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ARTICLE · 04 FEBRUARY 2020

Control Effects Of Underwritten Rights Issues: Takeovers Panel's Declaration Of Unacceptable Circumstances In Relation To Era

Herbert Smith Freehills Kramer LLP
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The Offer was fully underwritten by North Limited, a wholly owned subsidiary of Rio Tinto (Underwriter). Rio Tinto also committed to subscribe for its entitlement in full.

AustraliaCorporate/Commercial Law
David Gray
David Gray
Panashi Devchand
Panashi Devchand

The Takeovers Panel (Panel) has, on review, affirmed the initial Panel's declaration of unacceptable circumstances in relation to the affairs of Energy Resources of Australia Limited (ERA).

In brief

  • It is not uncommon for a major shareholder to underwrite an entitlement offer by a listed company. Indeed, an acquisition of a relevant interest in voting shares resulting from a rights issue is expressly permitted as an exception to the '20% prohibition' in section 606 of the Corporations Act 2001 (Cth) (Corporations Act).1
  • However, the Panel has, on review, affirmed the initial Panel's declaration of unacceptable circumstances in relation to ERA's pro-rata renounceable entitlement offer (which was fully underwritten by a wholly owned subsidiary of ERA's largest shareholder, Rio Tinto2).

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