Dragged too far: the Takeovers Panel blocks Mobile Asset's proposed constitutional amendments
Ahead of the Deal - Australian M&A briefing
Key insights
- Chapter 6 scrutiny for (proposed) drags and tags: The Takeovers Panel recently made orders preventing Mobile Asset Holdings, an unlisted company with approximately 649 shareholders, from amending its constitution to include drag-along and tag-along rights. This was on the basis that these could facilitate the acquisition of 100% of Mobile Asset outside the protections afforded by Chapter 6 of the Corporations Act. The Panel also considered shareholders had not been given sufficient information to enable them to consider the relevant provisions and the provisions themselves gave rise to a potential contravention of the 20% rule in section 606 of the Corporations Act.
- Unlisted does not mean outside the Panel's jurisdiction: The decision is a reminder that unlisted companies with more than 50 members are within the Panel's jurisdiction, and such companies must carefully consider Chapter 6 provisions when proposing constitutional mechanisms that may affect control. We are seeing an increasing number of matters in relation to the control of unlisted companies with more than 50 members coming before the Panel.
- Costs orders on the rise: The decision illustrates the Panel's increasing willingness to make costs orders (with a costs order of around $35,000 made against Mobile Asset in favour of the applicant shareholder). This is consistent with the Panel's revised Guidance Note 4 'Remedies General' published on 8 July 2026.
The proposed drag-along and tag-along provisions “create a mechanism for the acquisition of 100% of Mobile Asset in a manner that circumvents the protections of Chapter 6.”
— Takeovers Panel
Background
Mobile Asset Holdings Ltd (Mobile Asset) is an unlisted Australian public company with approximately 649 shareholders and operates a gold-backed digital payments platform. Approximately 50.86% of Mobile Asset's shares were, at the relevant time, held by the directors of Mobile Asset and their associated entities.
18 March 2026 | Mobile Asset issues a notice of an extraordinary general meeting and an explanatory statement proposing a special resolution to insert drag-along and tag-along rights into the company’s constitution (see details below). The EGM is scheduled for 9 April 2026. |
7 April 2026 | Two days before the proposed EGM, a shareholder in Mobile Asset applies to the Takeovers Panel for a declaration of unacceptable circumstances on the basis that:
The shareholder submits that the circumstances are unacceptable having regard to the purposes of Chapter 6 of the Corporations Act and the practical effect of the proposed amendments would be to create a mechanism for the acquisition of 100% of Mobile Asset that circumvents the protections of Chapter 6. |
| 8 April 2026 | Mobile Asset informs shareholders that it had deferred the EGM while it considers supplementary disclosure, amendments to the proposed constitutional amendments and alternative approaches. The following day, the Panel makes interim orders preventing Mobile Asset from holding the EGM pending determination of the application, on the basis that any further action taken by Mobile Asset could prejudice the Panel’s consideration of the application. |
| 6 May 2026 | Mobile Asset offers an undertaking to not proceed with the proposed constitutional amendments. The Panel, however, declines to accept this proposed undertaking, noting that there had been considerable opportunity for it to be offered at an earlier stage of proceedings. |
| 15 May 2026 | The Panel makes a declaration of unacceptable circumstances and final orders in relation to the proposed constitutional amendments, preventing the EGM from proceeding and ordering that any votes cast on the proposed resolution be disregarded. The Panel also makes a costs order requiring Mobile Asset to pay approximately $35,000 to the applicant shareholder to cover the shareholder's costs incurred in connection with the Panel proceedings. |
The proposed constitutional amendments
The proposed constitutional amendments involved the insertion of drag-along and tag-along provisions into Mobile Asset’s constitution, intended to apply where any person sought to acquire voting power in excess of 20% in Mobile Asset, or otherwise sought to acquire control of Mobile Asset:
- Drag-along: Under the drag-along mechanism, shareholders holding more than 50% of Mobile Asset shares could, subject to certain preconditions, require Mobile Asset to issue a notice to shareholders with details of the transaction. Minority shareholders would then be compelled to transfer all their shares if required to implement the transaction.
- Tag-along: Under the tag-along mechanism, where shareholders holding more than 50% of Mobile Asset shares agreed to sell all their shares to the proposed acquirer, minority shareholders could issue a tag-along notice expressing an intention to sell, and the dragging shareholders would be required to use best endeavours to cause the acquirer to purchase all shares referred to in the tag-along notices.
