Australia: Corporate Law News

Last Updated: 7 May 2008
Article by Leigh Brown

Regulatory Authorities


Investor guidance on debentures

On 23 April 2008, ASIC released Investing in debentures? Independent guide for investors reading a prospectus for unlisted debentures (Guide), to help investors considering investment in unlisted debenture products. The Guide is designed to assist investors utilise the eight benchmarks, that ASIC has developed, to apply to these types of products.

The Guide is particularly important, because, as the name suggests, unlisted debentures are not available on a market (such as the ASX) and so investors are unable to determine the value of their securities. Additionally, unlisted debentures do not have a credit rating so there is no independent assessment of the risk of losing some or all of their interest or principal.

Click here to access the Guide and the media release.


PAIRS enhanced

The Probability and Impact Rating System (PAIRS), which APRA introduced in October 2002 to assess risk and supervisory response, has been enhanced. PAIRS is one of the centrepiece tools to APRA's risk based approach to supervision.

The new version retains the key components of the original PAIRS but improves the original system by considering management and control aspects by risk type. The enhanced PAIRS enables supervisors to view the net risk position for each of the key risk types including strategy and planning, liquidity, operational, market and investment, insurance risk and credit.

The PAIRS applies to APRA regulated entities such as authorised deposit taking institutions, general insurers, life insurers and registrable superannuation entities and their licensees.

Click here to view the release.

Stance on covered bonds reaffirmed

On 29 April 2008, APRA issued a letter to all authorised deposit taking institutions (ADIs), reaffirming its in-principle objection to covered bond structures. Covered bonds are secured ADI funding structures whereby an ADI uses debt instruments in conjunction with a cover pool of the ADI's assets, which are held by the ADI or in a separate vehicle, for the benefit of bond investors in the event the ADI is unable to meet its obligations on the debt instrument. In substance, these structures subordinate the interests of depositors of ADIs to the interests of the covered bond holders and are, in APRA's view, not consistent with provisions of the Banking Act 1959 (Cth) (Act).

As a result of a number of submissions from ADIs regarding proposals for similar structured financing transactions, APRA released the letter, re-confirming its earlier position on covered bonds. APRA reiterated that paragraph 7 of the revised ADI Prudential Standard APS 120 Securitisation, released in November 2007, would still apply. Paragraph 7 states that covered bonds are not consistent with depositor preference provisions, as outlined in the Act and hence are prohibited.

Click here to access the letter.


Bakers Delight&well, delighted!

On 22 April 2008, the ACCC announced that it would not to take any further action in its investigation against franchisor Bakers Delight into allegations of misleading and deceptive and unconscionable conduct towards franchisees.

The ACCC investigation commenced in April 2007 following various of complaints by Bakers Delight franchisees. In particular, the allegations, of which Bakers Delight have now been cleared, concern 'churning' (selling a franchise site repeatedly where a franchisor knows that it will fail) and collusion with banks.

Despite the ACCC finding that the franchisees' claims could not be substantiated, the ACCC is continuing its discussions with Bakers Delight to ensure that its trade practices compliance program and dispute handling procedure can properly deal with any future issues which may arise.

Click here to view the media release.

Takeovers Panel

BioProspect Limited 01 panel reaches decision

On 28 April 2008, the Takeovers Panel (Panel), announced that it would not make a declaration of unacceptable circumstances following receipt of an undertaking from the Australia and New Zealand Banking Group (ANZ) and one of its subsidiaries.

ANZ had acquired an interest of approximately 25.75% of BioProspect Limited (BioProspect) as a result of a securities lending transaction with Opes Prime. BioProspect submitted that ANZ had not lodged a substantial holding notice in relation to this shareholding and it was unclear whether ANZ had obtained this interest in compliance with the takeover provisions of the Corporations Act 2001 (Cth) (Act). BioProspect was also concerned that ANZ would dispose of this shareholding not in accordance with an efficient, competitive and informed market.

ANZ submitted that it had obtained ASIC relief from the 20% takeovers prohibition and the substantial holding provision.

The Panel considered that the ASIC relief relied on by ANZ did not apply in the circumstances. Accordingly the Panel considered the circumstances were unacceptable because of contraventions of Chapters 6 and 6C of the Act. Alternatively the Panel considered the circumstances were unacceptable considering the effect they had on the control or potential control of BioProspect, and were otherwise unacceptable having regard to the Eggleston and Masel principles in section 602 of the Act.

However the Panel considered that the undertakings offered by ANZ dealt with the effect of these unacceptable circumstances. The Panel had particular consideration to the fact that ANZ had committed to an orderly sell down of BioProspect shares. As a result the Panel did not declare unacceptable circumstances.

The undertakings offered by ANZ included selling its interests in BioProspect to less than 5% within 12 months; not voting on any BioProspect securities during this time without the Panel's consent; to hand over to ASIC, for sale, any amount over 5% if not sold within 12 months; and to sell the amount in the ordinary course of trading but not more than 5% in three consecutive days.

Click here to view the media release.

