Allstate Explorations NL and Australian Securities and Investments Commission and Anor [1999] AATA 1019 (24 December 1999)

Last Updated: 10 January 2000

DECISION AND REASONS FOR DECISION [1999] AATA 1019

ADMINISTRATIVE APPEALS TRIBUNAL )

) No N99/1717

GENERAL ADMINISTRATIVE DIVISION )

Re ALLSTATE EXPLORATIONS NL

Applicant

And AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Respondent

And SABATICA PTY LIMITED

Joined Party

DECISION

Tribunal Mr BJ McMahon (Deputy President)

Date 24 December 1999

Place Sydney

Decision The decision under review is set aside and the matter is remitted to the respondent for reconsideration if an application for restricted relief is made.

(Sgd) B J McMahon

..............................................

Deputy President

CATCHWORDS

CORPORATIONS - takeover bid of a parent company in New Zealand (NZ) - downstream and upstream acquisitions - acquisition of ordinary shares under section 629 of Corporations Law (CL) - application of section 615 CL in a takeover bid of an upstream company - application of Australian Securities and Investments Commission (ASIC) Policy Statement 71 - unrestricted or restricted relief - relevance of Corporate Law Economic Reform Program Act 1999 (CLERP) - whether the application of section 730 allowing unrestricted relief failed to apply Policy Statement 71 - whether the shares in downstream company comprise a substantial part of the assets of the parent - whether control of downstream company is the main purpose of takeover or merger - whether there has been a comparable level of investor protection - relevance of international comity

Corporations Law ss 615, 629, 728, 730(1), 731, 731(d),

Companies (Acquisition of Shares) Code (CASA) s 12(k)

Australian Securities and Investments Commission (ASIC) Policy Statement 71 (PS 71)

Corporate Law Economic Reform Program Act 1999 (CLERP) s 606, item 14 of table in s611

Corporate Law Economic Reform Program Bill 1998

BTR Plc v Westinghouse Brake and Signal Company (Australia) (1992) 34 FCR 246

Re Minister for Communications ex parte NBN Limited (1986) 14 FCR 344

Re Drake and Minister for Immigration and Ethnic Affairs (Number 2) 2 ALD 634

REASONS FOR DECISION

Mr BJ McMahon (Deputy President)

1. This is an application to review a decision of the respondent (ASIC) made on 8 October 1999 to make a declaration under subsection 730(1) of the Corporations Law (CL) modifying the operation of CL 629 in relation to the acquisition by the joined party (Sabatica) of a relevant interest in the ordinary shares of the applicant by virtue of the acquisition of ordinary shares in Otter Gold Mines Limited (Otter).

2. CL 615 prohibits any person from acquiring more than 20% of the voting shares in a company having more than 15 members, unless the acquisition is made in accordance with one of a number of permitted methods. Thus, if Sabatica acquired a relevant interest in more than 20% of the shares in Allstate through the acquisition of its parent, Otter, it would be in breach of CL 615 were it not for other provisions.

3. CL 629 exempts from the prohibition in CL 615 certain "downstream" acquisitions of shares, that is an acquisition of shares in company B (the downstream company) resulting indirectly from an acquisition of shares in company A (the upstream company). CL 629 has application, however, only when the upstream company is incorporated in Australia. Otter is incorporated in New Zealand. In order to avoid the necessity of a chapter 6 takeover offer for the shares of the subsidiary, Allstate, it was therefore necessary for Sabatica to obtain a declaration under CL 730 modifying the operation of chapter 6 in relation to the proposed acquisition of shares in Otter. The modification applied for, and granted, was unconditional. The acquisition by Sabatica of ordinary shares in Allstate as a result of a takeover or exchange transactions by Sabatica was, in effect, exempted from the restrictions imposed by CL 615.

4. ASIC is empowered by CL 730 to modify or vary specific provisions in chapter 6. In exercising this power, however, it is obliged to take account of certain matters often referred to as the Eggleston Principles. CL 731 set these out as follows:

"731 In exercising any of its powers under section 728 or 730, the Commission shall take account of the desirability of ensuring that the acquisition of shares in companies takes place in an efficient, competitive and informed market and, without limiting the generality of the foregoing, shall have regard to the need to ensure:

(a) that the shareholders and directors of a company know the identity of any person who proposes to acquire a substantial interest in the company;

(b) that the shareholders and directors of a company have a reasonable time in which to consider any proposal under which a person would acquire a substantial interest in the company;

(c) that the shareholders and directors of a company are supplied with sufficient information to enable them to assess the merits of any proposal under which a person would acquire a substantial interest in the company; and

(d) that, as far as practicable, all shareholders of a company have reasonable and equal opportunities to participate in any benefits accruing to shareholders under any proposal under which a person would acquire a substantial interest in the company;

but nothing in this section requires the Commission to exercise any of its powers in a particular way in a particular case."

