Corporate Advisory Update - April 2023 | Gilbert + Tobin Lawyers: Law Firm in Sydney, Melbourne & Perth

21/04/2023

In this edition of Gilbert + Tobin's Corporate Advisory Update, we focus on key legal developments over the last month which are particularly relevant to in-house counsel.

Greenwashing: Senate inquiry announced

On 29 March 2023, the Senate referred the issue of greenwashing for inquiry and report. The Senate is due to report by 5 December 2023 and submissions are due by 8 June 2023.

The terms of reference state that the Senate inquiry will focus on:

environmental and sustainability claims made by companies in industries including energy, vehicles, household products and appliances, food and drink packaging, cosmetics, clothing and footwear;
the impact of misleading environmental and sustainability claims on consumers;
domestic and international examples of regulating companies' environmental and sustainability claims;
advertising standards in relation to environmental and sustainability claims;
legislative options to protect consumers from greenwashing in Australia; and
any other related matters.

The outcome of the inquiry is likely to have significant policy and regulatory implications across a range of business sectors.

In international developments, as part of a global push to tackle “greenwashing”, the European Commission on 22 March 2023 published their proposal for a Directive on substantiation and communication of explicit environmental claims (Green Claims Directive).

The Green Claims Directive aims to address greenwashing by establishing a clear and uniform regime for the regulation of environmental claims and labels across the European Union. The goal is to ensure that “consumers are provided with reliable, comparable and verifiable information which enables them to make more environmentally sustainable decisions”. The Commission also wants to boost the competitiveness of companies that are taking genuine efforts to increase the sustainability of their business, thereby incentivising more companies to follow suit.

Safeguard Mechanism (Crediting) Amendment Act 2023 becomes law

On 11 April 2023, the Federal Government reached a significant milestone toward implementing reforms to the Safeguard Mechanism, with the Safeguard Mechanism (Crediting) Amendment Act 2023 (Act) receiving Royal Assent.

The principal function of the Act is to amend the National Greenhouse and Energy Reporting Act 2007 (Cth) and Australian National Registry of Emissions Units Act 2011 (Cth) to establish a framework for creating Safeguard Mechanism Credits (SMCs), including how SMCs will be issued, transferred and surrendered in the Australian National Registry of Emissions Units. SMCs are carbon credits issued to facilities of large industrial emitters whose emissions fall below their designated baselines,and will be able to be traded and used by other facilities to reduce their own net emissions.

Our recent article 'Parliament approves the Safeguard Mechanism (Crediting) Amendment Bill 2023' recaps on the Act’s key features, and canvases the amendments made to it over the course of its passage through Parliament. It also looks ahead to further changes to the Safeguard Mechanism reform design which we expect to see in the final legislative rules

ACCC advances on sweeping reforms to Australia’s merger regime

On 12 April 2023, the ACCC affirmed its support for significant reforms to Australia’s merger control regime. In a speech to the National Press Club, Chair Gina Cass-Gottlieb said in her first year as Chair she has observed first-hand the challenges with the current merger regime settings in Australia’s Competition and Consumer Act 2010 (Cth) and considers that changes are required, based on 3 key factors that the ACCC asserts exist under the current voluntary and non-suspensory model:

alleged high levels of market concentration;
alleged lack of cooperation by merger parties in informal clearance process; and
alleged underenforcement against anticompetitive mergers.

The ACCC proposes:

to introduce a mandatory and suspensory notification system requiring parties to notify the ACCC upon reaching certain thresholds and granting the ACCC “call in” powers to review acquisitions which fall below these thresholds; and
changes to the substantive merger test, including expansion of the prohibition on mergers beyond those that “substantially lessen competition”, and an update to the factors relevant to assessing whether a merger is anticompetitive.

2023 – 2030 Australian Cyber Security Strategy: Leading the Charge

Australia is in the midst of a cybersecurity revolution.

On 8 December 2022, the Minister for Cyber Security, the Hon. Clare O’Neil MP, announced the development of the 2023-2030 Australian Cyber Security Strategy (Strategy). The Minister appointed an Expert Advisory Board (chaired by Telstra’s former CEO, Andrew Penn) to advise on the development of the Strategy, and on 27 February 2023, the Expert Advisory Board released a discussion paper (Discussion Paper), inviting the public to make submissions on how Government can achieve its vision of making Australia the most cyber secure nation by 2030. Submissions on the Discussion Paper were due by 15 April 2023.

Both the Strategy and the Discussion Paper reinforce the notion that Australia is leading the charge in cyber security enhancement, a fact which has received international recognition from the MIT Technology Review Cyber Defence Index which ranked Australia as showing the greatest progress and commitment to enhancing cyber security.

ASIC Commissioner encourages directors to consider ASIC’s report into improving oversight of whistleblower programs

On 6 April 2023, ASIC Commissioner, Danielle Press, released an article encouraging directors to revise their company’s whistleblower policy in accordance with ASIC’s recent report, REP 758 Good practices for handling whistleblower disclosure (Whistleblower Report), released on 2 March 2023.

