The Full Federal Court’s decision in Queensland North Australia Pty Ltd v Takeovers Panel [2015] FCAFC 68 is important for any party to an application to the Takeovers Panel (the Panel).
Take-home Points
- The reference to ‘the circumstances’ under section 657B Corporations Act 2001 (Cth) (Corporations Act) is a reference to the circumstances which are the subject of a declaration of unacceptable circumstances under section 657A Corporations Act, and does not extend to the effect of those circumstances.
- There is a clear delineation in section 657A Corporations Act between the circumstances and their effect. While the effect or likely effect of the circumstances may render certain circumstances unacceptable, those effects do not themselves constitute the circumstances or part of the circumstances capable of being declared unacceptable.
- The fact that the effects of the circumstances are continuing, does not mean that the circumstances themselves are continuing to “occur” or are continuing to “have occurred”, so as to extend the time limits set under section 657B and section 657C of the Corporations Act.
Background
Section 657A of the Corporations Act empowers the Panel to make a declaration that circumstances in relation to the affairs of a company are unacceptable. The powers of the Panel to make such a declaration do not depend on the circumstances constituting a breach of the Corporations Act. Having said that, applications to the Panel are often made in the context of alleged breaches of section 606 of the Corporations Act, which later section restricts the acquisition of a “relevant interest” in more than 20% of issued voting shares in a company with more than 50 members. An application to the Panel for such a declaration may be made by a number of different parties (including the target of a takeover bid) under section 657C of the Corporations Act. Parties may make an application under section 657C within two months after “the circumstances” have occurred, or such later time as the Panel determines.
In turn, section 657B provides strict time periods within which the Panel itself may make a declaration; the Panel may make a declaration of unacceptable circumstances within the period ending on the later of:
- three months after “the circumstances” occur; or
- one month after the application for the declaration has been made under section 657C has been made.
In the present case, the President’s Club (TPC) is an unlisted public company which operates a timeshare scheme at the property previously known as the Hyatt Regency Coolum, now known as the Palmer Coolum Resort.
Coeur de Lion Holdings Pty Ltd (CDLH) was the sole shareholder of Coeur de Lion Investments Pty Ltd (CDLI). CDLI in turn owned 41.4% of the shares in TPC.
In July 2011, Queensland North Australia Pty Ltd (QNA) acquired 98% of the shares in CDLH and the remaining 2% of the shares were acquired by an associated entity. By reason of section 608 Corporations Act, QNA had therefore also acquired a “relevant interest” in those TPC shares that CDLI held. In March 2012, QNA acquired a further 2.9% in TPC, taking its relevant interest in TPC to approximately 44.4%. Without one of the exceptions in section 611 Corporations Act applying to the acquisitions, both acquisitions (the acquisitions of TPC shares) would have occurred in contravention of section 606 Corporations Act.
On 26 June 2012, TPC lodged an application with the Panel for declaration of unacceptable circumstances. On 24 July 2012 the Panel decided that the circumstances of the acquisitions of TPC shares were unacceptable having regard to the effect that the circumstances had, were having, will have or were likely to have on:
- the control or potential control of TPC;
- the acquisition, or proposed acquisition, by a person of a substantial interest in TPC;
- the purposes of Ch 6 as set out in section 602 of the Corporations Act; and
- the fact that they constituted, constitute, will constitute or were likely to constitute a contravention of a provision of Ch 6 (essentially section 606).
On the last point the Panel found that none of the exceptions in section 611 applied to the acquisitions of TPC shares.
On the issue of the time within which the Panel had the power to a declaration, the Panel stated that in its view, the circumstances giving rise to the application made by TPC were “ongoing circumstances". Alternatively the Panel had extended the time for TPC to make the application, to the date on which it was actually made by TPC. In either case the Panel had decided to conduct proceedings.