5. It is the principal complaint of Allstate that insufficient weight has been given to the considerations in paragraph (d) above. Its case is that the declaration deprives the shareholders of Allstate (other than Otter) from participating in any share premium applicable in the takeover.

6. Prior to the enactment of the CL on 1 January 1991, the acquisition of voting shares of an Australian company having more than 15 members was governed by the Companies (Acquisition of Shares) Code (CASA). The equivalent exemption in CASA to CL 629 was section 12(k). Under that section, any acquisition of shares in a downstream company incorporated in Australia, as a result of acquisition of shares in another listed corporation, wherever incorporated, (the upstream company) was permitted. By restricting the exemption to Australian companies CL is therefore narrower than CASA. This fact was noted in BTR Plc v Westinghouse Brake and Signal Company (Australia) (1992) 34 FCR 246. That case formed the background to the introduction by the predecessor of ASIC of Policy Statement 71 (PS 71) dealing with downstream acquisitions. That policy was issued on 15 November 1993, was updated on 1 July 1996 and is still in effect today. It was designed to provide guidelines for decision makers and for the commercial community in making applications under CL 730 so as to ensure uniformity in decision making as far as possible.

7. Relevant extracts from the policy are as follows:

"PS 71.1 In this Policy Statement, the ASC sets out the extent to which it will use its discretionary power under s730 of the Corporations Law (Law) to modify s629. Modification is needed for it to apply to the acquisition of shares in an Australian company (downstream acquisition) as a result of the acquisition of shares in a foreign body corporate, listed overseas or in Australia (upstream acquisition). It also discusses how it will consider applications in relation to downstream acquisitions as a result of the acquisition of shares in an unlisted foreign body corporate.

...

PS 71.4 The prime reason for granting relief to offerors for foreign upstream bodies corporate is to ensure that Australia meets its obligations in relation to international comity. Where the purpose of the upstream acquisition is not to avoid the provisions of the Law, Australian legislation should not impeded a bona fide, and otherwise lawful, takeover offer for a listed foreign body corporate. International comity requires Australia to strive for economic efficiency in international as well as Australian capital markets. Australian regulatory requirements should not impose excessive costs or obstacles on primarily foreign business transactions unless there is clear need for Australian investor protection. International comity requires ASC to ensure that Australian securities regulation is not used as an improper takeover defence by foreign bodies corporate. International comity also requires that Australian securities regulation similarly does not inhibit the liquidity and efficiency of foreign security markets.

...

PS 71.9 The ACS considers that the legislature did not intend in either s629 or s17(k) to prohibit entirely relief for bona fide upstream foreign acquisitions. The sections reflect a policy decision by the legislature that it is not appropriate for the Law to set out which overseas jurisdictions provide shareholder protection comparable to Ch 6 of the Law. It is more appropriate for that to be done at the administrative level, in relation to particular foreign laws as they apply to particular cases from time to time.

...

PS 71.11 Section 731(d) of the Law does not support the proposition that an offeror for a foreign listed body corporate should be required to make a takeover offer for Australian subsidiaries of the target. Section 731(d) requires the ASC to have regard to the need to ensure "that, as far as practicable, all shareholders of a company have equal opportunities to participate in any benefits accruing to shareholders under any proposal under which a person would acquire a substantial interest in the company". The policy of s731(d) is not defeated by a downstream acquisition as a result of a bona fide foreign takeover, because there is no unequal treatment of shareholders. The vendors into an upstream bid do not directly hold shares in the downstream company, and cannot be regarded as shareholders in the downstream company in an extended sense, unless the foreign takeover is an artifice and the downstream acquisition is one of its main objects.

...

PS 71.13 The ASC may modify s629 to extend its relief to a downstream acquisition in an Australian company resulting from a takeover of, or a merger involving, a foreign listed body corporate. The ASC will grant the relief without any acquisition or voting restrictions and without a requirement for the applicant to make a downstream bid ("unrestricted" relief) if:

(a) the applicant does not propose such restrictions or such a condition;

(b) the shares in the downstream company do not comprise a substantial part of the assets of the upstream body corporate;

(c) control of the downstream company is not one of the main purposes of the takeover or merger of the upstream body corporate;

(d) the upstream acquisition is by way of a takeover or merger which is legal in the jurisdiction in which it takes place; and

(e) the jurisdiction in which the upstream takeover or merger is made, or the stock exchange on which it is made, affords a comparable level of investor protection to that under the Law and the rules of ASX.

