Chapter 2Takeovers Panel and Companies Auditors Disciplinary Board

2.1This chapter considers the 2021–22 annual reports of the Takeovers Panel (thePanel) and the Companies Auditors Disciplinary Board (CADB).

The Takeovers Panel

2.2The Panel is a peer review body comprised largely of takeover experts. Its powers are conferred by the Australian Securities and Investments Commission Act 2001 (ASIC Act), and it operates under the Corporations Act 2001 (Corporations Act) and the ASIC Act.[1]

2.3Panel members are appointed under statute on a part-time basis by the Governor-General on the nomination of the Minister.[2] The Panel executive is a division of the Department of the Treasury (Treasury), its funding is in Treasury’s budget, and the executive are employed under the Public Service Act 1999 (Public Service Act).[3]

2.4The Panel is the main forum for resolving takeover disputes in Australia.[4] During a takeover proposal, the Panel examines the changes in relation to the affairs of a company. If there are unacceptable circumstances from a public interest perspective, the Panel can make orders to protect the rights of persons affected by the circumstances.[5] The Panel may also review the decisions of ASIC.[6]

2.5During this reporting period, the former government consulted on expanding the Panel’s jurisdiction. A consultation paper was released by Treasury, and 13submissions were received in response. 11 of those were published, while two remained confidential. Submissions to this process closed on 3 June 2022.[7] Matters considered by the consultation included ‘whether the Panel should have a greater role in schemes of arrangement and be given the power to make advance rulings’.[8]

Annual report of the Takeovers Panel

Reporting requirements

2.6The Takeovers Panel is not subject to the annual reporting requirements under the Public Governance, Performance and Accountability Act 2013 (PGPA Act) and the Public Governance, Performance and Accountability Rule 2014 (PGPARule). However, the Panel’s 2020–21 annual report provides information on most of the annual reporting requirements for non-corporate Commonwealth entities set out in sections 17AA to 17AJ of the PGPA Rule.[9]

2.7The Panel is also subject to annual reporting requirements under section 183 of the ASIC Act, which requires it to prepare a report on its operations as soon as practicable after 30 June and before 31 October following the completion of the financial year (which constitutes the reporting period). This report must be provided to the Minister, who, in turn, must table it in both Houses of Parliament within 15 sitting days after receipt of it.[10] This report was transmitted to the Minister on 12 August 2022 and tabled in the Parliament on 26 September 2022.

2.8The Panel is also subject to reporting requirements under section 183 of the ASIC Act, which requires that the annual report describe the operations of the Panel.[11]

General observations

2.9During the 2021–22 reporting year, the Panel received 30 applications, of which, proceedings were conducted in 16 matters and declarations of unacceptable circumstances were made in 11 cases[12] (an increase from five declarations made during the previous reporting period).[13] The percentage of applications that resulted in investigations rose to 53.33 per cent from 41.38 per cent in the last reporting period.[14]

2.10As of 30 June 2022, the Panel’s executive consisted of five permanent staff, two non-ongoing staff and one legal secondee.[15] In its previous annual report, the Panel noted that it would use part of the additional funding allocated in the 2021–22 budget by Treasury to recruit two additional staff.[16] The annual report stated that two additional executive staff members had been recruited. Its previous annual report had identified that the funding for these two new employees would be sourced from additional funding allocated in the 2021-22 Budget.[17]

2.11The Panel indicated it is considering amending its Procedural Guidelines, Guidance Note 4: Remedies General to discourage disruptive behaviour during Panel proceedings.[18]

Days taken in consideration of applications

2.12The number of calendar days between an application being made and a decision being handed down was 25.7, and 47 days between a decision being made and the publication of reasons. Both figures increased on those observed during the previous reporting period. Table 2.1 below presents the number of days recorded in each reporting period since the 2017–18 financial year and identifies the average number included in each report as a point of comparison.

