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 has released a suite of seven new and updated regulatory guides, representing a comprehensive update on both administrative and substantive matters for participants in the funds management industry. The updates to regulatory guides 131, 132, 133, 134, 136, 137 and 138 have been made in response to changes arising from the Asia Region Funds Passport, providing investors with access to funds from participating economies throughout Asia, and to promote consistency of regulation across the industry. Industry participants will be particularly interested in updates on ASIC's decision making process for registering managed investment schemes and passport funds.
- ASIC has approved the Australian Banking Association's new Banking Code of Practice, which will commence operation on 1 July 2019. The new Code, which replaces the existing 2013 Code, contains expanded protections for small businesses and consumers. Against the backdrop of the Royal Commission, banking industry participants can expect the Banking Code Compliance Committee to closely monitor and enforce the new Code.
- ASIC has released its report for issuers, market operators and facilitators in reference to trading in exchange traded products (ETPs), Report 583 – Review of exchange traded products and retail investors. The report finds that the market for ETPs is generally performing well, meeting investors' cost and liquidity expectations. A number of ASIC's forward-looking findings will be of interest to market participants, including ASIC's view that market operators and issuers should play more proactive roles in monitoring performance of ETPs.
- An external report on fees and costs disclosure for issuers of superannuation and managed investment products issued to retail clients, Report 581 – Review of ASIC Regulatory Guide 97: Disclosing fees and costs in PDSs and periodic statements, has been released by ASIC. The report contains a comprehensive analysis of fees and costs disclosures, and sets out a number of recommendations for future reform. Industry participants will be keen to see ASIC's response to the report, with an ASIC consultation paper to be released in response to the report later this year.
- ASIC's transition to a 'fee for service' pricing model took effect on 4 July 2018. The transition sees an increase to most fees charged by ASIC. ASIC has published a guide, Cost Recovery Implementation Statement (CRIS) – Fees for service under the ASIC industry funding model, which details the methodology used in determining the fees applicable to ASIC's regulatory activities.
- ASX will be introducing increased functionality to ASX online to allow listed entities to provide an indication as to whether an announcement:
- is 'market sensitive' or 'non-sensitive';
- materially relates to or affects another listed entity and therefore should be cross-released against the name of that entity on the Market Announcements Platform.
- For reasons of maintaining consistency and integrity, the Market Announcements Office will make the final assessment of sensitivity prior to the release of the announcement. The initial go-live date was postponed, but it is now anticipated that these new functionalities will be available from Monday, 6 August 2018.
- ASX Listing Rules Guidance Note 1 (section 3.20) and Guidance Note 4 (section 3.2) have been updated to set out ASX's expectation that the listing prospectus or PDS for an entity established outside Australia will include a summary of any taxes or duties payable in its place of incorporation, registration or establishment by an investor in relation to the acquisition, holding or disposal of securities in the entity or, if there are no such taxes or duties, a statement to that effect.
- The ASX has released a new consultation paper in connection with the ongoing project to replace the Clearing House Electronic Subregister System (CHESS). The consultation paper outlines potential changes to the documentary requirements for transfers from issuer holdings to CHESS holdings by ASX settlement participants that are not also ASX trading participants. The deadline for providing feedback is 10 August 2018.
As noted in previous publications of Nucleus:
- FIRB's new online application portal went live on 2 July 2018;
- FIRB application fees were indexed from 1 July 2018 resulting in slight increases; and
- the Security of Critical Infrastructure Act 2018 (Cth) commenced on 11 July 2018. This legislation requires owners and operators of critical infrastructure assets to provide information regarding those assets to FIRB by 11 December 2018, and to subsequently notify FIRB of any changes to that information within 30 days.
In July, the ACCC did not authorise or block any transactions, although it has opened informal reviews into Nine's proposed merger with Fairfax and Cabcharge's proposed acquisition of Mobile Technologies International Pty Ltd.
While no decision has been taken on the Nine/Fairfax deal, the ACCC is expected to clear it after a review process lasting around 12 weeks and involving industry consultation and careful consideration of the changing landscape of digital media.
In addition, the ACCC has taken enforcement action against Cryosite Limited for 'gun-jumping' conduct associated with its pre-transaction planning activities undertaken as part of its abandoned proposed acquisition of Cell Care Australia. This is the first case brought by the ACCC alleging 'gun jumping' in a merger, and is a reminder to transaction parties who are competitors to carefully manage contact and pre-planning activities in M&A transactions.
