INSIGHT

Digital Platforms Inquiry Final Report released; Takeovers Panel considers board discretions and process deed disclosure requirements; and other corporate law developments

By Vijay Cugati, Chris Travers
ACCC ASIC Financial Services Financial Services Royal Commission Fintech Foreign Investment Review Board (FIRB) Mergers & Acquisitions Technology

In brief 11 min read

ASIC continues to focus on conduct issues and commences new litigation against big banks; ASX reminds the market about issues around cryptocurrencies; FIRB releases a new Foreign Investment Compliance Framework Policy Statement; ACCC releases Digital Platforms Inquiry Final Report; Takeovers Panel considers process deed disclosure requirements; and Fair Work Commission re-confirms Uber drivers are not employees.

What you need to know

ASIC: Continued focus on cultural failings in institutions; ASIC v the banks; consumer protection in the credit and insurance industry

ASIC continues to take a strong public line on responsible conduct issues, expounding its enhanced approach to enforcement and intervention in the post-Royal Commission world.

  • ASIC Commissioner John Price recently spoke at an AICD Directors Briefing, where he outlined ASIC's focus on improving governance and accountability, with a particular focus on detecting 'cultural failings that lead to conduct problems and breaches of the law'. In that context, Mr Price noted ASIC has accelerated and increased court actions with its new 'why not litigate' stance, and plans to use new product intervention powers to actively intervene where harmful products are sold to consumers.
  • Consistent with its 'why not litigate?' enforcement strategy, ASIC has commenced proceedings in the Federal Court against ANZ, alleging the bank engaged in unconscionable conduct in charging transaction and non-payment fees it was not entitled to under the relevant customer contract on more than a million occasions. The case against ANZ was commenced shortly after the regulator's responsible lending case against Westpac was dismissed by the Federal Court. While ASIC described its action against Westpac as a 'test case' after the loss and explained that its role as a regulator includes an obligation to run test cases, it will be interesting to see how the regulator reacts and if the 'why not litigate' strategy is reinterpreted should ASIC face a similar result in its case against ANZ.
  • ASIC's focus on consumer protection in the financial services industry has been further evidenced through developments relating to the short-term credit industry, sales of consumer credit insurance and sales of life insurance:
    • ASIC is preparing to use its new product intervention power for the first time after it released Consultation Paper 316 – Using the product intervention power: Short term credit. ASIC's proposed intervention is targeted at a model of short-term credit where a lender and its associates charge fees under separate contracts that, when added together, can represent around 990% of the loan amount.
    • ASIC has released Report 622 – Consumer Credit Insurance: Poor value products and harmful sales practices, its review of the sale of consumer credit insurance by the major banks and lenders. Report 622 found that CCI products have had very low value and were promoted and sold to consumers in an unfair manner. While ASIC has made it clear it expects better practices from sellers of CCI products, it remains to be seen whether ASIC will seek to exercise its powers to directly intervene (beyond the intervention outlined below).
    • In a final move to protect consumers against poor conduct from the financial services industry, ASIC has proposed to ban unsolicited telephone sales of life insurance and consumer credit insurance in Consultation Paper 317 – Unsolicited telephone sales of direct life insurance and consumer credit insurance. This ban is in line with the Hayne Royal Commission recommendations and foreshadows ASIC's plan to review Regulatory Guide 38 – The hawking provisions later this year. ASIC will be enforcing the ban by using its modification power under s992B(1)(c) of the Corporations Act 2001.
ASX: Reminder in respect of cryptocurrency-related activities

Over the course of this year, ASX has observed an increase in enquiries and announcements by listed entities proposing to engage in cryptocurrency-related activities. These include initial coin offerings, issuing tokens and listing them on cryptocurrency exchanges, and providing advisory or facilitation services in relation to cryptocurrency and mining cryptocurrencies.

ASX has previously advised the market of its concerns about cryptocurrency-related activities in October 2017 and February 2018. ASX has noted its concerns are amplified by similar concerns raised by the UK Financial Conduct Authority and the United States Commodity Futures Trading Commission.

