Corporate law developments

By Vijay Cugati
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: Royal Commission hearings wrap up, with focus on 'buy now, pay later' products, and other financial sector misconduct
  • Hot off the heels of the Royal Commission's final hearings, ASIC has released its first review of the 'buy now, pay later' industry. Somewhat surprisingly, despite the booming use of buy now pay later products and increased scrutiny of lending practices following the Royal Commission, Report 600 – Review of buy now pay later arrangements did not recommend extending responsible lending laws to the sector. Instead, noting that buy now pay later products are credit facilities, the regulator is advocating for legislation that is currently before Parliament to extend its product intervention power to all credit facilities. While shares of buy now pay later businesses rose on the back of the report, we think, in the post-Royal Commission environment, participants in the industry can expect ASIC to take a more interventionist approach if and when the Parliament approves an expansion of its powers.
  • In further regulatory reform news, the long-foreshadowed Australian Financial Complaints Authority (the AFCA) has finally commenced operations. The AFCA, chaired by Helen Coonan, will act as a 'one stop shop' dispute resolution scheme for consumer and small complaints about financial products and services (up to $1 million in value), small business and primary producer complaints about credit facilities (up to $5 million in value), and all complaints about superannuation. All financial services, credit and superannuation firms were required to join the scheme, which replaces the Financial Ombudsman Service and the Credit & Investments Ombudsman, both of which will no longer receive new complaints.
  • ASIC has announced the appointment of four new members to the Markets Disciplinary Panel (the MDP): Dan Ritchie (Macquarie Securities), Lisa Shand (Morgans), John Manchee (Credit Suisse) and Ian Jones (Goldman Sachs). The appointments are against the backdrop of Consultation Paper 306 – Markets Disciplinary Panel, which seeks feedback about proposed minor changes to the kinds of matters that should be referred to the MDP, and the powers that it should be able to exercise. The consultation paper includes a draft revision of Regulatory Guide 216 – Markets Disciplinary Panel. Although the draft guide does not propose fundamental changes to the operation of the MDP, we suspect, given the heightened scrutiny of misconduct sparked by the Royal Commission, the regulator may be encouraged to propose more sweeping changes following the consultation period.
  • ASIC has published its annual report into corporate insolvencies for the 2017–18 financial year. Report 596 – Insolvency statistics: External administrators' reports (July 2017 to June 2018) provides detailed statistical analysis of the year's external administrators' reports. Despite the commencement of safe harbour reforms part way through the year, the report reveals little change in patterns from previous years, with corporate insolvencies being suffered overwhelmingly by small companies and, in 97 per cent of cases, resulting in returns of less than 11 cents per dollar to unsecured creditors. Practitioners will be keen to see if these statistics change in 2018-19, which will be the first full 12-month period under the new regime.
ASX: ASX Listing Rules Consultation Package

ASX has released a consultation paper, Simplifying, clarifying and enhancing the integrity and efficiency of the ASX listing rules, seeking feedback on a substantial package of proposed reforms to the listing rule amendments. The proposed changes cover eight broad areas:

  • improving market disclosures and other market integrity measures;
  • making the rules simpler and easier to follow;
  • making aspects of the listing process and ongoing compliance with the listing rules more efficient for issuers and for ASX;
  • updating the timetables for corporate actions;
  • enhancing ASX's powers to operate the market, and to monitor and enforce compliance with the listing rules;
  • correcting gaps or errors in the listing rules;
  • general drafting improvements, including removing redundant rules; and
  • more and better guidance.

The consultation paper includes various annexures, such as the proposed changes to the ASX Listing Rules, and to ASX Guidance Notes, including GN 1 (Applying for Admission – ASX Listings), 11 (Restricted Securities and Voluntary Escrow), 12 (Significant Changes to Activities), and 33 (Removal of Entities from the ASX Official List).

The consultation paper also proposes the introduction of new guidance note 21 (The Restrictions on Issuing Equity Securities in Chapter 7 of the Listing Rules), as well as replacement of current GN 24 with a new GN 24 (Acquisition and disposal of substantial assets involving persons in a position of influence).

Feedback on the consultation package is due by Friday, 1 March 2019.

FIRB: Treasurer blocks proposed acquisition of APA Group

On 7 November 2018, the Commonwealth Treasurer announced his preliminary view that the proposed acquisition by a consortium led by CK Asset Holdings Limited (CK Group) of APA Group (APA) would be contrary to the national interest. This preliminary view was confirmed in the Treasurer's final decision, released on 20 November 2018.

By way of background, APA is listed on ASX, and is the largest gas transmission system owner in Australia, owning approximately 56 per cent of the country's gas pipeline transmission system. In August 2018, APA announced that it and CK Group had entered into an implementation agreement for CK Group to acquire APA for cash consideration. The proposed transaction was subject to certain conditions, including ACCC clearance and Foreign Investment Review Board (the FIRB) approval. ACCC clearance was obtained in September 2018.

Following a split recommendation from the FIRB, the Treasurer determined that the proposed transaction would result in a single foreign company group having sole ownership of, and control over, Australia's most significant gas transmission businesses. In other words, there was a concern about aggregation of ownership. The Treasurer noted that the concentration of foreign ownership was not a question considered by the ACCC assessment process – note that the ACCC's remit is to consider the impact of a transaction on competition, and that does not extend to considering broader national interest matters.

