Rewrite of foreign investment laws

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1 Ashurst Australia 16 July 2015 Takeovers Legal Update In this update Rewrite of foreign investment laws 1 Court reads "bluffing bid" prohibition narrowly 2 Time limits for Panel applications don't delay! 5 AAT lights Lantern for buy back relief 7 Panel consults on shareholder intention statements 9 Collective action ASIC finalises updated policy 11 Rewrite of foreign investment laws WHAT YOU NEED TO KNOW Treasury has released exposure drafts of bills to completely rewrite the current legislation governing foreign investment. Some proposed changes will be welcomed, including increasing the current threshold of 15% to 20% (to better align with the takeovers threshold) and broader exemption powers. WHAT YOU NEED TO DO Watch out for the final form of the requirements, which are expected to apply from 1 December On 6 July 2015, Treasury released exposure drafts of several bills intended to strengthen Australia's foreign investment framework. The draft legislation is expected to be introduced into Parliament later this year and come into effect on 1 December The bills will implement numerous proposals announced earlier in the year, including those concerning application fees, increased and new penalties, administration and enforcement by the ATO and new requirements concerning "agribusiness" and "agricultural land". These proposals are discussed in our Foreign Investment Update issues of 26 May 2015, 19 May 2015 and 12 March At a high level, the general approach of the legislation will not change substantially. However, the current legislation, the Foreign Acquisitions and Takeovers Act and Regulations, will be completely rewritten. This will have many significant consequences for those concerned with the detail of the requirements. Proposed changes with particular significance for takeovers practice include: a new definition of "associate" (which overlaps with, but is still very different from, the definition under the takeovers laws); the introduction of new concepts of "significant action" and "notifiable action"; power for the Treasurer to give "exemption certificates" in certain cases (which should provide greater flexibility to avoid unintended outcomes); and the inclusion in the legislation of certain requirements that currently are only dealt with in policy. Many of these changes will be welcomed by practitioners. However, given the extent of the rewrite, and the speed with which it has been undertaken, it would not be a surprise if there are also some anomalies and provisions that overreach. An example of the latter is the overly broad record keeping requirements in the exposure draft. Contact increasing the current threshold of 15% to 20%, so as to better align with the takeovers threshold (but note that it is not proposed to align the way the two thresholds are defined); Bruce Macdonald Regional Practice Head Sydney T: E: bruce.macdonald@ashurst.com AUSTRALIA BELGIUM CHINA FRANCE GERMANY HONG KONG SAR INDONESIA (ASSOCIATED OFFICE) ITALY JAPAN PAPUA NEW GUINEA SAUDI ARABIA (ASSOCIATED OFFICE) SINGAPORE SPAIN SWEDEN UNITED ARAB EMIRATES UNITED KINGDOM UNITED STATES OF AMERICA

