Nucleus: corporate law developments
Welcome to our monthly snapshot of regulatory updates and other developments in corporate law. We know you are busy, so our focus is on capturing key issues.
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- ASIC released the results of its examination of the 2017 AGM season for ASX 200 listed companies in Report 564 – Annual general meeting season 2017. The report concludes that while the 2017 AGM season was significantly less tumultuous than the 2016 season, with fewer ‘strikes’ against remuneration reports, this was balanced with an increased number of 'close calls' on remuneration reports and material 'against' votes for the election of directors. ASIC observed a high level of shareholder engagement, and continued scrutiny and involvement by proxy advisers. For listed companies, this only serves to highlight the continued importance of shareholder engagement.
- ASIC's focus on managing conflicts of interest continues, with the release of:
- Report 562 – Financial Advice: Vertically integrated institutions and conflicts of interest, which examines the management of conflicts of interest in the provision of financial advice by the five biggest vertically integrated financial institutions in Australia;
- Regulatory Guide 264 – Sell Side Research, which provides specific guidelines on how AFS licensees who provide sell-side research should manage conflicts of interest and confidential information; and
- updated Regulatory Guide 246 – Conflicted and other banned remuneration, including updated guidance on remuneration for life insurance sales, grandfathering arrangements for the ban on conflicted remuneration, exclusions for basic banking products, and stamping fees and brokerage exclusions.
Report 562 concludes that improvements to the management of conflicts of interest are needed. Given ASIC's continued focus on this area, vertically integrated firms should be careful to ensure they comply with its expectations, particularly in the context of deal-related research and disclosure requirements during capital raisings.
- ASIC has announced that it will focus on values of assets and accounting policy choices in its review of financial reports for listed entities with 31 December 2017 year ends. In particular, it will examine impairment testing and asset values, revenue recognition, expense deferral, off-balance sheet arrangements, tax accounting, estimates and accounting policy judgments, and the impact of new accounting standards. That announcement was followed by ASIC's findings from its review of 30 June 2017 financial reports, which resulted in it making 54 inquiries of 50 entities out of the 220 reports it reviewed. This review's result is consistent with the ASIC's forward-looking focus, with 20 of the 54 inquiries related to impairment and other asset values. Those involved in the preparation of financial reports should note ASIC's continued focus on these matters.
- ASIC continues to drive ahead with fintech and innovation regulation, releasing Consultation Paper 297 – Retaining ASIC's fintech licensing exemption, which proposes to retain fintech licensing exemption class waivers (which allow eligible fintech businesses to test certain services without holding an AFS or credit licence), and announcing the AFS licensing of the first seven crowd-sourced finding intermediaries, which will allow eligible public companies to raise capital by offering ordinary shares through these registered intermediaries' online platforms. Cross-border cooperation on fintech regulation also continued, with ASIC entering into an Innovation Functions Co-operation Agreement with Canadian securities regulators.
- ASIC released Information Sheet 230 – Exchange traded products: Admission guidelines, which sets out requirements for licensed exchanges seeking to admit exchange traded products, including managed funds, exchange traded funds and structured products, to their markets. The guidelines in Information Sheet 230 largely reflect ASIC's existing expectations and practices.
ASX is working with a developer to replace the Clearing House Electronic Subregister System (CHESS), which has been operating since the early 1990s, with 'distributed ledger technology' (DLT). DLT uses a ledger of trading activity that is replicated and distributed throughout a secure network of participants. The participants rely on a set of confirmatory algorithms to verify and agree on the records contained on the ledger. While CHESS has been a 'robust and reliable' system, ASX has stated that the DLT system will provide a functional and secure platform that will be more user-friendly and adaptable to the changing needs of Australia's financial markets. ASX will release timing details for the transition and seek further stakeholder consultation in March 2018.
FIRB: New approach to considering applications by foreign persons to acquire Australian agricultural land, electricity assets and distribution assets
For transactions involving agricultural land, the Federal Treasurer will now (as part of the national interest assessment) consider whether Australians were given an adequate opportunity to acquire the relevant land.
Approval will generally not be granted for acquisitions by foreign persons of agricultural land unless there has been an 'open and transparent sale process', requiring:
- the land being offered for sale publicly and marketed widely (ie advertised on widely used real estate listing websites, or in regional or national media) for a minimum of 30 days; and
- an equal opportunity for bids or offers to be made for the land while available for sale.
Where a foreign person seeks the Treasurer's approval to acquire agricultural land, they will need to demonstrate how they became aware that the land was for sale (including evidence of the sale process) and that the sale was subject to an open and transparent sale process.