...

PS 71.15 The ASC will normally regard 50% as the threshold for determining whether the downstream shares constitute "a substantial part of the assets of the upstream body corporate". If the market value of the downstream shares constitutes more than 50% of the market value of the assets of the upstream body corporate, it is likely that the downstream shares are the purpose of the upstream acquisition.

PS 71.16 Where control over the downstream shares is one of the main purposes of the upstream acquisition, the offeror will usually be affording a benefit to the upstream shareholders in relation to the shares in the downstream company. This benefit would usually be in the form of a takeover or control premium. The policy of s731(d) requires other shareholders in the downstream company to have equal opportunity to share in any such benefit. Therefore, the ASC will consider whether control of the downstream company is one of the main purposes of the upstream offer as a criterion for determining whether a benefit is being afforded to the upstream shareholders. Such a test may be used even if, because of the difficulty in determining which portion of the upstream price is attributable to the downstream shares, the benefit is not transparently discernible or quantifiable.

PS 71.17 Under paragraph 13(c) above, the ASC will consider in relation to each application:

(a) any association or aggregation of relevant interests or entitlements caused by the downstream acquisition; and

(b) cross shareholdings or board memberships between any of, the offeror, the upstream body corporate, the downstream company and their associates.

PS 71.18 Applicants must demonstrate to the ASC the intrinsic value of the other assets of the upstream target to the offeror where there is a doubt as to whether control over the downstream shares is one of the main purposes of the upstream acquisition. Applicants should always give the ASC a clear breakdown of assets of the upstream target with absolute and percentage values for the major items and for the downstream shares. Where the assets of the upstream body corporate, other than the shares in the downstream company, are highly liquid, or readily procurable or saleable commodities, the ASC may infer that the shares in the downstream company are the purpose of the upstream acquisition.

...

PS 71.21 Where an applicant does not meet the criteria for unrestricted relief, the ASC may grant restricted relief. In considering restricted relief the ASC will take into account in all cases, the shares in the downstream company to which the offeror is already entitled at the time of the application as well as the shares to be acquired."

8. It was submitted by Sabatica that the public policy background to PS 71 had now shifted by virtue of the enactment of the Corporate Law Economic Reform Program Act 1999 (CLERP). This was assented to on 24 November 1999. Certain sections and parts have been proclaimed to come into effect on 1 January 2000. None of these sections or parts affect the type of situation presently under consideration.

9. The equivalent exemption under the CLERP Act to CL 629 is Item 14 of the table in section 611 which reads:

"The following table sets out:

1. acquisitions of relevant interests in a company's voting shares that are exempt from the prohibition in subsection 606(1)...

Item 14

An acquisition that results from another acquisition of relevant interests in voting shares in a body corporate included in the official list of:

(a) a stock exchange; or

(b) a foreign body conducting a stock market that is a body approved in writing by ASIC for the purpose of this item."

10. When the operation of this item is proclaimed, it will replace CL 629 and will reinstate the exemption as it applied under section 12(k) of CASA. In other words, a downstream acquisition will not contravene section 606 (the CLERP Act equivalent to CL 615) where the upstream company is incorporated outside Australia. Once this item is proclaimed to come into effect, an application to ASIC of the nature presently under consideration will not be necessary. Sabatica submitted that I should take account of the imminent implementation of CLERP in considering the application of PS 71. Indeed, it submitted that the exact date of implementation had now been fixed at 13 March 2000.

11. This was based on a media release by the Minister for Financial Services and Regulation, issued on 20 October 1999 (incidentally approximately one month before the date on which CLERP was assented to). The Minister said in part:

"The Minister for Financial Services and Regulation, Joe Hockey today announced the appointment of Mr Simon McKeon as President of the Corporations and Securities Panel. The Minister also announced that the major reforms contained in the legislation will commence on 13 March 2000.

Following the passage of the Corporate Law Economic Reform Program Bill 1998, the panel will have a reinvigorated role in resolving takeover disputes," the Minister said.

"The panel will be the primary forum for the resolution of takeover disputes and will be able to review the takeovers exemption and modification orders made by the Australian Securities and Investments Commission.

Mr McKeon was previously appointed on 1 April 1999 as the panel's acting president for a period of 6 months. Mr McKeon's permanent appointment will run until 30 March 2002.

"The appointment of Simon McKeon as president will facilitate the panel's ongoing operation. It will also help with the preparations required to ready the panel for its significantly enhanced role under the Corporate Law Economic Reform Program Bill.

