Behind closed doors – the Takeovers Panel's approach to claims of association

Ahead of the Deal - Australian M&A Briefing

The Takeovers Panel has received many applications alleging the existence of associations. Typically, these applications are based on evidence which does not, of itself, establish the existence of an association and so requires the Panel to make a finding by inference. The Panel has, only in extremely rare circumstances, made such findings.

The Panel applications made in 2025 are no exception. In the recent decision concerning Mayfield Childcare Limited, for example, the Panel again declined to infer the existence of association, notwithstanding the volumes of material presented before it. This serves as a reminder of the high threshold required of an applicant to prove such matters (established in the Panel's 2008 decision in Mount Gibson Iron and consistently applied thereafter) and the resulting challenge in appropriate (and timely) evidence-gathering.

More broadly, almost 50% of Takeovers Panel applications from 1 January 2023 concerned issues of association. Over this period, the Panel has made only two declarations of unacceptable circumstances, with only a further two instances where the Panel accepted undertakings from the alleged associates.

Understanding the differences between those four decisions and the many other association-related proceedings in which the Panel did not make a declaration or accept undertakings is key to discerning how the Panel approaches claims of association.

Principles

Associates are those who:

• have entered into (or propose to enter into) a relevant agreement for the purpose of controlling or influencing the composition of a company's board or the conduct of its affairs; or
• are acting (or propose to act) in concert in relation to the company's affairs.

The onus on the applicant to demonstrate "a sufficient body of evidence to convince the Panel of the association", as the Panel established in Mount Gibson Iron, is a significant threshold. In this regard, the Panel requires an applicant to "do more than make allegations of association and rely on [the Panel] to substantiate them" (as stated in Dragon Mining Limited). The Panel will have regard to several indicia of association including a shared goal or purpose, prior collaborative conduct, structural links, common investments and dealings, common knowledge of relevant facts, and actions which are uncommercial, before it is satisfied that an association could exist. As noted in Winepros Limited, the Panel can use these indicia to "draw inferences from patterns of behaviour, commercial logic and other evidence suggestive of association."

In practice this means an applicant must produce sufficient evidence regarding behaviour to which the applicant is unlikely to have been privy (or have any visibility over). Accepting this point of tension, the Panel is willing to infer association by a consensus or shared goal – but the applicant must produce sufficient evidence to allow such an inference to be made, and it must be sufficient to infer "a consensus as to what is to be done, rather than a mere hope that something will be done" (Sequoia Financial Group Limited).

Recent findings of association

In 2024, the Panel made a declaration of unacceptable circumstances in relation to Sequoia Financial Group Limited (Sequoia) concerning an association between Anthony Jones (a shareholder in Sequoia) and his son, Brent Jones (a management employee of the Sequoia group, who also had a relevant interest in Sequoia shares). Similarly, in 2023 the Panel made a declaration of unacceptable circumstances relating to an association between David Argyle and his son, Gavin Argyle, who were both shareholders in The Market Herald Limited (Market Herald). Gavin Argyle was also appointed as a non-executive director.

Interestingly, there was a familial relationship between the alleged associates in both cases. The Panel noted in Sequoia that, "while a familial relationship does not automatically make persons associates, it may be relevant in assessing whether the broader factual matrix establishes association". Similarly, in Market Herald, the Panel noted that "their family history provides context that we consider is indicative of an association between them. The way in which Mr Gavin Argyle spoke about Mr David Argyle and the influence of the family's shareholding on the values and direction of the [Market Herald] business is also instructive and is indicative of an association between them."

While strong pre-existing relationships are a helpful indicia of an association, this alone is insufficient. The evidence provided by the respective applicants allowed the Panel to infer, in both cases, that the actions of the alleged associates could only point to an association, and there would be no other commercial reason for their actions.