The relevant provisions provided an irrevocable power of attorney to any two directors of Mobile Asset to complete any transfer of shares required under the provisions on behalf of minority shareholders. Notably, the provisions did not contain any requirement for a minimum sale price, an independent valuation or a fairness opinion and were not subject to approval by a resolution of Mobile Asset shareholders under item 7, section 611 of the Corporations Act or to the provision of ASIC relief.
The Panel's declaration of unacceptable circumstances
1. Effect on control
The Panel considered that the proposed constitutional amendments created a mechanism for the acquisition of 100% of Mobile Asset in a manner that circumvented the protections of Chapter 6 of the Corporations Act. In particular, the drag-along rights gave the board (or any other shareholders holding more than 50% of shares) the ability to compel minority shareholders to transfer all of their shares to a third party, without any requirement for substantive disclosure, shareholder approval, a minimum sale price, an independent board committee recommendation, an independent valuation or a fairness opinion.
The Panel rejected Mobile Asset's submission that because there was no existing control proposal on foot, the proposed amendments were merely a dormant constitutional mechanism that did not engage Chapter 6. The Panel found that the proposed amendments were designed to capture future transactions and that Mobile Asset intended to rely on them.
The Panel also considered whether the proposed new provisions would in fact bind all shareholders given section 140(2)(c) of the Corporations Act, which provides that existing members are not bound by a constitutional modification that imposes or increases restrictions on the right to transfer shares unless the member agrees in writing to be bound (other than in certain limited circumstances). The Panel was of the view that the drag-along rights meant that shareholders cannot freely exercise their right to sell their shares if an effective drag-along notice is in force.
The potential consequences of the application of section 140(2)(c) to the proposed drag-along (and potentially also the tag-along) rights therefore supported the Panel's view that the proposed constitutional amendments had not been structured consistently with Chapter 6 and that Mobile Asset had failed to properly inform shareholders of their effect.
2. Inadequate disclosure
The Panel was of the view that Mobile Asset shareholders had not been given sufficient information to enable them to consider the proposed constitutional amendments, particularly their effect on the control, or potential control, of Mobile Asset. The Panel rejected Mobile Asset's submission that there was no reason to include detailed disclosure of these issues given there was no specific control proposal on foot, and noted that proper disclosure was important where the relevant provisions would facilitate compulsory acquisition of shares of minority shareholders as part of a potential control proposal.
In particular, the Panel considered that the explanatory statement failed to address:
- the control implications of the proposed amendments;
- the advantages and disadvantages of the proposed amendments (specifically for minority shareholders);
- how Chapter 6 of the Corporations Act would apply in practice, including the operation of item 7 of section 611 of the Corporations Act and the associated voting exclusions; and
- how the provisions may bind existing and future shareholders given the potential application of section 140 of the Corporations Act.
3. Contravention of Chapter 6
The Panel considered that the proposed amendments could themselves give rise to a relevant interest in Mobile Asset shares and therefore a contravention of the 20% rule in section 606 of the Corporations Act, given no exception applied. In other words, section 606 would potentially be contravened not only if and when the drag-along mechanism was later exercised, but at the point shareholders became bound by the constitutional amendment.
The Panel found that the proposed amendments gave shareholders the power to dispose of, or control the exercise of a power to dispose of, up to 100% of the shares in Mobile Asset. Specifically, one or more shareholders who hold more than 50% of Mobile Asset shares would be conferred the power under the proposed amendments to control the circumstances in which the drag-along and tag-along rights apply.
Section 609(7) (which provides that a relevant interest does not arise merely because of an agreement conditional on an item 7 of section 611 resolution) and section 609(8) (which provides that a relevant interest does not arise merely because a company's constitution gives members pre-emptive rights on the transfer of the securities if all members have pre-emptive rights on the same terms) of the Corporations Act would not apply. This was because, regarding section 609(7), the drag-along rights were not subject to a resolution under item 7 of section 611 and a general requirement to comply with the Corporations Act was insufficient. Section 609(8) similarly did not apply because drag-along rights were not pre-emptive rights, and in any event not all shareholders would hold rights on the same terms as a result of section 140 of the Corporations Act referred to above (because all shareholders may not agree to be bound by the relevant changes).