The Commissioner stated that boards are responsible for the company’s governance and risk management arrangements which includes whistleblowing policies, and directors have a “key role to ensure their firm’s program is useful and effective”.

The Commissioner also:

restated the good practices that the Whistleblower Report identified, including regular reporting to the board about how whistleblower programs are being designed, resourced and operated, insights from data analytics to understand emerging themes, and briefings and training on the company’s whistleblower policies and directors’ duties; and
noted that directors’ responsibilities go beyond handling individual disclosures, requiring board oversight of the company’s whistleblower program.

See also ASIC’s Information Sheet 247 Company officer obligations under the whistleblower protection provisions. We expect continued ASIC focus on whistleblower provisions as a key plank of its broader enforcement strategy, as they effectively achieve an element of “outsourcing” of the regulator’s policing function over corporate malfeasance.

New foreign ownership register from 1 July 2023

The new Register of Foreign Ownership of Australian Assets (Register) is expected to commence from 1 July 2023. The regime for the new Register is in Part 7A of the Foreign Acquisition and Takeovers Act 1975 (Cth) (FATA) which was inserted in 2021 but doesn’t become effective until the Government proclaims a commencement date.

Consultation on an exposure draft of the Treasury Laws Amendment (Measures for Future Instruments) Instrument 2023: Register of Foreign Ownership of Australian Assets closed on 31 March 2023 (see Treasury consultation page here).

Based on the exposure draft regulations, key features of the new Register (which will not be publicly available) include:

foreign investors will need to notify the Commissioner of Taxation (the Registrar) of a broader range of events relating to interests in land, entities and businesses and assets in Australia (including changes to the foreign person’s interests), including some interests that would not have been subject to FIRB applications, particularly in relation to certain interests in land;
the above obligations will also apply to Australian entities which become foreign persons due to changes in their ownership (unless the government addresses feedback received from the market on duplication of notices);
such events or changes must be notified to the Registrar within 30 days of the relevant “registrable event day”; and
there will be no fees for notices but there will be civil penalties if a notice is not given within the required 30 day period.

The new Register will substantially increase the regulatory burden on foreign persons and Australian entities which may become foreign persons. Such entities will also need to ensure they have appropriate monitoring and compliance systems in place to ensure they meet their obligations.

The following measures aim to minimise the regulatory burden and duplication:

current exemptions from reporting obligations under FATA will continue; and
a notification to the Registrar will satisfy any other obligation to report to the Treasurer under FATA.

However, there are currently a number of technical issues which mean that not all duplication has been eliminated.

The new Register will replace the existing Register of Foreign Ownership of Agricultural Land, Register of Foreign Ownership of Water Entitlements and Register of Residential Land. The Register of Foreign Owners of Media Assets (maintained by the Australian Communications and Media Authority) and the Register of Critical Infrastructure Assets (maintained by the Cyber and Infrastructure Security Centre) will continue to operate.

Thanks to Deborah Johns for her contribution to this Insight.

New laws requiring relevant employers to publish gender pay gap information foreshadow further workplace gender equality reform

On 30 March 2023, Parliament passed the Workplace Gender Equality Amendment (Closing the Gender Pay Gap) Act 2023 (Cth) (Act), which aims to improve gender pay gap transparency in both the public and private sectors.

Among other things, the Act requires all companies that employ 100 or more employees in Australia to lodge annual reports containing information relating to six “gender equality indicators”. These indicators include:

the company’s employee gender composition;
the gender composition of governing bodies (including company boards); and
consultation with employees on issues concerning gender equality in the workplace.

This is the first of several legislative initiatives comprising the Albanese Government’s workplace gender equality reform agenda. For example, the Albanese Government is committed to introducing a new gender equality standard requiring employers with 500 or more employees to commit to and achieve specific gender-related targets, and to report their progress against those targets. Minister Katy Gallagher also indicated that the Government is considering introducing laws requiring employers to record data relating to non-binary employees. The changes are part of a trend towards greater focus on the “social” and “governance” aspects of the ESG movement, which shows no signs of abating. See media release.

Thanks to Justin Mannolini and Cassandra Lee for this insight.

Beach J affirms scheme of arrangement reform proposed by Jackman J in re Vita group

On 17 April 2023, at the second hearing of Re Oz Minerals Limited, Beach J confirmed that he would, in respect of members’ schemes of arrangement applications that are brought before him, adopt the protocols foreshadowed by Jackman J in Re Vita Group. The reforms proposed by Jackman J (which are summarised in a recent insight 'Federal Court reforms schemes of arrangement') permit a more focussed and streamlined approach to the evidence and paperwork provided to the court when it considers approving a scheme of arrangement.

