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In the recent decision of Portman Iron Ore Ltd; Re Golden West Resources Ltd [2008] FCA 1362, the Federal Court of Australia held that proxy forms must not be on-forwarded by a third party intermediary to the company and must be sent directly to the company (either to its registered office (by post or fax) or to a place, fax number or electronic address specified for the purpose in the notice of meeting) in order to comply with section 250B of the Corporations Act.
In this case, Portman held a 19.2% shareholding in Golden West and requested that Golden West hold a General Meeting for the replacement of two of its directors. Portman then sent pre-completed proxy forms to the shareholders of Golden West canvassing support in favour of certain resolutions at the General Meeting. Portman requested that these forms then be returned to Portman to be on-forwarded by them to Golden West.
At the General Meeting, the Chairman held that all of the proxy forms that had been collected and on-forwarded by Portman to Golden West were invalid as the forms had not been sent directly to Golden West in accordance with Section 250B of the Corporations Act.
The decision in Portman relays a strong message to those shareholders canvassing shareholder support for their campaign by sending out pre-completed proxy forms and requesting their return. To avoid any issues of non-compliance with Section 250B of the Corporations Act, the Federal Court has recommended that shareholders who wish to monitor the progress of their campaign request that a duplicate proxy form be forwarded to them when the original proxy is returned to the company.
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On 18 December 2008, ASIC issued Consultation Paper 103 - Review of Share Purchase Plan Threshold, which invited comment on proposals to increase the monetary limit for share purchase plan disclosure relief from the current $5,000 per shareholder in any consecutive 12 month period to $15,000, and to make it a condition of the relief that a cleansing notice be lodged with the ASX.
ASIC also proposes to extend the terms of the relief for the issue of interests in an ASX listed managed investment scheme under an interest purchase plan.
Current disclosure relief for offers of shares by an ASX listed corporation under share purchase plans are governed by Class Order 02/831. The relief is subject to a number of conditions, including that the offer only extends to issues up to a value of $5,000 per shareholder in a 12 month period.
Submissions on the proposals closed on 13 February 2009. ASIC has indicated that it will implement the proposed changes in approximately 4 weeks. Further information on the progress of the changes will be posted on the ASIC website.
Prior to the proposed changes being implemented, it is possible to apply to the ASIC for relief to increase the monetary limit to $15,000 (subject to a cleansing notice being lodged with ASX). Please contact us if you would like any further information in relation to this matter.
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Currently under ASX Listing Rule 7.3.2 a company that obtains prior approval to issue a placement has 3 months in which to place the placement. The General Manager of Regulatory and Public Policy at the ASX Malcolm Starr announced earlier this month that the ASX is considering a proposal to change the time frame under ASX Listing Rule 7.3.2 from 3 months to 12 months for small to medium companies. The intention behind such a change would be to make raising capital under the current financial conditions easier for small to medium companies. Although still at the proposal stage Mr Starr said this proposal was being considered over other proposed changes. Mr Starr did not comment on when the change, if successful, would be likely to occur.
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Removal of a director from office
When a company’s members lose confidence in its directors, and disputes arise regarding management of the company, it may be difficult for a resolution to be achieved.
Unless a director resigns, or is disqualified from acting in the capacity of director by the Australian Securities and Investments Commission, and in the absence of a resolution, a company and its shareholders may wish to seek the removal of its director(s).
The process for seeking the removal of a director is a complex one, which is governed by a company’s constitution and the Corporations Act 2001 (Cth) (CA). Different processes may apply depending on whether the company is a proprietary limited company or a public company.
Removal of a proprietary company director
The removal of a director from a proprietary company is dependent on whether there is provision in the company's constitution empowering the company's shareholders to remove the director. Alternatively, if the replaceable rules set out in the CA apply to the company, the members of the company may remove the director by orindary resolution.
The constitution of a proprietary company may include a number of other provisions empowering the company or its directors to remove a director from the company. There are no statutory restrictions on procedures that a proprietary company can include in its constituion relating to the removal of directors.