"The Government is also seeking to identify suitable additional members for the panel and I anticipate that further appointments will be made before the end of this year."

"The CLERP legislation is the most significant reform of Australia's corporate regulation. It is another ... of this Government's commitment to ongoing reform and it sends a massively positive signal to the international community that Australia is serious about becoming a leading financial centre."

12. I cannot accept this almost casual reference to 13 March 2000 as a reliable indication of the date on which Item 14 will be proclaimed to come into effect. The Minister did not identify which the "major reforms" he intended to refer to in his media release. The commencement date is mentioned as an aside to the inauguration of the panel and the efforts to be made in recruiting additional members for it.

13. The setting up of the panel will no doubt have an effect on the timing of the proposed proclamation. More importantly, the item foreshadows a process of enquiry by ASIC in relation to foreign stock exchanges so that it may formulate a list of those of which it approves. This in itself will be a lengthy process.

14. Furthermore, it is not possible, according to common experience, to assume that announcements by Ministers will necessarily be implemented in accordance with their terms. I was referred to Re Minister for Communications ex parte NBN Limited (1986) 14 FCR 344 at 349 where Bowen CJ took into account pending legislation in exercising a discretion. The facts in the present case are quite different from those considered by his Honour, who was then dealing with a prerogative writ, the granting of which would have been affected by specific legislation "actually in progress". There are too many imponderables in the present situation to justify the approach advocated by Sabatica. A stay was granted in the present application. It might be possible to justify an adjournment while preserving the stay and continuing the hearing after 13 March 2000. This was not a course which commended itself to Sabatica however.

15. In my view, whatever the merits of CLERP, whatever improvements it is intended to produce, the fact is that, at the present time, it is irrelevant. In the meantime, it may be noted that in division 12 of part 9.4B, item 1483, the old law is to continue to apply to takeovers commenced before the proclamation of the new provisions. A raft of transitional provisions covering various situations will ensure that for present purposes, the relevant legislative background to the policy statement will continue to be the CL.

16. CLERP was enacted as a result of recommendations of the legal committee of the Companies and Securities Advisory Committee. Contained in two reports entitled "Anomalies in the takeover provisions of the Corporations Law" (March 1994) and "Compulsory Acquisitions" (January 1996). The 1994 report recommended that the prohibition in CL 629 should revert to the position as it stood under CASA section 12(k). It noted at page 28 of the 1994 report that the reasons for making CL narrower than CASA "are obscure". However, it does not seem to have been obscure to ASIC at the time that PS 71 was promulgated. Paragraphs 71.7 to 71.10 point out the differences between the two sections and emphasise the difference in philosophy in a non-critical manner.

17. In my view, I can not ignore PS 71 in its present terms. There has not even been a media release from ASIC that it is considering any amendment to that policy statement. CLERP was not considered by the original delegate, although its enactment process was apparently sufficiently advanced to enable the Minister to make a relevant statement a few weeks after the reviewable decision was made.

18. It is well settled that this Tribunal should pay regard particularly to policy statements which are developed after substantial processes of examination and discussion, as PS 71 was. The discretion of the Tribunal should not, of course, be fettered by a slavish application of policy. In every case, the Tribunal must consider the merits unless there are "cogent reasons" (Re Drake and Minister for Immigration and Ethnic Affairs (Number 2) 2 ALD 634 per Brennan J at 644) for departing from the policy. There are overriding considerations of public policy which dictate that in matters such as those presently under consideration, policy should be given considerable respect if for no other reason than to achieve a desirable consistency in decision making. The policy is consistent with the statute as it presently stands. It does not truncate the decision maker's discretion so as to preclude a consideration of the merits of the case. Indeed the opening words of PS 71.13 specifically preserve the respondent's discretion. It does not tend to produce an unjust decision in the circumstances of this particular case. In that respect, I am conscious that Sabatica's application is for unrestricted relief. At no time has it applied for restricted relief (which would involve the making of an offer for the Allstate shares on terms) - the type of situation considered in BTR the philosophical father of PS 71.

19. I turn then to this policy and to paragraph 13 in particular. The principal paragraphs to be considered are (b), (c) and (e). Clearly, (a) has no application as Sabatica did not propose any restrictions. (d) is not in issue as the takeover which is proposed is legal in New Zealand, the jurisdiction in which it takes place.

20. The first question to be determined, therefore, is whether the shares in Allstate comprise a substantial part of the assets of Otter.

