Corporate law developments

By Vijay Cugati
Japan Mergers & Acquisitions

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

ASIC: Another financial advice sector investigation, updated guidance on short selling and extension of crowd-sourced funding
  • ASIC has published its Annual Report for 2017-18, which records the regulator's activities and performance in the previous financial year. Unsurprisingly, the Annual Report has a strong Royal Commission flavour, and reinforces ASIC's focus on improving professional standards, and encouraging confidence in the superannuation and financial services industry in Australia.
  • Off the back of the Financial Services Royal Commission, legislation to introduce tougher penalties for breaches of laws administered by ASIC has been introduced to the Federal Parliament. If passed, the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill will amend the Corporations Act, the ASIC Act, the Credit Act and the Insurance Contracts Act, to increase significantly financial penalties for civil penalty and criminal offence provisions. Maximum terms of imprisonment for criminal offences will also be substantially increased. With the legislation likely to attract bipartisan political support, the next question will be just how aggressively ASIC pursues higher penalties. Given the interim findings from the Royal Commission, we think financial institutions and other market participants can expect ASIC to make quick use of these tougher penalties.
  • Still in keeping with the Royal Commission theme, ASIC has announced a review of compliance with requirements for fee disclosure statements and renewal notices in the financial advice sector. The review follows an increased number of breach reports from licensees, with ASIC saying that the volume and range of breach reports indicate a significant risk of systematic non-compliance. We have previously reported that financial institutions, and other market participants, can expect continued regulatory investigations and focus on issues identified during the Royal Commission for some time to come, and this review is another example of that trend. ASIC's findings will be released in 2019.
  • With a number of ASIC instruments relating to short selling due to reach their sunset dates, ASIC has made a new legislative instrument, ASIC Corporations (Short Selling) Instrument 2018/745, and updated Regulatory Guide 196 – Short selling accordingly. The new legislative instrument:
    • allows ETF market makers to make naked short sales in ETFs and managed funds in the course of making a market in those funds;
    • grants relief for the sale of products before they are issued on licensed markets on a deferred settlement basis;
    • permits naked short selling by a special purpose vehicle to investors in an IPO before the seller has an unconditional right to the shares; and
    • allows global firms to calculate their short positions as at the end of their home jurisdiction trading day, rather than at 7pm Sydney time.
  • Legislative amendments to the crowd-sourced funding (CSF) regime have taken effect. Among other things, the amendments:
    • extend the CSF framework to eligible proprietary companies (where it was previously only available to unlisted public companies);
    • introduce new corporate governance and reporting requirements for proprietary companies taking advantage of the extended CSF regime; and
    • increase the audit threshold from $1 million to $3 million.
  • In connection with the amendments, ASIC has updated Regulatory Guide 261 – Crowd-sourced funding: Guide for companies, which helps eligible companies understand the reporting requirements and accountability standards that apply to companies raising funds through the CSF regime; and Regulatory Guide 262 – Crowd-sourced funding: Guide for intermediaries, which helps intermediaries understand their gatekeeper obligations as operators of platforms for CSF offers and investments. It will be interesting to see if the extension of the CSF regime to proprietary companies encourages use of this new funding pathway.

  • ASIC has signed separate fintech cooperation agreements with the US Commodity Futures Trading Commission and Luxembourg's Commission de Surveillance du Secteur Financier, furthering ASIC's objective of establishing fintech information-sharing agreements with foreign regulators. In addition to providing a framework for cooperation to understand and facilitate financial innovation in each jurisdiction, the agreements provide a means of information sharing between ASIC and the respective foreign regulators, and represent a continuance of ASIC's approach of signing bilateral agreements with foreign regulators in the fintech space.
ASX: Amendments to ASX Settlement Operating Rules and Procedures

With AGM season drawing to a close, and a number of ongoing consultation processes, there were few ASX regulatory developments in October, with the key updates being amendments to the ASX Settlement Operating Rules and Procedures. These amendments are, in part, designed to cater for the introduction of CHESS 10. This is a CHESS technology release that captures a number of regulatory and administrative enhancements for users of the ASX Managed Fund Settlement Service.

FIRB: Australia's ratification of TPP-11 to result in investors from additional countries having benefit of higher FIRB monetary thresholds

On 31 October 2018, the Prime Minister announced that Australia has ratified the Trans-Pacific Partnership (TPP-11) trade agreement, which will enter into force on 30 December 2018. The parties to TPP-11 are Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore and Vietnam. Australia is the sixth country to ratify TPP-11, joining Canada, Mexico, New Zealand and Singapore.

Regarding FIRB, this means that, from 30 December 2018, investors (who are not foreign government investors) from Canada and Mexico will have the benefit of higher FIRB monetary thresholds (eg A$1.134 billion, rather than A$261 million, for non-sensitive business acquisitions). Currently, investors (who are not foreign government investors) from the following countries have the benefit of higher FIRB monetary thresholds: Chile, China, Japan, New Zealand, Singapore, South Korea and the United States. Investors from each of these countries – Brunei Darussalam, Malaysia, Peru and Vietnam – will also have the benefit of higher FIRB monetary thresholds as and when their respective country ratifies TPP-11 (or, in the case of Peru, when the Australia-Peru Free Trade Agreement comes into force; whichever occurs earlier).

