How To Undertake a General Compulsory Acquisition of Shares

A general compulsory acquisition is a right arising under the Corporations Act 2001 (Cth) (the Act). It gives a person holding a 90% interest in a class of shares within a company the right to compulsorily acquire the remaining shares in that class. Ultimately, the right allows that person to achieve ownership of 100% of the shares in the company. This article outlines when you can undertake a general compulsory acquisition and the necessary steps to do so.

90% Holder Threshold

To undertake a general compulsory acquisition, you must hold a 90% interest in a particular class of shares. You hold a 90% interest where:

• you (together with any related body corporates) hold the full beneficial interests in at least 90% of the shares in that class; or
• your voting power in the company is at least 90% and you hold (either alone or together with any related body corporates) full beneficial interests in at least 90% of all company shares on issue. These can either be shares in the specific class or convertible into shares of a specific class.

After you meet the 90% holder threshold, you have six months to undertake a general compulsory acquisition.

Steps to Undertake a General Compulsory Acquisition

To make a general compulsory acquisition, you must take the following steps:

1. Request the Australian Securities and Investments Commission (ASIC) Nominate Experts for an Expert Report

Any general compulsory acquisition requires the preparation of at least one expert report. The expert report addresses whether the amount you propose to pay the minority shareholders for their shares is fair market value. ASIC nominates potential experts that you can engage for this purpose.

You will, therefore, need to write to ASIC to request it nominates one or more experts. Within 14 days of receiving a request for the nomination, ASIC will provide you with names of one to five experts, allowing you to choose an expert/s to prepare the report.

2. Complete the Prescribed Notice (ASIC Form 6024)

Complete the prescribed notice, including the following details:

• the cash sum you propose to pay for the shares you wish to acquire (the consideration payable for a general compulsory acquisition can only be cash);
• the period within which the shareholders of the shares may object to the proposed acquisition (must be at least one month);
• details of consideration given to any shares of the same class that you or any associate have purchased within the last 12 months;
• the right of the shareholders of the shares to be acquired to obtain the names and addresses of other shareholders in that class and the right to object to the compulsory acquisition; and
• any additional information that may be material to the shareholders of the shares in deciding whether to object.

A copy of the expert report (once prepared) will need to accompany this notice.

3. Prepare for the Expert Report

Engage an expert/s nominated by ASIC to prepare the expert report.

4. Lodge and Circulate the Prescribed Notice and Expert Report

Lodge the prescribed notice and the expert report with ASIC. You must provide a copy to:

• each shareholder who you intend to acquire shares from;
• Australian Securities Exchange (ASX), if the company is listed; and
• the company whose shares are the subject of the compulsory acquisition.

Once you lodge the notice, it cannot be withdrawn.

5. Wait Out the Objection Period

Once you provide notice to the shareholders, they have one month to object. If all of the objectors hold less than 10% of the shares that your notice covers, you can continue with the acquisition.

6. Obtain Court Approval

If the objectors hold at least 10% of the shares subject to the notice, you must apply to the court for approval of the acquisition if you still wish to proceed. You must make this application within one month after the objection period. You also bear the costs for this application.

If you can demonstrate the terms set out in the notice provide a fair value for the shares you intend on acquiring, the court must approve the acquisition.

7. Complete the Acquisition

If you are entitled to acquire the shares, you have two options. You can:

1. pay consideration to the shareholders of the shares;
2. take a transfer of the shares from the shareholders; and
3. have the issuing company of the shares register the transfer.

Alternatively, you can complete the statutory procedure set out in the Act. The statutory procedure allows you to sign any share transfer forms as both the transferor and transferee. Further, you can make the consideration for the shares directly to the company. The company then holds the shares on trust for the holders, to be dealt with in accordance with their instructions.

In any case, the acquisition must take place within 14 days after the end of the objection period. If you had to seek the court’s approval, the acquisition must take place 14 days after the application is finally determined.

Key Takeaways

To undertake a general compulsory acquisition of shares you must first hold a 90% interest in a class of shares. Within six months of meeting the threshold, you must carefully follow the necessary steps to undertake a general compulsory acquisition of shares. After completing the required steps, you will eventually hold 100% of the company shares.

If you have any questions or require assistance with making a general compulsory acquisition, get in touch with LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.