The transaction will not increase the percentage of voting rights that Pedro holds in Trojan Limited. Both before and after the transaction, Pedro will hold no voting rights in that Code company.

However, assuming that Victoria’s 40% holding in listed company Nautilus Limited gives Victoria effective control of that company, then, in turn, Victoria will have effective control over Nautilus’s 25% holding in Code company Trojan Limited. The proposed transaction will enable Pedro to accede to that control position. Accordingly, as the proposed transaction will increase from 0% to 25%, the percentage of voting rights in Trojan Limited that is controlled by Pedro, Pedro will contravene rule 6(1)(a) in relation to Trojan Limited.

Note that it is not sufficient for compliance with the Code that the shareholders of Nautilus Limited approved Pedro’s acquisition of Victoria’s shares in Nautilus Limited. The acquisition of control of voting rights in Trojan Limited is one for the shareholders of Trojan Limited to approve.


ASSOCIATES

The Code is concerned with regulating changes of control of Code companies. The Code would be ineffectual if it concentrated only on voting rights held or controlled by a particular company or individual. It was essential to include in the Code the concept of “association” so that when two or more associated parties acquire ownership of, or control of, voting rights above 20% in a Code company the fundamental rule is triggered.

The concept of associates appears in fundamental rule 6(1)(a) as well as in two of the deeming provisions in rule 6(2). In all three instances, the concept serves as an anti-avoidance measure.

Example 4. Associates Pedro and Quentin hold respectively 8% and 10% of the shares in Code company Trojan Limited. Pedro proposes to increase his holding by 7% to 15% through onmarket purchases.

Pedro’s purchase will not make him the holder or controller of more than 20% in Trojan Limited.
 

The transaction will, nevertheless, contravene rule 6(1)(a). For the purposes of the 20% threshold, Pedro’s post-transaction holding must be aggregated with the holding of associate Quentin. As the proposed transaction increases the combined holding of Pedro and Quentin from 18% to 25%, it will exceed the 20% threshold in rule 6(1)(a). Associate arrangements will also aggregate holdings in upstream companies.

Example 5. Associates Pedro, Quentin and Rodrigo each hold one third of the shares in Nautilus Limited that in turn owns 19% of the shares in Code company Trojan Limited. Pedro proposes to acquire on his own account a 2% holding in Trojan Limited through on-market purchases.

Example 5

Viewed in isolation, the proposed acquisition will not cross any of the thresholds set by the fundamental rule. However, the combined holdings of Pedro, Quentin and Rodrigo give them effective control over the affairs of Nautilus Limited and thus control over the 19% holding in Trojan Limited. This control position must be aggregated with the proposed on-market 2% purchase by Pedro. As the aggregated post-transaction control position of Pedro, Quentin and Rodrigo involves more than 20% of the shares in Trojan Limited, the proposed acquisition will cause Pedro to breach rule 6(1)(a).
Example 4  
ASSOCIATES

“Associate” is defined in the Code as follows:

4. Meaning of associate

(1) For the purposes of this Code, a person is an associate of another person if

a)the persons are acting jointly or in concert; or

b) the first person acts, or is accustomed to act, in accordance with the wishes of the other person; or

 
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