ASIC Corporations (Compulsory Acquisitions and Buyouts) Instrument 2023/684

The central concept is compulsory acquisition: the power of a bidder who has reached a specified level of acceptance in a takeover bid to force the remaining holders to sell their securities on the same terms as the bid. The Corporations Act currently sets two alternative thresholds: the bidder must have acquired at least 90 per cent (by number) of the securities in the bid class, or at least 75 per cent of the securities that the bidder offered to acquire under the bid. This instrument refines both thresholds. For the 90 per cent test, the amendment disregards relevant interests that the bidder or its associates have merely because of section 608(3)(a) - that is, where a person has a relevant interest in securities because a body corporate in which the person holds a 20 per cent interest holds those securities. This narrows the denominator of the 90 per cent calculation, making it easier for a bidder to reach the threshold (since certain securities are no longer counted as part of the target pool). For the 75 per cent test, the amendment excludes certain securities from both the numerator (securities acquired) and the denominator (securities offered to acquire). Specifically, it excludes securities in which the bidder or an associate had a relevant interest at the date of the first offer (unless that interest was acquired during the bid period under the exception for creeping acquisitions in item 2 of section 611), and securities issued to an associate during the offer period. It also excludes convertible securities that have been converted into another class during the period from the date set in the bidder’s statement to the end of the offer period. These exclusions can work in opposite directions: excluding securities from the denominator makes it easier to reach 75 per cent, but excluding them from the numerator makes it harder. The net effect depends on the facts of each bid.

The new concept of non-transferable securities is defined narrowly. They are securities issued under a scheme to or for the benefit of employees or non-executive directors of the company that issued the securities or a related body corporate, in relation to their employment or services. The restriction on transfer must be in the constitution or terms of issue. Crucially, these securities are not in the bid class, but the instrument allows the bidder to compulsorily acquire them as if they were, provided the 10 per cent cap condition is met. The cap is measured by number, not value, at the end of the offer period. The bidder’s power is not optional: under new subsection 661A(4A), if the bidder exercises the power, it must acquire all non-transferable securities in which it does not have a relevant interest. It may elect to acquire those in which it does have a relevant interest. This mandatory acquisition feature prevents the bidder from cherry-picking only some non-transferable securities. The override clauses in the instrument ensure that any restrictions on transfer in the constitution or terms of issue are ineffective against the compulsory acquisition. This is a significant encroachment on the contractual and constitutional rights of the holders of those securities. The instrument also clarifies that the notice required under section 661B must be given to holders of non-transferable securities if the bidder elects to acquire them. Similarly, the exception to the buy-out right in section 662A(2A) means that if a compulsory acquisition notice has been given on the same terms as the bid, the holder cannot trigger a buy-out under that section, which would otherwise allow the holder to require the bidder to acquire their securities at a specified price.

The primary affected parties are bidders conducting takeover bids under Chapter 6 of the Corporations Act and holders of non-transferable securities issued under employee or non-executive director share schemes. Bidders gain an expanded power to compulsorily acquire these securities, but only if they already have the power to compulsorily acquire the bid class securities. The instrument favours bidders by reducing the effective threshold for the 90 per cent test through the exclusion of certain relevant interests, and by providing override clauses that remove obstacles from constitutions or terms of issue. For bidders who hold non-transferable securities themselves (for example, if the bidder has a relevant interest in those securities through an associate), they may elect to acquire them, but are not forced to. This asymmetry benefits bidders because they can leave outstanding those securities in which they have a relevant interest while being forced to acquire those in which they do not - but the latter is mandatory, so the bidder cannot avoid acquiring unwanted securities.

Holders of non-transferable securities - typically employees and non-executive directors who participate in share schemes - are the most directly affected. They lose the protection that the transfer restriction gave them against being forced to sell in a takeover. Previously, such securities were outside the scope of compulsory acquisition because they were in a different class and restrictions prevented transfer. Under this instrument, they can be compulsorily acquired, albeit only if the cap condition is met (they would not exceed 10 per cent of the bid class). This imposes a compliance burden on the company (issuer) to know the status of those securities and their number relative to the bid class. It also imposes a burden on the bidder to identify and notify the holders. The sunset date of 1 October 2028 means that only takeovers occurring before that date will be affected, creating a temporal asymmetry: the rules apply only for a defined period, which may encourage strategic behaviour by bidders to time bids to take advantage of this window.

