Respondent
...
13 December 2024
Beneficial Ownership and Transparency Unit
Market Conduct and Digital Division
Treasury
Langton Cres
Parkes ACT 2600
By email: beneficialownership@treasury.gov.au
Dear Treasury
Submission on enhanced beneficial ownership disclosure for listed entities
This submission concerning the proposed changes to the beneficial ownership disclosure for listed entities is made by the Corporations Committee of the Business Law Section of the Law Council of Australia (the Committee).
The Committee would be pleased to discuss any aspect of this submission.
Please contact the chair of the Committee, Philippa Stone at philippa.stone@hsf.com or on 02 9225 5303, Guy Alexander at guy.alexander@allens.com.au on 02 9230 4874 or
Andrew Rich at andrew.rich@hsf.com or on 02 9225 5707, if you would like to do so.
Yours faithfully
Professor Pamela Hanrahan
Chair
Business Law Section
Telephone +61 2 6246 3737 • Fax +61 2 6248 0639 • Email jessica.morrow@lawcouncil.au
PO Box 5350, Braddon ACT 2612, DX 5719 Canberra • Level 1, MODE3, 24 Lonsdale St Braddon ACT 2612
Law Council of Australia Limited ABN 85 005 260 622
www.lawcouncil.au
Enhanced beneficial
ownership disclosure for
listed entities
Submission to the Beneficial Ownership and Transparency Unit
Market Conduct and Digital Division
Treasury
13 December 2024
Telephone +61 2 6246 3737 • Fax +61 2 6248 0639
Email Jessica.Morrow@lawcouncil.au
PO Box 5350, Braddon
EnhancedACT 2612, DX
beneficial 5719 Canberra
ownership disclosure for listed entities Page 1
Level 1, MODE3, 24 Lonsdale St Braddon ACT 2612
Table of Contents
Introduction ........................................................................................................................ 1
Section A: Executive summary ........................................................................................ 1
Section B: General comments/observations .................................................................. 5
Section C: Responses to consultation questions ........................................................ 19
Annexure A: About the Business Law Section of the Law Council of Australia ....... 25
Enhanced beneficial ownership disclosure for listed entities
Introduction
1. This submission is made by the Corporations Committee of the Business Law
Section of the Law Council of Australia (the Committee). A brief outline of the
Business Law Section is set out in Annexure A.
2. This submission is in response to the consultation paper released by Treasury on
14 November 2024, which seeks comments on a proposed draft bill that proposes
changes to the Corporations Act 2001 (Cth), which include requirements for
disclosure of derivatives in respect of shares in listed companies and increased
ASIC enforcement powers in respect of compliance with the substantial
shareholding notification provisions and tracing provisions in the Corporations Act,
as well as changing the operation of the takeover provisions of the Corporations Act
in relation to derivatives (the Bill).
3. The Committee welcomes the opportunity to provide feedback on the Bill. The
Committee’s responses to the particular consultation questions attached to the
Treasury media release are set out in Section C of this submission. Before
responding to those specific consultation questions, the Committee would like to
make the following comments/observations on the Bill set out in Section B.
4. We also refer to an earlier submission made to Treasury on behalf of the Law
Council of Australia titled “Multinational tax integrity: Public Beneficial Ownership
Register” dated 23 December 2022.1
Section A: Executive summary
5. Without limiting the comments on the Bill in Section B of this submission, the points
we would like to highlight are as follows:
(a) GN 20 is already operating effectively, and the changes concerning
derivatives are unnecessary: Takeovers Panel Guidance Note 20 (GN 20)
already requires a person to disclose an aggregate relevant interest and long
equity derivative position at 5% or more (and subsequent movements of 1% or
more). Explanatory materials to the Bill (the EM) appear to proceed on the
assumption that GN 20 is not working effectively to require disclosure of those
long equity derivative positions. That assumption needs to be challenged, as
the Committee’s experience is that, because the Takeovers Panel already has
the power to make a very broad range of remedial orders to compel
compliance with GN 20 (including divestment orders), there is a very strong
incentive on parties to comply, and parties do comply, with GN 20. The
Committee therefore strongly questions the need to try to codify GN 20 into
Part 6C.1 of the Corporations Act, with the resultant loss of flexibility to be able
to deal with the broad range of complex derivative instruments in the market,
which can be much more effectively dealt with in the Takeovers Panel
guidance than in legislation2.
1 Law Council of Australia, ‘Multinational tax integrity: Public Beneficial Ownership Register’ (23 December
2022), available at .
2 If there is a concern about the Takeovers Panel's powers to make declarations and orders in relation to equity derivative interests, see Corporations Amendment (Takeovers) Act 2007 (Cth) and paragraphs 3.4 to
3.6 of its explanatory memorandum, available here. If there is any residual concern, that could be addressed by passing a regulation under section 602A(3) specifically stating that such interests are 'substantial interests'.
Enhanced beneficial ownership disclosure for listed entities Page 1
(b) The changes will significantly increase the compliance burden, will have
a negative impact on the derivatives market, and will involve serious
privacy concerns, without serving any useful disclosure purpose: We
think that Treasury may have seriously underestimated the impact the
changes proposed by the Bill will have on market makers (e.g. banks and
investment banks), and on investors such as superannuation funds,
corporates and individuals who engage in regular and legitimate hedging
activity, both in terms of the significant time and cost in building new systems
to be able to comply with the new requirements, and the significant ongoing
compliance costs. For example, the vast majority (as high as 90%) of equity
derivatives are cash settled derivatives (both listed and over the counter)
entered into for legitimate hedging purposes, and are not in any way related to
any control transaction. Under the proposed Bill, all of these would need to be
disclosed in a substantial holder notice, with a full copy of the relevant
agreement. They would also need to be disclosed in response to a tracing
notice from a listed company. This serves no useful disclosure purpose,
raises serious privacy and confidentiality concerns, and may have material
adverse impacts on both the derivatives market and the broader equities
market. This includes by (a) flooding the market with immaterial disclosure
where there is no control purpose (substantial holding notices are likely to be
thousands of pages long, and largely indecipherable to most market
participants and media)3, and (b) by reducing trade volumes and therefore the
liquidity of securities, as well as the range of financial products on offer for
corporate participants to manage their risk. These factors are important from
a market efficiency and corporate governance perspective. The willingness of
market makers to write derivatives will also be materially adversely affected by
ASIC’s proposed new “freezing power”, which could result in ASIC ordering
the disposal by a bank of its hedge position, or unwinding the swap in adverse
market conditions, even though the bank has fully complied with its obligations
and it is the client which is at fault.
(c) The Bill should not make the proposed material changes to the tracing
notice provisions and the takeover, compulsory acquisition and buy-out
provisions without fully understanding the implications, and without
further broad consultation: If, despite the above, the Government does
intend to proceed to codify disclosure of equity derivatives in Part 6C.1 of the
Corporations Act, then the Bill should be limited to making that change.
As presently drafted, the Bill goes far beyond its stated purpose of enhancing
public disclosure of substantial interests in listed companies. For example, by
deeming long positions under cash-settled equity derivatives and unhedged
physically settled derivatives to be a “relevant interest” for the purposes of the
Corporations Act, the Bill dramatically changes the existing scope and
operation of (a) the tracing notice provisions in Part 6C.2 of the Corporations
Act, (b) the takeovers provisions in Chapter 6 of the Corporations Act, and (c)
the compulsory acquisition and buy-out provisions in Chapter 6A of the
Corporations Act. It does not follow that, just because a person is required to
disclose an aggregate relevant interest and long equity derivative position at
or above 5% under Part 6C.1, that such equity derivatives should be required
to be disclosed in response to a tracing notice (where the person has less
than a 5% aggregate interest), or be automatically taken into account for the
purposes of the 20% threshold in section 606, and, as set out below, there are
good reasons why this should not be the case. Those changes materially alter
3A particularly burdensome requirement under the Bill is that banks that write, and investors that trade, these equity derivatives in a non-control transaction context will need to disclose a greater than 1% movement within each separate category contemplated by item 40 of the Bill, even if the aggregate movement is less than 1%.
