INSIGHT

Nucleus – corporate law developments

By Vijay Cugati
Mergers & Acquisitions Technology

A snapshot of regulatory updates and developments 12 min read

We know you are busy, so our focus is on capturing key issues in corporate law.

We'd love to hear from you. Please let us know if you need more detail about an issue, or if there is something in particular you'd like to hear about, and feel free to call any of your Allens contacts.

What you need to know

ASIC: Focus on material business risk disclosure in financial reports

ASIC has granted relief under the ASIC Corporations (Virtual-only Meetings) Instrument 2022/129 to allow additional time for certain companies and registered schemes to hold virtual-only meetings. In summary, all listed companies, as well as listed and unlisted registered schemes, will continue to have the option to hold virtual-only meetings until 31 May 2022. For unlisted companies, the extension is until 30 June 2022. In order to rely on this relief, directors of a company (or responsible entity of a registered scheme) must first pass a resolution that, in the directors' opinion, it would be unreasonable for the company (or registered scheme) to hold a meeting of its members, wholly or partially, at one or more physical venues due to the impact of COVID-19.

This extension is in addition to temporary amendments to the Corporations Act, which permitted the use of virtual technology to convene and hold meetings, including hybrid and virtual-only meetings, in certain circumstances, until 31 March 2022. With the enactment of the Corporations Amendment (Meetings and Documents) Act 2002 (Cth), the Corporations Act has been permanently amended to permit hybrid meetings (including virtual-only meetings if allowed under the entity’s constitution) from 1 April 2022.

ASIC has also reminded company directors about the importance of a high-quality operating and financial review (the OFR). The OFR, which accompanies the financial report, helps inform investors' decision-making by disclosing material risks that may affect the realisation of a listed entity’s strategies and prospects.

The financial report of a listed entity must contain information that shareholders would reasonably require to make an informed assessment of the entity's operations, financial position, business strategies, and prospects for future financial years (see ASIC Regulatory Guide 47). ASIC's recent review of financial reports for the year ending 30 June 2021 identified some listed entities that did not disclose material business risks. ASIC has indicated that it will continue to closely review financial reports to ensure that entities are correctly disclosing their material business risks.

ASX: Consultation paper on Corporate Collective Investment Vehicles; launch of electronic CHESS statements and notification service

The ASX has released a consultation paper on proposed ASX rule amendments to facilitate the listing of Corporate Collective Investment Vehicles (CCIVs) and other collective investment vehicles on the ASX market, and the quotation of their products on the ASX AQUA market. The ASX seeks feedback on its proposed amendments, including changes to the ASX Listing Rules to facilitate the listing of CCIV sub-funds, notified foreign passport funds and NZ registered management investment schemes making an offer of securities under Chapter 8 of the Corporations Act. The Corporate Collective Investment Vehicle Framework and Other Measures Bill 2021, which is due to be implemented on 1 July 2022, introduces CCIVs as a fund management vehicle to operate via one or more sub-funds. The ASX rule amendments are required in order for the ASX to offer CCIV sub-funds access to the ASX and AQUA market platforms, and to offer investors access to the investment opportunities CCIV sub-funds will provide. You can read more about the proposed changes in our Insight: Five years on: the new CCIV regime is here.

The ASX launched the electronic CHESS holding statements and notification service on 13 December 2021. As announced on 5 November 2021, the ASX is currently reviewing the fees charged for Issuer Administration Services and considering a more contemporary pricing model.

FIRB: proposed changes to FIRB rules; increased monetary screening thresholds

On 14 February 2022, the Federal Government released proposed changes to the Foreign Acquisitions and Takeovers Regulations 2015 (Cth), intended to 'reduce regulatory burden by clarifying certain aspects of the framework and streamlining some less sensitive types of investment'. The changes came into effect on 1 April 2022. You can read more about the changes in our Insight: Proposed changes to FIRB approval rules.

On 14 February 2022, the Government also released a discussion paper seeking written submissions on possible further changes to the FIRB approval rules.

FIRB's monetary thresholds have slightly increased from 1 January 2022, following annual indexation. The changes include the general threshold for foreign persons acquiring 20%+ interests in Australian entities increasing from $281 million to $289 million (and for investors from free trade agreement countries, the general threshold increasing from $1216 million to $1250 million). There continues to be a nil dollar threshold for acquisitions of interests in national security businesses.

