Oversight of the Takeovers Panel
4.1
This chapter discusses the committee's inquiries into the Takeovers
Panel (the Panel) as required under paragraph 243(a)(i) of the Australian
Securities and Investments Commission Act 2001 (ASIC Act). It also
considers some academic work evaluating the Panel.
4.2
The committee previously reported on the Panel in its oversight report
in November 2014.[1]
The committee also reported on the annual report of the Panel in its report on
the 2016–17 annual reports of bodies established under the ASIC Act.[2]
About the Takeovers Panel[3]
4.3
Following implementation of the Corporate Law Economic Reform Program
Act 1999, the Panel was established in its present form on 13 March
2000 by Part 10 of the ASIC Act. Its purpose is to resolve disputes arising in
the course of takeovers in an efficient, effective, fair and speedy manner. The
Panel was established, at least in part, because of a concern that disputes
could be lodged in court during a takeover as a strategic measure, or, as a delaying
tactic, and that the nature of legal processes encouraged this behaviour.[4]
4.4
Now, however, under section 659B of the Corporations Act 2001
(Corporations Act), private parties to a takeover no longer have the right to commence
civil litigation or seek injunctive relief from the courts while a takeover is
in progress. Instead, a party to a takeover bid may make an application to the
Panel to seek a resolution of a dispute.
4.5
The Panel is composed of part-time members who are specialists in
mergers and acquisitions, such as investment bankers, lawyers, company
directors or other professionals. This composition reflects the Panel's focus
on commercial and policy issues rather than legal issues.
4.6
A takeover under Chapter 6 of the Corporations Act is defined as the
acquisition of control over voting shares or voting interests in listed
companies, unlisted companies with more than 50 members, and listed managed
investment schemes.
4.7
During a takeover bid, the Panel is able to declare unacceptable
circumstances with respect to the public interest in relation to the affairs of
a company. The Panel can establish orders to remedy those circumstances. There
is no definition of 'unacceptable circumstances': it is up to the Panel. Its
orders protect the rights of persons or groups (especially shareholders in the
target company) and attempt to ensure that a takeover proceeds as it would have
done if the unacceptable circumstances had not occurred.
4.8
The Panel acts in response to an application by a person who has
standing in a takeover process as a bidder, target, or otherwise affected
party, or by the Australian Securities and Investments Commission (ASIC). It
also has power to review some decisions by ASIC, and matters may be referred to
it by a court. The Panel cannot proceed on its own motion.
4.9
A sitting Panel consists of three members of the Panel nominated by the
chair when an application is received. It usually comprises a lawyer, an
investment banker, and a company director or market professional.[5]
Its decisions may be reviewed by a new sitting Panel comprising three other
members of the Panel.
4.10
The sitting Panel, on receiving an application, first decides whether to
investigate the issue. If it does investigate, it proceeds informally: it is
not bound by the rules of evidence, and it does not have to conduct hearings.
It may call for submissions from interested parties.
4.11
The Panel issues Guidance Notes on various topics to help applicants and
other parties. There are 18 current Guidance Notes.
4.12
Panel members are appointed by the Governor-General on the nomination of
the Minister. Appointments are made on a part-time basis, usually for a period
of three years. There must be a minimum of five members. At 8 November 2018,
the Panel had 43 members.
4.13
The Panel operates under a memorandum of understanding (MOU) with ASIC,
which was reviewed in March 2017. The effect of the review was to make the MOU
an agreement between ASIC and the Panel executive, rather than the Panel
itself, because that is where the liaison occurs. Other changes streamlined the
MOU because experience showed that the level of prescription in the first MOU
was unnecessary.[6]
The work of the Panel
4.14
The number of applications to the Panel fluctuates, but is partly
dependent on the amount of merger and acquisition activity taking place. This,
in turn, is partly a function of local and overseas economic conditions. A high
level summary of the Panel's work is presented in Table 4.1.
Table 4.1: Work of the Takeovers Panel, 2013–14 to
2017–18
|
2013–14
|
2014–15
|
2015–16
|
2016–17
|
2017–18
|
Applications |
26 |
20 |
20 |
23 |
29 |
Matters where the Panel
conducted proceedings |
13 |
5 |
13 |
9 |
16 |
Matters where the Panel
declined to conduct proceedings |
13 |
12 |
6 |
11 |
12 |
Average days between
application and decision |
19.2 |
11.3 |
19.2 |
16.3 |
14.8 |
Source: Annual Reports of the Takeovers Panel, 2013–14 to
2017–18.
4.15
The average number of applications since 2000 has been 29 a year. Since
2009, that average has fallen to 23 a year. However, in 2017–18 the number of
applications was back up to the long-term average. This probably reflects
favourable global and local economic activity, and possibly fluctuations in
commodity prices. However, Mr Allan Bulman, the Director of the Takeovers
Panel, warned the committee that it was difficult to make simple connections
because of the small number of cases coming before the Panel.[7]
4.16
Over the five years for which data are shown in the table, the Panel has
conducted proceedings in roughly half of the cases. There does not seem to be
any trend in the propensity to conduct proceedings in recent years, however as
previously scrutinised by the committee, the rate at which the Panel declined
to conduct proceedings did increase steadily from around 6 per cent to over 50
per cent during its first decade. The Panel argues that this probably
reflects experience and growing confidence in being able to read the
circumstances of a takeover.[8]
In general, the Panel encourages the parties to sort out issues themselves if
possible.[9]
4.17
Towards the end of 2017, the Panel had dealt with nearly 500
applications in total. Of those:
-
80 were concerned with the content of the bidder's statement in a
takeover bid;
-
55 alleged breaches of the 20 per cent threshold, above which an
acquirer has to make a general offer for the shares of a company; and
-
74 alleged that parties were acting in association in order to
obscure that the 20 per cent threshold was being breached.[10]
4.18
An important reason for the Panel's existence is its ability to deal quickly
with applications. It has three months from when the circumstances occurred, or
one month from the date of the application, to make a decision.[11]
Since 2000, the Panel has taken an average of 16 days to make a decision. As
the table shows, the time for the Panel to make a decision has been above that
average in two of the last five years, but in general the time elapsed does not
appear to have increased.