Enhanced beneficial ownership disclosure for listed entities Page 2
the existing legislative framework for disclosure below 5%, takeovers,
compulsory acquisitions and buy-outs, in a way which may have unpredictable
and unintentional effects. In the Committee’s view, these additional changes
should not be made without further broad consultation on their impact.
(d) Maintain the distinction between an interest under an equity derivative
which does not confer a “relevant interest”, and a “relevant interest”):
If the Government does decide to require disclosure of equity derivatives in
substantial holding notices under Part 6C.1, we would strongly recommend
against achieving that outcome by deeming such interests to be “relevant
interests”. The Bill needs to maintain the distinction between “relevant
interests” and equity derivatives not giving rise to a relevant interest. The
Government’s objectives can be achieved in Part 6C.1 by different drafting
techniques, such as requiring those interests to be disclosed as “disclosable
economic interests” (or some similar new term). The reasons why the
distinction is important include:
(i) The interest that a person acquires by entering into those types of equity
derivative is fundamentally different to a “relevant interest”, as
understood by market participants based on more than 50 years of Court
and Takeovers Panel decisions. The Takeovers Panel has consistently
found that those types of equity derivatives do not give the necessary
measure of control over voting or disposal to constitute a “relevant
interest”.
(ii) Allowing bidders to refer to those interests as “relevant interests” will
enable bidders to over-inflate their apparent positions, by including
equity derivatives which do not give the necessary measure of control
over voting or disposal in their “relevant interests”, with the intention of
discouraging competition from third parties for control, and giving target
shareholders, particularly retail shareholders, the appearance of a “done
deal”.
(iii) Including those interests as “relevant interests” will dramatically change
the scope of the change of control provisions across many existing long-
term contractual arrangements (e.g. shareholders agreements, joint
venture agreements, lease agreements, customer/supply agreements
and funding/financing agreements etc), in a manner which would not
have been intended by the parties at the time the arrangements were
entered into (because a traditional relevant interest has always been
interpreted as excluding such interests). The unintended consequences
of this are difficult to predict but could be extremely prejudicial in
particular cases and would undermine the basis on which these
contracts had been originally agreed.
(iv) As discussed above, those interests should not be “relevant interests”
for the purposes of the tracing notice provisions, the takeover provisions
the compulsory acquisition provisions or the buy-out provisions.
(e) Equity derivatives include a very broad range of complex products,
which are not easily “shoehorned” into an inflexible statutory reporting
regime: Section 608B includes a very broad definition of a “non-physically
settled derivative-based interest” which may require disclosure. It is extremely
difficult for market participants to respond to this provision without having seen
the proposed form of the ASIC legislative instruments which will set the
number of shares, or the method for determining the number of shares, in
Enhanced beneficial ownership disclosure for listed entities Page 3
which a person will be deemed to have a relevant interest by virtue of the
derivative. Importantly though, those ASIC legislative instruments will need to
deal with a range of products beyond a traditional cash settled equity swap,
including collar transactions and back-to-back inter-bank and intra-bank
hedging transactions. It is unclear how these will be dealt with.
(f) Where an interest under an equity derivative is disclosed in a notice
under Part 6C.1, the notice should have to include information of the
type currently required by paragraphs 12–14 of Takeovers Panel GN 20,
but should not need to attach standard form agreements): If interests
under equity derivatives not conferring a traditional relevant interest are
required to be disclosed in a substantial holder notice, then the information
required in relation to such interests should be limited to the GN 20 type
summary of the interest, including any off-setting short positions, and any caps
and collars etc. The notice should not need to attach any standard form
documentation (e.g. an ISDA agreement). This disclosure will be far more
beneficial to the market, and will reduce the risk of substantial holder notices
being thousand, if not tens of thousands, pages long. If all relevant
agreements need to be attached, the size of the notices, and the amount of
information disclosed, will bury any material disclosure (and will be used by
some to hide the relevant information).
(g) (ASIC’s new and unconstrained power to make “freezing orders” could
unreasonably affect the rights of innocent third parties to relevant
transactions): We are concerned with ASIC’s new power to make a range of
freezing and divestiture orders over securities once it forms the view that “a
person” has not complied with a tracing notice. These provisions which allow
ASIC to make orders against a specified person, who may not be the non-
compliant person, unreasonably prejudice the rights of innocent parties. This
is a serious matter and may discourage writers from issuing these instruments
which are a critical tool for hedging risk in Australian markets.
(h) The obligation to file the substantial holding notices must be tied to
actual knowledge of the situation giving rise to the need to file, not
merely constructive knowledge): Section 671BB(2) provides that, for the
purposes of determining whether an obligation to file a substantial holding
notice has been triggered, a person who ought reasonably to be aware of the
situation giving rise to the need to file is taken to be aware of the situation.
This is draconian in the context of provisions which give rise to criminal liability
and material civil penalties. It should therefore be deleted. If the concern is
that a person can avoid their disclosure obligations by remaining wilfully
unaware of the situation triggering the need to give the notice, then the filing
obligation should only be triggered where the person has wilfully avoided
becoming aware, not some lesser test which can effectively be triggered by
mere negligence.
(i) The extension of the substantial holder and tracing notice regime to
foreign listed bodies should take into account potential conflict of laws
issues including what the “equivalent jurisdictions” exemptions will
include): Extending the substantial holder and tracing notice regime to foreign
bodies listed on the ASX without considering what the “equivalent jurisdictions”
exemptions will include, and whether ASIC’s new freezing and divestiture
orders will apply to foreign listed shares in that body.
Enhanced beneficial ownership disclosure for listed entities Page 4
(j) The transitional arrangements must provide for a significant amount of
time to adjust to the new regime): In light of the very broad ranging nature
of the changes to the Corporations Act, the market will require a significant
amount of time to adjust to the new regime (including to build systems to
capture and record the newly required information). Market participants
cannot begin this process until the ASIC legislative instruments which will fix
the method for calculation of a relevant interest under equity derivatives have
been made public (presumably after adequate market consultation on those
instruments). By way of precedent, when the Takeovers Panel implemented
GN 20, it gave the market 16 months’ notice of the commencement date.4 The
proposed commencement date of 6 months after Royal Assent (as mentioned
in paragraph 1.175 of the EM) is too short.
Section B: General comments/observations
If the changes are to be made, we strongly recommend against doing this by deeming interests under equity derivatives that do not give a relevant interest, to be
“relevant interests”
6. As discussed above, the Committee’s view is that GN 20 is already operating
effectively to require disclosure of aggregate relevant interests and long equity
derivatives at or above 5%, and that the changes in the Bill are unnecessary.
However, if the Government does decide to require disclosure of equity derivatives
in substantial holding notices under Part 6C.1, we would strongly recommend
against achieving that outcome by deeming such interests to be “relevant interests”.
Instead, this should be achieved by using new defined terms for those interests in
Part 6C.1 (e.g. ‘economic interest’), without deeming those interests to be “relevant
interests”5.
