The ruling on Friday in the "Tinkerbell" case firmly establishes that the Takeovers Panel is a professional tribunal rather than an ersatz court.
It has taken 12 years to reach this point, but there can be no doubt that it is precisely what the government intended when it re-booted the panel back in 2000 to stop takeovers disputes becoming mired in drawn-out court proceedings and complex legal arguments.
By bringing industry – banking, business and professional adviser – expertise to bear on takeovers disputes, the panel was supposed to provide not only a fast-track resolution but also a more practical focus to the way disputes were handled. In many respects, the rejigged panel has been a success, particularly in the handling of complaints about communications in takeovers.
Drawn-out legal arguments about the wording of bidder's and target's statements are a thing of the past. Nitpicking allegations about bidder's statements are given short shrift, while bidders who push the envelope to breaking point are quickly pointed in the right direction and, more often than not, voluntarily rewrite their offending documents.
The success story has not been complete, however. Although it has cut through the clutter surrounding bidder's and target's statement, the panel has struggled to cope with the phenomenon of 'warehousing'. This involves the use of friendly third parties (called associates) to build up large (and secret) stakes in listed companies. At its worst, warehousing allows someone to take control of a company without making a public takeover bid.
The Corporations Act controls warehousing by forcing public disclosure, not only of the shares that a person holds, but also of the shares held by that person's associates. It also prohibits the warehousing of more than 20 per cent of a company's shares.
The panel has compulsory evidence-gathering powers, but gathering enough factual evidence to prove warehousing is a difficult and time-consuming task. The panel has tended to demand that anyone who alleges warehousing should come to the panel with a lot of evidence already to hand.
Given that a private party would have considerable difficulty gathering that type of evidence, it is not surprising that only about one in three warehousing allegations are ever upheld by the panel.
The Tinkerbell case marks a watershed in that respect.
It involved a panel ruling that a father and daughter were undisclosed associates in relation to a listed company.
This ruling was based on the written evidence presented to the panel. Importantly, however, the panel members also relied upon their own knowledge of how the corporate world works.
The panel ordered ASIC to compulsorily sell off a large part of the daughter's shareholding in the company. The father and daughter went to court, complaining, among other things, that the panel had not held any oral hearings or heard from witnesses before finding that they were associates. They also complained about the panel's relying upon the professional experience of its own members.
If successful, this challenge would have neutered the panel's ability to deal with warehousing. The amount of time needed to hold oral hearings and hear from witnesses (especially if the warehousing is taking place overseas) would have made it extremely difficult for the panel - which is composed of part-time members - to operate within the short timeframes expected of it. Equally importantly, the challenge to the panel's use of the expertise of its own members threatened to negate the whole purpose of appointing industry professionals to the panel in the first place.
In a landmark ruling, Justice Berna Collier ruled that there was no requirement to hold oral hearings. She also held that panel members could draw on their own skill, knowledge and experience when evaluating the evidence before them and drawing inferences from it.
The judge clearly recognised the significance of the issue in front of her. She said that accepting the arguments against the panel's reliance on its own expertise would strip it of "its effectiveness as a specialist body established to resolve takeover disputes, as mandated by the legislation".
It's arguable that this goes a lot further than merely protecting the panel's status quo.
Justice Collier's ruling sends a strong signal to all M&A players that the panel does not have to find a corpse or even a smoking gun before taking action. If the panel's members' expertise tells them, on what evidence is available, that something is amiss, they're entitled - and expected - to act.
It will be interesting to see if this development emboldens the panel to take a more commercially savvy approach to future allegations of warehousing or other breaches of takeovers law.
This article was first published on afr.com.au, 21 November 2012
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.