Shareholder approval of dilutive acquisitions and changes in admission status

Submission Date: 15 December 2025

This submission has been prepared by the Corporations Committee of the Business Law Section of the Law Council of Australia (the Committee) in response to the public consultation released by Australian Securities Exchange (ASX) on 20 October 2025 on shareholder approval requirements under the ASX Listing Rules (the Consultation).

While the Committee is aware of the significant media attention and debate that has been generated by James Hardie Industries Plc’s acquisition of AZEK Company Inc, including investor pronouncements seeking significant changes to the shareholder approval requirements for the issuance of shares under a regulated takeover or merger, the Committee does not support the proposal to reduce the existing effective limit of 100% for much the same reasons outlined by the Committee in its submission dated 15 December 2015 in relation to “reverse takeovers”.

In the Committee's view:

• The regulatory benefits (in terms of investor protection or otherwise) are likely to be very limited. A shareholder veto may not always be in a company’s best interests. While a board has a duty to act in the best interests of the company as a whole, shareholders can vote selfishly in their own personal interests. That may mean a company that wished to pursue a value-adding transaction in what the board considered to be in the company’s best interests, could have that transaction vetoed by a strategic shareholder for reasons that do not necessarily reflect the best interests of all shareholders.
• The costs and inefficiencies, including the additional burden imposed on ASX-listed entities and the consequential detrimental impact to the attractiveness of Australia’s public markets, that would result from any change are likely to be substantial.
• The board of directors, given their statutory and general law duties to act in good faith in the best interests of the company as a whole and with reasonable care, is the appropriate organ of the company to decide whether to pursue a scrip-based acquisition and should be given sufficient scope to do so without the need to obtain shareholder approval. Otherwise, there is a real risk that some transactions would not proceed or would only proceed on terms less favourable to the bidder reflecting the uncertainties associated with a requirement for shareholder approval.

The Committee submits that the 2017 amendments to the ASX Listing Rules, which brought into effect the “reverse takeover” limitation to exceptions 6 and 7, are widely understood and accepted in the market (having been part of the ASX Listing Rules since 1996) and that the status quo should be maintained without any further change.

Stability and certainty of rules matters, and change should not be made without persuasive policy reasons that go beyond a single transaction. The arguments for changing exceptions 6 and 7 based on comparisons with other market rules should not be viewed in isolation. They should be considered as part of the governance and regulatory burden imposed on ASX-listed entities and their boards, as well as the broader regulatory framework and factors specific to Australia’s public markets.

Implementing the proposed changes would increase the governance and compliance burden on ASX-listed entities. This comes amid an evolution and growth in private markets that is challenging the attractiveness and sustainability of public markets. The Australian Securities and Investments Commission (ASIC) has recognised this new dynamic in capital markets and noted its concern with the decline in publicly listed companies.¹ ASIC has also acknowledged the challenge of ensuring public markets remain attractive for listing and staying listed, and recognised a similar issue globally.² In our submission, the ASX proposed changes risk further compromising the competitiveness and efficiency of Australia’s public markets.

^{1 See ASIC Discussion Paper: “Australia’s evolving capital markets: A discussion paper on the dynamics between public and private markets” (2025), p. 8.
2 See ASIC Report 823: “Advancing Australia’s evolving capital markets: Discussion paper response report” (2025), p. 8.}

Last Updated on 17/12/2025

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