The Panel then proceeded to make orders which prevented the CDLI and its associates from:
- exercising any voting rights that attach to the subject TPC Shares;
- making any further acquisitions of a relevant interest in shares in TPC except in certain limited circumstances; or
- disposing of, transferring, or charging any of the subject TPC Shares, except in certain limited circumstances,
until QNA or an associate of it made offers for all the shares in TPC under a takeover bid that complied with the requirements of chapter 6 of the Corporations Act.
QNA sought judicial review of the Panel’s decision under the Administrative Decisions (Judicial Review) Act 1977 (Cth). The Court found that “the manner in which the Panel [decided to extend the time within which TPC had to make the application] was contrary to the rules of natural justice”. However the Court found that it was unnecessary for the Panel to grant this extension, as it was open to the Panel to find that there were circumstances on-going for sometime after the acquisition of TPC shares.
In this context the Court noted that:
“[h]istorically the Panel has taken a broad view of “circumstances” for the purposes of its power to declare circumstances unacceptable (or not) pursuant to s 657A of the Corporations Act. Certainly in a number of decisions the Panel has found, on the facts of those cases, that unacceptable circumstances were ongoing.”
The Court reviewed a number of such Panel decisions and quoted the Panel in Re Brickworks Limited (No.1) [2000] ATP 6 where the Panel said:
"A circumstance is distinct from the act or event which brings it into existence: circumstances are the relatively persistent background against which acts and events occur."
After considering all of the grounds for review the Court dismissed the application and refused to set aside the Panel’s decision.
QNA appealed the Court’s decision to the Full Court of the Federal Court.
Judgement of the Full Court
One of the key issues on appeal was whether the primary judge was correct in upholding the Panel’s finding that “the unacceptable circumstances alleged by The President’s Club were ongoing.” In upholding the appeal, the Court held that “there is a clear delineation between the circumstances and the effect that they have had, are having, will have or are likely to have on the control or potential control of the company or the acquisition, or proposed acquisition, of a substantial interest in the company” for the purposes of section 657A Corporations Act. While the effect or likely effect of the circumstances may render certain circumstances unacceptable, they do not themselves constitute the circumstances nor constitute part of the circumstances capable of being declared unacceptable circumstances.
The Court held that “the reference to ‘the circumstances’ under section 657B of the Corporations Act is a reference to the circumstances which are the subject of a declaration of unacceptable circumstances under section 657A Corporations Act, and does not extend to the effect of those circumstances.” That the effects of the circumstances are continuing does not render the circumstances themselves as continuing to “occur” or as continuing to “have occurred”. Therefore, in this case, the relevant circumstances for the purposes of section 657A were the acquisitions made by QNA in July 2011 and March 2012. The acquisitions occurred on identifiable dates and were not ongoing or continuing circumstances. The circumstances did not extend to their effect or likely effect which may have continued thereafter. Accordingly the Full Court found that in this case the Panel had made its declaration out of time.
Finally, the Court stated that notwithstanding that there has been a lengthy passage of time since the circumstances had occurred, in its view the matter should be remitted to the Panel to be considered and determined according to law. The Court foreshadowed that the Panel should now consider whether an extension of time to bring the application should be granted.
Conclusion
In part the Panel was established as a cost effective, commercially focussed, and efficient alternative to the Courts for resolving contentious issues surrounding control transactions. This case highlights the need for matters to be brought before the Panel in a timely fashion, and for the Panel to hear those matters as expeditiously as possible. An application under section 657C should be made as soon as the circumstances of the subject of that application occur, so as to avoid the application being made out of time. For the purposes of determining when those circumstances occur, applicants need to distinguish between the circumstances giving rise to the unacceptable circumstances and the effects of the those circumstances.
HopgoodGanim acted for QNA and its associates in the matter before the Panel, and then in the application to the Federal Court for judicial review of the Panel’s decision, and finally in the appeal to the Full Court.
For more information or discussion, please contact HopgoodGanim Lawyers' Corporate Advisory and Governance team.