Advisory Partner’s directors have signed off on independent expert reports for the following transactions:
- Advance Zinctek Limited – Takeover offer
- Clara Resources Australia Limited – Related Party Acquisition
- New Quantum Holdings Pty Ltd – Backdoor listing into a NASDAQ-listed SPAC
- APGF – property trust merger proposal
- Maleny Credit Union – takeover offer
- Cape Alumina Ltd assessing a takeover by Metro Coal Ltd
- Trojan Equity Limited – takeover offer
- Byte Power Group Ltd – related-party transaction cryptocurrency
- Bondi Mining Ltd – acquisition of World Titanium Resources
- Cape Alumina Ltd – issue of a convertible note to a major shareholder
- Drummond Gold Ltd – acquisition of Maldon Gold Resources
- Drummond Gold Ltd – issue of a convertible note
- Magna Pacific Holdings Ltd – takeover offer
- Extract Resources – assessing a proposed merger with Kalahari Resources
- Pecten Corporation – assessing the acquisition of Whitehaven Coal Holdings
- Meridian Minerals – assessing a proposed capital raising
- Queensland Ores Ltd (now Planet Metals) – assessing a takeover offer
- Tlou Energy Ltd – major shareholder placement
- AstiVita Ltd – takeover by Tamawood Ltd
- Site Group International Ltd – related-party transaction real property
- Polymetals Resources Ltd – purchase of a related party asset
Independent expert report matrix
A guide to when legislation or regulations require independent expert reports
| Nature of transaction | Transaction governed by: | IER required under | Guidance |
| 1. Related party takeover offer – bidder associated with target
| Corporations Act 2001 Chapter 6, Takeovers
| Corporations Act 2001 s640 Section 640 of the Corporations Law requires an expert opinion to be provided where the bidder is connected with the target company. S640 provides that if: (a) the bidder’s voting power in the target is 30% or more. or (b) for a bidder who is, or includes, an individual — the bidder is a director of the target, or (c) for a bidder who is, or includes, a body corporate — a director of the bidder is a director of target. A target statement given in accordance with subsection 638 must include, or be accompanied by, a report by an expert that states whether, in the expert’s opinion, the takeover offers are fair and reasonable and gives the reasons for forming that opinion.
| ASIC Regulatory Guide 111 ASIC Regulatory Guide 111 provides guidelines, for the purpose of reports prepared under Section 640 of the Corporations Law about takeover offers, in determining whether a transaction is fair and reasonable. Fairness “Fairness” is not defined in the Act but is discussed in RG 111.
The definition indicates that ASIC views fairness as a quantitative consideration. Implicit in the requirement to value 100% of the company is the inclusion of a “premium for control”. All interests in the company are attributed a proportionate share of the premium. Reasonableness An offer is reasonable if:
In practice, the lower the offer price is, compared to the range the expert considers is fair, the less likely the expert will conclude that the offer is reasonable. “Other significant factors” that should be considered by an expert in assessing the reasonableness of an offer include:
In practice, a broad range of matters may be relevant including:
While it is not mandatory, ASIC recommends experts consider stating whether or not it is in the interests of shareholders to accept the offer. |
| Nature of transaction | Transaction governed by: | IER required under | Guidance |
| 2. Compulsory acquisitions
| Corporations Act 2001 Chapter 6A, Compulsory Acquisitions and Buy-outs Following a takeover bid where a bidder has become entitled to 90% of the class of securities for which an offer has been made, the bidder may compulsorily acquire or may be required to acquire the remaining securities in that class. This is specified by the following provisions of the Act. 663B(1)(c)(ii): Compulsory acquisition of convertible notes if bidder achieves 90% of the securities in a class at the end of the offer period 664C(2)(b)(ii): Bidder has 90% of voting interests and seeks to compulsorily acquire remaining interests 665B(1)(c)(ii): Compulsory acquisition of convertible notes if hold 100% of securities in a class. | Corporations Act 2001 s667A Under 667A where a notice of compulsory acquisition is sent under section 663B, 664C or 665B it must be accompanied by an expert’s report. Section 667A states that the report must:
The expert may also be required to state whether the bidder has full beneficial ownership in at least 90% by value of the securities of the company that are shares or convertible into shares. Section 667C provides guidance on the valuation process for s667A report. It requires
