22 Nov 2010

Restricting access to share registers

New controls on access to share registers received the green light from Parliament last Thursday.

Although aimed primarily at "low-ball" unsolicited share offers, the Corporations Amendment (No 1) Bill will also restrict access to registers for a far wider range of users.

On the other side of the coin, companies will now have considerable power to control who gets to look at their list of shareholders.

How the Bill works

At present, anyone can access and obtain information from a share register, provided they pay the required fee. The only legal restriction is that they cannot subsequently use the information for a purpose unrelated to the shareholding (the most obvious example being the use of the register to create a mailing list for shopping catalogues).

The Bill completely rewrites those rules.

A person who applies to access the register will have to tell the company how they intend to use the information.

If that is a "prescribed purpose", the company will be able to refuse access.

This gives rise to three obvious issues.

What is a "prescribed purpose"?

The Bill doesn't say what a prescribed purpose is.

Instead, the Government will make Regulations to define "prescribed purpose". It has flagged that the following are likely candidates:

  • "specific groups in the community (such as charities) soliciting donations from shareholders";
  • "brokers soliciting clients";
  • "obtaining information about the personal wealth of clients";
  • "making off-market offers to purchase securities (other than for a takeover or an unlisted company)".

What happens if the applicant lies?

What's to stop someone lying about why they want access to the register and then using the information for a different purpose?

The Bill creates a double disincentive:

  • it would be a criminal offence to put a false purpose in the written application to the company; and
  • once you'd got the information, it would also be an offence to use it for a prescribed purpose.

What happens if the applicant doesn't lie?

This is one of the controversial areas of the Bill.

Some critics have claimed that the Bill effectively gives companies the power to delay providing access to a register, even for legitimate purposes.

Under this scenario, a company could simply refuse to allow access by claiming that the applicant wanted the register for a prescribed purpose. The applicant would then have to take the company to Court to force the company to open the register. Defenders of the Bill claim that going to Court in these circumstances would be a fair and readily speedy process.

The second problem is that the Bill could deter applications even for legitimate purposes.

The company is the gatekeeper, and so has an interest in preventing its shareholders from being targeted by people with dubious objectives. But what about legitimate purposes, such as the planning process for takeovers and board spills? The Bill effectively requires those intentions to be notified to the company as the price of getting access to the register.

At first glance, the solution appears to be simple: an existing shareholder can apply for access to the register for the legitimate purpose of checking that his details are right, then use the register for the (also legitimate) purpose of takeover bid planning.

However, that would appear to be a breach of the new provisions. As noted above, it is an offence to make a false statement in an application. It would seem, therefore, that you couldn't apply for access for one legitimate purpose and then use the register for a different (but still legitimate) purpose.

When does the Bill start?

The Bill will presumably come into operation after the Government publishes the regulations which define the "prescribed purposes".

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.