The instrument also affects the company that issued the non-transferable securities, as its constitution or terms of issue may be overridden by the statutory provisions. The company must cooperate with the compulsory acquisition process, and any restrictions in the constitution that purport to limit transfer are rendered ineffective. This may conflict with the company’s own governance preferences, particularly if the employee share scheme was designed to align long-term interests and prevent dilution or change of control through forced transfers. The amendment history shows two instruments: the original ASIC Corporations (Compulsory Acquisitions and Buyouts) Instrument 2023/684 registered on 27 September 2023, and the amending Instrument 2023/774 registered on 18 October 2023, which added section 5 (the substantive provisions). This suggests a rapid correction or expansion of the original instrument, possibly in response to stakeholder feedback. The endnotes indicate that section 5 was added by the amending instrument, so the operative provisions are contained in that instrument. Legal professionals advising bidders or target companies need to ensure they use the consolidated instrument and refer to both registration dates.

The instrument creates duties on bidders and rights for holders of non-transferable securities. The bidder’s key duty under new subsection 661A(4A) is to acquire all non-transferable securities in which it does not have a relevant interest if it exercises the power under subsection 661A(1). This is a mandatory acquisition obligation; the bidder cannot choose to acquire only some of those securities. The bidder also has a right, not a duty, to elect to acquire non-transferable securities in which it has a relevant interest. This asymmetry could create perverse incentives: a bidder that holds a relevant interest in some non-transferable securities might prefer not to acquire them (for example, if the terms are unfavourable or if the bidder wants to keep those securities outstanding for other reasons). However, the bidder can only avoid acquiring those securities if it does not exercise the power at all, but then it cannot acquire any non-transferable securities. So if the bidder wants to clear out the employee share scheme entirely, it must acquire all the non-interested ones and may acquire the interested ones. If the bidder does not want to acquire the interested ones, it might choose not to exercise the power, leaving all non-transferable securities un-acquired. This could be rational if the interested holdings are large or the cap is tight.

The duty to give notice under section 661B is extended to holders of non-transferable securities if the bidder elects to acquire them. That means the bidder must identify those holders and provide them with a compulsory acquisition notice. This imposes a search cost on the bidder: it must ascertain who holds the non-transferable securities, which may be held through employee share trusts or nominees. The notice must be given to each such person, and the terms must be the same as the bid terms. The instrument also provides that the company cannot rely on its constitution or terms of issue to resist the transfer. New subsection 666B(2) explicitly states that compliance with subsection (1) makes the transfer effective notwithstanding any restrictions. That duty is on the person acquiring the securities (the bidder) to comply with the transfer process under subsection (1), but the consequence is that the transfer is effective despite restrictions.

Holders of non-transferable securities have a right to receive the same consideration as the bid class security holders. The instrument does not alter the requirement that the terms of compulsory acquisition must be the same as the terms of the bid immediately before the end of the offer period. So they get the same price per security (or per unit, for non-transferable securities that are economically identical except for the transfer restriction). However, they lose any ability to contest the acquisition on the basis of the transfer restriction, because the override clause in subsection 661A(5) nullifies that argument. They also lose the right to a buy-out under section 662A where the compulsory acquisition notice has been given on the same terms. This is a significant limitation on the holder’s rights: section 662A normally allows a holder who opposes the compulsory acquisition to require the bidder to acquire their securities on a different basis (e.g., at a price determined by the court). The new subsection 662A(2A) removes that right if the bidder has already initiated compulsory acquisition under section 661B. That means the holder cannot force a second round of negotiation; they are locked into the compulsory acquisition process.

The instrument itself does not create new penalties; it operates within the existing enforcement framework of the Corporations Act. Breach of the override provisions (e.g., a company refusing to register a transfer because its constitution restricts it) could lead to an order for specific performance or injunctive relief. The instrument’s declaration that transfers are effective despite restrictions is a substantive override; if a company or its officers obstruct the transfer, they may be in breach of directors’ duties or the takeover provisions. The ASIC could bring proceedings for contraventions of Chapter 6A. The sunset date itself is a form of enforcement: the instrument self-repeals, meaning any failure to comply before 1 October 2028 remains actionable, but after that date the provisions cease to have effect. This creates a window of enforcement. The amending instrument (2023/774) added section 5, which contains all the substantive provisions; if the original instrument 2023/684 omitted those provisions, they may be void ab initio for lack of legislative power? The endnotes show the amendment history as “ad. 2023/774” for section 5, indicating it was inserted by the amending instrument. That means the original instrument did not contain these provisions. The instrument is a legislative instrument made by ASIC under the Corporations Act. As such, it must be within the scope of ASIC’s power. The provisions appear to be a valid exercise of the regulation-making power, but any challenge to the instrument’s validity would need to be made before the sunset date. Potential enforcement issues include whether the definition of non-transferable securities is too broad or uncertain (e.g., “scheme to or for the benefit of employees or non-executive directors” could encompass a wide range of arrangements). The 10 per cent cap condition requires counting securities “by number, worked out at the end of the offer period”. That creates a temporal uncertainty: the bidder must know the exact number of non-transferable securities at that point, which may change if employees leave or exercise options. The instrument does not specify how to treat options or rights that have not yet been exercised. The definition of non-transferable securities only includes securities issued under a scheme; it does not include options that are yet to be exercised. That could be a gap: employee options that are not yet securities may escape compulsory acquisition, but the holder may later convert them into securities that would be non-transferable. The instrument does not address that. These uncertainties could lead to disputes and litigation.

