Whistleblower reforms pass, gun-jumping penalties and other developments

By Vijay Cugati
Mergers & Acquisitions

In brief

Financial Services Royal Commission issues continue to dominate ASIC outcomes; the ASX Corporate Governance Council releases the final version of its 4th edition of the ASX Corporate Governance Principles and Recommendations; FIRB releases its 2017–18 annual report; the ACCC announces its enforcement priorities for 2019; Takeovers Panel appoints its new President; and whistleblower reforms pass.

ASIC: Financial Services Royal Commission issues continue to dominate ASIC outcomes

  • ASIC has reacted to a changing regulatory landscape in the immediate aftermath of the release of the Royal Commission's Final Report. In particular, it:
    • has provided an update on the implementation of Commissioner Hayne's recommendations. ASIC is taking immediate action to implement 12 of the 76 recommendations, and is preparing to exercise extended powers and regulate additional behaviours when legislation is passed to give effect to 34 further recommendations;
    • will soon be able to pursue harsher civil penalties and criminal sanctions against banks, their executives and others who have breached corporate and financial services law, as a result of the passage of the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2018. The new laws increase maximum prison penalties for the most serious offences to 15 years, increase civil penalties up to $525 million for companies and $1.05 million for individuals, apply civil penalties to a greater range of misconduct, including a licensee's failure to act efficiently, honestly and fairly; and
    • will soon administer stronger whistleblower protection laws, following the passage of the Treasury Laws Amendment (Enhancing Whistleblower Protections) Act 2018. Implementation of the new laws, which commence on 1 July 2019, will be overseen by ASIC's Office of the Whistleblower, and will broaden the definition of whistleblower, extend the protections available to whistleblowers, and require public companies and large proprietary companies to have whistleblower policies. More detail on the new whistleblower laws is below.

    We continue to expect that ASIC's powers will be strengthened, and that it will take firmer stances against all industry participants, for the foreseeable future, in the post-Royal Commission environment.

  • ASIC has published its overview of the 2018 AGM season for ASX 200 companies. Report 609 – Annual general meeting season 2018 revealed increased shareholder discontent, including:
    • increased shareholder dissent on remuneration practices, with an increase in remuneration strikes, up from six in 2017 to 12 in 2018; and
    • increased support for shareholder requisitioned resolutions, particularly on environmental, social and governance (ESG) issues, with votes in favour of ESG resolutions increasing from 6 per cent to 19 per cent.
  • The Report's findings are consistent with our own experience of shareholder relations in the febrile post-Royal Commission environment, and we expect to see this trend continue for some time. It will be interesting to see whether the increased focus on community expectations in the 4th edition of the ASX Corporate Governance Principles and Recommendations (the 4th edition) has a material impact on outcomes and AGMs. For more information on the 4th edition, see below.

  • ASIC has issued a consultation paper seeking feedback on its existing guidance on responsible lending. Consultation Paper 309 – Update to RG 209: Credit licensing: Responsible lending conduct will consider if ASIC's guidance in RG 209 remains effective. RG 209, which helps Australian credit licensees understand ASIC's expectations for complying with responsible lending obligations, was released in 2010 and last updated in 2014. Given the scrutiny of responsible lending practices in the Royal Commission and the age of the existing guidance, we expect ASIC will propose meaningful amendments to RG 209 following the consultation period. Responses to the consultation paper are due by 20 May 2019.

    Away from the Royal Commission, ASIC has continued to focus on cross-border fintech regulation, announcing the launch of the Global Financial Innovation Network (GFIN), a group of 29 international regulators committed to supporting cooperative cross-border financial services regulation. GFIN has invited fintech start-ups to be part of a pilot to test cross-border regulation of innovative financial products, services or business models. It will provide further updates on the success of the pilots after a six-month trial phase.

ASX: Release of 4th edition of Corporate Governance Principles and Recommendations

On 27 February 2019, the ASX Corporate Governance Council released the final version of the 4th edition of the ASX Corporate Governance Principles and Recommendations (the 4th edition). Overall, the 4th edition reflects the Council's view that it is imperative that listed entities align their culture and values with community expectations, to help address a declining trust in business so as to build long-term sustainable value for their security holders.

