Jurisdiction - Australia
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Australia – Panel Intervenes In Meeting To Replace Proposed Takeover Target’s Board.

 

29 October, 2012

 

 

 

In brief
 
  • The Panel can be expected to find it has jurisdiction if a takeover is being made (or is proposed) and the issues in question could affect the outcome of the takeover even if those issues relate to matters other than the acquisition of control over shares.
  • Companies should take care to conduct shareholder meetings in accordance with applicable law, especially after a takeover is announced.
 
The Takeovers Panel decision in IFS Construction Services concerned a shareholder requisitioned meeting of IFS to replace the target board, the
rejection of proxies covering approximately 38.3% of IFS and a lengthy adjournment of that meeting in the context of a proposed takeover bid announced by a major shareholder.
 
Context
 
Prior to the requisitioned meeting, Millennium was a major shareholder of IFS (an ASX listed company) holding approximately 20.6% of its shares and Millennium's nominees comprised a majority of IFS's board. 
 
In May 2012, shareholders holding approximately 7% of IFS (the applicants in the Panel proceedings) requisitioned a meeting of IFS to replace all current directors with three proposed independent directors. One of the applicants, Scott Vivian-Williams, sought and received signed proxies in respect of approximately 38.3% of IFS which he delivered to IFS within the required time period.
 
Before the meeting was held, IFS announced that it had received a notice of intention from Millennium to make a takeover offer for IFS. The proposed offer was conditional, among other things, on the requisitioned meeting not passing the resolutions to replace the board.
 
At the meeting, the Chairman declared all proxies obtained by Mr Vivian-Williams invalid on the grounds that they were not delivered to IFS directly by theshareholders. The Chairman then adjourned the
meeting "with the consent of shareholders" for two months to allow the invalidity to be corrected. The next day, Millennium acquired 1.2% of IFS
on-market under the creep exception.
 
Jurisdiction of the Panel
 
The first issue was whether the Panel had jurisdiction on an issue relating primarily to control of the board of IFS. The Panel decided it had jurisdiction under Chapter 6 of the Corporations Act to consider the application because:
 
  • a takeover bid for IFS had been announced and the bidder, Millennium, was in the market acquiring shares in IFS;
  • the proposed bid included a condition that the resolutions at the shareholder requisitioned meeting relating to the IFS board not be passed; and
  • a director of the bidder is also a director of IFS whom the applicants sought to remove at the shareholder requisitioned meeting.
 
Proxies
 
The Panel found that the proxies should not have been invalidated merely because they were handled by a third party on their way from the shareholder to the company (relying on Northwest Capital Management v Westate Capital Limited [2012] WASC 121).
 
The Panel concluded that the disallowance of the proxies and the adjournment of the meeting was an example of poor corporate governance. Its effect was that the existing board of IFS would not be subject to change until at least the resumption of the meeting and shareholders were prevented from exercising their votes in the proper way.

 

 

 

Adjournment of the meeting
 
The Panel also considered that the two month adjournment was inconsistent with section 602 of the Corporations Act because it prevented the acquisition of shares by Millennium taking place in an efficient, competitive and informed market. The Panel noted that the effect of the adjournment was that Millennium had the maximum amount of time in which to better secure its control of IFS in a situation where, if the proxies had been properly allowed, such an adjournment would have been unlikely to have been approved and the resolutions for
the removal of the board would have been decided at that time.
 
The Panel also considered the adjournment for two months took the meeting well beyond the time set out in section 249D of the Corporations Act for the meeting to be held and contravened that section (for a meeting to be "held" it must be commenced and concluded: ASIC v NRMA [2002] NSWSC 1135).
 
Costs
 
In Panel proceedings costs orders are the exception not the rule. However, in this case, the Panel ordered that IFS pay the costs of the applicants and ASIC.
 
The Panel considered that IFS did not present a case of reasonable merit in a businesslike way and that "the whole exercise was a delaying tactic to avoid the inevitable." IFS also failed to comply with the Panel's orders without offering an explanation.
 
Comment
 
While, in our view, this case is specific to its facts, it demonstrates that the Panel can be expected to find it has jurisdiction if a takeover is being made (or is proposed) and the issues in question could affect the outcome of the takeover even if those issues relate to matters other than the acquisition of shares as such.
 
The case also highlights the need to conduct shareholder meetings in accordance with applicable law, especially after a takeover is announced. Finally, it confirms that the Panel will award costs against a party that is actively uncooperative in Panel proceedings and in implementing its orders.
 

 

 

 

For further information, please contact:

 

Philip Maxwell, Partner, Ashurst

philip.maxwell@ashurst.com

 

Brady Weissel, Ashurst

brady.weissel@ashurst.com

 

Ashurst Corporate/M&A Practice Profile in Australia

 

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