Theory and Practice in Takeover Law - Further Reflections on Pinnacle No. 8

Abstract:     
One of the perennial questions in corporate law is how much deference should be given to directors' judgments. The introduction of a statutory business judgment rule in Australia in 2000 was designed to bolster the autonomy and discretion of the board. At the same time, however, an intriguing departure from this policy position emerged in the context of takeovers.

The courts traditionally acted as umpire in determining whether directors had breached their duty to act for proper purposes in the face of a hostile takeover. The problem of how much deference to accord to directors' judgments has always been particularly acute in the takeover arena, where the "omnipresent specter" of self-interest is present. The traditional mode of regulation in this area, therefore, used judicial monitoring to ensure compliance by directors with duty-based rules.

This basic regulatory picture was, however, radically altered by the Corporate Law Economic Reform Program (CLERP) Act 2000, which moved the role of umpire from the court to a specialist commercial body, the Takeovers Panel. This paper discusses the implications of that change, and an interesting paradigm shift emerging in the Panel's decisions. Under this shift, the board's former autonomy and discretion is constrained through use of shareholder consent as a regulatory mechanism for defensive tactics. This constitutes a significant alteration to the balance of power between the board of directors and shareholders under Australian takeover law.

Number of Pages in PDF File: 13

Keywords: Takeovers, Australia, Takeovers Panel, directors' duties, shareholders, bid conditions, unacceptable circumstances

JEL Classification: G30, G32, G34, G 38, K22, K33

Accepted Paper Series