The 4th edition will take effect for an entity's first full financial year commencing on or after 1 January 2020, meaning listed entities with a financial year ending 31 December 2019 will be the first affected. From 1 January 2020, these entities will need to benchmark governance practices against new and revised principles and recommendations, including:

  • revised Principle 3 (Instil a culture of acting lawfully, ethically and responsibly), and the recommendations to have and disclose whistleblower, corruption and anti-bribery policies;
  • recommendations to disclose a code of conduct, continuous disclosure and diversity policies in full, as opposed to a summary of these policies;
  • revised and additional recommendations designed to improve board effectiveness by increasing or improving the flow of information from management to the board and the board's willingness and ability to challenge management, including recommendations to report material breaches of policies to boards as an early indicator of cultural problems;
  • new general guidance that entities should disclose material breaches of policies, and actions taken in response to such breaches;
  • the expansion of recommendation 1.5 (diversity policy), which recommends that boards set measurable gender diversity objectives regarding the composition of its senior executives and workforce generally, not just its board, and recommends that entities in the S&P/ASX300 Index at the commencement of the relevant reporting period set a target of having not less than 30 per cent of its directors of each gender;
  • revised recommendation 4.3, which recommends a listed entity disclose its process to verify the integrity of any periodic corporate report it releases to the market that is not audited or reviewed by an external auditor;
  • revised recommendation 7.4 regarding the new definition of 'environmental risks'; and
  • additional guidance in regard to executive remuneration, which suggests remuneration should be consistent with an entity's values and risk appetite, and that discretion should be retained to prevent performance-based remuneration rewarding conduct that is contrary to the entity's values or risk appetite.

Given the crossover between the recommendations and other recent or expected legislative changes, we recommend that listed entities start to take steps now – if they have not already done so – to prepare to address the 4th edition principles and recommendations, including by reviewing or drafting their statement of values, code of conduct, diversity policy, whistleblower policy, and anti-bribery and corruption policy and compliance program (taking into account the recommendations regarding increased policy disclosure). Entities should also review their escalation processes, to ensure material issues are brought to the board's attention.

See our Client Update: ASX Corporate Governance Principles and Recommendations: 4th edition – what do they mean for you? for a summary of the key changes and how the 4th edition affects you.


FIRB has released its 2017–18 annual report, covering the period from 1 July 2017 to 30 June 2018. Points of interest from the report include:

  • There was a decline in FIRB approvals relative to the previous period by both number and proposed investment values.
  • For the first time since 2012–13, the United States overtook China as the largest source country for approved proposed investment in terms of value. The decline in proposed investment from China into Australia (among other countries) occurred in the context of tighter Chinese capital controls.
  • FIRB has continued to focus on ensuring that proposed acquisitions by foreign persons of sensitive assets are thoroughly assessed across all dimensions of the national interest.
  • Australia's approach to national security as part of the broader national interest assessment continues to evolve in recognition of the risks and threats that emerge. The commencement of the Security of Critical Infrastructure Act 2018 (Cth) in 2017–18 provided the Government with greater visibility and oversight of critical infrastructure.
  • FIRB has taken a keen interest in reforms made by other countries, such as the United States and United Kingdom, to their foreign investment regimes, particularly regarding national security issues. The Government has enhanced its cooperation with counterpart agencies overseas, especially in relation to national security developments.

ACCC: 2019 enforcement priorities, gun jumping penalties and updates on merger reviews

The ACCC has announced its enforcement priorities for 2019. In addition to seeking to impose much higher consumer law penalties (in the order of $100 million) following recent amendments to the Australian Consumer Law, the ACCC will focus on a number of industries, including the financial services sector, essential services (eg energy and telecommunications), agriculture and commercial construction, as well as some specific review areas, such as consumer loyalty schemes. See our Client Update: ACCC 2019 Enforcement Priorities for a handy snapshot of the ACCC's full priorities for 2019.

