INSIGHT

Nucleus – corporate law developments: ASIC restricts effectiveness of certain director resignations; new ASIC whistleblower immunity policy; and other updates

By Vijay Cugati
Mergers & Acquisitions Technology

In brief 10 min read

ASIC restricts effectiveness of director resignations and introduces new whistleblower immunity policy; FIRB commences evaluation of changes to foreign investment laws; ACCC flags further reform of merger review process in 2021; lapsing of electronic signing and virtual meeting protocols.

What you need to know

ASIC: restrictions on effectiveness of director resignations; ASIC introduces new whistleblower immunity policy

As part of an effort to combat phoenix activity, amendments to the Corporations Act (contained in the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (Cth)) have taken effect that:

  • prevent director resignations from becoming effective unless they are notified to ASIC within 28 days; and
  • prevent director resignations where they would leave a company with no remaining directors.

Previously, a director's resignation would have been effective from the date of resignation, even if it was notified to ASIC late (ie after 28 days). Resignations notified to ASIC after the 28-day window will now only be effective from the date of notification, unless ASIC or the court approves a backdated resignation. Directors will need to personally ensure their resignations are notified properly, or risk remaining 'on the hook' and subject to director duties long after they have ceased to participate in a company's administration.

Director resignations will also no longer be effective if they would leave a company with no remaining directors (although, curiously, directors of public companies, which are required to have three directors, may resign even if the resignation would cause the company to breach the three director floor). This change may create a 'first mover' advantage for resigning directors where companies are in distress, potentially leaving the last director with sole responsibility and limited options to remedy that situation.

In other news, ASIC has implemented a new ASIC immunity policy to protect certain whistleblowers. The new policy closely resembles the ACCC's cartel immunity policy, and applies to certain 'market misconduct' provisions of the Corporations Act, including insider trading, false and misleading conduct and dishonest conduct. In certain circumstances, the first person who reports relevant misconduct to ASIC may seek immunity from civil penalty and criminal proceedings. The policy is a significant enforcement move by the corporate regulator, which appears to draw on the successes of the cartel immunity (and leniency) policies around the world that have encouraged the exposure of cartels. Experience shows immunity policies have been an effective way for regulators to detect conduct that is otherwise difficult to uncover, and the new policy may incentivise whistleblowers to make disclosures directly to ASIC, rather than to the relevant company under its whistleblower policy. You can read more about the new immunity policy in our Insight: ASIC immunity to whistleblowers.

ASX: Reminders about periodic reporting deadlines and class waiver requirements for extended deadlines

The ASX has reminded listed entities of upcoming deadlines for periodic reports, and has noted that entities wishing to rely on December's Class Waiver Decision – Extended Reporting and Lodgement Deadlines for extension of lodgement deadlines for financial reports will need to satisfy certain requirements, including providing the market with unaudited accounts by the usual lodgement deadline, announcing to the market that it is relying on the relief, and making further announcements if audited reports contain any material differences from the unaudited versions.

FIRB: evaluation of changes to foreign investment laws

The Federal Government has announced that it will commence an evaluation of the 1 January 2021 changes to the foreign investment laws, as required by the amending legislation. The review and a resulting report must be completed by 10 December 2021, and must cover the impact the reforms and their implementation have had on foreign investment in Australia and on the broader Australian economy, and whether the right balance is struck between welcoming foreign investment and protecting Australia's national interest. You can learn more about the recent changes to the foreign investment laws and what they mean for you by viewing our 23 February 2021 webinar: FIRB regime update – what you need to know.

ACCC: ACCC sets priorities for 2021, including potential merger reform; ad tech interim report released

ACCC Chair Rod Sims has announced that the regulator will continue to monitor competition and consumer issues arising from the COVID-19 pandemic in 2021, including promotion and sales practices (particularly misleading misrepresentations in the light of uncertainty around travel and entertainment restrictions), and competition in the domestic aviation sector. The ACCC will focus its monitoring on the essential services (particularly energy and telecommunications), funeral services, digital platforms, financial services and commercial construction industries. It has also foreshadowed ongoing scrutiny of mergers, and is advocating for changes to the assessment of anti-competitive effects. The ACCC has stated its concern that the current regime is skewed towards clearance, and wants a greater emphasis on the risks to competition. To read more about the ACCC's priorities, see our Insight: ACCC 2021 Enforcement Priorities.

The ACCC has published an interim report for its digital advertising services inquiry. The report states the regulator's view that the digital advertising services market, worth approximately $3.4 billion, suffers from a lack of competition, choice and transparency in the ad tech supply chain, resulting in increased costs for businesses and, ultimately, consumers.