Mobile Asset was not proposing an item 7 of section 611 resolution at the EGM (being the shareholder approval exception under which disinterested shareholders may approve an acquisition that would otherwise be prohibited under section 606) which meant this exception did not apply. However, even if it had been, structurally the exception could not apply because:
- a vote under this exception must exclude the votes of "the persons proposing to make the acquisition and their associates"; and
- absent ASIC relief, any shareholder proposing to become bound by the proposed amendments would not be able to vote on the resolution because those shareholders would themselves be "the persons proposing to make the acquisition" – effectively making it impossible for the drag-along provision to be approved in a way that would comply with the requirements of item 7 of section 611.
The Panel also noted that ASIC had indicated it would be unlikely to grant such relief in circumstances where it had publicly declined to provide the same relief in the past.
Commentary
The Takeovers Panel will not hesitate to examine control issues relating to unlisted companies with 50+ members
Mobile Asset is the latest in an emerging line of recent Takeovers Panel decisions demonstrating an increased willingness by the Panel to scrutinise transactions and constitutional mechanisms affecting control of unlisted companies that are subject to Chapter 6. As the examples below illustrate, this trend is evident regardless of whether the Panel ultimately made a declaration of unacceptable circumstances.
Matter | Declaration made? | Panel considerations |
|---|---|---|
Invest Blue Pty Ltd (2025) | No declaration of unacceptable circumstances (Panel declined to conduct proceedings) | This matter concerned an allegation that employee shareholders had been directed to transfer their holdings into bare trust arrangements in order to reduce the number of registered members below 50, thereby removing the company from the ambit of Chapter 6 prior to a change of control transaction. While the Panel declined to conduct proceedings, it observed that its jurisdiction is not necessarily lost merely because a company ceases to be subject to Chapter 6, indicating that transactions involving a company's removal from the scope of Chapter 6 may be subject to Panel scrutiny. |
Montu Group Pty Ltd (2024) | Declaration of unacceptable circumstances | The Panel made a declaration of unacceptable circumstances in relation to a selective buy-back by a company that had raised capital and issued shares via a 'crowdfunding' platform, citing disclosure deficiencies and concerns that the buy-back was structured such that the only shareholder benefiting from the buy-back's control effects could approve the transaction regardless of the votes of other shareholders. |
A S P Aluminium Holdings Pty Ltd (2023) | No declaration of unacceptable circumstances (Panel conducted proceedings) | This matter concerned allegations that control of a proprietary company (subject to Chapter 6 by virtue of having more than 50 members) had been acquired incrementally through successive share acquisitions under the pre-emptive rights provisions in the company's constitution. Although the Panel declined to make a declaration of unacceptable circumstances, it acknowledged that control may be acquired incrementally and considered the impact of constitutional rights on control outcomes. |
Smoke Alarms Holdings Ltd (2020) | Declaration of unacceptable circumstances | The Panel made a declaration of unacceptable circumstances concerning disclosure and voting exclusions with respect to a proposed item 7 of section 611 resolution to approve the conversion of convertible notes and exercise of options that would have given a director-controlled entity voting power of up to approximately 80%. The Panel considered that appropriate protocols and processes were not implemented to deal with the proposal for a director and their controlled entity to obtain control of the relevant company and had concerns about disclosure in the notice of meeting. |
Costs orders on the rise
Additionally, the Mobile Asset case highlights the Panel's increasing readiness to make costs orders (in this case, which included external legal costs, albeit where the applicant was formally unrepresented), consistent with its revised Guidance Note 4 'Remedies General' published on 8 July 2026. The revised guidance note substantially adopts the Panel's consulted proposals (as covered in our previous article Read the room at the Panel: costs are squarely on the table), removing the longstanding reference to costs orders being the 'exception not the rule' and signalling a stronger approach to costs orders and standards of party conduct in Panel proceedings. A costs order has also been made by the Panel in the recent Humm Group Panel proceedings.
The Panel noted that it considered it would be unfair for the applicant shareholder to bear the burden of its fair and reasonable costs incurred in connection with the proceedings where it had raised objections to the proposed constitutional amendments prior to the Panel proceedings, but Mobile Asset did not offer to not proceed with those amendments until a later stage. The Panel also noted that Mobile Asset had sought to resist the concerns expressed by ASIC in relation to the constitutional amendments, and that the applicant had made genuine efforts to limit its legal costs.
Other author: Katie McKay, Associate
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