Macquarie Bank Ltd and Australian Securities and Investments Commission
[2001] AATA 868
•18 October 2001
DECISION AND REASONS FOR DECISION [2001] AATA 868
ADMINISTRATIVE APPEALS TRIBUNAL ) No N2000/1612
GENERAL ADMINISTRATIVE DIVISION )
Re Macquarie Bank Limited
Applicant
And Australian Securities and Investments Commission
Respondent
DECISION
Tribunal Mr R P Handley, Deputy President
Date18 October 2001
PlaceSydney
Decision The Tribunal sets aside the decision under review and remits the matter to the Respondent with a direction that the Applicant's High Yield Equity Notes are not "securities" within the meaning of s 92(3) of the Corporations Act 2001.
..............................................
Mr R P Handley
Deputy President
CATCHWORDS
CORPORATIONS – Corporations Act - Fundraising provisions – prospectus requirements - whether High Yield Equity Notes (HYENA) could be characterised as "securities" under the Corporations Act – whether a HYENA could be characterised as a "debenture", "option to acquire share", or hybrid with components of both
Acts Interpretation Act 1901 s 15AA(1)
Corporations Act 2001 – ss 9, 92(3), 706, 708(1), 708(8), 708(10), 709(i), 741(1)
Re Wakim: ex parte McNally (1999) 198 CLR 511
Punjab Co-operative Bank Limited, Amritsar Limited v Commissioner of Income Tax, Lahore [1940] AC 1055
Commissioner of Taxation v Hyteco Hiring Pty Ltd (1992) 39 FCR 502
Spiro v Glencrown Properties Limited [1999] Ch 537
Sydney Futures Exchange Limited v Australian Stock Exchange Limited (1995) 56 FCR 236
REASONS FOR DECISION
Mr R P Handley
This is an application by Macquarie Bank Limited ("MBL") for a review of a decision of the Australian Securities and Investments Commission ("ASIC") dated 16 August 2000 to refuse an application by MBL for an exemption under s 741 of the Corporations Law from the provisions of Chapter 6D of the Corporations Law in relation to the offer of High Yield Equity Notes by MBL to investors.
At the hearing, MBL was represented by John Sheahan, Senior Counsel, and the Respondent by Tim Castle, Counsel. The evidence before the Tribunal comprised the documents produced pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 (the "T Documents") together with the documents tendered by the parties. Oral evidence was given by Peter Grimshaw.
BACKGROUNDMBL is an authorised deposit-taking institution ("ADI") within the meaning of the Banking Act 1959 and, thereby, an Australian ADI within the meaning of s 9 of the Corporations Act 2001. MBL issues what it describes as unsecured short-term notes known as High Yield Equity Notes ("HYENAs"). Prior to 13 March 2000, MBL issued HYENAs without registering a prospectus under what was then Part 7.12 Division 2 of the Corporations Law because MBL considered that it was not obliged to do so.
On 13 March 2000, the Corporate Law Economic Reform Program Act 1999 ("the CLERP Act") amended the Corporations Law. On 27 March 2000, MBL's Solicitors, Allen Allen & Hemsley, wrote to ASIC seeking an exemption, pursuant to s 741 from the provisions of Chapter 6D of the Corporations Law (the Fundraising Provisions).
On 16 August 2000, ASIC notified MBL's solicitors that the application for an exemption under s 741 had been refused. On 22 September 2000, ASIC provided a Statement of Reasons for its decision. ASIC concluded that HYENAs are "securities" as defined in s 92(3) of the Corporations Law and, therefore, their offer for issue is appropriately regulated by the provisions of Chapter 6D of the Corporations Law. On 19 October 2000, MBL lodged an application for a review of this decision by the Administrative Appeals Tribunal.
APPLICABLE LAWFollowing the High Court decision in Re Wakim; ex parte McNally (1999) 198 CLR 511, which held that certain cross-vesting arrangements were unconstitutional, the Commonwealth Parliament enacted the Corporations Act 2001 ("the Act") as part of a new co-operative scheme for the uniform regulation of companies. The Act took effect on 15 July 2001. The parties in the matter before the Tribunal informed the Tribunal that the relevant provisions of the Corporations Law were in identical terms to the newly enacted provisions in the Act. Thus, the transition from the Corporations Law to the Act would have no effect on the outcome of this matter.
