Key points

  • For some time, there has been widespread concern that independent expert reports are fast losing relevance due to concerns that the expert is not truly independent.
  • ASIC has responded to these concerns with the release of Regulatory Guides 111 and 112 to promote higher quality expert reports that are clear, concise and effective. ASIC has also been much more active in scrutinising the content of independent expert reports.
  • The Takeovers Panel has now shown a willingness to critically review the conclusions reached by experts, with the Review Panel in Bowen Energy Ltd 02R finding that there were material deficiencies in that report giving rise to unacceptable circumstances. The Review Panel ordered that a new report be obtained from an independent expert who was satisfactory to ASIC.
  • The Review Panel's orders in Bowen Energy Ltd 02R are consistent with the push for regulatory reform to give ASIC a much greater role in the appointment of experts to restore confidence in the "independence" of those reports.

Better expert reports

For certain transactions such as takeovers or schemes of arrangement where the acquirer and target companies share common directors, companies are required to provide investors with an independent professional opinion on the merits of the transaction.

Such protection is usually afforded where particular risks are present in the transaction, such as where a party may dominate investors because of associations, control or unequal bargaining power.

In some instances, companies voluntarily choose to provide investors with the benefit of an independent expert report, assisting them to make an "informed choice" in respect of the particular transaction, or to help satisfy the company's legal disclosure obligations. Often the expert report is used to validate the steps taken by the Board.

While the rationale for providing investors with an independent professional opinion in these circumstances should be lauded, in practice the views of the expert are often criticised as being biased towards the views of the company providing the report.

These perceptions are not helped by the fact that it has been unusual to see an expert prepared to provide an opinion which differs from the position advocated by the company obtaining the opinion.

ASIC Regulatory Guides 111 and 112 were released in 2007 in direct response to this continuing public perception that expert reports might not express a view that is sufficiently independent from the interests of the client. Those new Regulatory Guides were intended to enhance market confidence regarding the independence of experts and to improve the quality of reports.

However, despite the release of these Regulatory Guides, concerns over the independence of experts remains.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.