ACCC: Green lights for trains and automobiles in October

October saw the ACCC decline to oppose two major transport transactions:

  • Cabcharge Australia's acquisition of Mobile Technologies International has been given the green light. MTI is the largest provider of taxi dispatch services to taxi networks in Australia. In making this decision, the ACCC considered whether the acquisition could result in Cabcharge:
    • supplying inferior dispatch systems to other taxi networks;
    • gaining an advantage that would substantially lessen competition in the market through its access to, and use of, MTI's taxi discharge data; and
    • engaging in anti-competitive bundling of its taxi dispatch and payment systems.

    Ultimately, the ACCC has said it would not oppose the deal, on the basis that it was unlikely that any of these outcomes would occur, since there are alternative dispatch system providers available in Australia, and the threat of network switching and switching of payment systems is likely to impose a sufficient constraint on Cabcharge.

  • Aurizon's sale of its Queensland intermodal freight business to Linfox is full steam ahead. The ACCC determined that a public review of the proposal was unnecessary, as Linfox has only limited operations in the geographic area and the deal will mean that there continue to be two providers of intermodal freight rail services.

The ACCC has also opened two informal merger reviews into Santos Ltd's proposed acquisition of Quadrant Energy (impact on the market for the supply of gas for domestic consumption) and News Corp's proposed acquisition of Racenet (impact on the market for horse racing news and betting affiliate services).

Takeovers Panel: Two orders

The Panel made orders on two applications:

  • by Hongkong Xinhe International Investment Company Limited in relation to the affairs of Bullseye Mining Limited – Bullseye is subject to an off-market takeover bid by Opus Resources Pty Ltd. In July, Bullseye lodged a third supplementary target's statement disclosing its entrance into two transactions, being the issue of convertible notes and a deed comprising the grant by Bullseye to an individual (being the father of Bullseye's executive director) of an option to provide funding to Bullseye to be repaid by Bullseye by the delivery of future physical gold ounces. Bullseye issued a notice of general meeting containing resolutions to approve the transactions, but withdrew the resolutions, in accordance with an undertaking provided to the Panel. The Panel made a declaration of unacceptable circumstances, as the notes, upon conversion, provided a related party with voting power of more than 28 per cent in Bullseye, as well as significant veto rights. Final orders were made, requiring Bullseye to seek shareholder approval for the transactions; the executive director to refrain from voting on future board resolutions regarding the transactions; and specific disclosure in the explanatory memorandum to shareholders, regarding certain terms of the notes.
  • by R Hedley Pty Ltd in relation to the affairs of Tribune Resources Limited, for which the Panel made a declaration of circumstances in mid-September – That application submitted that certain existing substantial holder notices were defective, and other persons holding voting power of more than 5 per cent in Tribune had not lodged substantial holder notices identifying their interest. The Panel made orders requiring certain shareholders to provide corrective substantial holder disclosure and the vesting of an amount of Tribune shares in ASIC to sell, as well as imposing voting restrictions on shareholders until one month after corrective disclosure has been made. However, the orders have been stayed upon receipt of a review application from the relevant Tribune shareholder whose shares were to be sold.
Employment: FWC decisions on flexible working arrangements and termination payments
  1. Flexible working arrangements

    The Fair Work Commission recently decided that modern awards should be varied, to include a model term with a flexibility focus. The proposed term would require employers to:

    • discuss requests for flexible working arrangement with employees;
    • genuinely try to reach agreement on a change in working arrangements that will reasonably accommodate the employee's circumstances;
    • detail the reasons for refusing an employee's request for flexible working arrangements; and
    • state whether there are any changes in working arrangements that the employer can offer the employee, so as better to accommodate the employee's circumstances.

    Interested parties had until 4pm on Thursday, 8 November 2018 to comment and confirm whether they wish to press any award-specific issues. However, in the absence of any comments on a particular modern award, modern awards will be varied to insert the model clause.

    If you would like more details about the potential impact of the model clause on your business, please get in touch with our Employment & Safety Team.

  2. Termination payments

    In the course of the four-yearly review of the modern awards, the Fair Work Commission also considered the payment of wages to employees upon termination of employment.

    This consideration led to a model clause that essentially requires employers to pay employees their wages, and other amounts due, no later than seven days after the day on which the employee's employment terminates.

    The model clause has now been inserted into most modern awards. Employers who have award-covered employees should review their policies on, and procedures for, termination payments, to ensure they meet the new requirement.

Other developments

  • Round 7 of the Financial Services Royal Commission will commence on 19 November 2018 and conclude on 30 November 2018. The purpose of Round 7 is to give the Commissioner an opportunity to explore with senior executives from certain financial services entities, and the regulators of those entities, some of the policy issues identified in the Interim Report. There will be no process for further submissions to be lodged following the conclusion of Round 7, or for applications for leave to appear.
  • The terms of reference for the Royal Commission into Aged Care Quality and Safety were announced on 9 October 2018, following a consultation process. The Aged Care Royal Commission, which will be based in Adelaide, is due to provide an interim report by 31 October 2019, and its final report no later than 30 April 2020.
  • In October, the Federal Energy Minister, Angus Taylor, indicated reduced appetite for an energy Royal Commission, in light of softer electricity prices, and positive engagement with power companies regarding consumer concerns and the prospects of government action.
  • Australian export companies are set to benefit from delays in the implementation of new Chinese cross-border e-commerce laws. The new regulations, which extend to dairy products, vitamins and cosmetics, impose product quality certification and Chinese language labelling requirements. It has been reported that the exporters of baby formula and vitamins will be given extra time to comply with the new regulations, which are set to come into effect in January next year.