2 Court reads "bluffing bid" prohibition narrowly WHAT YOU NEED TO KNOW The Federal Court has handed down the first decision on "bluffing bids" and the certainty of funding requirements for takeovers in s 631(2) of the Corporations Act (which prohibits announcing a takeover bid where a person is reckless as to whether they will be able to perform their obligations under the bid). The Court held that the requirement of recklessness is a subjective test and the section will only be breached in egregious circumstances, namely, where a bidder has no genuine intention to follow through with a takeover after announcing it. The decision is not however expected to lead to any significant change in the requirements of Takeovers Panel guidance regarding certainty of funding, which will continue to be the primary guide for market practice. Background The case centres on an ASX announcement in June 2012 by Mariner Corporation Limited (which announced an off-market takeover bid for Austock Group Limited. Mariner was a listed investment company with a market capitalisation of ~$3.5 million which engaged in strategic mergers and acquisitions in the small cap sector. Austock was a small financial services company with a market capitalisation of ~$12 million that operated a property management business and a life insurance business. In early 2012, Mariner received an approach from Arena Investment Management Limited. Arena had been rebuffed by Austock after making a proposal to acquire its property management business. Arena approached Mariner with the idea that Mariner take control of Austock and sell the property management business to it before Austock sold the business to someone else. Mariner analysed Austock and soon arrived at the conclusion that the sum of the parts was worth more than the whole. Mariner assessed the value of Austock to be at least $20 million, with the property management business at $10 million, the insurance business $5 million and cash on hand in excess of $5 million. Mariner's initial plan was to buy up to 20% of the shares in Austock, spill the board and commence selling Austock's assets. However, before this plan came to fruition, Arena and Mariner learned that Austock was close to selling its property management business to a third party. With a new sense of urgency, Mariner decided to announce a takeover bid for Austock at a small premium to the share price in order to "shake the tree" and put Austock in play. At the time of announcing its intention to make a takeover offer, Mariner had insufficient funds to finance the takeover bid. Mariner had held discussions with Arena and Macquarie Bank and some high net worth individuals, however, it did not have any commitments from these parties. Despite this, Mariner's offer was not conditional on financing. Section 631 and guidance from ASIC and the Takeovers Panel Section 631(2)(b) of the Corporations Act makes it a criminal offence to publicly propose a takeover bid if a person is reckless as to whether they will be able to perform their obligations under that bid if a substantial proportion of the offers are accepted. This section is one of the provisions in the Corporations Act which supports the policy of the Takeovers Panel and ASIC regarding the certainty of funding required before a person announces a takeover bid. Ashurst Takeovers Legal Update 16 July

3 ASIC's regulatory guide on takeovers indicates that before a bidder announces a takeover bid it must have reasonable grounds to believe it can meet its obligations under the takeover bid. In Guidance Note 14 Funding Arrangements, the Panel follows a similar theme and states that a bidder must have a reasonable basis for believing that it will be able to implement its takeover bid. Guidance Note 14 goes into detail as to what typically constitutes this reasonable basis. Generally speaking, a bidder needs to have a binding commitment in place when it announces its takeover bid, documentation should be completed and executed before the bidder's statement is despatched and the takeover should not be declared unconditional until all commercially significant conditions precedent to drawdown have been fulfilled. Importantly, the Panel's guidance speaks to what may constitute unacceptable circumstances and not whether a bidder will breach s 631(2). The Panel proceedings Before ASIC commenced proceedings, elements of the transaction were before the Panel (as discussed in our Takeovers Legal Update of 2 October 2012). Interestingly, the proceedings were commenced by Mariner, however, the Panel looked into Mariner's funding arrangements as these were germane to the matters before it. A sage reminder to come to the Panel with clean hands. Mariner conceded that it did not have binding financing arrangements in place at the time of the announcement, but argued that it had not contravened s 631(2)because it was not reckless. The Panel noted that it could make a declaration of unacceptable circumstances without there being a breach of s 631(2) because of the effect announcing a bid with inadequate funding arrangements can have on the market. The Panel observed that announcing a takeover has a profound effect on the price of target shares. If the proposed takeover bid does not proceed, this may cause a false market in the target shares and, if the bidder cannot pay for acceptances, target shareholders who accept the takeover bid are at risk of heavy loss. The Panel made a declaration of unacceptable circumstances against Mariner for not having a reasonable basis to expect it would have funding in place to pay for all acceptances when its proposed bid became unconditional. By this time, Mariner had already withdrawn its takeover bid. The decision in ASIC v Mariner ASIC then brought proceedings (under the Corporations Act) against Mariner and its three directors alleging contraventions of s 631(2), misleading and deceptive conduct (s 1041H) and breaches of the director's duty of care and diligence (s 180). ASIC sought declarations of contravention, pecuniary penalties and disqualification orders against individual directors. Proposing a takeover bid (s 631(2)) ASIC alleged that Mariner breached s 631(2) because it did not have adequate financing arrangements with third parties in place to fund the takeover bid. The Court found that Mariner did not breach s 631(2) and made some important findings as to the requirements of this provision. What is a "substantial proportion"? Drawing from the substantial holder requirements and other parts of the Corporations Act, Mariner submitted that "a substantial proportion of the offers" for the purposes of s 631(2) could be as low as 3% or 5% while ASIC submitted it meant a much larger amount. The Court held that a "substantial proportion" means a sizeable or large number which is not less than 50% of the shares the subject of the takeover bid. Recklessness objective or subjective? ASIC submitted that the test of recklessness in s 631(2) was objective. The Court disagreed and, after a forensic review of the legislative history of the section, held that the test is subjective. Accordingly, ASIC had to prove that (i) Mariner was aware of a substantial risk that it would not be able to perform its obligations under the bid and (ii) that it was unjustifiable for Mariner to take that risk or it went ahead in conscious disregard of the risk. Ashurst Takeovers Legal Update 16 July

