Following the Australian Securities and Investments Commission's (ASIC) recent overhaul of its regulatory guidance on takeovers, ASIC has demonstrated its commitment to enforcing its takeovers policy and maintaining market integrity by intervening in two separate corporate transactions involving Laneway Resources Limited (Laneway), and PR Finance Group Limited (PR Finance).
On 21 June 2013, ASIC released four new regulatory guides on takeovers and related topics. These new regulatory guides update and consolidate 17 former regulatory guides, and make ASIC's guidance in this area clearer and more accessible.
ASIC has enforced its newly implemented guidance on rights offerings that have control implications by intervening in the Laneway transaction.
Laneway was proposing to make a AUD22 million rights offering, to be underwritten (and sub-underwritten) by entities associated with its Chairman, Mr. Bizzell (Bizzell Entities).
The rights offering had the potential to allow Bizzell Entities to increase its voting power in Laneway from 23.7% to 86.4%. Laneway sought to rely on the rights issue and underwriting exceptions in the Corporations Act 2001, which allow a person to acquire voting power in a company above 20%, without obtaining shareholder approval (or making a takeover bid).
ASIC raised concerns that the proposed rights issue did not comprise commercial arrangements, and enabled Bizzell Entities to effectively gain control of Laneway without the non-associated shareholders having the opportunity to approve the acquisition of such a controlling interest. In accordance with the new Regulatory Guide 6 "Takeovers: exceptions to the general prohibition" (Regulatory Guide 6), ASIC considered this to be an abuse of the rights issue and underwriting exceptions under the Corporations Act and applied to the Takeovers Panel for a declaration of unacceptable circumstances.
The Takeovers Panel indicated that it was likely to declare unacceptable circumstances in relation to the rights issue, and as a result, Laneway withdrew its proposed rights issue.
ASIC recently intervened in Keybridge Capital Limited's proposed acquisition of PR Finance by way of a scheme of arrangement. Shareholders did not receive audited accounts for PR Finance as promised in the scheme booklet prior to the shareholders meeting to vote on the scheme of arrangement. ASIC believed that shareholders were not given material information they needed to make an informed decision about the future of the company, and as a result, did not provide a "no objection letter" at the court hearing to approve the scheme.
The Federal Court agreed with ASIC and adjourned final approval of the scheme to allow for lodgement of the audited accounts and further consideration by shareholders.
This case demonstrates that ASIC takes its role in schemes seriously. ASIC will among other things:
consider any objections to a scheme before issuing a standard "no objection letter" for the court hearing to approve the scheme
closely examine schemes that offer collateral benefits or unequal consideration
assess schemes that result in a reverse takeover on a case-by-case basis.