INSIGHT

Nucleus corporate law developments: rapid legal and regulatory responses to COVID-19 continue; ASX updates temporary COVID-19 class waivers and issues guidance on cancelling dividends; ACCC develops code of conduct for digital platforms and media companies; interim Home Loan Pricing Inquiry report released; and other corporate law developments

By Vijay Cugati
Mergers & Acquisitions Technology

In brief 17 min read

Rapid legal and regulatory responses to COVID-19 continue; ASIC shifts regulatory and enforcement focus; ASX updates temporary COVID-19 class waivers and issues guidance on cancelling dividends; FIRB releases new compliance-related guidance notes; ACCC develops code of conduct for digital platforms and media companies and releases interim Home Loan Pricing Inquiry report; and temporary amendments made to Fair Work Act and modern awards.

COVID-19 News & Developments

COVID-19 and the rapidly changing rules that apply to corporate Australia: As the COVID-19 crisis escalates, governments and regulators around Australia are responding rapidly with emergency powers and temporary rules. The number of new announcements and policy changes makes it difficult to keep up with the regulatory landscape at times, so we are keeping track of these developments and what they mean for Australian businesses on our COVID-19 Insights Hub. Key developments to date that are of particular significance from a corporate law perspective include:

  • The Treasurer has used his emergency powers to amend the Corporations Act 2001 (Cth) to clarify that documents may be signed under section 127 electronically, and by signing separate (physical or electronic) counterparts. The Treasurer has also made modifications to the Corporations Act, Corporations Regulations, Insolvency Practice Rules and Passport Rules, which allow for all meetings under those authorities to be held, proxies to be given, and votes to be taken, electronically, by technologies that give all persons a reasonable opportunity to participate. This will cover general meetings, scheme meetings and creditors meetings, among others.
  • ASIC has announced that it will extend the deadline for unlisted entities to lodge financial reports, with entities that have balance dates from 31 December 2019 to 31 March 2020 being granted a one-month extension. ASIC is assessing the impact of COVID-19 on financial reporting for entities with balance dates after 31 March 2020, particularly at 30 June 2020. ASIC has announced that it will also consider individual applications to extend the reporting deadline for listed entities.
  • In light of the ASX's temporary Class Waivers to facilitate capital raisings, ASIC has reminded listed entities that it must be provided with detailed allocation spreadsheets for capital raisings completed in reliance on the Class Waivers. The regulator has called for increased transparency, and announced its intention to review disclosures made about placements, rights offers and SPPs to ensure they are 'accurate, sufficiently detailed and provide meaningful, rather than ‘boiler plate’ disclosure'.
  • The ASX has updated the two COVID-19 related Class Waivers that provided for a temporary uplift in the 15% placement capacity to 25% and waived the one-for-one cap on non-renounceable entitlement offers to clarify when notice must be given to the ASX, noting the importance of prior engagement with the ASX and the importance of linking the capital raising with COVID-19.
  • The ASX has set out additional procedural requirements for applications for back-to-back trading halts, and has also offered guidance on the process for cancelling dividends/distributions.
  • ASIC has provided further guidance on changes it has made to its regulatory work and priorities as a result of COVID-19, with changes to approach and temporary arrangements currently announced across 54 of ASIC's focus areas and programs. ASIC has flagged that it will limit regulatory activity that firms will need to respond to as much as possible, defer certain regulatory reviews, and suspend onsite supervisory work. Further details are included under 'ASIC', below.
  • Temporary changes have been made to the Fair Work Act 2009 (Cth) to allow greater workplace flexibilities in relation to matters including stand down rights, working hours and employee duties, and to 99 modern awards to provide for unpaid pandemic leave and the taking of double annual leave at half pay.
  • The ACCC is continuing to grant urgent interim authorisations to allow coordination and cooperation in a range of industries to facilitate various urgent responses to the unfolding COVID‑19 crisis. The ACCC has granted 24 urgent interim authorisations since the onset of the pandemic.
  • The JobKeeper scheme has formally commenced, providing eligible employers with access to a wage subsidy of $1,500 per fortnight for eligible employees.

What you need to know

ASIC: Temporary changes to ASIC's regulatory work and priorities; ASIC monitoring retail lender practices; temporary financial advice relief measures

ASIC has provided further guidance on changes it has made to its regulatory work and priorities as a result of COVID-19, with changes to approach and temporary arrangements currently announced across 54 of ASIC's focus areas and programs. ASIC has flagged that it intends to limit regulatory activity that firms will need to respond to as much as possible. Among other things, ASIC's shift in focus will result in the regulator deferring work in areas such as its reviews of:

  • lender responses to consumers experiencing financial difficulty;
  • internal dispute resolution mechanisms; and
  • life insurance advice reforms.

