Australia: Potential takeover law reforms identified by Treasury

Key Points:

Treasury has identified five areas it is considering as possible areas requiring reform.

On 5 October 2012, Treasury released an initial scoping paper in respect of potential reforms to Australia's takeover laws. Back in July, ASIC Chairman Greg Medcraft conducted a widespread media campaign expressing ASIC's views on the failings of the takeover laws to deal appropriately with a number of trends which had developed in recent times in Australia's M&A market. ASIC then made private submissions to Treasury regarding the areas where it considered that the takeover laws needed modernising. The release of this paper by Treasury is the first the market has officially seen of the ASIC concerns.

Having now considered ASIC's submissions, Treasury has identified five areas it is considering as possible areas requiring reform:

1. Creeping acquisitions

The creep exception to the 20% takeover threshold allows a shareholder to increase its shareholding above the 20% threshold by 3% every six months. ASIC believes this exception is contrary to the spirit of the takeover laws because it allows a shareholder to acquire a controlling stake without making a formal takeover bid, avoiding having to pay a full control premium, without all shareholders having an equal opportunity to participate in the transaction and without the target having the opportunity to respond.

There is no real evidence that this exception has in the past been used to allow surreptitious acquisition of control in circumstances where the market remains in the dark as to the ability of the shareholder to creep. Acquiring control using the creep exception is a very slow process – it takes over five years to move from 20% to 50% relying only on the creep exception. And each 1% acquired by the shareholder needs to be disclosed to the market. If the exception is being used in this way, it will be very clear to the market what is happening, meaning the target can advise its shareholders as it considers appropriate, and the market can factor this into account in pricing the shares available for sale.

In the absence of compelling evidence that the creep exception is being used to avoid the general intent of the takeover laws, it is our view that it is a useful and important exception to the 20% threshold which supports efficient capital markets and promotes greater liquidity for companies that have major shareholders.

2. Equity derivatives

Consideration is being given to whether equity derivatives, which don't otherwise give rise to a relevant interest (for example, because they are compulsorily cash settled), should be disclosed under the substantial holding provisions of the Corporations Act.

Equity derivatives can be used by a bidder to build up an economic prebid stake in the target so as to reduce the overall premium it would be required to pay or to create a blocking stake through the hedging activities by the writer of the derivative. The Takeovers Panel guidance requires disclosure of such equity derivatives where they are entered into by a person who has a control purpose. The real issue for consideration therefore is whether this guidance needs to be taken further and made part of the law. If it is made part of the law, it may be that the control purpose qualification to the Panel's guidance will be foregone, on the basis that it is too vague and uncertain a concept to have in what is otherwise a black letter law disclosure obligation.

3. Clarity of takeovers proposals

While the press reported that the Chairman of ASIC was pushing for the introduction of a "put up or shut up" rule as applies in the UK, the issues identified by Treasury fall somewhat short of suggesting that such a rule might be desirable. Instead, Treasury is focusing on the issues caused by the current market practice of bidders delivering indicative, non-binding and highly conditional takeover proposals to targets, forcing their public disclosure and thereby engaging the target in a bear hug.

The concerns here are based on the effect of these proposals on market integrity and focus on two issues:

  • first, the vague, highly conditional and non-binding nature of such proposals, with the bidder having no obligation or timeframe within which to proceed with an offer; and
  • second, the disclosure of these proposals which may apply inappropriate pressure to the parties in dealing with and responding to the proposal and fuels speculative trading in the target's shares.

The revised guidance on continuous disclosure that was issued by ASX on 17 October 2012 will go some way to alleviating the second issue, although its ability to do so will be dependent on the desire of both bidder and target to keep the proposa1 confidential. ASX has expressly stated that confidential takeover proposals do not need to be announced to the market until the parties are committed to proceed with the transaction. This position is, however, dependent on the proposal remaining confidential.

In any event, we suggest that it is shareholder activism, particularly where driven by the short-term performance benchmarks many fund managers are trying to meet in a flat or declining market, which is the most significant factor causing the prevalence of bear hug proposals1 and the siege on targets which results from them. In the current market environment, investors are looking for short term returns, which puts pressure on target boardsfaced witha proposal that offersthose returns but fails tomatch the board's view on fundamental value. While this debate may result in some in the market advocating the need for a put up or shut up rule, the current disconnect between investors' and target board's views on value won't be fixed by requiringproposed bids to bemore certainor imposing a put up or shut up rule.

4. Associations

Treasury has put on the table an issue which the Takeovers Panel has been wrestling with for some time now, being the difficulty in proving whether an association exists where the evidence of such association is merely circumstantial.

If the association rules cannot be effectively enforced (and the Takeovers Panel has particular difficulty in this regard given the nature of its proceedings and its general reluctance to compel the giving of evidence), the concern is that shareholders who individually hold less than 20% of a company will be able to improperly act together to exert control over the company in breach of the takeover laws.

There is no suggestion that the current laws which define when an association exists are inadequate. That being so, any fix identified is likely to centre around how you prove the existence of an association and will perhaps see the proposal of a rebuttable presumption or some other reversal of the onus of proof if circumstantial evidence points to the existence of an association.

5. Impact of new media

ASIC and ASX are concerned about the ability of listed companies to properly manage their continuous disclosure obligations given the increasing number of channels through which rumours can now circulate with the proliferation of social media. It is not clear whether any law reform proposals will be necessary to address this concern, and it is certainly not clear whether any law reform is even capable of doing so. With ASX about to release a new guidance note on continuous disclosure, which ASIC has had significant input to, it may be that this issue will be dealt with by further guidance dealing with these issues.

Next steps

The Treasury scoping paper will form the basis of a series of targeted roundtables which Treasury will convene with key business, legal and markets stakeholders to discuss ASIC's concerns. The outcome of the roundtable series will then inform a more comprehensive discussion paper on ASIC's recommendations and potential policy responses, as part of an extensive engagement process with the business community, legal experts and other interested parties.

Treasury has positioned this scoping paper as identifying concerns which have arisen due to changes in market dynamics over time and in respect of which the old world takeover laws may no longer be capable of appropriately regulating. We see it slightly differently – when looking at the current regime of the takeover laws, Takeovers Panel guidance and ASX guidance, it appears that we already have an adequate regime and structure within which to address these issues. Having said that, changes in market dynamics may have exacerbated some of these issues and, in particular, made it difficult to effectively enforce the current regime in all circumstances.

In the current environment with M&A activity at an all time low, we question whether it is the right time to be changing the rules, particularly where a number of the changes being considered are likely to increase the hurdles for bidders and may therefore further stifle activity.


1 Clayton Utz's THE REAL DEAL 2012 Half Year Update shows that a third of all Australian takeovers and schemes of arrangement valued at over $50m announced between 1 January 2011 and 30 June 2012 commenced by a bear hug approach. back

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions