CHAPTER 13 SECURITIES ISSUES THAT CROSS THE BORDER THE VIEW FROM AUSTRALIA
| Jurisdiction | United States |
(Jan 1988)
SECURITIES ISSUES THAT CROSS THE BORDER THE VIEW FROM AUSTRALIA
Resident Partner, New York Allen Allen & Hemsley
Sydney, Australia
TABLE OF CONTENTS
Page
1. Introduction
2. Securities Offerings
2.1 Principal Areas of Regulation
2.2 Securities of Foreign Issuer Placed in Australia
2.2.1 Private Placement—Restrictions on Offers to the Public
2.2.2 Public Offering of Shares
2.2.3 Public Offering of Australian Depositary Receipts
2.3 Securities of Australian Issuer Placed Abroad
2.4 Extra-territorial Effect of Australian Securities Trading Provisions
3. Acquisitions of Australian Companies
3.1 Regulatory Structure
3.2 Regulatory Bodies
3.3 Companies and Securities Law Issues of Acquisition
3.3.1 General
3.3.2 Closely Held Companies
3.3.3 Takeovers Code: Acquisition of Widely Held Companies
3.3.4 Acquisition of Shares
3.3.5 Take-over Methods
3.3.6 Partial Bids
3.3.7 Takeover Schemes—Section 16
3.3.8 Takeover Announcement—Section 17
3.3.9 Provisions Applying to Both Takeover Schemes and Takeover Announcements
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3.3.10 Special Powers of NCSC
3.4 Companies Code
3.4.1 Disclosure Requirements
3.4.2 Prohibition on Company Acquiring or Financing Acquisition of its Own Shares
3.5 ASX Listing Requirements
3.6 Directors Duties and Business Judgement: The Courts
3.7 Foreign Investment Controls
3.8 Trade Practices Act
3.9 Special State Legislation
3.10 Extra Territorial Impact of Australian Legislation on Overseas Acquisitions
4. Tax Issues
APPENDIX
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1. Introduction*
This paper canvasses some of the principal issues arising under Australian law and practice in the context of (i) capital raising in the Australian securities markets by U.S. or other foreign corporations, and (ii) acquisitions by a U.S. or other foreign corporation of Australian publicly owned companies.
The current level of interest and activity in gold exploration and mining around the world may give these questions special relevance to those concerned with financing or acquiring gold mining operations.
The Australian situation may also be of particular interest for a number of reasons. Gold mining has become a major resource activity in Australia, supported by special income tax exemptions. Australian companies have been particularly active in gold exploration in Asia (especially Indonesia and the Philippines), as well as in the Americas. Gold floats were a familiar feature of the Australian securities markets during the two years or so before October 1987; and there are signs of renewed interest by Australian and internationally based companies in seeking access to the Australian public securities market, either separately or as part of an international offering in a number of countries. There may be additional reason to approach the Australian capital market where some of the properties are located in Asia, because of proximity and relative familiarity to Australians.
2. Securities Offerings
2.1 Principal Areas of Regulation
(a) Securities offerings in Australia will be governed principally by the requirements of the Companies Code, the Securities Industry Code and the Listing Requirements of the Australian Stock Exchange (ASX).
(b) The Companies Code is part of a national co-operative scheme between the federal and state governments in Australia for the regulation of companies and the securities and futures industries designed to achieve essentially uniform corporate and securities regulation throughout the country. Technically, the Federal (Commonwealth) Parliament has enacted legislation which applies of its own force only in the Australian Capital Territory. Each State and the Northern Territory has, in turn, enacted its own legislation providing that the Commonwealth legislation will apply within the State (or the Northern Territory), subject to local modifications. The resultant legislation is known as the Companies Code of each State. (The present Federal Government has announced that it intends to replace the national cooperative scheme of State and Federal laws with Federal legislation which will apply, of its own force, throughout the country).
The Companies Code provides for the incorporation and regulation of companies and registration or recognition of foreign corporations in Australia. It is the Companies Code, also, that regulates public offerings of shares and other securities in Australia, and provides for the issue and registration of prospectuses.