2.13The Panel advised that two matters before it during this reporting period contained substantial challenges, including procedural issues and a considerable body of material.[19] It noted that if these matters were excluded, the average time from application to decision would have been 20.9 calendar days.[20]

Source: Takeovers Panel Annual Report, 2017–18 (p. 5), 2018–19 (p. 5), 2019–20 (p. 6), 2020–21 (pp. 5, 20), 2021–22 (pp.6, 20).

Recommendations and suggestions from previous reports

2.14In previous reports, this committee has commented on two areas in which it perceived there to be room for improvement:

in its report on 2019-20 annual reports, the committee recommended that the Panel report on the use (or non-use) of its information-gathering powers;[21] and

in its report on 2020-21 annual reports, the committee suggested that it would aid accessibility and transparency if the Panel was able to list the outcomes of review applications reviews.[22]

2.15Both matters were addressed in this annual report:

the Panel reported on its use of its information gathering powers (noting they were not used);[23] and

Table 13 was added, which incorporated outcomes of review applications received by the Panel in 2021–22.[24]

Committee view—Takeovers Panel

2.16The committee considers the Panel has fulfilled its annual reporting responsibilities for the 2021–22 financial year. The report provides a clear read and provides valuable insight to the parliament on the important operations of the Panel.

2.17The committee is encouraged by the increases between this and the previous reporting period in both the percentage of matters in which the Panel conducted proceedings and the number of declarations. While the committee acknowledges that these statistics will change depending on the nature of the disputes put forward, it is pleased by the Panel’s apparent willingness to engage with parties and take a proactive approach to matters.

2.18The committee notes that the number of days between application and decision, and between the decision and the publication of reasons has increased in a trend that has been sustained over time.

2.19The committee recognises that several matters before the Panel during this reporting period contained substantial challenges. However, it is important that the Panel strives to keep these figures to a minimum without compromising the integrity of its processes and outcomes.

2.20The committee acknowledges Treasury’s commendation of the Panel for, among other things, its ‘positive reputation for the timeliness of its decision making’.[25] The committee would very much like to see this continue and encourages the Panel (if it has not done so already), to consider what may be the root causes of this trend and adopt mitigating measures if necessary. Alternatively, should the increased timelines be due to systemic or broader factors than those within the direct control of the Panel, it would assist the committee, and the Parliament, to address these issues if those reasons were explained in future annual reports (should the trend continue).

2.21The committee is very supportive of the Panel’s consideration of measures to address disruptive behaviour from parties. It looks forward to hearing more about what steps it has taken and proposes to take to address the noticeable increase in disruptive behaviour from parties, including what role the government and the Parliament might play in this.

2.22The committee commends the Panel for its responsiveness to the committee’s recommendations. The committee acknowledges that in the two reporting periods since the Panel commenced reporting on the use of its information gathering powers,[26] these powers have not been used. However, reporting on their use (or lack thereof) nonetheless enhances transparency and provides some insight into the nature of the Panel’s processes and parties’ response to them.

2.23The committee further commends the Panel for incorporating Table 13, which enhances visibility over the outcomes of review applications.

2.24Finally, the committee notes the Treasury consultation process which considered expanding the Panel’s jurisdiction.[27] The committee encourages the Panel and the government to engage constructively on this matter and looks forward to observing future developments.

Companies Auditors Disciplinary Board

2.25CADB is an independent statutory body established under Part 11 of the ASIC Act. Its functions and powers are conferred by Part 9.2 of the Corporations Act and Part 11 of the ASIC Act.[28]

2.26CADB’s funding is allocated via the budget given to ASIC, as determined by subsection 11(2)(a) of the ASIC Act.[29]

2.27CADB’s function is to act as an independent, transparent, impartial, fair, and expeditious tribunal to hear and determine disciplinary matters about auditors referred to it by ASIC or the Australian Prudential Regulation Authority (APRA). Sanctions available to CADB include cancelling or suspending an auditor’s registration.[30]

Annual report of CADB

2.28CADB is not subject to the annual reporting requirements under the PGPA Act and PGPA Rule. However, the 2021–22 annual report provides information on most of the annual reporting requirements for non-corporate Commonwealth entities set out in sections 17AA to 17AJ of the PGPA Rule.