The Treasurer was at pains to point out that the decision was for the reasons above, and not a decision made against the foreign consortium seeking to acquire APA Group, nor against any particular investor or country. It is clear from the Treasurer's announcements that, from the Government's perspective, the size and significance of APA means that no single foreign person would be granted FIRB approval to acquire it.

Separately, FIRB announced that, due to the Christmas/New Year holiday period, all applications received from 20 November 2018 should not be expected to be decided upon until mid-January 2019 or later; however, it will endeavour to meet commercial deadlines where possible.

ACCC: Read all about it – Nine-Fairfax media merger approved, along with three other transactions in November

The ACCC green lit four transactions this month:

The Nine Entertainment and Fairfax Media merger was given the green light after an extensive investigation into the Australian news market and the advertising markets. The ACCC found the Nine-Fairfax merger would not substantially lessen competition, due to the growth of the online news market; the remaining market constraints posed by News Corp and the ABC; and the fact the Nine and Fairfax target different audiences.

The ACCC gave the all clear to Punters Paradise (News Corp) to acquire Racenet. While both companies offer digital platforms for racing news and betting affiliate services, the ACCC found there was sufficient competition in the industry that the transaction would not give rise to any substantial lessening of competition.

Vossloh Australia's acquisition of Austrak remains on course, despite the vertical overlap between the two suppliers of rail track components. The ACCC will not oppose the acquisition, given the strong competition provided by rival fastening and turnout manufacturers.

The ACCC will not oppose Santos Limited's acquisition of Quadrant Energy Holdings. It found the acquisition will not significantly impact future competition in the domestic supply of gas in Western Australia, nor will it affect future gas prices.

Takeovers Panel: Review of Explaurum Mining's target statement

The Takeovers Panel considered an application by Ramelius Resources Limited, which submitted that there were information deficiencies and misleading statements in Explaurum Mining's target statement. Those statements were essentially that the consideration offered by Ramelius' off-market target bid undervalued Explaurum and was inadequate. However, given that Explaurum released supplementary disclosure including the methodologies used to value both Explaurum and Ramelius, and there was a further transaction (being a placement to a third party that was subject to shareholder approval), which meant that shareholders were unlikely to make a decision on the bid until they had received more information in relation to that transaction, the Panel did not consider there was a reasonable prospect of declaring there were unacceptable circumstances.

Employment: Victorian inquiry into contracts in the on-demand sector

The Victorian Government recently announced an inquiry into the working conditions and contracting arrangements of people working in the on-demand sector.

The inquiry, to be chaired by former Fair Work Ombudsman Natalie James, will consider the extent and nature of the on-demand workforce in Victoria, including:

  • the legal status of persons working for businesses using on-line platforms;
  • the application of workplace laws to those persons, including accident compensation, payroll, superannuation and health and safety laws;
  • whether contracting or other arrangements are being used to avoid the application of workplace laws to on-demand workers; and
  • the effectiveness of the enforcement of such laws.

The inquiry will also consider the adequacy of existing legal frameworks to protect the rights of vulnerable workers, having regard to regulation in other Australian jurisdictions and Australia's obligations under international law.

While the Victorian inquiry will have limited capacity to impact national industrial relations laws, it comes at a time of increased focus on workers in the gig economy, as seen through the recent Foodora decision, and the launch of a class action against Tandem / ISGM relating to allegations of sham contracting.

These developments reinforce the need for businesses that engage independent contractors, particularly those operating in the on-demand sector, to ensure they have appropriately classified their workers.

Submissions for the inquiry close 6 February 2019, and a report is expected in late 2019.

Other developments

APRA responds to submissions on ADI leverage ratio

In late November, APRA released its response to submissions on the introduction of a leverage ratio requirement for authorised deposit-taking institutions (ADIs). The introduction of a proposed leverage ratio is part of a range of revisions to the capital framework for ADIs set out in the Basel III framework.

In summary, following the consultation process, APRA has proposed to:

  • set the minimum requirement for ADIs using the internal ratings-based approach (IRB ADIs) to determining capital adequacy at 3.5 per cent, rather than 4 per cent;
  • keep the leverage ratio for ADIs that use the standardised approach to determine capital adequacy (standardised ADIs) at 3 per cent;
  • allow standardised ADIs to use Australian accounting standards, rather than the more complex Basel III methodology, to calculate certain parts of the ratio; and
  • require IRB ADIs to largely follow the Basel III methodology to calculate their leverage ratios.

ADIs' leverage ratio requirements are outlined in the draft amended Prudential Standard APS 110 Capital Adequacy; APRA is also introducing a new reporting standard, ARS 110.1 Leverage Ratio. It is seeking industry feedback on the draft standards and invites interested parties to provide submissions by 22 February 2019.

Conclusion of Banking Royal Commission public hearings

Following the conclusion of Round 7, which included the CEOs of the big 4 banks and AMP giving evidence, public hearings in relation to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry have ended. The final report is due to be submitted to the Governor-General by 1 February 2019.