21. Otter has three principal assets:

* A 58.5% interest in Allstate

* A 60% interest in each of the Tanami Mine joint venture and Central Desert joint venture (collectively Tanami Project) of which it is the managing participant.

* An interest of approximately 33% in the Martha joint venture (Martha Hill Project).

22. Allstate's principal asset is a 51.51% interest in the Beaconsfield Mine Joint Venture (Beaconsfield Project) of which it is the managing participant. In the application of paragraph (b), the question to be asked is whether the shares in Allstate comprise a substantial part of the assets of Otter. In determining that question, paragraph PS 71.15 provides for a rule of thumb of 50% in valuing the downstream shares. It does not follow, however, that unless PS 71.15 is satisfied the shares in the downstream company do not comprise "a substantial part of the assets".

23. A good deal of evidence was given concerning the valuation of Allstate's assets and consequently its shares, as well as evidence as to the value of Otter's assets.

24. Sabatica relied primarily upon submissions which had been made to ASIC by Mr Jefferies, one of its directors. Allstate relied on independent valuation evidence from Mr Gower, a consultant accountant, assisted by asset valuations by Mr Lawrence, a mining engineer. There were flaws in both valuation approaches. Even on Sabatica's evidence, however, it was established that Otter's interest in Allstate would constitute 42.68% of the market value of Otter's assets as set out in a document which Mr Jefferies had made available to ASIC. When added to the fact that the interest of Otter in Allstate was a controlling interest in that company, and the fact that the asset was the largest asset in Otter, it seems to me the better view is that Allstate's shares constituted a substantial part of the assets of Otter.

25. Mr Jefferies applied a different discount rate from that applied by Mr Lawrence because, in his view, his group would have been satisfied with a lower return. As he readily agreed in cross examination, however, this discount rate did not represent an analysis of the discount rate which would be applied by anyone else. The thrust of his evidence was to establish the price which his company was prepared to pay. He then reasoned that as his company was in the market, then the price which it had in mind was therefore the market value. These two concepts are irreconcilable. Firstly, it would be in Sabatica's interest to keep the value as low as possible. I do not suggest that Mr Jefferies has distorted his evidence in any way. Indeed, he gave his evidence frankly and dealt with cross examination directly. Nevertheless, there may well be some other party in the market prepared to pay a higher price. Evaluation by an interested party must be treated with some reserve, particularly when it is acknowledged that it was a figure arrived at for internal purposes and not as an objective value.

26. Other objections could be made to the detailed calculations attached to his submission to ASIC (document T4). He did not allow any control premium in relation to the shares in Allstate in undertaking his calculations. He had not adjusted any control premium included in the Otter share price attributable to Otter's control of Allstate. He had added back all liabilities including trade creditors which had a distorting effect in calculating relative values.

27. There were also faults in the methodology adopted by Mr Gower. The directors of Otter had formed a view as to the "carrying value" of certain assets. For reasons which he gave in his valuation, Mr Gower came to a different view. He treated the approach to certain assets differently from the directors. It followed that if Mr Lawrence was correct then the accounts were incorrect. This is not necessarily a fatal flaw in his valuation. He agreed that his brief was to value the assets in the corporate entity, Otter, and that in order to fulfil this brief it would be necessary to value the intermediate companies in the corporate chart. He agreed that he did not get accounts for these companies. There was a loan described as "from a fellow subsidiary" which was treated in his valuation in a way that left questions unanswered. He agreed that his approach to the inclusion of a premium for control may or may not coincide with market treatment. All in all, however, his valuation, supported by the asset valuation of Mr Lawrence, had the overriding advantage of being independent and not having being prepared for internal purposes in conjunction with planning a strategy for a takeover.

28. I have not mentioned specific figures which were discussed in evidence as certain orders were made for confidentiality. The general propositions which I have outlined above, however, are sufficient for present purposes. Having regard to the end common result flowing from all valuation methods adopted, it seems to me unnecessary to examine the valuation evidence in detail.

29. Indeed, notwithstanding the terms of PS 71.18, it is difficult to accept that ASIC would undertake the complex task of determining methodology and then applying it to various assets and shares in order to arrive at a figure which may or may not exceed the arbitrary limit. A policy statement is administered by administrators, not by experts. Although ASIC has power to require further evidence and to make enquiries, it could not reasonably be expected to embark on the sort of valuation enquiry evidenced by the voluminous material put before me. In a takeover situation, there would simply not be time for this, nor is it to be expected that administrators would have the opportunity of examining individual valuers and cross examining them as to constituent items in their valuations and as to the methodology adopted.

