INSIGHT

Nucleus – corporate law developments: FIRB introduces temporary streamlined exemption certificates; ASIC issues guidance on product intervention power; ACCC raises concerns about two digital mergers; and other corporate law developments

By Vijay Cugati
Mergers & Acquisitions Technology

In brief 12 min read

COVID-19 relief measures including temporary FIRB streamlined exemption certificates and updates to Banking Code of Practice; ASIC issues RG272 on Product Intervention Power; ACCC seeks special leave to appeal Pacific National decision to High Court and raises concerns about digital mergers; and Victoria criminalises wage theft.

COVID-19 news and developments

COVID-19 and the changing rules that apply to corporate Australia: Governments and regulators around Australia continue to respond quickly with emergency powers and temporary rules as the COVID-19 pandemic endures and evolves. 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 recent developments that are of particular significance from a corporate law perspective include:

  • With the imposition of temporary $0 FIRB screening thresholds, foreign investors are increasingly looking to obtain exemption certificates (ECs). As a result, FIRB is now issuing three types of streamlined ECs, which will last while FIRB's temporary COVID-19 related measures apply. The following streamlined ECs are available to eligible foreign investors:
    • low-risk business ECs, for investors acquiring small entities that fall below the normal thresholds in non-sensitive sectors;
    • low-risk commercial land ECs, for investors acquiring small interests in developed commercial land and for business required to renew a number of commercial leases; and
    • restoration variations to existing ECs, which amend the financial limit of existing business and land ECs to recognise the increased use of aggregate financial limits imposed under existing ECs. These restoration variations only permit investments in accordance with the investment strategies originally approved in the existing ECs.

FIRB has updated Guidance Note 53: Temporary Measures in Response to the Coronavirus to reflect the creation of the new streamlined ECs.

  • The ASX has issued two class waivers extending its temporary emergency capital raising relief measures until 30 November 2020. The relief, which includes an uplift in the 15% placement capacity to 25% and a waiver of the one-for-one cap on non-renounceable entitlement offers in listing rule 7.11.3, was originally due to expire on 31 July 2020. The extended relief is contained in Class Waiver Decision – Temporary Extra Placement Capacity and Class Waiver Decision – Non-renounceable Offers.
  • ASIC has made ASIC Corporations (Amendment) Instrument 2020/565, which confirms that the regulator's temporary COVID-19 related instruments relating to share and interest purchase plans, trading suspensions relief and advice related relief, will be repealed six months after their commencement (ie in October 2020).
  • ASIC has made a legislative instrument, ASIC Corporations (Approval of Variation of March 2020 Banking Code of Practice) Instrument 2020/602, which approves a temporary variation to the Banking Code of Practice in recognition of the 'extraordinary external environment' caused by COVID-19. The variation, which takes effect from 1 July 2020 to 1 March 2021, inserts a 'Special Note' into the Code which explains that lenders may not be able to comply with the strict timing requirements for notices and communications to be given under the Code, and that a breach of those timing requirements will not give rise to a breach of the Code.
  • The ASX has issued a class waiver to give effect to recent COVID-19 related ASIC relief extending deadlines for lodging annual reports for financial years ending between 21 February 2020 and 7 July 2020, and for half yearly reports for half-years ending between 15 March 2020 and 7 July 2020. Listed entities relying on the class waiver must still provide their unaudited/unreviewed accounts and other information required by Appendix 4D or 4E by the usual lodgement deadline, must announce their intention to rely on the ASIC relief, and must make further announcements if there are any material differences between the unaudited/unreviewed accounts and the audited/reviewed accounts.

What you need to know

ASIC: New regulatory guidance and developments regarding enforcement action; updated 2020-21 corporate plan and timetable of ongoing work; courts hand down decisions in enforcement actions

ASIC has released Regulatory Guide 272 – Product Intervention Power. The new regulatory guidance focuses on the administration of the product intervention power, which allows ASIC to intervene where it is satisfied that a product or class of products is likely to result in significant consumer detriment. RG272 outlines the scope of the power, when and how ASIC may exercise the power (including how ASIC may determine when consumer detriment is 'significant'), and the process for making an intervention order. In particular, RG272:

  • sets out the wide range of interventions that can be made by ASIC, including banning orders, orders restricting or banning marketing, and orders limiting the circumstances in which or classes of persons to whom products may be offered; and
  • explains the factors that ASIC will consider in determining whether the requisite 'significant detriment' arises, including the nature and extent of the detriment, the actual or potential loss to consumers from the product and the impact of the detriment.

