Corporate law developments

By Vijay Cugati
Capital Markets Competition law Consumer law Employment & Safety Financial Services Foreign Investment Review Board (FIRB) Mergers & Acquisitions Risk & Compliance

In brief

Welcome to our monthly snapshot of regulatory updates and other developments in corporate law. We know you are busy, so our focus is on capturing key issues.

We'd love to hear from you. Please do let us know if you need more detail about an issue, or if there is something in particular you'd like to hear about, and feel free to call any of your Allens contacts.

What you need to know

Focus on compliance schemes for financial advisers and 30 June reporting requirements
  • ASIC continues to respond to revelations in the Royal Commission, releasing Consultation Paper 300 – Approval and oversight of compliance schemes for financial advisers. The paper outlines ASIC's proposed approach to approving, monitoring and enforcing compliance schemes for financial advisers, and imposes new training and educational requirements, along with a code of ethics that is being developed by the Financial Adviser Standards and Ethics Authority. Market participants should continue to expect further pushes for increased regulatory oversight in this area as the Royal Commission continues on. Submissions on the paper are due by 28 June.
  • With 30 June approaching, reporting entities should note ASIC's announcement that its impending reviews of end of financial year and half year reports will focus on the impact of new accounting standards, the use of accounting estimates for impairment tests and asset values, accounting policy choices around revenue recognition, expense deferral, off-balance sheet arrangement and tax accounting, and disclosures around estimates and accounting policy judgments. Additional detail is provided in the attachment to ASIC's 31 May media release.
  • ASIC has released Consultation Paper 299 – Short Selling: Naked short selling relief, position reporting amendments and sunsetting class orders. The paper seeks feedback on various proposals relating to naked and covered short selling. In particular, ASIC proposes to grant relief to permit market makers of certain exchange traded products to engage in naked short selling and to permit naked short sales in the context of corporate actions and IPO sell downs. ASIC also proposes to re-make a number of related sunsetting class orders in the same instrument. Submissions on the paper are due by 20 June.
  • ASIC has released Consultation Paper 301 – Foreign financial services providers, which proposes a modified licensing regime for foreign financial service providers serving wholesale clients, including global investment banks and wholesale managed funds. The proposal would require foreign financial service providers to apply for a modified form of AFS licence, which would attract relief from Corporations Act licence requirements where the licensee is subject to similar requirements in its home jurisdiction. While consultation is ongoing, ASIC proposes to extend existing foreign licensing relief for 12 months to 30 September 2019. Submissions on the paper are due by 31 July.
  • ASIC has updated Regulatory Guide 172 – Financial markets: Domestic and overseas operators. The updated guide introduces a two-tiered licensing regime for financial markets. Market venues will be designated either Tier 1 or Tier 2 licensees, depending on the application of a risk-based assessment, with differing regulatory outcomes for licensees in different tiers. The updated guidance is designed to create a more tailored regulatory regime to assist with the operation of emerging and specialised financial markets.
  • Citing a number of recent issues with listed entities commissioning and publicising research reports which include objectionable material that the entity itself could not publish, the ASX has updated section 4.15 of Guidance Note 8 – Continuous Disclosure: Listing Rules 3.1 – 3.1B. The ASX expressed particular concern that research reports with information about exploration results, mineral resources and ore reserves or estimates of earnings or other forward looking financial information were being released to the market in this way. Guidance Note 8 now provides that, in general, an entity should not submit a broker or analyst research report about itself (or otherwise reference such a report) for publication on the ASX Market Announcements Platform. If an entity does publish such a report or announcement without pre-clearing it with ASX Listings Compliance, ASX may require the entity to make a further announcement, or where the information is misleading may require the entity to withdraw or retract the material.
  • Heading into results season, the ASX has reminded listed entities that they must give the ASX Market Announcements Office an Appendix 4G at the same time as their annual report under Listing Rule 4.7, along with their corporate governance statement, to the extent it is not included in the annual report.
  • FIRB has released its 2016-17 Annual Report for the year ended 30 June 2017. Among other things the report notes that in 2016-17:
    • $168 billion of business-related proposals were approved, being 4% below the 2015-16 level;
    • China and the United States continued to be the top two sources of approved foreign investment proposals by value, but Canada continues to grow as a key source of investment;
    • major business-related investment was focused on ports and electricity network assets, with data centres being an emerging area of interest; and
    • residential real estate approvals fell substantially as compared to 2015-16, largely due to the introduction of application fees in December 2015 which resulted in investors only applying for properties they intended to purchase.
  • FIRB has stated that a new online application portal is expected to go live on 2 July 2018. The portal is expected to facilitate easier lodgement of foreign investment applications. Key features include the ability to submit variations to approved applications, the ability to submit one application for multiple notifiable actions, and access to an enhanced fee calculator.
  • Finally, practitioners should take note that the Security of Critical Infrastructure Act 2018 will commence on 11 July 2018. This legislation will require owners and operators of critical infrastructure assets to provide information regarding those assets to FIRB by 11 December 2018, and to subsequently notify FIRB of any changes to that information within 30 days.
  • The ACCC has announced that it will not oppose Seven and Nine's joint acquisition of Ten's stake in TX Australia, which provides essential transmission services to television broadcasters in Sydney, Melbourne, Brisbane, Adelaide and Perth. The ACCC considers that TX Australia's main competitor, Broadcast Australia, is a viable alternative to TX Australia and that as such, the acquisition is unlikely to disrupt Ten's access to transmission services or affect competition for television content or advertising.
  • The ACCC has granted conditional approval for the proposed deal between the Port of Brisbane and cruise operator Carnival to develop a new 'mega' cruise ship terminal. As part of the deal, Carnival will receive preferential berthing rights at the terminal for 15 years in exchange for annual fees (which assist underwriting the $158 million deal). Recognising that the proposed terminal would bring real tourism benefits to Queensland, the ACCC has green lit the deal subject to two conditions which it considers will limit the risk of limiting consumer choice in cruise liners:
    • Carnival will be able to have 'first pick' of four days each week at the terminal, but is not permitted to choose more than two of the three most popular 'weekend' days (Friday, Saturday and Sunday) to berth its liners each week, so that at least one weekend day is available to competitors; and
    • if the terminal is expanded in the future to provide a second berth, Carnival cannot be given first right of refusal for an agreement which would give it first choice of days at that berth.
  • The ACCC has published a Statement of Issues setting out its preliminary concerns with Sydney Transport Partners’ (a consortium led by Transurban) proposed acquisition of a majority interest in the WestConnex project. It is concerned that Transurban 'has significant incumbency advantages when competing for future road toll projects' and that the WestConnex toll road could cement Transurban's advantage when competing for the operation of toll roads in future. Further, the ACCC considers that WestConnex represents an opportunity for the development of a second major toll road operator which could compete with Transurban. In addition, the ACCC is investigating whether motorists could switch between WestConnex and other Transurban-operated toll roads, and whether this may lessen competition between toll roads in Sydney.
  • The Commonwealth Director of Public Prosecutions has laid criminal charges against Citigroup, Deutsche Bank and ANZ, along with several senior executives of each organisation, alleging they engaged in a criminal cartel in relation to trading in ANZ shares following an institutional share placement of the bank's shares in August 2015. The serious charges, coming off the back of a two-year ACCC investigation, represent a warning to Australian industry about the ACCC's continuing focus on cartel conduct in all sector.
Takeovers Panel
  • The Panel published its reasons for declining to conduct proceedings on the application of Caravel Minerals Limited in relation to attempts by shareholders to spill the board of directors. The Panel reaffirmed that it considers board spills to be within its purview however declined to interfere in a statutorily requisitioned general meeting. The Panel took the view that the shareholders would be able to, and were entitled to, consider the board appointments without interference. The decision of the Panel was affirmed on review.
  • The Panel has also published its reasons for making a declaration of unacceptable circumstances in relation to ASIC's application in respect of Finders Resources Limited. The Panel took the view that statements made by Flinders Resources in respect of a substantial shareholder's intention to reject a takeover offer for Flinders Resources would have affected the market and made orders cancelling the subsequent acceptance of that offer.

