Where a party to a contract is an incorporated company, any restriction on the assignment of the contract may be circumvented by transferring the shares in that party to a new owner. A share transfer might also circumvent pre-emptive rights that may apply to the sale of assets. Counterparties therefore seek to manage that risk by inserting change of control provisions. The concept of a “change of control” (or “change in control”) does not have a commonly accepted meaning. In Full Petential v Vetzpetz a veterinary supplement distribution agreement contained a change of control clause in the following terms:[1]
10.3 Distributor Termination
(a) Distributor may terminate this Agreement with immediate effect by giving notice to the Sub-Distributor if an event referred to in clause 10.3(b) happens to the Sub-Distributor.
(b)(i) The Sub-Distributor must notify Distributor immediately if …there is any change in the direct or indirect beneficial ownership or control of the Sub-Distributor.
The key question was whether a change in “indirect beneficial ownership or control” had occurred where there had been changes in the ownership of shares in the parent company of the Sub-Distributor.[2] The court held that the words plainly captured the transfer of shares at the parent company level, so that termination in reliance on that clause was valid.[3] Similarly, in Landream Melbourne it was held that the words “change in majority shareholding” will be triggered if a majority shareholder ceases to be such, whether or not a new majority shareholding is formed.[4]
In Aquila Steel v AMCI the Queensland Court of Appeal considered a detailed definition in the context where an option to purchase arose if such a change occurred.[5] The relevant definition of “Change in Control” was extensive and referred to changes in the capacity to control the Board, cast more than 50% of votes in a general meeting, or control more than 50% of issued capital.[6] The primary judge held that the clause had no application to a transfer of share to a related body corporate, because a separate clause allowing transfers to a related body had precedence.[7] The Court of Appeal upheld the decision, even though the related body corporate which obtained control had not in fact been a related body at the commencement of the joint venture.[8]
[1] Full Petential Pty Ltd v Vetzpetz Australia Pty Ltd [2024] QSC 158, [19].
[2] Ibid, [4].
[3] Ibid, [77]-[81].
[4] Landream Melbourne P/L v Aust & NZ IIG P/L [2021] NSWCA 318.
[5] Aquila Steel P/L v AMCI (IO) P/L & Anor [2007] QCA 456, [5], [9].
[6] Ibid, [8].
[7] Ibid, [32].
[8] Ibid, [43].