7. There are a number of important reasons for this:
(a) Including interests under equity derivatives which do not confer a traditional
“relevant interest” in a person’s “relevant interests” and “holding percentage”
for the purposes of Chapter 6C will simply exacerbate an existing issue in the
market whereby shareholders (particularly retail shareholders) cannot tell the
difference between the discloser’s beneficial shareholding and their traditional
“relevant interest”, let alone an economic interest under an equity derivative
which doesn’t confer the necessary measure of control over disposal or voting
to constitute a “relevant interest”. Once a party discloses their “holding
percentage”, and refers to their “holding percentage” in their media
announcements, the media will simply report this as if it were beneficial
ownership. There have been many instances where bidders have then used
this to their advantage, to over-inflate their apparent positions, and to
discourage competition from third parties for control of listed companies by
giving the appearance of a “done deal”.
(b) On the other hand, those market participants who do understand the
difference between beneficial ownership and a relevant interest giving power
to control disposal or voting under the current law will also be confused by
deeming equity derivative interests which are not relevant interests in the
traditional sense to be relevant interests for the purposes of Chapter 6C.
4.See Takeovers Panel Media Release 20/035 and Media Release TP 21/018.
5 For example, see paragraph 9(b) below.
Enhanced beneficial ownership disclosure for listed entities Page 5
(c) The term “relevant interest” has underpinned the operation of the takeover
provisions for more than 50 years, and has been defined through many court
and Takeovers Panel decisions. Further, the Takeovers Panel has consistently
found that a cash settled equity derivative does not give the necessary
measure of control over voting or disposal to constitute a “relevant interest”
(although the Panel has required disclosure or an aggregate relevant interest
and derivative interest at or above 5% under Takeovers Panel Guidance Note
20 (GN 20)). The term “relevant interest” should be confined to traditional
“relevant interests” which confer the necessary measure of control.
(d) Most long-term legal agreements (e.g. shareholders agreements, joint venture
agreements, lease agreements, customer/supply agreements and
funding/financing agreements etc) include provisions around change of control
etc. In our experience, many of these provisions define a change of control
(which is typically an “event of default” which can give rise to a right of
termination) by reference to a third party acquiring more than a 50% (or often
less) “relevant interest” in a party, with “relevant interest” defined by reference
to the Corporations Act definition. If the definition of “relevant interest” is now
to be amended to include cash settled equity swaps and other derivative
interests not amounting to a traditional relevant interest, this will change the
scope of the change of control provisions across many existing contractual
arrangements, in a manner which would not have been intended by the parties
at the time the arrangements were entered into (because a traditional relevant
interest has always been interpreted as excluding such interests). The
unintended consequences of this are difficult to predict but could be extremely
prejudicial in particular cases and would undermine the basis on which these
contracts had been originally agreed.
(e) If equity derivatives which do not confer a relevant interest in the traditional
sense are now deemed to be “relevant interests”, this will change the
operation of the deeming provision (through 20% links) in section 608(3)(a) of
the Corporations Act, as a derivative interest would give a person “voting
power” for the purposes of the Corporations Act. We assume that this is not
intended. See also our related comments in paragraph 12(h) below.
(f) More generally, addressing the notice provisions in a targeted way, without
amending the “relevant interest” definition, would avoid effectively amending
all of the operation of Chapters 6 and 6A in ways which may have
unpredictable effects, while still achieving the Government’s objectives. We
have expanded below on reasons not to extend the effect of the proposed
changes to those Chapters, but simply note here the fact that the proposed
“relevant interest” definition changes will involve significant uncertainty—there
is no sensible reason for extending this uncertainty to the settled operation of
other parts of the takeovers law, given the Government’s objectives relate to
disclosure. By way of example, the operation of the new provisions, as
regards non-physically settled instruments, will depend on ASIC
determinations to enable market participants to work out how to “count” these
instruments, and it is not yet clear how such determinations will operate, given
the complexity and variety of derivative instruments offered in the market to
which they will need to apply.6 Despite this, proposed new sections 608B(5)
and (6) provide for a recalculation of the number of securities in which a
6 Proposed new section 608B(3) says ASIC “may”, by legislative instrument, make such determinations, but the counting method in section 608B(1) cannot operate unless determinations are made, as no fall-back mechanism is specified.
Enhanced beneficial ownership disclosure for listed entities Page 6
“relevant interest” is deemed to be held under such instruments if the ASIC
determinations so provide, and for that to be deemed to occur through a
transaction by the holder of the derivative position for section 606 purposes—
that is, the operation of an ASIC determination in relation to an existing
derivative instrument could lead to a deemed section 606 breach.
8. The defined terms chosen in the Bill, such as “relatable derivative-based holding
percentage”, “deemed physically settleable derivative-based holding percentage”,
and “deemed non-physically settleable derivative-based holding percentage”, do
not, in our view, help with a ready understanding of the operation of the legislation.
For example, referring to “holding percentages” suggests some form of beneficial
holding, which is not helpful, and most readers will not understand what a “relatable
derivative-based holding percentage” relates to.
9. Instead, we would recommend that interests of the type referred to in the new
sections 608A and 608B be referred to as “disclosable economic interests”.
Part 6C.1 would then require separate reporting, in the same notice of:
(a) a person’s “relevant interests” (in exactly the same way as it would be
reported today);7 and
(b) a person’s “disclosable economic interests”, which would comprise:
(i) their “physically settleable derivative based economic interest” (to the
extent not already reported under category (a)); and
(ii) their “non-physically settleable derivative based economic interest” (to
the extent not already reported under category (a)).
10. We would stress that these changes would have no effect on the information
proposed to be disclosed under the amended Part 6C.1, and is therefore consistent
with the overall policy objectives of the proposed reforms.
Reporting of non-physically settled derivative-based interests under section 608B—
ASIC’s power, by legislative instrument, to determine the number, or the method for determining the number, of issued shares in which a person will be deemed to have a relevant interest by virtue of the derivative
11. Section 608B includes a very broad definition of a “non-physically settled derivative-
based interest which may require disclosure. It is extremely difficult for market
participants to respond to this provision without having seen the proposed form of
the ASIC legislative instruments which will set the number of shares, or the method
for determining the number of shares, in which a person will be deemed to have a
relevant interest by virtue of the derivative. Importantly though, Section 608B will
pick up a range of products beyond a traditional cash settled equity swap, including
collar transactions and back-to-back inter-bank and intra-bank hedging transactions.
It is unclear whether the proposed ASIC instruments will treat the multiple
components of a transaction (e.g. the multiple puts and the multiple calls) as a
single transaction, or as separate transactions, which could result in in a bank
7 Substantial holder notices already require a person to disclose details of their relevant interest, including any relevant agreement giving rise to the relevant interest. Accordingly, market participants will continue to be able to ascertain the extent of a person’s derivative-based relevant interest.
Enhanced beneficial ownership disclosure for listed entities Page 7
having to double count (or count a greater multiple of times) the number of shares
which are the subject of a transaction8.
Drafting issues with the definitions of “deemed physically settleable derivative based interests” and “deemed non- physically settleable derivative based interests”
12. There are a number of drafting issues with the proposed sections 608A and 608B.
These include the following:
(a) Section 608B refers in a number of places to the “value” of securities.
Presumably this should be a reference to the market price of the securities,
which may be different to “value” (see, by way of example, section 674(2)(d)
and ASX Listing Rule 3.1 which distinguish between price and value of
securities). Or, if this is not done, some guidance should be provided as to
how value is to be determined.
(b) The references in sections 608B(1)(d)(i) to “holding issued securities” and
608B(1)(d)(ii) to “value of issued securities” should instead be references to
“holding the relevant issued securities” and “value of the relevant issued
securities” (respectively), so that paragraph (d) refers back to the issued
securities referred to in paragraph (c).
(c) In section 608B(1)(d)(i), the reference to giving “the financial benefits of
holding securities” should only capture situations where the derivative gives all
or substantially all, not just some, of the financial benefits of holding securities.
For example, an instrument which gave a third party an amount equal to
distributions on a parcel of shares, but was not referenced to any capital
appreciation or loss on the parcel of shares, should not come within the
definition.
