ASIC Class Order [CO 00/2338]

Overview

ASIC Class Order [CO 00/2338] was enacted under the Corporations Act 2001 to provide relief from the minimum bid price principle, thereby allowing for more flexibility in takeover bids. This legislative instrument was issued by the Australian Securities and Investments Commission (ASIC) to modify the minimum bid price principle in section 621(3) of the Corporations Act. The policy objective behind this class order is to ensure fairness and efficiency in the operation of financial markets by allowing bidders to adjust their offer prices in certain circumstances, such as when there has been a decrease in the value of securities due to a dividend declaration or share conversion by the target company. This approach aims to prevent bidders from being unfairly disadvantaged by market fluctuations that occur before the bid is made, while still protecting the interests of shareholders by maintaining a minimum bid price principle in most cases.

Scope and Application

ASIC Class Order [CO 00/2338] provides relief from the minimum bid price principle under the Corporations Act 2001, modifying certain aspects of the Act's application to takeover bids. This legislation applies to all bidders engaging in takeover activities under the Act, with specific provisions allowing for modifications to the minimum consideration offered during a bid. Notably, it permits bidders to offer consideration less than the maximum consideration offered in the four months prior to the bid under certain conditions, such as a decrease in the value of securities due to the target company declaring a cash dividend or converting its shares. Additionally, it allows for varying the consideration offered to wholly-owned subsidiaries, holding companies, or their subsidiaries, and nominees or bare trustees, subject to written consent acknowledging the reduced value. The geographic reach of this legislation is national, as it is issued under the Commonwealth's authority through the Corporations Act 2001. This Class Order extends to all approved financial markets listed within its provisions, providing a broad jurisdictional scope. The legislation does not explicitly state any exclusions or thresholds but allows for the modification of the minimum bid price principle through subordinate instruments, thereby enabling further regulation and adjustments as necessary.

Key Provisions

The ASIC Class Order [CO 00/2338] modifies the Corporations Act 2001 (the “Act”) by inserting new subsections (3A, 3B, 3C, 4A) into section 621, which deals with takeover bids. Subsection (3A) allows the consideration offered for securities in a bid class under a takeover bid to be less than the maximum consideration offered in a purchase or agreement during the 4 months before the bid, provided the decrease in value resulted from the target declaring a cash dividend or converting shares into a larger number. Subsection (3B) permits a bidder to offer consideration that is less than the maximum consideration under a purchase or agreement during the 4 months before the bid if the offer is made to a wholly-owned subsidiary, holding company, or nominee or bare trustee of bid class securities, with written consent from the body to acknowledge the reduced value. Subsection (3C) defines a wholly-owned subsidiary for the purposes of subsection (3B). Subsection (4A) allows the bidder to ascertain the value of quoted securities offered as consideration at any time up to 5 business days before the bid date, provided the value is calculated based on the volume weighted average market price of those securities in ordinary trading during the 2 full trading days before the chosen time, and the period of trading for valuation does not start until at least 5 trading days after the bidder sends the bidder's statement and offer document to the target and each relevant approved financial market. The ASIC Class Order imposes several obligations on parties involved in a takeover bid. Bidders must ensure that any decrease in the value of securities offered as consideration was due to a qualifying event, such as a cash dividend or share conversion, and that the relevant financial market has adjusted its quotation basis accordingly. If offering consideration to a wholly-owned subsidiary, holding company, or nominee or bare trustee, the bidder must obtain written consent acknowledging the reduced value. Bidders must also ascertain the value of quoted securities offered as consideration up to 5 business days before the bid date, using the specified valuation method and including the necessary details in the bidder's statement. Breaches of the ASIC Class Order can lead to various civil and criminal consequences. While the specific penalties for breaching this class order are not detailed in the provided text, general penalties under the Corporations Act can include fines and imprisonment. For example, under section 1311 of the Act, a person who contravenes a civil penalty provision can be fined up to $222,200 for a corporation and $44,440 for an individual, with additional penalties for ongoing breaches. Criminal penalties can include fines and imprisonment, with the exact penalties depending on the specific breach and relevant sections of the Act. The ASIC Class Order [CO 00/2338], as amended, provides specific relief from the minimum bid price principle for certain takeover bids, allowing for flexibility in the consideration offered under certain conditions. It is important for parties involved in takeover bids to understand and comply with these provisions to avoid potential civil and criminal penalties.