House of Representatives

Explanatory Memorandum

(Circulated by authority of the Assistant Treasurer, Minister for Housing and Minister for Homelessness, Social and Community Housing, the Hon Michael Sukkar MP)

Chapter 8: CCIVs - Control and fundraising

Outline of chapter

8.1 This Chapter outlines how the following Chapters of the Corporations Act apply to CCIVs:

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Chapters 6 to 6C regarding takeovers, compulsory acquisitions and buy-outs;

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Chapter 6CA regarding continuous disclosure; and

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Chapter 6D regarding fundraising and disclosure.

Context of amendments

8.2 Chapters 6 to 6B of the Corporations Act set out the regulatory requirements for takeovers, compulsory acquisitions and buy-outs of certain entities, including companies, listed bodies and listed registered schemes. In particular, these Chapters set out requirements regarding the acquisition of a relevant interest in such entities.

8.3 Chapter 6CA sets out the continuous disclosure requirements for disclosing entities and listed disclosing entities.

8.4 Chapter 6C sets out the requirements for the disclosure of substantial holdings in certain listed entities - including listed companies and listed registered schemes.

8.5 Chapter 6D sets out the fundraising and disclosure requirements for companies.

8.6 The corporate director of a CCIV is a public company that is subject to the full regulatory requirements for public companies, including the provisions of Chapters 6 to 6D in its own right.

Summary of new law

8.7 An acquisition of a relevant interest in issued voting shares in a listed CCIV is subject to the regulatory requirements for takeovers, compulsory acquisitions and buy-outs set out in Chapters 6 to 6B of the Corporations Act. These transactions are also subject to the Takeovers Panel's jurisdiction. Other acquisitions of a relevant interest in a CCIV (such as an acquisition of a relevant interest in an unlisted CCIV) are exempt from these requirements and the Takeovers Panel's jurisdiction.

8.8 The provisions of Chapter 6C of the Corporations Act apply to a listed CCIV in the same way that it applies to other listed entities.

8.9 The provisions of Chapters 6 to 6C of the Corporations Act will continue to apply to CCIVs that propose to acquire, or hold, a relevant interest in another entity that is the subject of these rules.

8.10 CCIVs that are disclosing entities or listed disclosing entities are subject to the continuous disclosure requirements in Chapter 6CA, as modified by Part 8B.7.

8.11 Division 3 of Part 8B.7 exempts offers of securities in a CCIV from the fundraising and disclosure requirements in Chapter 6D of the Corporations Act. It also prohibits offering securities in a CCIV that does not exist, and offering securities in a CCIV that are referable to a sub-fund of the CCIV that is not yet established.

Comparison of key features of new law and current law

Detailed explanation of new law

Takeovers, compulsory acquisitions and buy-outs

Application of the regulation for takeovers, compulsory acquisitions and buy-outs generally

8.12 The prohibition on certain acquisitions of a relevant interest in the voting shares of a company, set out in section 606 of the Corporations Act, apply to an acquisition of a relevant interest in issued voting shares in a listed CCIV. See Chapter 3 above in relation to the facilitation of listing for CCIVs. [Schedule 1, item 4, subsection 1240A; Schedule 2, item 160, note to Chapter 6]

8.13 This approach ensures there is a fair and proper process for the acquisition of a controlling interest in a listed CCIV, consistent with the approach for listed registered schemes. It also provides appropriate member protections in the event of a takeover of a listed CCIV.

8.14 Other acquisitions of interests in other CCIVs (being unlisted CCIVs), are not subject to the prohibitions in section 606 of the Corporations Act. This approach is consistent with the existing treatment of unlisted MISs. This means a person may acquire an interest in an unlisted CCIV (including a controlling interest) - but that person (and the CCIV) will not be subject to the procedural rules and requirements in the Corporations Act for that acquisition.

8.15 In the event of a takeover of a CCIV, the rules in Chapter 6A that enable the bidder to compulsorily acquire or buy-out certain securities in the target company also apply only to a listed CCIV. [Schedule 1, item 4, section 1240E; Schedule 2, items 161 and 162, note 2 to section 660A]

8.16 The Takeovers Panel's jurisdiction to declare circumstances in relation to the affairs of a company to be unacceptable circumstances only applies in relation to the affairs of a listed CCIV. This means that the Takeovers Panel can only intervene in the affairs of a CCIV, including in relation to a takeover of a CCIV, if the CCIV is a listed company. [Schedule 1, item 4, section 1240D]

8.17 The fact that the rules relating to takeovers, compulsory acquisitions and buy-outs in Chapters 6 to 6B do not always apply to the acquisition of interests in a CCIV does not exempt CCIVs from complying with these rules when it is proposing to acquire interests in another entity that is subject to these rules (that is, when the CCIV itself is the bidder in a takeover process).

8.18 For the purposes of Part 8B.7, the term 'securities' has the same meaning as it has in Chapters 6 to 6CA of the Corporations Act. [Schedule 1, item 4, section 1240]

Additional requirements in the takeover of a CCIV

8.19 In the context of a takeover of a CCIV, certain requirements in relation to the matters that need to be disclosed to persons as part of the process are modified to ensure relevant information is provided.