(d) The word “might” in section 608B(1)(d)(ii) should be changed to “will”. The
provision should only apply if, under the derivative, the other person will
benefit if the price of the securities increases.
(e) For the same policy reasons as the Bill amends the compulsory acquisition
provisions in Division 1 of Part 6A.1, to exclude a deemed relevant interest
under an equity derivative from counting towards the 90% relevant interest
threshold for compulsory acquisition following a takeover bid, the Bill should
also amend the compulsory buy-out provisions in Divisions 2 and 3 of
Part 6A.1 so that a deemed relevant interest under an equity derivative does
not count towards the 90% thresholds at which the compulsory buy-out
obligations are triggered.9 There is no logical reason to treat the compulsory
buy-out regimes in Divisions 2 and 3 different to the compulsory acquisition
regime in Division 1.
(f) More generally, as noted above and below, we believe there is no reason to
employ the extended concept of “relevant interest” in relation to the takeover
provisions, given that the Government’s objectives relate to disclosure. We
strongly suggest that the risk of unintended consequences would be much
reduced if the new concept (or, as we suggest, separate requirements for
8 For example, should a collar be viewed as a single arrangement, or should the put and call options comprising the collar be viewed as two separate arrangements? If the latter, under the collar, the bank will be long a call option and short a put option, and both may create long exposures to the underlying company for the bank. This would result in material double counting of the banks relevant interest, unless the ASIC legislative instrument dealt with this in some other way.
9 The absence of a provision corresponding to section 661A(2) in Divisions 2 and 3 of Part 6A.1 was no doubt simply a drafting oversight.
Enhanced beneficial ownership disclosure for listed entities Page 8
disclosure of derivative-based economic interests) were only applied in
relation to disclosure, and not the takeover or compulsory acquisition
provisions.
(g) Section 608B(3) provides that ASIC “may”, by legislative instrument,
determine the number, or the method for determining the number, of issued
shares in which a person will be deemed to have a relevant interest by virtue
of a non-physically settled derivative-based interest. However, the counting
method in section 608B(1) cannot operate in relation to an interest unless a
determination applying to the relevant type of interest has been made, as no
fall-back mechanism is specified. This provision should either require ASIC to
make such determinations or, if it does not, or if its determinations do not
apply in a particular situation, specify a fall-back (e.g. “a number determined
by the other person acting reasonably”). Further, as drafted s608B applies to
derivatives over securities indices and baskets of securities, where any
economic interest in individual underlying securities is tenuous and disclosure
would be meaningless. The EM at 1.81 recognises this issue, but instead of
relying on an ASIC determination to work out whether these derivatives give
rise to a relevant interest, they should be excluded altogether.
(h) Sections 608A(1)(c) and 608B(1)(c) refer to derivatives in respect of issued
securities in a body, registered scheme or listed notified foreign passport fund.
Disclosable derivative interests should relate to securities of a particular class
in a Chapter 6C body, not some other body, such as a private company.
A person should only have a deemed “relevant interest” in a listed company’s
shares under the section where the equity derivative is in relation to shares in
that company. In other words, the Corporations Act should only relate to the
disclosure of security interests in Chapter 6C bodies.
(i) For the reasons given in paragraph 7 above, section 608B(6) should be
deleted.10
(j) In the chaussure to the definition of “person’s and associates’ votes” in
section 671BD(2), for clarity, the words “an interest” should instead be “a
relevant interest”.
Disclosure of short equity positions
13. In addition to requiring disclosure where a person’s aggregate long position under
equity derivatives and relevant interest is or exceeds 5%, GN 20 requires disclosure
of any short equity derivative positions that offset the long positions (see
paragraph 13(i) of GN 20). GN 20 also requires disclosure of short positions of
more than 1% that have been acquired after a long position is disclosed (see
paragraph 13(j) of GN 20).
14. It is not clear why the Bill does not address the disclosure of short positions that
offset the long positions. This situation seems to be at odds with the statement in
paragraph 1.12 of the EM that the Bill is “consistent with the approach outlined in the
Takeovers Panel Guidance Note 20, [but] operates more broadly to cover market
disclosures beyond the remit of the Takeovers Panel’s guidance”.
10If this section is retained, as the intention appears to be to align section 608B(6) with the existing section
606(1)(b), it would seem that the words “or on behalf of” (being the words that appear in section 606(1)(b)) should also be inserted after the words “entered into by” in section 608B(6). However, we believe it should be deleted in its entirety, as noted above.
Enhanced beneficial ownership disclosure for listed entities Page 9
15. Again, we query the need for the changes to be enacted at all, given the Panel
guidance and its sensible operation (which, unlike the proposals, captures net
economic positions).
Where an interest under an equity derivative is disclosed in a notice under
Part 6C.1, the notice should have to include information of the type currently required by paragraphs 12–14 of Takeovers Panel GN 20, but should not need to attach standard form agreements
16. If interests under equity derivatives not conferring a traditional relevant interest have
to be disclosed in a substantial holder notice, then the information required in
relation to such interests should be limited to the GN 20 type summary of the
interest, including any off-setting short positions, and any caps and collars etc. The
notice should not need to attach any standard form documentation (e.g. an ISDA
agreement). This disclosure will be far more beneficial to the market, and will
reduce the risk of substantial holder notices being thousand, if not tens of
thousands, pages long. If all relevant agreements need to be attached, the size of
the notices, and the amount of information disclosed, will simply bury any material
disclosure (and will be used by some to hide the relevant information).
Disclosure of equity derivative positions should not be required in response to a tracing notice given by a Chapter 6C body (as opposed to ASIC)
17. Even if ASIC is given power to require disclosure of equity derivative positions in
response to a tracing notice given by ASIC under Chapter 6C.2 (other than in
response to a request made under section 672A(2)), in order to assist ASIC with its
enforcement of Chapter 6C, it does not follow that a Chapter 6C body should be
able to force disclosure of equity derivative positions when a person’s aggregate
physical and derivative position is still below 5%. That would be a material change
to the current position in relation to disclosure of equity derivatives.
18. The reason for enhanced disclosure at or above 5% is that 5% is widely recognised
and accepted as the threshold for giving the holder of the aggregate interest
sufficient influence so as to require disclosure in order to ensure an informed
market. The same argument does not apply where a person holds an aggregate
physical, relevant and economic interest below 5%.
19. An equity derivative position which does not give rise to a traditional relevant interest
does not give rise to any actual or substantial measure of control over voting or
disposal of voting shares, and should not have to be disclosed in response to a
tracing notice from the Chapter 6C body. Expanding the provisions to require
disclosure of such positions below the 5% threshold will add significantly to the
compliance costs of the proposed legislation, which is not justified by the benefit the
market would derive as a result.
20. Relevantly, the vast majority of equity derivatives are cash settled derivatives (both
listed and over the counter) and are not related in any way to the control or takeover
of the underlying listed entity. Instead, these will typically be either inter-bank
arrangements, or exchange-traded fund or superannuation fund managers using
these products to gain exposure to certain groups of securities/indexes. Importantly,
under the Bill these participants would be required to disclose details of these
derivatives in response to a tracing notice even if the interest, however categorised,
was below 5%. As noted above, this is a material departure from the requirements
in GN 20 and will create a significant compliance burden on this interbank market,
without furthering the policy objectives of the Bill.
Enhanced beneficial ownership disclosure for listed entities Page 10
21. For example, if the Bill is passed, each time a bank/fund manager receives a tracing
notice, in its response it must include detailed disclosure relating to its derivatives in
respect of those securities, including details of the counterparties and the financial
terms, both of which are commercially sensitive.
