Australia’s Takeovers Panel has released the following updated Guidance Notes:

• Guidance Note 7: Lock-Up Devices
• Guidance Note 12: Frustrating Action
• Guidance Note 14: Funding Arrangements
• Guidance Note 17: Rights Issues

Copies are available at www.takeovers.gov.au

The Panel identified the following key changes and clarifications in the Guidance Notes:

Guidance Note 7: Lock-Up Devices

• The guidance note applies to any control transaction.
• Triggers for payment of break fees must be reasonable.
• There is clarification of the 1% guideline for break fees.
• Re-writing of the section on restriction agreements.

Guidance Note 12: Frustrating Action

• Shareholders may be given a choice between proposals in different ways. 
• Where a target can get shareholder approval of a frustrating action by directors announcing they will enter into an agreement after a specified, reasonable time (unless control has by then passed to the bidder), ‘reasonable time’ may be affected by the length of the bid period or the status of any bid conditions.
• Additional examples.

Guidance Note 14: Funding Arrangements

• Reduced internal-cross referencing.
• Bringing related subjects together.

Guidance Note 17: Rights Issues

• Updated references.
• Removal of concepts of presumption and onus.
• Sets out factors that are relevant to the Panel’s consideration of unacceptable circumstances.

Last week the Australian Senate passed a new law to take effect on 12 February: 12 February 2009, that is. The new law amends with retrospective effect Australia’s foreign investment legislation, the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA).

Lawyers are always wary of retrospective laws, because clients can be deemed to be breaking the law after the event, even when they were acting legally at the time.

Under FATA, proposals by foreign investors to acquire 15% or more of the voting power or issued shares of an Australian corporation (what’s called a ‘substantial interest’) must be notified to the Treasurer. Some types of investment have a monetary threshold, and you don’t need to apply for approval if you are under it. There are higher thresholds for US investors. Other investments like residential real estate (generally speaking) have no threshold. There are also notification requirements for aggregated interests over 40%. The Treasurer has the power to block the foreign investment or put conditions on it if it’s considered contrary to the national interest.

The FATA amendment extends the notification requirements when the foreign investor proposes to acquire 15 percent or more of potential voting power or the right to issued shares. The intent is to capture more complex financing arrangements, like options to acquire shares and convertible notes. The amendment is seen as a clarification of the prior law. It was not clear whether it actually applied to potential interests of this kind.

Fortunately, the amendment includes some protection for investors from its retrospective application: you have 30 days after the FATA amendment receives royal assent to notify the Treasurer that you entered into a foreign investment proposal subject to FATA (as amended) after 12 February 2009, if you have not already done so.

Since the Treasurer announced the proposed changes last year (in fact on 12 February 2009), the government thinks that most investors who made their notifications in the intervening period should have been aware of the coming changes, and made voluntary notifications (i.e., as if the new law was already passed). If you haven’t, you should make notification immediately: criminal penalties could apply if you have not given notice by the end of the 30 day period.