INSIGHT

Nucleus corporate law developments: ASIC to sample whistleblower policies; indexation of FIRB screening thresholds; Vodafone/TPG merger cleared in Federal Court; ACCC to commence home loan pricing inquiry; and other corporate law developments

By Vijay Cugati
Mergers & Acquisitions Technology

In brief 12 min read

ASIC flags intention to sample whistleblower policies; ASX clarifies application of amended Listing Rule 15.5; FIRB indexes monetary screening thresholds and recognises Hong Kong as a free trade agreement jurisdiction; Vodafone/TPG merger cleared in Federal Court; ACCC takes action against Google over location data and prepares to conduct a home loans pricing transparency inquiry; and Victoria and NT pass industrial manslaughter rules.

What you need to know

ASIC: ASIC announces plan to sample whistleblower policies; consultation on relief from s606 where administrators propose a deed of company arrangement

The deadline for public companies, large proprietary companies and corporate trustees of registrable superannuation entities to adopt a whistleblower policy, and to make that policy available to employees and officers, passed on 1 January 2020. ASIC has announced that it intends to sample whistleblower policies from a range of entities. All relevant entities should ensure they have a valid policy in place. The whistleblower policy requirements apply to a broad range of entities, including entities that may be operating as a charity or non-for-profit and otherwise regulated by the Australian Charities and Not-for-profits Commission. Entities with charitable arms should be alert to this requirement, particularly where these entities sit outside the corporate group and may not be automatically covered by group-wide policies.

ASIC has published Regulatory Guide 270 – Whistleblower policies to provide formal guidance to companies in formulating their whistleblower policies, including minimum requirements and practical guidance on development and implementation of policies. The Fourth Edition of the ASX Corporate Governance Council's Corporate Governance Principles and Recommendations also requires the public disclosure of the policy. Listed entities will be required to 'comply or explain' in their corporate governance statements for their first full financial year commencing after 1 January 2020. For more information on whistleblower protections, see our Guide on Corporate and Tax Whistleblower Reforms.

ASIC has published Consultation Paper 326 – Chapter 6 relief for share transfers using s444GA of the Corporations Act, which outlines a proposal for ASIC to formalise its policy on granting relief from complying with section 606 of the Corporations Act 2001 (Cth) (the prohibition on acquiring a relevant interest in voting shares in breach of the '20% rule') where the transfer is proposed by an administrator under a deed of company arrangement. Granting this relief is often controversial, as it may result in shares being expropriated for little or no consideration. ASIC proposes to codify its existing policy of granting relief where shareholders are provided with explanatory materials (including an independent expert report (IER)), the IER is prepared by an independent expert (and not the administrator), and the IER is prepared on a liquidation basis. Submissions are invited by 28 February 2020.

ASX: Clarification of amended Listing Rule 15.5

Revised ASX Listing Rules, reflecting feedback received in response to submissions to its consultation paper 'Simplifying, clarifying and enhancing the integrity and efficiency of the ASX listing rules', came into effect from 1 December 2019. These Listing Rule changes were accompanied by changes to various ASX Guidance Notes and Appendices.

The ASX has noted that a practice has emerged of entities using explicit language in their announcements stating that the company secretary or another body or officer is authorised by the board to release announcements to the market. ASX considers that this is not required to comply with the amended LR 15.5. In certain circumstances, it is sufficient to include a sign-off clause that states the name and title of the officer and indicates that they authorised the release of the document to the market, without referring to delegating authority from the board. Alternatively, if a body (eg the board or a board sub-committee) authorised the release, it is sufficient for the purposes of LR 15.5 to include a statement that the relevant body authorised the release of the document to the market. ASX also notes that, in the case of a notice of meeting, a concluding statement such as 'By order of the board' will suffice for the purposes of LR 15.5.

FIRB: Increased monetary screening thresholds; Hong Kong becomes a free trade agreement jurisdiction

FIRB's monetary thresholds have slightly increased from 1 January 2020, following annual indexation. The changes include the general threshold for foreign persons acquiring 20% interests in Australian entities increasing to $275 million (and for investors from free trade agreement countries, the general threshold increasing to $1,192 million). FIRB's Guidance Note 34 – Monetary screening thresholds has been updated accordingly.

On 17 January 2020, Hong Kong became a 'free trade agreement country' for FIRB purposes, as a result of the Australia-Hong Kong Free Trade Agreement coming into force. Privately owned Hong Kong investors now have the benefit of the higher $1,192 million screening threshold for acquisitions of non-sensitive businesses and developed commercial land.

ACCC: Vodafone/TPG merger cleared by Federal Court; proceedings against Google; home loans inquiry; record-breaking consumer law penalty

The Federal Court has cleared the proposed Vodafone/TPG merger, despite the ACCC's objections. The court found that there is no 'real chance' that TPG will roll out a retail mobile network or become an effective fourth mobile network operator in Australia in the relevant future, and that leaving TPG and Vodafone as separate entities in current market conditions will not promote competition in the retail mobile market. To learn more about the case, see our Insight: Court clears Vodafone/TPG merger.