22. This increased compliance burden will result in market participants having to
establish new and complex systems to meet these new reporting requirements,
incurring significant initial, and ongoing costs, without furthering the Government’s
policy objectives. We expect this will have an adverse effect on the market,
including by reducing trade volumes and therefore the liquidity of securities, as well
as the range of financial products on offer for corporate participants to manage their
risk. These factors are important from a market efficiency and corporate
governance perspective. Similar concerns are raised in paragraph 34 below.
Economic interests under equity derivatives which do not give rise to a traditional relevant interest should not be deemed to give rise to a relevant interest for the purposes of the takeover provisions in Chapter 6 of the Corporations Act
23. It does not follow, as Treasury has assumed, that simply because aggregate
physical and equity derivative positions at or above 5% need to be disclosed, an
equity derivative which does not give rise to a traditional “relevant interest” should
be regarded as a deemed “relevant interest”, with the result that it can cause or
contribute to a breach of the 20% rule in section 606 of the Corporations Act. There
are good reasons why this should not be the case.
24. The scope of the 20% rule in section 606 of the Corporations Act has for many
decades been based on the definitions of “relevant interest” and “association”. The
Government should be extremely cautious about expanding the long-standing
definition of “relevant interest”, as that will necessarily mean materially expanding
the scope of Australia’s takeover laws, and affecting their operation in unpredictable
ways.
25. The Takeovers Panel already has power to make a declaration of unacceptable
circumstances and appropriate remedial orders if a person does acquire an
aggregate long position and relevant interest over 20%. Importantly, the Takeovers
Panel may, in its discretion, make such a declaration and orders having regard to
the effect that the circumstances are having on the control, or potential control, of
the company, and tailor the orders to suit the circumstances. The Takeovers Panel
has made it clear that it will make such an assessment having regard to the
particular circumstances at the time, rather than pre-judging the issue. The effect of
the Bill would be to remove the Takeovers Panel’s discretion on these nuanced
matters. To the extent that one of the drivers for the proposed reforms was a
concern as to the scope of the Takeovers Panel’s jurisdiction in relation to such
matters, this could easily be addressed through the enactment of a regulation under
section 602A(3).
26. Further to our comments in paragraph 7(a), we expect there will be many instances
where a bidder would be prevented from using these instruments to secure a
strategic position in a listed entity for the purposes of effecting a change of control
transaction. This would include instances that the Takeovers Panel would not
currently find problematic, and would therefore remove market flexibility in how
bidders can execute such transactions, without advancing any of the Government’s
policy objectives.
Enhanced beneficial ownership disclosure for listed entities Page 11
27. It is therefore not necessary, and it is unwarranted, to “hardwire” an acquisition of an
equity derivative as a breach of, or contributing to a breach of, section 606, when in
fact the equity derivative does not give a sufficient measure of control over voting or
disposal to amount to a “relevant interest”.
28. This is already recognised in paragraph 19 of GN 20, which states that “the
acquisition of a long position that would contravene s606 if it were comprised
entirely of a physical holding may [underlining added] also give rise to unacceptable
circumstances. Factors the Panel may take into account in determining whether
such an acquisition is unacceptable include: (a) if the taker has attempted to
exercise control or influence over the entity, (b) if and when the long position was
disclosed; and (c) whether the acquirer of the long position could have relied on an
exception in s611 if the acquirer had made the acquisition as a physical holding”.
Note that the definition of “substantial interest” in section 602A was amended in
2007 to make it clear that the Takeovers Panel can made a declaration and orders in
relation to equity derivative interests.11
29. The Bill also amends section 661(A)(2) in the compulsory acquisition provisions in
Chapter 6A, so that a deemed “relevant interest” under an equity derivative does not
count towards the 90% “relevant interest” threshold for compulsory acquisition
following a takeover bid. This implicitly recognises that a deemed relevant interest
under an equity derivative is something less than a ‘true’ relevant interest, because
it does not confer a sufficient measure of control over voting or disposal. If a
deemed “relevant interest” under an equity derivative does not count for compulsory
acquisition purposes, it is illogical for it to count towards the 20% rule.
30. As noted above, addressing the notice provisions in a targeted way, without
amending the “relevant interest” definition, and thus avoiding effectively amending
all of the operation of Chapters 6 and 6A, in ways which may have unpredictable
effects, would achieve the Government’s objectives with much less risk of
unintended consequences. The proposed “relevant interest” definition changes will
involve significant uncertainty—there is no sensible reason for extending this
uncertainty to the settled operation of other parts of the takeovers law.
31. By way of example, the operation of the new provisions, in respect of non-physically
settled instruments, will depend on ASIC determinations to enable market
participants to work out how to “count” these instruments, and it is not yet clear how
such determinations will operate, given the complexity and variety of derivative
instruments offered in the market to which they will need to apply. Despite this,
proposed new sections 608B(5) and (6) provide for a recalculation of the number of
securities in which a “relevant interest” is deemed to be held under such instruments
if the ASIC determinations so provide, and for that to be deemed to occur through a
transaction by the holder of the derivative position for section 606 purposes—that is,
the operation of an ASIC determination in relation to an existing derivative
instrument could lead to a deemed section 606 breach. This is an entirely
inappropriate and dangerous possibility (and if the operation of the changes in
relation to Chapter 6 is retained, section 608B(6) should be deleted), and there may
be many other such unexpected outcomes.
11
See Corporations Amendment (Takeovers) Act 2007 (Cth) and paragraphs 3.4 to 3.6 of its explanatory memorandum, available here.
Enhanced beneficial ownership disclosure for listed entities Page 12
32. For these reasons, an “economic interest” under an equity derivative should not be
deemed to give rise to a “relevant interest” for Chapter 6 or Chapter 6A purposes.
This can be achieved by:
(a) retaining, rather than repealing, section 609(6) (noting that this section has
been amended by ASIC Corporations (Warrants: Relevant Interests and
Associations) Instrument 2023/687, which was recently the subject of
extensive public consultation by ASIC), and the reference to section 609(6) in
section 671B(7)(a); and
(b) limiting the operation of the new definitions so they are only relevant to
Chapter 6C (and also, ideally, adopting the slightly varied approach suggested
in paragraph 9 above, such that separate disclosure is required in relation to
(1) true “relevant interests” (as currently understood) and (2) “disclosable
economic interests”).
The proposed power for ASIC to make “freezing orders” should be subject to Court or Takeovers Panel review
33. Under section 673A, ASIC can, if it forms the opinion that “a person” has failed to
comply with the substantial holding notification provisions, or the tracing provisions,
make a broad range of orders, including orders preventing disposal or acquisition of
securities, or freezing voting and distribution rights in respect of securities, orders
preventing registration of transfers or issuance of securities, and orders requiring the
forced divestiture of specified derivatives. The provision is drafted so that the orders
may be made against any “specified person” (who, as currently drafted, need not be
the same person as the non-compliant person) in relation to any specified securities.
There is not even any requirement that third parties not be unreasonably prejudiced.
34. The ability for orders to be made against third parties (without any consideration of
the prejudice to them) is a very serious matter, and may have very significant
consequences for derivative writers. The main purpose of derivatives is not to
disguise holdings. Derivatives are instruments which enable management of
economic risk, and also financing of investment in securities. They are used for
these purposes in all major global financial markets, and if they become
unacceptably risky for Australian market participants to write, this would involve a
very significant loss of financial flexibility in Australia’s markets. Provisions which
allow a swap writer to be prevented from buying and selling hedge securities (which
it will generally need complete flexibility to do, in the ordinary course, to manage its
financial risk in relation to the swap), or from exercising normal rights is relation to
such securities, could very materially affect the risks involved in providing such
instruments, and therefore the willingness of market participants to do so. Similarly,
any risk that a hedged position could be forcibly unwound or frozen may have the
same effect on those who provide such instruments.