4 This involved analysing: Mariner's funding obligations if a substantial proportion of the offers were accepted; when those obligations were likely to arise and Mariner s actual and anticipated ability to meet those obligations at the time; the status of the discussions with potential lenders; whether Mariner could have obtained sufficient funding for the takeover bid; and whether Arena was willing to purchase Austock's property management business. The Court found that, despite Mariner not having binding commitments in place at the time of the announcement, Mariner was not reckless because: payment under the takeover was not due for some months; the break-up value was far in excess of the bid value; and the directors believed that they could arrange funding by this time. Ultimately, the Court found that ASIC failed to establish that Mariner was aware of the risk and that, even if this was established, it had not proved that it was unjustifiable for Mariner to take the risk. Misleading and deceptive conduct (s 1041H) ASIC alleged that Mariner had engaged in misleading or deceptive conduct by announcing the takeover bid without a financing condition. ASIC argued that by announcing a takeover without a financing condition, Mariner made an implied representation that it had reasonable grounds to believe that it would be able to fund the takeover if all of the Austock shareholders accepted the offer. The Court found that the announcement did not contain this implied representation and that the announcement was not misleading or deceptive. Duty of care and diligence (s 180) ASIC alleged that the Mariner directors breached their duty to act with due care and diligence by causing Mariner to make the announcement that breached ss 631(2) and 1041H. The Court started with the well-established position that a director's duty of care and diligence does not impose a wide-ranging obligation to ensure that the company does not breach the law. If a company breaches the law, this does not automatically amount to a breach of s 180 of the Corporations Act by the directors. Rather, the question is whether the foreseeable risk of harm to the company outweighs the potential benefits from the conduct. The Court found that Mariner had not breached the Corporations Act, but even if it had, the directors did not breach their duty of care and diligence. Beach J cautioned that s 180 of the Corporations Act "is not to be used as a back-door means for visiting accessorial liability on directors". There is a specific regime in the Corporations Act which attaches liability on persons "involved in a contravention". Comment The Federal Court's decision in ASIC v Mariner is the first decision on s 631 of the Corporations Act and provides some important law on the concept of "recklessness" and what constitutes a "substantial proportion". In reaching its conclusion, the Court took into account the facts specific to the Mariner proposal the large discrepancy between the market value and the break-up value of the target company, the apparent willingness of a large player in the market to buy the main asset and the small size of the company and hence the relatively small amount needed to fund the bid. A fact pattern not often seen in the Australian M&A market. We query the weight that should be attributed to the presence of a willing buyer and the break-up value of the company to the adequacy of funding where the bidder is aiming to acquire less than 100% of the shares in the target company. There is no discussion in the judgment of the difficulties Mariner may have faced in obtaining debt finance without being able to acquire 100% of the target and give security over target assets. The Court Ashurst Takeovers Legal Update 16 July