30. As I have said, there is a common basis of agreement that Otter's interest in Allstate constitutes at least 42.68% of the market value of Otter's assets. In my view, that is sufficient to constitute a substantial part of the assets of the upstream body corporate. PS 71 is not a statutory instrument and should not be subject to strict rules of statutory interpretation. It is a document for administrators and for the commercial community and should be administered in a common sense manner. Although there is an overriding discretion to grant the relief which Sabatica seeks, the guidelines offer it unconditional relief only if certain conditions are not applicable. In my view, it must be said in a common sense application of the guideline that the shares in Allstate comprise a substantial part of the assets of Otter. Paragraph (b) of PS 71.13 is therefore negatived. I read all the paragraphs comprised in PS 71.13 to be cumulative. Thus, if any one paragraph is negatived, then its own policy would preclude ASIC from granting unrestricted relief on request. I will, however, proceed to examine the other paragraphs in case my understanding of the effect of PS 71.13 should be shown to be wrong.

31. It then becomes necessary to consider whether control of Allstate is not one of the main purposes of the takeover or merger of Otter.

32. When Sabatica's parent applied for the necessary consent of the Overseas Investment Commission in New Zealand it wrote:

"Mid-East Minerals is an investment holding company specialising in identifying mining and mineral exploration companies with undervalued share prices and good asset backing. Using the considerable skills of the directors and employees of Mid-East Minerals, where appropriate, Mid-East Minerals assist those companies to enhance their performance.... Given Mid-East Minerals proven expertise, Mid-East Minerals believes that they will be able to assist Otter Gold to perform significantly better."

33. In its application to the Foreign Investment Review Board in Australia, in relation to the main assets of Otter, which included the interest in the Beaconsfield Mine, it said:

"Following its acquisition of the voting securities in Otter, MEM intends to continue to participate in Otter's current production and exploration activities, with a view to assisting Otter to perform significantly better than in recent years."

34. There may be some ambivalence in the use of the word "control" in paragraph (c). It was Sabatica's case that they did not seek control of Allstate in the sense that they intended to continue to manage it as a going concern. Rather, it was said, their intention was to sell off the assets of Allstate in order to reduce the group's debt. To my mind, this is a distinction without a difference. To sell an asset it is first necessary to control it. It may be that Sabatica had no firm intention and did not know what it intended to do with the assets until it took control and was in a position to investigate the business possibilities. In either event, it can hardly be said, in my view, that it was not one of the main purposes of the takeover to control Allstate. Otter has three main assets, each of which are approximately equal in value. Sabatica would have three main purposes, namely to control each of the three main assets of Otter.

35. In any event, the evidence as to the purpose of Sabatica or its parent, MEM, was left in an unsatisfactory state. Mr Jefferies acknowledged that he was only one of the directors of Mid-East Minerals. The other directors were highly experienced investors who had acquired particular expertise in assessing mining companies and would each form their own opinion about investment matters. There were differences of opinion in at least one matter. Mr Jefferies was of the view that Mid-East should not acquire a larger interest in Otter so as to appoint a director to the Otter Board and obtain more information concerning its underlying assets. The other directors were of a different view.

36. Once again, however, it seems to me that an administrator ought not to be called upon to go deeply into the question of corporate purpose. ASIC did, in fact, call for a large number of documents and examined them to satisfy itself that control was not one of the main purposes. With all respect to the examination, it seems to me self-evident that it must have been so, if one accepts that control is to be understood in its ordinary meaning of exercising direction over, dominating or commanding. PS 71 does not speak of "control and continuing management" of the downstream company. It would be unreasonable for any administrator to require an assurance by an offeror that it would continue the activities of a target company after it acquired control. It seems to me that the mere fact of control is sufficient to enliven this paragraph and to disqualify an entitlement to unrestricted relief. This does not bring about an unjust result when one considers the size of Allstate in relation to Otter. There was also evidence that apart from Otter, the principal shareholder in Allstate, Beaconsfield Gold, also opposed the granting of relief. Clearly, a change in control was viewed with some apprehension by this shareholder.

37. Paragraph (e) requires one to consider whether New Zealand law or the rules of the New Zealand stock exchange afforded a comparable level of investor protection to that under the CL and the rules of the Australian stock exchange. Although an inquiry of this nature is called for under ASIC's own policy, it declined to make such a comparison. PS 71.9 affirms that it is not appropriate for the CL to set out which overseas jurisdictions provide shareholder protection comparable to chapter 6 of CL. It goes on to note that a comparison is more appropriately done at the administrative level. For various reasons (including Australia's political relationship with New Zealand) this was not done.

