New disqualification process for applicants for, and transferees of, Queensland resource tenements

The Mineral and Energy Resources and Other Legislation Amendment Act 2020 (Qld) (MEROLA) will amend the MERCP Act to introduce a new disqualification process which will apply to the grant or transfer of the following Queensland resource tenements:

• mining claims, exploration permits, mineral development licences and mining leases under the Mineral Resources Act 1989 (Qld);
• authorities to prospect, petroleum leases, pipeline licences and petroleum facility licences under the Petroleum and Gas (Production and Safety) Act 2004 (Qld);
• petroleum leases under the Petroleum Act 1923 (Qld);
• greenhouse gas permits and leases under the Greenhouse Gas Storage Act 2009 (Qld); and
• geothermal tenures the Geothermal Energy Act 2010 (Qld).

The above tenements will be called “prescribed resource authorities”.

The disqualification process is intended to allow the Minister to better assess the risks associated with applicants and transferees in relation to their ability to adequately manage their tenements and remain compliant with their tenement obligations. 

The disqualification process will commence on 7 September 2020. 

 

Disqualification process

The disqualification process applies to applications for:

• the grant of a new prescribed resource authority (including where the application is made under a tender process); and
• the approval of a transfer of an existing prescribed resource authority (or an interest in a prescribed resource authority).

Under the disqualification process, the Minister will have a discretionary power to disqualify:

• the applicant for the grant of a new prescribed resource authority from being granted the prescribed resource authority; or
• the intended transferee from being transferred an existing prescribed resource authority (or an interest in a prescribed resource authority).

In deciding to whether to disqualify an applicant or transferee, the Minister must consider specified disqualification criteria. 

The disqualification criteria apply not only to the applicant or transferee (as applicable), but also to any “associate” of the applicant or transferee.  An “associate” of an applicant or transferee is:

• an entity that the Minister considers is in a position to control or substantially influence the applicant’s/ transferee’s affairs in connection with the prescribed resource authority;
• the directors of the applicant/ transferee; or
• the parent company of the applicant/ transferee or a director of the parent company.

The disqualification criteria include whether the applicant or transferee (as applicable) or associate:

• has contravened the MERCP Act or other Queensland resource legislation;
• has been convicted of an offence against the MERCP Act, other Queensland resources legislation, the Environmental Protection Act 1994 (Qld), the Coal Mining Safety and Health Act 1999 (Qld), the Mining and Quarrying Safety and Health Act 1999 (Qld) or the Water Act 2000 (Qld) or a corresponding Commonwealth law;
• has been convicted of an offence involving fraud or dishonesty in the last 10 years;
• is an insolvent under administration;
• is, or was in the last 10 years, a director of a body corporate that is or was the subject of a winding-up order or for which a controller or administrator is or was appointed; or
• is disqualified from managing a corporation under the Corporations Act 2001 (Cth).

The disqualification criteria are not exhaustive.  The Minister may consider any other matter the Minister considers relevant to making the decision. 

The Minister has flexibility as to the weight he or she gives to a contravention or conviction in exercising his or her discretion (including, for example, by having regard to the seriousness of the contravention or offence and the culpability of the applicant / transferee or associate). 

The disqualification process provides an applicant/ transferee with procedural fairness.  Before making a decision to disqualify, the Minister must notify the applicant/ transferee of the proposed decision and the reasons for the decision.  The applicant/ transferee then has an opportunity to make submissions to the Minister about the proposed decision.

 

Practical consideration in M&A transactions

The new disqualification process could give rise to practical issues for parties involved in M&A transactions in the resource sector involving the transfer of prescribed resource authorities (or interests in prescribed resource authorities). 

A potential buyer in such a transaction may be ultimately disqualified from being a transferee under the disqualification process, despite the potential seller having received an indicative approval for the transaction.  The buyer is unable to protect itself in advance from such a result occurring by seeking an indicative assessment as to whether it will be disqualified, as this mechanism was not introduced with the new disqualification process.  The seller is also unable to foresee an ultimate disqualification of the transferee, as the Minister will not consider the disqualification criteria in providing the indicative approval. 

Under the MERCP Act, a tenement holder wishing to transfer a prescribed resource authority (or interest) as part of an M&A transaction can apply to the Minister for an indication of whether the Minister is likely to approve the transfer, and if so, the conditions that will be imposed on the transfer.  This process is known as an “indicative approval”.  The indicative approval is binding on the Minister (with limited exceptions) for a period of six months. 

It is common for parties involved in M&A transactions to rely upon an indicative approval to complete the transaction (including the buyer paying the purchase price) on the basis that the Minister will, following completion, ultimately approve the transfer of the prescribed resource authority (or interest) consistent with the indicative approval.

However, the disqualification process does not include a similar mechanism.  A resource tenement holder is unable to seek an indicative assessment in relation to whether the Minster will exercise the new disqualification powers to block the transfer of a prescribed resource authority (or interest).

In addition, as the indicative approval and disqualification processes are separate statutory processes under the MERCP Act, there is no requirement that the Minister consider the disqualification criteria relating to a transferee (or associate) when deciding whether or not to give an indicative approval for the transfer of a prescribed resource authority (or interest) to the transferee.  Whether this happens in practice remains to be seen.

As a result, it is possible that the Minister could give an indicative approval for the transfer of a prescribed resource authority (or interest), but subsequently exercise the disqualification powers to block the transfer to the proposed transferee.

In the context of an M&A transaction, this could result in the parties completing the transaction (including the buyer paying the purchase price) in reliance upon the indicative approval, but the Minister subsequently exercising the disqualification powers to block the transfer of the prescribed resource authority (or interest) to the buyer following completion. Parties and their lawyers will need to give consideration to this risk when drafting sale and purchase agreements.

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