5 comments in passing that "prior to the successful completion of the acquisition of at least a 50% interest, the assets of the target could not be directly used by the bidder to fund the acquisition". It does not appear to have been put to the Court that minority shareholders who declined to accept the bid would be most unlikely to pass the approvals required to give security over target assets. While shedding light on the components of s 631, the decision is not expected to alter market practice regarding certainty of funding, as it speaks only to the question of a breach of law and not what constitutes unacceptable circumstances. We expect that market participants will continue to follow the Panel's guidance on funding arrangements and will have binding commitments in place before announcing a takeover bid. Contacts Sarah Dulhunty Partner Sydney T: E: sarah.dulhunty@ashurst.com Stuart Dullard Senior Associate Sydney T: E: stuart.dullard@ashurst.com Time limits for Panel applications don't delay! WHAT YOU NEED TO KNOW A 2012 decision of the Takeovers Panel has been successfully challenged in the Full Federal Court on the basis that the application was made out of time. The Full Court's interpretation of the time limit makes it especially important than that any application to the Panel is made as promptly as possible. Upholding an appeal by Queensland North Australia Pty Ltd (QNA), the Full Federal Court held that the decision of the Takeovers Panel in July 2012 to make a declaration and orders in relation to The President's Club Limited (TPC) (an unlisted public company with more than 50 members) should be set aside and remitted to the Panel to consider whether an extension of time to bring the application should be granted. Background The Full Court upheld an appeal by QNA and another company associated with Clive Palmer from the decision of Collier J dismissing a judicial review challenge to the Panel's decision. (Collier J's decision was discussed in our Takeovers Legal Update of 3 July 2014.) Collier J found that the Panel acted in breach of natural justice in extending a time limit that required the application to be made within two months after the circumstances to which it related occurred. However, Collier J concluded that no extension was required as there were "ongoing circumstances". The Full Court rejected that approach on appeal. The key issues addressed in the appeal were: whether the application was lodged, and the declaration made, within the time limits prescribed under ss 657B and 657C of the Corporations Act; and Ashurst Takeovers Legal Update 16 July

6 whether the Panel erred in finding a breach of the 20% prohibition (s 606 of the Corporations Act). Time limits The Panel's power to make declarations of unacceptable circumstances is subject to two time limits: the application for the declaration must be made within two months after the circumstances have occurred (unless extended by the Panel) (s 657C(3)); and a declaration can only be made within three months after the circumstances occur, or one month after the application for the declaration was made (unless extended by the court on application by the Panel) (s 657B). TPC and ASIC argued that these time limits were met because the circumstances to which the application related (alleged breaches of the 20% prohibition arising from acquisitions made more than two months before the application) were ongoing or continuing. The Full Court disagreed with this proposition and distinguished between the circumstances (in this case the acquisitions) and the effects of the circumstances. The Full Court held that the time limits ran from the dates on which the relevant acquisitions occurred and thus the application was out of time. The Full Court considered that allowing continuing effects of circumstances to continually reset the time limits would be contrary to the legislative policy of ensuring timely disposition of applications. The Full Court accepted that the limitation period often may not be able to be determined until after the relevant circumstances have been proved, but saw no difficulty in the Panel resolving any factual contest first and only then determining whether to grant an extension. Breach of s 606 The Full Court also considered QNA's arguments regarding its breach of the 20% prohibition. The Panel found there was a breach as a result of QNA's indirect acquisition of control of a company holding a 41.4% interest in TPC. QNA challenged that finding on the basis that the direct holder of the 41.4% stake had covenanted in a deed poll that it would not exercise more than 10% of its voting rights in TPC other than in limited circumstances. The Full Court disagreed and concluded that the deed poll had no effect on the calculation of QNA's voting power for the purpose of Chapter 6 and the 20% prohibition. Comment The Full Court's interpretation of the time limits is likely to mean that: the Panel will look closely at exactly what "circumstances" are identified as the basis for an application for a declaration, in order to determine whether the time limit for making an application needs to be extended where an extension is required, the Panel will invite submissions on whether it should be granted if an extension is granted and the Panel is inclined to make a declaration it will likely seek to do so within one month after the application is made (since otherwise an application will need to be made to the Court for an extension). For applicants, this makes it even more important than previously for any application to be made as soon as possible after the circumstances to which it relates occur. Contacts Kylie Lane Partner Melbourne T: E: kylie.lane@ashurst.com Matt Hartsuyker Lawyer Melbourne T: E: matt.hartsuyker@ashurst.com Ashurst Takeovers Legal Update 16 July