Section 92(3) of the Act provides as follows:
(3) In Chapters 6 to 6D (inclusive):
securities means:
(a) shares in a body; or
(b) debentures of a body; or
(c) interests in a registered managed investment scheme; or
(d) legal or equitable rights or interests in:(i) shares; or
(ii) debentures; or
(iii) interests in a registered managed investment scheme;(e) options to acquire (whether by way of issue or transfer) a security covered by paragraph (a), (b), (c) or (d).
It does not cover a futures contract or an option approved by a securities exchange as an exchange traded option.The term "Debenture" is defined in s 9 of the Act:
"Debenture" of a body means a "chose in action that includes an undertaking by the body to repay as a debt money deposited with or lent to the body. The chose in action may (but need not) include a charge over property of the body to secure repayment of the money. However, a debenture does not include:
(a) ….
(b)an undertaking by an Australian ADI to repay money deposited with it, or lent to it, in the ordinary course of its banking business; or
(c) …
The other relevant provisions of the Act are as follows:
s 706 an offer of securities for issue needs disclosure to investors under this Part unless s 708 says otherwise.
s 708 (19) Debentures of certain bodies
An offer of a body's debentures for issue or sale does not need disclosure to investors under this Part if the body is:
(a) An Australian ADI; or
(b)…s 709 (i) Prospectus or short-form prospectus. If an offer of securities needs disclosure to investors under this Part, a prospectus must be prepared for the offer…
s 741 (1) [Exemption or Declaration] ASIC may:
(a) Exempt a person from a provision of this Chapter; or
(b) declare that this Chapter applies to a person as if specified provisions were omitted, modified or varied as specified in the declaration.
The Evidence of Peter Grimshaw (A1)
Mr Grimshaw, a solicitor admitted in NSW, said he is currently employed by MBL as a Division Director for the Hong Kong operations of the Equity Markets Group of MBL, a position he has held since November 1999. For the immediately proceeding 5 years, Mr Grimshaw was employed as a lawyer in Sydney and London working primarily as legal counsel for the Equity Markets Group of MBL. In particular, his role included legal work on the conversion of the HYENA to an MBL badged product following the acquisition of the Australian investment banking business of Bankers Trust Australia Limited.
Mr Grimshaw explained that a HYENA is priced by reference to an underlying share selected from a list of shares quoted on the Australian Stock Exchange ("ASX") which are in turn selected by MBL. At the date of the issue of the HYENA, the investor will purchase a HYENA for a price equal to between 85% and 95% ("the Purchase Price Percentage") of the then market value of the underlying share. During the term of the HYENA, usually 3 months, the investor will earn interest at a specified rate based on the actual value of the underlying share on the ASX at that time. Mr Grimshaw gave the example of notional shares in company XYZ valued, at the date of issue of the HYENA at $10 (see also MBL's HYENA Information Memorandum (T12, p.64). If, at that time, the purchase price percentage for HYENAs linked to shares in XYZ is 90%, then the purchase price for each XYZ-linked HYENA would be $9 (that is, 90% of $10). Thus, if an investor were to invest $50,000 in XYZ-linked HYENAs at that time, he/she would be issued with 5,555 HYENAs (being the investment of $50,000 divided by the purchase price of $9).
Mr Grimshaw agreed that adjustment of the Purchase Price Percentage for the HYENA linked to particular shares, affected the actual return that investors would receive from the product. Thus, the lower the Purchase Price Percentage the higher the relative return on the HYENA.
Mr Grimshaw said that on the maturing of the HYENA:
(a)if the underlying share price on the ASX is greater than or equal to the original purchase price, the investor receives his or her principal back plus interest, or
(b)if the underlying share price on the ASX is less than the original purchase price attributed to the HYENA, then the investor is entitled to a cash maturity payment equal to the ASX closing price of the shares plus interest on the amount invested. However, rather than making the cash maturity payment to the investor, MBL is entitled to place the relevant number of underlying shares with the investor.
