In brief 14 min read
Second tranche of draft FIRB reforms released; ASIC releases Corporate Plan for 2020-24; ASIC grants relief for escrow and non-promotional communications for IPOs and updates RG5 and RG254; High Court sides with employers and clarifies personal/carer's leave entitlements; ACCC releases ninth interim gas inquiry report; extension of temporary COVID-19 continuous disclosure and insolvency relief measures; ALRC reports on Australia's corporate criminal responsibility regime.
ASIC: ASIC Corporate Plan for 2020-24; escrow and non-promotional communications relief for IPOs; updates to RG5 and RG254; expectations for ending COVID-19 related loan repayment deferrals; Corporations Act relief for litigation funding schemes
The ASIC Corporate Plan for 2020-24 has been released, setting out ASIC's strategic priorities and focus areas for the next four years. ASIC's near term-focus will continue to be on actions it can take to address the impact of COVID-19, with ASIC's strategic priorities being to protect consumers from harm, maintain financial system resilience and stability, support Australian businesses and take enforcement action against the most harmful conduct. In the longer term post the COVID-19 pandemic, ASIC states it will return to the 'why not litigate' approach to enforcement, and increased promotion of risk management. ASIC's longer-term enforcement priorities and focus areas cover a broad range of topics, including case studies and referrals from the Financial Services Royal Commission, misconduct relating to superannuation and insurance, auditor misconduct and misconduct by individuals at a board or executive level.
In addition to an emphasis on litigation, ASIC's other longer-term focus areas include:
- promoting confident participation in the financial system to support long-term economic recovery;
- improving entities’ management of key risks to prevent and mitigate harms to consumers and promote a healthy financial system and economic growth;
- addressing consumer harm as a result of elevated debt levels and hardship, with a particular focus on predatory lending;
- reducing poor product design and restricting mis-selling;
- reducing misconduct by company directors and professional service providers; and
- delivering as a conduct regulator for superannuation.
ASIC has responded to public consultation which commenced in February 2020 and was aimed at reducing red tape for companies undertaking an IPO in Report 667 – Response to submissions on CP 328 Initial public offers: Relief for voluntary escrow arrangements and pre-prospectus communications. ASIC's response included:
- amending Class Order [CO 13/520] to facilitate voluntary escrow arrangements so that relevant interests of an issuer, professional underwriter or lead manager arising from the escrow are disregarded for the takeover provisions of the Corporations Act (but not the substantial holding provisions); and
- issuing ASIC Corporations (IPO Communications) Instrument 2020/722 to permit non-promotional communications to securityholders and employees before a prospectus is lodged with ASIC.
ASIC has made consequential amendments to Regulatory Guide 5 – Relevant interests and substantial holding notices and Regulatory Guide 254 – Offering securities under a disclosure document to address the changes.
ASIC has also published its expectations of retail lenders when loan repayment deferrals end in respect of consumers who were offered the ability to defer repayments as a result of COVID-19. Retail lenders are, among other things, expected to contact consumers before expiry of their deferrals and, if a consumer cannot resume full repayments, lenders are expected to interact directly with consumers to gather personalised information about their circumstances to promote fair and appropriate decisions.
In order to help manage the transition to the Federal Government's regulation of litigation funding schemes under the Corporations Act, which includes an obligation for litigation funding schemes to hold an AFS licence, ASIC has made ASIC Corporations (Litigation Funding Schemes) Instrument 2020/787. The instrument includes partial relief from the obligation to give a PDS to ‘passive’ members of open litigation funding schemes, the obligation to regularly value scheme property, the statutory withdrawal procedures for members who withdraw from a class action under court rules, and the requirement to disclose detailed information about fees and costs, labour standards or environmental, social or ethical considerations. In addition, ASIC has issued a no-action position stating it will not take regulatory action against open litigation funding schemes that do not set up and maintain a register of members.
ASX: Reminders on requirements for notifying decisions to not pay or cancel dividends; ASX reminds listed entities to allow sufficient time for ASX review of notices of deferred AGMs
The ASX reminded entities to immediately notify the ASX of any decision not to pay or to cancel a dividend or distribution, with an announcement explaining the legal basis for the cancellation to be made to the market as early as possible (and, if possible, before its securities commence trading ex-dividend/distribution). However, the ASX also acknowledged the uncertainties associated with the pandemic and that such decisions may have to be made at a time beyond the control of the listed entity.
For ASX-listed entities with a 30 June year-end, the deadline to hold an AGM is normally 30 November, but in May, ASIC extended its 'no action' position to allow companies with financial years ending 31 December 2019 to 7 July 2020 to hold an AGM up to seven months after year end (ie the end of January for a 30 June year-end). The ASX reminded entities that sufficient time should be allowed when draft notices of AGMs are submitted to the ASX before despatch to securityholders, particularly if waivers from Listing Rules will be required (ASX may take five business days to object or extend that period if the ASX requires more time to review the document).
