Friday, 30 October 2020

Last week, ASIC released its response to submissions on CP 326 Chapter 6 relief for share transfers using s444GA of the Corporations Act. 

ASIC relief from s606 of the Corporations Act 2001 (Cth) (Corporations Act) is required to effect a transfer of the shares of a company subject to deed of company arrangement (DOCA) pursuant to s444GA of the Corporations Act, in addition to obtaining a Court order under s444GA(1).
KordaMentha and Baker McKenzie had jointly made a submission to ASIC drawing on our experiences in obtaining s444GA relief in respect of Ten Network Holdings Limited (Ten).  A copy of our submission is here.
In short, ASIC has amended RG 6 Takeovers: Exception to the general prohibition and RG 111 Content of expert reports to reflect the following modified position on s444GA applications.

Key takeaways 

 1. Should an Independent Expert's Report (IER) be required? 

  • ASIC has retained the need for an IER as a condition of grant of the necessary relief from s606 in order to effect a s444GA transaction.
  • We had proposed that the Administrators Report to Creditors pursuant to Insolvency Practice Rules (Corporations) Rule 75-225 - a comprehensive document required to include a range of relevant information concerning the company and its assets - should be sent to shareholders with a short covering statement addressing matters relevant to them (including whether unsecured creditors were likely to be paid in full such that there would be a return to shareholders). This course would be quicker and less expensive than the preparation of a separate IER, noting that IERs are generally not required in solvent takeovers in any event. 

2. On what basis should the IER be prepared? 

  • ASIC will no longer require that IERs prepared in connection with s444GA applications value the company on a going concern basis.  The requirements for expert's reports in connection s444GA applications are now set out at RG111.70 - RG111.80. They relevantly require the independent expert to opine on whether there is any residual equity value for shareholders. 
  • We applaud this change, as we consider that the requirement to value the company on a going concern basis was unnecessary, expensive and, based on our experience in Ten, confusing to shareholders who may have considered that the company remaining a going concern was an available option where it was not. 

3. Who can prepare the IER? 

  • ASIC requires that the IER is prepared by an independent expert and not by the company's administrator.
  • We had submitted that, generally, the administrator will be best placed to prepare the materials to go to shareholders, including as they are already required to prepare the Administrator's Report to Creditors pursuant to Insolvency Practice Rules (Corporations) Rule 75-225, which is a necessary expense of the administration. As noted above, this would be cheaper and quicker than requiring a separate IER prepared by an independent expert and there are a range of protections around administrator independence.