No shortcuts to control: The Takeovers Panel slams the door on constitutional drag-alongs

In a landmark decision, the Takeovers Panel has declared for the first time that drag-along and tag-along provisions proposed for insertion into the constitution of an unlisted public company give rise to unacceptable circumstances due to breaches of the Corporations Act 2001 (Cth). The decision sends a clear signal: Chapter 6 cannot be sidestepped through constitutional engineering. Below, we unpack the Panel’s reasoning and what it means for control transactions in public companies.

Need to know:

• The Takeovers Panel has declared that drag-along and tag-along provisions proposed for an unlisted public company’s constitution give rise to unacceptable circumstances by circumventing Chapter 6.
• The section 609(8) pre-emptive rights exception does not apply given section 140(2)(c) provides that a constitutional amendment imposing or increasing restrictions on the right to transfer shares already held does not bind that member without their written consent.
• Section 611 (Item 7) approval is a dead end without ASIC relief, because the very shareholders who benefit cannot vote in favour.

Drag-along rights are a staple of private company constitutions and shareholders agreements. They allow majority shareholders to compel minorities to participate in a sale transaction, allowing majority shareholders to control transactions. They are particularly common for companies with a financial sponsor shareholder, and are also often included in founder controlled companies, allowing the founders to facilitate an eventual exit.

For public companies, the position is fundamentally different. In Mobile Asset Holdings Ltd (TP 26/029), the Takeovers Panel considered whether drag-along rights could work in a public company context. The answer was no. The Panel’s Declaration makes clear that drag-along clauses are fundamentally inconsistent with the objectives of Chapter 6.

The Chapter 6 problem

Section 606 of the Corporations Act prohibits a person from acquiring a ‘relevant interest’ in ‘voting shares’ of a public company with more than 50 members, through a transaction that takes a person’s voting power from 20% or below to above 20%, or from above 20% to a higher point below 90%, unless an exception in section 611 applies. The usual exceptions in a control transaction context are a takeover bid, scheme of arrangement or member approval under section 611(7). Including drag and tag provisions in a company constitution is an attempt to allow certain members to facilitate a control transaction without relying on an exception in section 611.

The decision: Mobile Asset Holdings Ltd

Mobile Asset Holdings Ltd is an unlisted Australian public company with approximately 649 shareholders, with 50.86% of shares held by the board and their associated entities.

On 18 March 2026, Mobile Asset issued a notice of meeting for an extraordinary general meeting proposing a special resolution to insert drag-along and tag-along rights into its constitution. The provisions would apply where any person proposed to acquire voting power in excess of 20%, or otherwise proposed to acquire control.

The drag-along mechanism would have allowed shareholders collectively holding more than 50% of the shares in the company to compel minority shareholders to transfer all of their shares to an acquirer. The tag-along mechanism would have allowed minority shareholders to require the dragging shareholders to use best endeavours to cause the acquirer to purchase their shares. Both mechanisms give rise to relevant interests under section 608(1).

The provisions authorised any two directors to execute transfers on behalf of minority shareholders under an irrevocable power of attorney, contained no minimum price protection or independent valuation requirement, and were not expressed to be subject to member approval under item 7 of section 611.

On 15 May 2026, the Takeovers Panel declared the circumstances unacceptable and made orders preventing the meeting from proceeding. The Panel’s findings were as follows.

1. The provisions created a mechanism for the acquisition of 100% of Mobile Asset that circumvents Chapter 6, by facilitating the compulsory acquisition of shares held by minority shareholders without adequate or appropriate protections.
2. The provisions give rise to a potential contravention of section 606 because they confer upon shareholders the “power to dispose of, or control the exercise of a power to dispose of” all shares in the company, such that all shareholders could acquire up to a 100% relevant interest under section 608(1) (particularly with reference to s 608(8)).
3. The pre-emptive rights exception in section 609(8) did not apply. Section 140(2)(c) provides that a constitutional amendment imposing or increasing restrictions on the right to transfer shares already held does not bind that member without their written consent. Because some existing shareholders could decline to be bound, the provisions would not apply on the same terms to all members, and the exception was therefore unavailable. Notably, this same issue affects drag-along rights inserted into private company constitutions.
4. The only potentially available exception was member approval under item 7 of section 611 of the Corporations Act. However, absent ASIC relief, any shareholder who would acquire voting power under the provisions would be excluded from voting in favour, rendering approval effectively unworkable. ASIC’s policy on granting such relief is, in practice, that it will not do so where a takeover bid or scheme of arrangement is available.
5. The explanatory statement did not fairly disclose all information relevant to shareholders, including the control implications, how Chapter 6 applied, and how the provisions would bind existing and future shareholders given section 140.

The Panel has indicated that its reasons for decision will be published in due course.

The Mobile Asset Holdings Declaration draws a clear line: drag-along rights in public company constitutions are inconsistent with Chapter 6 of the Corporations Act. For companies considering control transactions, the message is simple – there are no shortcuts around Chapter 6.

Hamilton Locke’s M&A and Capital Markets teams regularly advise on Chapter 6 compliance and the structuring of control transactions in public companies, and are available to assist with any questions arising from this Declaration.

For more information, please contact Brett Heading, Benny Sham or Peter Williams.