35. The EM draws an analogy between the freezing order provision, and ASIC’s powers
under sections 72 and 73 of the Australian Securities and Investments Commission
Act 2001 (Cth) (ASIC Act). However, ASIC’s powers under sections 72 and 73 of
the ASIC Act only apply where ASIC has commenced an investigation, and for the
purposes of that investigation, and where the persons have failed to comply with a
requirement to provide information to ASIC. That is not a requirement under
section 673A.
Enhanced beneficial ownership disclosure for listed entities Page 13
36. In the Committee’s view, these very broad additional powers conferred on ASIC are
not appropriate. If, despite this, they are introduced, they should be subject to some
guardrails. At the moment, the EM simply says that they are intended to be
unfettered. Here we would suggest the following:
(a) ASIC should only be permitted to make a freezing order where it is satisfied
that the non-compliance with Part 6C.1 or 6C.2 had or is having an impact on
the efficient, competitive and informed market for securities in the relevant
Chapter 6C body. This way, an immaterial non-compliance with the provisions
will not expose a person to a freezing order being made on their securities.
(b) ASIC should not be empowered to make an order if it would involve
unreasonably prejudice to third parties.
(c) The provisions should allow the person against whom a freezing order is
made to apply to the Takeovers Panel for that order to be revoked or lifted
(although we note, for completeness, that this would be a completely
inadequate remedy, given that a swap writer often needs to be able to act
immediately to close out or further hedge its position, with even a few minutes
or hours delay having the potential to be economically disastrous, and the fact
that Panel proceedings inevitably take weeks or months to resolve).
Information to be included in a substantial holding notice be limited to information which is known the discloser
37. Section 671BB has been amended so that the time for giving the notice is calculated
by reference to when a person becomes “aware of the situation”, rather than “aware
of the information” under the existing law. We understand that this is to overcome
the drafting issue identified in the EM, but, if this change is made, section 671BA still
needs a provision like section 672BA(2) in relation to tracing notices, so that the
obligation to include information in the substantial holding notice only applies to
information known to that person.
The obligation to file the substantial holding notices must be tied to actual knowledge of the situation giving rise to the need to file, not merely constructive knowledge
38. Section 671BB(2) provides that, for the purposes of determining whether an
obligation to file a substantial holding notice has been triggered, a person who ought
reasonably to be aware of the situation giving rise to the need to file is taken to be
aware of the situation.
39. This is draconian in the context of provisions which give rise to criminal liability and
material civil penalties. It should therefore be deleted. If the concern is that a
person can avoid their disclosure obligations by remaining wilfully unaware of the
situation triggering the need to give the notice, then the filing obligation should only
be triggered where the person has wilfully avoided becoming aware, not some
lesser test which can effectively be triggered by mere negligence.
The defence to civil liability for breach of the substantial holding notice provisions should not be amended to reduce its availability
40. Section 671C currently provides a defence where the person proves that they
contravened the section because of inadvertence or mistake, or because they were
not aware of a relevant fact or circumstance. The Bill seeks to limit this to where the
inadvertence or mistake was “reasonable in all of the circumstances”, and where it
Enhanced beneficial ownership disclosure for listed entities Page 14
was not the case that the person “ought reasonably to be aware” of the fact or
circumstances.
41. No justification is given in the EM for this narrowing of the defence. Absent some
clear additional policy justification, the defence should be retained in its current form.
42. Again, if the concern is that a person can avoid their disclosure obligations (or avail
themselves of the defence) by remaining wilfully unaware of the situation triggering
the need to give the notice, then this should be made clear.
Extension of the disclosure regime to foreign listed bodies
43. The provisions include a foreign body listed on ASX in the definition of Chapter 6C
body, so that holders of “relevant interests” in the securities of those foreign entities
will potentially be required to comply with the substantial shareholding notification
requirements which apply to an Australian listed company under Part 6C.1, and the
tracing notice provisions which apply to Australian listed companies under Part 6C.2.
It is not clear whether there has been any direct consultation with the 150 foreign
companies listed on ASX who will be impacted by this change, and who will no
doubt be surprised that they are now subject to Australian disclosure laws which
were not a condition of their listing on ASX. ASX may also have views in relation to
this proposal, as it already has its own methods of requiring a level of disclosure in
relation to holdings in such companies (calibrated to the companies’ access to
relevant information under the relevant foreign laws). In any event, as set out below,
there are a number of issues with this proposal.
44. Section 671A(3) states that a foreign listed company does not have to comply with
Part 6C.1 if the foreign listed company is subject to disclosure requirements under
foreign law or foreign financial market rules and ASIC is satisfied such requirements
are equivalent to the requirements of Part 6C.1 and has made a declaration to this
effect in a legislative instrument. It is difficult to respond to the consultation on this
point without knowing what foreign laws/rules ASIC will declare as being equivalent.
We also strongly doubt that many foreign laws (even in mainstream jurisdictions) will
be able to be characterised as “equivalent” to the proposed new requirements, given
their proposed extended ambit. It would be preferable if the Bill made it clear that a
foreign company listed on ASX does not have to make disclosures under Part 6C.1
if its shares are also listed on an approved foreign exchange (e.g. United States,
United Kingdom, Ireland, Canada, New Zealand, Singapore, Hong Kong etc.).
45. In any event, even if the home jurisdiction of the relevant foreign listed entity is
declared by ASIC, section 671A(4) only exempts the foreign listed entity from
Part 6C.1 if the entity, “immediately” after the information is given to “a person”
(presumably a regulator in its home jurisdiction or perhaps the foreign listed entity
itself) gives that information to ASX. Apart from the fact that there may be logistical
issues in this where, because of time differences, the foreign entity cannot
“immediately” give the information to ASX, this obligation should only apply where
the foreign entity has disclosed that information to its home regulator for public
release in its home market.
46. The application of the tracing notice regime to these foreign companies means that
the foreign companies, and ASIC, could seek to trace interests in shareholdings in
the foreign companies which are not listed on ASX (for example, shares listed on the
entity’s home exchange, which are not held through CDIs listed on ASX). We
assume that this is not the intention.
Enhanced beneficial ownership disclosure for listed entities Page 15
47. It is possible that the proposed application of the tracing notice regime to these
foreign companies may act to disincentivise major foreign companies from
maintaining a listing on ASX, or, if they are already listed on the ASX, it may
encourage them to delist from the ASX to the detriment of local shareholders.
Transitional arrangements
48. In light of the very broad ranging nature of the changes to the Corporations Act, the
market will require a significant amount of time to adjust to the new regime
(including to build systems to capture and record the newly required information).
Market participants cannot begin this process until the ASIC legislative instruments
which will fix the method for calculation of a relevant interest under equity
derivatives have been made public (presumably after adequate market consultation
on those instruments). By way of precedent, when the Takeovers Panel
implemented GN 20 it gave the market 16 months’ notice of the commencement
date.12 The proposed commencement date of 6 months after Royal Assent
(as mentioned in paragraph 1.175 of the EM) is too short.
Other minor amendments to the substantial holder provisions
49. Sections 671B(1)(d), 671BB(1)(b)(i), 1710B(3)(a) and 1710B(4)(a) refer to a
takeover bid being “made”. There is currently some uncertainty in the market as to
whether this means (i) a takeover bid being announced, (ii) a bidder’s statement
being served on the target, (iii) a bidder’s statement being lodged with ASIC or
(iv) a bidder’s statement being despatched to shareholders.13
50. ASIC has expressed its view on the question as follows:
“Accordingly, having regard to the procedural nature of a takeover bid, ASIC
considers that a bidder makes a bid for the purposes of s671B(1)(c) and
paragraph (b) of the definition of ‘substantial holding’ in s9:
(a) in the case of an off-market bid—when the bidder’s statement is sent to the
target (this is the day on which the first step of the bid procedure referred to in
s632 is to be completed and the ‘bid period’ commences: see s9 and items 3–5 of
the table in s633(1)); and
(b) in the case of a market bid—when the bidder has the bid announced to the
relevant financial market (see item 2 of s635).”