FIRB: Treasury releases second tranche of exposure drafts on major reforms to Australia's foreign investment framework; reinstatement of previous monetary thresholds for renewals of non-sensitive leases
As foreshadowed in the last edition of Nucleus, the Treasurer released the second tranche of exposure drafts to implement major reforms to the FIRB regime for public consultation. The exposure draft of the Foreign Investment Reform (Protecting Australia’s National Security) Regulations 2020 introduces a number of changes to the FIRB regime, including a 10-year period for the Treasurer to exercise the new 'call in' power, removing the availability of the moneylending exemption where the security relates to national security land or national security businesses, and creating a new category of exemption certificates for national security actions. The exposure draft of the Foreign Acquisitions and Takeovers Fees Imposition Regulations 2020 introduces significant changes to the fee regime, with fees for various transactions capped at up to $500,000. Comments on the exposure drafts are due by 2 October 2020.
In other news, with effect from 4 September 2020 the Government has reinstated the pre-COVID-19 monetary thresholds for the renewal or material variation of existing non-sensitive leasehold interests in non-sensitive developed commercial land. The reinstated monetary thresholds only apply where the same acquirer held a substantially similar interest under a lease on 29 March 2020. Guidance Note 53 – Temporary measures in response to the coronavirus has been updated accordingly.
Finally, the FIRB application portal has been updated with applicants now required to provide contact details of a representative responsible for the applicant's regulatory compliance when submitting any new FIRB application. This is intended to allow FIRB to contact investors (or their nominated representatives) in the future if required, eg in relation to a compliance report.
ACCC: Ninth interim gas inquiry report reinforces concerns about domestic gas prices; enforcement actions against Sumo Power and HealthEngine; merger reviews update
The ACCC published its ninth Gas Inquiry 2017-2025 Interim Report. The interim report confirms the ACCC's concern about disparity between domestic and export prices for gas, with domestic prices being significantly more than export prices. The interim report also considers the impacts of COVID-19 and the collapse in oil prices on the gas supply chain. The ACCC's desire to address gas pricing issues was emphasised in Rod Sims' speech to the 2020 National Conference of the Energy Users Association of Australia, with the ACCC Chairman stating the pandemic has created a 'tipping point for energy costs in Australia'. The ACCC has, among other things, recommended the Government enter into agreements with LNG producers to ensure they continue to offer uncontracted gas supply to the domestic market before offering it to international markets.
On the enforcement front:
- The ACCC commenced Federal Court proceedings against Sumo Power Pty Ltd, alleging Sumo made false or misleading representations to Victorian consumers in relation to its electricity plans. The ACCC alleges that Sumo promoted 12 month electricity plans with low electricity rates and large 'pay on time' discounts of up to 43% to residential consumers, while also planning a significant rate increase which would reduce or eliminate the discount. The ACCC also alleges that Sumo later misled consumers that these rate increases were due to wholesale energy cost factors.
- The Federal Court ordered HealthEngine Pty Ltd to pay $2.9 million in penalties after it admitted to sharing patients' personal information with health insurance brokers without adequate disclosure, and engaging in misleading conduct by publishing misleading reviews and ratings. HealthEngine operates Australia's largest online health marketplace and publishes consumers' reviews and ratings for healthcare providers. HealthEngine admitted to editing consumers' reviews of healthcare providers by removing negative comments, embellishing reviews and failing to publish negative reviews or ratings. HealthEngine also gave non-clinical personal details of over 135,000 patients to third party private health insurance brokers without adequately disclosing this to consumers. HealthEngine was ordered to contact affected customers and inform them about what they could do in relation to their disclosed data.
In merger updates, the ACCC approved the following mergers:
- Mitolo Group's acquisition of Thomas Foods International’s potato business. The ACCC decided not to oppose the transaction after making market inquiries. The ACCC concluded that the existence of credible alternatives to Mitolo meant the acquisition would not substantially lessen competition in any of the relevant markets in the potato supply chain.
- Alstom's acquisition of Bombardier Transportation. Alstom and Bombardier Transportation are global rail mobility providers that supply rolling stock, signalling systems and rail maintenance services. The ACCC conducted market inquiries and found that Alstom would continue to face competition from other global suppliers and potential new entrants in Australia. The ACCC therefore decided not to oppose the transaction.
- Metcash's acquisition of a 70% interest in Total Tools Holdings. Both companies supply tools and equipment at a retail level. However, the ACCC found that the companies would still face significant competition from Bunnings and other suppliers post-transaction, and therefore did not oppose the transaction.
The ACCC raised preliminary concerns about South Pacific Laundry's proposed acquisition of Spotless Laundries. The ACCC released a statement of issues noting concerns around the combination of two of the largest commercial laundry suppliers in Sydney, Adelaide, Melbourne and Perth. The ACCC anticipates making a final decision by November 2020.
Takeovers Panel: Decision in Alto Metals emphasises importance of evidence-based decisions for target statements and corporate actions
The Panel made a declaration of unacceptable circumstances in relation to the affairs of Alto Metals Limited, following an application made by Habrok (Alto) Pty Ltd.
