INSIGHT

Nucleus – corporate law developments: major FIRB law changes; ASIC extends relief for financial reporting and AGM requirements; and other corporate law developments

By Vijay Cugati
Mergers & Acquisitions Technology

In brief 9 min read

Major foreign investment law changes; ASIC extends relief for financial reporting and AGM requirements and issues guidance on design and distribution laws; ASX issues guidance to address 'earning surprises'; ACCC releases first digital platform inquiry interim report; and WA Supreme Court hands down decision with implications for legal professional privilege in internal emails.

What you need to know

ASIC: further relief for financial reporting and AGM requirements; ASIC annual report for 2019-20; ASIC consults on consumer remediation guidance; updated guidance on product design and distribution laws; variations to Banking Code of Practice

Financial reporting deadlines for listed and unlisted entities have been extended by ASIC by one month for certain balance dates up to and including 7 January 2021. The extension is part of ASIC's continued assistance to address the impacts flowing from COVID-19. Notwithstanding the extension, ASIC has articulated its preference for entities to lodge within the normal deadlines where possible. Listed entities will be required to inform the market when they rely on the extended period for lodgement. ASIC has also extended its 'no action' position for public companies that do not hold their AGM within five months after the end of their financial years but do so within seven months of their financial year end to companies with financial years ending between 31 December 2020 and 7 January 2021.

In other news, ASIC's Annual Report for 2019-20 has been tabled in Federal Parliament, where the regulator has noted it has maintained its focus on implementing initiatives in response to the Royal Commission and supporting the Government's legislative reform agenda. Among other things, ASIC reported a 100% increase in the number of civil penalty proceedings commenced year on year, as well as a greater focus on individual accountability (the number of individuals charged with non‑summary criminal offences was up by 35%).

As we reported in our Insight: Changes to Regulatory Guide 256, ASIC has released a first-round consultation paper on proposed changes to its regulatory guide on 'Client Review and Remediation Conducted by Advice Licensees'. The proposed changes are substantial and will apply to all Australian financial services licensees, Australian credit licensees and RSE licensees. ASIC has proposed:

  • a two-tiered approach to failures requiring remediation, with remediation to take place for any failure resulting in loss, even where the failure isn't a breach of law or contract;
  • removing from RG256 reference to 'systemic' issues, with 'remediation' to be required even where only one consumer has suffered loss;
  • scrapping the seven-year review period rule and replacing it with a relevant period beginning on the date at which it is reasonably suspected the failure first caused loss (without reference to any limitation period); and
  • guidance on the use of assumptions in remediations. Under the proposal, only assumptions beneficial to the consumer should be made.

Submissions are open until 26 February 2021.

Following the passage of the 'product design and distribution' laws in 2019, ASIC has released Regulatory Guide 274: Product design and distribution obligations. RG274 sets out ASIC's guidance on which products are subject to the new laws, and ASIC's interpretation and administrative approach to the laws, which require firms to design financial products in accordance with consumers' needs and to distribute their products in a more targeted manner. You can learn more about the obligations and ASIC's guidance you can read our Insight: ASIC publishes final version of Regulatory Guide on design and distribution obligations or watch our webinar: ASIC's Regulatory Guide 274 – product design and distribution obligations. The new laws commence on 5 October 2021.

Finally, ASIC has approved variations to the Banking Code of Practice which, among other things, amends the definition of ‘banking services’ to include certain types of small business banking customer, extends the application of the COVID-19 Special Note (which allows for special application of specified provisions due to COVID-19 until 1 September 2021), and specifies that banks may decline to deal with a representative appointed by a customer in financial difficulty if the bank reasonably considers that the representative is no longer able to act in the customer’s best interests.

ASX: Guidance Note 8 updated to address 'earnings surprises'; updates to Listing Rules for new online forms; CHESS replacement implementation

The ASX has updated Guidance Note 8 – Continuous Disclosure: Listing Rules 3.1 – 3.1B, with respect to earnings guidance and 'earnings surprises'. The new guidance provides that where an entity does not have published earnings guidance for the current reporting period and is covered by sell-side analysts, it should consider notifying the market if it expects there to be a 15% or greater difference between its actual/projected earnings for the period and its best estimate of the market's expectations for its earnings.

The ASX has released a consultation paper on proposed changes to the Listing Rules to reflect the introduction of the updated online forms in 2021. ASX is aiming to release the final rule amendments in February 2021, to take effect on 20 March 2021 at which time the revised forms will also be available.

