House of Representatives

Corporations Amendment (Takeovers) Bill 2007

Second Reading Speech

Mr PEARCE (Aston-Parliamentary Secretary to the Treasurer)

I move:

That this bill be now read a second time.

Takeovers serve a crucial role in supporting efficient dynamic share markets. The potential exposure to takeovers encourages companies and their managers to be efficient. It promotes sound management, better returns for investors and a more efficient allocation of resources. For takeovers to perform this role, they need to operate efficiently and in an informed market.

The vigorous takeover activity in Australia in recent years shows that the takeovers provisions in the law have worked well. There is a dynamic, competitive market for control of companies in Australia. The Takeovers Panel has played a key part in achieving such a market.

Recent court cases have thrown doubt on the panel's ability to keep performing its role as well as it has done. This bill will amend the Corporations Act 2001 to ensure that the Takeovers Panel can continue to perform its part in ensuring takeovers are conducted legally, properly and fairly.

Chapter 6 of the Corporations Act 2001 deals with takeovers. Its aims are set out in section 602. In particular, one of those aims is that the acquisition of control over voting shares should take place in an efficient, competitive and informed market.

The Takeovers Panel is fundamental to achieving those aims.

The Takeovers Panel was constituted in its present form in March 2000. Until then, there was a great deal of tactical litigation associated with takeovers. The panel was designed to minimise tactical litigation and to replace the courts as the principal forum for resolving takeover disputes during bids. It was not a judicial body but a panel of experts. It was to apply its specialist expertise to give fast, informal decisions, having regard to the spirit of the takeover rules in section 602.

The panel has fulfilled those expectations. It has operated successfully for some years in the way intended. The panel's processes are as simple as possible. Applications are determined in an average of 14 days. Disputes have been resolved faster and tactical litigation has been reduced.

For the first time since it was reconstituted, the panel was taken to court in 2005, and again in 2006, by a company dissatisfied with the panel's decision. The court twice considered the panel's powers and ruled that they were narrower than the panel had thought.

Those cases raised concerns that the current law does not give the panel the powers and jurisdiction it needs to perform effectively the role envisaged for it by parliament. This bill will ensure the panel has the powers and jurisdiction it needs.

There are three main changes in the bill.

The first relates to the definition of 'substantial interest'.

One large part of the panel's power to intervene relies on there being circumstances which affect the acquisition, or proposed acquisition, of a substantial interest in a company. The court interpreted the phrase 'substantial interest' more narrowly than the panel had done.

The new definition of 'substantial interest' in the bill will mean that phrase is not confined to a narrow set of rights and interests. It will also allow for regulations to specify that particular interests will not, or may, constitute substantial interests.

Takeovers is an area where new techniques and structures are constantly evolving. Allowing for regulations will give some flexibility to cover future situations and allow the law to react promptly to new developments where necessary.

The second major change will mean that the panel can act where it is clear that circumstances will produce certain effects, or are likely to do so. It need not wait until those effects, and the consequent harm, have actually occurred.

The panel can presently intervene where it considers circumstances are unacceptable for one of two reasons. Circumstances could be unacceptable either because of a contravention of the law or else having regard to their effect on the control or potential control of a company or on the acquisition or proposed acquisition of a substantial interest in a company.

The third major change gives the panel the power to intervene in a third situation: where circumstances are unacceptable having regard to the purposes of the law, as set out in section 602. The intention is to give the panel the power to act in order to give effect to the spirit of the law. For example, it might be that particular circumstances have the effect of causing a control block of voting shares to be traded in an uninformed market. The panel could intervene in that situation under the new provision if they considered the circumstances were unacceptable.

The bill also addresses minor machinery concerns. For example, it provides that the time limit for concluding a review of a panel decision will date from the time of the application for review, not from the earlier decision.

The panel needs to have adequate powers to perform the role envisaged for it. The bill is designed to ensure that it has those powers so it can continue to act as the main forum to resolve takeover disputes, and that it can do so efficiently and effectively.

I commend the bill to the House.

Debate (on motion by Dr Emerson) adjourned.