ASIC Class Order [CO 05/84]

Overview

The ASIC Class Order [05/84], enacted in 2005, was established under the Corporations Act 2001 to address a specific legislative gap concerning downstream acquisitions of shares in Australian companies. The Act generally prohibits increases in voting power in listed companies that surpass certain thresholds, unless certain conditions are met. The Class Order was introduced to allow exceptions for acquisitions that result from upstream acquisitions on approved financial markets, thereby preventing companies from using downstream holdings as a takeover defence mechanism. The Australian Securities and Investments Commission (ASIC), acting under the authority of the Parliament, has the power to approve foreign financial markets that meet specific criteria, which are designed to ensure that such acquisitions are not used as a means to circumvent Australian takeover regulations. ASIC's policy objective, as stated in Information Release [IR 01/3], is to promote the integrity and seriousness of upstream acquisitions by requiring that the foreign markets have rules comparable to those of the Australian Securities Exchange (ASX). The Class Order specifically approves the JSE Securities Exchange of South Africa, following a determination by ASIC that it meets the established criteria.

Scope and Application

The ASIC Class Order [05/84] applies specifically to the JSE Securities Exchange South Africa, approving it as a foreign body conducting a financial market for the purposes of item 14 of section 611 of the Corporations Act 2001. This Act governs the acquisition of interests in entities and companies listed on or seeking to be listed on Australian financial markets. The Class Order is designed to facilitate downstream acquisitions that result from upstream acquisitions on approved foreign markets, thereby allowing foreign entities to make acquisitions in Australian companies without triggering Australian takeover regulations. The scope of this Class Order is limited to the approval of the JSE as a foreign financial market, extending the existing framework established by ASIC that recognises certain foreign markets as safe harbours for downstream acquisitions. This approach helps in ensuring that acquisitions through such markets are genuine and not used as a means to circumvent Australian takeover laws. The approval is based on the criteria set out in ASIC's Information Release [IR 01/3], which includes considerations such as whether the foreign market adheres to rules that meet Australian listing principles. The geographic reach of this legislation is national, impacting entities and individuals involved in cross-border acquisitions that involve Australian companies.

Key Provisions

The ASIC Class Order [05/84] pertains to the Corporations Act 2001 and specifically addresses item 14 of section 611, which allows for variations in approval for certain acquisitions that may otherwise be restricted under section 606. Under section 606 of the Act, it is generally prohibited for a person to acquire a voting interest in a listed company that would increase their voting power from 20% or below to more than 20%, or from a starting point above 20% and below 90%. However, item 14 of section 611 provides an exception to this rule, allowing such acquisitions if they occur as a result of an acquisition of interests in another entity on certain financial markets, known as "downstream acquisitions." These acquisitions must result from an "upstream acquisition" of an interest in another entity that holds shares in the Australian company, and must take place on a prescribed financial market or a foreign body conducting a financial market approved by ASIC. This exception is designed to streamline the process and prevent the use of downstream holdings as a takeover defence. In approving the JSE Securities Exchange South Africa as a foreign body conducting a financial market, the Class Order [05/84] adds the JSE to the list of approved entities under item 14 of section 611. This decision was based on ASIC's satisfaction that the JSE meets the criteria set out in Information Release [IR 01/3]. ASIC evaluates whether the foreign market has rules that align with ASX's listing principles, including size and spread requirements, to ensure that the upstream acquisition is a serious bid involving a substantial company with a large number of shareholders and is less likely to be an artifice to gain control without complying with Australian takeovers regulation. The obligations imposed by this Act on the parties it governs primarily involve ensuring compliance with the conditions set out for downstream acquisitions. Financial markets approved by ASIC, such as the JSE, must adhere to the criteria established by ASIC to maintain their approval status. This includes meeting certain regulatory standards and listing principles that are consistent with Australian practices. Furthermore, any entity engaging in acquisitions under this exception must do so on approved financial markets to benefit from the streamlined process. Breach of the provisions outlined in the Corporations Act 2001 can lead to various civil or criminal consequences. For instance, if a person or entity engages in acquisitions that contravene the restrictions set out in section 606 without the appropriate exception under item 14 of section 611, they may face penalties. The exact penalties can vary, but they may include fines and, in more severe cases, criminal charges. The severity of the penalties is determined by the nature and extent of the breach, as well as any other relevant circumstances. The aim is to enforce compliance with the takeover regulations and maintain the integrity of the financial market.