In merger news, the ACCC has issued statements of issues in relation to:

  • MYOB's proposed acquisition of GreatSoft. Both parties supply practice management software for accounting firms in Australia. The ACCC is concerned that the transaction would result in a reduction to only three major suppliers for medium-to-large accounting firms, which require more complex features than smaller accounting firms. GreatSoft is a relatively new entrant that provides a cloud-based software solution, whereas MYOB offers two desktop-based products. The ACCC is interested in the potential for GreatSoft to become a strong competitive constraint on incumbents; and
  • the proposed merger between Aon and Willis Towers Watson, both professional services firms that provide insurance, reinsurance, employee benefits brokering and associated advisory and consulting services. The ACCC is concerned that the proposed merger may lead to price increases or reduced service levels for large, complex or high-value insurance customers and that it may limit the insurance coverage and pricing that smaller brokers are able to obtain for their customers. The ACCC's view is that the merger will have a more pronounced impact on customers in certain segments including the aviation, cyber, marine and construction industries.

On the enforcement front, a number of cartel cases have progressed:

  • the Federal Court has ordered Norwegian-based global shipping company, Wallenius Wilhelmsen Ocean AS (WWO), to pay a fine of $24 million after it pleaded guilty to a criminal cartel charge involving the allocation of major vehicle manufacturer customers, including in relation to shipping routes to Australia. This was the third and final Australian prosecution relating to a global 'roll-on, roll-off' shipping cartel, after fines of $25 million and $34.5 million were previously imposed on Nippon Yusen Kabushiki Kaisha and Kawasaki Kisen Kaisha Ltd respectively; and
  • the criminal cartel case against Citigroup, Deutsche Bank, ANZ and six senior banking executives has been set for hearing to commence in April 2022.
Takeovers Panel: decision on clarity and transparency on funding arrangements in cash consideration statements

The Panel has made a declaration of unacceptable circumstances in The Agency Group Australia Limited 01 & 02 in relation to a takeover bid from Magnolia Equities III Pty Ltd. On 4 December 2020, Magnolia sent a letter to Agency and ASX stating that it intended to make a cash takeover bid for 100% of Agency's shares, and on the same day Agency urgently requested that Magnolia provide information on its available financial resources. On 4 January 2021, Magnolia released its bidder statement, which included two statements noting that Magnolia:

  • had access to $10 million in cash from various sources, including references to undertakings provided by Magnolia's sole director, Magnolia and its related bodies corporate; and
  • had also obtained 'not less than $18 million in commitments from various wholesale investors known to Magnolia'.

The Panel considered the first statement to be deficient, as no details were given about the undertakings and the funding arrangements were not documented, contrary to Guidance Note 14 – Funding Arrangements. It also agreed that the mere fact a commitment is made by the sole director of a company does not warrant a departure from the requirement to have binding and enforceable commitments in place.

The Panel found that the second statement failed to address requirements to disclose the identity of relevant persons, and the arrangements under which cash will be provided by those persons. It rejected Magnolia's submission that the statements served to demonstrate its broader financial standing, and instead found unacceptable circumstances, on the basis that it may cause confusion to the target's shareholders when assessing the bid.

The decision adds to the list of recent Panel matters where funding arrangements have come under scrutiny, and emphasises the need for bidders to articulate cash consideration statements clearly.

Employment: Guidance released on COVID-19 vaccinations for workers 

The Fair Work Ombudsman (the FWO) and Safe Work Australia (the SWA) have released guidance material for employers, setting out the key factors that need to be considered when determining their approach to COVID-19 vaccinations for workers.

The FWO and SWA guidance indicates that it is currently unlikely the large majority of employers could require employees to be vaccinated. This is primarily because:

  • Australia's vaccination program is voluntary and not mandated by any laws or public health orders; and
  • the pandemic does not automatically make it reasonable for an employer to require their employees to be vaccinated.

The guidance acknowledges that while an employer's health and safety duties may provide some basis for mandating vaccination, whether or not a direction to require workers to receive a COVID-19 vaccine is a reasonable direction will depend on the particular circumstances at the time and of the employer's business. We discuss these factors in more detail here.

The guidance also provides an important reminder that when determining their approach to vaccinations of their workers, employers should be mindful of their obligations and responsibilities under anti-discrimination laws and the general protections provisions of the Fair Work Act 2009 (Cth).

News & other developments

Lapse of electronic signing and virtual meeting protocols

The Treasurer's temporary modifications to the Corporations Act to facilitate electronic signing of documents and virtual shareholder meetings lapsed on 21 March 2021. The Treasurer's powers to amend the Corporations Act were only temporary and have now expired, so new legislation is required to extend the relief. On 16 March, the Bill to facilitate the proposed changes was referred to a committee – the Senate Economics Legislation Committee – with its report due on 30 June 2021, and the Senate's consideration of it deferred until August. Consequently, we have now reverted to the pre-COVID position under the Corporations Act. This has consequences for the options available to companies to execute documents electronically and hold virtual meetings. You should talk to us if you are currently planning your AGM – regardless of where we land on the reforms, the rules that will apply to your meeting this year will be different from those of the same time last year.