29/06/2004 - 22:00

Associate and IDPS takeover relief given

29/06/2004 - 22:00

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Associate and IDPS takeover relief given

Associate and IDPS takeover relief given

 

Two class orders issued by the Australian Securities and Investments Commission give relief on the "associate" concept in section 12 of the Corporations Act and on takeovers and substantial holdings to operators of investor-directed portfolio services.

The associate concept is fundamental to takeover regulation because it treats parcels of shares held by different people as a single block when they are cooperating to control a company.

This means they cannot avoid the 20 per cent takeover prohibition.

The class order, which covers agreements such as share sales, options and escrows, means parties are not associates merely because under an agreement they have a right to buy or sell shares. Such a right does not of itself suggest the parties are cooperating to control a company.

Without the class order one party would be treated as holding all of the securities held by the other party, not just those subject to the agreement.

The class order does not cover any other provision in the same agreement or in another agreement between the parties that gives rise to an association. One example is an agreement to remove or appoint directors of the company.

The other class order modifies section 609 of the act so the operator of an IDPS does not have a relevant interest in securities held through the IDPS.

AN IDPS is a service for acquiring and holding investments that generally involves custody arrangements and consolidated reporting to investors. Such services are typically marketed as a master fund or wrap account.

ASIC granted the relief because operators have such limited powers over securities held through the IDPS they should be treated as bare trustees.

The class order does not apply to IDPS-like schemes because operators of these schemes generally have wider powers over securities held through the schemes.

ASIC has also moved to clarify the audit and procedural requirements for IDPS and IDPS-like schemes.

The main changes are:

  • Definitional changes;
  • Clarification of the auditing requirements and procedures, including where there are multiple choice operators or different auditors associated with the operation of an IDPS;
  • Prohibition of disclaimers and exclusion clauses; and
  • Other changes to the definition of "regular savings plan" and the concept of "giving" and "sending" documents.

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