Respondent
...
13 December 2024
Director
Beneficial Ownership and Transparency Unit
Market Conduct and Digital Division
Treasury
Langton Cres
Parkes ACT 2600
Dear Director
Submission: Enhanced beneficial ownership disclosure for listed entities
Introduction
I am a principal of McCabes Lawyers, an Australian commercial law firm. I have experience advising in respect of both Chapter 6 and 6C of the Corporations Act.
This submission is provided on the exposure draft of the Treasury Laws Amendment Bill 2024:
Enhanced disclosure of ownership of listed entities (Draft Bill).
This submission focuses on threshold policy issues in respect of the proposed changes to the concept of 'relevant interest' found in Chapter 6 of the Corporations Act. As such, this submission is limited to
Question 1 of the Consultation Questions released with the Draft Bill.
Unless the context requires otherwise, any references to parts, chapters or sections in this letter are references to parts, chapters or sections of the Corporations Act.
Response to Consultation Question 1
In my opinion, the concept of 'relevant interest' (defined in Chapter 6) primarily goes to the takeovers threshold in section 606 and the other operative provisions of Chapter 6.
The application of the 'relevant interest' concept to the operation of the substantial holding notice provisions in Chapter 6C is arguably ancillary to the primary usage of that concept in Chapter 6. This is supported by the fact that the definition of 'substantial holder' in section 9, and section 671B(7), in effect amends what a relevant interest is for the purpose of Chapter 6C.
In spite of that, Treasury is proposing a change to the 'relevant interest' concept primarily for the purpose of extending the substantial holder disclosure obligations (so that they cover derivative holdings), with the consequential impacts that change has on the application of the takeovers threshold and Chapter
6 more generally practically treated as an afterthought.
In support of the above, I refer to paragraph 1.24 of the Exposure Draft Explanatory Materials accompanying the Draft Bill (Draft EM), which says that the 'central aim' of the Draft Bill is to 'close existing loopholes in the disclosure regime in order to ensure greater transparency for investors and the market, particularly in relation to equity derivatives'.
Paragraph 1.35, found at the end of that same section, is the only paragraph devoted to the impact the
Draft Bill will have on the operation of takeovers provisions in Chapter 6.
In support of this, that paragraph states:
It is appropriate that equity derivative arrangements that result in a person’s economic
exposure to, and influence over, securities increasing to a level that may impact control over
such an entity are required to comply with the requirements of Chapter 6. This is also
consistent with existing Takeovers Panel guidance which notes that the acquisition of
interests under equity derivatives that would otherwise be prohibited if the underlying
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securities were directly held may give rise to unacceptable circumstances: see Takeovers
Panel Guidance Note 20: Equity Derivatives, paragraph 19.
The first sentence of the statement in the Draft EM extracted above is merely reflexive ('it is appropriate')
– it does not provide any reasoned argument as to why it is appropriate that equity derivative arrangements which at present are not subject to the takeovers threshold should become so.
Furthermore, the statement about the Panel's policy does not make reference to footnote 8 found in paragraph 19 of the Guidance Note 20, which says that:
The Panel will take into account the exemption in s609(6) in such circumstances.
Per the Draft Bill, section 609(6) would be repealed. Assuming the Panel would no longer have regard to section 609(6) after it is repealed, the effect of the Draft Bill would be to change the Panel's policy in this area, rather than be consistent with it.
It does not necessarily follow that an interest that is appropriate for disclosure in a substantial holder notice should also trigger the takeovers threshold in section 606. The current carveouts for conditional agreements and market traded options in the definition of 'substantial holding' and section 671B(7) demonstrate this (noting that the carve out for conditional agreements is still proposed to be retained in the Draft Bill).
A change to the concept of 'relevant interest' in the Corporations Act should only come about as a result of an informed intention to change the way in which the takeovers provisions operate, as the relevant interest concept primarily impacts the operation of those provisions. A desire to ensure greater public disclosure of derivative positions is not a sound basis for alteration of the relevant interest concept.
Based on the Draft EM, I submit that insufficient policy consideration has been afforded to the impact on the takeovers provisions in Chapter 6 that would be brought about by the proposed change to the
'relevant interest' concept in the Draft Bill.
Yours sincerely
Robert Speed
Principal
McCabes Lawyers robert.speed@mccabes.com.au
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