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(c) The Securities Industry Code is part of the same national co-operative scheme and has been similarly enacted. The Securities Industry Code generally regulates dealing in securities and provides for the licensing of dealers, investment advisers and other participants in the securities industry.
(d) ASX Listing Requirements
The Listing Requirements of the Australian Stock Exchange will also be of key importance for the listing of publicly offered shares or other securities on the Australian Stock Exchange (the Main Board). They contain special provisions affecting mining companies and provide also for the listing of foreign securities.
(e) A number of regulatory bodies will play an important role in the implementation of the statutory codes and other requirements affecting a public securities offering in Australia. The principal players are the National Companies and Securities Commission (NCSC) and the Corporate Affairs Commission (CAC) of each State, which administer the companies and securities laws, and the Australian Stock Exchange, which administers the Listing Requirements.
2.2 Securities of Foreign Issuer Placed in Australia
2.2.1. Private Placement — Restrictions on Offers to the Public
(a) The initial question facing U.S. or other foreign issuer seeking access to the Australian capital market is whether to proceed through a "private placement" of securities, without the expense, time and other consequences of having to comply with the prospectus and other requirements applicable to a public offering, or to make a public offering of those securities.
(b) Restrictions on Offers to the Public
The effect of the Companies Code is to prohibit offerings of securities "to the public" without a registered prospectus.
Section 96 of the Companies Code (the "Code") provides that a form of application for shares in a corporation shall not be issued by the corporation or any other person, unless that form is attached to a prospectus and a copy of the form and a copy of the prospectus has been registered under the Code. The section does not apply if the form is not issued "to the public".
Section 98(7) of the Code provides that where a prospectus relating to any shares in a corporation is issued and the prospectus does not comply with the requirements of the Code, the directors of the corporation and any other persons responsible for the prospectus are each guilty of an offence.
"Prospectus" is very widely defined in Section 5 of the Code to include any written notice, circular or other instrument inviting applications or offers from the public to subscribe for, or offering to the public for subscription, shares in that corporation. "Corporation" means any body corporate whether formed or incorporated within or outside Australia.
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(c) Offers to "the Public"
Section 5(4) of the Companies Code states that an offer to the public includes an offer to "any section of the public...whether selected as clients of the person making the offer...or in any other manner", subject to certain exceptions.
An offer "to the public" would include any offer or invitation which, although circulated only to some limited extent, is open to the community at large to take up. When the Code refers to a "section of the public", it is clear that an offer which is not necessarily open to the community at large, but only to a segment of it, may nevertheless fall within the proscribed conduct.
The scope of the expression "section of the public" is not yet resolved. The expression was introduced into the Companies legislation in 1982, with the coming into effect of the Code. The National Companies and Securities Commission has published a release (No. 321) in which it states its view on the expression. The NCSC states as follows:
"The Commission has identified a number of practices which developed in the years prior to the commencement of the present legislation and which clearly involve offers or invitations to the public, in the sense that those expressions must now be construed. It follows that the continuation of those practices without compliance with the relevant provisions applicable to the nature of the securities being offered is now unlawful. These practices include:
...
(i) offerings to clients of a broker or investment adviser whose only nexus is their status as clients;
(ii) offerings to the employees of a company or group where the only nexus is their employment...
This is not intended as a comprehensive list but may be useful as a guide to the wide range of so-called "restricted" offerings, which, regardless of their status under the previous law, clearly fall within the concept of offers or invitations to the public in the present legislation."
In 1985, the High Court of Australia gave judgment in Corporation Affairs Commission (South Australia) v. Australian Central Credit Union (1985) 157 CLR 201 a case which concerned the offer by a credit union of units in a property trust to its members. The Court held that the offer of the units was neither "an offer to a section of the public within the meaning of the Code" nor an "offer to the public" for the purposes of the Code.
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The majority Justices made the following comment:
"If, however, there is some subsisting special relationship between offeror and members of a...
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