Australia-Hong Kong Free Trade Agreement, draft CDR rules and other developments

By Vijay Cugati
Mergers & Acquisitions

In brief

Australia-Hong Kong Free Trade Agreement is signed; the ACCC publishes its draft CDR draft; the Federal Court dismisses an application for judicial review of the Takeover Panel's decision regarding Finders Resources Limited; and changes to modern awards create significant administrative burden for employers. 

What you need to know

  • ASIC has published its 10th report on its regulation of corporate finance issues. Report 612, which is for the period from July to December 2018, provides statistical data and guidance on ASIC's regulation of fundraising transactions, mergers and acquisitions, expert and corporate governance issues. It aims to explain ASIC's approach in each of these areas, including the conduct that has caused it to intervene, such as concerns for the quality of fundraising documents, and the regulator's response to novel issues seen in transactions during the period. It also offers insights into areas the regulator will focus on in the future. Interesting points from the report include:
    • most of ASIC's regulatory interventions in control transactions during this period related to schemes of arrangement and, in particular, it remained focused on shareholder intention statements (see Other developments);
    • ASIC's corporate governance taskforce (investigating the oversight of non-financial risks and variable remuneration structures) is in full swing, having issued information requests to a number of entities. Interestingly, ASIC has also engaged an organisational psychologist to undertake behavioural analysis of the entities. The taskforce's report is due in August this year; and
    • the 2018 AGM season again highlighted that climate risk is seen as an important issue by investors.
  • ASIC has released a consultation paper seeking feedback on the proposed coverage of its review of the ePayments Code, which regulates consumer electronic payments, including ATM, EFTPOS and credit card transactions, online payments, internet and mobile banking, and BPAY. Consultation Paper 310 – Review of the ePayments Code: scope of the review, and the second, more substantive, consultation paper, which is expected to be issued later this year, represent ASIC's response to significant developments in financial technological innovation since its last review of the Code in 2010, and the regulator's desire to ensure the Code remains fit for purpose, simple to apply and easy to understand. Submissions from stakeholders on the proposed coverage of the review were due by 5 April 2019.
  • ASIC continues to demonstrate its willingness to take a firmer stance against financial services industry participants by its condemnation of the delay of several institutions in completing their fees for no service (FFNS) further review programs. The programs, which are being supervised by ASIC, aim to identify systematic FFNS failures beyond those that have already been identified and reported. In offering its criticism, the regulator has also welcomed the Federal Government's commitment to provide ASIC with new directions powers that will aim to speed up remediation programs in the future.
  • ASIC has released new independent research on consumer awareness and understanding of general and personal finance advice, which has identified substantial gaps in consumer comprehension. Report 614 – Financial advice: mind the gap reveals that many consumers confuse 'general' and 'personal' advice, exposing them to greater risk of poor financial decisions. As a result of Report 614, and previous investigations that echo the Report's findings, ASIC has promised to undertake additional research to identify and consumer-test the effectiveness of more appropriate labelling for general advice.
ASX: Corporate Governance Principles and continued public consultation Broader trends

Focus on the 4th edition of the ASX Corporate Governance Principles and Recommendations continues this month, and the ASX will host roadshows throughout May in Adelaide, Perth, Sydney and Melbourne, to discuss the changes with listed entities and interested stakeholders. Relevantly, the new principles will take effect from the first full financial year commencing on or after 1 January 2020 but can be adopted earlier, and the ASX is encouraging listed entities to do so. The ASX has prepared a step-by-step guide outlining the changes that will be required for entities to comply with the 4th addition. As well, see our Client Update: ASX Corporate Governance Principles and Recommendations: 4th edition – what do they mean for you?.

The ASX has also recently closed its public consultation into 'Simplifying, clarifying and enhancing the integrity and efficiency of the ASX Listing Rules', seeking amendments across eight broad categories, including making the rules simpler and easier to follow, updating the timetables for corporate actions, and providing more and better guidance. The ASX received 48 written submissions and, subject to the feedback received during the consultation, as well as receipt of the necessary regulatory approvals, expects the new rules to take effect from 1 July 2019.

Finally, the ASX has opened a new consultation seeking input on updates to Guidance Note 10 'Business Continuity and Disaster Recovery' and Guidance Note 1 'Admission as a Participant' to specifically incorporate cyber risk as a key consideration, but not to impose prescriptive requirements on how participants should manage cyber risk and instead require alignment to one or more of the latest global or national cyber standards and guidance.

FIRB: Australia-Hong Kong Free Trade Agreement

The Australia-Hong Kong Free Trade Agreement was signed on 26 March 2019. Once it comes into effect, the general FIRB approval monetary threshold for Hong Kong investors acquiring more than 20 per cent interests in Australian entities will increase from A$266 million to A$1154 million.

