9 May, 2012


In brief


  • Provisions in a financing agreement that gave rise to a "review event" or an "event of default" on a change to the board did not give rise to unacceptable circumstances.
  • Exercise of the lender's rights in response to any board spill resolution was not a control transaction in the Chapter 6 sense.


The Takeovers Panel declined to conduct proceedings on an application from Payce Industries Pty Ltd regarding RCL Group Limited.


Payce, LTHC Pty Ltd and Lanox Pty Ltd (who together held approximately 18.5% of the shares in RCL) requisitioned a general meeting to remove two directors of RCL and appoint two new directors. RCL's primary lender advised that changes to the board constituted a "review event" under a financing agreement and might trigger an "event of default".


Payce submitted that the clauses in the financing agreement entrenched the incumbent directors and acted as a "poison pill", because no bidder would acquire an influential shareholding in RCL if it could not vote freely on resolutions regarding composition of the board.


The Panel considered that without more, the exercise of a lender's contractual rights on a change to RCL's board of directors did not constitute a control transaction for the purposes of Chapter 6. The Panel considered that the clauses in the financing agreement did not affect the voting power of shareholders because the lender could not determine the outcome of any vote. Rather, the lender had contractual rights that were activated upon a change to the composition of the board. The Panel noted that there could be circumstances where such clauses could be unacceptable, for example, if the clauses were a "device" in an agreement between a company and a substantial shareholder/lender and were designed to affect control, but that was not the case in relation to RCL.


The Panel distinguished the decision in AMP Shopping Centre Trust 02. In that matter, certain pre-emptive rights gave a related party a right to purchase "irreplaceable and uniquely valuable" assets, in the event of a change of shareholding control. Here, the ultimate right of the primary lender on a change in composition of the board was the right to require payment of any outstanding funds owed to it under the facility – a right generally consistent with the rights of all lenders.


As the Panel noted, it is common for control transactions to be conditional on consent or waiver by a lender. If the Panel had accepted the arguments put forward by Payce, it would have created significant uncertainty as to how change of control clauses would operate in future.



For further information, please contact:


Jason Lambeth, Partner, Ashurst

[email protected]


Sev Thomassian, Ashurst 

[email protected]


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