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.
We'd love to hear from you. Please do 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.
- ASIC and the Federal Government Department of Jobs and Small Business (DJSB) have signed a Memorandum of Understanding, which sets out a framework for the exchange of information, and for general cooperation and assistance, between ASIC and DJSB in the performance of their respective regulatory functions. The increased focus on cooperation and sharing of information between ASIC and DJSB comes against a background of recent controversies around underpayment of wages and unpaid employee entitlements in company insolvencies.
- ASIC released updated guidance for Australian financial services licensees that hold client money for trading in over-the-counter derivatives, in connection with the commencement of ASIC's Client Money Reporting Rules and other client money reforms on 4 April 2018. The updated guidance includes an update to Regulatory Guide 212 – Client money relating to dealing in OTC derivatives. The changes include new restrictions on when AFS licensees may use 'derivative retail client money', and impose new record-keeping, reconciliation and reporting requirements on AFS licensees. AFS licensees should ensure that their client-money-handling procedures are compliant with the new regime.
- The ACCC has delegated Australian Consumer Law powers to take action for misleading and deceptive conduct in initial coin offerings to ASIC. Information Sheet 225 – Initial coin offerings and crypto-currency has been updated. These expanded powers are the latest example of ASIC's heightened interest in, and scrutiny of, coin and crypto-currency businesses.
- ASIC continues to prepare for the commencement of the Australian Financial Complaints Authority, following the Government's decision to authorise Australian Financial Complaints Limited to operate the new financial dispute resolution scheme. All firms that are required to have a dispute resolution system must become members of AFCA by 21 September 2018, before the scheme starts accepting complaints in November 2018.
Updates to ASX Corporate Governance Principles and Recommendations
On 2 May, ASX released a consultation paper on proposed changes to the ASX Corporate Governance Principles. The changes reflect a heighted focus on culture and accountability, including revised recommendations in relation to codes of conduct, core values, whistleblowing and licence to operate.
Replacement of CHESS
ASX released its consultation paper 'CHESS Replacement: New Scope and Implementation Plan' following a two-year evaluation of the Clearing House Electronic Subregister System (CHESS). As set out in the paper, the 'once in a generation' opportunity to replace CHESS has culminated in plans to implement a replacement system based on blockchain-inspired distributed ledger technology. The new system is set to commence operation between late 2020 and early 2021. The paper invites feedback from stakeholders, with submissions closing on 22 June 2018.
The Security of Critical Infrastructure Act 2018 (Cth) received Royal Assent on 11 April 2018 and will commence on 11 July 2018. As noted in last month's Nucleus, the legislation will (among other things) assist the Federal Government's Critical Infrastructure Centre (established in January 2017) in its undertaking of national security risk assessments and its provision of national security advice to FIRB regarding proposals by foreign persons to acquire critical infrastructure assets. [https://www.legislation.gov.au/Details/C2018A00029]
On 16 April 2018, the Federal Government announced a proposal to increase the general individual ownership cap applying to banks and insurers under the Financial Sector (Shareholdings) Act 1998 (Cth) from 15 per cent to 20 per cent, to bring it into line with the 20 per cent foreign ownership threshold under the Foreign Acquisitions and Takeovers Act 1975 (Cth). There is also a proposal to introduce a new streamlined approval path for owners of domestically incorporated companies applying to become a financial sector company. [http://sjm.ministers.treasury.gov.au/media-release/034-2018/]
The ACCC cleared a number of mergers in April. It announced that it would not oppose:
- Saputo's proposed acquisition of Murray Goulburn, after Saputo gave an undertaking to divest Murray Goulburn's processing plant in Koroit, Western Victoria. Before the undertaking, the ACCC had raised concerns that the proposed acquisition would substantially lessen competition in the market for the acquisition of raw milk in south-west Victoria and south-east South Australia;
- the merger of Zodiac and Fluidra, global companies that supply residential swimming pool equipment in Australia. The ACCC considers that, post merger, the combined entity will still face competition from other global and local suppliers and specialist manufacturers, and that its competitors have the ability to expand;
- the proposed acquisition of Tox Free Solutions by Cleanaway Waste Management. The companies' operations overlap in many regions and service lines, and the ACCC considered that the merger will result in some lessening of competition in certain waste streams and increased vertical integration in the industry. However, it ultimately determined that the deal was unlikely to meet the 'substantial lessening of competition' threshold, given the constraints on Cleanaway posed by the threat of customers switching, and the presence of global competitors such as Veolia, Suez and Remondis; and
- Moly-Cop's proposed acquisition of Donhad. These are Australia's only domestic manufacturers of forged steel grinding media. However, the ACCC found that, on balance, the acquisition will be unlikely to substantially lessen competition, in the light of actual and potential import competition.