Habrok made an unconditional all-cash off-market takeover bid for Alto Metals. Two days later, Alto made announcements:
- recommending Alto shareholders reject the Habrok offer on the basis of the directors' 'very strong view that [the offer is] opportunistic and undervalues your shares'; and
- announcing a 1-for-4 accelerated pro rata non-renounceable entitlement offer (at a price per share above the bid price), to be concluded before the takeover bid process.
Alto subsequently made further announcements stating it had received statements of intention 'from key shareholders holding 38.15% of the issued shares in Alto' indicating their intention to reject Habrock's offer.
While the Panel is yet to publish its reasons, it made a declaration of unacceptable circumstances, noting that:
- the recommendation announcement is misleading or potentially misleading, as there was a lack of evidence showing internal analysis or external advice supporting the statements made in support of rejecting the Habrok offer, particularly in circumstances where Alto had previously recommended a lower offer;
- in the absence of an urgent need for funds, the timing and pricing of both the entitlement offer and recommendation announcement were a defensive tactic, required shareholders to make a decision on the entitlement offer without adequate information on the takeover offer and adversely affected the bid's prospects; and
- the shareholder intention statements were misleading as they did not disclose that certain rejecting shareholders were related to Alto directors.
The Panel made orders terminating the entitlement offer and preventing further entitlement offers until at least two weeks after Alto releases a supplementary target statement explaining the Panel's declaration and orders, and allowing shareholders who have provided intention statements (other than those related to Alto directors) to withdraw those statements.
The Panel's declaration emphasised the limited evidence of internal analysis and/or external advice to support the actions taken in relation to the undervaluation statements and the need for urgent funds in the company's circumstances. The decision reinforces the particular need for target boards to have a suitable basis, with supporting evidence, for their actions and statements while subject to takeover bids.
The decision of the High Court in Mondelez Australia Pty Ltd v AMWU & Ors  HCA 29 has clarified how the entitlement to paid personal/carer's leave should be calculated under the Fair Work Act 2009 (Cth). In particular, this decision confirms that the entitlement to 10 days' paid personal/carer's leave is based on an employee's ordinary hours of work (not days of work) over a two-week period. In reaching this conclusion, the High Court rejected the approach previously taken by the Full Federal Court which had found that employees are entitled to be absent on paid personal/carer's leave for 10 days per year, irrespective of their hours or patterns of work. You can read more about the decision in our Insight: High court finds for employer on leave accruals.
Employers should review how they calculate personal/carer's leave to confirm it is consistent with the view taken by the High Court in this decision. In particular, employers should take care to ensure that an employee's personal/carer's leave accrual is based on their ordinary hours of work in a two-week period. Where employees do not work the same number of ordinary hours in each two-week period, employers should calculate the entitlement to personal/carer's leave by dividing the employee's ordinary rostered hours of work for the year by 26. In other words, an employee's entitlement to personal/carer's leave in a particular year should equate to 1/26th of their ordinary hours of work in that year.
Extension to COVID-19 continuous disclosure and insolvency relief measures:
The Government has announced that the temporary COVID-19 continuous disclosure and insolvency relief measures will be extended.
- The continuous disclosure relief has been extended for six months until 23 March 2021. The continuous disclosure relief provides some protection in civil proceedings in relation to earnings guidance and other forward-looking statements. You can read more about the scope of this relief in our Insight: Treasurer temporarily amends continuous disclosure laws during COVID-19 crisis.
- The insolvency relief has been extended until 31 December 2020. The insolvency relief was originally due to expire on 25 September 2020. The insolvency relief includes a moratorium on insolvent trading liability for directors in respect of debts incurred in the ordinary course of a company's business, an increased threshold to issue statutory demands and an increased time period to respond to statutory demands.
ALRC reports on Australia's corporate criminal responsibility regime
The Attorney-General has tabled the Australian Law Reform Commissions' report into Australia's Corporate Criminal Responsibility regime in Parliament. The report includes 20 recommendations which would result in extensive changes to Australia's corporate criminal law regime across a range of topic areas, addressing the following concerns:
- a lack of principled basis for federal corporate criminal offences;
- the presence of multiple inconsistent mechanisms for holding companies criminally liable;
- inadequate consequences for repeated civil contraventions;
- limited penalty and sentencing options for corporations;
- lack of transparency over deferred prosecution agreements;
- little accountability for overseas conduct; and
- insufficient corporate crime data.
If adopted, the ALRC's recommendations would strengthen and clarify Australian corporate criminal law and reserve corporate criminal enforcement for misconduct that warrants denunciation and condemnation and is truly 'criminal' in nature. In particular, the ALRC's recommendations aim to make corporate criminal law more effective at holding corporations to account for the culture within their organisations. It is now up to the Government to decide whether to pursue any, all or none of the proposed reforms, in its own timeline. You can read more about our take on the report in our Insight: ALRC recommends broad changes to Australia's corporate criminal responsibility regime.