Thus, if the XYZ share price is greater than, or equal to the original purchase price, the investor receives his/her $50,000 plus interest. If the XYZ share price is less than the purchase price, say $7.50, the investor will be entitled to a "cash maturity payment" of $41,662.50 (being $5,555 multiplied by $7.50) plus interest (on the original $50,000 investment). However, rather than making the cash maturity payment to the investor, MBL may place 5,555 XYZ shares with the investor.
Mr Grimshaw explained that when an investor applies for a HYENA, the investor gives a revocable purchase order to MBL for the purchase of the number of shares. The purchase order becomes irrevocable 20 business days prior to the maturity of the HYENA. However, assuming that the purchase order has not been revoked, under the terms of the HYENA, MBL has an absolute discretion whether or not to place the relevant number of shares with the investor. If MBL does not do so, then it will pay the cash maturity payment to the investor.
The attraction of a HYENA is the higher return on the amount invested when compared to other more conservative investment products such as, for example, debentures. The risk that the investor bears for this greater return is that if, at maturity, the underlying share price is less than the purchase price, the investor may be forced to accept a placement of that number of shares. Moreover, the investor risks losing some or all of their principal. In the XYZ example, if the price of the shares fell to $7.50, the investor might be forced to "accept a placement" of 5,555 shares at the then market value of $7.50.
Mr Grimshaw admitted that he had never held any HYENAs himself. However, he might possibly invest in HYENAs, but this would depend on his assessment of risk according to the market volatility at the particular time. He said the expected volatility of a share will influence the Purchase Price Percentage which MBL determines in relation to a HYENA. He said that HYENAs are less risky than shares because with HYENAs the investor has the benefit of the margin between the Purchase Price Percentage and the market value of the share. In the XYZ example, this margin is 10%. The investor's original principal will not be affected unless the market value of a XYZ share falls more than 10%.
Mr Grimshaw acknowledged that under the terms of a HYENA, MBL acquires a "Put Option" to enable it to place shares with the investor. Given the possibility of such a placement if the value of a share falls, MBL, because it contemplates that in all but extraordinary circumstances it will place those shares with the investor, needs to protect itself by taking a raft of derivative actions in relation to the particular shares. Mr Grimshaw explained that MBL makes its money on HYENAs by "selling on" the Put Options purchased from HYENA investors to other investors and making a profit on the deal.
Mr Grimshaw said MBL wants to advertise HYENAs by providing an Information Memorandum (T12) which is not regulated by ASIC, without the need to issue a prospectus. MBL would be interested in attracting a wider range of investors, including for example self-managed superannuation fund investors. Nevertheless, the Information Memorandum includes various warnings about the risks involved. For example, on page 4 of the Memorandum, there is a statement:
This product is only suitable for investors who have had experience investing in the share market. Macquarie High Yield Equity Notes may be suitable for inclusion within self –managed superannuation funds. As with all investments relating to self-managed superannuation funds investors should seek advice as to the suitability of the investment.
In his statement (A1), Mr Grimshaw said MBL now only offers HYENAs to person who are "sophisticated investors" within the meaning of s 708(8) of the Act and persons to whom disclosure is not required by virtue of s 708(10) of the Act ("informed investors"). By offering HYENAs in this restricted manner, MBL believes that any doubt about the application of Chapter 6D of the Act is eliminated. However, such "sophisticated investors" and "informed investors" are only a relatively small portion of the potential market for HYENAs.
The application form for a HYENA in the case of initial applicants requires the certificate of a stock-broker or licensed financial adviser confirming that they have explained to the applicant the investment risks associated with the HYENA, including the risk of losing part or all of their principal amount. Mr Grimshaw acknowledged that if MBL were to go into liquidation, HYENA investors would rank with other unsecured creditors after ordinary depositors.
