This document is an optional condition for a business sale agreement, requiring the approval of shareholders to the acquisition of shares in a company.
A person (Prospective Acquirer) is prohibited from acquiring an interest in issued voting shares in a company that is listed; or an unlisted company with more than 50 members, where, as a result of that acquisition, the Prospective Acquirer’s or someone else’s voting power in the company increases:
- from 20% (or below) to more than 20%; or
- from a starting point above 20% and below 90%,
(section 606(1) of the Corporations Act 2001 (Act) (Prohibition).
However, item 7 of section 611 of the Act provides an exception to the Prohibition. Under this provision, shareholders at a general meeting can approve by resolution the acquisition of shares in these circumstances, provided that:
- neither the Prospective Acquirer or vendor of the shares take part in the vote; and
- full disclosure is provided about the transaction and the effect of the acquisition on the voting power of the Prospective Acquirer or someone else.
Using this precedent
This clause can be used in a business sale agreement. It can also be used as a condition precedent to the sale of shares the separate precedent “Business sale agreement – sale of shares (short form)”.
When inserting this optional clause into an agreement, care must be taken to ensure that the agreement remains consistent. Cross-references, definitions and schedules should all be checked.
This document has been authored for Lexis Nexis by Jeremy Kriewaldt, Partner, Atanaskovic Hartnell and Elise Margow, Principal, Legally Speaking.
This document is prepared with the assistance of Specialist Editor Murray Landis, Partner, K&L Gates.