|
In brief
- The Panel recently made a declaration of unacceptable circumstances in relation to associated parties holding in excess of 20% of the voting power in Mesa Minerals Limited.
- In reaching its decision, the Panel considered the structural links, common investments and uncommercial dealings between the associated parties to be relevant.
- The Panel’s decision demonstrates its willingness to investigate detailed factual circumstances and draw inferences regarding association.
- It also shows that although the Panel is typically reluctant to intervene in situations involving a board spill attempt, it will be more prepared to do so where there is an alleged breach of the 20% voting power threshold and where there is a live takeover bid.
|
Background
In late-2009, a dispute arose between Mesa Minerals Limited and its joint venture partner, Auvex Resources Limited, in relation to their manganese joint venture. In early 2010, while the joint venture dispute was ongoing, Mesa and Auvex held merger discussions which ultimately concluded unsuccessfully.
Shortly after merger discussions broke down, Mesa’s largest shareholder, Mighty River International and certain other shareholders requisitioned an extraordinary general meeting to replace a majority of the board of Mesa. Shortly before the meeting, Mineral Resources Limited announced a takeover bid for Mesa which was unanimously recommended by Mesa directors. Mighty River’s attempt to replace the Mesa board then failed by a narrow margin at the requisitioned meeting of Mesa shareholders.
Less than a week after the first requisitioned meeting, Mighty River (alone) requisitioned a further extraordinary general meeting to replace a majority of the Mesa board. By this time Mighty River had increased its stake in Mesa to approximately 19%. In the days following the requisitioning of the second meeting, Auvex began acquiring Mesa shares, increasing its holding in Mesa to approximately 7%.
Mesa’s application to the Takeovers Panel
Prior to the second requisitioned meeting being held, Mesa applied to the Takeovers Panel, alleging that Mighty River, Auvex and others were associates for the purposes of gaining control of Mesa so as to resolve the joint venture dispute in favour of Auvex, defeat Mineral Resources’ bid and effect a merger between Auvex and Mesa.
Mesa submitted that the conduct of the associated parties gave rise to unacceptable circumstances because:
- between them, they had acquired more than 20% of Mesa in contravention of section 606 of the Corporations Act and because they had not accurately disclosed their substantial holdings as required by section 671B
- Mesa shareholders did not have a reasonable and equal opportunity to participate in the Minerals Resources takeover offer, and
- the acquisition of control over Mesa shares was not taking place in an efficient, competitive and informed market.
The Panel found that Mighty River, Auvex and one of the initial requisitioning shareholders were associated. The Panel held that association gave rise to unacceptable circumstances due to the effect on the control or potential control of Mesa and the breaches of the Corporations Act alleged by Mesa.
Indicia of association
The Panel sought and received a vast amount of information regarding the relationship and communications between the parties. The evidence on which the Panel relied in making its finding of association can be grouped into three broad indicia of association:
- Structural links – The Panel was prepared to make inferences based on common directors, advisers and registered agents. The Panel was also concerned with the unexplained share movements and changes to directorships of connected parties.
- Common investments and dealings – In the circumstances, the Panel considered probative the unexplained sequential purchasing of Mesa shares by the associated parties. The Panel also considered relevant the unexplained attendances at meetings and involvement in company affairs by the connected parties, including Auvex’s involvement in Mighty River’s requisitioning of the Mesa shareholder meetings.
- Uncommercial dealings – The Panel placed significance on what it considered were uncommercial agreements and transfers of money between the associated parties.
Interaction of the Panel proceedings with the board spill attempt
In previous decisions, the Panel has indicated that it is generally reluctant to intervene in the efforts of a shareholder to change the management of a company. However, as demonstrated in Mesa Minerals, the Panel will be prepared to act where those efforts involve an acquisition of voting power in breach of the 20% threshold and where there is a live takeover bid such that a proposal relating to control may be affected by the proscribed acquisitions.
The interaction between the requisitioned meetings and the Panel proceedings also raised some practical issues in relation to the Panel’s orders. In its final orders, the Panel ordered that Mesa shares held by the associated parties in breach of the 20% threshold be vested for sale in ASIC (unless accepted into the Mineral Resources bid within a limited time). The divestment order was made a week before the second requisitioned meeting was due to be held.
Due to the timing of the orders, none of the divested shares would be able to be sold prior to the meeting, so the Panel also ordered that the shares that were to be divested could not be voted at the meeting. Due to the lower number of shares that could be voted at the requisitioned meeting, the effect of this order was to magnify the voting power of the remaining shares held by the associated parties.
Therefore, rather than limiting any voting restriction to 20% of Mesa’s share capital, the Panel was prepared to order that the associated parties were limited to voting 20% of the shares that would be able to be voted at the shareholder meeting. In doing so, the Panel demonstrated it was prepared to deny involved parties any additional benefits related to breaches of the 20% threshold.
Mighty River subsequently requested that the resolutions it proposed at the second requisitioned meeting be withdrawn and the meeting was cancelled as a result.
Review proceedings
One of the associated parties sought a review of the initial Panel’s decision. The review Panel reached the same conclusions as the initial Panel and held that the initial Panel made reasonable inferences from the evidence before it. The review Panel therefore upheld the original declaration of unacceptable circumstances.
However, due to some of the associated parties subsequently accepting into the Mineral Resources takeover bid post the initial Panel’s decision, the combined voting power of the associated parties fell below 20% before the review application was determined. As a result, the review Panel upheld the initial Panel’s declaration of unacceptable circumstances but set aside the initial Panel’s orders, because they were no longer required. This is consistent with the Panel’s general reluctance to make orders in circumstances where a previous breach has been subsequently remedied.
Conclusion
The Panel’s decision demonstrated the Panel’s preparedness to examine complex corporate structures to determine the true controllers of both domestic and foreign companies. This is a positive development for parties seeking an outcome in relation to allegations of association in a cost effective forum within a relatively short period of time.
Freehills acted for Mesa Minerals on the Panel application.
This article was written by Simon Reed, Partner and Paul Branston, Senior Associate, Perth.
More information
For information regarding possible implications for your business, contact