You can read more about the implications of RG272 in our Insight: RG272 – bringing order through product intervention.

ASIC has also issued an Interim Corporate Plan for 2020-21 and an updated timetable of ongoing work in light of the impact of COVID-19 on the regulator's ongoing operations. The updated corporate plan takes account of a number of temporary COVID-19 related measures taken by ASIC, and the timetable reflects ASIC's intended timing to implement further recommendations from the Financial Services Royal Commission.

In other developments, a number of significant court decisions have been handed down, with mixed results for the corporate regulator. ASIC's appeal against the 'wagyu and shiraz' decision on responsible lending has been dismissed 2-1 by the Full Federal Court, with the corporate regulator yet to comment on whether it will seek special leave to proceed with a High Court appeal, while in another matter the Federal Court has declared that the terms of certain standard form small business loan contracts were unfair, including terms which gave the lender broad discretion to unilaterally vary the conditions of the contract without advance notice.

ASX: New class waiver gives effect to temporary extension of reporting deadlines; updated versions of Appendices 3A.1, 3A.2 and 3B

As noted above, the ASX has issued Class Waiver Decision – Extended Reporting and Lodgement Deadlines to give effect to the relief recently granted by ASIC in light of COVID-19 to extend reporting and lodging deadlines. The relief extends the deadlines for lodgement of annual reports for financial years ending between 21 February 2020 and 7 July 2020, and for reports for half-years ending between 15 March 2020 and 7 July 2020. The ASX class waiver imposes two requirements for listed entities before the extension can be relied upon under Listing Rules 4.2B and 4.5.1:

  • the unaudited/unreviewed accounts and other information required by Appendix 4D or 4E must be provided by the usual lodgement deadline; and
  • at the time of lodging unaudited/unreviewed accounts, the entity must make an announcement that it intends to rely on the ASIC relief and will make a further announcement if there are any material differences between the unaudited/unreviewed accounts and the audited/reviewed accounts.

Similarly, if listed entities wish to rely on the ASIC relief's extension of the due date for dispatch of annual reports or concise reports to securityholders s314 of the Corporations Act, the entity must disclose that it is relying on the ASIC relief to the market before the normal lodgement deadline.

The ASX has also released updated versions of Appendices 3A.1, 3A.2 and 3B, which are to be used from 18 July 2020.

FIRB: Application fee increases from 1 July 2020

FIRB application fees have been indexed for the financial year commencing 1 July 2020, resulting in increased fees. The revised fees apply to applications made, and notices given, on or after 1 July 2020. Updated FIRB guidance notes have been released setting out the revised fees in Guidance Note 29: Fees – Residential Land and Guidance Note 30: Fees – Business and Non-Residential Land.

ACCC: ACCC seeks special leave to appeal Pacific National merger decision to High Court; ACCC to monitor competition in the domestic air travel market; concerns raised about two mergers in the digital space

The ACCC has announced it will seek special leave to appeal to the High Court following the Full Federal Court's decision to permit Pacific National's acquisition of the Acacia Ridge terminal from Aurizon. In May 2020, the Full Federal Court held that the proposed acquisition was not likely to substantially lessen competition, even in the absence of a behavioural undertaking from Pacific National. You can learn more about the Full Federal Court's decision in our Insight: Full Federal Court dismisses ACCC appeal against Pacific National rail merger ruling.

The ACCC has also been directed by the Federal Government to monitor and report on competition in the domestic air travel market for a period of three years. The direction requires the ACCC to monitor prices, costs and profits in the sector, and release its findings on a quarterly basis.

In merger updates, the ACCC has raised concerns about two mergers involving acquisitions in the digital space, reflecting the increasing regulatory focus on strategic acquisitions by digital platforms, and potential issues that may arise from increased access to customer data. The relevant mergers are:

  • Google's proposed acquisition of Fitbit Inc. The ACCC released a statement of issues expressing preliminary concerns that if the transaction proceeds, Google's expanded access to consumer health data may raise barriers to entry, further entrench its dominant position and adversely affect competition in digital advertising and health markets. The ACCC is also concerned that Google may favour its own wearable devices when supplying related services. The proposed acquisition is also subject to investigation by other international regulators, including the European Commission and the US Department of Justice.
  • Facebook's completed acquisition of GIPHY Inc. The ACCC has commenced an investigation into the completed acquisition and has invited submissions from interested parties. GIPHY is a search engine that allows users to search for and share GIFs (animated images). Issues the ACCC is investigating include whether the acquisition provides Facebook with data that will strengthen its market power or lead to a substantial lessening of competition, and whether the acquisition could lead to foreclosure of Facebook’s social media and online private messaging rivals.