4.19
Applications alleging association are the most resource intensive,
because the investigation requires 'almost a forensic audit within a month'.
Occasionally, the Panel has expanded its resources by taking on contractors in
such cases.[12]
4.20
Decisions of the Panel are open to judicial review, but there had been
only about six applications for review to the end of 2017.[13]
Views of the Panel's performance
4.21
The Takeovers Panel does not attract a great deal of public scrutiny,
presumably partly because of the informality of its processes. Occasionally its
decisions are analysed in the media. The case of Taurus Funds Management and
Finders Resources, a Panel decision which was then judicially reviewed,
attracted comment that was not entirely favourable to the Panel.[14]
4.22
The Panel has also been criticised for declining to conduct proceedings
in what became a notorious insider trading case involving a US congressman.[15]
4.23
However, a comprehensive stakeholder survey conducted for the Panel
found a very high 89 per cent of respondents were satisfied with the conduct of
the Panel. Criticisms recorded during the survey included:
-
sitting panel members' experience with mergers and acquisitions;
-
the handling of novel issues; and
-
the relatively gentle sanction when association is found, where
the remedy the Panel usually applies is to vest the shares in breach of the 20
per cent rule with ASIC for on-sale. (The Taurus Funds Management case
mentioned above involved a remedy along these lines).[16]
4.24
There has been a body of academic analysis of the Panel. Dr Emma Armson
of the University of New South Wales has published assessments of the Panel
against the three criteria of speed, flexibility and certainty.
4.25
With respect to speed in decision-making, Dr Armson notes that this was
one of the main aims of establishing the Panel in its current form. She
assessed the speed of the Panel's decision making to June 2016 by comparing the
time it has taken against benchmarks applied to courts and other tribunals. She
found that the Panel is a good deal faster than courts, taking an average of
16.6 days to make its decisions and 46.1 days from application to the
publication of reasons (or, where judicial review is involved, 62.3 days),
compared with a range of 11 months to 3.5 years for the courts. She concluded that
the objective of speed has been met.[17]
4.26
Dr Armson examines flexibility in two dimensions, procedural and
substantive, which are reflected in the informality which is part of the
Panel's operations. The Panel has been designed for procedural flexibility: its
powers, its processes, and the expertise of members. In particular, the
Panel's proceedings are to be as informal as is consistent with fairness and
speed. Substantive flexibility has to do with whether the Panel's approach to
the use of discretion rather than rules. In essence, this involves a
commercial and pragmatic approach rather than a legalistic one, and achieves
its outcomes through negotiation rather than orders where possible. Dr Armson found
that the Panel's arrangements result in a 'strong form of procedural
flexibility'. She used a case study of the development of the Panel's
frustrating action policy to conclude that there is also a strong form of
substantive flexibility.[18]
4.27
The notion of certainty in decision‑making has two key elements,
consistency and finality. Dr Armson examined consistency through a case study
of Panel decisions relating to ASIC's 'truth in takeovers' policy.[19]
She noted that there has been criticism of the Panel because there was
uncertainty as to whether it would apply the policy. The Panel has said that it
would not automatically apply the policy, and that it would consider other
matters including reasonableness and new circumstances. Dr Armson found that
differences between ASIC's and the Panel's interpretations of events are
explicable in terms of the different roles of the two bodies. The Panel's
decisions displayed a high level of consistency over time. With respect to
finality, Dr Armson examined court decisions involving judicial review of
Panel decisions. She noted that there have not been many judicial reviews
(four), but that the courts have overturned half the Panel decisions. Overall, Dr
Armson concluded that the Panel has achieved a medium to high level of
certainty.[20]
4.28
At its hearing in February 2018, the committee asked representatives of the
Takeovers Panel whether they had views about reforms to the law and whether, in
the course of their operations, they analysed information about the cases they
processed in order to advise Treasury and legislators as to how the law might
be improved.
4.29
Mr Bruce Dyer, Counsel to the Panel, responded:
There have been various reforms suggested by different people
over the years. Generally, the Takeovers Panel, as you saw from the stakeholder
survey results, has been well-received by the market and those who are most
actively involved in this area. As a result, there is a bit of a hesitation
about changing what seems to be working very well. You can have lots to reform
ideas, but once you start to change something you don't know what the flow-on
effects of that might be.[21]
4.30
Mr Dyer further noted that much of the Panel's policy is contained in
its Guidance Notes, and the panel members meet twice a year to look at policy
issues that can be dealt with within the broad power to declare circumstances
unacceptable.[22]
In developing or changing Guidance Notes, the Panel consults Treasury and ASIC.[23]
Committee view
4.31
The committee notes the favourable views of the Takeovers Panel from its
stakeholder survey and from academic analysts. It considers that the Takeovers
Panel is working effectively.
Mr Michael Sukkar MP
Committee Chair
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