Exceptions to the 20% rule
- There are various exceptions to the 20% rule.
- These exceptions include acquisitions of relevant interests: under a takeover bid, under a scheme of arrangement, with target securityholder approval, under a creep acquisition (ie. 3% every 6 months), under a downstream acquisition (ie. acquisitions of shares in listed entities which hold securities in a target), under a rights issue, or as a result of exercising a security interest.
The 20% rule operates as a limit on how much a person can acquire in an ASX-listed company or trust. Moving beyond that threshold can only be done through one of a number of specified exceptions. Unlike other jurisdictions, there is no ‘mandatory bid’ concept in the Australian rules that allows a person to acquire a securityholding or other relevant interest of more than 20% on the basis that a follow-on general offer is made to all target securityholders.
The following acquisitions of relevant interests in voting securities are exempted from the 20% rule.
Acquisition arising from acceptance of a takeover bid in accordance with Chapter 6 of the Corporations Act. This is discussed further in section 7. (Acquisitions on-market during a takeover bid are also permitted in limited circumstances.)
Scheme of arrangement
Acquisition arising from a court-approved scheme of arrangement. This is discussed further in section 8.
Acquisition approved by an ordinary resolution of securityholders of the relevant entity. The following persons cannot vote in favour of the resolution: the acquirer, the acquirer’s associates, the ‘sellers’ and the sellers’ associates. This exception cannot (without ASIC relief) be used to acquire 100% of an entity because all target securityholders would be excluded from voting in favour of the resolution. The exception is more commonly used for new security issuances (ie. where new funds are injected into the entity), rather than to transfer existing securities which normally does not provide any direct benefit to securityholders other than the seller.
Acquisitions of up to 3% every 6 months from a starting point above 19%. Note that a person who has acquired more than 20% under another exception must wait 6 months before it can make acquisitions under this exception.
Acquisition resulting from the acquisition of securities in an ‘upstream’ entity (ie. one which is listed on the ASX or on a specified foreign exchange) which itself has a relevant interest in a ‘downstream’ ASX-listed company or trust.
However, a downstream acquisition may be considered unacceptable by the Takeovers Panel where control of the downstream company appears to be a significant purpose of the upstream acquisition (eg if the shares in the downstream company comprise over 50% of the upstream company’s assets).
Acquisition resulting from pro-rata rights issues to securityholders. This exception extends to underwriters of such rights issues. However, a purported reliance on the rights issue exception may be found unacceptable by the Takeovers Panel where the control effect of a rights issue exceeds what is reasonably necessary to raise funds.
Acquisition resulting from enforcement of security interest taken over securities in the ordinary course of the acquirer’s ordinary course of business of the provision of financial accommodation.
Foreign Investment in Australia
Managing complex foreign investment approvals for those investing into Australia from overseas, expanding existing Australian business through acquisitions, or running a sale process that will attract foreign interest.
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