The long and short of it: The Takeovers Panel’s declaration of unacceptable circumstances in Whitehaven Coal Limited

In Whitehaven Coal Limited [2023] ATP 12, the Takeovers Panel made a declaration of unacceptable circumstances in relation to Bell Rock Capital Management’s failure to disclose a long equity derivative interest it held in Whitehaven Coal Limited. 

In brief

• The Panel considered that Bell Rock’s deliberate failure to disclose its long position in Whitehaven in accordance with GN 20 over a long period of time while seeking to exercise influence over the affairs of Whitehaven was contrary to the principles set out in section 602.
• The declaration is the first instance in which the Panel has extensively considered Guidance Note 20 on Equity Derivatives (GN 20) since it was revised in 2021.
• In its decision, the Panel highlighted that boards should be proactive when aware of, or suspecting, potential lack of compliance with GN 20. While the Panel acknowledged that it is not the role of listed companies to police compliance with GN 20, this places a high bar on listed boards given the only remedy for such non-compliance is an application to the Panel.

Background

Whitehaven is an ASX-listed coal mining company which operates four mines in the Gunnedah Coal Basin of New South Wales. Bell Rock is an investment manager based in the United Kingdom, which started holding a derivative interest in Whitehaven shares in the form of cash settled total return swaps in July 2020.

On 10 June 2022, Bell Rock’s long position in Whitehaven shares exceeded 5% (to 5.126% of voting rights), although Bell Rock did not disclose this change in position. Bell Rock’s undisclosed long position further changed by at least 1% on multiple occasions between 10 June 2022 and 30 October 2023, reaching 13.041% on 30 June 2023 (including a 4.774% relevant interest in Whitehaven shares). This was despite Bell Rock telling Whitehaven on 11 July 2023 that no disclosure of its interests in Whitehaven were required, albeit under the substantial holder provisions in the Corporations Act.

In October 2023, Bell Rock initiated an activist campaign against Whitehaven, urging shareholders to vote against certain resolutions at Whitehaven’s AGM in relation to the adoption of Whitehaven’s 2023 remuneration report and the grant of equity incentives to Whitehaven’s Managing Director. As part of that campaign, Bell Rock sent a letter to Whitehaven shareholders stating that Bell Rock managed just under 5% of Whitehaven shares, which was inconsistent with statements made by its representatives to Whitehaven that Bell Rock’s ownership was around 11% of Whitehaven shares held through a combination of physical and derivative positions.

Following Whitehaven’s application to the Panel, Bell Rock issued a notice disclosing a long position relating to approximately 5.31% of Whitehaven’s shares on 30 October 2023 and, on 10 November 2023, a notice disclosing that its long position fell below 5%. Both notices were released under GN 20 on the ASX.

Whitehaven’s application to the Panel

On 24 October 2023, Whitehaven made an application to the Panel seeking a declaration of unacceptable circumstances. Among other things, Whitehaven submitted that:

• Bell Rock had represented to Whitehaven at various times since May 2023 that it held a combined interest (physical and derivative) of approximately 11% in Whitehaven shares, which it had not publicly disclosed in accordance with the requirements of GN 20;
• by stating in a 12 October 2023 letter to Whitehaven shareholders that it ‘manage[s] just under 5% of [Whitehaven] stock’, Bell Rock had ‘deliberately misled shareholders by omission’; 
• Bell Rock’s non-compliance with GN 20 was exacerbated by its attempt to influence Whitehaven’s affairs, including by writing the 12 October 2023 letter to shareholders and launching a media campaign urging shareholders to vote against certain AGM resolutions; and
• Bell Rock’s failure to disclose its derivative interest was contrary to an efficient, competitive and informed market.

Whitehaven sought interim orders requiring:

• Bell Rock to disclose any derivative position it held in Whitehaven under GN 20; and 
• the AGM votes cast on the Whitehaven shares in which Bell Rock had a relevant interest be disregarded (unless Bell Rock disclosed any derivative position it held in Whitehaven shares prior to the AGM).

The Panel declined to make the interim orders sought by Whitehaven because the Panel considered that Whitehaven’s request was not timely, and any AGM votes cast by Bell Rock were unlikely to materially impact the outcome of the resolutions. 

However, on 22 November 2023, the Panel made a declaration of unacceptable circumstances, and made orders including that:

• Bell Rock must give Whitehaven and ASX a corrective disclosure under GN 20;
• the disclosure must be reviewed and approved by the Panel with any changes requested by the Panel reflected in the draft of the disclosure in a form acceptable to the Panel; and
• Whitehaven must publish the disclosure on its ASX announcements platform within one business day of receipt.

