The Minister for Financial Services & Regulation, Joe Hockey, today said the parliamentary report into the Corporate Law Economic Reform Program Bill 1998 would help achieve the Governments objectives under CLERP.
"The report of the Parliamentary Joint Committee on Corporations and Securities will go a long way to furthering our Corporate Law Economic Reform Program, and as such, promoting business and market activity," the Minister said.
The report recommended that, subject to only a few changes, the Bill should be passed in its current form. These changes are outlined in the Attachment.
"These CLERP reforms are a major overhaul of Australia's corporate law system. They are at the heart of boosting our international competitiveness, and are a key part of our plans to make Australia a centre for global financial services. CLERP will contribute to the efficiency of the economy, while maintaining investor protection and market integrity."
The Bill will ensure that current regulation is consistent with the Governments economic objectives, by improving the efficiency of corporate regulation and cutting the regulatory burdens on business.
The Minister said the Government had carefully considered the Committee's recommendations and would be implementing all but one of the report's recommendations.
"The recommendation on the impact of capital gains tax on takeovers will be considered by the Ralph Review of Business Taxation in the context of a global review of business taxes. The Government will also be implementing a number of the recommendations in the supplementary reports of the Committee."
The Minister said he would proceed with passage of the Bill as soon as possible.
Key aspects of the Bills reforms are:
- streamlining fundraising regulation to allow shorter, more useful prospectuses and liberalising prospectus rules for small fundraisings;
- facilitating a more competitive market for corporate control by giving potential bidders an alternative takeover method and allowing takeover disputes to be resolved more efficiently;
- clarifying directors duties through the introduction of a business judgment rule and expanding shareholders rights to take action on behalf of companies; and
- providing a greater commercial and international focus to the accounting standard setting process and ensuring that accounting standards are responsive to the needs of both business and investors.
Copies of the Parliamentary Joint Committees report are available on the Parliament House web site (http://www.aph.gov.au). Copies of the Corporate Law Economic Reform Program publications are available on the Treasury web site (http://www.treasury.gov.au) and from AusInfo Bookshops.
2 June 1999 21/99
Media Contact: Matthew Abbott, Minister's office, 02 6277 7230, 0413 076 213.
Departmental contact: Phillip Lynch, Treasury, 02 6263 2853
ATTACHMENT
Government response to Parliamentary Joint Committee report
The Committees primary recommendation was that, subject to a number of minor amendments, the Corporate Law Economic Reform Program Bill be passed in its current form (recommendation 1). The Government supports this recommendation and urges the Parliament to pass the Bill as soon as possible.
Takeovers
The Committee recommended that Bill sections 614 and 619 be amended to require that nominees for foreign shareholders be approved in all cases by the Australian Securities and Investments Commission (ASIC) (recommendation 2). Under sections 614 and 619, where the consideration for a takeover bid includes an offer of quoted securities, the bidder must appoint a nominee for foreign holders which is approved by the Australian Stock Exchange. The Government agrees that it would be more appropriate for ASIC to approve the nominee and will seek to amend the Bill to implement the Committees recommendation.
The Committee also considered a number of recommendations made by the Companies and Securities Advisory Committee (CASAC) in relation to the takeover provisions.
Considering the provisions of the Bill in light of two recent court decisions, CASAC recommended that:
- Bill subsections 623(2) and (3) be removed. These sections prohibit an intending bidder, in the 4 months preceding its bid, from giving some target company shareholders a benefit that the bidder is not proposing to provide under the takeover bid. Concerns have been expressed that the application of these provisions has become increasingly uncertain in light of the recent decisions.
- Bill subsection 621(4) be amended to apply to all takeover bids, so that the minimum consideration offered under a bid is at least equal in value to the maximum paid during the 4 months before the date of the bid. Currently this provision only applies to bids where cash is offered as consideration.
The Committee advised that it did not have an opportunity to take evidence on this issue. It concluded that the Government may therefore care to accept CASACs recommendation or proceed with the CLERP Bill as drafted and refer this matter to the Committee for further consideration. The minority report by the Australian Democrats recommended that CASACs recommendations be implemented.
In light of the importance of these provisions, and the concerns expressed by CASAC that the Bill as currently drafted has the potential to create uncertainty, the Government will seek to amend the Bill to implement CASACs recommendations.
