Publications / Corporate Advisory
The term ‘associates’ has growing significance for families involved in corporate activity. The Takeovers Panel’s recent decisions highlight a growing confidence in making inferences of association among family.
The Takeovers Panel (Panel) has recently stated that family relationships are a relevant factor to be considered when determining whether an association between two parties can be established. This new consideration, combined with the Panel’s new found confidence in making an inference of association, has implications for family members who are substantial shareholders in Australian public companies.
A fundamental principle of takeover regulation in Australia is the aggregation of the votes of associates. For the purpose of Chapter 6 of the Corporations Act 2001 (Cth) (Act), the term ‘associates’ is given to persons who have a common purpose of controlling or influencing the composition of a given board or the conduct of a company’s affairs, or who act in concert in relation to the company’s affairs.
Association notoriously difficult to prove
Since 2000, the issue of association has been raised in applications over 40 times, but the Panel has concluded that an association existed on just one quarter of those occasions.
The challenge of drawing inferences from limited factual evidence has historically made the Panel reluctant to draw a conclusion of association. The Panel has previously stated that ‘issues of association are notoriously difficult for outsiders to prove’.
Concluding that an association exists is a somewhat subjective task, with any given Panel weighing up whether or not sufficient factual evidence has been provided for the inference to be drawn.
Factors that may support an inference of association
Factors considered by the Panel in reaching a conclusion of association have historically included the following things:
- shared goal or purpose
- prior collaborative conduct
- structural links (common directorships or shareholders between parties or cross beneficiaries)
- common investments and dealings, and
- common knowledge of relevant facts and actions that are uncommercial. 
As a result of the Panel’s recent decision in CMI Limited (CMI) , family relationships are also now relevant.
Evolution of the Panel’s approach to association
At its recent national roadshow, the Panel stated that it may be getting ‘better and braver’ at identifying issues of association. The Panel noted the increase in applications regarding association and the more frequent decisions of the Panel to conduct proceedings over the past year. This year the Panel has made two declarations of unacceptable circumstances in connection with findings of association.
In earlier matters during 2002-2004 such as Anzoil NL 01 , Trysoft Corporation Limited  and Skywest Limited 04 , the conclusion of association was generally only made with the benefit of compelling evidence and where the existence of an agreement was clear from the facts. In all three of those matters there was an actual agreement to act together or on behalf of another.
The Panel’s growing confidence in finding association through family relationship is evident in the recent matter of CMI. In that matter, Ms Leanne Catelan was gifted money by her father for purposes which included the purchase of shares in CMI, a company in which he was already a director and substantial shareholder. The Panel said it was unclear who accepted the offer for the shares on behalf of Ms Catelan. At the time of the application to the Panel, Ms Catelan was employed by CMI in the role of her father’s personal assistant. She had also previously worked for another company managed by her father. Additionally, both Ms Catelan and her father had established separate family trusts and, as is common for trusts of this nature, each was identified as a potential beneficiary of the other’s trust. The Panel considered that this structural link between the parties’ investment affairs, along with their family and working relationship, supported the Panel drawing an inference of association.
The Panel’s conclusion that an association existed arose:
- largely from inferences made in the absence of direct evidence, and
- from perceived gaps in the materials and information provided by Ms Catelan.
The fact that it was unclear who had accepted the offer for the relevant CMI shares on Ms Catelan’s behalf, was of particular interest to the Panel.
While the tendency to draw conclusions based on omitted information or uncertain submissions is not novel there appears to be a shift in the Panel’s approach.
In 2002 the Panel focused on information provided by the applicant in seeking to prove the allegations. The CMI case indicates the Panel’s willingness to reverse the onus of proof and require the responding party to demonstrate an absence of association.
In particular, the Panel’s conclusions in CMI show that they will draw inferences from omissions by either party to a proceeding.
The ‘purpose’ of the association less important
Another shift by the Panel, evidenced in the recent CMI matter, is the broadening of the concept of the ‘purpose’ of the association. Section 12(2)(b) and (c) of the Act defines association as:
‘the entry into a relevant agreement for the purpose of controlling or influencing the composition of a [company’s board] or conduct of [its] affairs...[or]...acting or proposing to act in concert in relation to the [company’s] affairs’.
This joint purpose is an essential element of an association. In refusing to make a declaration in Winepros Limited, the Panel placed weight on the fact that the allegedly associated parties showed no intention of taking control of the company, altering the composition of the board or interfering with the conduct of its affairs other than an intention to vote against certain resolutions regarding a takeover bid, so there was no agreed purpose to the alleged association.
In contrast, in the CMI case, there was little discussion regarding the alleged purpose of the apparent association. The Panel’s guidance was:
‘The clear inference that can be drawn...is that there is a shared goal or purpose in Tinkerbell’s acquisition, namely consolidation of control of CMI between Mr Raymond Catelan and Ms Leanne Catelan.’ 
In that regard, the finding by the Panel of a purpose of ‘consolidating control’ may now be something of a default finding.
Implications of this shift in attitude
The growing tendency of the Panel to make inferences of association does create some uncertainty. The Panel mentioned at its recent roadshow the possibility of releasing guidance indicating what matters may give rise to a finding of association and cited family relationships as a specific example.
It is not uncommon for companies to have substantial shareholders or directors from the same family. Historically, this, without something more, would not have supported an inference of association.
In light of the recent findings in CMI, substantial holders of a public company who are family members should carefully consider the effect of an aggregation of those interests on any further acquisitions contemplated by any of them. In the absence of detailed guidance from the Panel, this issue will continue to challenge related substantial shareholders in Australian public companies. It is not difficult to envisage that family members concerned about the potential aggregation of their voting power will take steps to establish a trail of indirect evidence that relevant family members do not have a common purpose, such as a history of inconsistent voting or attitudes to particular issues at shareholder or director meetings.
In contrast to the Australian Panel, the U.K. Takeovers Panel has taken a more prescriptive approach to family relationships in regards to association. In The Takeover Code, the U.K. Panel’s rules on takeovers and mergers, the definition of ‘acting in concert’ encapsulates a list of ‘persons [who] will be presumed to be persons acting in concert with other persons in the same category unless the contrary is established’. Accordingly, close relatives and related trusts are listed as a group of persons to which the presumption applies. This presumption is rebuttable, and in general provides family members who have substantial holdings in companies with clarity in relation to the Panel’s position in determining whether they have acted in concert. Although the Australian Panel’s approach is not yet a ‘rebuttable presumption of association’ among family members, the growing circumstances in which it has been willing to infer associations demonstrates a move in that direction.
Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.
 Viento Group Ltd  ATP 1 paragraph 120
  ATP 4
  ATP 19
  ATP 26
  ATP 26
  ATP 4 paragraph 65