Takeovers Amendment Act – certainty about the meaning of code company

14 September 2012

Takeovers Amendment Act – certainty about the meaning of code company
The Takeovers Amendment Act 2012 came into force on 31 August 2012. The amendments had previously been part of an ‘omnibus’ Regulatory Reform Bill that was first introduced in late 2010.
The primary impact of the Amendment Act is to implement a long overdue change to the definition of ‘code company’ in the Takeovers Act (and the Takeovers Code).
50+ shareholders
The primary change is to replace the third limb of the definition of ‘code company (which previously referred to a company with 50 or more shareholders) and replace it with a two-tier requirement that a code company must have both:
• 50 or more shareholders; and
• 50 or more share parcels.
The previous requirement (or the Takeovers Panel’s interpretation of it) was problematic for SMEs, particularly those with joint holdings and share parcels held by trustees – who risked inadvertently triggering the 50-shareholder threshold. By doing so, they would potentially have been subject to a significant compliance burden. Amongst other things, that compliance burden was often keenly felt when unwitting code companies sought to raise capital or introduce new shareholders. Many SMEs, particularly family-owned businesses, have a cornerstone shareholder and this made relatively commonplace activities such as bolstering the balance sheet through a share issue that was (inevitably) backstopped by the cornerstone shareholder – impractical.
Exclude non-voting shares
Another important change is that shareholders who hold non-voting shares are excluded from the calculation. As a result, the incidence of SMEs being caught by the Takeovers Code is further reduced, by excluding closely-held companies where voting control is limited to a handful of voting shareholders in circumstances where the share register may include a number of other shareholders who holding non-voting shares.
Additional clarification – compulsory acquisition
The Amendment Act also makes it clear that if, as a result of a transaction or an event regulated under the Takeovers Code, a company that was previously a ‘code company’ ceases to have 50 or more shareholders and 50 or more share parcels, that company continues to be a code company for the purposes of Part 7 of the Code (compulsory acquisitions). As a result, a dominant owner (that is, a shareholder who acquires 90% of the shares of a code company) will still be able to use the compulsory acquisition mechanism in Part 7 to mop up the remaining shares in the company.
In addition, the Takeovers Panel will, if necessary, continue to have the power to intervene in cases of the completion of a compulsory acquisition under Part 7.
Further information

If you would like further information about the Amendment Act, including the changes to the Panel’s process to facilitate more efficient and quicker decision-making by the Panel, please contact me.