51. The current position of uncertainty should be rectified by incorporating ASIC’s
(sensible) views into Chapter 6C.
Other minor amendments to the tracing notice provisions
52. Section 672BB(c) (which mirrors the existing section 672B(2)(c)) provides that the
disclosure is to be made within 2 business days after any fee prescribed by the
regulations is paid. Currently the prescribed fee is a nominal $5.14 Given the
difficulties in making payments to persons in respect of whom a tracing notice is
served (particularly those overseas) noting that the company will be unlikely to have
bank account details for such persons, and given the potential for the payment of
12.See Takeovers Panel Media Release 20/035 and Media Release TP 21/018.
13For mention of this uncertainty, see ASIC Regulatory Guide 5, dated March 2024, at [5.288]; see also
Renard & Santamaria, Takeovers & Reconstructions in Australia, at [906].
14 Item 5 in Schedule 4 of the Corporations Regulations 2001 (Cth).
Enhanced beneficial ownership disclosure for listed entities Page 16
the fee to be used as a delaying tactic by the recipient of a tracing notice, it is
submitted that the Bill should be amended to provide that the person giving the
tracing notice should only have to offer to pay the prescribed fee and that, if the
recipient of the tracing notice does not request payment (and provide bank account
details) within 1 business day, the recipient is deemed to have waived their right in
respect of the fee.
53. Section 672DA(8) specifies that a person who wishes to inspect the register must
pay the prescribed fee (if the Chapter 2C body requests the payment) and then the
register must be provided by no later than 21 days after the fee is paid. The
following amendments should be made to this regime, as outlined below.
(a) The demand for the payment of the fee can be used as a delaying tactic by
the Chapter 6C body, noting that the register only has to be provided 21 days
after the fee has been paid. The Bill should be amended to specify that, if the
Chapter 6C body does not, within 2 business days, inform the person
requesting the register that it requires the fee to be paid then the Chapter 6C
body is deemed to have waived its right to the fee.
(b) The prescribed fee is currently specified as “a reasonable amount that does
not exceed the marginal cost to the company of providing a copy”.15 This is a
vague and uncertain concept. It would be better if a fixed dollar amount were
specified (e.g. $500). This would ensure that the Chapter 6C body cannot
(i) seek to require payment of a very high fee and (ii) use the quantum of the
fee as a delaying tactic.
54. Section 672AA(1) specifies a broad range of methods by which ASIC can give a
tracing notice direction. It is unclear why there is no equivalent provision for the
benefit of key persons of Chapter 6C bodies. The absence of an equivalent
provision raises uncertainty as to the methods of service that a key person can use
(particularly the use of email).
ASIC legislative instruments
55. ASIC has enacted a number of legislative instruments relating to the relevant
interest provisions and the substantial holder notification provisions. Each of these
has been the subject of a public consultation process. None of these instruments
are controversial. The instruments are:
(a) ASIC Corporations (IDPS—Relevant Interests) Instrument 2015/1067;
(b) ASIC Corporations (Securities Lending Arrangements) Instrument 2021/821;
(c) ASIC Corporations (Relevant interests, ASIC and ASIC Chairperson)
Instrument 2023/194;
(d) ASIC Corporations (Takeover Bids) Instrument 2023/683;
(e) ASIC Corporations (Bidder Giving Substantial Holding Notice) Instrument
2023/685;
(f) ASIC Corporations (Warrants: Relevant Interests and Associations) Instrument
2023/687;
15 Item 3(b) of Schedule 4 to the Corporations Regulations 2001 (Cth).
Enhanced beneficial ownership disclosure for listed entities Page 17
(g) ASIC Corporations (Compulsory Acquisitions and Buyouts) Instrument
2023/684; and
(h) ASIC Corporations (Relief to Facilitate Admission of Exchange Traded Funds)
Instrument 2024/147.
56. It is unfortunate, and very inefficient, that anyone looking for Australia’s relevant
interest and substantial holder provisions cannot simply open up the Corporations
Act to find them. This adds to the cost of doing business and the cost of ASIC’s
activities.16 There is significant frustration with the current state of play.17 Treasury
and the Government have been slowly chipping away at this problem (e.g. through
the enactment of the Treasury Laws Amendment (2023 Law Improvement Package
No 1) Act 2023 (Cth)). It would be a shame to miss this current opportunity to
remove such inefficiencies and incorporate the effect of the above-mentioned ASIC
instruments into the Corporations Act.18 To do so would also be consistent with the
recommendations of, and comments by, the Australian Law Reform Commission in
its Final Report, Confronting Complexity: Reforming Corporations and Financial
Services Legislation dated 30 November 2023 to simplify the Corporations Act and
reduce the complexity created by the use of delegated legislation.
16 See also Australian Law Reform Commission, Final Report, Confronting Complexity: Reforming
Corporations and Financial Services Legislation, ALRC Report 141, November 2023, [2.10] – [2.50], [2.51] –
[2.74].
17 See, for example, Rodd Levy, “Searching for Australia’s takeovers laws” dated 24 October 2023.
18 The organisation “Conisante Consulting” has consolidated these instruments into a “mark-up” of the relevant provisions to Chapters 6 to 6C of the Corporations Act, which is available here.
Enhanced beneficial ownership disclosure for listed entities Page 18
Section C: Responses to consultation questions
Consultation questions Comments
Disclosure of information about ownership of listed entities—Derivative based interests
1. The draft Bill proposes the repeal of s609(6) and redefines For the reasons given in Section B of this submission, interests under
‘derivatives’ in s608A. What impact would the expanded definition equity derivatives of the types referred to in sections 608A and 608B
of relevant interests in s608A and 608B have on ownership should not be deemed to be “relevant interests”, but should be defined
transparency and regulatory burden? separately in Part 6C.1 as “disclosable economic interests”. This
achieves the Government’s disclosure objective, and avoids
1.1. What impact will the removal of this exclusion have? (i) considerable market confusion and unintended impacts under long
term commercial arrangements, and (ii) those interests being picked up
in the tracing notice regime; the takeovers provisions and the compulsory
acquisition provisions. For the reasons given in Section B, it does not
follow that simply because an aggregate relevant interest and long equity
derivative interest of 5% or more requires disclosure, that equity
derivatives should be caught by the tracing notice regime; the takeovers
provisions and the compulsory acquisition provisions.
Section 609(6) should not be repealed, as interests under equity
derivatives should not automatically be counted for the purposes of
section 606 or the compulsory acquisition provisions. Control issues in
relation to equity derivatives can be dealt with by the Takeovers Panel,
which can make a declaration of unacceptable circumstances and
remedial orders. Not only should section 609(6) not be repealed, it
should be re-enacted in the form inserted into the Corporations Act by
ASIC by ASIC Corporations (Warrants: Relevant Interests and
Enhanced beneficial ownership disclosure for listed entities Page 19
Consultation questions Comments
Associations) Instrument 2023/687 (which was recently the subject of
extensive public consultation by ASIC).
See the Committee’s detailed observations in Section B in relation to the
impact on ownership transparency and regulatory burden. In particular,
requiring interests of the type referred to in sections 608A and 608B in
response to a company tracing notice will significantly increase the
compliance costs for market makers and ‘run-of-the-mill’ hedging
transactions, without any market transparency or disclosure benefit.