2.29CADB is also subject to annual reporting requirements under section 214 of the ASIC Act, which requires it to prepare a report on its operations as soon as practicable after 30 June and before 31 October following the completion of the financial year (which constitutes the reporting period). This report must be provided to the Minister, who, in turn, must table it in both Houses of Parliament within 15 sitting days after receipt of it.[31] This report was transmitted to the Minister on 21 October 2022 and tabled in the Parliament on 26 October 2022.

Board appointments

2.30Under to sub-section 203(1) of the ASIC Act, CADB is constituted as follows:

a Chairperson;

a Deputy Chairperson

six accounting members; and

six business members.

2.31At the conclusion of the reporting period, CADB comprised of the Chairperson, three Accounting Members and two Business Members.[32] The terms of two Business Members and the Deputy Chairperson expired during the reporting period and were not renewed. Two Accounting Members were appointed, while a Business Member and the Chairperson were re-appointed during this time period.[33]

2.32The annual report identified that its ‘capacity to deal with referrals in a timely manner and to effectively manage a conflict of interest when one arises…would be facilitated by a properly constituted Board’.[34] It added:

The CADB Chair regularly liaised with the Department of Treasury about the need for new appointments throughout the reporting year. Relevant to note is that a hearing fixed for April 2022 in one of the Board’s current matters was vacated by the CADB Chair as it was not possible to convene an eligible Panel to hear that matter from the reduced pool of members.[35]

Resourcing arrangements

2.33CADB is supported by a registrar seconded from the secretariat of ASIC’s office of general counsel on a part-time basis.[36] During the reporting period, the administrative support provided under the secondment arrangement was approximately 30 per cent full time equivalent (FTE).[37]

2.34The annual report highlighted that the three applications on foot at the time of writing ‘are all conduct matters [and]…carry an increased workload in terms of the likely length of the hearings and written decision required’.[38] The need for additional resourcing was raised in the 2020-21 annual report, which noted that the matter had been raised with Treasury.[39] In the subsequent 2021-22 annual report, CADB identified that further discussions had been had about the issue, including at a meeting with ASIC on 1 October 2021, and that indications had been provided by the latter that the issue would be addressed.[40] However, it stated that the matter remained unresolved by the end of the reporting period which, together with the vacant positions on the Board, ‘continues to affect the Board’s capacity to effectively discharge its statutory mandate’.[41]

Applications received by CADB

2.35Section 214 of the ASIC Act requires the annual report to describe the operations of CADB. During the reporting period, CADB was involved in five matters, all conduct-related. Of these, one was a new application and four were incomplete from the previous reporting period.[42] As Table 2.2 below indicates, this is a significant decrease from the number of new applications during the previous reporting year 2020–21, during which CADB received 41 applications.

Source: Companies Auditors Disciplinary Board, Annual Reports 2016–17, 2017–18, 2018–19, 2019–20, 2020–21, 2021–22.

2.36By the end of the 2021–22 reporting year, CADB issued orders for two of the five conduct applications, and expected to resolve two of the remaining three applications by the end of the next reporting year.[43] The third active application was subject to an interim stay order by the Federal Court pending the laying of criminal charges against the Respondent.[44] CADB proceedings cannot take place until the stay order is lifted.[45]

2.37In its last Report on Annual Reports, the committee noted ASIC’s indication of its enhanced approach to the pursuit of audit matters as a result of the committee’s inquiry into auditing.[46] This included the increased referral to CADB and the enforcement of more serious audit issues through the courts.[47]

Information gathering powers

2.38In its report on 2019-20 annual reports, the committee recommended that CADB report on the use (or non-use) of its information gathering powers and penalties under sections 216–221 of the ASIC Act.[48]

2.39In 2021–22, CADB reported that it did not use its information gathering powers.[49]

Financial provision for claim of unpaid superannuation

2.40In its 2020-21 annual report, CADB reported that its 2020 administrative expenses included provision of $250,000 for an unresolved claim by CADB members for back-payment of superannuation.[50] In the 2021-22 annual report, CADB stated again that this dispute remained unresolved.[51]

Committee view—CADB

2.41The committee considers CADB has fulfilled its annual reporting responsibilities for the 2021–22 financial year. The annual report provides a significant degree of explanatory and background information on the functions of CADB, which provides a solid foundation for understanding its performance throughout the reporting period.