The ACCC has commenced proceedings against Google, alleging it engaged in misleading conduct and made false or misleading representations to consumers about how and when it collects, keeps and uses their personal information in relation to location data. At the centre of the case are two Google Account settings: 'Location History' and 'Web & App Activity'. The ACCC alleges that to stop Google collecting and retaining location data, both settings had to be switched off by users; and that by not properly disclosing this fact to its users, Google led its users to incorrectly believe that 'Location History' was the only setting that controlled whether Google obtained, kept and used consumers' location data. It is the first case brought globally to probe Google's approach to location data collection, and a reminder to all companies of the need to communicate clearly with consumers about use of their data, and to address any potential or actual risks of inadequate disclosure. You can read more about this in our Insight: Finding focus – ACCC makes another move on disclosure of data practices.

The Federal Government has directed the ACCC to commence a new pricing transparency inquiry into the market for the supply of home loans under the Competition and Consumer Act 2010 (Cth) (the CCA). The inquiry will focus on a range of issues, including the interest rates paid by new and existing customers, how banks' financing costs affect their decisions on interest rates, the reasons why RBA cash rate cuts are not always passed on in full and the impediments to customers refinancing to an alternative home loan supplier. The ACCC has indicated that this inquiry would build on the 2017 Residential Mortgage Inquiry, which focused on the pricing of residential mortgage products by certain banks that were subject to the Government's Major Bank Levy. When conducting an inquiry, the ACCC can use its compulsory information-gathering powers under the CCA to compel the disclosure of information from market participants. The ACCC is expected to produce an interim report by the end of March 2020, with a final report due by 30 September 2020.

The Federal Court has ordered Volkswagen to pay $125 million in penalties for making false representations about compliance with Australian diesel emissions standards. This is the highest total penalty ever ordered by the court for contraventions of the Australian Consumer Law.

In relation to merger applications:

  • The ACCC is monitoring Google LLC's proposed acquisition of Fitbit Inc. It will commence a public review once the parties provide a submission.
  • Seven West Media's proposed acquisition of Prime Media Group was cleared by the ACCC (although the acquisition was ultimately voted down by Prime shareholders). The ACCC approved the deal on the basis that Seven West Media would divest its Spirit and RedFM radio networks in regional WA to a third party. That proposed divestment was the subject of an undertaking to the Australian Media and Communications Authority.
  • The ACCC cleared Global Forest Partners' proposed acquisition of Resource Management Service's Tasmanian hardwood plantations. The ACCC expressed concerns that the acquisition could impact the viability of competing exporters of hardwood plantation chips in North East Tasmania. However, it found that the proposed acquisition is unlikely to substantially lessen competition in any relevant market, because there is likely to be enough supply of chipping logs from private growers to provide a third export operator with sufficient volumes to attract international buyers.
  • The  ACCC cleared Brookfield and GIC's proposed acquisition of Genesee & Wyoming subject to an undertaking that Brookfield and GIC divest the 51.1% share in Genesee & Wyoming Australia (GWA) held by Genesee & Wyoming. GWA provides above and below rail services in South Australia and the Northern Territory, and operates rail haulage in the Hunter Valley.
  • The ACCC cleared ANZ Terminals' proposed acquisition of GrainCorp, subject to an undertaking. The ACCC had expressed significant competition concerns regarding the impact of this acquisition on the supply of port-side bulk liquid storage services in NSW and South Australia. However, after ANZ Terminals agreed to exclude GrainCorp's facility in Port Kembla and provided a s87B undertaking regarding other facilities, the ACCC decided not to oppose the acquisition.
Takeovers Panel: Annual report; competing proposal break fees

The Panel has released its Annual Report for the 2018-19 financial year, which contains commentary regarding the Panel's role and performance. In 2018-19 the Panel received 30 applications, conducted proceedings in half of those matters and made 12 declarations of unacceptable circumstances. Shareholders made 14 of the 30 applications, and the Panel noted the trend towards an increasing number of shareholder applications, contributing to a larger workload for the Panel, due to the fact that shareholder applicants are often unrepresented and their applications can raise novel issues. Key themes emerging from the applications made in 2018-19 are association/s606 matters and disclosure issues, representing 21 of the30 applications.

The Panel also released its reasons for decision in relation to the application made by QGIF Swan Bidco Pty Ltd regarding the affairs of Pacific Energy Limited. QGIF Swan Bidco submitted that Pacific Energy's entry into a proposal deed with a competing bidder was unacceptable because (among other things):

  • it constituted a breach of an implementation agreement between QGIF Swan Bidco and Pacific Energy (denying QGIF Swan Bidco the full benefit of its matching right); and
  • the break fee payable to the competing bidder under the proposal deed imposed an impermissible payment trigger and caused a diminution in the value of Pacific Energy, with the effect of making the company less attractive to an acquirer and less likely to attract competing proposals.

