The Federal Court has ruled that the power of the Takeovers Panel (the Panel) to declare unacceptable circumstances pursuant to section 657A(2)(b) of the Corporations Act 2001 (the Act) is unconstitutional, invalidating one of the chief roles of the Panel.
Australian Pipeline Limited v Alinta Limited
In the case of Australian Pipeline Limited v Alinta Limited  FCAFC55, the Federal Court examined a declaration by the Panel that Alinta, having acquired approximately 10.25% of stapled securities in Australian Pipeline Trust on market, was an unacceptable circumstance as Alinta’s stake discouraged a competing takeover, hence creating an inefficient market in the securities. The Panel therefore ordered Alinta under section 657A(2)(b) of the Act to divest itself of the securities.
The Federal Court found by majority of 2 to 1 that the power exercised by the Panel under sections 657A(2)(b) of the Act was judicial in its nature as the Panel was required to consider whether there had been a contravention of the Act. The Federal Court stated that this was effectively the exclusive exercise of Commonwealth judicial power which, under the Australian Constitution, could only be divested to a court.
Consequences for the Panel
The Attorney-General has made an application for special leave to the High Court to appeal the Federal Court decision. If special leave is granted and the High Court agrees with the Federal Court’s decision that the power exercised by the Panel is judicial, then it is likely that the Panel will no longer be involved in the adjudication of change of control transactions in the Australian regime.
In the interim, the Panel has stated that it will decline to accept applications which seek a declaration of unacceptable circumstances based on section 657A(2)(b) of the Act or which make allegations of other contraventions of the Act. Although the Panel may still review ASIC decisions to grant or refuse modifications or exemptions relating to takeovers, there is significant ongoing uncertainty as to the respective roles of the Panel and the Courts in the regulation of takeovers.
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