Removal of a public company director by shareholders
Historically, the process for removal of a director from a public company would be governed by the company’s constitution, and to the extent that it was not dealt with in the constitution, then the process set out in the CA would have to be followed. Where a process for removal was included in the constitution, shareholders could elect to use either the process in the constitution or follow the statutory process set out in the CA.
Section 203D of the CA
Section 203D of the CA provides that a public company may, by resolution remove a director from office at any time notwithstanding any requirements set out in the company’s constitution, an agreement between the company and director, or an agreement between the shareholders and the company.
Section 203D sets out a prescriptive process for the removal of a director which involves:
(a) the giving of a notice of intention to remove the director to the company at least two months before the general meeting to pass the resolution is held;
(b) providing a copy of the notice to the director the subject of removal;
(c) the director being entitled to put his or her case to the shareholders by written statement circulated to shareholders and to speak to the motion at the meeting.
At least 21 days’ notice of the meeting to consider removal of the director, must be given (28 days’ notice is required if the company is listed).
If a director is a representative of a particular class of shareholders or debenture holders, the resolution to remove the director does not take effect until a replacement representative has been appointed.
Must the process under section 203D be followed or can the constitution provide an alternative process for removal?
In the past, it was always considered that the statutory power set out in the CA did not replace any other power of removal possessed by the company. However, in the recent decision of Scottish & Colonial Ltd v Australian Power and Gas Co Ltd (2007) 215 FLR 100; 65 ACSR 740; 25 ACLC 1,497, Bryson AJ held (at pages 1,504 and 1,505) that the process set out in section 203D of the CA must be followed whether or not there are any other procedural provisions contained in the company’s constitution.
This interpretation of section 203D is somewhat controversial as it in effect removes the power of the company to provide alternative procedures for the removal of directors in the company’s constitution, and arguably goes further than the intention of the legislature. However, until this interpretation is considered at an appeal level, section 203D should be followed for the removal of a public company director.
The board cannot remove a public company director
Any attempt by the board to remove a director from office is void under section 203E of the CA, and this means that any agreement that provides a director can be removed by the board is ineffective.
Conclusion
As it is not always possible to resolve board disputes, advice should be sought on the best mechanism in the circumstances for the removal of a director. If you would like any further information in relation to this matter, please contact one of our partners whose contact details are available on our website www.steinpag.com.au.
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Use of Standstill Covenants
A party that wishes to invite indicative offers for assets or shares will generally need to provide possible buyers with confidential information in order for those potential buyers to perform due diligence on the assets of the party. As a matter of course, a confidentiality agreement will be entered to protect the confidential information of the party. The party may also wish to include a “standstill” covenant in the confidentiality agreement which restrains the potential buyer from using the confidential information obtained to make an unwelcome bid or offer at a later time (for example, after the potential buyer has withdrawn from negotiations and/or the sale process). A board of directors needs to consider whether a standstill is appropriate in the circumstances, and whether the particular term of restraint and information protected justifies the use of the standstill.
When are standstill provisions commercially justified?
The recent determinations of the Panel and Review Panel in International All Sports Limited [2009] ATP 4 and 5 confirms that standstill covenants will be commercially justifiable when used for a reasonable period and having regard to the information provided and to protect a target company during and after the exchange of information with a potential acquirer of shares/assets.
The Review Panel confirmed that target companies should be able to rely on the protection of a standstill where information is not only price sensitive but commercially sensitive as boards have a legitimate interest in the protection of commercially sensitive information and in allowing due diligence to be undertaken.
However a board proposing to enter into confidentiality and standstill arrangements still needs to carefully consider the term of the standstill and the restraint it imposes, because the facts in which the particular standstill operates may give rise to unacceptable circumstances.