The instrument explicitly overrides the company’s constitution and the terms of issue of the securities. This brings it into tension with general contractual principles and property rights. The instrument takes effect under the Corporations Act’s plenary power to regulate takeovers. It interacts with the ASIC’s general exemption and modification powers: ASIC could exempt or modify the application of this instrument in specific cases. The sunset clause means the instrument will disappear on 1 October 2028 unless remade. That creates a potential inconsistency if the Corporations Act itself is amended in the interim. The instrument does not amend the primary Act; it is a delegated legislative instrument. Therefore, any subsequent amendment to Chapter 6A of the Corporations Act could impliedly repeal these provisions if they conflict, though the instrument would still be in force until 2028 unless expressly revoked. The instrument also interacts with the buy-out provisions in section 662A by carving out securities where a compulsory acquisition notice has been given. This is a modification of the statutory buy-out regime. It also interacts with the provisions on relevant interests in section 608, by disregarding those arising under paragraph 608(3)(a) for the 90 per cent calculation. This is a targeted exclusion that changes the counting for the threshold. The instrument does not affect other provisions of the Corporations Act, such as the insider trading rules or continuous disclosure, but the compulsory acquisition itself could trigger disclosure obligations for the bidder if it acquires a substantial shareholding, though the bid process already covers that. For employee share schemes, the instrument may conflict with the terms of the scheme itself. Many employee share schemes have forfeiture or vesting conditions that could be triggered by a change of control. The instrument does not address what happens if the compulsory acquisition occurs before vesting; presumably the holder would receive consideration for the security, but the scheme may have its own rules about cancellation or payment. The override clause in subsection 661A(5) only says the section has effect despite anything in the terms of issue; it does not override the scheme rules themselves if they are separate from the terms of issue. This could create gaps: if the scheme rules require cancellation of unvested shares on a change of control, the holder may receive nothing, but the instrument provides for compulsory acquisition at bid price. The interaction with scheme rules is not addressed. The instrument also interacts with the takeover provisions in Chapter 6, particularly the bid terms. The compulsory acquisition terms must be the same as the bid terms. If the bid is for cash, the non-transferable security holders get cash. If the bid is for scrip, they get scrip. This could be problematic if the non-transferable securities are of a different class and the scrip offered is in the bidder, which may not be listed or may have restrictions. The instrument does not address that.

The instrument consists of two registered legislative instruments: ASIC Corporations (Compulsory Acquisitions and Buyouts) Instrument 2023/684, registered on 27 September 2023 and commencing on 28 September 2023; and ASIC Corporations (Amendment) Instrument 2023/774, registered on 18 October 2023 and commencing on 19 October 2023. The amendment history endnote shows that section 5 of the compiled instrument was added by Instrument 2023/774. That means the original instrument 2023/684 did not contain the substantive provisions now in the compiled version. The original instrument likely contained only the machinery provisions (Part 2 Repeal and Part 3 etc.). The amending instrument inserted section 5, which contains all the amendments to the Corporations Act described above. The endnote for section 5 appears twice in the provided text as “ad. 2023/774”, which may be a formatting error, but it confirms that the operative changes were made by the second instrument. The compilation also includes endnotes that describe the standard abbreviation key and legislation history. The instrument has a sunset date: it is repealed at the start of 1 October 2028 (Part 3). That is an unusual feature for a legislative instrument of this type. Most ASIC instruments do not have a fixed sunset; they are either ongoing or revoked later. The sunset may indicate that the government intended these provisions to be temporary, perhaps to test their effectiveness or to allow for a review before permanent enactment. The instrument was made by ASIC under its general rule-making power, likely section 655A of the Corporations Act. The amendment history does not show any other amendments. The instrument currently appears in the Federal Register of Legislation as a compilation, and the endnotes provide details of the two instruments that make up the compilation. This is important for legal research: any practitioner relying on the instrument must ensure they have the compiled version that includes the amending instrument. The original instrument alone would be incomplete. The amendment history also notes that the provisions in section 5 were added by 2023/774, not substituted, so the original section 5 did not exist. The instrument’s structure: it has Parts, but the provided text only shows Part 3 (Repeal). The substantive provisions are in Part 2 or Part 1? It appears that the instrument itself is short, with the main body being section 5 amendments. The endnotes are generated by the legislation repository.

