INSIGHT

Nucleus – corporate law developments: ASIC concludes stub equity consultation; FIRB amending legislation introduced; FIRB updates guidance on tax conditions; proposal to make electronic signing and virtual meetings permanent; and other corporate law developments

By Vijay Cugati
ACCC ASIC Employment & Safety Mergers & Acquisitions Technology

In brief 10 min read

ASIC concludes position on use of stub equity in control transactions; ASX extends emergency class waivers and clarifies ability to ratify use of additional placement capacity; FIRB amending legislation introduced to Parliament; FIRB updates guidance on tax conditions; ACCC to examine competition in mobile apps; Fair Work Commission extends temporary COVID-19 flexibilities in 99 modern awards; Federal Government proposes to make electronic signing and virtual meetings permanent.

What you need to know

ASIC: ASIC's response on stub equity in control transactions; ASIC enforcement update for January-June 2020; ASIC and RBA weigh in on CHESS replacement

ASIC has responded to consultation on the use of stub equity in control transactions, making ASIC Corporations (Stub Equity in Control Transactions) Instrument 2020/734 and releasing Report 669 – Response to submissions on CP 312 Stub equity in control transactions. The new instrument modifies the Corporations Act to prevent stub equity offers of shares in a proprietary company being made to retail target securityholders in takeover bids and schemes of arrangement. The outcome of the ASIC consultation is seen as mostly positive. While ASIC has maintained its position restricting the offering of shares in an Australian proprietary company, ASIC has accepted the use of custodian structures in stub equity arrangements. This is a sensible outcome and should facilitate the continued use of stub equity going forward. You can read more about the implications of ASIC's response in our Insight: Use of stub equity in control transactions.

The ASIC Enforcement Update: January to June 2020 has been released. The update notes that ASIC remains 'committed to continuing enforcement work … despite the delays and challenges caused by the pandemic.' It covers ASIC's areas of ongoing focus, including Royal Commission-related matters, and notes its successfully completed enforcement actions in Octaviar and Storm Financial regarding directors' duties obligations. The update also notes the imposition of significant civil penalties, the achievement of enforcement outcomes and the commencement of civil penalty proceedings – amongst other things, $12m in civil penalties were imposed and 99 investigations were commenced during the period.

ASIC and the Reserve Bank of Australia have outlined their expectations of the ASX in its replacement of the CHESS clearing and settlement system. In emphasising the need for a fast and safe transition to a new system, ASIC noted the ASX is expected to demonstrate the readiness of the CHESS replacement system and must provide independent assurances to regulators as part of the transition. The changes are expected to achieve a significant uplift in intraday trade processing capacity and end-of-day processing performance. ASIC and the RBA have not called for a specific deadline, but the regulators' statements follow delays to the CHESS replacement program, most recently as a result of COVID-19.

ASIC has extended temporary relief granted to facilitate share purchase plans and trading suspensions to 1 January 2021. The measures, initially introduced in March, enable certain 'low doc' offers to be made to investors without a prospectus and were intended to enable listed entities to raise capital in a quicker and less costly way without undermining investor protection.

ASX: extension of emergency capital raising class waivers; additional 10% temporary placement capacity cannot be ratified

The ASX has updated Class Waiver Decision – Temporary Extra Placement Capacity and the Class Waiver Decision – Non-renounceable Offers. Originally issued in response to COVID-19, the updated Class Waivers, which temporarily uplift the 15% placement capacity to 25% and waive the one-for-one cap on non-renounceable entitlement offers, have been extended to 30 November 2020 but on a more restrictive basis. The Class Waivers now apply to a more restricted range of equity raisings and require a direct relationship to the COVID-19 pandemic. Any entity wishing to rely on the Class Waivers must now satisfy the ASX that it is raising capital predominantly for the purposes of addressing existing or potential future financial effects resulting from the COVID-19 health crisis and/or its economic impact.

The ASX has also clarified that placements over the ordinary 15% placement capacity under the Class Waiver cannot be subsequently ratified under listing rules 7.1 or 7.4. Only the normal 15% placement capacity under listing rule 7.1 (or the additional 10% placement capacity approved under listing rule 7.1A) can be ratified.

FIRB: FIRB amending legislation introduced to Parliament; revised application checklist; updated guidance on tax conditions

The Foreign Investment Reform (Protecting Australia's National Security) Bill 2020 (Cth) has been introduced to the Federal Parliament. If passed, the Bill will substantially amend the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) by, among other things, introducing a new category of 'notifiable national security actions' and granting the Treasurer new 'call in' and 'last resort' powers. The Treasury is yet to release an updated draft of the foreign investment regulations that will sit alongside the amended FATA. The regulations will be key to understanding the full impact of the FIRB reforms.

FIRB has released a revised application checklist to provide greater clarity to applicants on information requirements when submitting non-residential applications. The revised checklist includes a number of new information requirements (including commercial deadlines, ANZSIC codes for the target and additional national interest considerations) and further clarifies existing information requirements in an effort to minimise requests for information and delays during the assessment process.

FIRB has updated Guidance Note 47: Tax Guidance to provide more information on additional tax conditions that may be imposed as part of a no objection notification, and to clarify the process for an investor to discuss their conditions with the Treasury and/or ATO. The updated guidance also expands on the ATO's role in the assessment process and provides further guidance on when additional tax conditions may be imposed.

ACCC: examination of competition in mobile apps; COVID-19 authorisations and airline competition impacts; update on merger reviews

The ACCC has announced it will be examining the state of competition in the mobile apps market as part of its five-year Digital Platforms Services Inquiry. The ACCC will explore the use and sharing of data by apps, the extent of competition between the Google and Apple app stores, and whether more pricing transparency is needed in Australia's mobile apps market. The ACCC has released an Issues Paper seeking views and feedback from app developers and suppliers, with a final report due on 31 March 2021.

