Andrew Murray (WA, Australian Democrats) Share this | Hansard source

I commence my contribution by reminding the chamber that I was an enthusiastic party to the original legislative team that inquired into the concept and backed the introduction of the Takeovers Panel to Australia. We wanted its processes to be informed, expert, principled, practical, quick, low cost and flexible, and to contribute materially to a dynamic acquisitions and mergers market. By and large we succeeded and I remain a strong supporter of this institution.

The Corporations Amendment (Takeovers) Bill 2007 amends the sections of the Corporations Act 2001 which relate to the Takeovers Panel. The amendments are designed to allow the panel to continue to act in an effective, efficient and expeditious manner as the primary forum for resolving disputes during takeover bids and to continue to rely on the specialist expertise of the panel members so that the outcome of any takeover bid can be resolved by the target shareholders on the basis of its commercial merits. It is well recognised in legal and commercial circles that the objective underlying the takeovers law is to ensure that the purposes set out in section 602 of the Corporations Act are achieved and in particular that the acquisition of control over the voting shares or voting interest in companies takes place in an efficient, competitive and informed market. To achieve this, the panel requires broad and flexible powers, one of the most important of which is being the main forum for resolving disputes about a takeover bid until the bid period has ended.

In the last couple of years two Federal Court decisions relating to the panel, commonly referred to as the Glencore cases, have given a limited interpretation to the jurisdiction of the panel. As a result of those cases, concerns were raised—by the panel itself, the regulators, Treasury and others—that it might be open to read the panel’s powers and jurisdiction as now being too narrowly formulated so that the panel was not able to effectively perform its role. The general consensus was that the interpretation put on the role of the panel by the court did not reflect the policy behind the legislation and therefore legislative change was needed to ensure that the role that the parliament envisaged for the panel was maintained. I think that is accurate. There were particular concerns raised regarding the Glencore decisions, and these are outlined in the explanatory memorandum as being:

• the interpretation of the term ‘substantial interest’ in the decisions, based on existing defined provisions, may prevent the Panel from being able to deal with new and developing interests and tactics in relation to takeovers;
• the Panel may not be able to act to prevent the effects of unacceptable circumstances (even if clearly apprehended), but rather, may need to wait until those effects, and the consequent harm, have actually occurred;
• the Panel may not be able to address all the circumstances which impair or affect the efficient, competitive and informed market for control of voting securities in companies; and
• under the interpretation set out in the Glencore cases, the Panel’s power to make orders to protect the rights or interests of persons affected by unacceptable circumstances may be too confined, with the result that the Panel may not be able to properly address the effects that the circumstances have on the interests of those persons.

This bill responds to those concerns and addresses the limits of the orders that the panel can make and the time limit for concluding a review of a panel decision. The Democrats welcome this bill because it does try to ensure that the effective and efficient role of the Takeovers Panel be resumed.

The Parliamentary Joint Committee on Corporations and Financial Services, working as effectively as it always does, reviewed this legislation and, after due consideration, made two recommendations. I sit on that committee, and this contribution from me benefits from the insights. Before I deal with those recommendations, I would like to briefly touch on a couple of issues which the committee addressed. There were concerns raised in submissions to the committee about the proposed definition of ‘substantial interest’. In fact, the definition as proposed by the bill, as pointed out by a number of submitters, is more of a nondefinition. There are no limits set on the definition for the reason that, as many who gave evidence to the committee stated, as soon as limits are proposed then a clever lawyer will try to find a way around them. The way it is currently expressed also allows the Takeovers Panel a degree of flexibility in interpretation. More importantly, and in light of the wide variety of financial instruments available, it enables the panel to move with the times and to keep a weather eye on changing trends. As Treasury points out, the drafters have opted for a principles based approach which has an inbuilt flexibility. I agree with that approach.

I note also the inclusion of the possibility of regulations which could list, if found necessary, those types of interest which are included or excluded for the purposes of the definition. As stated in the committee report:

The committee will maintain a close interest in developments in this area.

It will be more than happy to revisit the matter should it be necessary. Another matter which the committee investigated was the effects test. The bill is broadening the effects test in paragraph 657A(2)(a) to take into account past, present and future effects so that the panel can make a declaration or order where it is satisfied that circumstances ‘had, have, will have or are likely to have an effect’. The committee agreed that this amendment was necessary so that, rather than waiting until something that the panel could clearly see would happen happened, this amendment would enable it to take those matters into account in its decision making.

It should be remembered that the panel decisions will still be able to be reviewed by a court, which is an effective check on behaviour that may overstep its jurisdiction. Under the current legislation, the panel is required to give each person to whom one of its orders relates—paragraph 657D(1)(a)—the opportunity to make a submission. This has been narrowed so that it is only those to whom an order ‘would be directed’—new paragraph 657D(1)(a)—who are able to make submissions. The practical implications of retaining the word ‘relates’ are obvious, and the committee, while being aware of the examples provided by some submitters, accepted that that narrowing was necessary. As the committee pointed out, if someone to whom an order relates wishes to make a submission the panel could in fact receive such a submission but there is no longer a legal obligation that the panel should contact what could be thousands of people.

