Lessons in shareholder activism

By Charles Ashton, Richard Kriedemann
Dealmakers & Investors Mergers & Acquisitions Private Equity

How not to use equity derivatives 8 min read

The Australian Takeovers Panel has confirmed what most market participants suspected: a shareholder cannot acquire a substantial (5%+) long position1 in a target company and seek to influence its affairs without fully disclosing its position to the market. In a textbook case of what not to do in an activist campaign in Australia, the Panel has made a declaration of unacceptable circumstances in Bell Rock Capital's 'deliberate and ongoing non-compliance with Guidance Note 20' while conducting an activist campaign in relation to Whitehaven Coal. In its first substantial consideration of GN 20 since it was rewritten in 2021, the Panel has made its expectations for disclosure of equity derivatives crystal clear.

In this Insight, we discuss the Panel's findings and highlight the six key takeaways for shareholders and boards.   

Panel's guidance on equity derivatives

Concerns around the disclosure of equity derivatives had their debut in the Panel in the 1990s when Kiwi investment house Brierley Investments used undisclosed cash-settled equity swaps to amass a 25% interest in John Fairfax Holdings.2 Much like John Farnham, equity derivatives have staged successive comebacks for the Panel every few years. Consequently, to assist market participants in understanding the Panel's expectations on the use and disclosure of equity derivatives, the Panel published guidance in 2008, stating that the Panel expects that where there is a 'control transaction', any long position over 5% should be disclosed. However, the definition of control transaction was ambiguous which created uncertainty around if and when the disclosure obligations arose – leading to further Panel disputes. Finally, in 2021, following extensive industry consultation and a lengthy implementation period, the Panel reissued GN 20 to clarify that it expects disclosure of all long positions over 5% irrespective of whether a control transaction has commenced.3 It was against this backdrop that Bell Rock made the strange decision to run its campaign against Whitehaven without disclosing its total long position.

Bell Rock's campaign against Whitehaven

In 2023, Whitehaven was the successful bidder in an auction to acquire metallurgical coal assets from BHP. In the early stages of that process, Bell Rock (then claiming to be Whitehaven's largest shareholder with just under 5% of Whitehaven shares) commenced a campaign (initially privately, and then publicly) against Whitehaven's potential acquisition of these assets and certain resolutions at Whitehaven's 2023 AGM. The public campaign included writing letters to Whitehaven shareholders and a website.

Between June 2022 and June 2023, Bell Rock used a combination of physical acquisitions and cash-settled equity derivatives to amass an undisclosed 13.041% long position in Whitehaven (4.74% amounted to a relevant interest held via physical securities). As Bell Rock's relevant interest remained below 5% and its interests held via cash-settled derivatives did not give it a relevant interest in Whitehaven, Bell Rock was under no obligation to disclose its interest under the substantial holder provisions of the Corporations Act. Moreover, there was no way for Whitehaven to confirm Bell Rock's equity derivative position under the tracing regime in the Corporations Act.

Whitehaven first became aware of the potential existence of the additional derivatives through conversations with Bell Rock in May and June 2023. In July 2023, Whitehaven wrote to Bell Rock seeking confirmation of its relevant interest in Whitehaven and any derivative position disclosable under GN20. Bell Rock did not make any disclosure. On 12 October, Bell Rock wrote to Whitehaven shareholders advising them to vote against certain AGM resolutions. On 18 October, Whitehaven announced it was the successful purchaser of the BHP assets. On 23 October, in advance of the AGM on 26 October, Whitehaven again requested Bell Rock make appropriate disclosure of its long position. With no disclosure forthcoming, Whitehaven applied to the Panel seeking a declaration of unacceptable circumstances against Bell Rock.

Six key takeaways from Bell Rock's misadventure

1. Disclosure obligations apply even if no control transaction is announced

Anecdotally, we are aware that some market participants still take the view that there is no requirement to disclose a 5%+ long position if there is no control transaction on foot or the position is not acquired with a control purpose. There is no longer any ambiguity to support this view. If the extensive consultation and re-issue of GN 20 in 2021 to specifically address this issue wasn't enough, the Panel's position is now unequivocal: all market participants should disclose +5% long positions (unless they are a market maker with a long position written to hedge another equity derivative)4. There is a separate question as to whether a failure to disclose will amount to unacceptable circumstances but it’s a brave investor who walks that tightrope.