In COVID-19 updates, the ACCC continues to grant final or interim authorisations to permit cooperation and coordination between competitors in response to the COVID-19 pandemic, including supermarkets, AEMO and participants in gas and electricity markets, participants in the chicken meat industry and in relation to the supply of prescription-only medicines and devices. The ACCC’s Airline Competition in Australia report also explores the significant impact of COVID-19 on the sector and outlines the ACCC's approach to protecting competition, as well as the types of behaviour that might raise competition concerns in the domestic airlines market. The report is the first under the Federal Treasurer’s direction to monitor and report on the prices, costs and profits of Australia’s domestic airline industry for a period of three years.

In merger updates, the ACCC has announced it will not oppose the following mergers:

  • Pfizer's Upjohn division's proposed merger with Mylan, which will create a new company named 'Viatris', after the parties offered divestments in respect of three branded products, including Caduet (a lipid-regulating cardiovascular treatment), and Xalatan and Xalacom (both anti-glaucoma treatments). The parties undertook to divest these three products to Aspen Global Inc.
  • London Stock Exchange Group's (LSE) acquisition of Refinitiv. Both companies are global suppliers of financial markets infrastructure products and provide services to financial industry professionals. A key focus of the ACCC's analysis in relation to vertical overlaps was whether the merged entity could favour Refinitiv's trading venues and platforms in the provision of LSE's clearing services. The ACCC determined that the merged entity was unlikely to engage in anticompetitive foreclosure as a change to the established open access approach was likely to lead to commercial, reputational and regulatory risks.
  • Dormakaba Australia’s acquisition of E Plus Building Products. Both Dormakaba and E Plus supply key inputs in the fire doors industry. However, the ACCC determined that the companies do not compete at the same level of the supply chain and there is no overlap between the products that they supply.

The ACCC raised preliminary concerns about Alsco's proposed acquisition of Spotless Laundries' garment laundering business. The ACCC released a statement of issues noting concerns around the combination of two of the largest commercial laundry suppliers for garments in most states and the only two commercial laundry suppliers for garments with a comprehensive multi-state presence. The ACCC anticipates making a final decision by December 2020. As noted in the September edition of Nucleus, the ACCC is also assessing the proposed acquisition of the entire Spotless Laundries business by South Pacific Laundry.

Takeovers Panel: remaking of procedural rules

The Takeovers Panel has published a set of draft Procedural Rules for public consultation before the existing Procedural Rules sunset on 1 April 2021. The Panel's view is that the existing Procedural Rules are operating effectively and efficiently, and so the Panel is not proposing to make any significant amendments. While the notes to the Procedural Rules will be removed and incorporated into a new 'Procedural Guidelines' document, the Panel's procedures will remain fundamentally the same.

Employment: extension of award flexibilities; proposed new unpaid parental leave entitlements; Queensland passes wage theft law

In April, the Fair Work Commission amended 99 modern awards to provide employers and employees with additional flexibilities to address the COVID-19 pandemic, including unpaid pandemic leave and the option to take twice as much annual leave at half pay. Those changes were due to expire at the end of September. The Fair Work Commission has recently extended the operation of these amendments for 75 modern awards so that the additional flexibilities continue to apply until 29 March 2021. This extension brings the flexibilities in these modern awards into line with the extension to the JobKeeper wage subsidy scheme. Amendments to the Live Performance Award will continue to apply until 30 June 2021, while the Commission has yet to reach a decision on extensions to several other modern awards, including the Clerks Award.

The Federal Government has introduced the Fair Work Amendment (Improving Unpaid Parental Leave for Parents of Stillborn Babies and Other Measures) Bill 2020, which proposes to amend the parental leave provisions of the National Employment Standards. Under the Bill, all national system employees would be entitled to:

  • the same unpaid parental leave entitlements if their child is stillborn as they would have if their child survived;
  • determine whether to cancel unpaid parental leave or end their leave early if their child is stillborn or dies within 24 months;
  • defer the commencement of unpaid parental leave if their child is born prematurely or hospitalised immediately after birth;
  • access compassionate leave during a period of unpaid parental leave, if the compassionate leave relates to the stillbirth or death of the child for whom the period of unpaid parental leave was taken; and
  • take up to 30 days of flexible unpaid parental leave until their child turns two.

The Bill is currently before the House of Representatives at the second reading stage.

Finally, the Queensland Government has passed into law the Criminal Code and Other Legislation (Wage Theft) Amendment Act 2020 (Qld). The new law criminalises wage theft occurring from 14 September 2020 in Queensland. You can read more about the wage theft laws in the August edition of Nucleus.

News & other developments

Virtual meeting and electronic signing relief set to be made permanent

The Federal Treasury has released an exposure draft of the Corporations Amendment (Virtual Meetings and Electronic Communications) Bill 2020. If passed, the temporary relief issued to facilitate electronic signing under the Corporations Act and virtual shareholder meetings during the pandemic will become permanent. While the electronic signing reforms have been welcomed, shareholder groups have expressed concern about a permanent shift to virtual shareholder meetings.

Winding back of responsible lending obligations

The Federal Government has announced a proposal to simplify the consumer credit regime to assist the post-pandemic economic recovery. The proposal will involve:

  • the removal of the responsible lending obligations from the National Consumer Credit Protection Act 2009;
  • steps to ensure that ADIs comply with APRA lending standards; and
  • applying key elements of APRA lending standards to non-ADI lenders.

While the removal of the responsible lending obligations is unlikely to completely relieve lenders of their obligations to make enquiries of borrowers and their ability to repay, the reform is likely to be welcomed by financial institutions. You can read more about the proposed changes in our Insight: 'Winding back' responsible lending obligations.