In cross-examination, Mr Grimshaw admitted that while the term "market value" is defined in the Information Memorandum (T12, p88), the Information Memorandum does not set out how the market value of the shares are to be calculated in the case of an early redemption. However, Mr Grimshaw said it is in MBL's interest in maintaining good investor relations to act fairly in relation to early redemption payments. Early redemption is not seen as a feature of the product because MBL prefer that the investor keeps the HYENA until the end of the term. He also acknowledged that the Information Memorandum does not inform investors that the market expectation is that Put Options will be exercised by MBL approximately 30% of the time. He agreed that the Information Memorandum does not mention that MBL's obligations with respect to HYENAs are not regulated by the Australian Prudential Regulation Association ("APRA"). He acknowledged that there are a number of matters not addressed in the Information Memorandum which would assist investors, but stated whether or not all these matters should be addressed was a matter of opinion.
MBL'S SUBMISSIONS
Mr Sheahan, for MBL, submitted that a HYENA is not a "debenture" within the meaning of the term in s 9 of the Act. This is because a HYENA comprises an undertaking to repay money deposited with it or lent to it in the ordinary course of its banking business (para (b) of the definition). However, even if HYENAs are not considered to be part of the ordinary course of MBL's banking business, Mr Sheahan submitted that s 708(19) applies. This sub-section provides that an offer of a body's debentures for issue or sale does not need disclosure to investors under Part 6 D if the body is an Australian ADI. Thus, he contended the prospectus provisions of the Act only apply to a HYENA if it has some additional character.
The issue to be considered is whether HYENAs are included in the definition of "securities" in s 92(3). In particular, does a HYENA fall within paragraph (e) of the definition? Is it an "option to acquire shares"? Mr Sheahan said that question should be answered in the negative because the investor is not given a "right" to acquire shares. A right in this sense means that the investor would be able to compel the sale of shares to him or her so that, using the current case as an example, MBL would have an enforceable obligation to place the shares with the investor. Mr Sheahan said this is not the situation with HYENAs. MBL has an absolute discretion as to whether or not to place the shares with the investor. If a HYENA is an option, it is an option held by MBL who places shares with the investor. This is not an "option to acquire a security" within the meaning of paragraph (e) of s 92(3). Mr Sheahan referred the Tribunal to the definition of "option" in Butterworth's Australian Legal Dictionary (Sydney: Butterworths, 1997). An option is stated to be:
"The right to buy or sell a specified asset at a particular price… A "Call Option" is a contract giving the Purchaser (taker) the right to buy an asset at a predetermined price on or before a specified date. A "Put Option" is a contract giving the Purchaser the right to sell an asset to the options seller."
In this case, MBL has acquired a Put Option to compel the investor to buy the shares. Because s 92(3)(e) only covers Call Options, where the investor has the right to buy a security at a predetermined price on or before a specified date, a HYENA, because it only involves Put Options and not Call Options, is not a "security."
Mr Sheahan said that if the Tribunal was to find that the issue of HYENAs is subject to the prospectus provisions in Chapter 6D of the Act, then MBL contends that the Tribunal ought to exercise ASIC's power under s 741(1) of the Act. This sub-section states:
ASIC may:
(a)exempt a person from a provision of this Chapter; or
(b)declare that this Chapter applies to a person as if specified provisions were omitted, modified or varied as specified in the declaration.
Mr Sheahan contended that the Tribunal should grant "comfort relief" in accordance with ASIC Policy Statement 51 on the ground that the operation of the Act is uncertain and commercially significant effects would flow from its application.
Mr Sheahan pointed to the practical difficulties for MBL in issuing a prospectus when the Purchase Price Percentage and interest rates related to particular listed shares are continually changing. Such information would have to be regularly updated. Mr Sheahan differentiated a HYENA from a similar product of UBS Warburg Australia Limited (Yield Enhanced Securities, R1) because with the latter's product the Purchase Price Percentage for all shares is always 100%. By contract, a HYENA's prescribed Purchase Price Percentage varies between 85% and 95%. This is what makes the HYENA an attractive product. Mr Sheahan noted that UBS Warburg is not an Australian ADI and their Yield Enhanced Securities do involve giving a Call Option to investors.
