Chris Bowen (Prospect, Australian Labor Party, Shadow Assistant Treasurer) Share this | Link to 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.

Danna Vale (Hughes, Liberal Party) Share this | Link to 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.

Chris Pearce (Aston, Liberal Party, Parliamentary Secretary to the Treasurer) Share this | Link to this | Hansard source

I would firstly like to thank those honourable members, the member for Prospect and the member for Hughes, who have taken part in the debate today on the Corporations Amendment (Takeovers) Bill 2007. This bill will ensure the Takeovers Panel has clear, flexible and adequate powers so that it can continue to act efficiently and effectively as the primary forum for resolving takeover disputes without being subject to a constant threat of legal challenge. There is general consensus that, since the panel was reconstituted in March 2000, it has performed its functions well and should continue to do so. The current bill will ensure that the Takeovers Panel will continue to contribute to the current healthy operation of the takeover market in our country.

Recent court cases have thrown some doubt on the extent of the panel’s powers. This bill is designed to remove those doubts, clarify the law and enable the panel to get on with its work. The bill has already been considered by the Parliamentary Joint Committee on Corporations and Financial Services. I want to take the opportunity today to thank the committee for its timely consideration of the bill and note that its feedback is being very closely considered. Some sections of the earlier exposure draft bill have been amended slightly in light of the committee’s review. The committee also considered that the panel should have a broad based jurisdiction in order to discharge its functions without constant concerns about jurisdictional challenges. The questions it raised revolved around whether particular provisions were best designed to achieve the aim sought. The question was raised by the committee of whether alternative wording should be used in paragraph 657A(2)(b). This option has been rejected. The alternative wording suggested would be unduly narrow and difficult to apply, in the view of the government. The wording creates uncertainty, which could lead to increased jurisdictional arguments and increased litigation.

A further question was raised by the committee in relation to equity derivatives and whether the law should be amended to require their disclosure. I think this is a good question, and we are prepared to look at it. This will require very close examination of some of the very complex issues that fall outside the scope of this bill.

In conclusion, this bill will contribute to the open and efficient operation of our takeovers market. It will do that by restoring the position of the Takeovers Panel to that originally intended by the parliament. I therefore commend the bill to the House.

Question agreed to.

Bill read a second time.