The Panel’s reasons

In its reasons, the Panel re-iterated its guidance in GN 20, noting that it expects disclosure to be made where a long position of a person and their associates is 5% or more and, if so, changes by at least 1% or falls below 5% of the voting rights in an entity, irrespective of whether a control transaction has commenced.

In summary, the Panel considered that:

• Bell Rock had not made timely disclosure of its position in Whitehaven shares under GN 20;
• under GN 20, regardless of the fact that no control transaction had been announced or commenced with respect to Whitehaven, Bell Rock should have disclosed its position in the cash settled equity swaps in Whitehaven shares. Disclosures should have been made from June 2022 (when Bell Rock’s long position first crossed 5%) and each subsequent time its long position changed by at least 1%;
• Bell Rock’s failure to satisfy timely disclosure requirements meant that, for some time, the market was uninformed of persons holding substantial interests in Whitehaven, and the extent of their holding, prior to Whitehaven’s AGM. This was contrary to the principles in section 602 of the Corporations Act. Under GN 20, market participants are expected to make disclosure within 2 business days of becoming aware of the relevant information, consistent with the requirements for substantial holder notices;
• by no later than July 2023, Bell Rock was on notice of its GN 20 disclosure obligations and deliberately kept its position undisclosed. This was unacceptable;
• Bell Rock’s pre-AGM activist campaign was an attempt to influence Whitehaven’s affairs at a time when Bell Rock deliberately failed to meet its disclosure requirements and instead presented itself as ‘a long-term strategic investor’ managing ‘just under 5% of [Whitehaven] stock’. This was contrary to GN 20;
• Bell Rock’s subsequent sell down of its position was insufficient to address its unacceptable historical failure to disclose, particularly given how long Bell Rock had held a position under the swaps over 5% of the voting rights in Whitehaven without disclosing it in accordance with GN 20, being notified of its disclosure obligations under GN 20 by Whitehaven and Bell Rock soliciting Whitehaven shareholder support at the Whitehaven AGM; and
• Bell Rock’s draft corrective disclosure was inadequate, which meant it was not appropriate to accept undertakings from Bell Rock to make revised disclosure under GN 20 in lieu of a declaration of unacceptable circumstances or orders. 

While an application for a declaration of unacceptable circumstances can only be made within 2 months after the circumstances have occurred absent a longer period determined by the Panel (which had expired in the present case), the Panel considered that it was appropriate to extend the time for Whitehaven’s application in this matter. This was because:

• Whitehaven’s application made credible allegations of clear and unacceptable circumstances, the effects of which were ongoing; and
• it would be undesirable for the matter to go unheard as essential matters supporting it came to light in the 2 months preceding the application.

Commentary

The Panel’s decision confirms the position in GN 20 that 5%+ long positions must be disclosed in accordance with the guidance note even where no control transaction has commenced. Subsequent selling down of an investor’s derivative interest to below 5% will not necessarily prevent a declaration of unacceptable circumstances by the Panel. In addition, such a declaration is more likely to be made if the investor attempts to influence or control a company’s affairs whilst holding the undisclosed long position. Whilst the Whitehaven orders were limited to corrective disclosure, the Panel noted that the consequences of non-compliance with GN 20 could be more severe in other matters and extend to voting freezes, divestments and cancellation of agreements relating to the derivatives.

The decision also provides practical guidance on the required content of GN 20 disclosures. In particular, the Panel confirmed that, for disclosure under GN 20 to be useful to the market, at least the ultimate beneficiary of the equity derivative (and any physical securities) needs to be disclosed. The Panel acknowledged that while GN 20 requires that, where physical shares have been acquired, details of relevant acquisitions should be disclosed in a level of detail akin to that required under the substantial holder disclosure obligations, there is less clarity regarding disclosures in relation to associates under GN 20.

Of particular note, however, is that in the Panel’s decision, the Panel highlighted that boards should be proactive when aware of, or suspecting, potential lack of compliance with GN 20. In the Whitehaven matter, the Panel noted that the delay in the application being made reduced the effectiveness of the Panel’s decision and any order it could make (noting the Panel cannot make an application of its own volition). While the Panel acknowledged that it is not the role of listed companies to police compliance with GN 20, this places a high bar on listed boards given the only remedy for such non-compliance is an application to the Panel.