With regard to the regulatory issues raised by this matter, Mr Sheahan submitted that the mere fact of credit risk associated with an investment product does not necessarily require that a prospectus should be issued. Thus, for example, s 708(1) exempts "debentures" from the prospectus requirements. Mr Sheahan said that buying HYENAs is safer than buying shares on the market because of the percentage buffer in the share price and the guaranteed yield. It should be noted that a prospectus is not required for buying and selling shares on the stock market, although, of course, the market is subject to ASX regulation.
Mr Sheahan suggested that the Tribunal could make the exemption subject to certain conditions which would address ASIC's criticisms of the Information Memorandum. Alternatively, the Tribunal could declare, under s741(1)(b), that Chapter 6D applies to the issue of HYENAs but with a modification or variation so as to exempt the issue of HYENAs from the prospectus provisions. Mr Sheahan pointed to various statements in the Information Memorandum intended to make investors aware of the risk involved with HYENAs, even though such risk is less than that involved in the buying of a share.
ASIC'S SUBMISSIONSMr Castle, for ASIC, referred the Tribunal to the statement of Robert Mackintosh, dated 23 May 2001 (R3), whom MBL had not required for cross-examination. Mr Mackintosh is a Senior Manager in the Diversified Institutions Division of APRA. In his statement, Mr Mackintosh states that for ADIs, prudential regulation aims to minimise the risk that deposit-takers are unable, as a result of financial weakness, to meet their obligations to depositors. It does this through a range of means. A range of prudential standards and guidance notes apply to ADIs, covering matters including funds management. Mr Mackintosh concluded his statement:
HYENAs do not involve the characteristic pooling of risk involved in funds management. However, there are similarities in terms of the exposure of the investor to investment risk. APRA's regulatory framework is not designed to provided detailed disclosure of risks such as these to investors. This is the province of other regimes.
Mr Castle, referring to Mr Sheahan's point that the risks associated with a HYENA are less than those with a share, noted that with a HYENA, the investor is essentially locked in until maturity. The early redemption mechanism for HYENAs is "fuzzy" and early redemption is not encouraged by MBL. By contrast, a shareholder can always sell his or her shares.
Mr Castle emphasised that the prospectus requirements in Chapter 6D of the Act are to afford protection for investors. HYENAs are a complex investment product with the potential for very large losses. They are a security product with a potential for large losses. They are the very sort of security which should be regulated by the prospectus regime. He said that there are two questions for the Tribunal to address: firstly, do HYENAs require a prospectus, and, secondly, if so, should relief from the prospectus regime be granted under s 741(1) of the Act?
Mr Castle considered the essential features of a HYENA. He submitted that Mr Grimshaw's evidence had established that a HYENA involved an embedded Put Option for MBL. It provides a means of laying off risk of a fall in the market for particular securities. If the market falls, MBL can and usually will "Put" the shares to the investor: the investor grants MBL an option pursuant to which the investor acquires a share if the option is exercised. He contended that a HYENA involves an option to purchase a security – a share – and thus comes within the definition of "securities" in s 92(3)(e) of the Act.
Alternatively, Mr Castle said it could be argued that the investor has purchased a Call Option. The investor calls for the placement of shares with him/ her by binding him/herself in advance to the exercise of that option, although recognising that revocation is possible up to 20 business days before maturity. Even though MBL reserves an absolute discretion in deciding whether to place shares with the investor, Mr Grimshaw's evidence was that shares would almost always be issued except in extraordinary circumstances. Mr Castle contended that the defining characteristic of an option is the acquisition of a security and because a HYENA involves the acquisition of a security, it should be regarded as falling within paragraph (e) of the definition. He submitted that the Tribunal should adopt a purposive approach in its interpretation of paragraph (e) pursuant to s 15AA of the ActsInterpretation Act 1901. HYENAs should be considered as coming within the meaning of paragraph (e) because the acquisition of a share is involved. Thus, a HYENA is a "security" as defined in s 92(3) and the prospectus requirements of Chapter 6D apply.