7 AAT lights Lantern for buy back relief WHAT YOU NEED TO KNOW The AAT set aside ASIC's decision to refuse Lantern's application for relief from certain Corporations Act provisions which prevented the selective buy back of managed investment scheme units, and instead exempted Lantern from compliance with those provisions. The AAT noted that ASIC should not rigidly apply its published policy in considering whether to exercise specific discretion granted to it under the Corporations Act, but instead consider whether, having regard to the circumstances at hand, it would be correct and preferable to provide relief from Corporations Act provisions. Background Lantern Hotel Group comprises a managed investment scheme registered under Chapter 5C of the Corporations Act and a company, Lantern Hotel Group Limited. Each Lantern security comprises a unit stapled to a share. While the Corporations Act permits selective buy backs of shares, ASIC relief is effectively required to undertake a selective buy back of units in a managed investment scheme under the Corporations Act. At a 31 July 2014 meeting, Lantern security holders voted to approve a selective buy back of 24.31% of its securities, being all of the securities held by Millinium Asset Services Pty Ltd as trustee for the Borg Fund in Lantern (Buy Back). The Buy Back was conditional on ASIC relief. On 18 July, ASIC communicated a conditional "in principle" decision to grant the relief sought. However, following some further correspondence, ASIC formally refused to grant the relief sought on 29 July Lantern subsequently applied to the Administrative Appeals Tribunal (AAT) seeking review of ASIC's decision. ASIC's refusal to provide relief ASIC's specific grounds for refusing the relief included concern that: the Buy Back price would have "an impact on the assets of the scheme for remaining security holders"; the Buy Back price was more than 5% above the market price, comparatively disadvantaging the other security holders; security holders had inadequate time to consider the Buy Back before the 31 July 2014 meeting; and Lantern had not adequately disclosed the interests of certain directors in the transaction. Underlying ASIC's specific grounds was a general consideration that granting relief to "reverse the usual and intended effect" of the Corporations Act would be "unacceptably similar to law reform". ASIC contended that the absence of a process for selective buy backs of units in managed investment schemes was a deliberate legislative choice. ASIC considered that facilitating the Buy Back did not offer a "net regulatory benefit", despite the "commercial benefits" that would flow. AAT'S decision The AAT set aside ASIC's decision and proposed to exempt Lantern from the Corporations Act provisions that would preclude Lantern from completing the Buy Back approved by security holders on 31 July The AAT found that ASIC overemphasised its published policy in refusing to grant the relief and that existing policy cannot be allowed to "obscure the true nature and purpose" of ASIC's specific discretion granted under the Corporations Act. ASIC must "not abdicate its function of determining whether the decision under review was, on the material before it, the correct or preferable one having regard to the justice of the outcome of the individual case." Ashurst Takeovers Legal Update 16 July

8 Moreover, the AAT found that ASIC's argument that the Buy Back represented "regulatory detriment" lacked clarity, particularly as the exemption sought applied only to a specific transaction. The AAT highlighted the following significant considerations in this decision: the security holder meeting overwhelmingly endorsed the proposed Buy Back; the security holders were properly informed of material considerations; the significant commercial benefit the Buy Back resulted in an increase in the net asset value per security; the independent assessment of the transaction as "fair and reasonable"; the buy back price was consistent with both the VWAP for Lantern's prior on market buy backs and ASX trading prices; and the exemptions from identified Corporations Act provisions sought related (only) to the specific transaction approved by Lantern security holders on 31 July The AAT found the net asset value per security proportionally increased following the Buy Back, and therefore the remaining security holders were not disadvantaged. The market price of securities had varied over time and the buy back price was deemed "fair and reasonable" by an independent expert, and was not markedly above the historical ASX trading average. Finally, Lantern gave security holders the notice of meeting material in accordance with the period required under the Corporations Act and the AAT considered that this was a sufficient period to consider the Buy Back. The AAT agreed with ASIC that certain directors' involvement with a security holder whose proportionate interest would have materially increased in Lantern following the Buy Back was not disclosed. However, the AAT determined that had this information been disclosed, it would not "reasonably have affected the mind of a hypothetical security holder in determining whether they would support or oppose the transaction", particularly in light of the other disclosures in the explanatory booklet. In addition, the failure to disclose the ultimate ownership by Pyne Gould of a significant security holder in Lantern was found to be immaterial. Specifically, the AAT found that the potential implications of the Buy Back, including the increase in the percentage holding of significant security holders, were clearly stated in the explanatory booklet. Contacts Carl Della-Bosca Regional Practice Head Perth T: E: carl.della-bosca@ashurst.com Themo Georgiou Lawyer Perth T: E: themo.georgiou@ashurst.com Ashurst Takeovers Legal Update 16 July

