INSIGHT

Nucleus – corporate law developments: Regulators assess priorities and continue to respond in the wake of COVID-19; changes to Australia's continuous disclosure laws, FIRB regime and Fair Work Act; ASIC broadens its position and issues further guidance; ASX holds course on the CHESS replacement system; the ACCC continues to allow market coordination; Takeovers Panel guidance on equity derivatives delayed

By Vijay Cugati
Mergers & Acquisitions Technology

In brief 9 min read

Regulators assess priorities and continue to respond in the wake of COVID-19; the Treasurer temporarily modifies the operation of Australia's continuous disclosure laws; ASIC broadens its position and issues further guidance; ASX holds course on the CHESS replacement system; comprehensive reform and further guidance on the temporary changes to the FIRB regime; the ACCC continues to allow market coordination; Takeovers Panel guidance on equity derivatives delayed; and more temporary amendments to Fair Work Act.

COVID-19 news and developments

COVID-19 and the changing rules that apply to corporate Australia: As the COVID-19 pandemic continues to evolve, governments and regulators around Australia continue to respond quickly 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 under the Corporations Act 2001 (Cth) to temporarily modify the operation of Australia's continuous disclosure laws with the intention of enabling listed companies to more confidently provide earnings guidance, and other forward-looking statements, to the market during the COVID-19 crisis.
  • ASIC continues to respond to the impacts of COVID-19 by extending the reach of its existing exemptions and 'no action' positions on AGMs and financial reports, providing new guidance and deferring the commencement of reforms.
  • The Federal Government has released an updated guidance note on COVID-19 related amendments to FIRB rules.
  • The ACCC has continued to grant a number of urgent interim authorisations to allow coordination and cooperation in a range of industries to facilitate various urgent responses to the unfolding COVID-19 crisis. Most recently, the ACCC has granted interim authorisations in the healthcare, energy and retail sectors.
  • The Fair Work Regulations 2009 (Cth) have been amended to reduce the notice period required before employees may be asked to vote on amendments to enterprise agreements from seven days to one.

What you need to know

ASIC: The Treasurer uses his emergency powers under the Corporations Act to temporarily modify the operation of Australia's continuous disclosure laws; ASIC continues to respond to the impacts of COVID-19 by extending the reach of its existing exemptions and 'no action' positions, providing new guidance and deferring the commencement of reforms

As noted above, the Treasurer has used his emergency powers under the Corporations Act 2001 (Cth) to temporarily modify the operation of Australia's continuous disclosure laws. The Treasurer's release states that the changes are designed to enable listed companies to more confidently provide earnings guidance, and other forward-looking statements, to the market during the COVID-19 crisis, limiting exposure to the threat of class actions if the guidance or other statements are found to be inaccurate. While the developments are welcome, the modifications don't actually provide any protection where the company does decide to give guidance (or update existing guidance), so companies will still be exposed to class action risk under the misleading and deceptive conduct provisions of the Corporations Act if that guidance proves to be inaccurate. See our recent Insight for more details and analysis of the changes.

ASIC has further extended the deadline for listed and unlisted entities to lodge financial reports by one month for balance dates up to and including 7 July 2020. This builds on the existing relief already available to unlisted entities with 31 December 2019 to 31 March 2020 financial year ends by broadening both the deadline and entities to which it applies. Any listed entities which use the additional time must inform the market.

In the same announcement, ASIC also extended its existing ‘no action’ position in respect of the timing of annual general meetings (AGMs) for public companies and will take no action where:

  • a public company with a financial year end from 31 December 2019 to 7 July 2020 does not hold its AGM within five months of its financial year end, so long as it does hold its AGM within up to seven months of its financial year end; and
  • a public company with a financial year end on or between 1 June 2020 to 7 July 2020 does not hold an AGM in the 2020 calendar year as a result of the above extension, so long as it holds an AGM in January or February 2021.

In conjunction with the modifications the Federal Treasurer has made to the Corporations Act to facilitate meetings of members using technology, ASIC has provided further guidance on its expectations regarding the use of technology at those meetings. In strongly encouraging the use of technology for hybrid and virtual meetings, ASIC has emphasised the importance of ensuring a reasonable opportunity for members to participate in a meeting. ASIC has also flagged it is undertaking a program of observation of member meetings held throughout the COVID-19 restrictions. Further information on the changes is available at the governance implications section of our COVID-19 Insights Hub.

ASIC has issued guidance on director trading in light of the 'significant volatility in financial markets' at this time, noting that a director's decision to buy or sell securities in the entity for which they are a director may be interpreted as an indication of the entity's performance and outlook. Whilst this update doesn't stipulate any new requirements, it serves as a reminder of the heightened awareness that directors and listed entities should have of their policies and disclosure obligations at this time.

