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Golden opportunity to rethink the arbitrary and redundant 50-member rule

Capital Markets, Corporate and M&A, Shareholder Activism
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In a comment article published in today’s edition of The Australian, partner Jeremy Lanzer argues that the current sophisticated investor review presents a golden opportunity for the government to refashion the “antiquated, simplistic and often oppressive” ‘50-member’ rule.

In response to the widespread media speculation around a planned overhaul of the sophisticated investor regime, Jeremy writes that a re-examination of the 50-member rule, whereby companies are required to convert into a public company if/when the number of non-employee shareholders exceeds 50,  is equally timely.

“Although the policy rationale for enhanced protections of ‘mum and dad’ shareholders is clear,” writes Jeremy, “the 50-member rule is failing to deliver on its intended purpose because a number, 50 or otherwise, is arbitrary, redundant and open to manipulation through clever (re)structuring.

“Why is a company with 53 sophisticated investors subject to onerous governance whereas a company with 15 retail shareholders can be a governance free-for-all?”

Clients of ABL are regularly facing a scenario where fundraising activities have resulted in more than 50 members suddenly appearing on the company’s shareholder register.  

In these scenarios, companies are either forced into the enhanced public company regime, or unnecessary time and money is wasted balancing the register by adopting synthetic means to remain below the arbitrary 50 members via nominees or bare trust arrangements.

“A rethink of the 50-member rule us a natural extension of the mooted update of the sophisticated investor test, and it would be remiss of the government not to recognise this and seize the opportunity.”

To read Jeremy’s full article, click here.

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