The Purpose of this Note
Since the introduction of the Takeovers Code the Panel has received a large number of applications for exemption from compliance with the Code. Many of the applications indicate that the purpose of and limitations on the Panel’s exemption power are not fully understood in the market.
The purpose of this guidance note is to clarify the Panel’s exemption power and to assist market participants in their appreciation of when exemptions are likely to be granted.
THE TAKEOVERS PANEL’S EXEMPTION POWER
The Code applies to all events which involve a change of control in excess of 20% of a code company’s voting rights and provides a number of mechanisms that can be utilised to increase voting control. Companies and investors are entitled and obliged to conduct their affairs on the basis of the provisions of the Code and the protections contained within it. The Code applies equally to all market participants.
The Panel is concerned that an increasing number of market participants are seeking exemptions to avoid the need for compliance with the Code, or to enable the use of an alternative transaction structure, to achieve a particular commercial outcome or benefit. The Panel wishes to ensure that market participants appreciate the purpose of and limitations on the Panel’s exemption power.
The Panel has power under section 45 of the Takeovers Act (the Act) to grant exemptions from compliance with the Code. However, the Panel is constrained by section 45(4A) which requires that the Panel's reasons for granting an exemption must include:
- why it is appropriate that the exemption is granted; and
- how the exemption is consistent with the objectives of the Code.
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It is clear that the Panel's exemption power is not intended to enable market participants to avoid or modify provisions of the Code so that they can structure a transaction in a manner that does not comply with the Code.
The Code is broad in its effect and in some areas is quite prescriptive in its requirements. As a consequence in some cases the Code may have unintended consequences or may not adequately provide for unexpected or unusual circumstances. The exemption power is, therefore, necessary to deal with these situations to ensure that the Code operates effectively and efficiently and fulfils its objectives.
Some applicants for exemption seek in support of their applications to refer solely to the objectives of the Code contained in section 20 of the Act. However, these were the objectives required to be considered by the Panel in formulating the Code. The way in which these objectives were interpreted and balanced against each other can be seen in the Code that was ultimately gazetted and became law. Consequently, when considering for the purposes of an exemption application the objectives of the Code, careful consideration must be given to the various obligations and requirements of the Code itself. For example, the objective in section 20 of the Act of "assisting in ensuring that the holders of securities in a takeover are treated fairly" is reflected in rule 20 of the Code which provides that an offer must be made on the same terms and offer the same consideration to all shareholders of the same class.
The Panel will, therefore, in deciding whether an exemption is appropriate, consider whether compliance with the Code is possible and whether compliance would create an inappropriate, unreasonable or unintended result.
Furthermore, the exemption itself must be consistent with the objectives of the Code as embodied in the provisions of the Code. Consequently the conditions upon which exemptions are
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