38. It was carried out by Allstate. Evidence in support of the results of this comparison was given by two senior solicitors from New Zealand by affidavit. One of them was cross examined briefly. By and large, the conclusions reached by Allstate in its comparisons of investor protection were unchallenged. The only evidence on this aspect of the case adduced by Sabatica was from a third New Zealand solicitor who simply verified a publication issued by the New Zealand stock exchange. Whilst this publication purports to be informative, it does, as one would expect, undertake a defence as an interested party of the standards of that stock exchange compared with other regulatory agencies around the world. None of the material in that pamphlet gainsaid any of the conclusions of inequality pointed out by Allstate.

39. They are best set out in the following extract from the applicant's statement of facts and contentions:

"43 The regulatory regime governing the offer by Mid-East to acquire shares in Otter is contained in the NZSE Listing Rules and Otter's constitution. Mid-East's offer is not regulated by the primary source of takeover regulation in New Zealand, the Companies Amendment Act 1963, as the proposed acquisition of Otter shares is to take place entirely on-market, and the New Zealand statutory regime does not extend to on-market acquisitions.

44 Section 4 of the NZSE Listing Rules requires each company listed on NZSE to incorporate in its constitution one of three sets of provisions dealing with takeovers. Otter's constitution contains the "minority veto" provisions as provided for under NZSE Listing Rule 4.6.

45 By the combined operation of the "minority veto" provisions in Otter's constitution and section 4 of the NZSE Listing Rules, Mid-East may not acquire Otter shares if it would result in Mid-East and its associated persons holding more than 20% of the voting rights in Otter unless the acquisition takes place, inter alia, by orders placed through a member of the NZSE for execution in and through the NZSE's order matching market, in accordance with a number of procedural requirements, of which at least five business days prior notice has been given.

46 Section 4 of the NZSE Listing Rules requires that the same price and terms must be offered to all offerees, except where the offer is on-market, in which case the price may vary within the range notified by the bidder in its notice given under NZSE Listing Rule 4.6.1. Mid-East's notice specifies an extremely broad range, between NZ$0.40 and NZ$1.20 per Otter share.

47 Where the offer is on-market, there is no obligation on the directors of the target company to obtain an independent appraisal report as to the fairness of the offer. Indeed, there is an extremely short response period in which the target directors may prepare and provide a detailed written report to shareholders if they thought it desirable as the offeror is only required to give five business days notice.

48 The directors of the target company are only required to provide limited information in response to the bid, including whether any director or associated person of a director is an acquirer, whether there is any material information about the company not available to the market, whether that information would make the bid more or less desirable to shareholders and whether that information is available to any acquirer.

49 The consequences of the applicable regime regulating Mid-East's proposed offer (if that regime can be said to include any substantive regulation of that offer) are that:

(a) Mid-East may buy at any price offered within the extraordinarily wide price range stated in its notice, so shareholders who accept may receive differential prices;

(b) the offer process will effectively be on a first-come first served basis and shareholders who are not aware of the offer, or are slow to respond, will not have the opportunity to accept unless the offer takes some time to be filled;

(c) Mid-East is not committed to buying the maximum number of shares stated in its notice and may withdraw from the market at any time; and

(d) Mid-East will be free to buy on-market immediately, within the terms of the notice and pause notice. Since it is likely that Mid-East, as is usually done, will have already approached larger shareholders to ascertain their willingness to sell, it is very possible that it will be able to receive and accept offers sufficient to meet its requirements immediately or very soon after the on-market offer opens. Control of Otter could pass to Mid-East within a matter of minutes.

50 This regime is in stark contrast to the relevant provisions of Chapter 6 of the Corporations Law and the Eggleston principles which provide that:

(a) Offers to each shareholder must be identical and differences in consideration are allowed only to the extent attributable to the fact that the offers relate to shares having different accrued dividend entitlements or different amounts paid up on the shares (section 636). This is a reflection of the fundamental Eggleston principle in section 731(d) that all shareholders have equal opportunity to participate in any benefits accruing to shareholders under a takeover proposal. If an offeror increases the consideration offered under its bid, offerees who have already accepted the offer are entitled to receive the additional consideration (section 655). In the case of an on-market takeover announcement, if an offeror acquires shares in the target on-market during its takeover bid at price higher than its bid price, the bid price is deemed to be that higher price (section 677);