Onsite supervisory work, such as the enhanced approach of ASIC’s Close and Continuous Monitoring Program, is now not possible. However, ASIC will continue to monitor firms remotely, including through close working and information sharing arrangements with APRA.

ASIC Commissioner John Price has written an article, 'Directors duties in the context of COVID-19'. Mr Price's article contains a number of recommendations, including that directors should consult independent advisers regarding the affairs of companies, and foreshadows that 'ASIC will maintain enforcement activities and continue to investigate and take action where the public interest warrants us to do so, against any person or entity that breaks the law'.

ASIC is monitoring retail lenders' practices in relation to consumers who are facing financial difficulties caused by COVID-19. The regulator has acknowledged that it is encouraged by assistance packages announced by lenders, but noted that it expects lenders to continue to ensure that they deal with consumer financial difficulties fairly, including by advising borrowers of options available to them that could assist, and to ensure flexibility is considered instead of a standardised approach if that is not suitable for a particular consumer.

ASIC has also made ASIC Corporations (COVID-19—Advice-related Relief) Instrument 2020/355, which grants three principal relief measures to assist industry to provide consumers with advice during the pandemic:

  • First, relief has been provided to permit advisers to give advice on early access to superannuation by providing clients with a 'record of advice', in lieu of a longer 'statement of advice'.
  • Second, to facilitate time-critical advice, advisers will now have 30 business days, instead of the usual five business days, to provide clients with a 'statement of advice'.
  • Third, a 'record of advice' may be provided to existing clients of financial advisers even where the clients' personal circumstances have changed as a result of COVID-19, and the client does not see their original adviser, but another adviser from the same AFS licensee or practice.

ASIC has not provided an end date for the above relief, but has indicated it will give 30 days' notice before revoking the relief.

ASX: Updates to COVID-19 class waivers; updated guidance on consecutive trading halt requests; guidance on cancellation of dividends/distributions; guidance on issuance of non-standard securities

The ASX has released compliance update 04/20 and compliance update 05/20, which set out updates to the Temporary Extra Placement Capacity Class Waiver and the Non-Renounceable Offers Class Waiver. These updates to these Class Waivers, which were introduced as part of the ASX's response to COVID-19 and provided for:

  • a temporary uplift in the 15% placement capacity to 25%, subject to there being a follow-on accelerated pro rata entitlement offer or SPP offer to protect retail investors; and
  • a temporary waiver of the one-for-one cap on non-renounceable entitlement offers,

take effect for capital raisings announced on or after 23 April 2020.

The updates make clear that written notice must now be given to the ASX before an entity undertakes a capital raising in reliance on the Class Waivers. The description in this notice should include whether the capital raising is intended to respond to the COVID-19 pandemic or its economic impact, or if the raising is for other purposes. The ASX has also emphasised the importance of discussing the structure and purpose of the capital raising, and the intended recipients/proposed allocation process for any placement, with the ASX in advance, particularly where the capital raising appears not to be urgently required or related to COVID-19. The ASX has noted that it may withdraw the Class Waivers from:

  • individual listed entities at any time and for any reason; and
  • all listed entities at any time before their scheduled 31 July 2020 expiry date.

The ASX has also clarified the required notice for back-to-back trading halts, noting that an entity must flag a back-to-back request for a trading halt in its application and state that the consecutive trading halts are for the purposes of a capital raising. The ASX will only grant a single trading halt if the entity simply requests a trading halt, and will not accept a subsequent application for a second consecutive trading halt.

The ASX has also released recommendations for the process of cancelling dividends or distributions. It suggests that the cancellation of dividends or distributions should be announced at the earliest opportunity, and, if possible, before an entity's securities commence trading on an ex-dividend/distribution basis.

The ASX has issued guidance for the issuance of non-standard securities (ie other than ordinary securities, preference securities and convertible notes with market terms) in response to two changes the ASX has seen in the market. The first change was an increase in smaller listed entities issuing convertible notes with conversion terms that are potentially dilutive to existing shareholders or with other unusual features. The second change was an increase in the issuance of 'collateral shares' to noteholders or debt financiers as a means of increasing collateral protection. The ASX has recommended that it be consulted before such issuances, and for any announcements or notices of meeting relating to the approval of these non-standard securities to include details of why the particular terms are necessary and any alternative fundraising options that have been considered.

