INSIGHT

ASIC's latest Corporate Plan continues focus on corporate culture; ASX clamps down on 'ramping' announcements; FIRB reveals closer scrutiny of data acquisitions; and other corporate law developments

By Vijay Cugati
Mergers & Acquisitions Technology

In brief 18 min read

ASIC continues to focus on corporate culture, and proposes restrictions on OTC binary options and CFDs; ASX clamps down on 'ramping' announcements and issues of loyalty securities; FIRB takes a closer look at data acquisitions; ACCC contemplates changes to the merger control regime; Federal Court clarifies the meaning of 'day' and entitlement to personal/carer's leave; and Paris Agreement conditions imposed for the first time on NSW coal mine approval.

What you need to know

ASIC: Continued focus on corporate culture and enforcement in 2019–23 Corporate Plan; proposal to ban retail binary options and restrict retail CFDs; updated requirements for climate-related disclosures; update to Markets Disciplinary Panel guidance
  • ASIC has released its Corporate Plan for 2019-23. The regulator's stated vision is to create a 'fair, strong and efficient financial system for all Australians', and focuses on ASIC's often-repeated post-Royal Commission aims of promoting better corporate cultures and behaviours, addressing consumer harms, and publicly denouncing and deterring wrongdoing via the 'why not litigate?' approach to enforcement. The plan has a particularly heavy focus on enforcement and the use of new product intervention powers, which is consistent with ASIC's public pronouncements and our observations of the regulator since the delivery of the Royal Commission's final report. The corporate plan is also consistent with:
    • ASIC's approval of changes to the Australian Financial Complaints Authority Rules to take effect from 1 October 2019, which will allow the AFCA to publicly name firms that are the subject of complaints; and
    • an announcement from ASIC that it will survey and compel firms paying grandfathered remuneration for financial advice to provide information on the steps being taken to end the practice, by 1 January 2021.
  • ASIC has proposed another use of its new product intervention power, with the release of Consultation Paper 322 – Product intervention: OTC binary options and CFDs and Report 626 – Consumer harm from OTC binary options and CFDs. CP 322 outlines ASIC's proposes to ban the issue and distribution of over-the-counter (OTC) binary options to retail clients, and to impose conditions on the issue and distribution of OTC contracts for difference (CFDs) to retail clients. Report 626 particularly notes ASIC's concerns with the rapid growth of the OTC derivatives market in recent years, and the losses typically incurred and harm suffered by retail clients trading in these products. ASIC's proposed restrictions on CFDs offered to retail clients include leverage limits and a prohibition on trading inducements. Responses to the consultation paper are due by 1 October 2019.
  • ASIC has revisited its guidance on disclosure of climate change related risks and opportunities, with updates to Regulatory Guide 228 – Prospectuses: Effective disclosure for retail investors and Regulatory Guide 247 – Effective disclosure in an operating and financial review. While the updated guides continues to provide principles-based guidance, the guides have been updated to, among other things:
    • specifically list the types of climate change risk identified by the G20 Financial Stability Board’s Taskforce on Climate Related Financial Disclosures as examples of common risks that may need to be disclosed in a prospectus; and
    • highlight climate change as a systemic risk that could impact an entity’s financial prospects, and that may need to be disclosed in an operating and financial review.

In releasing the revised guidance, ASIC has indicated that it will investigate climate-related disclosures of selected listed companies in the coming year.

