cases, including each current and potential shareholder in the relevant companies. The amendment means that the opportunity required by paragraph 657D(1)(a) need only be given to each person to whom the order is directed. Paragraphs 657D(1)(b) and (c) will continue to require the panel to provide each party to the proceedings and ASIC an opportunity to make submissions about the orders which it proposes to make.

With item 6, paragraph 657D(2)(a) of the act currently allows the panel to make orders it thinks appropriate to protect the rights or interests of any person affected by the circumstances. This amendment means that this is not confined to rights and interests directly affected by the circumstances. The amendment ensures that the panel can make any order it thinks appropriate to protect any rights or interests of a person or group of persons where the panel is satisfied that their rights or interests have been, are being, will be or are likely to be affected by the unacceptable circumstances. This will allow the panel to protect the interests of those persons more effectively. The amendment will also ensure that the panel may make orders which protect the interests of a group of persons whose interests have been affected rather than requiring it to address the effects person by person.

Section 657EA, in regard to item 7, is amended so that the time limit for the panel to make a declaration on a review runs from the time the application for review is filed, not from the time when the original application is filed. Currently the legislation does not specifically address the time limit for review proceedings and the time limit in section 657B could already have expired before the application for review is even made.

In conclusion, the Corporations Amendment (Takeovers) Bill 2007 responds to concerns about the limits of the orders the Takeovers Panel can make and the time limit for concluding a review of a panel decision. These amendments will allow the panel to get on with the job of resolving disputes and protecting the rights of persons, especially target company shareholders, during a takeover bid and to ensure that a takeover bid proceeds in a fair way. I commend this bill to the house.

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