Finally, the ASX has deferred the introduction of a requirement for 'responsible persons' (who are responsible for communicating with the ASX in relation to listing rule matters) to complete an approved listing compliance course to 1 July 2021. The ASX has also staggered all listed entities' annual listing fees for FY2021 to be payable in two equal instalments at the end of July 2020 and January 2021.

FIRB: COVID-19 regulations enacted; new guidance notes on compliance matters

The Federal Government has formally enacted previously announced temporary COVID-19-related amendments to the FIRB regulations. The effect of the amendments, contained in the Foreign Acquisitions and Takeovers Amendment (Threshold Test) Regulations 2020 (Cth), is summarised in the FIRB section of our COVID-19 Insights Hub. FIRB has also released new Guidance Note 53 – Temporary Measures in Response to the Coronavirus explaining FIRB's temporary measures in relation to, among other things, the application review process, application fees, the application of conditions, exemption certificates and when changes to real property leases may require FIRB approval.

FIRB has also released two additional guidance notes on compliance matters. The first, Guidance Note 51 – Compliance: Reporting Requirements for Compliance and Other Purposes, sets out FIRB's expectations of foreign investors that are required to report on their compliance with conditions and other matters, including the types of reports that might be required and how compliance reports should be prepared. GN51 includes a pro forma 'compliance report template' that can be used to report to FIRB on compliance in the future, and while the template is not a mandatory form, foreign investors are likely to adopt the format in future. The second, Guidance Note 52 – Compliance: Independent Audit Conditions, sets out when FIRB is likely to impose independent audit conditions. The release of GN51 and GN52 serves as a reminder of FIRB's increasing focus on post-transaction compliance with foreign investment conditions.

ACCC: Further interim authorisations granted to allow coordination in response to COVID-19; ACCC to develop mandatory Code of Conduct for digital platforms and media companies; Home Loan Price Inquiry Interim Report released; update on merger reviews

Against the backdrop of the COVID-19 pandemic, the ACCC has continued to grant urgent interim authorisations in the electricity, finance, healthcare, insurance, mining, oil and gas and real estate sectors. These authorisations allow the relevant entities to coordinate with each other to facilitate various urgent responses to the unfolding crisis. The authorisations are designed to provide statutory protection from certain enforcement actions that might otherwise arise under the Australian competition laws.

The ACCC has also established a COVID-19 Taskforce, which focuses on early intervention by engaging directly with businesses and relevant government agencies, and consumers.

The Treasurer has directed the ACCC to develop a mandatory Code of Conduct to address the 'bargaining power imbalances between digital platforms and media companies'. This direction stems from the ACCC's Digital Platforms Inquiry Final Report and has been delivered against the backdrop of a sharp decline in Australian media advertising revenue due to the COVID-19 pandemic. The code is intended to cover data sharing arrangements, ranking and display of news content, and monetisation and revenue-sharing arrangements in relation to news. A draft code is to be released by the end of July 2020. See our latest edition of In Touch for more information.

In other news, the ACCC released its Home Loan Price Inquiry Interim Report. The interim report focuses on home loan pricing decisions by the four major banks, including the extent to which reductions in the cash rate are passed on. The interim report includes findings that there remains a lack of pricing transparency in home loans arising from high levels of discretionary discounting off headline variable rates, and that, despite a fall in average interest rates in 2019, the regulator remains concerned that new home loan customers receive better pricing (through higher discounts) than existing customers. The final report, which has been delayed due to COVID-19 and will now be provided to the Treasurer at the end of November 2020, will focus on impediments to customer switching and set out the ACCC's recommendations. See our latest edition of In Touch for more information.

The ACCC continues to review mergers; however, it has indicated that it may extend review timeframes (or conduct merger reviews on an urgent basis) where necessary due to the pandemic.