Facts
In early December 2007, Centrebet International Limited (Centrebet) and International All Sports Limited (IAS) commenced discussions regarding the possibility of Centrebet participating in a sale process for IAS to elicit indicative offers to acquire shares in or assets of IAS. As part of the process Centrebet gave confidentiality and standstill covenants in favour of IAS including that it would not (among other things):
(a) make any announcement regarding an acquisition of all IAS shares or any IAS assets, unless authorised by IAS or as required by law, for a period of 24 months from the date of the Confidentiality Deed; or
(b) buy shares in IAS, without IAS’s prior written approval, for a period of 12 months from the date Centrebet notified IAS that it did not propose to proceed with any acquisition of all IAS shares or any IAS assets.
Centrebet conducted due diligence on IAS and made a number of indicative offers which were each rejected by IAS. Centrebet subsequently withdrew from the sale process.
Approximately 10 months after withdrawing from the sale process, Centrebet sought release from the standstill covenants it had given, as it was considering making a bid. IAS informed Centrebet it would not provide the release.
Centrebet subsequently announced its intention to make a takeover bid, conditional upon Centrebet being released from the standstill covenants by IAS, or a declaration and order from the Takeovers Panel being made to the effect that Centrebet would not be restrained from announcing and making the offer and enforcing its rights and entitlements and performing its obligations under the terms and conditions of such bid. Centrebet sought a declaration of unacceptable circumstances arguing that the standstill covenants were anti-competitive lock-up arrangements and frustrating action.
The Panel decided to conduct proceedings in relation to the operation of the covenants with respect to Centrebet announcing a bid.
Reasons
The Panel confirmed that the use of a standstill covenant helps facilitate the sale process, protects companies and their officers against insider trading liability and ultimately advance shareholder interests. In addition, the Panel confirmed that there is a public interest in enforcing confidentiality agreements and standstills as they promote the exchange of information and maximisation of value to shareholders and failure to enforce such agreements could disrupt the process of negotiating and consummating business transactions. Upon review, the Review Panel confirmed that standstills also protect against the ‘forced’ disclosure of information under section 636 if a bid is made and to circumstances where forced disclosure may be required by a target under section 638 of the Corporations Act.
The Panel confirmed that in order to not give rise to unacceptable circumstances the term of a standstill should be commercially justifiable according to the nature of the information to be provided under it. The Review Panel considered that the nature of the business providing the information and the nature of the recipients of the information are also factors in determining whether the term of a standstill is commercially justifiable.
The Panel and the Review Panel further confirmed that a standstill for 6 to 12 months from a relevant time (for example, withdrawal from the sale process) is consistent with market practice, but whether a longer term would give rise to unacceptable circumstances depends on the circumstances and facts in which the particular standstill operates.
The Panel and the Review Panel declined to make a declaration of unacceptable circumstances on the basis that (among other things) the term of the standstill appeared to be commercially justifiable and should stand.
If you require further information on the use of standstill covenants please contact our partners whose contact details are available on our website www.steinpag.com.au.
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The recent decision in Australian Securities and Investments Commission v Macdonald (No 11) [2009] NSWSC 287 handed down on 23 April 2009 provides important considerations and concerns for Australian boards when making decisions.
The court held that the directors of James Hardie Industries Limited published misleading and deceptive comments following a board meeting and disclosed those comments to the ASX on 16 February 2001. During the meeting in question, the Board members were found to have approved a draft ASX announcement that provided that a medical compensation and research fund created to pay out asbestos exposure related injuries, was fully funded.
Following this decision, the role of the non-executive director is now more onerous than previously was considered to be the position. As a matter of practice non-executive directors must familiarise themselves with any proposal put to the board, or at the very least abstain from voting in favour of the proposal if it is not possible to become familiar with the proposal. Failure to do so may constitute a breach of the duty of care and diligence owed to the company by a director. It could also lead to the director being fined or disqualified.
On a practical note directors who seek to rely on the benefit of the recording of minutes as prima facie evidence of proceedings should comply in a strict sense with the rules of section 251A of the CA by recording the minutes within one month of the meeting and ensuring the minutes are accurate, particularly in respect of voting.
Following this decision public companies should urgently review their procedures for approval of ASX disclosures and non-executive directors similarly should review their role in relation to consideration of proposals by their board.
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