Proposed ASIC changes to related party transactions and independent expert reports

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• CP 142 Related party transactions, and
• CP 143 Expert reports and independence of experts: updates to RG 111: content of expert reports and RG 112: independence of experts.

According to ASIC, CP 142 offers updated guidance on whether the “arm’s length” exception, under section 210 of the Corporations Act, applies when entering into transactions with related parties or whether members should have the opportunity to vote on these transactions.

ASIC provides a list of relevant factors that should be taken into account in determining the application of section 210, including a comparison with similar “arms length” transactions, the nature and content of the bargaining process and the financial impact of the transaction on the company.

Further, ASIC believes that the details of all related party arrangements, whether or not a board has assessed them as “arm’s length”, are material to investors and proposes that they should be fully described in prospectuses, product disclosure statements and other materials sent to shareholders for approval, for instance, in relation to takeovers, schemes and significant transactions.

CP 143 proposes certain additional guidance about the requirement for an independent expert’s report to be based on reasonable grounds. The consultation paper discusses the basis upon which a transaction is judged to be fair and reasonable. In particular, ASIC proposes that fairness should be determined assuming a knowledgeable and willing, but not anxious, buyer and seller acting at arm’s length, and that synergies that are only available to a particular bidder should not be taken into account when determining fairness. CP 143 also includes discussion of the circumstances in which a discounted cash flow valuation will be appropriate for start-up or potential development assets where future cash flow is uncertain.

Key Contacts

Melbourne

Michael Linehan
Partner
T: +61 (0)3 9321 9807
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Sydney

David Walker
Partner
T: +61 (0)2 8083 0446
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Brisbane

Philip Vickery
Partner
T: +61 (0)7 3135 0632
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