Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)19 Recording of telephone conversations during takeovers
Telephone monitoring during takeovers
19.1 The proposed amendments in Part 2 of Schedule 3 relate to the recording of calls during takeovers. The provisions will be inserted as Subdivision D in Division 5 of Part 6.5 of the proposed Corporations Act.
19.2 The general requirement (proposed section 648J) will to be to require a bidder or target (referred to in the provisions as the recorder) to make a clear sound recording of all telephone calls that the recorder makes during a bid period to holders of securities in the bid class or to holders of securities that come to be in the bid class due to conversion of or exercise of rights attached to other securities, provided the bid extends to these securities. This obligation will extend to all telephone calls made for the purpose of discussing the takeover bid, even if they were also made for another purpose. The obligation does not extend to calls made by holders of the securities to the bidder or target or to other forms of communication.
19.3 This requirement will ensure that there will be record of the conversation if bidders or targets contact the holders of bid class securities during takeovers. In the event that either the holder of the securities or ASIC wishes to investigate what was said in the conversation, for example, to determine whether any of the statements made could amount to misleading or deceptive conduct, this would facilitate the investigation and any enforcement action that might result from it. In the absence of such recordings, it would be difficult to prove that particular statements were made. This could prevent the effective enforcement of provisions of the proposed Corporations Act that could relate to these calls.
19.4 When a call is recorded there is a requirement for the recorder to notify the other person that the call is being recorded (proposed section 648K). Failure to do this would constitute a contravention by the recorder of the Telecommunications (Interception) Act 1979 .
19.5 A number of other requirements will apply to the making of these recordings. The recorder will have to identify each recording by indicating on it the parties to the conversation and the date and time when it occurred (proposed section 648L).
19.6 There are also a number of obligations that continue after the recordings are made. These obligations are placed on the recorder or, where the recorder has been wound up, then jointly on the former directors of the recorder (proposed section 648M). This person is referred to as the recording custodian.
19.7 These obligations include keeping and maintaining the index as well as storing the recordings themselves. The recordings must be kept at the place specified in the index. They must be kept in a manner that protects them from misuse, loss, unauthorised access, modification or disclosure and as prescribed by the regulations (proposed section 648N).
19.8 The recordings and index must be kept by the recording custodian for 12 months and then destroyed. However ASIC may extend this period through a notice in writing to the recording custodian (for example, if it is proposing to undertake an investigation of conduct during the takeover bid).
19.9 Access to the index and recordings is subject to strict controls for privacy reasons (proposed section 648Q). They can only be accessed for the purpose of ensuring compliance with the corporations legislation. Generally, only the parties to the conversation, ASIC or a person authorised by a court can access the recordings and the index. The recording custodian can only give possession of them to another person if they are required to do so by a court order in accordance with Division 3 of Part 3 of the ASIC Act.
19.10 There are prohibitions on a person copying or tampering with the index or recordings or on the recording custodian allowing a person to do such a things (proposed sections 648R and 648S).
19.11 While generally, an index or recording is not a book for the purposes of the proposed Corporations Act, they are books for the purposes of some provisions of the proposed ASIC Act (Item 28 of Schedule 3, Part 1). This ensures that ASICs powers under Part 3 of the ASIC Act are available in relation to these recordings and indexes.
19.12 Offences related to contraventions of these obligations give rise to offences created through the operation of subsection 1311(1) of the proposed Corporations Act. These offences will be subject to the Criminal Code on commencement (proposed section 648U).