SK Innovation Offtake/Funding Agreement, page-280

Australian takeover laws - what you need to know
9 min Michael Gajic, Michael Scarf
This article explains the main principles and basic concepts underpinning takeover laws in Australia, as well as the key features of the most common types of control transactions.

Australian takeover laws are essential for the healthy functioning of equity markets and the Australian economy. This article explains the main principles and basic concepts underpinning takeover laws in Australia. The article also covers the key features of the most common types of control transactions.

Main principles underpinning Australian takeover laws
Australian takeover laws govern the acquisition of control of listed Australian companies, managed investment schemes and unlisted Australian companies with more than 50 members.

Australian takeover laws are set out in the Corporations Act, primarily Chapter 6.
These are designed to further three main takeover principles:

• the acquisition of control takes place in an efficient, competitive and informed market;
• target shareholders have a reasonable time to consider a control proposal and know the identity of the proponent, and
• target shareholders are all treated equally under any control proposal.

The basic concepts
The Corporations Act uses a number of basic concepts to apply the three main principles underpinning Australian takeover laws.

20% rule
The '20% rule' or 'general prohibition' is the first basic concept and the most important.

The 20% rule provides that a person cannot acquire voting securities if that acquisition would result in that person's, or any other person's, voting power in the company or managed investment scheme exceeding 20%, unless the acquisition is through one of the exceptions.

The 20% rule is a broad prohibition with a number of anti-avoidance elements.

Voting power
The second basic concept is known as 'voting power'.

Voting power is the percentage of all votes attaching to voting securities in which a person and all of their associates have a relevant interest.

The 20% rule uses the concept of voting power to extend its application to not just a single person, but to groups of people acting together or who control or are controlled by the other.

Relevant interest
The third basic concept is known as a 'relevant interest'.

A person will have a relevant interest in voting securities if they have some form of direct or indirect control over voting or disposing of those securities, including if they:

• own the securities;
• have the power to exercise, or control the exercise of, a right to vote attached to the securities; or
• have the power to dispose of, or control the exercise of a power to dispose of, the securities.

The 20% rule uses the concept of a relevant interest to extend its application beyond simply owning voting securities and to measures of control outside of ownership.