The regulator has also announced it will defer the commencement dates of its reforms to the mortgage broker best interest duty and remuneration reforms, as well as the design and distribution obligations by six months, owing to the impacts of COVID-19. This follows the Federal Government's decision to defer the implementation of its commitments arising from the Financial Services Royal Commission. Commencement for the mortgage broker reforms will now not be until 1 January 2021 (previously slated to commence in July 2020), and commencement for the design and distribution obligations will not be until 5 October 2021 (previously April 2020).

In other news, ASIC has also announced that in 2020 it will establish a 'national expert group on youth financial wellbeing' in order to 'identify the most relevant and significant issues impacting young people’s financial lives and shape work in this area.' The body will include youth representatives and relevant public and private organisations.

ASX: ASX response to Tranche 1 Consultation Paper on CHESS replacement

On 22 May 2020, the ASX released its response to the Tranche 1 Consultation Paper in relation to the CHESS replacement system. While the targeted launch date has been pushed back as a result of COVID-19, ASX has maintained its schedule for opening an industry testing environment, anticipated to be in the middle of the year.

The tranche 1 rule amendments deal with accounts, participants, securities and pre-settlement aspects for the system's day 1 operation. The ASX noted the general support from stakeholders for the amendments, provided responses and explanations in relation to feedback received, and outlined some changes to the draft rules in response to stakeholder feedback. These changes include:

  • amending the definition of 'Holder Record' and 'Registration Details' in the ASX Settlement Operating Rules to make clear the relationship between the rulebooks and the account and holder functionality as expressed in the User Technical Documentation;
  • reinstatement of the concept of 'Email Purpose' into the ASX Settlement Operating Rules and the ASX Settlement Operating Rule Procedures;
  • amendment of the tranche 1 rule amendments to more clearly reflect the use of the secondary matching flag in the new bilateral transaction matching functionality for demand;
  • removal of the requirement to notify ASX Operations when replacing Cover (Collateral or Cash Cover) for another form of Cover; and
  • other drafting changes.

The ASX has also made two further rule changes relating to the tranche 1 subject matter, which will be subject to stakeholder feedback as part of the tranche 2 draft rule amendments:

  • amendment of ASX Settlement Operating Rule 8.5.1 to make clear that a settlement lock will be removed if ASX suspends approval of a class of financial product; and
  • changes to the proposed amendments (as part of tranche 1) to ASX Settlement Operating Rule 8.16.3 and new ASX Settlement Operating Rule 8.16.3A, such that holder record locks will be removed on expiry of any specified time period nominated by the controlling participant in the original message requesting the lock, as well as other consequential amendments.

Some further materials were also made available in the CHESS Replacement Project Implementation and Transition Webinar held on 27 May 2020.

FIRB: Comprehensive reforms to Australia's foreign investment regime; updated guidance note on COVID-19 related amendments to FIRB rules; release of 2018-2019 FIRB annual report

The Federal Government has released a paper outlining comprehensive proposed reforms to Australia's foreign investment framework. The proposed reforms include changes to the effect of the following:

  • enhanced national security review of sensitive acquisitions;
  • extra powers and resources to ensure foreign investors comply with the terms of their approval; and
  • amendments to streamline investment in non-sensitive areas.

An exposure draft of legislation to introduce the changes will shortly be introduced for consultation. You can read more about the proposed changes and their impact in our latest Insight.

On 18 May 2020 the Federal Government updated its recently released guidance note, Guidance Note 53 – Temporary Measures in Response to the Coronavirus. The updated guidance note provides, among other things, further information on the Federal Government's views regarding agreements for lease, as well as stating that the mere establishment of Australian unit trusts and Australian companies does not require FIRB approval. Further up-to-date details on GN 53 and the temporary changes to the FIRB regime are set out in the FIRB section of our COVID-19 Insights Hub.

FIRB has released its 2018-2019 annual report for the year ending 30 June 2019. Key points include that: in 2018-2019 (as well as in 2017-2018) the United States of America was the largest source country for FIRB-approved proposed investment by value; and Federal Treasury has continued to undertake compliance audits in respect of FIRB approval conditions.

