Investors concerned about corporate governance have new
ASIC guidelines to follow.
Investors who consult among themselves about corporate
governance issues run the risk of breaching the Corporations Act. A
ASIC regulatory guide clarifies what conduct might be
The guide seeks to strike a balance between fostering investor
engagement (which, ASIC acknowledges, is fundamental to good
corporate governance) and preventing contraventions of the takeover
and substantial holding provisions of the Act.
Takeover and substantial holding provisions
Collective action by investors will trigger the takeover and
substantial holding provisions where the engagement constitutes a
relevant agreement between the investors resulting in an investor
acquiring a relevant interest in another person's shares or
triggering an associate relationship. The investors may also become
associates if they are acting in concert in relation to the
The result is that the investors may be required to lodge a
substantial holding notice (if their joint holdings are greater
than 5%). In addition, they may contravene the prohibition on
acquiring more than 20% of the entity.
ASIC believes that conduct "more likely" to create a
relevant agreement includes:
jointly signing a meeting requisition for a resolution relating
to the composition of the board or the entity's affairs (on the
basis that this is often accompanied by an understanding about the
exercise of voting rights). This is particularly relevant where the
proposes to remove directors and replace them with new
directors who are aligned with the requisitioning investors;
seeks approval for a transaction (eg. a selective buy-back) on
unduly favourable or non-commercial terms, or a transaction that
has an effect on the "control" of the company;
putting together joint proposals concerning board appointments
or a strategic issue; and
accepting an inducement to vote in a specific way, agreeing on
a plan relating to voting or limiting one's freedom to vote
(eg. by granting another investor an irrevocable proxy).
Where it is ambiguous as to whether the relevant conduct
triggers the takeover and substantial provisions, ASIC will
consider whether the conduct is control-seeking rather than simply
promoting good corporate governance.
Other legal and regulatory issues
In addition to the takeover and substantial holding provisions,
the revised guide identifies a number of other legal issues that
investors and listed entities should be aware of in relation to
Investors should consider:
whether through any voting agreement or discussion with other
investors, the investor has obtained inside information that could
trigger the prohibition on insider trading;
whether the engagement results in the investor effectively
managing the entity such that he/she is acting as a shadow
when making collective public statements, whether the
statements are misleading or deceptive.
Listed entities should consider:
whether the relevant engagement undermines the directors'
duties to act in the best interests of the company and for a proper
whether they might breach their continuous disclosure
obligations by selectively disclosing confidential information;
when publicly responding to investor communications, whether
the statements are misleading or deceptive.
Revocation of class order relief
As part of its review, ASIC has repealed the class order relief
that allowed certain agreements about voting between institutional
investors. ASIC has not issued a replacement Class Order, but
instead will offer individual relief where conduct that triggers
the provisions is not concerned with the acquisition of a
substantial interest in or control over an entity.
A starting point, but not the end point
At the end of the day, the decision on whether the Act has been
breached or there have been unacceptable circumstances is up to a
court or the Takeovers Panel. In such cases, much depends upon the
particular factual matrix. For that reason, although they are a
useful starting point, ASIC's guidelines are no substitute for
independent legal advice.
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
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Do not depart from the contract terms, or encourage the other party to do so, unless you plan to alter the contract.
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