Takeovers Panel orders The Market Limited to appoint two independent directors

Usually who serves on the board of a listed company is a matter for the company and its shareholders and others, including regulators and the courts, only rarely intervene.

That’s why the Takeovers Panel’s order requiring two independent directors to be appointed to the board of The Market Limited (MKT) is so unusual.

In September 2022, MKT (owner of HotCopper, Gumtree, Carsguide and Autotrader) conducted an Entitlement Offer.

Two substantial shareholders in MKT (one with a board seat) were unhappy that the Entitlement Offer had caused a dilution in their shareholdings in MKT and in November 2022 they co-operated in a successful plan to remove the Managing Director of MKT.

Then in February 2023, MKT conducted another Entitlement Offer. While the second Entitlement Offer was underway, UIL Limited (UIL) (a 23 per cent shareholder in MKT) made an application to the Takeovers Panel in which it complained that the Entitlement Offer booklet had failed to disclose that the two substantial shareholders were associates, with the result that various disclosures made in the booklet were misleading.

The Panel agreed with UIL, declared the misleading disclosures to be unacceptable circumstances, and ordered a divestment of some of the associates’ shares in MKT.

Then in a first for the Panel, it also ordered that two independent directors must be appointed to the board of MKT and that for a period of 12 months from their appointment the two substantial shareholders may not vote their shares in MKT to remove the independent directors.

The Panel said in its reasons that the actions of the substantial holders in removing the Managing Director in November 2022 and not disclosing their association in the 2023 Entitlement Offer booklet demonstrated “a significant shortcoming in corporate governance which we consider is only likely to be addressed by the appointment of independent directors”.

The additional orders are remarkable for the following reasons:

• as Justice Ashley Black noted in John Farragher Pty Ltd, Re (2019) 142 ACSR 11, courts will only make orders appointing or removing directors in exceptional circumstances.
• for the first time, the Panel went beyond its usual approach of making orders that unwind the effect of unacceptable circumstances that have occurred or that prevent those particular circumstances from causing harm. Instead, this Panel order is seeking to prevent future unknown unacceptable circumstances arising within MKT.

Byron Koster was a member of the Takeovers Panel for 12 years.