The Federal Court has ordered Cryosite to pay $1.05 million in penalties for engaging in 'gun jumping' cartel conduct in relation to its asset sale agreement with Cell Care Australia. Cryosite admitted to engaging in cartel conduct when it signed and gave effect to an agreement to sell the assets of its private cord blood and tissue banking business to Cell Care. The offending clause in the contract required Cryosite to refer all customer enquiries to Cell Care before the sale was completed. Parties to a transaction should take care to continue acting independently and as competitors until completion. For some practical tips, see our Client Update: Penalties ordered in ACCC cartel action against Cryosite are a strong reminder of rules prohibiting 'gun jumping'.

The ACCC has otherwise been busy this month, with a number of merger reviews commencing and concluding.

It discontinued its review of the proposed merger of Siemen AG's Mobility Division and Alstom SA after the European Commission blocked the transaction overseas. In September 2018, the ACCC had expressed concerns that the combined Siemens-Alstom entity would be the largest supplier of heavy rail signalling in Australia.

The ACCC cleared DLF Seeds' proposed acquisition of PGG Wrightson Seeds Holdings (concerning the breeding and supply of grass seeds for use in fodder and turf applications) and Bingo Industries' proposed acquisition of Dial-a-Dump Industries (concerning commercial and industrial, and building and demolition waste collection and processing services in the Greater Sydney area).

The ACCC also has a number of new merger reviews on its plate this month:

  • It is determining if Qantas Airways tried to fly under the radar with its completed acquisition of 19.9 per cent interest in Alliance Aviation Services (which principally operates air charter services, particularly fly-in fly-out to remote mining sites). The ACCC will assess whether there has been a breach of section 50 of the Competition and Consumer Act 2010 (Cth), and was inviting submissions until 4 March 2019;
  • The ACCC is also looking at IPH's proposed acquisition of a 19.9 per cent stake in Xenith IP Group or, in the alternative, QANTM Intellectual Property (each of which supplies intellectual property services and products). Interestingly, the ACCC is already considering Xenith's proposed merger with QANTM, and expects to announce its findings on the proposed merger on 21 March 2019;
  • GFG Alliance Australia (through Liberty House Group) is proposing to acquire Steelforce Holdings. Both parties manufacture and supply and distribute long steel products in Australia. The ACCC was seeking submissions until 5 March 2019; and
  • Lochard Energy's proposed acquisition of the Heytesbury Assets from Origin Energy. Submissions have closed and the ACCC expects to announce its findings on 4 April 2019.

Takeovers Panel: A new President

Alex Cartel, Co-Head of Corporate Finance, Deutsche Bank AG Australia and a Takeovers Panel member since 2015, has been appointed as the Panel's new President, effective 8 March 2019. Six new members of commercial and legal backgrounds have also been appointed to the Panel.

The Panel made a declaration of unacceptable circumstances in response to applications by Brendan Dunstan and OCJ Investment (Australia) Pty Ltd in relation to the affairs of Flinders Mines Limited. The application concerned Flinders Mines' proposal to delist subject to shareholder approval by ordinary resolution. In connection with the delisting, Flinders Mines proposed to undertake an on-market buy-back and an unmarketable parcels sales process. The buy-back was to be funded by a loan facility from a subsidiary of Flinders Mines' largest shareholder, TIO (NZ) Limited, to be repaid through a proposed non-renounceable pro-rata rights issue to be undertaken following the buy-back. The Panel made a declaration of unacceptable circumstances, as the proposed delisting was likely to result in Flinders Mines, and indirectly TIO, acquiring a substantial interest in Flinders Mines:

  • in a manner that was likely to coerce Flinders' other shareholders to sell their shares;
  • in a market that would not be sufficiently efficient, competitive and informed;
  • from shareholders who would not have reasonable time to consider the on-market buy-back and enough information to assess its merits; and
  • in a manner that may deny shareholders who sell their shares a reasonable and equal opportunity to participate in benefits accruing to those who buy or retain Flinders Mines shares.

The Panel accepted the following undertakings from Flinders Mines and TIO:

  • Flinders Mines will seek formal ASX approval for a revised process to delist, involving an equal access scheme off-market buy-back of 10 per cent of the shares with a pro-rata scale back, which will take the place of the previously proposed on-market buy-back, which by its nature operates on a first-in basis and does not permit pro-rating and was at a lower price;
  • to replace the proposed rights issue to repay TIO, TIO will extend the term of the proposed loan; and
  • TIO will not vote shares representing any increase in its voting power as a result of the off-market buy-back for 18 months after its completion, and will seek to sell these shares either on market or otherwise.

