The Amending Regulations
The Corporations (Fees) Amendment (Takeovers) Regulations 2024 (Amending Regulations), issued under the authority of the Treasurer and in accordance with the Corporations (Fees) Act 2001, introduces a new fee structure for corporate control transactions, including schemes of arrangement and takeovers of Australian entities.
These amendments are supposedly designed to (in the words of Treasury), “better reflect the value to market participants of, and the cost to government for providing, the framework facilitating takeovers transactions”.
Under the Corporations Act 2001, control transactions typically proceed via a members' scheme of arrangement, where securityholders vote on the proposed takeover, or a takeover bid, where offers are made to acquire securities from each holder, with the possibility of compulsory acquisition upon reaching 90% ownership. The Australian Securities and Investments Commission (ASIC) levies charges for document lodgement at various stages of these procedures under its Industry Funding Model (IFM), which is based on a ‘user pays’ philosophy. However, the new fees introduced by the Amending Regulations are not for cost-recovery under the IFM but are instead based on the value of the consideration payable for the target entity's securities.
The new fees become payable on the lodgement of a court order approving a scheme of arrangement or a notice relating to the compulsory acquisition of securities following a takeover bid. The fee brackets for document lodgement range from $10,000 (for transactions valued up to $10 million), up to $195,000 (for transactions exceeding $500 million). These fees are not subject to indexation for inflation and apply to lodgements from 1 January 2025 to 31 December 2027.
The Amending Regulations also provide detailed methodologies for calculating the 'threshold value' of a lodgement, which determines the applicable fee bracket. This calculation involves multiplying the value of the consideration payable per security by the number of securities at the time of lodgement. The regulations offer guidance on assessing the value of consideration, whether it be cash, listed securities, or unlisted securities and allow for reliance on market prices, independent expert reports, or a genuine assessment of value in the absence of such documentation.
To prevent multiple fees for a single transaction, the Amending Regulations stipulate that only one fee is payable for arrangements involving multiple chargeable matters, such as multiple Part 5.1 arrangements or takeover bids by the same bidder for the same target.
The impact on control transactions
At the margin, the new fee structure does not appear particularly punitive. But over the last decade, governments of all descriptions have been gradually increasing the fee burdens for control transactions through a combination of filing fees and stamp duty tax on landholder entities. This is without considering the creep in other transaction costs due to an increasingly complex regulatory environment, which now all but mandates the involvement of a raft of specialist legal, tax and accounting experts.
At some point, excessive costs are going to start to restrict efficiency-enhancing control transaction activity. In the mid-market, we might already be at that point. Consider, for example, a foreign corporation undertaking a $35 million takeover of an Australian mining company. FIRB lodgement fees, landholder stamp duty and the fees introduced by the Amending Regulations could easily tip transaction costs over 7.5% of deal value, and this is before any allowance for professional fees.
The Amending Regulations were developed following ‘targeted’ (read, not widespread) consultation with regulators and takeover practitioners and are part of the 2024-25 Mid-Year Economic and Fiscal Outlook. They are estimated to increase government receipts by a comparatively measly $17.1 million over five years, with a minor increase in payments to fund ASIC. If this is enough to deter even one efficiency-enhancing takeover, then it would have to be asked whether the juice is worth the squeeze, particularly in the context of a national debate over productivity.
Conclusion
The Amending Regulations represent a significant shift in the fee structure for corporate control transactions in Australia. By tying fees to the value of the transaction rather than cost recovery, the government aims to better reflect the economic significance of these activities. However, this change also means that executing corporate control transactions, such as takeovers, will become more expensive. This could have implications for the market, potentially affecting the strategy and costs for entities involved in such transactions and deterring some transactions, particularly in the mid-market where such costs are felt keenly.