Finally, following its consideration of industry feedback, the ASX has also confirmed that the go-live for the troubled CHESS replacement will occur in April 2023. The ASX has adjusted the implementation schedule accordingly to enable a complete test environment to be available from the launch date.

FIRB: most significant changes to Australia's foreign investment laws since 1975

The Foreign Investment Reform (Protecting Australia's National Security) Act 2020 (Cth) and Foreign Investment Reform (Protecting Australia's National Security) Regulations 2020 (Cth) came into effect on 1 January 2021. These new laws respectively amend the Foreign Acquisitions and Takeovers Act 1975 (Cth) and the Foreign Acquisitions and Takeovers Regulation 2015 (Cth) in the most substantial way since foreign investment laws were first introduced in Australia in 1975. A new FIRB application fee regime also came into effect on 1 January 2021. As we have previously reported, the legislative amendments include amendments to create a new category of 'notifiable national security actions' and to grant the Treasurer new 'call in' and 'last resort' powers. You can read more about what the changes mean for you in our Insight: Major FIRB reforms to commence on 1 January 2021, and you can read our updated guide: Overview of Australia's Foreign Investment Regime.

Also, FIRB has made new guidance material available on its website. The new guidance material consolidates the numerous 50+ guidance notes into 14 sets of guidance.

Related to the legislative changes are changes proposed to be made to the Security of Critical Infrastructure Act 2018 (Cth) by the Security Legislation Amendment (Critical Infrastructure) Bill 2020 (Cth). If passed by the Federal Parliament, these changes to the critical infrastructure law are not expected to come into effect until a date after 1 January 2021. You can read more about the proposed critical infrastructure changes in our Insight: Proposed updates to security of critical infrastructure legislation.

ACCC: digital platforms interim report released; ACCC Chair pushes for legislative reform; merger review update; new authorisations and class exemptions

The ACCC has published its first interim report in its five-year Digital Platforms Services Inquiry. This first report covered online private messaging, search and social media. Key points from the report include findings that:

  • Facebook and Apple's messaging services enjoy significant competitive advantages over smaller services, and users of these services are concerned about their data collection, use and disclosure practices;
  • consumers spend a large amount of time on services owned by Google and Facebook, which increasingly dominate online advertising. Increased reliance on dominant advertising platforms has led to an imbalance in bargaining power and potentially unfair contract terms in advertising agreements; and
  • large digital platforms have expanded into new sectors, impacting competition and consumer outcomes. Acquisitions undertaken by digital platforms have entrenched their market power; the ACCC considers it faces challenges in assessing these acquisitions under the current merger laws.

On the reform agenda, ACCC Chair Rod Sims has given an address to the National Press Club on ‘Tackling Market Power in the Covid-19 Era’. Mr Sims expressed support for a number of legislative reforms, including merger reform, a broader 'unfair practices' prohibition, and increased regulation of monopoly infrastructure. Mr Sims also gave his annual address to the Law Council of Australia Business Law Section’s Competition and Consumer Workshop, titled 'COVID … And So Much More.' In this address, Mr Sims highlighted the authorisations granted in 2020 in relation to the COVID-19 pandemic and the numerous competition cases currently before various courts. Mr Sims also noted the ACCC's recent focus on digital platforms, indicating that the ACCC is closely watching the high-profile antitrust proceedings against Google in the United States.

In merger news:

In enforcement news, Jason Ellis, former general manager of sales and marketing at BlueScope Steel (BlueScope), was sentenced to 18 months' imprisonment for obstructing the ACCC's investigation of alleged price fixing by BlueScope (the ACCC has also filed civil cartel proceedings against both BlueScope and Mr Ellis). This is the first instance of an individual being charged with (and convicted of) criminal obstruction of an ACCC investigation. Mr Ellis incited two BlueScope employees to give false information and evidence to the ACCC during its investigation. The ACCC has stated that it takes attempts to prevent it from obtaining evidence seriously and 'won't hesitate to prosecute any similar cases in the future'.

The ACCC has granted interim authorisation to Virgin Australia and Alliance Airlines allowing them to cooperate on 41 regional routes and two short-haul international routes. The ACCC's preliminary view is that the cooperation arrangements will result in public benefits by assisting in the re-establishment of Virgin's national network of routes and by promoting competition in airline services as the industry recovers from the impact of the COVID-19 pandemic. The ACCC is consulting on the authorisation application and plans to issue a draft determination early this year, with a final determination in March.