Programmed Maintenance Services Limited panel declines to commence proceedings

On 22 April 2008, the Takeovers Panel (Panel), declined to commence proceedings on an application from Programmed Maintenance Services Limited (Programmed). The application concerned the announcement by Spotless Investment Holdings Pty Ltd (Spotless) of its intention to make a takeover bid for all of the shares in Programmed.

Programmed's application concerned two alleged deficiencies in the bidder's statement. First, Programmed submitted that the bidder's statement should state the value of the Spotless offer by references to Spotless' share price that were more up to date than the volume weighted average price (VWAP) of the 10 days prior to the announcement of the offer. Secondly, Programmed submitted that Spotless should undertake that it would not conduct an accelerated renounceable entitlement offering (AREO) prior to the offer close (if it was conducted) and that there should be disclosure of this intention in the bidder's statement.

In relation to the first issue, the Panel considers it best practice to include an implied value of a scrip offer based on a share price that was the most up-to-date price reasonably available. The bidder may want to include a pre-bid value as it might reflect a price undisturbed by the announcement of the bid itself, but an up-to-date value must be included. In this case, the Panel did not consider it inappropriate to include the VWAP calculation 10 days prior to the announcement because Spotless amended the bidder's statement to show the references in the past tense and a table was included which clearly illustrated implied values across a range of prices, both above and below the upto- date price.

In relation to the second issue, Spotless agreed to include a statement in its bidder's statement that it did not currently intend to conduct the proposed AREO prior to the closing date of the offer. If this intention changed a supplementary bidder's statement would have to be issued.

The Panel considered that the amendments and disclosures made by Spotless adequately resolved the issues raised by Programmed. Accordingly the Panel declined to commence proceedings.

Click here to view the Panel's reasons.

BioProspect Limited 02 panel declines to commence proceedings

On 18 April 2008, the Takeovers Panel (Panel) declined to commence proceedings on an application by Gun Capital Management Pty Limited (Gun Capital), Bejjal Pty Limited and Exchange Minerals Pty Limited (together Applicants) regarding the affairs of BioProspect Limited (BioProspect).

By way of background, on 18 June 2007, Max Capital Pty Limited (Max Capital)reached an agreement with BioProspect to underwrite the exercise of 97,708,994 BioProspect listed options. Gun Capital entered into a sub-underwriting agreement with Max Capital, requiring Gun Capital to subscribe for any shortfall of 83,454,847 BioProspect shares (97.37% of the underwritten amount).

On 12 July 2007, Max Capital was advised by Gun Capital that 71,254,847 BioProspect shares (Disputed Shares), which represented 14.63% of the diluted issued capital of BioProspect, would be taken up by the Applicants. On the same day, a representative of the Applicants advised a settlement supervisor with Opes Prime Stockbroking Limited (Opes Stockbroking), to take up the Disputed Shares on behalf of the Applicants and to arrange payment from accounts the Applicants each held with Opes Stockbroking.

The Applicants submitted that Opes Stockbroking registered the Disputed Shares in the name of Green Frog Nominees Limited (Green Frog), a wholly owned subsidiary of Opes Stockbroking, pursuant to a CHESS sponsorship agreement with ANZ Nominees. On 18 July the Disputed Shares were transferred to ANZ Nominees.

Following the announcement that Opes Prime Group Limited had gone into voluntary administration, ANZ released an announcement to the ASX detailing an interest in 124,484,003 BioProspect shares (25.559% of issued capital of BioProspect).

The Applicants submitted that at all times Opes Stockbroking acted as stockbroker for them and therefore Green Frog held the Disputed Shares (which form part of the ANZ disclosed interest) as a bare trustee for the Applicants. Accordingly ANZ had no basis for asserting a beneficial entitlement to them.

Despite these submissions, the Panel did not consider that the Application, on its face, came within section 657A of the Corporations Act 2001 (Cth) and the situation was not analogous or similar to Pinnacle 10 and Pinnacle 11. The Panel also considered that even if the application could be brought under section 657A, the strength of evidence was not such as would be likely to lead to a declaration of unacceptable circumstances, if proceedings were conducted.

In reaching this decision the Panel also had consideration to undertakings ANZ and ANZ Nominees had given in BioProspect 01 which involved some of the same shares in this proceeding, and the fact that other remedies were available to the Applicants.

Click here to access the Panel's reasons.

Proposed Legislation

Trade Practices Legislation Amendment Bill 2008 (Cth)

On 28 April 2008, the Assistant Treasurer announced that the Government would amend misuse of market power and related provisions of the Trade Practices Act 1974 (Cth) (Act).

First, the amendments would ensure that victims of predatory pricing would not need to prove that the predator had the ability to recoup losses after participating in an anticompetitive below cost pricing strategy. Secondly the term 'take advantage' in section 46 would be clarified to better capture anti-competitive behaviour. Section 46(1AA) would be amended to remove any ambiguity, to now target market power.

In addition to these legislative changes, the Government is planning to extend the jurisdiction of the Federal Magistrates Court to hear matters arising under section 46 of the Act; to remove the monetary threshold currently applying to claims of unconscionable conduct in business transactions under section 51AC of the Act; and to require the ACCC to have at least one Deputy Chairperson to have small business knowledge or expertise.

Click here to access the media release and the Exposure Draft (Misuse of Market Power and related Provisions).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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