The Takeovers Panel (Panel) recently evaluated the '50 shareholders rule' during a merger case involving Invest Blue Pty Ltd (Invest Blue), addressing issues of unacceptable circumstances. Chapter 6 of the Corporations Act 2001 (Cth) (Corporations Act) aims to ensure that control acquisitions over voting shares in listed companies, or unlisted companies with more than 50 members, occur in an efficient, competitive, and informed market.

In the case of Re Invest Blue Pty Ltd [2025] ATP 5, Kanearo Pty Ltd (a former shareholder) (Kanearo) argued that at the time of the acquisition of Invest Blue by Ironbark Investment Partners Pty Ltd, Invest Blue was an unlisted company with more than 50 members and therefore was required to comply with Chapter 6 of the Corporations Act (dealing with acquisitions of a voting power in a company of greater than 20%). Kanearo alleged the company encouraged employee shareholders to transfer holdings into a bare trust (resulting in Invest Blue having less than 50 registered shareholders) to evade Chapter 6 obligations. Invest Blue responded that the decision was motivated by a desire for Invest Blue to transition to a proprietary company to lessen the administrative and cost burdens associated with being a public company, and to facilitate plans for future growth and expansion generally.  

The Panel found Invest Blue had fewer than 50 shareholders, which it found to be evidenced solely by the number of names entered into a company’s register of members, and did not encourage the use of a bare trust to avoid the application of Chapter 6. As such, the Panel declined to conduct proceedings, noting the potential for unfair prejudice of orders given the time elapsed since relevant events.

While the Panel did not make a declaration of unacceptable circumstances in this matter, it was noted that similar arrangements put in place with a view to taking a company outside the ambit of Chapter 6, and depriving shareholders of the benefits and protections afforded under the Corporations Act, could constitute unacceptable circumstances.  The Panel also indicated that it has jurisdiction to consider circumstances unacceptable where transactions and corporate actions remove a company from the ambit of Chapter 6.  This could potentially extend to companies that have never been subject to Chapter 6.

This decision could become relevant where a company that has never been subject to Chapter 6 facilitates or encourages shareholders to use a similar arrangement to ensure that it has fewer than 50 shareholders to circumvent the application of Chapter 6.  

For example, a company in the process of preparing to IPO with such arrangements in place could be captured. Keeping the number of non-employee shareholders below 50 for as long as possible is an important consideration – once a proprietary company tips over 50 non-employee shareholders, it must convert to a public company and becomes subject to enhanced financial reporting requirements under Chapter 2M of the Corporations Act.  For a company that is in the final stages of preparing for an IPO, conversion to a public company and preparation of audited financial statements is a requirement in any event, but assuming this additional compliance burden should be delayed until the company has made a firm decision to proceed with an IPO (and not while the company is entertaining other potential liquidity events, such as a backdoor listing or a sale process).

Any proposals to restructure a company’s capital structure, to reduce the number of shareholders by consolidating multiple shareholdings under one trustee, should be carefully considered before implementing to ensure that it is being pursued for a proper purpose that is not against the interests of other shareholders (in particular for the sole purpose of avoiding the application of the takeover rules under Chapter 6).

In the review decision, the Panel denied a request to review its initial decision on the basis that no potential errors or significant new evidence justified a review. This aligns with the Panel’s guidance on efficient dispute resolution, ensuring timely resolution of takeover and control transactions.