  • ASIC has updated Regulatory Guide 216 – Markets Disciplinary Panel (the MDP) in an effort to simplify and streamline the MDP's policies and procedures. The key changes include:
    • the consolidation of former Regulatory Guides 216 and 225 into the new RG 216;
    • the use of published infringement notices as the main method to communicate the MDP's reasons to affected market participants and the market generally;
    • replacing a table of factors relevant to penalties with four key factors – ie character of conduct, consequences of conduct, compliance culture and remediation; and
    • the exclusion of market operators from the MDP's jurisdiction.
ASX: Clamp down on 'ramping' announcements; focus on terms of 'loyalty' securities; update of Guidance Note 9

In its most recent compliance update, ASX has reminded listed entities that it will actively scrutinise announcements that aim to 'ramp' the price of their securities, rather than inform the market about market sensitive information. ASX has noted an increased rate of announcements that it considers to be 'ramping' announcements, often made just before or after a capital raising. ASX has said that it will issue a query letter requesting that the entity explain the basis for lodging the announcement and to identify the market sensitive information in the announcement where it suspects an announcement is a 'ramping' announcement. In a number of cases, ASX has required an entity to publish a corrective announcement highlighting that the information in the earlier announcement was not material.

ASX has also strongly recommended that listed entities proposing to issue 'loyalty', 'bonus' or 'reward' securities apply for in-principle advice that the terms of the securities will satisfy Listing Rules 6.1 and 12.5. ASX is particularly concerned where the ability to earn 'loyalty' securities requires holders to retain securities for a defined period, which may be an inappropriate disincentive to trading.

ASX has also published an updated version of Guidance Note 9 'Disclosure of Corporate Governance Practices'. The updated guidance note makes a number of changes to address the ASX Corporate Governance Principles and Recommendations: 4th edition. The updated guidance note will be formally released on 1 January 2020, the same date that the fourth edition comes into effect.

FIRB: Closer scrutiny of data acquisitions

According to a speech by FIRB Chairman David Irvine to the Australia-China Business Council, in recent years FIRB has seen an increased number of foreign investment proposals seeking access to data centres and other facilities that house, or have access to, sensitive private data about Australians. This has required FIRB to more closely scrutinise the protection of sensitive Australian data, which is not limited to national security data. In light of this, the development of data security conditions continues to be a key focus area for FIRB.

ACCC: Contemplating changes to the merger control regime; impending repeal of IP exemption; update on merger reviews; ACCC position on the Consumer Data Right in the energy sector

In his address to the Law Council of Australia Competition Law Workshop, ACCC Chair Rod Sims foreshadowed possible changes to Australia's merger regime. While Mr Sims indicated that the ACCC doesn't yet have a 'complete view' of what the Australian merger regime needs to look like, he drew comparisons with the regime in the United States. Mr Sims remarked that in the US, courts start with 'the basic premise that increased concentration will cause a lessening of competition. With all due respect, we don't feel this starting point exists in the Australian regime'. Mr Sims also noted that the informal merger review process is undermined where merger parties and their lawyers underplay the degree of overlap and market dynamics in their submissions to the ACCC. The comments follow a number of recent statements by Mr Sims calling for merger law reform in Australia, including in connection with the Digital Platforms Inquiry Final Report.

The ACCC has also published new guidelines on the repeal of the intellectual property exemption in section 51(3) of the Competition and Consumer Act 2010 (Cth), which will come into effect on 13 September 2019. These are an update to the draft guidelines issued by the ACCC in June. The repeal of s51(3) means that certain types of IP-related conduct are no longer exempt from the provisions in the Competition and Consumer Act relating to cartel conduct, anti-competitive agreements and exclusive dealing. You can read about the repeal of s51(3) in our Insight: Review your IP arrangements: IP exemption from competition laws soon to be repealed.

The ACCC has commenced four public merger reviews in the past month in relation to:

In other news, the ACCC has published a position paper on the Consumer Data Right (the CDR) reforms in the energy sector, nominating the Australian Energy Market Operator (AEMO) gateway model as its preferred data access model. Under the gateway model, AEMO would have a gateway function, providing CDR data from data holders (including retailers and potentially distributors) to accredited data recipients. The ACCC prefers this model, in part, because it leverages AEMO's existing data transfer infrastructure, as well as AEMO's energy data and IT expertise. You can read more about the implementation of the CDR in the energy sector in our Insight: The Consumer Data Right and energy – what it means and what to do about it.