9 Panel consults on shareholder intention statements WHAT YOU NEED TO KNOW The Panel is consulting on a draft Guidance Note regarding its approach to shareholder intention statements. Background On 7 July 2015, the Takeovers Panel released a Consultation Paper in relation to a draft Guidance Note on shareholder intention statements, given their increasing use in control transactions. Such statements have been considered in a number of recent Panel cases, including Bullabulling Gold and Ambassador Oil and Gas 01 (discussed, respectively, in our Takeovers Legal Update issues of 3 July 2014 and 24 November 2014). The draft Guidance Note states that the Panel neither encourages nor discourages the use of intention statements. However, there is a risk that a shareholder intention statement will be misleading, "or at least confusing": if expressed in terms that are unclear in meaning (ie expressed as a "present" intention); if an ambiguous qualification is made; if the statement is published without detailed information regarding the holding, where material. Unacceptable circumstances In considering whether an intention statement gives rise to unacceptable circumstances, the Panel will be guided by the following considerations (among other things): where a shareholder accepts before the time stated in its intention statement, it is likely to give rise to unacceptable circumstances; if a statement is given without qualification that it is subject to "no superior proposal", it is likely to give rise to unacceptable circumstances if the statement is given before the offer period is open, and the shares the subject of the statement would, if aggregated with the bidder's shareholding and any other shares the subject of similar statements, increase the bidder's shareholding in the target beyond 20%; and if a statement is made subject to a superior proposal, it is likely to give rise to unacceptable circumstances where a shareholder accepts an offer before allowing a reasonable period of time to pass for a superior proposal to emerge and/or where the shareholder acts contrary to a demonstrably superior competing proposal, without good reason. Findings of association On whether an intention statement can lead to a finding of association (an issue that arose in the context of Ambassador 01), the draft Guidance Note indicates only that: market participants should note that intention statements could support such an inference; and if a shareholder accepts a bid in accordance with an intention statement, despite a superior proposal later emerging, the Panel will be interested in whether there is evidence of an underlying "agreement, arrangement or understanding" between the shareholder and the first bidder. Disclosure of identity and holding Consistent with the Bullabulling decision, the draft Guidance Note indicates that the identity of the shareholder making the intention statement should be disclosed, along with details of its holding (if material), and the Ashurst Takeovers Legal Update 16 July

10 statement must only be published with consent (and accompanied by a statement that the shareholder has so consented). The Panel expects consent to be obtained even if the statement is made outside a bidder's or target's statement. Timing for acceptance in accordance with an intention statement The Panel has queried whether the Guidance Note should specify a time for which an offer must remain open prior to a shareholder accepting in accordance with its intention statement. The Panel has suggested 21 days after the offer opens (a timeframe that was also proposed in Ambassador 01 and other Panel proceedings). Our observations The draft guidance leaves a number of difficult questions to be resolved in further Panel proceedings, including: guidance as to what constitutes an association, including with respect to how a bidder procures the making of an intention statement; the enforceability of the intention statement where a "superior proposal" is matched or bettered by the original bidder; and where one or both of the competing proposals offer scrip, whether one is "a demonstrably superior proposal" from the perspective of the shareholder who made the statement. Invitation to comment The Panel has called for comments by 1 September 2015 on whether the Guidance Note is useful and what, if any, changes should be made to provide better guidance to the market. Contacts Anton Harris Partner Sydney T: E: anton.harris@ashurst.com Olivia Blakiston Lawyer Perth T: E: olivia.blakiston@ashurst.com Ashurst Takeovers Legal Update 16 July