Although the Pacific Energy directors ultimately obtained a superior outcome for shareholders, the competing bidder's approach to requiring Pacific Energy to sign up to a proposal deed with a break fee was not a common market approach, and, accordingly, the Panel considered a number of policy issues relating to matching rights and break fees in assessing the application and ultimately declining to make a declaration of unacceptable circumstances.

The Panel appears to have placed considerable weight on the fact that, as a result of entering into the proposal deed, Pacific Energy facilitated a rival proposal leading to a materially higher offer. Accordingly, the Panel concluded that the actions of the Pacific Energy board did not inhibit the acquisition of control taking place in an efficient, competitive and informed market, or deny shareholders an opportunity to participate in the benefits of a proposal.

Employment: Victoria and the Northern Territory pass industrial manslaughter laws

The Victorian and Northern Territory Governments have passed legislation to create new criminal offences of industrial manslaughter. The new laws in Victoria and the Northern Territory create offences capturing negligent conduct that causes the death of a worker or a member of the public. The new regimes provide for criminal liability for companies and their officers. If found guilty of an offence under the new laws, the maximum penalties are:

  • in Victoria, penalties of up to $16.5 million for companies and 20 years' imprisonment for individuals; and
  • in the Northern Territory, penalties of up to $10.2 million for companies and life imprisonment for individuals.

The introduction of the new regimes in Victoria and the Northern Territory reflects national momentum towards uniform industrial manslaughter laws, with the Government of Western Australia considering the introduction of similar legislation. The NSW Government has also proposed to amend the state's work health and safety laws to clarify that workplace deaths may be prosecuted under the manslaughter provisions of the Crimes Act 1900 (NSW). Such laws would bring these states and territories into line with Queensland and the Australian Capital Territory, which have already introduced industrial manslaughter offences.

The new regimes are expected to commence operation this month in the Northern Territory and by July 2020 in Victoria. Separately, the Victorian Government has announced increased funding for WorkSafe Victoria, to assist it in taking future enforcement action under the new law.

News & other developments

Australian Institute of Company Directors commissions Allens to report on Australia's stance on director liability

Allens has prepared a comparative report, Criminal and Civil Frameworks for Imposing Liability on Directors, on the frameworks for imposing criminal and civil liability on directors in Australia and other key comparable jurisdictions (Canada, Hong Kong, New Zealand, the United Kingdom and the United States). The report concludes that, while Australia's director liability framework is similar to that in other jurisdictions in imposing direct, accessorial and deemed liability on directors, there are also a number of key divergences in the Australian environment:

  • Australia imposes liability on a broader range of subject matters;
  • Australia liberally imposes criminal liability, including for dishonest or reckless contraventions, often with harsh penalties;
  • the emergence of the 'stepping-stone liability' doctrine has the potential to further expand the types of director conduct that may be subject to enforcement action; and
  • Australia's civil penalties are comparatively harsh.

Allens' report concludes that Australia's director liability environment is unique – and, in many instances, uniquely burdensome – when compared with the comparable jurisdictions.

Further developments in regulating scope 3 greenhouse gas emissions in mining

Following its decision last year to approve Glencore and Peabody Energy's United Wambo Coal Project subject to a first-of-its-kind export restriction condition, the NSW Independent Planning Commission (the IPC) has handed down two more coal mining decisions, which differ widely in their treatment of scope 3 ('indirect') greenhouse gas emissions. First, the IPC refused KEPCO's proposed new Bylong Coal Project, citing a failure to propose measures to minimise scope 3 emissions 'to the greatest extent possible' as a factor in its decision. Subsequently, a differently constituted IPC approved the Rix's Creek Continuation Project, and, in doing so, accepted that scope 3 emissions are the responsibility of end customers for coal exports, not mining companies. These decisions create significant uncertainty about who is accountable for scope 3 emissions. To learn more about these IPC decisions, see our Insight: Climate change features again in latest coal mine refusal and Insight: Latest coal mine decision concludes scope 3 emissions are the end customer's responsibility. In a move the NSW Government says will deliver certainty for mining companies and investors, a new Bill has been introduced to Parliament. If passed, the Bill will prohibit consent conditions of the kind imposed on the United Wambo Project restricting the export of coal overseas, and remove the specific requirement for consideration of scope 3 emissions in NSW coal mining decisions. However, the Bill does not prevent the IPC from taking scope 3 emissions into consideration or limit the weight to be given to scope 3 emissions in planning decisions. To learn more, see our Insight: NSW Government to prohibit scope 3 greenhouse gas emissions conditions.