| ASIC states that comments made about expert reports issued in the context of s640 are relevant to expert reports issued under 667A. 667A only requires an opinion on fair value as distinct from fair market value. That is, what is reasonable in the circumstances. Usually, for independent experts, this is “ratable value” or fair market value but without discount for minority status. In the context of compulsory acquisitions following takeovers, the original offer should have included a control premium, so there is consistency with fair value. Also, if the compulsory acquisition does not follow a takeover, the nature of the forcible taking or, alternatively, the controlling position of the acquirer would suggest no minority discount be applied. |
| Nature of transaction | Transaction governed by: | IER required under | Guidance |
| 3. Non-cash takeover offer
| Corporations Act 2001 s636(1)h(iii) If the offer consideration for a security is non cash, the following information about the consideration is required to be provided in the bidder statement: (i) to the extent to which the consideration is a cash sum – the amount per security of the cash sum (ii) to the extent to which the consideration is quoted securities - the market price per security of those securities (iii) to the extent to which the consideration is neither a cash sum nor a quoted security, the value per security of that consideration. | Corporations Act 2001 s 636(2) If the bidder's statement includes details of the value per share of consideration under subparagraph (1)(h)(iii), the statement must include, or be accompanied by, a report by an expert that states whether, in the expert's opinion, the value stated is fair and reasonable and gives the reasons for forming that opinion.
| The comments made about expert reports issued in the context of s640 are relevant to expert reports issued under s636(2). Where the consideration proposed under an offer is non cash, the expert is required to assess the value of the non cash consideration to compare it with the value of the target company. The expert should value the non cash consideration by applying the same valuation method used to value the target company, unless there are sound reasons for not doing so. Where the non cash consideration offered includes securities issued by the bidder, and the target company would, or would be likely to, become a controlled entity of the bidder if the transaction proceeded, the comparison value must be made on a notionally consolidated basis. This basis of comparison is reasonable because the shareholders of the target company are essentially being asked to exchange their shares for shares in a group comprising the bidder and target.
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| Nature of transaction | Transaction governed by: | IER required under | Guidance |
| 4. Exempt Acquisitions Acquisitions of 20% or more without a takeover offer.
| Corporations Act 2001 s606 A person must not acquire a relevant interest in issued voting shares in a company if: (a) the company is: (i) a listed company, or (ii) an unlisted company with more than 50 members, and (b) the person acquiring the interest does so through a transaction in relation to securities entered into by or on behalf of the person, and (c) because of the transaction, that person's or someone else's voting power in the company increases (i) from 20% or below to more than 20%, or (ii) from a starting point that is above 20% and below 90%. Corporations Act s 611 Exceptions are acquisitions resulting from:
Item 7 of s611 permits the acquisition of 20% or more in a company, without having to make a full takeover offer to all shareholders, provided the purchase is approved by shareholders in a meeting at which the vendor, the proposed purchaser and any associates may not vote. | Corporations Act, s 611 Section 611 requires shareholders to be given all relevant information known to the person making the acquisition, their associates or the company, which is material to the proposal. Section 611 does not explicitly state that an expert opinion is required for such acquisitions. PS74 states that it is the company’s directors’ obligations to provide shareholders with full and proper disclosure to enable them to assess the merit of the proposal under which a person would acquire a substantial interest in the company and to decide whether to agree by resolution to the proposed acquisition. The obligation may be satisfied by commissioning an independent expert’s report on whether the proposed transaction is fair and reasonable to the non-associated shareholders. | Regulatory Guide 74 RG 74 sets out ASIC’s view on the operations of s611. RG 74 requires that the Notice of Meeting include, among other things, an analysis of the proposed transaction by the independent directors. ASIC RG 74 provides guidelines for independent experts on how to evaluate whether or not a proposed transaction is fair and reasonable when preparing reports for Section 611 proposals. In relation to the proposed transaction, RG 74 states that the evaluation should be similar to a takeover offer:
For s611 reports less weight is given to the fairness criteria than for s640 reports. Given that the non-associated shareholders are not receiving the offer but are being asked to approve the transaction, it is reasonable that they would only give their approval if, on balance, there were more advantages than disadvantages to them in approving versus rejecting the proposal (ie on balance the non-associated shareholders would be better off if the transaction proceeds). The offer price is only relevant to the non-associated shareholders to the extent that it affects the company and the value of their shareholding. In the context of s611, the expert should give an opinion as to whether the vendor, the company or any other person will receive a premium for control as a result of the proposal. RG 74 requires the expert to consider the intentions of the incoming shareholder, quantify the premium and set out reasons for forming that opinion and why it is appropriate to regard the benefit as constituting a premium for control. In the case of the allotment of shares by the company benefits may result from (para 26):
In the case of a purchase of shares by an incoming shareholder from an outgoing shareholder benefits may result from (para 25):
Synergies created by merging businesses being sold into the company. |
| Nature of transaction | Transaction governed by: | IER required under | Guidance |
| 5. Related party transactions
| ASX Listing Rules CH 10 Listing Rule 10.1 requires the approval of the holders of the entity’s ordinary securities where it is proposed to acquire an asset from, or dispose of an asset to, a director, officer or substantial shareholder, and the value of the sale/acquisition is greater than 5% of the total issued capital and reserves of the listed company, as at the date of the last audited accounts. Listing Rule 10.11 provides that an entity must not issue or agree to issue securities to a related party without shareholder approval. | ASX Listing Rule 10.10.2 Listing Rule 10.10.2 requires that the Notice of Meeting to approve the proposed transaction be accompanied by a report from an independent expert stating whether the proposed transaction is fair and reasonable to the shareholders. Listing Rule 10 provides that shareholders must be provided with a report by an expert stating whether values are fair and reasonable in a transaction where it is proposed to acquire an asset from, or dispose of an asset to, a director, officer or substantial shareholder, and the value of the sale/acquisition is greater than 5% of the total issued capital and reserves of the listed company, as at the date of the last audited accounts.
| The Listing Rules do not specify how valuations are to be conducted nor do they provide a definition of “fair and reasonable”. In practice, independent experts refer to the ASIC guidelines. Regulatory Guide 74 Acquisitions agreed to by Shareholders is considered most relevant because shareholders do not receive a direct offer for their shares. The guidance on the meaning of fair and reasonable requires it to be treated as one term. A transaction will be fair and reasonable in the context of Listing Rule 10 if the independent shareholders are “better off” if the transaction is implemented than if it is not. The critical factor in this assessment will be the assessment of the value of the transaction compared with the consideration being paid. If an independent expert concludes the transaction is not fair and reasonable a resolution to approve the transaction cannot be put to shareholders. Should the value comparison element not be favourable but the net advantages compensate for the difference, the conclusion should be that the proposal is fair and reasonable to shareholders. |
| Nature of transaction | Transaction governed by: | IER required under | Guidance | |
| 6. Significant changes in nature or scale of business/back door listing rule