I would now like to discuss briefly the recommendations of the committee. I note that recommendation 1 is contained in the proposed amendment by the opposition. In passing, I note that this amendment was proposed and defeated in the House of Representatives. One of the concerns raised several times by the Takeovers Panel members, in evidence to the committee, was the possibility of litigation arising from or surrounding their deliberations. Although the members were happy that the courts were able to review their decisions, the threat of litigation about the panel’s jurisdiction was not something they envisaged prior to the Glencore cases. It was now something of a Damocles sword over the panel’s decision making. It was also brandished by solicitors, aware that the Glencore decisions could be used to slow down the takeover process. Here is what Mr McKeon, the President of the Takeovers Panel, had to say to the committee:

The two Justice Emmett decisions in the Glencore litigation some time ago provided a surprising outcome to many. The outcome interpreted the way in which we go about the business of resolving takeover disputes in an unusually narrow way. I would like to make that point, because this morning we are here to encourage the parliament not to make any radical changes to the dispute resolution that was adopted six or seven years ago but simply to restore it to the regime the market understood was the parliament’s original intention.

I quote that because I agree with him. Later on Mr McKeon made the point:

What we are saying very firmly this morning is that the amending legislation, which we hope will be passed in some form through parliament, makes it very clear that parliament is sending a strong message to the takeovers industry that its original intent for this informal commercially based expeditious process is precisely what it continues to want. ... Currently, we are taking longer to make decisions.

Mr Morris, a director of the Takeovers Panel, also advised the committee:

In a good number of the more contentious matters since Glencore and now, the various solicitors acting for parties have run Glencore type arguments at us and have, in essence, threatened litigation. We think that the uncertainty that the Glencore cases have created both for us and the market is real. It does not help our ability to give quick and commercial decisions to have that sort of uncertainty.

Currently, someone is taking one of the panel’s decisions to litigation, and the precise issues about likely effect that we talk about in the legislation are being argued. While we do not think that we have had a crash with Glencore decisions so far, there are very definite sounds and signs that people are looking to use them. Tactical delay and tactical litigation is, for many people, what takeover defences and takeover strategies are all about. Unfortunately, we feel there is an increased risk of tactical litigation because of the Glencore decisions, and these amendments are intended to say that tactical litigation is not appropriate.

Again, I quote that because I agree with him.

The committee took note of these concerns and those of other submissions, and I am satisfied that this amendment bill is necessary to ensure the ongoing effectiveness of the Takeovers Panel. The Democrats therefore support the bill, but we had hoped that the recommendations of the committee would be included as amendments to the bill. I think the amendment to be moved by the opposition, which is based on the committee’s recommendation, is the right way to go and I will be supporting it.

The Democrats recognise that the committee does not make recommendations lightly or without giving due consideration to a number of factors. The committee recommendations were unanimous. Recommendation 1 from the committee reflects wording proposed in a submission from the Law Council of Australia. The Law Council suggested this as a minor but meaningful amendment to section 657A(2)(b) and said that it was needed to ‘ensure that the new power is firmly grounded in explicit policy considerations’. The council’s proposal was to replace the phrase ‘having regard to’ with ‘because they are inconsistent with or contrary to’ the purposes set out in section 602 of the Corporations Act.

As far as the committee was concerned, this proposal appeared to be consistent with the commentary in the explanatory memorandum. However, this amendment was not passed in the other place. The explanation given by Parliamentary Secretary Chris Pearce was:

The question was raised by the committee of whether alternative wording should be used in paragraph 657A(2)(b). This option has been rejected.

He meant, of course, by the government. He continued:

The alternative wording suggested would be unduly narrow and difficult to apply, in the view of the government. The wording creates uncertainty, which could lead to increased jurisdictional arguments and increased litigation.

That is not a sufficient or satisfactory answer for me. Those matters were considered by the lawyers who work in this area every day, including the authors of the Law Council submission, who drafted the recommended wording. I would like to invite the government, in its summing-up of the second reading debate, to again explain why the wording accepted unanimously by the committee—in other words, by the government members of the committee, by the opposition members of the committee and by the Democrats—has been rejected. As the committee did not have the benefit of seeing the advice from Treasury, it would be helpful for that advice to be tabled here.

The committee made a further recommendation:

... that once the bill is passed by the Parliament the Government commence a consultation process with a view to amending Chapter 6C of the Corporations Act 2001 to establish a robust framework for the disclosure of equity derivatives relating to corporate takeovers.

That is an important issue. Treasury most of all would be aware of the strength of the equity derivatives market and how important it is to ensure proper disclosure. Once again I quote from Mr McKeon of the Takeovers Panel—please forgive me if I mispronounce his name:

In relation to the proposal by one or two that the parliament take the opportunity to introduce further measures to make it plain that equity derivatives should also be the subject of a very discrete disclosure regime, we would say that is not necessary at this point—and, in any event, we would have expected that to entail its own process, which might take quite some time. The reality from our perspective is that the decision made by the three panels in the Glencore case requiring disclosure of these equity derivatives, which was ultimately overturned by the Federal Court, was nevertheless a sound decision. It was a decision widely embraced by the market and a decision that was adopted by others in large high-profile takeovers, such as the bid by BHP Billiton for WMC. It is a relatively uncontroversial position that the panel took.

It was heartening to hear from Ms Kljakovic—again, forgive me if I mispronounce her name—from the Market Integrity Unit at the Treasury that they too are keeping an eye on equity derivatives and other inventive financial instruments. It was apparent from the evidence to the committee that Treasury is in the early stages of some policy consideration of these matters. Therefore, I am hopeful that recommendation 2 of the committee’s report will be given due consideration and that the consultation process regarding equity derivatives and their place in chapter 6C of the act and the framework under which they operate will be in the area of policy development in the not-too-distant future.

This bill reflects the parliament working at its most efficient. It began as a draft exposure bill, seeking submissions from all affected parties, and finished with a concise and precise report from the Joint Committee on Corporations and Financial Services. The committee found common ground and made only two, well-considered recommendations. Those recommendations deserve to be supported.