Following a long-running campaign by the unions, Coles has entered into a Memorandum of Understanding with the Transport Workers' Union to ensure that gig economy workers are 'not compromised in terms of safety, fairness and engagement'. The MOU seeks to achieve this by establishing five core principles to guide Coles' engagement with and treatment of 'giggers'. This agreement comes off the back of Coles' announcement late last year that it would be partnering with Airtasker to provide personalised grocery deliveries.

While big business is starting to respond to the gig economy, legislators are moving at a slower pace. The Greens' recently introduced Fair Work Amendment (Making Australia More Equal) Bill 2018, which would provide the Fair Work Commission with the power to give giggers minimum wages, annual leave and superannuation entitlements, is unlikely to receive the support of the Government. However, the upcoming release of the report of the Select Committee on the Future of Work and Workers may provide the impetus for future regulation of this space.

News and other developments

 A new BBSW calculation methodology came into effect on 21 May, following ASIC and RBA concerns over low trading volumes during the rate-set window. The new methodology seeks to calculate the bank bill swap rate directly from market transactions, involving a larger number of participants and a longer rate-set window. BBSW remained in the news days later, with the Federal Court's much anticipated decision. Justice Beach found that Westpac had engaged in unconscionable conduct in relation to the BBSW on four occasions, but dismissed a number of more serious claims, including the central allegation of market manipulation.