The situation: The Australian Securities and Investments Commission (“ASIC”) recently released its quarterly corporate finance update. Hot topics include special purpose acquisition companies (“SPACs”), electronic delivery of takeover documents, and the importance of independent expert reports for shareholder-approved transactions.
The result: SPACs remain ineligible for listing on the ASX, meaning major legislative changes will be required before SPACs can come to Australia. ASIC also reports an increase in fallback applications that allow Chapter 6 takeover documents to be sent electronically, which is a welcome development for practitioners. Additionally, ASIC provided guidance on when independent expert reports may be required for shareholder-approved transactions.
Look forward: SPACs are likely to remain in the crosshairs of major financial regulators around the world, while their financial merits also attract a range of viewpoints. The use of electronic communication methods in Chapter 6 takeovers is likely to spread, especially with the rebound in takeover activity of late, and we believe the market would welcome a class order. or another more permanent regulatory solution to facilitate electronic communication.
SPACs: are they coming to Australia?
Almost daily, the financial and mainstream press reports on SPACs, with a divergence of views and scenarios. Interestingly though, with their rapid rise in popularity in the US in particular, increased regulatory scrutiny and a wider commercial question of whether there are enough merger targets for SPACs means we seem to be almost at an inflection point on SPACs.
These newly formed companies (with no assets or operations) that are raising capital through an initial public offering, are unable to list on the ASX due to Entity Listing Rules restrictions. cash box” and ASX requirements on structural and operational requirements for a listed entity. So, in this regard, the American-style model cannot easily be ‘lifted’ and transplanted to Australia without considerable changes to our laws and market operational issues.
ASIC says it continues to monitor global regulatory developments, including in the US, UK and Singapore – and in this context noted that increased regulatory scrutiny by the SEC from the United States might have been a contributing factor to a cooling in the SPAC market.
Despite the real regulatory challenges, here in Australia we continue to answer questions from Australian targets, potential investors and corporate advisers about the different ways to play in the SPAC market. Our US colleagues have seen a significant pause in new SPAC IPOs, in part due to heightened regulatory scrutiny. That said, they observe that a significant amount of capital is available as SPACs that went public in late 2020 and early 2021 continue to seek new targets. In the US, we continue to watch for a rebound in the SPAC market, potentially with a tougher regulatory framework or stronger investor protections.
Use of electronic communication methods in takeovers
Sending takeover documents electronically
Although there is an established practice in Arrangement Schemes of sending Scheme Brochures electronically (by emailing a hyperlink to a website where the Scheme Brochure is accessible) to Target Shareholders who provided an email address to the scheme company (with permission to use forwardings forming part of the court order in the first hearing), the Corporations Act provides that documents relating to a takeover under Chapter 6 (offerors and statements of objectives) are physically sent to shareholders.
In a pleasant development – and in line with other regulatory initiatives aimed at making it easier to conduct business in light of the COVID-19 disruptions – ASIC has been responsive to requests for relief to allow parties to electronically send takeover documents to shareholders. Our own experience with ASIC on this issue is that they have reacted quickly to such requests, particularly where genuine disruptions can be demonstrated (e.g. boundary locking in a particular state potentially materially impacting timelines ).
When parties to a takeover request this exemption, ASIC reminds parties that the purpose of this exemption is to facilitate electronic access to documents instead of a hard copy. In this regard, the form of electronic communications should not be considered a means of repackaging or summarizing information (eg, how to accept or reject, or pros and cons) relating to the tender offer. Electronic communication to members should be limited to instructions to shareholders on how to access electronic documents (the common approach being to create a “deal specific” website).
Electronic Acceptance of Tender Offers
Separately, but keeping the electronic theme, we also saw some examples of electronic (website-based) acceptance of takeover bids. Although online forms for raising capital and also online voting for arrangement arrangements have been in use for some time, it seems that the trend of online acceptance of takeover bids is also spreading. , given the real time-saving benefits it offers.
Provision of independent expert reports for acquisitions approved by members
Independent Expert Reports again get a mention from ASIC, although this time around the focus is on when IERs should be provided.
- Faulty directors’ ‘fair and reasonable’ report replaced by IER: While the practice of directors providing their own “fair and reasonable” opinion for the benefit of members is rare, ASIC cited a recent example over which many concerns have been raised. These included: questions about the directors’ expertise in expressing an opinion on financial and technical matters, the independence of one of the directors who authored the report and the reliance on the industry experience of certain directors concerns technical matters, although these administrators do not have the appropriate technical qualities. After ASIC’s involvement, the company engaged an independent expert to adjudicate on the transaction, which included a specialist technical report.
- Provision of IERs for the benefit of members: ASIC has issued a general reminder that if members are asked to approve the acquisition of a relevant interest (in this context we assume that ASIC is referring, for example, to a transaction involving one party acquiring >20% in another or increasing its holding from a starting point >20%), then if members do not receive an IER or a detailed report from the administrators on the transaction, it may be inconsistent with the directors’ obligation to disclose all material information about how to vote on the resolution. ASIC goes so far as to say that if member approval is obtained without a report from the IER or administrators, the approval may be invalid.
Noting the current Australian regulatory restrictions on SPACs in Australia, ASIC is closely monitoring global regulatory and policy settings in relation to SPACs amid a wider question of whether the SPAC market is cooling or stalling. just to breathe.
- Electronic communication methods in takeovers appear to be gaining popularity – with examples of electronic submission of bidder and target statements, and electronic acceptance facilities, emerging recently. Real-time, cost and efficiency benefits flow from these developments.
- In circumstances where trustees decide to produce their own report for members (rather than engage an independent expert), such reports are likely to attract real scrutiny – with the technical expertise and independence of the authoring trustees likely to be in the ASIC spotlight.