On 9 August 2013, Avalon Minerals Limited announced a 1 for 1
non-renounceable rights issue underwritten by its largest
shareholder, Mr Tan Sri Abu, to raise $5.89 million. Sidan Super
Pty Ltd, as trustee for the Sidan Superannuation Fund, applied to
the Takeovers Panel on the basis that the structure of, and
disclosure in relation to, the rights issue was unacceptable, as a
result of the following:
Rights issue fully underwritten by Avalon's largest
shareholder who held 19.9% (approx.) of Avalon;
Non-disclosure of association between Mr Abu and Mr Dato
Richard Lim (another substantial shareholder of Avalon);
Mr Abu requested Mr Lim to subscribe for full entitlement under
the rights issue (which was initially funded by Mr Abu) which
increased his interest from 8.2% to 11.8% of Avalon;
The underwriter's voting power in Avalon (together with Mr
Lim) could increase to 60% (approx.) on the basis of the
The Takeovers Panel found that there was an inadequately
disclosed fundraising purpose, a concentration of control in the
underwriter and his associate and a failure by Avalon to explore
other available options. The proposed underwriting of Avalon's
non-renounceable rights issue and its shortfall facility infringed
on takeovers law by unduly affecting the control of Avalon. The
Panel therefore declared that the arrangements gave rise to
THE PANEL'S DECISION
The effect of the rights issue in circumstances where it was
underwritten by the largest shareholder, was to improperly and
unduly control or influence the conduct of Avalon. In particular,
the Panel found that:
Avalon had not taken all reasonable steps to minimise the
potential control impact of the underwriting arrangement, including
failure to explore other capital-raising alternatives.
The offer contained material information deficiencies,
including in respect of Avalon's need for, and use of, the
funds and the association between Mr Abu and Mr Lim
At all material times, Mr Abu and Mr Lim were associates for
the purpose of controlling or influencing the conduct of Avalon,
yet the association was not disclosed by them in accordance with
section 671B of the Corporations Act 2001 (Cth)
Due to the association, a previous share placement to Mr Abu
and Mr Lim in August 2013 had increased their voting power
otherwise than as permitted under Chapter 6 of the Act.
The Panel made its final orders on 14 October 2013, which
included the following:
Mr Abu prevented from underwriting the Avalon rights
Mr Abu and Mr Lim required to disclose details of their
association and substantial holding in Avalon in accordance with
section 671B of the Act.
Interests in Avalon acquired by Mr Abu and Mr Lim as a result
of the rights issue (amounts in excess of 19.9% and 8.22%
respectively) were vested in the
Commonwealth for sale by ASIC.
Mr Abu's voting power (taking into account the voting power
of Mr Lim), be restricted to 20% for a period of 18 months
following the decision.
The Panel's decision reinforces its policies with respect to
shareholders seeking to circumvent Chapter 6 of the Act using the
underwriting exception in section 611 of the Act. The decision of
the Panel to vest the excess shares accrued by the shareholders in
ASIC for sale and the 18 month limitation on the voting power of
the offending shareholder sends a message that the Panel will act
swiftly and harshly in the face of blatant disregard of the Act and
the Panel's policies in this respect.
This publication is intended as a general overview and
discussion of the subjects dealt with. It is not intended to be,
and should not used as, a substitute for taking legal advice in any
specific situation. DLA Piper Australia will accept no
responsibility for any actions taken or not taken on the basis of
DLA Piper Australia is part of DLA Piper, a global law firm,
operating through various separate and distinct legal entities. For
further information, please refer to www.dlapiper.com
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