ACCC: Interim authorisations to allow coordination in response to COVID-19 continue to be granted but the ACCC keeps a close eye; Full Federal Court dismisses ACCC's appeal against Pacific National; ACCC commences work on digital platforms bargaining code; ACCC releases new guidelines and policy; update on merger reviews

Against the backdrop of the COVID-19 pandemic, the ACCC has continued to grant a number of urgent interim authorisations in the healthcare, energy and retail 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. However, the ACCC has also stated its intention to revoke previous interim authorisations when they are no longer appropriate. Most recently, the ACCC revoked an interim authorisation previously granted to rental companies to jointly negotiate with Cairns Airport.

The Full Federal Court dismissed the ACCC's appeal against Aurizon's proposed sale of the Acacia Ridge Rail Terminal to Pacific National, which clears the way for the two entities to complete the transaction. The court held that the proposed acquisition was unlikely to substantially lessen competition and released Pacific National from any requirement to give an undertaking that regulates third party access to the Terminal. See our recent Insight for more information regarding this decision.

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

  • Elanco's proposed acquisition of Bayer Aktiengesellschaft’s animal health business. The ACCC is currently seeking views from market participants on a proposed undertaking that would require Elanco to divest particular animal worming and lice treatment businesses to an ACCC approved purchaser;
  • Mitolo Group's proposed acquisition of Thomas Foods International's potato business. Mitolo Group and TFI both grow and supply potatoes at a wholesale level;
  • South Pacific Laundry's proposed acquisition of Spotless Laundries. SPL is a subsidiary of private equity firm Anchorage Capital Partners. Both companies are players in the Australian commercial laundry services industry;
  • Alstom's proposed acquisition of Bombardier Transportation. Alstom and Bombardier Transportation are suppliers of products and services to rail networks in Australia and globally; and
  • Lumibird SA's proposed acquisition of the laser and ultrasound business of Ellex Medical Lasers. Lumibird SA and Ellex manufacture and supply lasers for ophthalmic procedures, as well as ultrasound devices in Australia.

Following the Digital Platforms Inquiry and as directed by the Federal Treasurer, the ACCC has commenced its work in developing a mandatory code to address the bargaining power imbalances between Australian news media businesses and Google and Facebook. The ACCC released a concepts paper titled 'Mandatory news media bargaining code' and sought views of relevant stakeholders to inform the development of the code. A draft code is due to be released by the end of July 2020.

Takeovers Panel: Revised Guidance Note 20 Equity Derivatives to take effect on three months' notice from the Panel

The Takeovers Panel has revised Guidance Note 20 – Equity Derivatives (on which it originally sought public comment in April 2019) and published its Public Consultation Response Statement. Given the market disruption caused by the COVID-19 pandemic, the Panel has decided that the current first edition of GN 20 will continue to apply until it gives market participants three months' notice of when the revised GN 20 will come into effect.

In light of the submissions, the Panel considered that the market is generally supportive of greater transparency regarding disclosure of all long positions over 5%. Accordingly, revised GN 20 requires all long positions in equity derivatives (and any relevant interest in the underlying voting shares) of more than 5% to be disclosed, irrespective of whether a control transaction has commenced. In considering whether failure to disclose gives rise to unacceptable circumstances, the Panel will consider the effect of non-disclosure on the control or potential control of an entity and the acquisition or proposed acquisition of a substantial interest, and whether disclosure is contrary to an efficient, competitive and informed market.

Revised GN 20 also states that the acquisition of a long position that would contravene section 606 of the Corporations Act (ie the prohibition of an acquisition of 20% of voting power in an entity) if it were comprised entirely of a physical holding may also give rise to unacceptable circumstances. Factors the Panel may take into account in determining whether such an acquisition is unacceptable include: (a) if the taker has attempted to exercise control or influence of the entity; (b) if and when the long position was disclosed; and (c) whether the acquirer of the long position could have relied on an exception in section 611 of the Corporations Act if the acquirer had made the acquisition as a physical holding. The guidance clarifies that the Panel will take into account the 'creep' exemption in section 609(6).

Employment: Reduction of notice period for amendments to enterprise agreements

The Fair Work Regulations have been amended to reduce the notice period required before employees may be asked to vote on amendments to enterprise agreements from seven days to one. As the amendments were introduced as a temporary measure to support employers and employees during the COVID-19 pandemic, the amended regulations will be repealed in October 2020.

Any proposed changes to enterprise agreements still need to satisfy the requirements of the Fair Work Act, including the requirement that the changes are genuinely agreed by employees.

At this stage, any changes made to enterprise agreements pursuant to these new regulations will continue to apply beyond October 2020. However, Federal parliament is currently considering a proposal to limit the operation of variations made to enterprise agreements so that they are effective for no more than 12 months. This is being proposed as a safeguard to ensure that amendments to enterprise agreements made in response to COVID-19 do not survive the pandemic period.