| ASX Listing Rules CH 11 Where a company proposes to change the nature or scale of its business activities or dispose of its main undertaking, ASX Listing Rule Chapter 11 comes into operation. This is commonly referred to as the “back door” listing rule. It requires shareholder approval to be obtained and for the shareholders to be provided with all information about the transaction necessary to make an informed decision. | ASX Listing Rules CH 11 The back door listing checklist issued by the ASX stipulates that an investigating accountant’s report is required, which complies with the regulations set in the Act. In addition, Chapter 11 gives ASX discretionary powers that enable it to call for such information it deems appropriate. This may include a valuation as part of an independent expert’s report. | The Listing Rules do not specify how valuations are to be conducted nor do they provide a definition of “fair and reasonable”. In practice, valuers refer to the ASIC guidelines. Regulatory Guide 111 gives guidance on the meaning of fair and reasonable. | |
| Nature of transaction | Transaction governed by: | IER required under | Guidance |
| 7. Scheme of arrangement (including de-mergers) | Corporations Act 2001 s411 Section 411 governs schemes of arrangements between a company and its members, creditors or any class of members or creditors. | Regulation 8303 of Part 3 of Schedule 8 of the Corporations Regulations 2001 Part 3 of Schedule 8 of the Corporations Regulations prescribes the information to be sent to shareholders about schemes of arrangement. The information provided to shareholders under Part 3 of Schedule 8 must include an independent expert’s report when a party to the scheme of arrangement has prescribed shareholding (30% or more of the voting shares), or where any of its directors are also directors of the company subject of the scheme. Regulation 8303 requires an independent expert’s report on a scheme of arrangement to be prepared, stating whether or not a scheme of arrangement “is in the best interest” of shareholders and setting out the reasons for that opinion. | Regulatory Guide 111 “Independent Expert’s Report to Shareholders” There is no legal definition of the expression “in the best interest”. ASIC RG 111 establishes guidelines on expert reports prepared for the purposes of ss 411, 640 and 667A. However, the statement gives limited guidelines on the regulatory interpretation or meaning of “in the best interest” other than to imply that it differs from fair and reasonable. Given the terms of the scheme, PS74 and the holistic approach to transaction assessment required therein may be more relevant. “In the best interest” conclusions are commensurate with the guidance in PS74, notwithstanding the inclusion of section 411 in PS75. RG 111 requires an expert to weigh up the advantages and disadvantages of a scheme in arriving at an overall view as to whether implementation of a scheme is “in the best interest” of the shareholders. |
| Nature of transaction | Transaction governed by: | IER required under | Guidance |
| 8. Demutualisations | Corporations Act 2001 schedule 4, part 5 Part 5 of Schedule 4 to the Corporations Act relates to the demutualisation of financial institutions and friendly societies. | Corporations Act 2001 schedule 4, part 5, 29 (4) If a modification of the constitution of a company is proposed or the issue of shares would have the effect of varying or canceling the rights of company members, Part 5 of Schedule 4 requires an expert’s report with an opinion on whether the “proposed modification or share issue is in the best interests of the members of the company as a whole”. | Regulatory Guide 111 There is no legal definition of the expression “in the best interest”. ASIC RG 111 establishes guidelines for expert reports prepared for the purposes of ss 411, 640 and 667A. However, the statement gives limited guidelines on the regulatory interpretation or meaning of “in the best interest” other than to imply that it differs from fair and reasonable. RG 111 requires an expert to weigh up the advantages and disadvantages of a scheme in arriving at an overall view as to whether implementation of a scheme is “in the best interest” of the shareholders. |
| Nature of transaction | Transaction governed by: | IER required under | Guidance |
| 9. Capital reduction | Corporations Act Section 256B Section 256B of the Act permits a company to reduce its share capital by way of a capital reduction where the reduction is:
| There is no mandatory requirement for an independent expert report to be prepared for a capital reduction. However, ASIC RG 111 indicates that in such circumstances an independent expert report should usually accompany the explanatory memorandum. RG 111 requires the independent expert report to state whether the proposed capital reduction is fair and reasonable to the holders of the shares to be cancelled and those that remain as shareholders in the company. | While RG 111 does not define the term “fair and reasonable”, it states that the independent expert should, after making appropriate adjustments, prepare the report as if it were a report for shareholders voting on a resolution under s611 of the Act. ASIC’s guidelines for reports prepared for the purpose of s 611 are set out in RG 74. |