ACCC: Chair appointment, priorities, enforcement, mergers and proposed rules for digital platforms

On 21 March 2022, Ms Gina Cass-Gottlieb commenced her term as Chair of the ACCC. She takes over the role of Chair from Rod Sims, who held the position from August 2011. Ms Cass-Gottlieb will be the first female Chair of the ACCC since it was established as an independent statutory authority in 1995.

On 3 March, the ACCC announced its compliance and enforcement priorities for 2022-23, which include:

  • competition and consumer issues in the digital economy.
  • scrutiny of businesses making environmental and sustainability claims.
  • competition issues in global and domestic supply chains.
  • competition and consumer issues arising from the pricing and selling of essential services, with a focus on energy and telecommunications. 
  • promoting competition and investigating allegations of anti-competitive conduct in the financial services sector, with a focus on payment services.
  • scrutiny of exclusive arrangements by firms with market power that impact competition.

In enforcement news:

In merger news:

  • The ACCC has released a report with its findings from an internal review of six mergers it cleared between 2017 and 2019. The review focused on whether specific predictions made by the ACCC, merger parties and/or third parties at the time of the review played out as the regulator predicted. The findings were mixed. Chair Sims has cited the report in support of the need for greater scrutiny of claims from merger parties about new market entry or customers' bargaining power, as well as the need for a mandatory notification regime to ensure the ACCC receives adequate and timely information from merger parties.
  • On 17 December 2021, following the ACCC's successful application for an interlocutory injunction to restrain Virtus Health from completing its acquisition of Adora Fertility, Virtus Health announced that it will not proceed with the proposed acquisition. Consequently, the ACCC announced that it will likely discontinue its proceedings in the Federal Court.

The ACCC has released a discussion paper seeking views from consumers, businesses and other parties on options for legislative reform to address concerns about the dominance of digital platforms. The paper outlines options for addressing harms to competition, consumers, and business users in areas such as social media, search, app marketplaces, general online retail marketplaces and ad tech. Options discussed include measures to address anti-competitive conduct (eg anti-competitively preferencing a platform's own services above those of its business users), barriers to entry (such as access to data), bargaining imbalances, and insufficient consumer and business user protections.

Takeovers Panel: ASIC intervenes on Independent Expert Report

The Panel has declined to conduct proceedings in response to an application by Gordon Elkington in relation to the affairs of Wollongong Coal Limited (Wollongong) after accepting undertakings from BDO Corporate Finance (WA) Pty Limited (BDO).

Wollongong undertook a rights issue to eligible existing shareholders at $0.0001 per share. Jindal Steel & Power (Mauritius) Limited increased its shareholding above the 90% threshold and sent a compulsory acquisition notice to acquire the remaining shares at the same price. The compulsory acquisition notice was accompanied by an independent expert report from BDO stating the value of the company to be nil and therefore the consideration represented fair value.

Mr Elkington queried why the consideration paid for the rights issue was not taken into account as part of the valuation, and ASIC queried why the independent expert did not engage an independent technical specialist to assess the mineral assets of Wollongong. In response, the independent expert undertook to prepare a supplementary or replacement report, which takes into account the rights issue and includes an independent technical specialist report.

ASIC's intervention demonstrates the importance of fully complying with the independent expert report requirements (especially regarding technical matters) to ensure other shareholders are properly informed, even though the value of assets being considered may be nominal.

Employment: High Court revises test for independent contractors; WA industrial relations amendments passed

The High Court has handed down two decisions revising the approach to determine whether a worker engaged by a business in an employee or an independent contractor.

In CFMEU & Anor v. Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Australia Pty Ltd & Anor v. Jamsek & Ors [2022] HCA 2, the court placed a strong emphasis on the terms of the written agreement when determining whether a worker has been engaged as an employee.

In each case, the High Court held that where parties have entered into valid and comprehensive contractual agreements, the rights and duties prescribed in the agreement ultimately characterise the nature of the relationship. Similarly, the court prioritised the terms of the written agreement, rather than the performance of the agreement in practice. While the High Court's decisions provide greater certainty for businesses engaging independent contractors, due care should be taken when preparing written contractor agreements to ensure that independent contractors are not characterised as employees.

