The Australian Securities and Investments Commission ("ASIC") recently released the "ASIC regulation of corporate finance: January to June 2018" report that demonstrates ASIC's increased preparedness to take action on takeover bids and capital raisings— including through the use of formal orders, participation in Takeovers Panel proceedings and, in two cases involving bids, criminal prosecution.
This Jones Day White Paper examines the highlights of this report.
- The volume of fundraising in dollar terms increased by almost 35 percent on the prior year. ASIC's levels of intervention in fundraising transactions also materially increased.
- ASIC has observed a slight increase in the number of control transactions by way of scheme of arrangement,1 with a notable decrease in takeover bids,2 compared to the six months ending 31 December 2017.
- Truth in takeovers policy is an area of strong focus. ASIC has intervened in numerous deals and announced its intention to review its regulatory guidance in this area.
- ASIC has flagged the risks associated with last minute amendments to scheme of arrangement terms and has urged parties in this position to approach ASIC first.
- Shareholders who fail to disclose all contemporaneous agreements in an unredacted form in their substantial holding disclosures are at risk of ASIC complaining to the Takeovers Panel.
- Financial services businesses seeking to list on ASX are now required to provide candid prospectus risk disclosures arising from relevant issues raised in the Royal Commission.
- Directors should consider climate risks when addressing their company's legal disclosure obligations in relation to material business risks.
HEIGHTENED REGULATORY ACTION: FUNDRAISING AND M&A
ASIC has reported intervening more often in fundraising transactions.3 For example, the number of interim stop orders issued in respect of prospectuses was materially higher than the prior period, and ASIC raised disclosure concerns with almost 20 percent of prospectuses. New or amended disclosure was the result of ASIC's concerns in 88 percent of those cases.4
ASIC has also been active in taking regulatory action in change of control transactions during the review period. For example, ASIC brought criminal charges against directors relating to two separate bids (one example related to an alleged failure to make offers in compliance with the Corporations Act 2001 (Cth) ("Corporations Act") and the other example related to allegations of dishonesty and false or misleading information). Separately, ASIC noted that it has been an active participant in a number of Takeovers Panel proceedings in the period, of which there were 11 initial applications and four review applications for declarations of unacceptable circumstances. An additional three applications were received by the Takeovers Panel relating to orders during the period.
INCREASED FOCUS ON TRUTH IN TAKEOVERS— PRACTICAL GUIDANCE AND POLICY REVIEW
ASIC is concerned about the importance that investors place on last and final or truth in takeovers statements and stepped up its level of intervention accordingly during the first half of 2018.
By way of example, ASIC cited the well-publicised Takeovers Panel matter concerning Eastern Field Developments' bid for Finders Resources. The proceedings involved a substantial shareholder, Taurus Funds Management ("Taurus"), and two of the target's directors departing from statements that they did not intend to accept into the bid. After three proceedings before the panel5, the bidder recently sought judicial review of the findings of the review panel that provided for the cancellation of Taurus's acceptance (subject to a right to put the shares at the offer price to the bidder in the future) and ordered Taurus to pay compensation to affected investors.
In another situation, ASIC queried the acquirer under a scheme after a newspaper article cited comments made by its chief executive that it 'will not move on price' without qualification. The acquirer subsequently issued a clarification that it reserved its right to increase its offer.
ASIC's report contains practical guidance for market participants to follow in making truth in takeovers statements. ASIC emphasises the importance of monitoring the media on a daily basis during a transaction and ensuring that any authorised spokesperson is aware of the risks of making unqualified statements.
ASIC urges caution when inviting shareholders to make intention statements to limit the risk of an association arising that may have the potential to result in a breach section 606 of the Corporations Act.
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1 See page 22 of REPORT 567: ASIC regulation of corporate finance: July to December 2017, which reported 11 schemes of arrangement.
2 See page 22 of REPORT 567: ASIC regulation of corporate finance: July to December 2017, which reported 24 takeover bids.
3 See page 7 of REPORT 589: ASIC regulation of corporate finance: January to June 2018 which notes the increase of interim stop orders in the review period (10.5% compared with 1.8% during the July to December 2017 period).
4 See page 7 of REPORT 589: ASIC regulation of corporate finance: January to June 2018.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.