2. Selling down a position will not prevent a declaration of unacceptable circumstances

By 8 November (during the course of the Panel proceedings), Bell Rock sold down its long position to below 5%. Bell Rock submitted that in those circumstances the Panel proceedings served no meaningful public interest. The Panel disagreed. It found Bell Rock's sell down did not address the unacceptability of the historical lack of disclosure and that its conduct demanded clear and decisive consequences to prevent equity derivatives being used by market participants in similar ways in the future.

3. Activists seeking to 'influence' rather than control target companies are still squarely within the Panel's sights

GN 20 is clear that the Panel is more likely to find unacceptable circumstances if a person with an undisclosed +5% long position has attempted to exercise control or influence over the target or proposes a control transaction after the time that disclosure should have been made. Bell Rock sought to argue that no unacceptable circumstances arose because it never attempted to exercise control over Whitehaven – omitting any reference to 'influence'. In line with what was clearly apparent to any observer, the Panel was satisfied that Bell Rock's campaign ahead of the AGM was an attempt to exercise influence over Whitehaven. Clearly, attempts to influence, even without a control purpose, are sufficient to give rise to unacceptable circumstances. Activist investors (who regularly seek to influence companies) should take note.

4. Corrective disclosure will be fulsome and may require disclosure of sensitive information

The Panel found that Bell Rock's belated disclosure was defective in various respects. It required fulsome disclosure of historic trades despite Bell Rock's subsequent sell down. The Panel also required Bell Rock to disclose its ultimate controller, information concerning how Bell Rock exercised control over the physical shares it held, and a copy of the managed account agreement conveying this control to the relevant Bell Rock entity. Interestingly, in this context, the Panel was prepared to accept limited redactions to that agreement (including provisions dealing with notional trading amounts, fees and termination). While making no comment or endorsement as to whether such redaction would be permitted under the substantial holder provisions of the Corporations Act, the Panel did consult with ASIC as to the adequacy of the disclosure and approved a form which the Panel considered addressed the unacceptable circumstances and was balanced by the commercial situation. Redaction of documents disclosed in substantial holder notices is a controversial topic – ASIC's policy has been that redaction is not permitted.

5. The Panel expects target boards to act swiftly if it suspects non-compliance with GN 20

Boards are placed in an invidious position if they suspect an activist shareholder is in breach of GN 20. If the shareholder has structured a swap appropriately, there is no tracing regime or other 'self-help' remedy to confirm that shareholders' long position or test any claimed derivative interest. While the Panel seems to accept this point and acknowledges that it is not the role of a listed company to police compliance with GN 20, the Panel noted that it cannot make an application of its own volition and requires Boards to be proactive when aware, or suspecting, of lack of compliance with GN 20 or otherwise.

6. Consequences for breaching GN20 in the future could be severe

In this instance, the Panel's orders are likely to have taken into account the timing of the application and the fact that Bell Rock had sold down its long position to below 5% during the Panel proceedings. However, in a clear warning shot to the market, the Panel made explicit that it would be open to the Panel to make orders reaching beyond disclosure, including the cancellation of any agreement in relation to the equity derivatives and, where physical shares are held, a voting freeze or a divestment. In other circumstances, it may well choose to do so.

Considerations for the future

With equity derivatives more in vogue than ever, it is important that market participants understand the Panel's expectations on their use and disclosure and the potential consequences of non-compliance. Here, the Panel felt that Bell Rock's deliberate and ongoing non-compliance with GN 20 required clear and decisive consequences. Market participants should heed these lessons to avoid embarrassment-or worse-in the future.  

Allens acted for Whitehaven in connection with the Takeover Panel Proceedings.


  1. Either a long equity derivative position or a relevant interest in securities or a combination of both.

  2. John Fairfax Holdings [1997] ATP.

  3. Guidance Note 20: Equity Derivatives at [9]. However, the Panel does not normally expect a market maker (eg an investment bank) to disclose a long position to hedge another equity derivative it has written.

  4. See example 3 in Guidance Note 20: Equity Derivatives.