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.
- Following the implementation of the new BBSW methodology in May, ASIC has published benchmark rules, a significant benchmark declaration and Regulatory Guide 268 – Licensing regime for financial benchmark administrators in a further step towards establishing a comprehensive regulatory regime for financial benchmarks. These changes are the result of a new licencing regime for financial benchmarks established by recent legislative reform, and designate the BBSW, S&P/ASX 200 Index, ASX Bond Futures Settlement Price, Australian Interbank Overnight Cash Rate and the Australian CPI to be 'significant financial benchmarks'. As is the case in other jurisdictions, manipulation of any financial benchmark, or products used to determine such a benchmark, is now a specific offence and subject to civil and criminal penalties.
- Ahead of the commencement of the Australian Financial Complaints Authority (AFCA), ASIC has released its Report 577 – Response to submissions on CP 298: Oversight of the Australian Financial Complaints Authority and new Regulatory Guide 267 – Oversight of the Australian Financial Complaints Authority. The report and regulatory guide follow ASIC's consultation in March 2018, and the regulatory guide sets out how ASIC will oversee AFCA and financial firms' obligations to become members of AFCA. Practitioners should expect even more detail around how AFCA will operate as the new external dispute resolution scheme's 1 November start date approaches.
- ASIC continues to expand its engagement with foreign regulators, signing up to the International Organization of Securities Commissions' Enhanced Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (EMMOU). The EMMOU provides for ASIC and foreign securities regulators to provide reciprocal assistance in exercising enforcement powers, including by compelling attendance for testimony, obtaining and sharing audit work papers, communications and other information relating to the audit and review of financial statements, and by providing guidance on freezing of assets. The EMMOU is the latest in a long line of cross-boarder cooperation agreements signed by ASIC recently, and signals ASIC's continuing desire to enforce its powers as far as possible.
- ASIC has released
Consultation Paper 302 – Proposed changes to ASIC's capital requirements for market participants. The paper sets out ASIC's proposals to:
- consolidate the two existing market integrity capital rulebooks into a single capital rulebook;
- require futures markets participants to hold core capital of at least $1 million and comply with a risk-based capital regime, in place of the existing net tangible asset requirement; and
- increase the minimum core capital requirement for securities market participants to $500,000.
Submissions on the paper are due by 15 August 2018.
- Finally, June saw ASIC publish Report 574 – Overview of decisions on relief applications (October 2017 to March 2018), the latest six-monthly summary of ASIC's decisions on applications for relief from provisions of the Corporations Act and National Consumer Credit Protection Act. During the half year, ASIC received 762 relief applications, approving 56%. Of the applications, 4% were refused and 20% were withdrawn, with the final 20% being decided outside the six-month window. As usual, the report summarises a number of individual decisions made by ASIC to exercise or refuse to exercise its powers in the review period.
ASX has foreshadowed some important changes to the Listing Rules due out for consultation later this year, including:
- Admissions: extending the “good fame and character” requirement for new listings to CEOs; simplifying notification by profit test listings of continuing profits under rule 1.2.5A; clarifying working capital requirements for assets test listings in rule 1.3.3; and simplifying the escrow regime for restricted securities.
- Share issuance rules: rationalising the regime for announcing issues of securities and seeking their quotation; improving the reporting of CDIs on issue by foreign issuers; fixing drafting issues in the 15% placement formula in rule 7.1; allowing security holders to ratify an agreement to issue securities under rule 7.4; rationalising the lists of equity issues that can be made without security holder approval under rules 7.2, 7.6, 7.9 and 10.12; and making them consistent.
- Related party approvals: amending rule 10.1 to deal more appropriately with agreements to acquire or dispose of substantial assets; expanding and rationalising the requirements for notices of meetings in chapters 7 and 10; rationalising the rules dealing with the approval of employee incentive schemes by merging rules 10.15 and 10.15A into the one rule; providing that securities held by or for an employee incentive scheme must only be voted on a resolution under the listing rules if and to the extent that they are held for the benefit of a nominated participant in the scheme who is not excluded from voting on the resolution under the listing rules and who has directed how the securities are to be voted; amending the list of voting exclusions in the table in rule 14.11.1 for greater consistency and to give greater certainty as to which parties must have their votes excluded.
- Compliance measures: giving ASX the power to grant class waivers and removing the need for 7 standard waivers; enhancing ASX's compliance powers by imposing conditions, requesting information, imposing compliance requirements and publishing censures.
- Guidance notes: a substantially updated GN 11 on escrow and restricted securities; a substantially updated GN 13 on spin-outs; a new GN 21 on the restrictions on issuing securities in chapter 7; a substantially updated GN 24 on acquisitions and disposals of substantial assets involving persons in a position of influence; a new GN 25 on share issues to persons in a positon of influence; changes to GN 12 removing the '2 cent' waiver for back door listings and updating ASX's guidance on the '20 cent' rule and minimum option exercise price; and changes to GN 33 tightening ASX's policy on the automatic removal of long-term suspended entities and shortening period for automatic removal.
A copy of the national roadshow slide presentation in relation to proposed changes to the ASX Corporate Governance Principles and Recommendations, where the ASX foreshadowed the above changes, can be accessed here.
As foreshadowed in last month's Nucleus, FIRB's new online application portal went live on 2 July 2018. All applications for FIRB approval (other than those relating to residential real estate) must now be lodged through this portal. All residential real estate applications must continue to be lodged using the ATO's online application form. Any person who submitted an application via email on 28, 29 or 30 June 2018 following the shutdown of the previous online portal must lodge the application via the new online application portal.
