Rules for activists

The Australian Securities and Investments Commission (ASIC) is reviewing its regulatory guidance for investors who want to take collective action to improve the corporate governance of listed entities.

Consultation paper 228 Collective action by investors: Update to RG 128 (CP 228) proposes updates to the regulatory guide 128 Collective action by institutional shareholders (RG 128).

Collective action by investors can give rise to compliance issues under the takeover and substantial holding provisions of the law. These provisions are concerned with the aggregated voting power of groups of investors who are either related to or associated with some aspect of the entity’s affairs.

For instance, an agreement to vote together on a matter could result in an investor contravening the 20 per cent takeover threshold, which prohibits shareholding increases above 20 per cent of a code company’s voting rights, except for increases that are made under the takeovers code’s rules.

 As part of the review of the guidelines, ASIC has proposed a number of changes in CP 228. They include:

 Updated guidance on how the takeovers and substantial holding notice provisions apply to collective action by investors, including illustrative examples of conduct which is unlikely or likely to trigger these provisions.

  • An outline of ASIC’s proposal to approach enforcement in relation to these provisions by focusing on conduct that is control seeking rather than simply promoting good corporate governance.
  • An overview of other legal and regulatory issues that can arise in relation to investor engagement.

ASIC also proposes to discontinue the existing class order relief available to facilitate agreements between institutional investors about voting as it does not reflect the way in which institutional investors tend to engage with entities and has not been used for many years.

Comments on CP 228 are due by 20 April 2015.

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