ASIC has released two new regulatory guides which update its policy on independent expert reports. These are Regulatory Guide 111 Content of expert reports (RG 111) and Regulatory Guide 112 Independence of experts (RG 112).
Together, these reports replace the existing ASIC guidance on expert reports.
The new guides focus on reports prepared for transactions under Chapter 5 (External Administration), Chapter 6 (Takeovers) and Chapter 6A (Compulsory acquisitions and buy-outs) of the Corporations Act 2001 (Cth). The principles of the new guides are also relevant to reports prepared for other purposes, such as specialist reports which may be included in prospectuses or product disclosure statements (other than independent or investigating accountant reports). The guides apply equally to those reports that are expressly required under the legislation and those which are commissioned voluntarily.
RG 111 Content Of Expert Reports
RG 111 outlines ASIC's view on the general requirements for expert reports and how experts should analyse a proposed transaction. The guide also outlines ASIC's view on the different valuation methodologies used by experts. RG 111 emphasises that an expert should focus their report on the issues facing the security holders for whom the report is being prepared and, when employing valuation methodologies, should use more than one methodology to minimise the risk that opinions within the report will be unreliable. Significantly, the guide notes that where there has been a change in circumstances after a report has been issued to a client, an expert should, at a minimum, notify the client of the change. In certain circumstances, the expert may be considered to have engaged in misleading and deceptive conduct if it fails to provide a supplementary report.
RG 112 Independence Of Experts
RG 112 sets out ASIC's attitude towards the independence of experts and how previous and existing relationships may affect that independence. The guide reaffirms ASIC's view that an expert should not only be, but should also appear to be, independent and only give an opinion that is genuinely its own. Importantly, the guide highlights that where an expert does not have the necessary specialist expertise on a matter that must be determined for the purposes of a report, the expert should retain an appropriate specialist who is independent of the commissioning party for that matter.
Phoenix Companies (NZ)
The NZ Companies Act 1993 has recently been amended in an attempt to prevent 'phoenix company' arrangements.
Prior to the amendments, directors of a failed company (eg a liquidated company) were able to incorporate a company using a name that was similar to that of the failed company and transfer the failed company's assets to the new company, leaving the liabilities with the failed company.
The new section 386A of the NZ Companies Act provides that, except in certain specified circumstances, a director of a failed company must not, for a period of five years after the failed company enters liquidation, be a director of or directly or indirectly take part in the promotion, formation, management or day-to-day business of a phoenix company. Anyone who contravenes these provisions may be liable to imprisonment for a term of up to five years, or a fine of up to $200,000. They may also be personally liable for all the relevant debts of the phoenix company.
There are three statutory exceptions to the new phoenix company provisions:
- Successor company - a company will not be a phoenix company if it is a 'successor company' under section 386D. A successor company is where a company acquires the whole or substantially the whole of the business of the failed company as arranged by a liquidator, receiver or under a deed of company arrangement under Part 15A of the Act.
- Leave of the court - a person may apply for leave of the court under section 386E of the NZ Companies Act to be a director of a phoenix company as long as he or she applies within five working days after the failed company enters liquidation. That person will automatically be granted temporary leave while the leave application is being processed (for a maximum period of six weeks from the date of liquidation).
- Existing dormant phoenix companies - under section 386F of the NZ Companies Act it is acknowledged that often the director of a company within a group of associated companies is a director of other companies within that group, and often those companies have similar names.
The amendments came into force on 1 November 2007.
(Minority Buy-out Rights) Amendment Bill (NZ)
New Zealand's Minister of Commerce, Lianne Dalziel, has recently introduced into Parliament the Companies (Minority Buy-out Rights) Amendment Bill. The Bill aims to provide more clarity in relation to minority shareholder buy-out rights in times of a special resolution. The Bill's objective is to improve the practical operation of the minority buy-out regime to ensure that it functions efficiently, cost effectively, and appropriately.
As New Zealand law currently stands, a minority shareholder of a company may request the company to buy the shareholder's shares in the company where the shareholder has unsuccessfully opposed a fundamental change in the company's structure by voting against the special resolution that sought to approve the change. While rights exist under the NZ Companies Act in these circumstances, there has been significant criticism from the courts, the Law Commission and academics over the lack of guidance it provides for implementing those rights. For example, the NZ Companies Act currently requires companies to offer a 'fair and reasonable price' to a dissenting shareholder when making an offer to buy-out that shareholder's shares. However, the NZ Companies Act fails to specify how to calculate a fair and reasonable price.
The Bill addresses various stages of the minority shareholder buy-out process:
- An obligation is imposed on all companies to notify its shareholders when minority buy-out rights may be triggered by an event.
- When a company does issue a share offer to buy-out minority shares, the share offer must be accompanied by a statement outlining how fair value for the shares was determined.
- The price of the shareholder's shares is to be calculated from the date the company gives a notice to the shareholder agreeing to buy back the shares, but the valuation is to be adjusted to disregard any change attributable to the event triggering the buy-out (except when a shareholder is being bought out against the shareholder's will). Where the value of the shares cannot be agreed upon by the shareholder and the company, the price may be determined by arbitration. The Bill clarifies and expands the powers of the arbitrator to determine the share price in a minority buy-out.
- The Bill ensures that legal title in the shares and all voting rights attaching to them does not pass from the shareholder until the value is agreed and the purchase price is paid in full.
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