(b) A takeover offer must, unless withdrawn, remain open for a period of at least one month (sections 638(3) and 678). An off-market takeover offer may not be withdrawn without the written consent of ASIC (section 653). An on-market takeover announcement may only be withdrawn if a prescribed occurrence (within the meaning of section 603) takes place, although offers may not be withdrawn if the offeror is entitled to more than 50% of the target company (section 684). These provisions are a reflection of the fundamental Eggleston principle in section 731(b) that the shareholders and directors of a company have a reasonable time in which to consider any proposal under which a person would acquire a substantial interest in the company; and

(c) Unless the takeover scheme is declared to be proportional, in which case each offer relates to a proportion of shares that each offeree holds, an offer must be for all the shares in the relevant class that the offeree holds (section 635). Offers made by on-market announcement may not be declared to be proportional and must be for all the shares in a relevant class (section 674). Therefore, an offeror is committed to accepting all shares tendered into the bid and, in an on-market context, cannot simply walk away when it has purchased sufficient shares for its purposes from some sellers but not others. Shareholders know with certainty whether the acquirer seeks 100% of the target or a lesser number of shares. This reflects the fundamental Eggleston principles in section 731(c) and (d) that shareholders are supplied with sufficient information to enable them to assess the merits of any takeover proposal and that all shareholders have equal opportunity to participate in any benefits accruing to shareholders under a takeover proposal."

40. From the material put by Sabatica to ASIC, there may have arisen a belief on its part that Mid-East was required under the terms of the New Zealand offer to make a full bid for Otter or a proportional partial bid. That clearly was not the case. The proposed acquisition is governed not by New Zealand legislation by as an exchange transaction.

41. In my view, it is not offensive to the New Zealand regulatory regime, nor is it contrary to Australia's "obligations in relation to international comity" to point out the differences referred to above. They are simply facts. If in PS 71.13 the word "comparable" means "equal" then clearly paragraph (e) is also negatived. There will, however, always be differences between the regulatory regimes of different countries. It would be astonishing to find an exact replica of chapter 6 elsewhere or even to find a near equivalent to the proposed CLERP provisions. No doubt this is why it is proposed that individual foreign stock exchanges be singled out and listed after a preliminary process has been carried out leading to the approval of that exchange by ASIC. Nevertheless, I find it difficult to accept that "comparable" can mean "adversely comparable" to a marked and significant extent. If the bid proceeds on the intended basis, the shareholders of Allstate will be markedly and significantly disadvantaged, as will the shareholders in Otter.

42. I have concluded, therefore, that ASIC (and therefore this Tribunal) should pay regard to policy statement 71. There are no cogent reasons why it should be departed from in the present circumstances. It is simply not sufficient to say, as counsel for ASIC eventually submitted, that if the takeover is not an artifice, then the applicant for relief should be successful. If that submission were correct, there would have been no need for all the consultation and discussion which led to the making of PS 71. There would have been no need for a policy statement at all. It has been in place for many years now. It has been relied upon by many applicants. To preserve consistency in decision making until such time as the legal basis for the statement is changed, the policy should be applied. The application of PS 71.13 would therefore preclude the granting of unrestricted relief without a requirement for Sabatica to make a downstream bid. As is pointed out in 71.21, however, there is no reason why it may not apply for restricted relief, a course which it has consistently refused to follow in the present circumstances.

43. I propose to set aside the decision under review. The making of the reviewable decision, as evidenced by the minutes of the committee meeting of 11 October 1999, greatly exercised the minds of the participants. The chairman of ASIC himself considered that the application was "borderline" in certain respects. There is clearly room for opposing views among reasonable and informed minds. Having had the benefit of considerable oral evidence and submissions from counsel, I have come to a conclusion different from that of the committee which led to the delegate's decision. I acknowledge the assistance I have received from counsel which was not available to that committee. If this is to be the last such review by this Tribunal, I hope that Members of the Panel in the future are favoured with a similar level of assistance from counsel.

44. For the above reasons, the decision under review is set aside and the matter is remitted to the respondent for reconsideration if an application for restricted relief is made.

I certify that the 44 preceding paragraphs are a true copy of the reasons for the decision herein of Mr BJ McMahon (Deputy President)

Signed: .....................................................................................

Jacqueline Healy, Associate

Date/s of Hearing 21 & 22 December 1999

Date of Decision 24 December 1999

Counsel for the Applicant Mr N Hutley (SC)

Dr A Bell (JC)

Solicitor for Applicant Mr A Black

Mallesons Stephen Jaques

Counsel for the Respondent Mr S I White (JC)

Solicitor for the Respondent Mr P Bowker

Counsel for the Joined Mr T Jucovic (SC)

Ms S Dowling (JC)

Solicitor for the Joined Mr S Lewis

Coudert Brothers, Solicitors