News & other developments

Fiona Crosbie appointed to the Financial Regulator Assessment Authority 

On 14 March, Chair of Allens Fiona Crosbie was appointed to the Financial Regulator Assessment Authority (the FRAA) for the period commencing 21 March 2022 to 14 September 2026. The FRAA is an independent statutory body tasked with assessing and reporting on the effectiveness and capability of ASIC and the APRA.

In announcing the appointment, the Federal Treasurer, Josh Frydenberg, noted that Ms Crosbie is 'recognised as one of Australia’s leading competition lawyers, having recently chaired the Competition and Consumer Committee of the Law Council of Australia'. Ms Crosbie and fellow member Craig Drummond will support Chair Nicholas Moore with the FRAA’s ongoing reviews of ASIC and APRA.

Michelle Levy appointed Chair of the Quality of Advice Review 

On 11 March, Allens Partner Michelle Levy was appointed to chair the Quality of Advice Review. The review will consider whether measures that have been implemented by government, regulators and financial services entities have improved the quality of financial advice and whether further reforms are required. The review will also consider how to ensure the regulatory settings support Australians getting access to affordable financial advice.

In announcing the appointment, the Federal Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume, noted that 'Ms Levy has been recognised by Chambers Asia‑Pacific for the past 8 years as a leading lawyer in Financial Services Regulation and Superannuation and is a regular contributor to journals and publications including Financial Services Newsletter and the Superannuation Law Bulletin. She co‑authored the LexisNexis FoFA Handbook. Ms Levy is a member and former chair of the Law Council of Australia's Superannuation Committee and a member of the ATO’s Superannuation Industry Stewardship Group.'

Proposal to transfer jurisdiction over schemes to the Takeovers Panel

The Federal Government released its long-awaited consultation paper on a proposal to transfer jurisdiction over schemes that effect a control transaction to the Takeovers Panel. The release of the consultation paper follows the Government's announcement in April 2021 that it would consult on expanding the role the Takeovers Panel plays in control transactions, including options for the Takeovers Panel to consider and/or approve members’ schemes of arrangement and potentially give advance rulings, with an aim of reducing the time and costs of mergers and acquisitions. In our Insight: Should the Takeovers Panel have jurisdiction over schemes?, Guy Alexander and Charles Ashton discuss why it is unnecessary to transfer jurisdiction over schemes from the courts to the Panel, and why the transfer would result in a worse outcome for the market for corporate control in Australia.  

Permanent reform on electronic signing, hybrid and virtual meetings

The Senate has passed the Corporations Amendments (Meetings and Documents) Bill 2021 (the Bill), which makes permanent reforms in relation to electronic execution under sections 126 and 127 of the Corporations Act, and also in relation to hybrid and virtual meetings.

The Bill provides for electronic execution by companies of documents (including deeds) in two ways:

  • by their agents signing under s126, whether or not the agents are appointed by deed, and without requiring a witness; and
  • by their officers signing under s127 (also allowing split execution).

The Bill further provides for companies and managed investment schemes to hold hybrid and virtual meetings of members and directors, and allow documents and communications relating to meetings to be electronic. However, in a rollback of one aspect of the temporary reforms, members will be able to opt out of receiving electronic documents and communications, and instead receive hard copies. The Bill's provisions have taken effect.

You can read more about the e-signing landscape and further efforts at standardisation in our Insight: Signing documents in a pandemic.

Director Identification Numbers

The Director Identification Number (DIN) initiative under Part 9.1A of the Corporations Act commenced operation on 1 November 2021 through the Australian Business Registry Services (ABRS).

The DIN initiative aims to prevent the use of false or fraudulent director identities, improve data integrity, assist in detecting and eliminating director involvement in unlawful activity, and enable tracing of histories and relationships with companies over time. Unless exempt, all directors and alternate directors acting in that capacity are required to obtain a DIN. Applications must be submitted by a specified date, depending on the date of appointment.

Directors under the Corporations Act who were or are appointed:

  • on or before 31 October 2021, must apply by 30 November 2022;
  • between 1 November 2021 and 4 April 2022, must apply within 28 days of appointment; and
  • from 5 April 2022, must apply before appointment.

Directors under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth) who were or are appointed:

  • on or before 31 October 2022, must apply by 30 November 2023; and
  • from 1 November 2022, must apply before appointment.

You can read more about the DIN regime in our Insight: Director ID: do you need to apply?