The minority reports by the Australian Democrats and the Australian Labor Party recommended that, where the Corporations and Securities Panel makes an order in relation to a takeover bid, additional persons should be able to apply to the Court for enforcement of the order. Currently, the Bill only allows ASIC to apply to the Court for enforcement of a Panel order.
The Government agrees that this is a sensible amendment and will seek to amend the Bill so that, in addition to ASIC, each party to the proceedings and any person to whom the proposed order relates can apply to the Court for enforcement of a Panel order.
Compulsory acquisitions
The Committee made a number of recommendations in relation to the compulsory acquisition provisions of the Bill. In particular, the Bill will introduce a new power which will enable a person who holds 90% of the voting rights in a company to compulsorily acquire the remaining securities.
The Committee recommended that the Bill be amended so the new compulsory acquisition power can only be used within 6 months of the proclamation of the legislation or within 6 months of the person seeking to make the acquisition becoming a 90% shareholder (recommendation 3).
The Government considers that introducing a time limit is a sensible recommendation, which will provide additional certainty for minority shareholders. However, the 6 month time limit may disadvantage existing 90% holders who will have to implement a compulsory acquisition within 6 months of the commencement of the legislation or lose that right altogether.
In these circumstances, the Government will seek to amend the Bill to provide that existing 90% holders have 12 months from the commencement of the Bill to use the new compulsory acquisition power. A person who becomes a 90% holder after commencement of the Bill will have 6 months of becoming a 90% holder to use the new compulsory acquisition power.
The Committee also made a number of recommendations to clarify some of the procedural aspects of the new compulsory acquisition provisions (recommendations 4, 5 and 6). The Government will seek to implement each of these recommendations as follows:
- amending Bill section 661B so that the compulsory acquisition notice informs recipients of their right to obtain the names and addresses of other holders under section 661D and their right to apply to court to stop an acquisition under section 661E;
- amending Bill section 665B so that the buy-out notice includes the additional information given to recipients of compulsory acquisition notices under sections 664C(1)(d) and (e); and
- amending Bill sections 663C and 665C so that any court order made under these sections will apply to all security holders who have applied to the court for an order.
The Committee recommended that rollover relief from capital gains tax be provided where shares are compulsorily acquired and when a takeover offer for a publicly listed company is accepted on a scrip for scrip basis (recommendation 7). In the alternative, the Committee recommended that the Bill be amended so that an unwanted capital gains tax liability would provide an absolute defence to a compulsory acquisition.
The Government is aware of the concerns of both business and investors in relation to the effect of the current capital gains tax regime on takeovers and compulsory acquisitions. The Government considers that it would be premature to adopt this recommendation ahead of consideration of this issue by the Government's current Review of Business Taxation. In February this year, the Review released a discussion paper for public comment which canvassed possible options for reform of the capital gains tax regime. The Review is expected to report to the Government on 30 June.
The Government considers that the alternative recommendation, that an unwanted capital gains tax liability provide an absolute defence against compulsory acquisition, should not be implemented. This recommendation would undermine the rationale of the compulsory acquisition provisions and create substantial uncertainty and diminish the operational efficiency of the provisions. The proposed defence would make it virtually impossible for a majority shareholder to succeed in compulsorily acquiring 100% of a companys shares, making the significant benefits of 100% control virtually unattainable. In addition, the proposed defence may undermine the takeover provisions by encouraging shareholders not to sell into a bid on the basis that they can avoid any follow-on compulsory acquisition by using the defence
Fundraising
The Committee made a number of recommendations for reforms of the fundraising provisions of the Bill (recommendations 8, 9 and 10). The Government will seek to implement each of these recommendations as follows:
- amending Bill section 708, which allows a licensed dealer to offer securities without a disclosure document to a sophisticated investor, to clarify the sanctions applicable to a dealer who breaches the provision. These sanctions will be given further consideration as part of CLERP 6;
- amending Bill section 724, which enables investors to either withdraw their applications or return securities which were offered to them under a defective disclosure document, to replace the term reasonable opportunity with a period of 1 month. A fixed period of 1 month will provide for additional certainty under the Bill; and
- amending Bill section 723 to revert to the position under the current law in relation to quotation of securities. An issue of securities will be void if the disclosure document states that the securities will be quoted on a securities exchange and the securities are not admitted for quotation.
Minority reports
The Australian Democrats and Australian Labor Party members of the Committee prepared minority reports which made a number of recommendations to amend the Bill. The recommendations to be adopted from those reports are outlined above.