ASIC criminal proceedings in takeovers

ASIC continues to press ahead with criminal proceedings in connection with two takeover matters. In one of those matters, a Queensland lawyer has been sentenced for providing false or misleading information to ASIC during an interview in connection with a takeover bid involving Affinity Education Group Limited. In the other matter, an attempt to stay criminal proceedings in connection with a takeover bid for the President’s Club has been dismissed. 

Update on criminal charges brought by ASIC in relation to two takeover bids

In 2018, ASIC brought criminal charges against two individuals – Ms Jennifer Hutson and Mr Clive Palmer – as a result of circumstances during the takeover bids involving Affinity Education Group Limited and The President’s Club Limited respectively (see our earlier article ASIC Commences Criminal Proceedings in Connection with Two Takeovers).

In this edition we provide recent updates in connection with these proceedings. 

Affinity Education Group Limited

Background

In July 2015, G8 Education Limited (G8), announced an intention to make a scrip takeover bid for Affinity Education Group Limited (Affinity). Ms Jennifer Hutson was a director, and also the chairperson, of G8. In the following weeks, JB Super Fund Pty Ltd (JB Super), Taxonomy Pty Ltd (Taxonomy) and West Bridge Holdings Pty Ltd (West Bridge) acquired a little under 10% of Affinity shares, prior to the scrip bid opening on 21 August 2015.

On 24 August 2015, G8 announced it had acquired a relevant interest in 4.58% of Affinity shares through acceptances of the bid by Taxonomy and JB Super, taking it to 24.48%. Affinity alleged breach of the takeover rules and the Takeovers Panel found that G8 was associated with each of Taxonomy, JB Super and West Bridge and that G8 had a relevant agreement, or was acting in concert, in connection with the acquisition of Affinity shares and acceptance of those shares into G8’s scrip bid.

ASIC subsequently opened an investigation and in April 2018 charged Ms Hutson with a number of offences based on dishonesty and false and misleading statements and conduct.

This matter is ongoing with a committal hearing due to commence on 30 September 2019.¹

Lawyer charged after giving false evidence under examination

As part of ASIC’s investigation into the Affinity takeover bid, ASIC required the examination of Ms Mary-Anne Greaves in relation to undisclosed arrangements between G8 and West Bridge for the purchase of Affinity shares in connection with the takeover bid.

Ms Greaves falsely denied in the examination that she had been provided information regarding the purchase of the shares.

Ms Greaves was charged, and pleaded guilty, to one count of giving false or misleading information. She was sentenced on 17 June 2019 by Brisbane Magistrates’ Court. Conditional on her good behaviour for a period of two years, Ms Greaves was released without conviction on giving security of $5,000.

According to a statement released by ASIC, but for mitigating factors such as her cooperation in the prosecution of others, the Magistrate had “indicated that a sentence of six months imprisonment with release forthwith would have been appropriate.”²

ASIC Commissioner John Price stated that “ASIC views seriously any attempt by individuals to compromise its investigations, including giving false or misleading information during examinations. ASIC will hold to account persons who seek to obstruct or hinder its investigations”.³

The maximum penalty for giving false or misleading information to ASIC during an investigation is two years imprisonment, 100 penalty units ($21,000) or both.

The President’s Club Limited

Background

In July 2011, companies associated with Mr Clive Palmer (the Palmer Entities) acquired the holding company of Cour de Lion Investments Pty Ltd (CDLI), being the only large shareholder of The President’s Club Limited (TPC). This acquisition gave the Palmer Entities indirect ownership of the 41.4% stake CDLI held in TPC. However, the acquisition breached the 20% rule as it was not structured via a s606 gateway (such as a TPC shareholder approved acquisition or a takeover bid).

In September 2011, CDLI also gave notice that it intended to revoke a deed poll which had provided that it would not exercise more than 10% of its voting rights in TPC unless ASIC consented, allowing the Palmer Entities to vote the entire CDLI stake on any resolution. 

In April 2012, one of the Palmer Entities lodged a bidder’s statement in connection with a proposed takeover bid for TPC but did not subsequently make an offer for those securities within two months, as required by s631(1) of the Corporations Act.

TPC applied to the Takeovers Panel, which made a declaration of unacceptable circumstances and ordered a divestiture of the shares. It did not force the Palmer bidder to proceed with the bid.

Following an investigation, ASIC announced on 6 April 2018 that Mr Palmer had been charged with breaching takeover laws.

Application to have criminal charges dismissed rejected by Court

On 19 September 2018, Mr Palmer filed an application in the Supreme Court of Queensland, “seeking, essentially a stay of the criminal proceedings as an abuse of process”, submitting that the criminal proceedings were “commenced for an improper purpose and regardless “doomed to fail””.⁴

The application was dismissed by Justice Ryan of the Supreme Court of Queensland in January. In dismissing the application, his Honour stated: “[t]he authorities make it plain that the administration of the criminal law should be left to the criminal courts and that it is only rarely and in truly exceptional circumstances that this court should intervene. I found nothing exceptional in this case.”⁵

Mr Palmer has appealed the decision. The Court of Appeal heard the appeal on 4 June 2019 and has reserved its decision. The proceedings against Mr Palmer are next due for mention on 28 June 2019.⁶

Increased penalties for breaches of corporations law

In the broader context of breaches of Australian corporations law, it is also important to note that in February 2019, the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018 was passed to implement recommendations of the ASIC Enforcement Review Taskforce, originally set up in October 2016.

It amends the Corporations Act, ASIC Act, National Consumer Credit Protection Act and Insurance Contracts Act to strengthen existing penalties and introduce new penalties for breach of corporate laws. Offences such as breaches of director’s duties, false or misleading disclosure and dishonest conduct now carry a maximum prison sentence of 15 years, with some other civil penalties also significantly increased.

Commentary

These proceedings serve as sobering reminders of the consequences of breaching Australia’s takeover laws, and that ASIC has shown it will not hesitate to use its enforcement powers to seek to have civil or criminal proceedings brought against an individual in connection with such breaches.

Keeping these considerations in mind is all the more important with the strengthened penalties available for breaches of corporations laws generally.