ASIC’s microscope on disclosure issues in control transactions

On 8 June 2021, ASIC released its quarterly corporate finance update, in which ASIC highlighted two areas where it recently intervened in relation to disclosure to shareholders in control transactions.

IN BRIEF

• In its latest corporate finance update, ASIC has highlighted two disclosure points relevant to takeovers and schemes.
• The first relates to timing for deciding whether a dividend in connection with a scheme of arrangement would be declared, and the disclosure around that. ASIC was concerned to ensure that members were given disclosure of the circumstances where the dividend would not be declared before voting on the scheme and that a decision on whether to declare the dividend was announced before the second court hearing.
• The second relates to communications in connection with electronic despatch of takeover documents. Where ASIC has permitted takeover documents to be sent in electronic form to shareholders, communications to shareholders regarding the electronic documents must be limited to facilitating access to the documents, and not repackage or summarise information relating to the takeover bid.

OVERVIEW

In its latest corporate finance update, on 8 June 2021, ASIC highlighted two areas where it had recently intervened in disclosure to shareholders in control transactions. These were the disclosure relating to a late declaration of a dividend under a scheme or arrangement and the electronic dispatch of documents in takeover bids.

As we highlight below, the common thread in both of these areas is that ASIC continues to be highly focused on the importance of full and proper disclosure to shareholders, both in terms of shareholders have sufficient information prior to making a decision and ensuring that the relevant primary disclosure documents should be the only source of full and complete information.

DISCLOSURE OF DIVIDENDS IN SCHEMES OF ARRANGEMENT

It is a common feature of many takeovers by way of scheme of arrangement to include a dividend as part of the scheme consideration offered to members. These dividends are often conditional on the scheme of arrangement being successful and are a sweetner for shareholders as they allow for further extraction of value for shareholders who can take advantage of franking credits in connection with the dividend.

These dividends are often agreed upfront and included in disclosure about the total consideration payable to shareholders. However, there may be commercial reasons why the quantum of that dividend, or whether it will be paid, will not be determined until later in the process.

ASIC recently intervened in a scheme of arrangement where it was proposed that the decision on whether to declare a special dividend that formed part of the consideration would not be made until after the second court hearing.

ASIC was concerned to ensure that members were given disclosure of the circumstances where the dividend would not be declared before voting on the scheme. ASIC also required that a decision on whether to declare the dividend was made and announced before the second court hearing, rather than after it. In particular ASIC wanted to ensure that the timing meant that ASIC or any other interested party could make submissions on this issue at the second hearing if necessary.

The takeaway is that while this may be a case by case basis, companies should seek to make any dividend declaration as early as possible and, to the extent such early disclosure is not possible, the likelihood of such a dividend and the factors upon which it is contingent should be clearly disclosed to security holders to enable shareholders and other concerned parties, such as ASIC, to have an opportunity to raise questions or concerns.

COMMUNICATIONS IN ELECTRONIC DISPATCH OF TAKEOVER DOCUMENTS

In a number of recent instances, due to the ongoing coronavirus pandemic and related concerns, ASIC has granted relief to allow parties to dispatch takeover documents electronically to shareholders.

ASIC has however cautioned that for parties relying on this relief, communications to members should be limited to providing instructions to shareholders on how to access electronic copies of the takeover documents and should not be used as a platform to repackage or summarise information relating to the takeover bid.

ASIC gave the example of intervening where the proposed communications included information such as advantages or disadvantages of the offer or instructions on how to accept or reject the offer.

It will be important for companies seeking to rely on ASIC relief to send takeovers documents electronically to bear this in mind and ensure that the relevant takeover documents are the source of full and complete information about the takeover bid to allow members to make an informed assessment of the offer. This is consistent with the approach taken by courts in permitting email distribution of scheme booklets in relation to a scheme of arrangement.

We have long been lobbying for general law to permit takeovers documents to be sent electronically. This issue of ensuring no extraneous communications outside of the primary disclosure document will no doubt be an important one in the context of any such reform.