ACCC: Consumer Data Right draft rules out, first electricity monitoring released, updates on merger reviews

The ACCC published its draft rules for the Consumer Data Right (the CDR) this month, and is seeking feedback from consumers, businesses and community organisations. The CDR will allow customers to have their banking data transferred to other service providers of their choice. While the rules are commencing in the banking sector, the ACCC has foreshadowed that the CDR will eventually apply across a range of sectors (including energy and telecommunications).

The ACCC's first electricity monitoring report was released, following the release of its retail electricity pricing inquiry final report in June 2018. The monitoring report sets out how the ACCC will monitor the supply of retail and wholesale electricity in Queensland, NSW, Victoria, South Australia, Tasmania and the ACT.

The ACCC has cleared a number of mergers this month:

  • the proposed merger between QANTM Intellectual Property Limited and Xenith IP Group Limited QANTM and Xenith are holding companies of intellectual property (IP) businesses, and their merger would combine the second- and third-largest suppliers of IP services in Australia into one group;
  • the proposed acquisition of Xenith IP Group Limited by IPH Limited IPH and Xenith are holding companies of IP businesses, and the proposed acquisition would combine two of the largest suppliers of IP services in Australia;
  • Lochard Energy's proposed acquisition of Heytesbury gas reservoir assets from Origin Energy Lochard owns and operates the underground gas storage facility at Iona, near Port Campbell, which is currently the only underground gas storage facility in Victoria. The Heytesbury assets are depleted gas reservoirs located near the Iona facility, which may have potential for underground gas storage development; and
  • Knauf's proposed acquisitions of USG and Armstrong World Industries, after accepting a court-enforceable undertaking from Knauf to divest assets. USG has a presence in Australia through a joint venture with Boral, which the ACCC determined competes closely with Knauf and also with Armstrong World Industries. The undertaking requires Knauf to divest USG's interest in this joint venture, either entirely or just in Australasia, to a buyer approved by the ACCC.

The ACCC also has commenced several new merger reviews:

  • the proposed acquisition of Ruralco by Nutrien (through its Australian business, Landmark). Landmark and Ruralco both provide a range of products and services to the agriculture industry across Australia. Submissions on this review close 5 April 2019;
  • the proposed acquisition of the Ironbark gas project of Origin Energy ATP 78P Pty Ltd by Australia Pacific LNG Pty Limited; and
  • the proposed acquisition of Pfizer Inc's consumer healthcare business by GlaxoSmithKline plc.
Takeovers Panel: the Federal Court on the Takeovers Panel

The Federal Court dismissed an application by Eastern Field Developments Limited for judicial review of the Panel's decision regarding Finders Resources Limited. The court made some observations regarding the role of the Takeovers Panel, including its ability to make any order that it thinks appropriate, but not including an order directing a person to comply with a requirements of Chapters 6, 6A, 6B or 6C of the Corporations Act 2001 (Cth). The court also touched on ASIC's role in monitoring takeovers transactions, through reviewing ASX announcements, issuing regulatory guidance, and taking regulatory action in appropriate circumstances.

Also, there has been a new application in relation to the affairs of Yowie Group Ltd. The application by Keybridge Capital Limited alleges that one of Keybridge's substantial shareholders, Wilson Asset Management (International) Pty Ltd, acquired shares in Yowie in breach of the 20 per cent limit in s606 of the Corporations Act. Keybridge submits that Wilson's acquisition of a 13 per cent interest in Yowie breached the 20 per cent limit, as Wilson's already held an indirect 18 per cent interest in Yowie through Wilson's interest in Keybridge and HHY.

Employment: changes to modern awards create significant administrative burden for employers

As part of the four-yearly review of modern awards, the Fair Work Commission (the Commission) has decided to amend the annualised salary provisions contained in a number of modern awards.

These changes mean that employers will be required to:

  • advise the employee of, or create a written agreement specifying, the annualised salary that is payable, and the method by which the annualised salary has been calculated, including any penalty or overtime assumptions used in the calculation;
  • record start and finish times and unpaid breaks, and have these records signed off by the employee;
  • undertake an annual audit to determine whether the salary paid to the employee is less than the amount of remuneration that would have been payable to them under the award if they were not on an annualised salary; and
  • within 14 days, rectify any shortfall in amounts paid to the worker as compared with the amounts that would have been payable under the award.

The changes are being made to include appropriate safeguards in modern awards to ensure annualised salary arrangements do not disadvantage individual employees. However, they will place a significant administrative burden on employers, particularly with record keeping.

The Commission has not set a date for these changes to take effect, and has invited submissions about transitional arrangements for all awards affected by the changes.

Other developments

Shareholder intention statements

Bidders and targets must exercise caution in securing shareholder support over more than 20 per cent of target shares for bids and schemes, as ASIC continues its clamp down on shareholder intention statements and prepares to issue new guidance on 'truth in takeovers'. We took a closer look at ASIC's policy concerns and recent market practice, and set out our views on the right way forward for shareholder intention statements.