Grant Chapman (SA, Liberal Party) Share this | Link to this | Hansard source

When the debate was on earlier in the week, no-one sought leave to continue their remarks and so I seek leave to move a motion in relation to the report.

Leave granted.

I move:

That the Senate take note of the report.

The Parliamentary Joint Committee on Corporations and Financial Services conducted an inquiry on the Corporations Amendment (Takeovers) Bill and tabled this out of session last week. The bill was introduced into the parliament on 14 February 2007. The purpose of the bill is to clarify the powers of the Takeovers Panel. The Takeovers Panel plays an important role in corporate Australia as the main forum for resolving disputes between corporate rivals during a takeover bid. It is a peer review body whose processes are informal and expeditious. In most circumstances, resolution of takeovers disputes through this mechanism avoids costly and time-consuming legal action.

Importantly, the Takeovers Panel has the support of the market. The bill is designed to clarify the jurisdiction of the Takeovers Panel, which has been called into question by two recent Federal Court decisions: the Glencore cases. The Glencore decisions involved a takeover bid of Austral Coal by Centennial Coal in early 2005. During the takeover bid, Glencore used a novel financial instrument called a cash settled equity swap, a form of equity derivative, to effectively hide from the market a potential future interest in the takeover target’s shares.

The legitimacy of this transaction was ultimately challenged in the Federal Court, which found that as Glencore did not have an interest in the shares it did not amount to a substantial interest as required under the Corporations Act. This decision has the potential to limit the ability of the Takeovers Panel to make decisions in relation to these evolving financial instruments in the future. The bill seeks to remedy this situation.

Our committee received nine submissions from a range of legal professionals, regulatory bodies and associations of the corporate and financial services sectors. The committee also held a public hearing in Canberra on 1 December 2006. Concerns were expressed to the committee regarding the breadth and effectiveness of the proposed definition of a ‘substantial interest’. Reaching a suitable definition is inherently problematic due to the difficulties involved in regulating a rapidly evolving aspect of the financial services market: equity derivatives.

The committee was of the view that the panel should have the flexibility to respond to changing circumstances and the development of new instruments in the financial services sector, particularly in the rapidly evolving area of equity derivatives. The committee is pleased that the government has provided clarification in the explanatory memorandum and has also provided for regulations to provide further certainty in this area. As a result, the committee considers that the changes that have been made should satisfy the concerns raised by witnesses. The committee will certainly maintain a close interest in developments in this area.

Another aspect of the bill is the broadening of the effect test, which would essentially provide the Takeovers Panel with new jurisdictional powers. In this regard the committee supports the Law Council’s proposed amendment, which would more closely link the panel’s powers to the policy objectives contained in chapter 6 of the Corporations Act. This would provide greater certainty to the panel and its stakeholders. The committee recommends that the Law Council’s more specific formulation be adopted in the bill by way of an amendment.

Finally, the committee considered the broader policy question of the disclosure of equity derivatives during a corporate takeover. The committee concluded that this is an area where further work is required and recommended that, as a high priority, the government develop a robust framework for the disclosure of equity derivatives relating to corporate takeovers. Subject to these recommendations, the committee recommends that the Senate pass the bill. These were the main elements of our report, and I commend the report to the Senate.

Question agreed to.