The ACCC has also approved the following mergers:

  • Australian Finance Group's proposed acquisition of Connective Group. Australian Finance Group and Connective Group are both mortgage aggregators. After previously raising preliminary concerns about the acquisition, the ACCC decided not to oppose the transaction given the merged entity is likely to continue to face robust competition from other established aggregators, and the likelihood and impact of the merged entity foreclosing other players in the market is low.
  • Lumibird SA's proposed acquisition of Ellex Medical Lasers' laser and ultrasound business. Lumibird and Ellex supply ophthalmic lasers and ultrasound equipment in Australia and globally. The ACCC found that the transaction was unlikely to substantially lessen competition as Lumibird only has a small presence in the market, and the merged entity would still face competitive restraint from other global competitors post-acquisition.
Takeovers Panel: Further guidance on disclosure of major shareholder intentions where rights issues may trigger compulsory acquisition rights

The Panel released its reasons for decision in Strategic Minerals Corporation NL 06. The application involved multiple entitlement offers (the last of which was announced in April 2020) which would potentially enable the company's largest shareholder, QGold Pty Ltd, to reach voting power of 90.70%. It was announced that QGold intended to exercise its compulsory acquisition rights if its voting power passed through 90%.

The decision reaffirms the Panel's existing expectation that a company should carefully consider any proposal for a rights issue if that issue is likely to lead to a compulsory acquisition of the company's shares. A process which demonstrates the company has a genuine need for funds, coupled with independent advice from reputable brokers, an understanding of the company's cashflow and funding needs and ensuring that decision makers (eg board members) are free from actual or perceived influence from a major shareholder, will assist a company in showing that the control effect of a rights issue is not unacceptable.

The Panel also reaffirmed its view on disclosure of a majority shareholder's compulsory acquisition intentions, following its recent decision in Energy Resources of Australia Limited 02R, where the Panel required a company's major shareholder to form intentions regarding compulsory acquisition where it might become a 90% holder as a result of an entitlement offer. While the Panel acknowledged that the circumstances in Strategic Minerals differed from those in Energy Resources of Australia, it found that the decision to disclose QGold's intention was appropriate in light of previous disclosures of QGold's intentions, and the likelihood that QGold would reach 90% given its shareholding. Whilst the disclosure discouraged participation in the entitlement offer by minority shareholders, the Panel did not find the disclosure of QGold's intentions to be coercive and did not derogate from the minority shareholder protections available under the Corporations Act.

Employment: Victoria criminalises wage theft

The Victorian Parliament has enacted the Wage Theft Act 2020 (Vic) (Wage Theft Act), with the objective of holding employers accountable for dishonestly withholding employee entitlements and protecting vulnerable employees from exploitation.

Under the Wage Theft Act, dishonestly withholding employee entitlements and falsifying or failing to keep employee entitlement records may result in companies and individuals being criminally liable. Specifically, failure to comply with the new laws may result in a penalty of up to $991,320 for companies or up to 10 years' imprisonment for individuals. Further, a Wage Inspectorate will be established to investigate and enforce these offences.

The scope of these laws should not be underestimated. For example, an officer may be prosecuted under the Wage Theft Act, even if the company has not been prosecuted, if the officer impliedly authorised or permitted the relevant conduct. Moreover, businesses that are based outside of Victoria may still be subject to these laws, particularly those that have operations in Victoria or employees performing services in Victoria.

These new laws may result in businesses being subject to concurrent investigations by both the Wage Inspectorate and the Fair Work Ombudsman. Similarly, there is scope for potential overlap between Victorian and Commonwealth wage theft laws, if the Federal Government continues with its plans to introduce criminal penalties for serious underpayments at the federal level.  

The Wage Theft Act will commence on a date to be announced, but no later than 1 July 2021. You can read more in our Insight: New Criminal Penalties for Wage Theft in Victoria.