Specifically, the ACCC argues (among a number of allegations) that the asset-sale agreement, which required Cryosite to refer all customer enquiries to Cell Care after the agreement was signed but before the acquisition was completed, amounted to cartel conduct. This was on the basis that the agreement restricted the supply by Cryosite of services that would compete with Cell Care, and resulted in the allocation of customers between Cryosite and Cell Care. When Cryosite announced the transaction to the ASX on 23 June 2017, it indicated that it had ceased marketing, selling, collecting and processing cord blood and tissue, choosing instead to sell its assets to Cell Care. Although the proposed acquisition of Cryosite by Cell Care was abandoned in January 2018, Cryosite has still not re-entered the market, and has retained the compensation it received from Cell Care to acquire the assets.
The case is a reminder to transacting parties who are competitors to carefully manage contact and pre-planning activities in M&A transactions.
The fees payable for Panel applications have been revised as of 4 July 2018. A fee of $2,400 is now payable on an application to the Panel pursuant to the Treasury Laws Amendment (ASIC Fees) Regulations 2018 (Cth).
Revised Guidance Note 1 Unacceptable Circumstances – Last and Final Statements was published to provide market participants more certainty by establishing a four month time frame before which departure from a no increase statement may give rise to unacceptable circumstances. Footnote 39 now states that unacceptable circumstances are likely to arise if, after making a no increase statement, the bidder (or an associate or the bidder) announces another bid (or a scheme) within four months after the bid closes and offers increased consideration, unless that is contemplated by a clear qualification to the no increase statement.
The Molopo saga continues this month after the Panel made a final order requiring Molopo to pay Aurora Funds Management Ltd in its capacity as responsible entity of the Aurora Fortitude Absolute Return Fund compensation in relation to certain of Aurora's bid costs and Aurora's costs in relation to the proceedings. The company subsequently submitted an application seeking a review of the Panel's decision.
The Panel was also was served with a judicial review application regarding its decision in Finders Resources Limited 03R.
Employment: Retailer to pay over $1 million in damages for injuries arising from use of a safety step
In a recent case, Coles sought to overturn a decision to award $1 million in damages to one of its employees who sustained injuries when she incorrectly dismounted a safety step sideways. The primary judge had found that Coles had breached its duty to the employee by not implementing appropriate safeguards against the risk of the employee falling when dismounting the step sideways.
On appeal, Coles argued that a reasonable person in its position would not have taken precautions in respect of the risks associated with the safety step, because it was obvious to an adult employee how to use the step safely. It also asserted that any risks of injury were extremely low, having regard to the ubiquity of these steps in retail stores Australia-wide and the frequency in which these steps are used each day.
The Court disagreed with Coles. It found that the safe procedure for mounting and dismounting the step was not readily apparent to the employee, so a reasonable person in Coles' position was expected to warn against risks of injury and take reasonable precautions to prevent these risks arising through control measures such as training and supervision. The Court said this was particularly the case given the repetitive nature of the work and the fact that employees are likely to take shortcuts when using pieces of equipment to get work done in the most efficient way possible.
It is important to note that in this case the Court placed significant emphasis on the fact that Coles had undertaken a risk assessment in relation to safety steps, which had recommended certain risk mitigation precautions (including training and supervision), but these had not been implemented, even though it would not have been overly burdensome or expensive for Coles to do so.
Has the ATO tolled the bell for demerger and acquisition scheme structures?
In late June, the Deputy Commissioner of Taxation formally refused a request from AMA Group Limited for demerger relief in connection with a demerger and acquisition transaction involving private equity firm Blackstone. The ATO's decision, which resulted in the termination of that transaction, casts doubt on the availability of capital gains and income-tax relief for transactions involving demerger and acquisition structures. It follows a similar decision by the ATO earlier this year in connection with the demerger of OneMarket Limited from Westfield Corporation. See the full update.
Revised UK Corporate Governance Code
While the ASX Corporate Governance Council is currently mulling over proposed changes to the ASX Corporate Governance Principles and Recommendations, the UK Financial Reporting Council issued a revised UK Corporate Governance Code, to take effect from 1 January 2019. Like a number of the proposed changes to the ASX Corporate Governance Principles and Recommendations, the changes in the UK have emphasised the importance of companies maintaining successful relationships with a wide range of stakeholders and fostering a culture that promotes integrity and openness, values diversity and is responsive to the views of shareholders and wider stakeholders. The changes put forward in the UK come at an interesting time for Australian companies, with the existing ASX consultation process, increased scrutiny of corporate governance practices and heightened awareness of whether companies are behaving as good corporate citizens.
Approval of option issue for 'all purposes'
On 26 July 2018, the NSW Supreme Court handed down its decision in relation to a shareholder resolution for the issue of options to the CEO of Bellamy's Australia for the purposes of Listing Rule 7.1 and 10.14, and 'for all other purposes'. The Court found that the resolution was not sufficient to constitute shareholder approval of termination benefits for the purposes of sections 200B and 200E of the Corporations Act.
This case is a good reminder of the importance of specificity in the drafting of the relevant resolution as well as appropriate disclosure in the explanatory notes.
- 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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