In relation to Chapter 6 of the Corporations Act, what are the features of the rules or practices, which have been developed to deal with takeovers? To what extent does the regulatory regime achieve its objectives? Are these objectives socially desirable?
1) Introduction
Takeover or the acquisition of interests in a company to obtain control for crucial decision-making purposes received attention by the legal community with the enactment of the Corporations Act 2001. This is particularly because of the business context of the divided view over the efficiency and contribution of takeovers to various interested parties[1] such as the investors, the company from which shares are being put-up for sale, and the community at large potentially benefiting from the multiplier effect of investments through the purchase of company shares. In many instances, conflicts arise in the interplay of these interests due to the assertion of the players of their own well-being since control over the company is primarily at stake indicating a certain degree of weariness over the decision to be made upon the acquisition of control of investors. To balance the interests of the parties involved, the Corporations Act 2001 seeks to provide rules covering the achievement of fairness in takeovers.
2) Features of the Rules or Practices Developed to Deal with Takeovers
Chapter 6 of the Corporations Act 2001 provides for the legally and illegally compliant ways for companies to give effect to turnovers so that companies complying with the legal rules in effect minimize risks for individual investors that in turn encourages the engagement of people in investments influencing economic growth[2]. This means that through the operation of the statute, fairness exists through the protection of the interests of shareholders while at the same time advocating the gains of companies from capital inputs to create more economic activities. This further implies that compliant turnovers tip the scale in favour of the beneficial effects of the business process to the parties involved. Compliance means meeting requirement provisions to facilitate an effective turnover such as status of the purchasing and the selling entities[3] and necessary documents[4] for transparency in the turnover[5] together with procedural provisions[6]. Without the guiding provisions of the statute, Wallis Ltd would be in the dark as to the prerequisites and the processes it has to follow in order to be legally compliant in effecting the turnover, which could result to the failure of the turnover or the turnover working against the company’s interests.
The statute also identifies liabilities and provides remedies for investors[7] in instances working inequitably for them such as the inconsistencies in the prospectus of the company with its performance in the future[8]. To protect shareholder rights, the law allows investors to seek remedies in case the small-scale technology-based firm, after seeking stock exchange listing and issuing prospectus to shareholders, indicating a misstatement in the disclosure document since the information and future forecasts contained in the document did not push through[9]. Although the company has several defences available[10], a finding of contravention of the disclosure rules translates to the remedies of withdrawing money or returning securities subject to a refund[11]. The severity of the impact of the remedy to the company motivates the diligent disclosure of accurate information.
The statute creates balance of interests to protect the interests of small investors while at the same time providing for compulsory acquisition or exceptions to acquisition following a takeover bid subject to certain requirements[12] in instances benefiting the company. Acquisition of shares goes through regulation by the limiting rule prohibiting the acquisition of relevant interests in voting shares[13] so that A Ltd is limited from acquiring Harry’s 2 percent holdings because of the beneficial holdings in T Ltd. However, the acquisition may push through if the transaction follows the acceptance of the offer in the takeover bid[14]. The Corporation Act 2001 is all about cautious transactions by providing important considerations during takeovers, so that Wallis’ acquisition of shares through a subsidiary company, involves the offer, the offer period, and documents about Wallis but limited only to the extent of determining pre-existing interests of the company in Duff Beer Ltd, and other considerations expected to assist Dan in deciding the offer for purchase of shares.
3. Extent that the Regulatory Regime Achieved its Objectives
Overall, Chapter 6 of the Corporation Act 2001 works towards the achievement of statutory and socio-economic objectives. Statutory objectives refer to the simplification of the provisions to achieve greater applicability and clarify the nature of turnover[15] while socio-economic objectives cover the protection of investor or shareholder rights in order to catalyse economic growth[16]. With regard to the first set of objectives, the statute was able to clarify requirement and procedural aspects of takeover activities. However, it allows the circumvention of its provisions such as the instances allowing the achievement of turnovers as schemes of arrangement instead of falling under the regulatory limits of the law[17].
In relation to the socio-economic objectives, the legislation was able to regulate turnovers in order to protect the interests of small investors or shareholders. However, in doing so the regulations were not sufficient to uphold interests, either due to the provisional or viability limitations of the act, of small investors so that big investors and shareholders still remain as the biggest beneficiaries of the law[18].
4) Social Desirability of Objectives
The social desirability of these objectives depends upon the perspective of different parties in interest. The simplification and applicability of the corporation law enhances the salience of the rule of law by providing rule, limitations and remedies governing turnovers. Protection of the interests of investors, especially small shareholders serves as incentive for investors to engage in ventures supporting economic growth. Regulation benefits large investors in thinning competition due to the requirements and limitations. However, in practice these objectives become viable only if these limitations mentioned in the previous section are addressed to prevent circumvention of the law[19] and the defeat of the rights of shareholders[20] by parties having greater bargaining power.
5) Conclusion
Chapter 6 of the Corporation Act 2001 comprise a substantially sound legislation as expressed through its applicability in certain cases. However, it remains far from becoming simple and viable because applicable and effective rules need to provide doable or practical steps and guidelines nor is the statute socially viable since the application of the law works for the benefit of large investors despite the recognized significance of small investors in economic growth. Perhaps this calls for legal reform or jurisprudence.
6) References
Secondary Sources
Legislation
Corporation Act 2001
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