2.42The committee commends CADB for its responsiveness to the committee’s recommendations. The committee repeats the same point made earlier in this chapter in relation to the Takeovers Panel: That is, while CADB has not used its information gathering powers in the two reporting periods since it began reporting on them, this reporting remains useful nonetheless. Reporting on the use (or non-use) or these powers enhances transparency and provides insight into the nature of the Panel's processes and parties' response to them.

2.43While noting that the significant number of applications to CADB from ASIC in 2020-21 arose out of ASIC’s enhanced enforcement of audit matters, the committee is keen to understand the reasons for the return to previous levels. The committee welcomed ASIC’s stronger enforcement posture and hopes this drop is not due to a lack of enforcement effort by ASIC. Going forward, the committee will continue to monitor the number of referrals by ASIC to CADB. The committee looks forward to CADB working with ASIC to ensure all relevant referrals are received for further investigation.

2.44The committee is concerned by the apparent under-resourcing of CADB, and the significant number of vacancies on the Board, including for the position of Deputy Chairperson. The committee commends CADB for the clarity with which it has alerted the Parliament to the lack of resourcing through the annual reporting process.

2.45While further appointments have been made to the Board in the intervening period[52] (noting that the current Board configuration still does not meet the figures provided for under the ASIC Act), the committee notes the importance of the government ensuring the Board is sufficiently staffed to avoid a repeat of the previous situation.

2.46To address the lack of administrative support, the committee is of the view that Treasury, ASIC and CADB must work together in order to ensure that adequate administrative resources are provided to CADB. The committee notes that CADB have persistently called for additional administrative support over a prolonged period of time and encourages ASIC to respond to such requests promptly.

2.47The degree of reliance, faith and trust put in auditors across the Australian economy demands that the measures put in place to uphold the integrity of the profession and safeguard against bad actors are properly resourced to perform their roles. The committee will continue to observe this issue going forward and looks forward to seeing consistent improvement in this area.

Footnotes

[1]Australian Securities and Investments Commission Act 2001 (ASIC Act), Part 10, s 174; Takeovers Panel, Annual Report 2021–22, p. 1.

[2]ASIC Act, Part 10, s 172(2-4); Takeovers Panel, Annual Report 2021–22, p. 12.

[3]Takeovers Panel, Annual Report 2021–22, p. 31.

[4]Corporations Act 2001 (Corporations Act), Chapter 6, Part 6.10, Division 3, s 659AA.

[5]Corporations Act, Chapter 6, Part 6.10, Division 2, s 657A.

[6]Corporations Act, Chapter 6, Part 6.10, Division 2, s 656A(1).

[7]Department of the Treasury (Treasury), ‘Corporate control transactions in Australia: options to improve schemes of arrangement, takeover bids, and the role of the Takeovers Panel’ https://treasury.gov.au/consultation/c2022-263877 (accessed 15 June 2023).

[8]Takeovers Panel, Annual Report 2021–22, p. 4.

[9]See, for example, Takeovers Panel, Annual Report 2021–22, p. vi.

[10]Australian Securities and Investments Commission Act 2001, Part 10, s 214.

[11]ASIC Act, Part 10, s 183.

[12]Takeovers Panel, Annual Report 2021–22, pp. 6, 20.

[13]Takeovers Panel, Annual Report 2020–21, pp. 5, 20.

[14]Takeovers Panel, Annual Report 2021–22, p. 6; Takeovers Panel, Annual Report 2020–21, p. 5.

[15]Takeovers Panel, Annual Report 2021–22, p. 31.