The instrument is recent (2023), so there is no reported litigation directly concerning its interpretation. However, the provisions it amends have been the subject of case law under the Corporations Act. The compulsory acquisition provisions in sections 661A and following have been interpreted in cases such as Gambotto v WCP Ltd (1995) 182 CLR 432, which established principles of unfair prejudice in compulsory acquisition. That case concerned selective compulsory acquisition, not the threshold-based acquisition under Chapter 6A. The High Court held that compulsory acquisition must be for a proper purpose and not oppressive. The instrument’s expansion of compulsory acquisition to non-transferable securities may attract challenge on the grounds that it imposes an additional burden on a particular class of security holders (employees and directors) who might be considered vulnerable. The 10 per cent cap condition may be challenged as arbitrary. The disregard of certain relevant interests for the 90 per cent test could be seen as manipulating the threshold in favour of bidders, potentially giving rise to disputes about whether the threshold has been genuinely reached. Litigation could arise if a bidder fails to identify a non-transferable security holder and does not give notice, or if a holder argues that the instrument does not apply because the cap condition is not met. The provision in subsection 662A(2A) that removes the buy-out right where a compulsory acquisition notice has been given could be challenged as a denial of procedural fairness, particularly if the holder objects to the terms. The override clauses that nullify the company’s constitution and terms of issue may be tested against the constitutional protections in the Australian Constitution, such as the acquisition of property on just terms (section 51(xxxi)). While the Commonwealth can acquire property under its corporations power, the instrument is made under delegated legislation, and ASIC may not have the constitutional authority to override property rights without adequate compensation. The terms of the compulsory acquisition provide compensation (the bid consideration), but the override of transfer restrictions is a direct interference with property rights. That could be challenged. No such case has been reported yet. The instrument is temporary, so any litigation must be commenced before October 2028. The amendment history shows two instruments in quick succession, which may indicate that the original instrument was flawed and corrected. That could be used in litigation to argue uncertainty or a lack of proper contemplation.

Several pitfalls arise from the instrument’s wording. First, the definition of non-transferable securities requires that the securities be issued under a scheme to or for the benefit of employees or non-executive directors “in relation to their employment or services”. This is expansive: any scheme that benefits employees, even if it also benefits other persons, may be caught. The term “scheme” is not defined in the instrument, so it could include an employee share trust, a share purchase plan, a performance rights plan, or even a salary sacrifice arrangement. Securities issued under such a scheme that have transfer restrictions are eligible. But the restriction must be in the constitution or terms of issue. If the restriction is only in the scheme rules but not in the terms of issue, the security may not satisfy paragraph (a). The instrument does not provide guidance on what constitutes “terms of issue”. A bidder relying on the power must verify that the restriction is properly documented. Second, the 10 per cent cap condition is measured at the end of the offer period. That is a fixed point. However, if the bidder acquires some non-transferable securities before the end of the offer period (e.g., through the bid itself, if they are convertible), the number of securities in the bid class may change. The instrument says “if all the non-transferable securities were securities in the bid class, they would not exceed 10% of the securities in the bid class (by number, worked out at the end of the offer period).” That means the bidder must calculate the hypothetical total of non-transferable securities as if they were in the bid class, and compare that to the actual bid class at the end. This calculation may be complex if the bid class changes due to conversions or cancellations. Third, the bidder must acquire all non-transferable securities in which it does not have a relevant interest. If some non-transferable securities are held by associates of the bidder, the bidder may elect to acquire them but is not required to. That creates an asymmetry: the bidder could end up owning some non-transferable securities (the ones it elected to acquire) while leaving others (those held by unrelated holders) acquired. But the duty is mandatory for the ones it does not have a relevant interest in. So if the bidder has a relevant interest in some, it may choose not to acquire them, but then it must still acquire the others. That could leave a small stub of non-transferable securities outstanding in which the bidder already has a relevant interest. That might be undesirable if the goal is full ownership. Fourth, the instrument does not address the situation where the bidder elects to acquire non-transferable securities but the holder disputes the validity of the acquisition. The override clauses say the acquisition is effective despite restrictions, but they do not provide for a mechanism to resolve disputes. The compulsory acquisition notice under section 661B provides for objections and court application (section 661E). That mechanism applies to the bid class securities, but the instrument does not explicitly extend it to non-transferable securities. The notice provisions under section 661B are extended to holders of non-transferable securities, so they receive a notice and can object under the same provisions. But the court’s power to review would apply. However, the 10 per cent cap condition is not reviewable; it is a condition precedent. If the bidder miscalculates the cap, the acquisition may be invalid. Fifth, the sunset date is a trap for the unwary: the instrument applies only to bids where the offer period ends before 1 October 2028. If a bid commences before that date but the offer period ends after, the instrument may not apply. The instrument is repealed at the start of 1 October 2028, so any compulsory acquisition action taken after that date would be without legal basis. Bidders must ensure that the compulsory acquisition process (including the notice and payment) is completed before the repeal occurs. The instrument does not contain transitional provisions, so any pending acquisitions on the repeal date may lapse. Sixth, the override clauses in subsections 661A(5), 664A(4), and 666B(2) might be read as applying only to the sections in which they appear. They do not explicitly override the constitution for other purposes. For example, the instrument does not override the constitution for the purpose of director’s duties or the company’s internal governance. It only overrides restrictions on transfer in the constitution or terms of issue. That is a narrow but powerful override. Seventh, the amendment to the 90 per cent calculation disregarding relevant interests under paragraph 608(3)(a) may create an incentive for bidders to structure their holdings through intermediate bodies to artificially reduce the count. The policy is that such interests are merely derivative, but they still represent economic exposure. The disregard could make it easier to reach 90 per cent, but it also creates a compliance risk if the bidder misclassifies its holdings.

