The situation: The Australian Securities and Investments Commission (“ASIC”) recently released its quarterly update on corporate finance. Hot topics include Special Purpose Acquisition Companies (“SPAC”), electronic delivery of takeover documents and the importance of independent expert reports to shareholder approved transactions.
The result: PSPCs remain ineligible for listing on ASX, which means major legislative changes will be needed before PSPCs can come to Australia. ASIC is also reporting an increase in back-up requests allowing the electronic submission of Chapter 6 takeover documents, which is a welcome development for practitioners. In addition, ASIC has provided advice on when independent expert reports may be required for shareholder approved transactions.
Looking forward: SPACs will likely remain in the sights of major financial regulators around the world, while their financial merits attract a range of views as well. The use of electronic communication methods in Chapter 6 takeovers is likely to become more widespread, especially with the rebound in takeover activity lately, and we believe the market would be favorable to an order of class or other more permanent regulatory solution to facilitate electronic communication.
PSPCs: Are They Coming to Australia?
Almost daily, the financial and mainstream press reports on PSPCs, with differing views and scenarios. Interestingly though, with their popularity growing rapidly in the United States in particular, increased regulatory oversight and a broader business question as to whether there are enough merger targets for SPACs means we seem almost be at an inflection point on the SAVS.
These newly formed companies (without assets or operations) which raise capital through an initial public offering, are not able to register on the ASX due to the restrictions of the registration rules. on “cash” entities and ASX requirements on structural and operational requirements for a listed entity. So, in this regard, the American-style model cannot be easily “lifted” and transplanted to Australia without significant changes to our laws and operational market issues.
ASIC says it continues to monitor global regulatory developments, including in the US, UK and Singapore – and in that context, it noted that increased regulatory scrutiny by the SEC American might have been a factor that contributed to a cooling in the PSPC market.
Despite the real regulatory challenges, here in Australia we continue to respond to requests from Australian targets, potential investors and business advisers on the different ways to play in the PSPC market. Our American colleagues have seen a significant pause in new PSPC IPOs in part because of increased regulatory scrutiny. That said, they observe that a significant amount of capital is available as the SPACs that went public at the end of 2020 and early 2021 continue to seek new targets. In the US, we continue to monitor a rebound in the SPAC market, potentially with a more stringent regulatory framework or otherwise strengthened investor protections.
Use of electronic communication methods in acquisitions
Electronic sending of takeover documents
Although there is an established practice in arrangement drawings to send the scheme booklets electronically (via emailing a hyperlink to a website where the scheme booklet can be viewed) to targeting shareholders who provided an email address to the scheme company (with permission to use dispatch forming part of the court order at the first court hearing), the Companies Act provides that Documents relating to a Chapter 6 takeover (declarations of bidders and targets) are physically sent to shareholders.
In satisfactory development – and consistent with other regulatory initiatives aimed at making it easier to do business in light of COVID-19-related disruptions – ASIC has been receptive to requests for relief to allow parties to send documents take control electronically to shareholders. Our own experience with ASIC on this issue is that they have reacted quickly to these requests, especially when genuine disruption can be demonstrated (for example, locking borders in a particular state can have a big impact on timelines. ).
When parties to a takeover request this exemption, ASIC reminds the parties that the purpose of this exemption is to facilitate electronic access to documents instead of hard copy. In this regard, the form of electronic communications should not be viewed as a way to repackage or summarize information (for example, how to accept or reject, or the pros and cons) relating to the takeover bid. Electronic communication to members should be limited to instructions to shareholders on how to access electronic documents (the common approach is to establish a “transaction specific” website).
Electronic acceptance of takeover bids
Separately, but keeping the electronic theme, we’ve also seen a few examples of electronic (website-based) acceptance of buyout offers. Although online fundraising and also online voting forms for arrangement schemes have been in use for some time, it appears that the trend towards online acceptance of take-over bids is also growing, given the real time-saving benefits it provides.
Provision of independent expert reports for acquisitions approved by members
Independent expert reports again receive a mention from ASIC, although this time around the focus is on when IERs should be provided.
- “Fair and reasonable” report of defective administrators replaced by an 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 about which many concerns were raised. These included: questions about the expertise of directors to express an opinion on financial and technical matters, the independence of one of the directors who wrote the report and the use of the industry experience of certain directors in this regard. which concerns technical matters, although these administrators do not have the appropriate technical diplomas. After ASIC’s intervention, the company hired an independent expert to comment on the transaction, which included a specialized technical report.
- Provision of IERs for the benefit of members: ASIC recalled 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 an acquiring party > 20% in another or increasing their from a starting point> 20%), then if members do not receive an IER or a detailed report from directors on the transaction, this may be inconsistent with the obligation directors to disclose all important information about how to vote on the resolution. ASIC goes so far as to say that if membership approval is obtained without a report from the IER or the Director, the approval may be invalid.
Three key points to remember
Noting current Australian regulatory restrictions on PSPCs in Australia, ASIC is closely monitoring global regulatory and policy settings relating to PSPCs amid a larger question of whether the PSPC market is cooling or doing just right. a break to breathe.
- Electronic methods of communication in takeovers appear to be gaining popularity – with examples of electronic submission of bidder and target declarations, and electronic acceptance facilities, which have recently emerged. Real-time benefits in terms of costs and efficiency result from these developments.
- In cases where directors decide to produce their own report for members (rather than hire an independent expert), these reports are likely to attract real scrutiny, with the technical and independent expertise of the author directors likely to be in the spotlight of ASIC.