What Is A Compulsory Acquisition Of Shares?

Summary

• If you hold at least 90% of shares in a company, you can compulsorily acquire the remaining shares through either a post-takeover bid acquisition or a general compulsory acquisition, depending on the company’s structure.
• Each acquisition type carries distinct procedural requirements, including lodging prescribed ASIC forms and, for general acquisitions, providing an independent expert report confirming the offer is fair value.
• Minority shareholders holding 10% or more of shares can collectively object, requiring the acquirer to seek court approval before proceeding.
• This article is a plain-English guide to compulsory acquisition of shares under Australian law, written for business owners and majority shareholders considering full ownership of a company.
• It has been prepared by LegalVision, a commercial law firm that specialises in advising clients on corporate transactions and share acquisitions.

Tips for Businesses

Check which acquisition type applies before acting – the takeover regime applies to companies with more than 50 members. Meet both the 90% shareholding threshold and the 75% acceptance rate. Lodge the correct ASIC form, commission an independent expert report where required, and act within the six-month window.

If you hold at least 90% of the shares in a company, you can compulsorily acquire the remaining shares. A process known as compulsory acquisition. This framework allows you to access the benefits of full ownership, including streamlined decision-making, elimination of minority shareholder disputes, and complete control over corporate strategy. It also serves an important commercial purpose by facilitating corporate consolidation and removing the complexities of fragmented ownership structures. This article outlines the different ways compulsory acquisition of shares may occur and how each works.

Why Do These Rules Exist?

The compulsory acquisition provisions balance the legitimate interests of majority shareholders to achieve complete ownership and the protection of minority shareholders’ rights. While majority shareholders should be able to consolidate their control, this power must be exercised within strict legal parameters to prevent abuse.

Types of Compulsory Acquisition of Shares

There are currently two types of compulsory acquisition of shares. These are:

1. a compulsory acquisition following a take-over bid; or
2. a general compulsory acquisition, in the absence of a takeover bid.

You can also obtain full ownership of a company by way of an internal reconstruction via:

• a scheme of arrangement (generally for public or listed companies rather than private companies); or
• a share capital reduction. For example, a share buyback where there is a cancellation of the shares of the minority shareholders.

These alternatives can be complex and expensive. On the other hand, a compulsory acquisition of shares can be simpler and cheaper. However, you should carefully consider the company’s structure, shareholder composition, and commercial objectives before deciding on how to proceed.

Procedural Requirements and Compliance

To compulsorily acquire shares you must meet specific requirements. Requirements include completing and lodging the following prescribed notices with the Australian Securities and Investments Commission (ASIC): 

• Form 6021 for a compulsory acquisition following a take-over bid; or
• Form 6024 for a general compulsory acquisition.

These forms require detailed disclosure about the acquisition, including the terms offered, the basis for valuation, and compliance with statutory thresholds. If you do not properly complete and lodge these forms, it can invalidate the acquisition process.

Compulsory Acquisition of Shares Following a Takeover Bid

A takeover bid is where a bidder makes an offer to acquire the shares of all of the shareholders on the same terms. If your company has more than 50 members, the takeover regime will apply.

What Is the Takeover Regime?

The takeover regime is designed to ensure market integrity and shareholder protection. It requires extensive disclosure, equal treatment of shareholders, and compliance with timing requirements that give shareholders adequate opportunity to consider the offer.

An Example

A person makes a takeover bid for a company but still has less than 100% interest in the company. That bidder may decide to compulsorily acquire the remaining shares.  

The bidder can then acquire the remaining shares on the same takeover bid terms if they meet two thresholds:

1. at the end of the takeover bid, the bidder has an interest in at least 90% shares; and
2. the bidder has already acquired 75% of the shares that the bidder made offers for under the bid.

This is permissible because ASIC believes that when the terms of a takeover bid receive overwhelming acceptance, the bidder should be able to acquire any remaining shares on the same terms unless the acquisition is unfair.

You can only compulsorily acquire shares in the same bid class to which the takeover bid applied. Therefore, if the takeover bid was for ordinary shares, the bidder can only acquire ordinary shares. The bidder must also be able to show that they hold 90% of shares in that particular bid class.

If you do not meet the thresholds, you can undertake a compulsory acquisition of shares, but only with the approval of the court. A court will permit this if shareholders in the company are unidentifiable or uncontactable, or if the bidder has an interest just below the 90% threshold.

General Compulsory Acquisition

The takeover regime does not apply to all companies,  for example, if the company is too small or is not listed. If the takeover regime does not apply, you can still acquire the remaining shares through a general compulsory acquisition if you meet certain thresholds.

You need to be a 90% holder of shares in a particular class where the person holds at least 90% of:

• shares in that particular class; or
• voting power and 90% of shares of the company. The 90% may include issues that are either shares or convertible into shares.

There are additional requirements for general compulsory acquisitions to ensure that minority shareholders receive protection. You must:

• offer a cash sum for the acquisition of shares unless:
  • there are differences in accrued dividends of the shares; or
  • there are differences in the amounts paid on the shares (the same amount must be paid for each security); and
• provide to the shareholders whose shares they will acquire an independent expert report that addresses:
  • whether the cash to be paid is fair value; and
  • any information relevant to whether they should object to the acquisition.

Additionally, if shareholders of 10% or more of the shares object to the acquisition, you must obtain approval from the court before compulsorily acquiring the shares. There is also the expectation that you will pay for the court proceedings. This objection threshold provides an additional layer of protection, allowing minority shareholders to collectively challenge acquisitions they consider unfair or inappropriate.

Key Takeaways

If you are a shareholder holding a majority interest in a company, you can achieve full ownership of the company through a compulsory acquisition of shares. Depending on the company, the type of compulsory acquisition may differ. When compulsorily acquiring shares, it is important to be aware of and adhere to the Act and threshold requirements. Professional legal advice is essential to navigate the complex procedural requirements and ensure compliance with all statutory obligations.

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Frequently Asked Questions

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.