Mr Castle argued that a HYENA is a hybrid security comprising both an option to acquire shares in a falling market and a debenture component. Mr Castle referred the Tribunal to the definition of "debenture" in s 9. He contended that a HYENA has some of the characteristics of a debenture, being an obligation to repay principal plus interest. He said this debenture component is not excluded from the definition in s 9 by paragraph (b) because the payment is not made by the investor to MBL "in the ordinary course of its banking business." The money is not part of MBL's deposit liabilities but, rather, part of a complex structure of options and derivatives which have an "investment" and not a "banking" flavour to them. Mr Castle referred the Tribunal to the decision in Punjab Co-operative Bank Limited, Amritsar Limited v Commissioner of Income Tax, Lahore [1940] AC 1055 at 1072–1073, where the Privy Council emphasised that the essence of the ordinary business of a bank is:
dealing with money and credit. Numerous depositors place their money with the bank, often receiving a small rate of interest on it. A number of borrowers receive loans of a large part of these deposited funds, at somewhat higher rates of interest. But the banker has always to keep enough cash or easily realisable securities to meet any probably demand by the depositors.
Mr Castle also referred the Tribunal to the decision of the Full Federal Court in Commissioner of Taxation v Hyteco Hiring Pty Ltd. (1992) 39 FCR 502 where Hill J. with whom the other two judges agreed stated at 513:
It may well be that the proper characterisation of a banking business for example is both banking and investing. But whatever be the correct characterisation of a banking or insurance business, the making and realising of investments is so integral to the banking for insurance business that a profit on realisation will form part of the income of banking or insurance business.
Mr Castle contended that the core of the banking business is the taking of deposits. HYENAs are not part of its ordinary banking business and, therefore, are, in part at least, debentures. He said that the issue of a complex, hybrid debenture product of the nature of a HYENA cannot be regarded as being within the ordinary course of banking business. Because a HYENA includes a component of debenture, this brings it within paragraph (b) of the definition of "securities" in s 92(3) of the Act.
Mr Castle said that assuming a HYENA has a debenture component, the question which then arises is whether the exemption in s 708(19) applies. Although this sub-section excludes the issue of a debenture by an Australian ADI from the prospectus requirements, this exclusion should be narrowly construed or apply to securities which comprise a debenture only and nothing else. This is not the case with HYENAs which cannot be characterised as mere debentures as they incorporate another form of security, namely, an option to acquire the underlying shares. Accordingly, by creating a hybrid instrument, MBL have created an instrument which is outside the ambit of the exemption in s 708(19).
With regard to the power to issue an exemption under s 741(1), Mr Castle said that Mr Grimshaw's concerns about the practicality of MBL complying with the prospectus requirements was exaggerated. It is not impractical to design a prospectus recognising the need to up-date the document to reflect changes in market conditions. The UBS Warburg Prospectus demonstrates that this can be achieved. For example, in the case of debentures, an exemption can be issued under s 741(1) to enable separate information by way of an update addressing market conditions to be issued. This might take the form of a loose leaf insertion.
FINDINGS AND APPLICATION OF THE LAWThe first issue for the Tribunal to determine is whether HYENAs are "securities" within the meaning of s 92(3) of the Act. This requires a consideration of whether HYENAs are debentures, options to acquire shares, or a hybrid with components of both.
The term "debenture" is defined in s 9 as a chose in action that includes an undertaking by the body to repay as a debt money deposited with or lent to the body. However, the definition states that a debenture does not include:
(b)an undertaking by an Australian ADI to repay money deposited with it or lent to it, in the ordinary course of its banking business;
The HYENA is a complex hybrid product which is relatively difficult to understand and involves a number of contingencies. The interest paid is by reference to individual shares listed on the ASX and their perceived volatility. Repayment of the principal is by reference to the market value of the share at the date of maturity and can involve a placement of shares with the investor, rather than the repayment of the principal itself. While the Tribunal notes the Full Federal Court decision in Commissioner of Taxation v Hyteco (supra), stating that banking business includes both banking and investing, in the Tribunal's view, the complex hybrid character of a HYENA takes it outside the ordinary course of the banking business of an Australian ADI. Thus, it is unnecessary for the Tribunal to consider the application of s 708(19) exempting debentures from the prospectus requirements of Chapter 6D.
