Misleading and deceptive conduct

Published 1 November 2006

Another significant change to the Code and to the Takeovers Act is the introduction of new provisions which will prohibit misleading or deceptive conduct in a broad range of circumstances in relation to transactions or events governed by the Code. The principal new provision is a new rule 64 in the Code.

Rule 64 states:

(1) A person must not engage in conduct that is –

(a) conduct in relation to any transaction or event that is regulated by this Code; and

(b) misleading or deceptive or likely to mislead or deceive. 

(2) A person must not engage in conduct that is –

(a) incidental or preliminary to a transaction or event that is or is likely to be regulated by this Code; and

(b) misleading or deceptive or likely to mislead or deceive.

This new rule addresses a deficiency in the Code that has limited the Panel’s ability to deal with misleading conduct occurring outside of signed takeover documents. Because takeover offer documents and target company statements must be certified as being true and correct and not misleading, by directors and senior executives of the offeror and the target, respectively, the Panel has been able to take action where such documents have been found to be misleading. However, the Panel has not been able to exercise its enforcement powers for misleading conduct that may have occurred other than in the signed takeover documents.

The new rule 64 in the Code is cast very broadly and will enable the Panel to exercise its enforcement powers for any misleading or deceptive conduct that relates to any transaction or event that is or is likely to be regulated by the Code. Misleading or deceptive conduct that is incidental or preliminary to events or transactions that are or are likely to be regulated by the Code will also be subject to the Panel’s enforcement powers.

In addition to the new rule 64, it will also be a criminal offence under a new section 44C of the Takeovers Act to make or disseminate materially false or misleading statements or information in relation to any transaction or event regulated by the Code or incidental or preliminary to a transaction or event that is or is likely to be regulated by the Code.

These new misleading and deceptive conduct provisions are anticipated to be brought into force in early to mid-2007. At the time that these new provisions become operative, the Fair Trading Act will no longer apply to conduct that is regulated by the Code and the Takeovers Act. The Panel will provide further information on these new provisions closer to their commencement date.