Consultation Paper 312: Stub equity in control transactions
The submission to the Australian Securities and Investments Commission (ASIC) in response to it's Consultation Paper 312 in relation to stub equity in control transactions, and the proposed form of legislative instrument (CP312) was prepared by the Corporations Committee of the Business Law Section.
- The Committee is not supportive of this proposal.
- As it stands - the proposal in CP312 is likely to compromise investor protection, rather than enhancing it.
- The Committee does not often object to a proposal in its entirety, and the Committee appreciates the policy arguments in support of the proposal. However, in our view the practical ramifications of the reforms would mean that the balance of public interest would weigh against the proposal.
- The Committee believes that the proposed reforms would drive M&A structures offshore, losing the benefit of the application of Australian law, to the detriment of investors and potentially the Australian tax base, and businesses that provide ongoing services to the acquiring entities. There are examples in the past of offshore structures having been used.
- These reforms are proposed where there is a takeover / scheme process – which has offered its protections in terms of disclosure, and approval or acceptance thresholds. Investors are fully informed.
- Regulatory intervention / policy changes will not deter the shift towards private capital and take-privates will continue to occur. Take-privates are seeking (and pay for) greater flexibility, reduction in red tape and operational efficiencies.
- Retail should have the opportunity to participate in take-private transactions, and their potential for value creation – the policy argument for creating deterrents or obstacles to this is not clear.
- There is some concern as to whether this sort of reform should properly made by ASIC legislative instrument, rather than Parliament, given it removes longstanding exemptions.
You can read the full submission below.