OFFERS OF SECURITIES
The Corporations Act 2001 (Cth) (Corporations Act) regulates the issue of shares, options, debentures, managed investments and other securities in Australia. Offers of securities must comply with specific disclosure requirements designed to protect investors and ensure that offers and trading of securities take place in an efficient and informed market, unless a specified exemption applies.
In general, a person must not offer for subscription, or purchase, or issue invitations to subscribe for or buy securities of a corporation in Australia unless a disclosure document, such as a prospectus or a product disclosure statement in the case of managed investments, is lodged with the Australian Securities and Investments Commission (ASIC), which is the primary regulator of the securities markets. The prospectus must comply with statutory content requirements. Exemptions from the requirement to prepare a disclosure document include offers to:
- Sophisticated investors, demonstrable in a number of ways including where the investor invests more than AU$500,000 in the securities; or where the investor provides an accountant's certificate stating that they have had AU$250,000 of gross income for each of the last two years; or have net assets of at least AU$2.5 million
- Professional investors, for example, an investor who controls at least AU$10 million; or a person who holds an Australian Financial Services Licence authorising them to advise on securities
- Personal offers to investors where not more than AU$2 million is raised in any 12-month period.
A number of other exceptions are also specified in the Corporations Act and related regulations.
The Corporations Act also regulates advertisements in connection with certain offers of securities and imposes penalties for misleading or deceptive conduct in relation to all offers.
THE AUSTRALIAN SECURITIES EXCHANGE
The five regional branches of the Australian Securities Exchange (ASX) in Australia are in Sydney, Melbourne, Brisbane, Adelaide and Perth. All trading between members of the ASX is conducted electronically.
The ASX listing rules govern the admission of companies to the ASX official list and prescribe certain requirements for the operation of listed companies. Through a continuous disclosure regime, these rules ensure that companies comply with certain standards in relation to market awareness and disclosure, including requiring regular financial reporting. While a company remains listed, it is required to comply with the listing rules and to provide any explanations requested by ASX, for example in relation to trading in its securities or compliance with the listing rules.
The listing rules also ensure that a listed company's constituent documents include standard provisions embodying shareholder democracy and impose requirements to obtain shareholder approval for major transactions.
If the listing rules are not complied with, a listed company can be suspended from trading or removed from the official list and from being quoted on the ASX. Listing rules have the force of law against listed entities and their associates.
Overseas companies may apply for listing and quotation on the ASX whether or not they are currently listed on another recognised stock exchange. Except for companies formed in Australia, New Zealand, Papua New Guinea and Bermuda, foreign companies' securities trade on the ASX in the form of depositary receipts known as CHESS Depositary Interests (CDIs).
Other prescribed financial markets are Asia Pacific Exchange Limited, Chi-X Australia Pty Ltd, National Stock Exchange of Australia Limited and SIM Venture Securities Exchange Ltd.
Takeovers fall under the scrutiny of ASIC and the Takeovers Panel. Australian takeover law aims to ensure that the acquisition of a company's shares takes place in an efficient, competitive and informed market. The law's key objectives are:
- The shareholders and directors of a company know the identity of any person proposing to acquire a substantial interest in the company.
- The shareholders and directors of a company have a reasonable time in which to consider a takeover proposal.
- The shareholders and directors of a company are supplied with sufficient information to enable them to assess the merits of a takeover proposal.
- As far as practicable, all shareholders of a company have equal opportunities to participate in any benefits accruing under a takeover proposal.
Other than as specified below, it is prohibited for a person (together with their associates) to acquire an interest in more than 20% of the voting shares of a company formed in Australia (which is listed on a financial market in Australia or has at least 50 shareholders), or for a current shareholder to acquire shares that would lift their interest to more than 20% or to increase their interest between 20% and 90%. The 20% threshold has been fixed to avoid a change in the actual control of the target company. The rules also apply to listed managed investment schemes, such as Real Estate Investment Trusts.
Once that threshold is reached, shares may only then be acquired as permitted by the Corporations Act. For example, a person may exceed the threshold by:
- Acquiring no more than 3% of the company every six months
- Making an off-market takeover offer to all shareholders
- Making an on-market bid by undertaking unconditionally to take all shares offered on the financial market on which the shares are quoted for a period of at least one month at a specified price
- Acquiring shares under a scheme of arrangement approved by a majority of shareholders present and voting (either in person or by proxy) and 75% of the votes cast and by the court
- Being given approval by the majority of the company's other disinterested shareholders
- Acquiring shares under a pro rata rights issue to all shareholders in the same class.
As soon as an acquirer holds 90% of the company's shares, it may proceed to compulsorily acquire the remaining shares in accordance with the requirements of the Corporations Act.
Under the Corporations Act, the primary forum for resolving disputes about a takeover bid until the bid period has ended is the Australian Takeovers Panel (Panel). The Panel is a peer review body, with part-time members appointed from the active members of Australia's takeovers and business communities. Each member has experience in one of the following areas: business, the administration of companies, the financial markets, law, economics or accounting.
Where the Panel's jurisdiction is invoked, it has the power to declare circumstances in relation to a takeover, or to the control of an Australian company, to be "unacceptable circumstances". Once such a declaration is made, the Panel can make orders to protect the rights of persons (especially target company shareholders) during a takeover bid and to ensure that a takeover bid proceeds (as far as possible) in a way that it would have proceeded if the unacceptable circumstances had not occurred.
Mergers and acquisitions may fall under the scrutiny of the Australian Competition and Consumer Commission (ACCC), which administers the Competition and Consumer Act 2010 (Cth) (CCA). The key issue here is the possibility of a merger or acquisition substantially lessening competition in a market.
The ACCC's Merger Guidelines and Merger Review Process Guidelines outline its policy for the administration and enforcement of the CCA's provisions dealing with mergers and acquisitions, the factors it takes into account when considering mergers and acquisitions, its authorisation process, its use of enforceable undertakings and the process it follows.
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