Bidders must carefully assess whether the instrument applies to their bid. First, determine if the bid is for securities in a class that includes non-transferable securities issued under an employee or NED scheme. The bidder must obtain the company’s register and any employee share scheme records to identify securities that are non-transferable. This may require cooperation from the target company, which may be reluctant to disclose because of confidentiality or because the scheme rules prevent disclosure. The bidder should request the information during due diligence. Second, calculate the 10 per cent cap: count all such non-transferable securities that would be in the bid class but for the restriction, and compare that number to the total number of bid class securities at the end of the offer period. If the cap is exceeded, the power does not apply at all. If it is within 10 per cent, the bidder may proceed, but must then acquire all non-transferable securities in which it does not have a relevant interest. The bidder should identify which non-transferable securities it or its associates have a relevant interest in, and decide whether to elect to acquire those as well. The election must be made at the time of giving the compulsory acquisition notice under section 661B, because the notice must be given to holders of non-transferable securities if the bidder elects to acquire them. The bidder must include those holders in the notice. The notice must be given to each holder of non-transferable securities that the bidder intends to acquire. For those the bidder does not elect to acquire (if any), no notice is required, but the bidder must still acquire all non-transferable securities without a relevant interest. That could create a circularity: if the bidder does not elect to acquire the ones it has a relevant interest in, it still must give notice to those holders? No, because the instrument only requires notice to holders of non-transferable securities if the bidder elects to acquire them under subsection 661A(1). The mandatory acquisition under subsection (4A) applies without an election for the non-interest ones. The notice requirement in section 661B as amended refers to “if the bidder elects to acquire non-transferable securities under subsection 661A(1) , a holder of the non-transferable securities”. That suggests that if the bidder does not elect to acquire any (i.e., it only acquires the mandatory ones), the notice provision is not triggered. But the bidder must still acquire them. That is a drafting ambiguity: the notice obligation is linked to the election, not the mandatory acquisition. The safer approach is to elect to acquire all non-transferable securities (including those with relevant interests) to ensure all holders receive notice. Alternatively, the bidder could rely on the general notice requirement in section 661B(1)(c) which now includes holders of securities in the bid class, convertible securities, or non-transferable securities if elected. If the bidder does not elect, it may not have to give notice, but then the acquisition may be procedurally defective. To comply, bidders should likely elect to acquire all non-transferable securities, both to trigger the notice obligation and to ensure full ownership. The compliance burden includes preparing and serving notices, processing objections (if any), and ensuring the transfer is registered despite any constitution restrictions. The company’s board must be notified that the override provisions apply, and they must update the register accordingly. The bidder should obtain legal advice on the validity of the cap calculation and the identity of holders. The instrument’s sunset date must be monitored; any compulsory acquisition action must be completed before 1 October 2028. For holders of non-transferable securities, compliance means responding to the compulsory acquisition notice and accepting the consideration. They have no right to a separate buy-out if the notice has been given on the same terms. They may object to the court under section 661E if they believe the threshold is not met or the terms are unfair. The instrument does not give them additional grounds beyond those in the Act.