The new online application portal is expected to facilitate easier lodgement of foreign investment applications. Key features include the ability to submit variations to approved applications, the ability to submit one application for multiple notifiable actions, and access to an enhanced fee calculator. FIRB has published 'Quick Reference Guides' on the new portal.
Separately, FIRB application fees were indexed from 1 July 2018, resulting in slight increases.
The ACCC has agreed to variations proposed by Australia Amalgamated Terminals and Qube Holdings to remove open access conditions imposed on AAT's Appleton Dock general cargo facility at the Port of Melbourne. Previously, AAT was required to comply with open access conditions and berthing allocation rules. Under the new variation, AAT is still prevented from offering special deals for its services to shipping lines that use Qube's stevedoring services.
Otherwise, the ACCC has been quiet on the transactional front, with no formal announcements as to authorisations in June. However, the regulator has sought submissions in respect of several informal merger applications, which will keep it busy for first few months of the new financial year. The ongoing reviews include:
- CK Consortium's proposed acquisition of APA Group;
- oOh!media's proposed acquisition of Adshel Street Furniture;
- JCDecaux's proposed acquisition of APN Outdoor Group;
- DYWIDAG-Systems International Group's proposed acquisition of Fero Group; and
- Arrow Pharmaceuticals' proposed merger with Apotex Pharmaceuticals.
In other news, BP has announced its intention not to continue with its proposed purchase of Woolworths' petrol business, citing ongoing competition concerns after the ACCC blocked the deal in August last year.
Four months after releasing a consultation paper seeking comments, this month the panel published the revised form of Guidance Note 17 Rights Issues. Revised GN 17 takes into account submissions from ASIC, the Law Council and three law firms. The changes include clarifying the circumstances in which a clear need for funds has not been contrived, a rights issue resulting in a control effect that will generally not be unacceptable provided the rights issue is structured appropriately and an appropriate dispersion strategy has been put in place. The panel further clarifies in a footnote that dismissing a viable commercial alternative with a lower impact on control or the taking of uncommercial actions by an issuer may suggest that a rights issue has not been structured appropriately.
Otherwise, last month was not particularly active for the panel, with receipt of one application from NCZ Investments Pty Ltd in relation to the affairs of Atlas Iron Limited, which the panel swiftly declined to conduct proceedings on following agreement by Redstone Corporation Pty Ltd, a bidder, to incorporate disclosures from its supplementary bidder's statement in a replacement bidder's statement and to clarify the operation of the bid's conditions.
The panel did make a declaration of unacceptable circumstances in relation to an application by Realm Resources Limited regarding its own affairs, within the context of a major shareholder's actions potentially coercing Realm's shareholders to accept its bid. Realm, following an acquisition of a 70% interest in the Foxleigh mine, was required by the ASX to have a free float of no less than 20% of the shares on issue. Realm decided to undertake a capital raising to satisfy this requirement. Taurus Funds Management Pty Limited as manager of Taurus Resources No.2 LP and Taurus Resources No.2 Trust (together, T2), the holder of more than 85% of Realm's shares, initially supported Realm's capital raising but then announced its intention to make an off-market takeover bid. The announcement included statements that T2 would not support the capital raising and that the offer provided shareholders with certainty compared to the uncertainty of when Realm's shares would be re-listed. The panel considered the fact that T2 actively changed its position from support for the re-listing to opposition and the active steps taken by the nominees of T2 on the Realm board to stop the re-listing when coming to its decision to make a declaration of unacceptable circumstances.
The Panel also released its reasons for decision in relation to the Finders Resources Limited 03R application, which we touched on in last month's Nucleus.
With the Labour Hire Licensing Act 2018 (Act) coming in to force on 26 June 2018, Victoria has become the third state to introduce a scheme for regulating labour hire arrangements. The legislation was introduced following the Victorian Inquiry into the Labour Hire Industry and Insecure Work, which found evidence of exploitation of workers in the industry.
Amongst other things, the new scheme:
- requires all labour hire service providers to obtain a licence;
- makes it unlawful for businesses to engage unlicensed labour hire providers;
- may impose conditions on labour hire licences that require compliance with workplace laws; and
- allows for licences to be cancelled if a labour hire service provider does not comply with those laws.
The new scheme will commence by no later than 1 November 2019.
As the scheme defines labour hire services broadly, it may result in an unintended range of businesses being required to obtain a labour hire licence. All businesses that supply workers to other businesses or receive labour hire services should review their arrangements carefully and ensure that they will be compliant with the new scheme.
- New reporting requirements for critical infrastructure require the lodgement of information on the Register of Critical Infrastructure Assets before 11 January 2019. This is the time for owners and operators of Australian infrastructure to consider whether any of their assets qualify as 'critical infrastructure'. Partner Wendy Rae and Senior Associate Nick Kefalianos explain what critical infrastructure is and who will be affected by the new requirements. See our Client update for further detail.
- The long-awaited 'ipso facto' reforms commenced on 1 July 2018. The ipso facto regime broadly limits the ability of parties to exercise contractual rights under contracts entered into on or after 1 July 2018 against companies which are in voluntary administration or receivership, or are subject to an insolvency scheme of arrangement. Going forward, practitioners should take particular care to note the limits on enforcing insolvency default provisions in post-1 July 2018 contracts. The regime does not affect contracts that predate 1 July 2018. However, note that there are a number of exclusions from the operation of the ipso facto stay, including, in the corporate space: contracts for the sale of business or sale of shares; subscription agreements; rights to indemnities for expenses; charges and liabilities from the preservation or enforcement of rights; and rights of set-off or combination of accounts.
- 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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