Takeover Dispute Resolution in Australia and the United States – Takeovers Panel or Courts?

Takeover disputes can be fiercely contested. Given this, there is an important question about the forum for these disputes. Traditionally, takeover disputes were resolved by the courts. However, in recent years, there has been a trend to have these disputes resolved by Takeovers Panels. The countries with these Panels include Australia, the United Kingdom, Hong Kong, Singapore, India, Ireland, New Zealand, Switzerland and South Africa.

Takeover dispute resolution in the United States is undertaken by the courts. According to Cornerstone Research, in 2014, 93% of all mergers and acquisitions deals in the United States valued at over US$100 million were the subject of litigation filed by shareholders of public target companies. This figure has risen dramatically in recent years. In 2007, 44% of all takeovers were challenged by shareholders through litigation. By 2010, this had more than doubled to 90% and in each of the four years since then, more than 90% of takeovers valued at over US$100 million have been the subject of shareholder litigation, with 2013 being the highest year at 94%. Takeovers are typically subject to multiple lawsuits.

What is the outcome? According to Cornerstone Research, the cases typically settle without any compensation for shareholders but with the companies agreeing to provide more information to shareholders and the payment of significant fees to plaintiff attorneys.

Is there a better way of dealing with takeover disputes? One possibility is to enact laws that restrict shareholder litigation. Another possibility is to change the forum in which takeover disputes are heard with the objective of having these disputes adjudicated more efficiently than in the courts. The Australian Takeovers Panel has, since 2000, heard 438 applications as of March 2015. It is stated in the Australian Corporations Act that the intention is to make the Panel the main forum for resolving disputes about a takeover bid while a bid is underway. An application to the Panel can be brought by the bidder, the target, the Australian Securities and Investments Commission (ASIC), or any other person whose interests are affected by the relevant circumstances. While a takeover bid is underway only ASIC, a government minister or other government authority may commence court proceedings in relation to a takeover bid. Although the Takeovers Panel is used by ASIC and by private parties, ASIC does not bring many applications to the Panel. During the period from 2000 to March 2015 it brought only 10 applications or 2.3% of all applications to the Panel. This would seem to indicate that ASIC believes that the resolution of takeover disputes is usually best left to private parties. This is understandable given that the most disputed matter concerns the adequacy of information and a number of interested parties can bring an application to the Panel seeking to remedy what they see as inadequate disclosure.

For the period 2000 to March 2015, 152 applications, or 35% of the total number of applications to the Takeovers Panel, involved allegations of insufficient or misleading information. When applications to the Panel are divided into categories according to the disputed issues, the largest category concerns disclosure. So both the United States courts and the Australian Takeovers Panel deal with many disputes regarding takeovers and many of these disputes concern allegations of insufficient or misleading information but the Australian Takeovers Panel deals with these disputes in a very different way. In particular, there are not the same fees paid to attorneys as we see in the United States. While the Panel allows the involvement in its hearings of the commercial lawyers who worked on the particular transaction, other lawyers, such as litigation lawyers generally do not participate in the Panel proceedings. It is stated in the Panel’s procedural rules that “If a party is to be legally represented, the Panel prefers it to be by the commercial lawyers who have been advising it in the transaction the subject of the application”.

Unlike the many debates that have occurred in the United States questioning the value of the amount of contested takeover litigation, the Australian Takeovers Panel is generally regarded as being very successful. One commentator has written that the Panel has an extensive track record of ‘resolving disputes quickly and efficiently’ and more importantly he writes, ‘its decisions have overwhelmingly ensured the outcome of bids has been resolved by shareholders on the basis of their commercial merits’. Other commentators refer to the way in which the Panel has improved market practice; for example, how disclosure in takeover documents has improved as a result of both decisions of the Panel and also the guidance it has provided in its guidance notes.

I have explored the reasons for the success of the Australian Takeovers Panel. These reasons include: (1) the independence of the Panel; (2) the expert membership of the Panel (as at May 2015, the Panel had 38 part time members drawn from the corporate, legal, accounting and investment banking sectors supported by a small full time executive team); (3) the influence of the Panel on market practice; (4) the timeliness of the decision-making process of the Panel (the time from receipt of an application to the making of a decision by the Panel is, on average, 16 days); (5) the accessibility of the Panel (an application to the Panel can be made by the bidder, the target, ASIC or any person whose interests are affected by the relevant circumstances); (6) the way the Panel has facilitated a shift away from tactical litigation (under the previous court-based regime, one Australian court referred to a trend of ‘wasteful and expedient litigation, designed not for the benefit of ensuring that shareholders are properly informed but simply to buy time’); (7) the Panel’s extensive consultation processes; (8) the Panel’s informal and non-legalistic approach to resolving takeovers disputes; and (9) the Panel’s focus on policy.

An examination of takeover dispute resolution in the United States and Australia suggests two findings. First, the forum for deciding the dispute matters. Rather than a court based system that may result in much strategic litigation that is aimed at thwarting a takeover bid so that target company shareholders never get to consider the offer for their shares (the Australian system before the Takeovers Panel) or aimed at generating legal fees, it is possible to have a low cost and efficient forum for the resolution of disputes about takeovers that can be used by both regulators and private parties.

Second, disputes about takeovers are best resolved by the private parties with an interest in the dispute – at least based on the experience of the Australian Takeovers Panel where ASIC is rarely an applicant. But this depends on a wide range of interested parties being able to have access to the Panel and it also depends on the type of matter that is in dispute. Disputes about disclosure in takeover documents are common and these disputes lend themselves to private resolution given the number of parties with an interest in this – such as rival bidders, the target company and even target company shareholders.

This post comes to us from Ian Ramsay, the Harold Ford Professor of Commercial Law at Melbourne Law School.  The post is based on his recent article, which is entitled “Takeover Dispute Resolution in Australia and the United States – Takeovers Panel or Courts?” which is available here. An earlier article by Professor Ramsay on the Australian Takeovers Panel is available here.