Lastly, the ACCC has granted a class exemption, to commence in early 2021, to allow small businesses, franchisees and fuel retailers to collectively negotiate with their suppliers and processors, franchisors or fuel wholesalers respectively, without first having to seek ACCC approval. The class exemption will apply to businesses and independent contractors who form, or are members of, a bargaining group, and who each had an aggregated turnover of less than $10 million in the financial year before the bargaining group was formed. There is no requirement for eligible businesses to join a collective bargaining group, and there is no obligation on customers, suppliers or franchisors to deal with the collective bargaining group. Businesses falling outside the class exemption may still utilise the ACCC's usual authorisation and notification regimes.

Takeovers Panel: coercion may not amount to unacceptable circumstances if other factors may influence offer acceptance

The Panel has declined to conduct proceedings in relation to an application by Keybridge Capital Limited regarding the affairs of Webcentral Group Limited.

While subject to the takeover bid from 5G Networks Limited (5GN), Webcentral entered into an agreement with 5GN to refinance its existing (in default) debt facilities. The refinancing was conditional upon the 5GN takeover bid becoming unconditional (Bid Condition) and 5GN obtaining a relevant interest in at least 50.1% of Webcentral shares (Acceptance Condition). 5GN initially waived the Bid Condition and subsequently waived the Acceptance Condition.

In deciding not to conduct proceedings, the Panel considered that while Webcentral shareholders may have been coerced into accepting the 5GN bid when the Bid Condition was waived but the Acceptance Condition remained in place, this was partly remedied by the subsequent waiver of the Acceptance Condition. Further, the Panel found that such coercion was unlikely to be unacceptable as it was predominantly a reflection of Webcentral's cash-starved financial situation.

The Panel also noted it was reluctant to substitute the judgement of target directors in connection with the bid and the refinancing, continuing a line of decisions where the Panel has been hesitant to second-guess target directors taking action that may benefit the target company, even if the approach taken is unconventional.

Employment: new work health and safety laws for Western Australia; industrial relations reform bill introduced by Federal Government

The Western Australian Parliament has passed the Work Health and Safety Act 2020 (WA) (the Act), to substantially amend the state's existing health and safety laws. The Act, which is substantially based on the national model work health and safety laws, includes:

  • a primary duty of care requiring persons conducting a business or undertaking (PCBU) to ensure the health and safety of workers;
  • due diligence duties for company officers;
  • consultation and issue resolution provisions for work health and safety matters; and
  • protections against discrimination for those performing or exercising their work health and safety rights.

The Act also introduces industrial manslaughter offences, separated into 'crime' offences and 'simple' offences. Under the new law, a PCBU commits a 'crime' if:

  • the PCBU engages in conduct that causes the death of an individual;
  • the conduct constitutes a failure to comply with the person’s health and safety duty; and
  • the person engages in the conduct knowing that the conduct is likely to cause the death of an individual and disregards that likelihood.

Officers may also be charged with industrial manslaughter offences where their conduct is attributable to any neglect on behalf of the officer, or it was engaged in with the officer's consent or involvement. These offences can attract a maximum penalty of between five and 20 years' jail time for an individual and a fine of $10 million for a body corporate.

Employers will need to be aware of the changes to their duties under the new work health and safety regime as well as the significant penalties for industrial manslaughter offences. In particular, officers will need to be aware of their personal obligations and will need to be proactive in ensuring they comply with their due diligence duties under the new law.

In other news, the federal Government has introduced the Fair Work Amendment (Supporting Australia's Jobs and Economic Recovery) Bill 2020 into Parliament. This omnibus legislation aims to reform five areas of industrial relations which have been the focus of the IR reform roundtables held by the Federal Government in 2020, including award simplification, making of enterprise agreements, casuals and fixed-term employees, compliance and enforcement, and greenfields agreements for new enterprises. You can read more about the legislation in our Insight: Industrial relations bill introduced by Federal Government.

News & other developments

Legal professional privilege in multi-party internal emails

A recent decision of the WA Supreme Court in TEC Hedland Pty Ltd v The Pilbara Infrastructure Pty Ltd [2020] WASC 364 has significant implications for maintaining legal professional privilege over internal, intra-company emails. In its decision, the Court found an email copied to a number of legal and non-legal/commercial team members may constitute multiple, separate communications with each person copied on the email, with the result that each 'copy' of the email may be treated differently for the purposes of determining whether legal professional privilege extends to communications which have a mixed purpose which includes, but is not exclusively, a purpose of obtaining legal advice. The decision underscores the need for legal practitioners, particularly in-house counsel, to take care in communicating legal advice in cases where legal professional privilege is to be maintained, even where that leads to more cumbersome processes. For more details on the decision, see our Insight: Internal emails, multiple recipients and the question of privilege.