In addition to its clearances, the ACCC has published a Statement of Issues concerning the proposed acquisition of Reckon's Accountants Group by MYOB, on the basis that if MYOB acquires the business, it will likely be the only supplier of accounting practice software suitable for medium to large accounting firms. The ACCC is concerned that no alternative suppliers of this software are of sufficiently advanced functionality to compete in the market for at least several years, and that there are barriers to entry and expansion for other competitors that will give MYOB a potential monopoly in the market for sophisticated accounting software.
The Panel made a declaration of unacceptable circumstances in relation to the application made by ASIC regarding Finders Resources Limited in the context of the takeover bid by Eastern Field Developments Limited. The reasons for the Panel's decision included that:
- Taurus Funds Management Pty Ltd, which managed approximately 11.31 per cent of Finders shares, authorised the release of a statement by Finders, saying that Taurus did not intend to accept the takeover offer. However, Taurus subsequently accepted the bid, causing Finders to change its voting recommendation in favour of the bid. Taurus did not act according to its shareholder intention statement; and
- Finders solicited rejection shareholder intention statements, and as a result of aggregating those rejection statements made with other rejection statements, the market was not able to assess the likelihood or circumstances in which more than a third of Finders shares could be accepted into the takeover bid.
The Panel has received an application from Taurus Funds Management Limited seeking a review of its Finders decision.
The Panel highlighted in the Auris Minerals Limited decision that applications focusing purely on the alleged contravention of the substantial holding notice requirements of the Corporations Act, without providing probative material to support that allegation or an allegation that there might be an association between shareholders relevant to control, may result in the Panel declining to conduct proceedings, because such disputes, without the context of an existing or proposed takeover bid, were not intended to be resolved by the Panel.
Also, the Panel in relation to:
- Strategic Minerals Corporation NL, made two further variation of orders to provide time extensions for it to despatch and lodge its supplementary target's statement; and
- Caravel Minerals Limited, declined to make a declaration of unacceptable circumstances in the context of allegations of contraventions of the substantial shareholder notice provisions and 20 per cent rule in the Corporations Act, and then received an application from the company seeking a review of its decision.
In a recent decision, the Fair Work Commission accepted that an employee had engaged in entirely unjustified and serious misconduct, by making abusive and threatening comments to co-workers over several hours. However, the Commission took into account a range of mitigating factors in determining that the dismissal was harsh and ordering that the employee be reinstated. These included: the repugnant conduct was completely out of character; the employee was quick to provide an unprompted and sincere apology; and the employee's judgment at the time of the incident was impaired by alcohol, mental illness, and physical exhaustion.
This decision highlights the importance of conducting a thorough investigation of misconduct allegations, and taking into account any mitigating factors, including the underlying cause of the misconduct, before deciding to dismiss the employee.
However, it is also important to recognise that there may be situations where an employer decides that dismissal is the appropriate course of action despite strong mitigating factors, and is therefore willing to risk an unfair dismissal finding and potential reinstatement order. Eg this may be the case where an employer decides that dismissal is consistent with a core business value, such as zero tolerance of drug and alcohol use.
- 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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