Approval to hold a stake of more than 20% in a financial sector company No. 6 of 2021

Overview

The Financial Sector (Shareholdings) Act 1998, enacted by the Parliament of Australia, was introduced to regulate significant shareholdings in financial sector companies, ensuring that such shareholdings do not compromise the stability and integrity of the financial system. The Act aims to safeguard the national interest by requiring certain shareholders to obtain approval from the Treasurer before acquiring or increasing their stake in a financial sector company beyond specified thresholds. The legislation was designed to address the gap in regulatory oversight of substantial shareholdings in the financial sector, which could potentially lead to undue influence or risk to the financial system. In the case of F2021N00079, the Financial Sector (Shareholdings) No. 6 of 2021 notifiable instrument, the Treasurer’s delegate, Therese McCarthy Hockey, granted approval for National Australia Bank Limited to hold a 100% stake in 86 400 Holdings Ltd, effective from 27 April 2021 until 30 April 2024. This approval was contingent upon the Federal Court approving a scheme of arrangement related to the acquisition of the financial sector company’s shares. The policy objective, as stated in the Act, is to ensure that any significant shareholdings are in the national interest, thereby maintaining the stability and integrity of the financial sector.

Scope and Application

The Financial Sector (Shareholdings) Act 1998 applies to any entity seeking to acquire a stake of more than 20% in a financial sector company, which is defined in section 3 of the Act. This includes banks, insurance companies, and other entities regulated by the Australian Prudential Regulation Authority (APRA). The Act operates on a national level, applying across Australia and overseen by the Treasurer or their delegate. The Act does not specify exclusions or exemptions, but it does allow for the application to be subject to certain conditions, as illustrated in the approval for National Australia Bank Limited to hold a stake of 100% in 86 400 Holdings Ltd. This approval is contingent on the Federal Court approving a scheme of arrangement related to the acquisition. The Act can extend its application through subordinate instruments, as evidenced by the flow-on approvals for related entities as per section 19 of the Act.

Key Provisions

The key operative sections of the legislation concern the approval process for the acquisition of more than 20% in a financial sector company. Specifically, under section 13(1) of the Financial Sector (Shareholdings) Act 1998, the applicant, National Australia Bank Limited, has applied to the Treasurer for approval to hold a stake of more than 20% in 86 400 Holdings Ltd. In response, the delegate of the Treasurer, Therese McCarthy Hockey, has granted approval for the applicant to hold a 100% stake in the financial sector company, subject to conditions set out in the schedule (subsection 16(1)). The obligations imposed on the parties under this Act include the requirement for the applicant to seek and obtain approval from the Treasurer before acquiring more than a 20% stake in a financial sector company. Furthermore, the approval is conditional upon obtaining the approval of the Federal Court of Australia for a scheme of arrangement under Part 5.1 of the Corporations Act 2001, which pertains to the proposed acquisition of all issued share capital in the financial sector company by the applicant (Schedule). This condition must be fulfilled in relation to applications filed with the Federal Court in March 2021. In terms of offences, penalties, or consequences for breach, the legislation does not specify explicit criminal or civil penalties for non-compliance with the approval or conditions outlined in the schedule. However, failure to comply with the conditions set by the Treasurer or to obtain the required court approval could potentially result in the nullification of the approval granted, leading to the applicant being unable to proceed with the acquisition. Additionally, any failure to meet the conditions could have implications for the applicant's standing and compliance with financial sector regulations, which might attract regulatory scrutiny or further action from the relevant authorities, such as the Australian Prudential Regulation Authority (APRA).