For further details on these proposed changes, please see our Client Update: New restrictions on foreign persons acquiring Australian land and agribusinesses.
The Treasurer also announced that all future applications for the sale of electricity transmission and distribution assets, and some generation assets, will attract ownership restrictions that codify restrictions that have been applied to previous transactions on a case-by-case basis.
In addition, the monetary thresholds relevant to determining whether an action requires notification under the Foreign Acquisitions and Takeovers Act were indexed on 1 January 2018, resulting in slight increases in the thresholds.
- December saw the ACCC oppose BP's proposed acquisition of Woolworths' service stations, due to concerns about a substantial lessening of competition arising from the likely impact on fuel prices at the retail level. ACCC Chairman Rod Sims' comments on the decision centred on the price differences between fuel at BP and Woolworths' petrol stations: 'We believe that fuel prices will likely increase at the Woolworths sites if BP acquires them and other retailers would then face less competitive pressure'. The ACCC formed this view after extensive data analysis of the major fuel retailers' prices to determine the likely impact of the proposed acquisition. BP's proposed divestments were not considered adequate to address the Commission's competition concerns. Interestingly, earlier in its review, the ACCC had only flagged 'amber light' issues, making this the first merger since 2012 that it has opposed after raising only 'amber light' issues in the Statement of Issues.
- The ACCC did not oppose the merger of Fox Sports and Foxtel, concluding that 'the commercial incentives of Foxtel, Fox Sports, News, and Telstra will not be substantially altered'. The review examined a number of markets relating to acquiring sports and non-sports content, supplying subscription audio visual content and the wholesale and/or retail supply of fixed line and mobile broadband and voice services, with the ACCC finding the merger was unlikely to substantially lessen competition in any of these markets.
- December also saw the ACCC not oppose the acquisition of the Jubilee Highway Sawmill in Mount Gambier by OneFortyOne Plantations. Despite increased vertical integration as a result of the transaction, the ACCC found that OneFortyOne would still have incentives to supply sawlogs to other sawmills and to acquire woodchips.
- Finally, the ACCC announced it is discontinuing its review of Cell Care Australia's proposed acquisition of Cryosite and will not decide whether to grant clearance for the transaction. Cell Care and Cryosite were the only two private Australian providers of umbilical cord blood and tissue collection, processing and storage. Cryosite's blood and tissue collection operations were closed following the acquisition, and the ACCC is continuing to investigate the circumstances of entry into the acquisition agreement that led to the closures. The parties did not seek ACCC clearance before the acquisition, serving as a timely reminder that while merger clearance is a voluntary regime in Australia, parties should always consider whether ACCC review of a transaction may be required.
- December and January were busy months for the Takeovers Panel, with applications in relation to Tap Oil Limited, Strategic Minerals Corporation NL, Quantum Graphite Limited (subject to DoCA) and Bulletproof Group Limited.
- The declaration of unacceptable circumstances for MMA Offshore Limited's rights issue reinforced ASIC policy, which cautions companies conducting an accelerated rights issue against scheduling a general meeting during the period between allotment to institutional investors and allotment to other investors, if the early allotment to institutional investors would distort voting. Ultimately, MMA agreed to postpone its AGM, to ensure all participants receiving shares under the rights issue would be entitled to vote those shares at the AGM.
- The decision in relation to Tap Oil Limited is another example of an applicant failing to satisfy the Panel that certain shareholders were associates.
- The M&A market ran hot over December and into January 2018. Unibail-Rodamco led the charge into Christmas, with its proposed US$24.7 billion (A$32.7 billion) acquisition of Westfield Corporation. In the oil and gas sector, AWE Limited received multiple take-private proposals, while Boardriders, Inc (controlled by funds managed by Oaktree Capital Management LP) signed a deal with Billabong International Limited. In the insurance sector, ANZ agreed to sell its life insurance business for $2.85 billion, and its OnePath pensions and investments and aligned dealer groups business for $975 million.
- The start of February saw major market falls across US, Asian and Australian markets, with the S&P/ASX 200 index dropping 3.2 per cent for its largest one-day decrease since 29 September 2015. The volatility in financial markets may well temper the surge in public M&A and ECM activity over December–January, and is likely to result in greater focus on market fall clauses.
- Vijay CugatiPartner, Sector Leader, Investment Firms & Investment Management,
Ph: +61 2 9230 4940
- Kate ToweyPartner, Sector Leader, Real Estate,
Ph: +61 2 9230 5053
- Chris BlanePartner,
Ph: +61 2 9230 4298
- Andrew WongMergers & Acquisitions Counsel,
Ph: +61 2 9230 4141
- Charles AshtonManaging Associate,
Ph: +61 2 9230 5631
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