2. Subsection 608(8) is key in defining one of the categories of The operation of the provision outlined in RG 5 is sufficiently clear and is,
derivate-based interests that must be disclosed under the in our experience, generally followed in practice. We do not think any
proposed amendments to Chapter 6C. The draft Bill assumes changes to section 608(8) are necessary.
subsection 608(8) operates as outlined in ASIC Regulatory Guide
5 (RG 5) Relevant interests and substantial holding notices, at
(RG 5.163–5.166) where ASIC observes in effect that the
provision:
• is not intended to be limited to arrangements regarding
designated parcels of underlying securities; and
• should be applied on the basis that the person who has a
relevant interest in underlying securities will satisfy their
relevant obligations by applying the securities they have a
relevant interest in (even for example if they have less
than the number held at the time).
Enhanced beneficial ownership disclosure for listed entities Page 20
Consultation questions Comments
2.1. Is the operation of the provision outlined in the regulatory
guidance sufficiently clear and followed in practice?
2.2 Would the legislation benefit from expressly clarifying the
operation of subsection 608(8) in any way—for example,
specifying the relevant assumption to be made regarding how a
counterparty will satisfy their obligations for the purposes of
applying the provision?
2.3. If it were to do so, should the assumption depend on the
reason the relevant interest arises?
3. In relation to the disclosure of non-physically settled This is approach is not preferable. The Bill should either:
derivatives, the draft Bill proposes ASIC be empowered to make a • require ASIC to make this legislative instrument; or
legislative instrument to determine either: • if it does not, or if its instruments do not apply to some scenarios,
specify a fall-back.
• the number of issued securities in which the other person
is taken to have a relevant interest; or As above, we think ASIC should be required to make an instrument to
• the method of working out the number of issued securities determine the value of these interests. However, we ASIC’s instrument
itself should include several alternatives to allow the relevant party to
the other person is taken to have a relevant interest in.
select the most appropriate option for their derivative arrangement. It
The ability for ASIC to determine a specific number is intended to goes without saying that ASIC must undertake a consultation process on
cover the situation whereby ASIC may need to remove certain its proposed instrument.
derivatives from consideration and thereby determine the value to See the Committee’s detailed observations in paragraph 12.
be zero.
3.1 Is this approach preferable to enabling ASIC to exclude
particular kinds of derivatives from the beneficial ownership
Enhanced beneficial ownership disclosure for listed entities Page 21
Consultation questions Comments
disclosure requirements? If not, what alternative approach would
be better?
3.2 Should ASIC have additional flexibility in the way it prescribes,
or allows parties to a derivative to determine, the number of
underlying securities a person is deemed to have an interest in?
4. The draft Bill includes provisions intended to ensure that We cannot think of any instances of double counting of interests arising
arrangements and interests that simultaneously meet the under the new terms contemplated in item 40 of the Bill. This is not to
definition of more than one category of derivative-based relevant say that no such instances will arise in practice. Further, given the
interest are not double counted. complexity these new categories pose to market participants, we expect
that many people, however well meaning, will incorrectly categorise their
Are all instances of potential double counting effectively avoided interests under this new regime.
under current drafting?
The preferred approach to categorising these interests is set out in
paragraphs 8 to 10.
5. The draft Bill intends to attribute the new deemed relevant This is clear on our reading of the Bill. However, if this is the intention,
interests to the party to the transaction that is in the bought then it should be made explicit in the final version of the EM.
position. Is that intention achieved, or is further clarity required?
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Consultation questions Comments
Substantial holding information (including disclosure of derivative-based holdings)
6. The draft Bill proposes providing ASIC with the power to It is hard to comment on this item without seeing the proposed form of
approve the form in which substantial holder notices are lodged, the new substantial holder notice.
removing a legislative obstacle to moving towards machine
readable lodgements. As a general comment, we note that there is a large variation in the
market as to the level of detail, form and content that each market
6.1. What processes would be involved in meeting a requirement participant includes in their current substantial holder notices. This is not
that substantial holder notices be lodged in machine readable to suggest that there is a level of non-compliance, but given the
format? complexity of many arrangements that give rise to substantial holdings,
and the complicated networks of associations of some participants, this
6.2. What impact would carrying-out these processes have on variation is to be expected.
businesses?
In order to reduce this variation so a machine could read and use the
6.3. What impact would requiring substantial holder notices to be information being lodged, the areas with the propensity for the widest
lodged in machine readable format have on transparency of variation in responses would need to be simplified, and sufficient
market operations? guidance would have to be released to assist participants in completing
these forms consistently.
We expect this simplicity would be welcomed by businesses. However,
there is a risk that oversimplifying these forms will result in important
information or a certain level of nuance being missed in these
disclosures.
Freezing orders
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Consultation questions Comments
7. The Explanatory Memorandum outlines relevant See the Committee’s detailed observations in paragraphs 33 to 36.
considerations regarding how ASIC should balance the rights of
third parties with the desire to ensure compliance with the
disclosure obligations in exercising its expanded freezing powers.
7.1. Does this guidance strike the right balance?
7.2. Is the guidance in the Explanatory Memorandum sufficient or
should ASIC be required to give preference to a particular
approach by the legislation?
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Annexure A: About the Business Law Section of the Law
Council of Australia
The Law Council of Australia represents the legal profession at the national level; speaks on behalf of its Constituent Bodies on federal, national, and international issues; and promotes the administration of justice, access to justice, and general improvement of the law.
The Business Law Section of the Law Council furthers the objects of the Law Council on matters pertaining to business law.
The Section provides a forum through which lawyers and others interested in law affecting business can discuss current issues, debate and contribute to the process of law reform in
Australia, and enhance their professional skills.
The Law Council’s Constituent Bodies are:
• Australian Capital Territory Bar Association
• Law Society of the Australian Capital Territory
• New South Wales Bar Association
• Law Society of New South Wales
• Northern Territory Bar Association
• Law Society Northern Territory
• Bar Association of Queensland
• Queensland Law Society
• South Australian Bar Association
• Law Society of South Australia
• Tasmanian Bar
• Law Society of Tasmania
• The Victorian Bar Incorporated
• Law Institute of Victoria
• Western Australian Bar Association
• Law Society of Western Australia
• Law Firms Australia
The Business Law Section has approximately 1000 members. It currently has 14 specialist committees and working groups:
• Competition & Consumer Law Committee
• Construction & Infrastructure Law Committee
• Corporations Committee
• Customs & International Transactions Committee
• Digital Commerce Committee
• Financial Services Committee
• Foreign Corrupt Practices Working Group
• Foreign Investment Committee
• Insolvency & Reconstruction Law Committee
• Intellectual Property Committee
• Media & Communications Committee
• Privacy Law Committee
• SME Business Law Committee
Enhanced beneficial ownership disclosure for listed entities Page 25
• Taxation Law Committee
The Section has an Executive Committee of 12 members drawn from different states and territories and fields of practice. The Executive Committees meet quarterly to set objectives, policy and priorities for the Section.
The members of the Section Executive are:
• Dr Pamela Hanrahan, Chair
• Mr Adrian Varrasso, Deputy Chair
• Dr Elizabeth Boros, Treasurer
• Mr Philip Argy
• Mr Greg Rodgers
• Mr John Keeves
• Ms Rachel Webber
• Ms Shannon Finch
• Mr Clint Harding
• Mr Peter Leech
• Mr Chris Pearce
• Ms Lisa Huett
The Section’s administration team serves the Section nationally and is part of the Law
Council’s Secretariat in Canberra.
The Law Council’s website is www.lawcouncil.au.
The Section’s website is www.lawcouncil.au/business-law.
Enhanced beneficial ownership disclosure for listed entities Page 26