Secondly, is a HYENA an option to acquire a share so that it comes within the definition of securities in s 92(3)(e)? The Tribunal notes from the definition of "option" in the Butterworths Australian Legal Dictionary that an option involves a right to buy or sell a specified asset at a particular price. A "Call Option" is a contract giving the purchaser the right to buy an asset at a particular price, whereas a "Put Option" is a contract giving the purchaser the right to sell an asset at a particular price. Mr Sheahan also referred the Tribunal to a number of other sources including: Halsbury's Laws of England (London: Butterworths 4th Edition 1985), volume 45, paragraph 14; Spiro v Glencrown Properties Limited [1999] Ch 537 at 543; and Sydney Futures Exchange Limited v Australian Stock Exchange Limited (1995) 56 FCR 236 at 260-261, where these terms are defined.
The Tribunal finds that a HYENA involves a Put Option in that MBL has a right to place shares with the investor if the underlying value of the shares falls below the Prescribed Purchase Percentage at the date of maturity. This was acknowledged by Mr Grimshaw and did not seem to have been disputed by ASIC. The investor has no enforceable right to acquire shares because the decision to place shares with the investor, if the underlying value of the share at the date of maturity has fallen below the Prescribed Purchase Percentage at the date of maturity, is within the absolute discretion of MBL. Indeed, the only degree of choice open to the investor is that of revoking the direction by which the investor instructs MBL to place shares with the investor should the underlying value of those shares fall below the prescribed purchase price percentage. This revocation must be by written notice to MBL at any time up to 20 business days before the date of maturity. A HYENA may also be redeemed early, although not earlier than after the first 10 business days from the date of issue nor later than 10 business days prior to the maturity date. Early redemption automatically revokes the direction to place shares although it should be noted that the "early redemption payment", which means the market value of the HYENAs at the close of business on the day on which the notice is received, is determined by MBL in its absolute discretion, less a fee of $500 per listed entity.
The Tribunal is sympathetic to the proposition put forward by ASIC that, because of the complex hybrid character of HYENAs, these are just the sort of security which should regulated by the prospectus regime in order to afford appropriate investor protection. The Tribunal is also cognisant of s 15 AA (1) of the Acts Interpretation Act 1901 by which a purposive construction is to be preferred. However, the Tribunal notes paragraph 8.39 of the Explanatory Memorandum for the relevant amending legislation referred to by ASIC in its Statement of Facts and Contentions, which states:
The fundraising provisions will not apply to options to sell a security, known as a put option. This is because the fundraising provisions seek to regulate people who make securities available. Put options, however, are issued by the person who has the obligations to buy the securities and are more appropriately regulated by other provisions of the Law.
In the Tribunal's view, the literal meaning of the words of s 92(3)(e) are clear and unambiguous and do not apply to an investor who acquires a call option. Legislative amendment to the definition of "securities" will, in the Tribunal's view, be required for MBL HYENAs to be covered by this definition.
The Tribunal therefore concludes that the prospectus requirements of Chapter 6D of the Act do not apply to MBL HYENAs. Having so determined, it is unnecessary for the Tribunal to consider whether to exercise ASIC's power to exempt and modify under s 741(1).
The Tribunal sets aside the decision under review and remits the matter to ASIC with a direction that MBL HYENAs are not "securities" within the meaning of s 92(3) of the Corporations Act 2001.
I certify that the 48 preceding paragraphs are a true copy of the reasons for the decision herein of Mr R P Handley, Deputy President
Signed: .....................................................................................
AssociateDates of Hearing 17 & 18 September 2001
Date of Decision 18 October 2001
Counsel for the Applicant Mr J Sheahan
Solicitor for the Applicant Mr G Foster, Allens Arthur Robinson
Counsel for the Respondent Mr T CastleSolicitor for the Respondent Ms C Cuneo, Australian Securities & Investments Commission
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