Crescent Gold - an important Panel decision on "association"

In Crescent Gold [2011] ATP 14, the Takeovers Panel has dealt with a thorny takeovers issue, that has has been troubling market participants for over a decade.

One of the key concepts in Chapter 6 is "voting power" based in turn on the concepts of "relevant interest" and "associate". The key section of 606 prohibition is framed around "voting power" not exceeding 20%. The "associate" concept is used in determining "voting power" to aggregate the "relevant interests" of people who are loosely cooperating.

One of the ongoing issues with the "associate" definition has been how it deals with people who have entered into agreements for sale and purchase of voting shares. The problem has been that provisions can be interpreted so that where people enter into a sale and purchase agreement, the buyer's "voting power" may include all the voting shares held by the seller, not just those subject to the agreement. The problem is most acute where the seller holds more than 20% of the voting shares, and the buyer could obtain "voting power" in all of them (in breach of section 606) by agreeing to buy just one share. This potentially absurd outcome is due to an interpretation of section 12(2)b:

relevant agreement for the purpose of controlling or influencing... the conduct designated body's affairs

given the application of the definition of affairs in section 53 by Corporations Regulation 1.0.18.

ASIC Class Order 04/631 does address this problem to some degree, but the Panel's Decision suggests that Parliament did not intend that a mere sale and purchase agreement would give rise to an "association". The Panel referred to the Corporations Law Simplification Programme Task Force's "Takeovers Proposal for Simplification" (January 1996) in which the changes to the associate provisions ultimately implemented in the 1999 CLERP legislation were first outlined. The Proposal for Simplification makes it tolerably clear that the drafters of the CLERP legislation did not intend that a sale and purchase agreement would, of itself, give rise to an association.

The result of the case was the Panel would not find that an agreement for sale and purchase of shares (in this case, the acceptance of a takeover offer) gave rise to an association, in the absence of something more.

Panel decisions are of limited precedent value, and the Panel is not a Court. However, this decision should be persuasive for later Sitting Panels and Courts and appears to be consistent with the policy underlying the provisions of Chapter 6.

Download the decision here.