The ACCC is currently considering Amcol Australia's acquisition of the bentonite business of Sibelco Australia, is currently accepting public submissions and has set a provisional date of 25 June 2020 for an announcement of findings. The ACCC has also approved two additional mergers:

  • Ventia Services Group's acquisition of Ferrovial Services Australia (Broadspectrum). Both Ventia and Broadspectrum provide infrastructure services across a range of industries. The ACCC found that the acquisition was unlikely to substantially lessen competition in any market, on the basis that the parties offer differentiated services (primarily in different industries), and to the extent there was overlap, the merged entity would continue to face competition from industry-specialised providers and larger diversified infrastructure service providers; and
  • Gumtree AU's acquisition of Cox Australia Media Solutions. The ACCC granted unconditional authorisation of the merger on the basis that it was not likely to lead to a substantial lessening of competition, including in the supply of online automotive classifieds in Australia. The ACCC considered there were a number of other competitors in the market supplying similar services, allowing consumers to bypass the merged entity if necessary. This is the second merger authorisation the ACCC has considered under the post-Harper merger authorisation regime.
Takeovers Panel: Criteria for President's consent to reviews of decisions that are not declarations of unacceptable circumstances or orders; new Panel appointments

Under section 657EA(2) of the Corporations Act 2001 (Cth), a person may only apply for review of a Panel decision that is not a decision to make a declaration of unacceptable circumstances or a decision to make an order with the consent of the President of the Panel. In Accelerate Resources Limited 02, the President was asked to consent to review of a decision not to make an order that did not involve a declaration of unacceptable circumstances. In his reasons for decision in Accelerate Resources Limited 02 (Consent to Review of Interim Orders), the President reaffirmed the basis on which he will consent to the review of a sitting Panel's decision, where the sitting Panel's decision is a decision to not make a declaration of unacceptable circumstances and not to make an order. The President noted that the existence of the requirement to seek the President's consent to review indicates that lawmakers did not intend that parties would have an automatic right to full Review Panel review of a decision that does not involve a declaration of unacceptable circumstances or orders. The President noted that he will consider a number of factors:

  • whether there was a potential error in the sitting Panel's decision;
  • whether there is any new evidence in the matter;
  • whether a review Panel will be likely to conduct proceedings if consent were given; and
  • whether there will be material prejudice to an applicant by refusing consent.

The Assistant Treasurer has also reappointed 12 existing members and appointed four new members to the Panel, each for three-year terms. The new members are Anthony Jarvis, Kristen Jung, Michael Lishman and James Stewart.

Employment: JobKeeper scheme legislated; temporary amendments to the Fair Work Act and 99 modern awards

JobKeeper scheme

The JobKeeper scheme has formally commenced, providing eligible employers with access to a wage subsidy of $1,500 per fortnight for eligible employees until September 2020.

The JobKeeper scheme, summarised in the workplace section of our COVID-19 Insights Hub, applies to employers that have, or are likely to, experience significant reductions in turnover, when compared with the equivalent period in 2019. Employers with an annual turnover of less than $1 billion are eligible for this scheme if their annual turnover will reduce by 30%, while the threshold jumps to a 50% reduction for employers with annual turnover exceeding $1 billion.

Access to JobKeeper also requires the relevant employees to be currently employed (including employees who have been stood down); full-time, part-time or regular and systematic casuals with at least 12 months' service; and not receiving a JobKeeper payment from another employer.

Amendments to the Fair Work Act

Temporary changes have been made to the Fair Work Act to allow greater workplace flexibilities during the pandemic. These flexibilities supplement existing rights under legislation, awards and enterprise agreements, and allow eligible employers to:

  • stand down an eligible employee who cannot be usefully employed as a result of COVID-19 or government initiatives to slow its transmission;
  • unilaterally reduce an eligible employee's hours;
  • unilaterally change an eligible employee's duties and work location if it is safe, within the employee's skill and competency, and reasonably within the scope of the business; and
  • agree with an eligible employee to change their work days or take annual leave (provided the employee keeps two weeks of annual leave).

The changes to the Fair Work Act are temporary and will expire on 28 September 2020.

Variations to modern awards

The Fair Work Commission has temporarily varied 99 modern awards in response to COVID-19. Generally speaking, these variations:

  • allow an employer and an employee to agree to the employee taking double the amount of annual leave at half pay; and
  • provide employees with an entitlement to two weeks' unpaid pandemic leave if they are:
  • required by government or medical authorities, or acting on the advice of a medical practitioner, to self-isolate and therefore cannot work; or
  • otherwise prevented from working due to measures taken by government or medical authorities in response to COVID-19.

These changes are temporary and apply until 30 June 2020.

These changes do not apply to awards related to the construction, maritime and resources sectors, given these sectors have not been as severely impacted by the pandemic, and enterprise agreements are relatively common in these sectors.

There are currently a number of applications to vary other modern awards that are yet to be dealt with by the Commission. Consequently, further variations may be made in the coming weeks and months.