11 Collective action ASIC finalises updated policy WHAT YOU NEED TO KNOW ASIC has released its final updated guidance on collective action by investors which includes: circumstances which ASIC considers may trigger association or result in the acquisition of a relevant interest; factors that may trigger ASIC taking enforcement action; and other legal issues that investors and entities need to consider in relation to investor engagement. ASIC has released a final updated version of Regulatory Guide 128 Collective action by investors (RG 128). This follows ASIC's consultation on a draft version of the Regulatory Guide released with Consultation Paper 228. Our Takeovers Legal Update of 1 April 2015 summarised ASIC's proposed substantive changes in the draft Regulatory Guide. Final version of RG 128 The final version of RG 128 does not make substantive changes to those proposed by the original draft Regulatory Guide released in February Instead, it clarifies the examples provided of when collective action by investors is more or less likely to trigger an associate relationship or constitute the acquisition of a relevant interest. The terminology used in RG 128 has also been changed, replacing "institutional investors" with "investors" given the guidance applies to all investors. ASIC has also provided clarification on when jointly signing a notice to requisition a meeting or request a resolution by investors is likely to give rise to an association or the acquisition of a relevant interest. (If a relevant interest is acquired and the aggregate holdings of the requisitioning investors exceed 20%, the 20% takeover prohibition may be breached.) The final version indicates that a jointly signed notice by investors requisitioning a meeting or requesting a resolution: is likely to give rise to an association; and if accompanied by an understanding about the exercise of voting rights, will also result in the acquisition of a relevant interest (which ASIC expects would be the case in most instances). In response to submissions, ASIC has also provided clarification on when representations made to a company's board by investors will be less likely to trigger an association or the acquisition of a relevant interest. ASIC has expanded its guidance by providing examples of the types of representations that will be less likely to attract concern when made collectively by investors to a company's board. These include representations about policies or practices on general issues such as: corporate governance; some aspects of executive remuneration; and the long term strategic position of the company or commercial risks facing the company. Finally, further guidance has been provided by ASIC on its approach to enforcement of the takeovers and substantial holding provisions. ASIC has indicated that it will be particularly concerned by collective action that seeks to change the composition of a company's board to facilitate plans of those proposing the change. Conversely, ASIC has indicated that it will be less likely to examine collective action by investors that: relates to improvement in corporate governance including better disclosure to the market, more comprehensive board evaluation and more sophisticated risk management, or can be properly determined at a general meeting; is temporary and relates purely to the resolution of an issue; and is not concerned with the acquisition of a substantial interest or exercise of control and there is no ongoing undisclosed association between those investors. Ashurst Takeovers Legal Update 16 July

12 Revocation of class order relief [CO 00/455] ASIC has revoked the class order relief in [CO 00/455], on the basis that it has rarely been used. The responses received to the Consultation Paper suggested that [CO 00/455] was rarely relied on due to the conditions to which it was subject being unpalatable to investors. ASIC has decided not to introduce a replacement class order as there were no suggestions received in the submissions that could practically be converted into a class order giving sufficient comfort to investors that would not undermine the underlying principles of Chapter 6 of the Corporations Act. Going forward, individual applications to ASIC for relief made regarding collective action of investors will be determined on their merits. In general, any relief given will require disclosure to the market. Contacts John Sartori Partner Melbourne T: E: john.sartori@ashurst.com Beverley Tuxen Expertise Counsel Melbourne T: E: beverley.tuxen@ashurst.com Ashurst Takeovers Legal Update 16 July

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