ASX has restated its view that cryptocurrency-related activities raise significant legal, regulatory and public policy issues, and that their regulatory status in a number of overseas jurisdictions remains subject to considerable uncertainty and rapid change. In particular, ASX has noted ASIC's updated guidance in Information Sheet 225: Initial coin offerings and crypto-assets and the effect of Listing Rules 3.1, 11.1 and 12.5.

ASX strongly encourages listed entities proposing to pursue cryptocurrency-related activities to consult with ASX before they do so and, in particular, before they make any announcement to the market concerning such activities.

FIRB: New Foreign Investment Compliance Framework Policy Statement published

FIRB has published a 'Foreign Investment Compliance Framework Policy Statement', setting out the approach of Treasury and the ATO to compliance and enforcement in relation to Australia's foreign investment regime. The Policy Statement highlights (among other things) that 'Treasury’s compliance efforts are focused on areas of risk to the national interest and aim to achieve a balance between providing assurance, detecting and remedying non-compliance while limiting the impact and supporting foreign investors to do the right thing'. It also notes Treasury's focus on providing 'support and education to foreign investors to assist them to meet their compliance obligations in the first instance'.

ACCC: Digital Platforms Inquiry Final Report released; AP Eagers acquisition conditionally approved; update on merger reviews; interim authorisation for ABA

The Digital Platforms Inquiry Final Report (Final Report) has been released to the public. Reiterating the findings in the Preliminary Report, the Final Report reiterates that both Google and Facebook have substantial market power and that this has had significant effects in advertising, media and a range of other markets. The report contained 23 broad recommendations (an increase from 12 in the Preliminary Report) which span a number of areas. In relation to merger control laws, the ACCC has proposed to explicitly include, as factors to be considered in considering mergers, the likelihood that the merger will remove a potential competitor, and the nature and significance of assets, including data and technology. The Final Report also recommended large digital platforms such as Facebook and Google agree to a protocol under which they will provide advance notice of any acquisitions potentially impacting competition in Australia. In response, the government will launch a consultation process before detailing its final response by the end of the year. You can read more about competition, consumer protection and copyright issues arising from the Final Report in Part 1 of our Review into the Digital Platforms Inquiry Final Report, and about privacy protections and data handling issues arising from the Final Report in Part 2 of our Review into the Digital Platforms Inquiry Final Report.

Turning to mergers, the attention has been on AP Eagers, which successfully obtained conditional merger authorisation from the ACCC to acquire Automotive Holdings Group (AHG), in the first use of the new formal merger authorisation process. AP Eagers and AHG were two rival automotive retailers and, combined, will form Australia's largest car dealership business. The authorisation was granted on condition that AP Eagers divest its Newcastle and Hunter Valley dealerships pursuant to an undertaking given to the ACCC. This is the first time the formal merger authorisation process has been used since it was introduced following the Harper Reforms in November 2017. Allens advised AP Eagers throughout the authorisation process. You can read more about the first use of the ACCC's formal merger authorisation process in our client update: First ACCC Merger Authorisation – how does it affect you?

In other merger updates, the ACCC has:

Finally, the ACCC has granted interim authorisation to allow the Australian Banking Association (ABA) to immediately make changes to the Banking Code of Practice. The impetus for this interim authorisation came from the ABA seeking ACCC authorisation in May 2019 to implement revisions to the Banking Code in response to recommendations from the Hayne Royal Commission. The interim authorisation removes the risk that the ABA and its member banks would be in breach of competition laws were they to agree to make, and implement, changes to the Banking Code.

