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Doing Business in Australia | Acquiring a company or business

3 mins  15.05.2018

Acquisitions of shares and businesses in Australia are regulated.

Depending on the method of acquisition, several issues may need to be considered when acquiring shares or businesses in Australia.


Key takeouts

In Australia there are regulations to acquire a company or business.
Restrictions may apply to acquisition of shares and businesses in Australia.

Overview

Acquisitions of shares and businesses in Australia are regulated by:

  • the Corporations Act
  • the Foreign Acquisitions and Takeovers Act (FATA)
  • the Competition and Consumer Act
  • the Listing Rules of Australian Stock Exchange Limited (ASX), and
  • legislation affecting the relevant industry of the corporation or business being acquired.

Depending on the method of acquisition, several issues may need to be considered when acquiring shares or businesses in Australia.

Acquisition methods

Takeovers

Acquisitions of substantial interests in Australian companies are regulated by the takeover provisions of the Corporations Act. Subject to a few exceptions (including unlisted companies with 50 or fewer members), if a person wishes to acquire a ‘relevant interest’ in more than 20% of the issued share capital of a company, that person must make a takeover bid. The concept of ‘relevant interest’ covers a broad range of direct and indirect interests in securities and a person can reach the 20% threshold without becoming a registered holder of securities.

If a person acquires interests in more than 90% of the voting shares of a company under a takeover offer, the compulsory acquisition provisions may be used to acquire the balance, if certain criteria have been met. Compulsory acquisition provisions can be used in other circumstances where thresholds are met.

Schemes of arrangement

As an alternative to a takeover bid, it is common for Australian companies to merge by way of scheme of arrangement. These schemes are highly regulated including the requirement for shareholder and Court approvals.

Reduction of capital

Sometimes a change of control may be achieved through a reduction of capital. Reductions of capital are regulated under the Corporations Act. A reduction of capital requires shareholder approval and must be fair and reasonable for creditors.

Other matters for consideration

Other restrictions that may apply to a particular transaction include:

  • under the Corporations Act, the requirement for substantial shareholding notices to be lodged with both the company and with ASX when a 5% threshold is reached and then for updated notices to be lodged whenever the holding increases or decreases by 1% or more. The threshold relates to the number of votes attached to shares in which a person and their associates have a relevant interest. It may be reached before shares are actually acquired or transferred
  • under the Listing Rules, provisions regulating various activities, including the sale of a company’s main undertaking or the issue of shares over a prescribed level which require shareholder approval and compliance with certain ASX requirements.

The Corporations Act also regulates the circumstances in which a company may financially assist a person to acquire shares in itself.

A company can only do this if:

  • the financial assistance does not materially prejudice the company, the shareholders or the company’s ability to pay its creditors,
  • or if the shareholders give their advance approval to the financial assistance.

Trading in securities while in possession of information that is not generally available to the public and that, if it were available, would have a material effect on the price of the securities is prohibited by the Corporations Act under insider trading provisions.

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