Takeovers Panel: Sufficiency of probative material

The Panel has received a number of applications in recent weeks. Three applications were made regarding alleged shareholder association matters, and a fourth concerned an alleged wilful breach of a scheme implementation agreement. Although the Panel has not yet published reasons for these decisions, in two of the shareholder association cases it determined there was insufficient probative material to satisfy it that proceedings should have been conducted. In one case, the Panel also cited an applicant's unexplained delay in commencing proceedings as a further reason for declining to conduct them. These matters serve as a reminder of the need for applicants to be careful in compiling a proper body of evidentiary material and not delaying when making Panel applications.

The Panel made a declaration of unacceptable circumstances regarding the affairs of Benjamin Hornigold Limited. The Panel found that certain transactions entered into by Benjamin Hornigold had the effect of operating as a lock-up device, as they diminished the value of a material and important asset of Benjamin Hornigold, making it less attractive to a potential acquirer and less likely to attract competing proposals. A party to those proceedings, John Bridgeman Limited, has since filed an application for review of the Panel's decision to make the declaration of unacceptable circumstances.

Employment: Federal Court clarifies meaning of 'day' and entitlement to personal/carer's leave under National Employment Standards 

The Full Court of the Federal Court has handed down a decision clarifying the approach to calculating the entitlement to paid personal/carer's leave under the National Employment Standards (the NES) in the Fair Work Act 2009 (Cth). Under the NES, employees are entitled to 10 days of paid personal/carer's leave for each year of service.

The case concerned two employees at a chocolate factory operated by Mondelez, at which full-time employees worked 36 ordinary hours per week. The 36 hours per week were worked as shifts of either 7.2 hours per day over five days, or 12 hours per day over three days. Mondelez's enterprise agreement provided that employees who worked 12-hour shifts over three days were entitled to 96 hours of paid personal/carer's leave each year. The AMWU argued that Mondelez's personal/carer's leave entitlement was inconsistent with the NES, and that employees working 12-hour shifts should be entitled to 10 calendar days, or 120 hours, of paid personal/carer's leave. The Minister for Small and Family Business, the Workplace and Deregulation intervened in the case in support of Mondelez.

The court was required to consider the meaning of 'day' in the context of the NES entitlement to personal/carer's leave. The majority of the Full Court determined that personal/carer's leave must be calculated in 'working days' based on the actual number of hours an employee would have worked that day, rather than averaging the employee's daily ordinary hours over an assumed five-day working week.

The decision will have significant implications for employers who have been calculating leave accruals on the basis of their employees' ordinary hours. Employers should review their payroll systems to ensure that they comply with the approach to calculating leave reflected in this decision. To learn more about the decision, see our Insight: Full Court decides what's in a 'day'.

It is yet to be confirmed whether Mondelez will appeal the decision to the High Court.

News & other developments

Paris Agreement conditions imposed on coal mine approval by IPC
  • In an unprecedented move, the NSW Independent Planning Commission (the IPC) has taken a stance on climate change and greenhouse gas emissions from coal mines, by imposing export conditions on coal extracted from a conditionally approved mine. The IPC granted conditional approval for Glencore and Peabody Energy's United Wambo coal project on conditions that restrict the export of any coal extracted from the project to countries with clear commitments to reduce greenhouse gas emissions. The export caveat is unique in the history of Australian mine planning approvals, and is of particular interest as the condition is not demanded by State or Federal Governments, nor by Australia's Paris Agreement commitments. The condition has also been imposed in circumstances where there is currently no New South Wales Government policy that greenhouse gas policies or planning conditions should seek to regulate matters of international trade. The ambition of this condition is to force a new level of accountability for scope 3 emissions, which are indirect greenhouse gas emissions and are usually the greatest share in a carbon footprint. This decision has the potential to pave the way for the imposition of similar conditions seeking to minimise emissions impacts in other sectors. The strict conditions give the IPC remarkable powers, with export plans having to be approved by the NSW Planning Industry and Environment Secretary, and represents the IPC's input into matters of international trade.