The watchdog should examine whether Lachlan Murdoch and Bruce Gordon exerted control over Network Ten in breach of current laws, according to experts in media regulation.
Both men own shares in Network Ten and were guarantors of a $200 million loan from the Commonwealth Bank. They recently told the Ten’s board they would not guarantee the next loan of $250 million, which led the board to hand over control to administrators Korda Mentha.
“The decision follows correspondence received from Illyria and Birketu over the weekend which left the Directors with no choice but to appoint administrators,” shareholders were told on June 14.
The concerns come as creditors prepare to meet for the first time on Monday afternoon in Sydney.
Under existing laws Mr Murdoch cannot control Ten because it would breach the two-out-of-three rule, and Mr Gordon, owner of regional network WIN, is constrained by a rule that prevents a person from owning broadcasting licences that reach 100 per cent of the population. Both restrictions will be lifted if Senate passes the media reform bill recently tabled by Communications Minister Mitch Fifield.
“The situation at Network Ten is one where the Australian Communications and Media Authority [ACMA] should be looking closely at whether or not Mr Gordon and Mr Murdoch are already in breach of the cross media laws,” Professor Tim Dwyer of the University of Technology’s department of media and communications said.
The Broadcasting Services Act [BSA] also defines control of a licensee as “exercising control over any substantial issue affecting the management or affairs of the company,” he added.
A letter released to shareholders the day after Korda Mentha were appointed revealed Mr Murdoch’s investment company Illyria – holding 7.5 per cent of shares – and Mr Gordon’s investment company Birketu – holding 14.96 per cent of shares – had formed an association and would be voting as a bloc with 22.47 per cent of shares.
Reports have also surfaced of a letter in which Illyria and Birketu told the board it could no longer draw down on the existing facility because this would incur a debt. And reminded directors they have an obligation not to incur any debt while insolvent.
A spokesman for Mr Murdoch said the letter was just reminding directors of their duties.
“It is up to the directors to make the decision to appoint administrators,” he said.
But Derek Wilding from the Faculty of Law at the University of Technology Sydney, said the regulator should investigate whether Mr Murdoch and Mr Gordon forced the board into administration.
“Control … arises if a person is, in effect, able to veto the actions of a board,” Dr Wilding told Fairfax Media.
“If media reports are correct, the conduct of some of the guarantors seems to exceed a mere decision not to renew the loan facility.”
Dr Wilding worked at the ACMA from 2006 to 2011 and investigated control cases. He added it is worth examining the association formed by Birketu and Illyria.
“If they can now be considered associates, their conduct in acting together would mean the circumstances have changed significantly from when the ACMA look at Mr Murdoch’s influence in 2015,” Dr Wilding said.
That investigation was sparked by Foxtel’s decision to buy 15 per cent of Network Ten and set up a joint ad-selling entity called Multi-Channel Network.
Foxtel is 50 per cent owned by newspaper publisher NewsCorp, of which Mr Murdoch is a co-chair. His father, Rupert Murdoch is the other co-chair.
ACMA found “this purchase could result in the four licence areas where Mr Murdoch is already in a position to control the Nova commercial radio broadcasting licences and the News Corporation associated newspapers”.
However, it decided all the factors “fell short of him being in a position to control Ten or its licences under the terms of the BSA”.
ACMA would not comment on whether or not it is investigating the current situation. It has powers to require the production of documents, to examine witnesses under oath, and to hold public hearings. It also would not confirm if it has received an application for a temporary breach, which could give media owners up to two years’ grace of the rules.
The ACMA was also asked in 2013 if it would have any objection to Rupert Murdoch buying Network Ten, in the wake of the British tabloid hacking scandal that saw NewsCorp abandon its bid for BSkyB amid political outrage. (NewsCorp has since re-launched a $19.6 billion bid for BSkyB, which is currently awaiting ministerial approval.)
“On its face, that alone would not necessarily be problematic, based on the current information we have available to us,” Jennifer McNeill, the general manager of the content, consumer and citizen division told a Senate estimates committee in 2013.
Meanwhile, the Australian Shareholders Association has been denied access to Ten’s creditors meeting on Monday, and will instead receive a personal briefing.
“Since the administrators were appointed, TEN’s own news services have been talking up the likelihood of the company regaining its listing, so with this in mind we were keen to be represented on the creditors’ committee but now won’t be able to put that proposition,” ASA director Allan Goldin said.