ASIC today released updated guidance on a key part of Australia’s takeover regulation. The guidance is set out in Regulatory Guide 71 Downstream acquisitions (RG 71).

A ‘downstream acquisition’ occurs when a person acquires a relevant interest in more than 20% of the voting securities in an Australian company (downstream entity) as a result of an acquisition in another company, including a foreign body corporate (upstream entity). Acquisitions of this kind can have a significant impact on the control of the downstream entity and therefore its shareholders.

The Corporations Act 2001 prohibits a person acquiring more than 20% of a company with more than 50 members, a listed company or a listed managed investment scheme, unless an exception applies.

Downstream acquisitions are not caught by this prohibition if the upstream entity is:

• included in the official list of a prescribed financial market (such as the Australian Securities Exchange), or
• a foreign body conducting a financial market approved by ASIC, as set out in item 14 of s611 of the Corporations Act. ASIC’s list of approved foreign exchanges is set out in Class Order [CO 02/259] Downstream acquisitions: foreign stock markets.

The updates to RG 71 follow a public consultation process (refer: 11–251AD and Consultation Paper 170 Downstream acquisitions: update to RG 71 (CP 170)). As foreshadowed through consultation, the update takes into account developments in the law since RG 71 was first published, including amendments to the exception for downstream acquisitions in item 14, the extension of the takeovers regime in Chapter 6 to listed managed investment schemes and developments in recent Takeovers Panel matters.

The updated guide provides entities and their advisers with ASIC’s views on how the downstream acquisition exemption in item 14 applies and our approach on relief applications, including when we may grant relief to permit a downstream acquisition that does not fall within the item 14 exemption.

Entities that propose making a downstream acquisition that is not exempt under item 14 are encouraged to approach ASIC for relief well in advance of the time the upstream acquisition is to take place.

Download:

• RG 71
• CP 170
• [CO 02/259]
• Report 286 Response to submissions on CP 170 Downstream acquisitions: Update to RG 71