The Australian Securities and Investments Commission (ASIC) today issued Class Order [CO 04/631] to clarify the scope of the ‘associate’ concept in section 12 of the Corporations Act 2001. ASIC also recently issued Class Order [CO 04/523] providing takeovers and substantial holdings relief to operators of investor-directed portfolio services (IDPS).
Associate takeover relief
The associate concept is fundamental to takeover regulation. It treats parcels of shares held by different persons as a single block where they are cooperating to control a company. This means that they cannot avoid the 20 percent takeover prohibition.
ASIC issued the class order following comments from takeover market participants on policy proposals released in November 2003.
The class order means that parties are not associates merely because under an agreement they have a right to buy or sell shares. Such a right does not of itself suggest that the parties are cooperating to control a company.
Without the class order, one party would be treated as holding all of the securities held by the other party, not just those subject to the agreement.
The class order covers agreements like share sales, options and escrows.
The class order does not cover any other provision in the same agreement or in another agreement between the parties that gives rise to an association. An example is an agreement to remove or appoint directors of the company.
ASIC issued the class order because section 53 gives a very wide meaning to the language ‘affairs of a body’ used in the associate concept: see regulation 1.0.18.
ASIC has amended Policy Statement 171 Anomalies and issues in the takeover provisions to explain the class order.
Investor-directed portfolio services (IDPS) takeover relief
Class Order [CO 04/523] modifies section 609 so that the operator of an IDPS does not have a relevant interest in securities held through the IDPS.
An IDPS is a service for acquiring and holding investments that generally involves custody arrangements and consolidated reporting to investors. The service is typically marketed as a master fund or wrap account.
ASIC granted the relief because operators have powers over securities held through the IDPS so limited that they should be treated like bare trustees.
The class order only applies where the operator can rely on IDPS relief in Class Order [02/294].
The class order does not apply to IDPS-like schemes because operators of these schemes generally have wider powers over securities held through the schemes.
End of release
Download a copy of:
Policy Statement 171 Anomalies and issues in the takeover provisions