[16]Takeovers Panel, Annual Report 2021–22, p. 4.

[17]Takeovers Panel, Annual Report 2020–21, p. 3.

[18]Takeovers Panel, Annual Report 2021–22, p. 4.

[19]Takeovers Panel, Annual Report 2021-22, p. 3.

[20]Takeovers Panel, Annual Report 2021-22, p. 3.

[21]Parliamentary Joint Committee on Corporations and Financial Services, Report on the 2019–2020 annual reports of bodies established under the ASIC Act, August 2021, p. 6.

[22]Parliamentary Joint Committee on Corporations and Financial Services, Report on the 2020–2021 annual reports of bodies established under the ASIC Act, August 2021, pp. 4-5.

[23]Takeovers Panel, Annual Report 2021–22, p. 20. This was also address in the previous annual report.

[24]Takeovers Panel, Annual Report 2021–22, p. 41.

[25]Treasury consultation, April 2022, quoted in Takeovers Panel, Annual Report 2021–22, p.4.

[26]As recommended by the committee in its Report on the 2019–20 annual reports of bodies established under the ASIC Act, August 2021 (Recommendation 1, p. 6).

[27]Treasury, ‘Corporate control transactions in Australia: options to improve schemes of arrangement, takeover bids, and the role of the Takeovers Panel’ https://treasury.gov.au/consultation/c2022-263877 (accessed 15 June 2023).

[28]Corporations Act 2001, Part 9.2; Australian Securities and Investments Commission Act 2001, Part 11; Companies Auditors Disciplinary Board, Annual Report 2021–22, p. 2.

[29]Australian Securities and Investments Commission 2001, s 11(2)(a).

[30]Corporations Act 2001, s 1292(1).

[31]Australian Securities and Investments Commission Act 2001, Part 10, s 214.

[32]Companies Auditors Disciplinary Board, Annual Report 2021–22, p. 2.

[33]Companies Auditors Disciplinary Board, Annual Report 2021–22, p. 1.

[34]Companies Auditors Disciplinary Board, Annual Report 2021–22, p. 4.

[35]Companies Auditors Disciplinary Board, Annual Report 2021–22, p. 4.

[36]Companies Auditors Disciplinary Board, Annual Report 2021–22, p. 5.

[37]Companies Auditors Disciplinary Board, Annual Report 2021–22, p. 5.

[38]Companies Auditors Disciplinary Board, Annual Report 2021–22, p. 5.

[39]Companies Auditors Disciplinary Board, Annual Report 2020–21, p. 5.

[40]Companies Auditors Disciplinary Board, Annual Report 2021–22, p. 5.

[41]Companies Auditors Disciplinary Board, Annual Report 2020–21, p. 5.

[42]Companies Auditors Disciplinary Board, Annual Report 2021–22, p. 5.

[43]Companies Auditors Disciplinary Board, Annual Report 2021–22, p. 1 and p. 5.

[44]Companies Auditors Disciplinary Board, Annual Report 2021–22, p. 1.

[45]Companies Auditors Disciplinary Board, Annual Report 2021–22, p. 1.

[46]Ms Cathie Armour and Mr Sean Hughes, Commissioner, Australian Securities and Investments Commission, Committee Hansard, 26 November 2021, p. 12.

[47]Parliamentary Joint Committee on Corporations and Financial Services, Report on the 2020–21 annual reports of bodies established under the ASIC Act, February 2022, p. 6.

[48]Parliamentary Joint Committee on Corporations and Financial Services, Report on the 2020–2021 annual reports of bodies established under the ASIC Act, February 2022, p. 6.

[49]Companies Auditors Disciplinary Board, Annual Report 2021–22, p. 9.

[50]CADB, Annual Report 2021-22, p. 10.

[51]CADB, Annual Report 2020-21, p. 10.

[52]As at 21 June 2023, CADB membership consisted of a Chair, Deputy Chair, three Accounting Members and 5 Business Members: CADB, Members, https://www.cadb.gov.au/about-cadb/members/ (accessed 21 June 2023).