Takeovers Panel: Panel declines to conduct proceedings in bidding war for GBST, flags potential to require full disclosure of process deeds in future

The Panel recently published its reasons for decision in declining to conduct proceedings in relation to the affairs of GBST Holdings Limited. In July 2019, in the midst of a bidding war, GBST Holdings Limited (GBST) resolved to grant exclusive due diligence to SS&C Technologies, Inc. (SS&C) after SS&C submitted a non-binding indicative offer to acquire GBST for $3.60 per share and signed a process deed with GBST (SS&C Process Deed). FNZ Group (FNZ) submitted a competing non-binding indicative offer at $3.65 per share, which was rejected by the GBST board. GBST cited a number of reasons for considering the SS&C offer to be superior despite the $0.05 price deficit, including the scope of each bidder's due diligence requests, the terms and quantum of FNZ's break fee and other terms of FNZ's proposed exclusivity deed.

FNZ sought a declaration of unacceptable circumstances and orders to set aside the SS&C Process Deed. Although the Panel found 'the process adopted by GBST was not conventional', it was not unacceptable. In particular, the Panel noted GBST's process resulted in significantly increased offer prices and that despite the presence of a lock-up device, there was nothing to prevent rival bidders submitting superior offers. This finding was prescient, with FNZ subsequently signing a scheme implementation agreement to acquire GBST at $3.85 per share.

The Panel's decision confirms target boards have a discretion to determine how they assess offers and make recommendations, whether they grant due diligence access, and whether they choose to enter into exclusivity arrangements when responding to offers.

During the Panel's proceedings, ASIC and FNZ argued that the full SS&C Process Deed, rather than a summary, should be disclosed to the market. SS&C noted that market practice on this point is mixed and argued that requiring a release of the full deed would represent a substantial departure from Panel policy. The Panel was minded to consider this issue but ultimately GBST agreed to release a redacted version of the full SS&C Process Deed, meaning the Panel declined to conduct proceedings accordingly. However, it is noteworthy that the Panel observed 'it remains an open question in what circumstances it may be sufficient to disclose a summary of a process deed instead of the process deed itself'. Takeover targets will need to carefully consider their position if they decide to only release summaries of process deeds until the Panel gives further guidance on this issue.

Employment: Contractor relationships in focus as Fair Work Commission reaffirms view that Uber drivers are not employees

The Fair Work Commission (Commission) has decided for the third time that a driver engaged by Uber Australia was not an employee. In reaching its decision, the Commission compared the driver to a casual employee and concluded that the arrangements did not share the same features. Key to the Commission's decision was the fact that Uber did not compel drivers to perform work, the driver did not perform work exclusively for Uber, the driver provided his own vehicle and was responsible for insurance and maintenance costs, and the contract between the parties was not indicative of an employment relationship.

The Fair Work Ombudsman (Ombudsman) reached the same conclusion after its June 2019 investigation into Uber Australia and its engagement of drivers. Similar to the Commission, the key consideration for the Ombudsman was the fact that Uber Australia does not require drivers to perform work at specific times and drivers have control over whether, when, and for how long they perform work.

The Commission's most recent Uber decision comes at a time when the on-demand workforce is in the regulatory spotlight, and serves as a reminder of the potential pitfalls of workforce engagement with the rise of the 'gig economy'. The Ombudsman recently announced that sham contracting is among its priorities for 2019-20. Additionally, the Victorian Government is currently undertaking an inquiry into the Victorian on-demand workforce. The focus of the inquiry is to address concerns over whether workers in the gig economy are being paid enough, whether the work is safe and whether there are adequate legal protections for workers. The final report of the inquiry is due to the Victorian Government later this year.

News & other developments

Westpac prevails in responsible lending litigation

ASIC has failed in its responsible lending case against Westpac. The litigation concerned whether a credit provider is required to consider a borrower's declared living expenses in considering their suitability for a loan. Responding to the loss, ASIC Commissioner Sean Hughes described the litigation as an important 'test case' to obtain judicial clarification on responsible lending rules. ASIC's appetite for litigation against the big banks is clearly not waning, with the regulator launching a fresh action against ANZ relating to fees charged by ANZ to its customers. It will be interesting to see if there is any adjustment to the 'why not litigate?' approach if ASIC continues to struggle with 'test cases' and other enforcement actions against big targets.