The Panel declined to conduct proceedings in applications relating to the affairs of:

  • IndiOre Limited – the application concerned whether IndiOre's shareholders were misled when they voted to approve an issue of convertible notes, as after the shareholder vote, IndiOre announced that the reason for the fundraising had changed from the reason previously provided to shareholders. The Panel considered that there was no reasonable prospect that it would declare the circumstances unacceptable until such time as the notes had been issued or it became clear that it was IndiOre's intention to issue the notes. IndiOre undertook not to do so until it had completed a previously announced strategic review.
  • Factor Therapeutics Limited – the application concerned a placement made by Factor Therapeutics shortly after the applicant (a substantial holder of Factor) and another shareholder gave a s249D notice (being a request from shareholders to directors calling a general meeting) to the company. The s240D notice requested a general meeting to consider resolutions removing three of the four current directors from the board and appointing two new directors nominated by the requisitioning shareholders. Factor announced the placement of new shares, representing 19.99 per cent of the enlarged share capital of the company, after receipt of the s249D. The applicant submitted that the placement was issued to undisclosed places in circumstances where the company has no disclosed or discernible need to raise funds; and existing Factor shareholders who did not participate in the placement suffered a dilution of their voting power without the opportunity to participate in the capital raising, which is likely to have a significant effect on the control of Factor and, in particular, the composition of its board after the upcoming general meeting. However, the Panel was satisfied with Factor's submission, which appeared to show a genuine need for funds, and noted that the applicant had not provided sufficient material to suggest that the placement had not been in contemplation before the lodgement of the s249D notice.

Employment: Whistleblower reforms pass

The Federal Parliament has passed the Treasury Laws Amendment (Enhancing Whistleblower Protections) Act 2018, ushering in highly anticipated reforms to the current framework for the protection of corporate and tax whistleblowers (the Whistleblower Reforms).

Key changes under the Whistleblower Reforms include:

  • protection of a broader range of whistleblowers, including current and former officers, employees, contractors, employees of contractors, and relatives, dependents or spouses of those people;
  • expansion of the types of matters where whistleblowers' protections can apply, to include misconduct, an improper state of affairs at a regulated entity, offences against certain laws, and dangers to the public or financial system;
  • a new requirement that all public companies and large proprietary companies have a whistleblower policy in place, containing information about the protections available to whistleblowers and the procedures in place to deal with disclosures;
  • a new requirement to keep the identity of a whistleblower confidential; and
  • improved access to compensation where a whistleblower is subjected to reprisal or retaliation as a result of their disclosure, including a reverse onus of proof where detrimental conduct is alleged to have occurred as a result of a whistleblower's disclosure.

Generally speaking, whistleblower protections will not be available where the disclosure relates to certain types of personal work-related grievances.

The changes come into force on 1 July 2019.

If you would like to discuss how the Whistleblower Reforms could impact on your business, please get in touch with our Employment & Safety team.

For further information about the Whistleblower Reforms, please see our Corporate and Tax Whistleblower Reforms.

Other developments

Climate change impacts cited in court's refusal of coal mine application

On 8 February 2019, Chief Justice Preston of the NSW Land and Environment Court dismissed an appeal by Gloucester Resources Limited (GRL) of a decision of the NSW Planning Assessment Commission (PAC). GRL sought approval of the Rocky Hill coal mine project in the Hunter Valley near Gloucester (the project).

The project was the subject of significant opposition, including from a local community action group, Groundswell Gloucester Inc. The PAC received 2570 submissions in relation to the project, including 2308 objections.

In dismissing the appeal, his Honour Chief Justice Preston cited 'significant adverse impacts on the visual amenity and rural and scenic character of the valley, significant adverse social impacts on the community and particular demographic groups in the area, and significant impacts on the existing, approved and likely preferred uses of land in the vicinity of the mine'.

Unusually, his Honour's reasons included the consequential 'emission of greenhouse gases, which will contribute to climate change' in determining that the costs of the project exceeded its benefits.

This decision will have significant impacts for coal and other greenhouse gas emitting projects in Australia, and has attracted attention in a number of foreign jurisdictions.