In Sequoia, the Panel found that Anthony and Brent Jones' actions to remove the CEO and appoint new directors constituted an association. The Panel noted a number of circumstances which pointed to a shared goal and collaborative actions, including a meeting with Anthony, Brent and the CEO which only followed after Anthony communicated dissatisfaction with the share price and dividends to Brent Jones. The Panel noted that, not only was Brent's involvement unexplained, but that there was no reason for Anthony to involve his son and this evidenced collaborative conduct. On another occasion, Brent Jones emailed the non-executive directors of Sequoia, with his father copied, stating he no longer supported the CEO. The Panel remarked that, regardless of the email being written in Brent Jones' capacity as either a shareholder or an executive employee, copying Anthony Jones reflected a significant level of shared goals.

In Market Herald, the Panel heard that David Argyle had issued a section 249D requisition notice following discussions with his son, Gavin Argyle, regarding management of the company (with Gavin also copied on most correspondence). While Gavin could have submitted the notice himself, he instead organised for his father (the major shareholder of Market Herald) to do so. The Panel found that David and Gavin Argyle "went beyond the exchange of views or information or raising general issues" and that, regardless of who initiated the notice, it can "infer that there was a meeting of minds that steps would be taken (by one or both of them, as necessary)."

Mayfield Childcare Limited

Conversely, in the 2025 decision concerning Mayfield Childcare Limited, the Panel found there was no association. The applicants pointed to behaviour by the alleged associated parties, including structural links, examples of prior collaborative conduct, similar entry and treatment of shares issued in a placement and voting alignment on shareholder resolutions. The alleged associates submitted that, while there were historical structural links, these had no bearing or influence on entry into the placement. Further, there were differences in voting decisions (and if there were an association as asserted, it could be reasonably expected that voting preferences would have converged).

The Panel found that the alleged concerted actions could potentially be explained as permissible collective action, or other conduct unlikely to constitute acting as associates. In fact the Panel noted that "notwithstanding the length of the application, we considered that the evidence going to the indicia of association was somewhat limited." This contrasts with the views taken by the Panel in Sequoia and Market Herald, where the Panel found the behaviour of the alleged associates could only be commercially explained by the existence of an association.

The threshold for evidence is necessarily high to allow the Panel to make appropriate and fact-based inferences as to the existence of an undisclosed association. Not only does this high threshold foster certainty in the decisions of the Panel, but it also illustrates that not every connection is, or is evidence of, an improper association.

Time limitations and the Panel's discretion

In Mayfield Childcare Limited, as in Global Lithium Resources Limited 02R before it, the Panel also had to consider requests to exercise its discretion to extend the time to make an application. Ordinarily, an applicant must apply to the Panel for a declaration of unacceptable circumstances within two months of the allegedly unacceptable circumstances occurring, unless the Panel exercises its discretion to extend this time period. The challenges faced by an applicant in evidence gathering may mean that it runs quite close to the two month limitation period and, as a result, in applications asserting association the Panel is often asked to exercise that discretion.

In this regard, the view of the Panel is that the discretion to extend the two-month limitation period must not be exercised lightly. The Panel will only consider doing so if (among other things) the application makes credible allegations of clear and serious unacceptable circumstances the effects of which are ongoing, the relevant matters only came to light during the two months preceding the application, and there is an adequate explanation for the delay, which should not cause prejudice to the parties to the application (as the Panel noted in Global Lithium Resources Limited 02R and Webcentral Group Limited 03).

On these bases the Panel declined to exercise its 'time extension' discretion in Mayfield Childcare Limited and Global Lithium Resources Limited O2R– illustrating that such an extension will only be likely where the applicant has provided a compelling basis for the Panel to exercise that discretion.

Takeaways

Successfully proving an undisclosed association is difficult, but it should be. Asking the Panel to draw inferences relating to undisclosed behaviour should only occur where there is compelling evidence as to the existence of an association in the context of clear and serious unacceptable circumstances. The high bar applied to association cases limits the strain on Panel resources (given that association disputes make up almost half of the Panel's proceedings), and also protects against declarations based on mere inferences, rather than evidence, to ensure that only the cases concerning clear and serious unacceptable circumstances are able to be declared as such. If the application requires volumes of material to demonstrate (by inference) a case of association, it is possible, and indeed quite probable, that the fact pattern falls short of what the Panel requires.

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