ASIC has released an updated Regulatory Guide 74 "Acquisitions approved by members" (RG 74). RG 74 provides guidance on an exception to the Takeovers prohibition on acquisitions of a relevant interest in securities, which will result in an increase in voting power from 20% or below to more than 20%, or from a starting point above 20% to below 90%.
The focus of the Guide is the application of section 611, Item 7 (Item 7) which is an exception to the Takeovers prohibition. Item 7 allows an acquisition approved by a resolution passed by members. Members must be given all information that is material to the decision on how to vote on the resolution.
While the amended RG 74 does not substantially change the process for a company seeking Takeover approval pursuant to the Item 7 exception, the provision of more detailed guidance on:
- the requirement for an independent expert's report;
- clear, concise and effective disclosure; and
- the giving of Notices of Meeting to ASIC for review at least 14 days before the meeting for approval of an acquisition,
suggests that ASIC is raising the bar on what it considers to be adequate disclosure of material information.
Independent Expert's Report
The amended RG 74 clarifies that, whilst directors may provide a report on the proposed acquisition in order to satisfy the obligation to disclose all material information on how to vote on an Item 7 resolution, a report on whether the transaction would be fair and reasonable should usually be prepared by an independent expert and provided to shareholders
Disclosure Guidance and Supplementary Disclosure
The amended RG 74 sets out more detailed guidelines on disclosure required in the notice of members' meeting to approve the acquisition. The notice should be worded and presented in a clear, concise and effective manner, which includes new requirements such as the highlighting of key information by way of a summary at the beginning of the document.
The amended RG 74 also specifies when supplementary disclosure must be made to members. If a material change occurs prior to the meeting, supplementary disclosure should ordinarily be made to shareholders at least 10 days before members are required to vote. However, a shorter period may be acceptable in some circumstances.
Time Between Member Approval and Acquisition
The amended RG 74 states that where a material change occurs after approval is obtained, but before the acquisition is complete, fresh approval should be sought. Therefore, a Takeover transaction should be structured such that the acquisition is completed as soon after member approval as possible.
Providing Draft Documents to ASIC
RG 74 has traditionally encouraged entities to provide ASIC with draft documents for review. However, the amended RG 74 specifies that draft documents should be provided to ASIC for review 14 days before they are finalised for printing and dispatch.
Relief from Item 7 Voting Restrictions
The amended RG 74 also clarifies when ASIC will provide relief in relation to the prohibition on voting by persons from whom an acquisition will be made in order to allow for approval of takeovers of listed managed investment schemes.
Further, it provides relief for trustees and nominees who may be associates of an entity prohibited from voting where they are also trustees or nominees of other beneficial holders who are not otherwise prevented from voting.
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