8.20 If a listed CCIV is a target in a takeover, the bidder's statement must include details of the bidder's intention regarding the continued operation of the CCIV, any major changes to be made to the operation of the CCIV (including any redeployment of the CCIV's property), and any plans to remove the current corporate director and appoint a new corporate director. This ensures that a bidder's statement for a listed CCIV covers the same kinds of information as a bidder's statement for a listed registered scheme. [Schedule 1, item 4, subsection 1240C(1)]

8.21 Similarly, a listed CCIV, a corporate director of a listed CCIV or a person that controls a listed CCIV are the bidder in a takeover, and securities in the listed CCIV are offered as consideration under the bid, then all material that would be required to be included in a PDS in relation to those securities must be included in the bidder's statement. This approach ensures a bidder's statement covers appropriate disclosure material when it involves an offer of securities in a CCIV as consideration, consistent with offers of an interest in a registered scheme. [Schedule 1, item 4, subsection 1240C(2)]

8.22 In a takeover situation, where a CCIV is the bidder or target in the process, the requirements that apply to directors of a listed company apply to the corporate director of a listed CCIV. In certain instances, the obligations are extended to also cover the natural person directors of the corporate director - consistent with the treatment of listed registered schemes under the existing law. [Schedule 1, item 4, section 1240B]

8.23 For example, if a CCIV is a target in a takeover, the target's statement must contain a statement from the corporate director and each director of the corporate director that either gives a recommendation that offers under the bid should be accepted (or not) and reasons why, or the reasons why a recommendation is not made. This approach ensures that, in respect of certain matters, the recommendations and assurances of the natural person directors of the corporate director are given.

Information about ownership of listed entities

8.24 The rules in Chapter 6C (regarding information about ownership in listed companies and schemes) apply to listed CCIVs in the same way that they apply to other listed entities. Chapter 6C applies to listed CCIVs without specific modification under new Chapter 8B.

Continuous disclosure

8.25 If a CCIV is a listed disclosing entity, and the listing rules require it to disclose certain information to the market operator, then it must comply with the continuous disclosure requirements in section 674 of the Corporations Act in the same way as other listed disclosing entities.

8.26 If a CCIV is another disclosing entity, then it must comply with the continuous disclosure requirements in section 675 of the Corporations Act in the same way as a disclosing entity whose interests are managed investment products. This is because securities in a CCIV are generally subject to the same disclosure requirements as managed investment products (in particular, the PDS disclosure regime). [Schedule 1, item 4, section 1240F; Schedule 2, item 164, note 5 to subsection 675(2)]

8.27 Consequential amendments have been made to the definition of 'ED Securities' and the requirements relating to debentures to reflect the fact that securities in a CCIV are subject to the PDS disclosure regime. Securities in a CCIV that are not debentures are ED securities if at least 100 people hold securities in that class under offers that required the CCIV to give a PDS. Debentures in a CCIV are ED securities if the offer for the debentures required the CCIV to give a PDS. This does not prevent securities in a CCIV being ED securities in other circumstances as set out in Division 2 of Part 1.2A of the Corporations Act. [Schedule 1, item 4, section 1231P; Schedule 2, item 38, subsection 111AF(3)]

Fundraising

Disclosure requirements for offers of securities in a CCIV

8.28 CCIVs are not subject to the disclosure requirements under Chapter 6D of the Corporations Act. Instead, CCIVs are subject to the PDS disclosure regime under Part 7.9 of the Corporations Act, as modified by Division 4 of Part 8B.7 of the Bill. [Schedule 1, item 4, section 1240G; Schedule 2, items 37 and 164, notes to subsections 92(4) and 700(1)]

Offering securities in a CCIV that does not exist, or referable to a sub-fund that is not established

8.29 A person must not offer securities in a CCIV that does not exist, or securities that are referable to a sub-fund that is not established, if the offer would give rise to an obligation to give a PDS. This is the case even if the person is proposing to register the CCIV or the sub-fund. A person that makes an offer in contravention of this prohibition is liable for a criminal offence with a penalty of imprisonment for up to 5 years. This penalty is consistent with the Guide to Framing Commonwealth Offences and penalties for similar offences elsewhere in the Corporations Act (see section 726 of the existing law). [Schedule 1, item 4, subsections 1240H(1) to (3); Schedule 2, item 199, penalty for subsections 1240H(1) and (2) inserted into Schedule 3 to the Corporations Act]

8.30 For the purposes of this new prohibition, the term 'securities' has the same meaning as in Chapter 6D. The provisions further clarify that a legal or equitable right or interest in a security, or an option to acquire by way of issue a security, is referable to a sub-fund if the security itself is referable to the sub-fund. [Schedule 1, item 4, subsections 1240H(4) and (5)]

8.31 Certain other provisions in Chapter 6D are extended to the new prohibition. These provisions clarify such matters as the scope of offers that are caught by the prohibition (including geographical scope), who the offeror is, the treatment of offers of options over securities and limitations on contracting out of the prohibition. [Schedule 1, item 4, subsection 1240H(6)]