Clifford Chance

Here we discuss the Takeovers Panel’s guidance on when corporate restructures—specifically involving bare trust arrangements—may inappropriately remove a company from the protections of Chapter 6 of the Corporations Act.

The Takeovers Panel provides guidance on when it is unacceptable to remove a company from the ambit of Chapter 6 of the Corporations Act 2001 (Cth) (Corporations Act).

In its reasons for declining to conduct proceedings on an application concerning the affairs of Invest Blue Pty Ltd (Invest Blue) — Invest Blue Pty Ltd [2025] ATP 5 (the Invest Blue Decision) — the Takeovers Panel (Panel) has provided guidance that may help market participants understand the potential regulatory implications of certain corporate restructures. Specifically, the guidance relates to restructures where a public company with more than 50 members becomes a proprietary company with no more than 50 members by implementing a 'bare trust' arrangement. Under such an arrangement, the legal title to shares held by certain shareholders is transferred to a third-party nominee or custodian (the Bare Trust Arrangement):

• Consistently with its decision in Careers Australia Group Limited [2012] ATP 5, the Panel stated that: "Unacceptable circumstances may arise where there is a deliberate strategy to reduce the number of shareholders in a company with a view to taking the company outside the ambit of Chapter 6 and depriving shareholders of the benefits and protections afforded under that Chapter."
• Based on the evidence available to it, the Panel determined that it was unlikely that further enquiries would lead it to find that the implementation of a Bare Trust Arrangement in respect of Invest Blue in 2022 constituted a deliberate strategy to take Invest Blue outside the ambit of Chapter 6 of the Corporations Act (the Takeover Provisions). In this regard, the Panel considered relevant Invest Blue's submissions that:

o Invest Blue's decision to implement a Bare Trust Arrangement was "motivated by a desire for Invest Blue to transition to a proprietary company to lessen the administrative and cost burdens associated with being a public company, and to facilitate plans for future growth and expansion generally". The Panel also found this decision was not connected to a control transaction subsequently implemented in 2023 under which a related body corporate of an existing Invest Blue shareholder acquired all shares in Invest Blue not already held by that shareholder. This was despite evidence that such a transaction may have been under contemplation at the time the Bare Trust Arrangement was implemented; and

o while all employee shareholders were requested to transfer legal title in their Invest Blue shares to the nominee under the Bare Trust Arrangement, they were not compelled to do so.

Implications

The following general principles can be distilled from the Invest Blue Decision:

• using a Bare Trust Arrangement to remove a company from the scope of the Takeover Provisions could lead to a declaration of unacceptable circumstances, because it may deny shareholders the benefits and protections afforded under such provisions; and
• the risk of a declaration of unacceptable circumstances is lessened if the establishment of a Bare Trust Arrangement:

o is unconnected with a potential control transaction to which the Takeover Provisions would otherwise apply

o is motivated by a desire to reduce the administrative and cost burden associated with being a public company, and

o is not mandatorily imposed on shareholders of the company that is the subject of such arrangement.

Recommendation

We recommend that any company considering the establishment of a Bare Trust Arrangement for reasons unrelated to the Takeover Provisions articulates those reasons in corporate secretarial and other materials prepared in connection with the corporate restructure in question.

Please contact David Clee or Nicole Backhouse if you would like a deeper discussion on these issues.