As Beach J had earlier communicated his intention to G+T (who are the solicitors for Oz Minerals), the evidence prepared and relied on at the second court hearing was refined and focussed to align with Jackman J’s observations. This is the first time orders approving a members scheme of arrangement have been made on the basis of the new regime, and is a welcome development for commercial participants.

Beach J was careful to indicate that his comments only applied to scheme applications brought before him. Until a practice note is announced (and in this regard Beach J did express some reservations), it remains to be seen whether the reforms will be adopted by other Courts and Judges.

Federal Court comments on the necessity of court approval of shareholder campaign call scripts

On 21 March 2023, Justice Banks-Smith of the Federal Court gave reasons in Re Essential Metals Limited [2023] FCA 240. Recent case law dealing with shareholder engagement campaigns has suggested that scheme proponents should obtain court approval before undertaking such campaigns. However, Banks-Smith J provides a different view in the Essential Metals case, suggesting that court approval is only necessary where information in the proposed communication is substantial and is not contained in the scheme booklet. Where the information contained in shareholder communications outside the scheme booklet is substantive and deviates from the scheme booklet, scheme proponents should seek court approval, however, this is not intended to cover all communications with shareholders outside the scheme booklet.

Justice Banks-Smith inferred that often it will be sufficient for scheme proponents intending to undertake a shareholder engagement campaign to advise the court at the first hearing and subsequently provide evidence of such communication at the second hearing, avoiding the need for additional court approvals.

Thanks to Justin Mannolini and Cassandra Lee for this insight.

Takeovers and Schemes Review 2023: An analysis of Australian public mergers & acquisitions

Gilbert + Tobin has released its Takeovers + Schemes Review 2023, which examines 2022’s public mergers and acquisitions valued over $50 million involving ASX-listed companies. The Review provides our perspective on the trends for Australian M&A in 2022 and what that might mean for you in 2023.

We have outlined the key highlights from the full report 'Takeovers and Schemes Review 2023: an analysis of Australian public mergers & acquisitions in 2022'. To request a copy of G+T’s Takeovers & Schemes Review 2023, please click here.

Federal Court imposes penalties on architecture firm and former managing director for attempting to engage in cartel conduct

On 13 April 2023, the Federal Court held that architecture firm Ashton Raggatt McDougall Pty Ltd (ARM) and its former managing director had attempted to rig bids for a tender relating to a $250 million building project at Charles Darwin University in Darwin.

The ACCC commenced proceedings against the defendants in September 2022, alleging they had attempted to engage in illegal bid rigging. A bid rigging cartel occurs where two or more competitors agree not to genuinely compete against each other for tenders, manipulating the tender process to pre-determine who will “win” the tender.

ACCC Chair, Gina Cass-Gottlieb, emphasised the illegality of bid rigging, stating that the judgment against ARM should “serve as a strong reminder for everyone … that bid rigging is against the law, no matter what industry you are in”. The Court ordered ARM and its former managing director to pay penalties of $900,000 and $75,000 respectively. The former managing director was also ordered to release an educative notice about his experience on the Architects Registration Board of Victoria as a warning to other professionals.

Directors in all industries should be aware of this non-pecuniary order available to the Court, which publicises wrongdoing in a forum tailored to the wrongdoer. See ACCC media release.

Thanks to Justin Mannolini and Cassandra Lee for this Insight.

Consultation on proposed multinational tax integrity reforms

Treasury is consulting on three proposed measures to strengthen multinational tax integrity and transparency in Australia. The proposed measures were announced as part of the October 2022–23 budget, which was part of a previous consultation on multinational enterprise tax integrity and transparency in August and September last year.

Thin capitalisation - consultation closed on 13 April 2023

The exposure draft Bill is designed to strengthen Australia’s thin capitalisation rules in line with the Organisation for Economic Cooperation and Development best practice guidance.

Under the exposure draft Bill, the following changes would apply to income years commencing on or after 1 July 2023:

the existing asset-based thin capitalisation rules are replaced with new earnings-based rules for certain entities;
the worldwide gearing ratio will be removed; and
the arm’s length debt test will be replaced by an “external third-party debt test” which will be available for most entities claiming debt deductions on their external third-party debts.

However, perhaps more importantly, the exposure draft Bill includes a measure that denies interest deductions for Australian companies that have borrowed to invest in offshore companies. Under the existing rules, a deduction is available for interest on such borrowings even though the dividend income from the offshore companies is not taxable in Australia. This will impact many Australian-headquartered businesses as existing borrowings or structures are not grandfathered.

See recent insight 'Curbing interest deductions: The new thin capitalisation rules' for further detail on the proposed changes and their practical implications for taxpayers.

Disclosure of subsidiary information - consultation closed on 13 April 2023

The exposure draft Bill, if passed, will apply to Australian public companies (both listed and unlisted) which are required by the Accounting Standards to prepare financial statements in relation to a consolidated entity. Such companies will be required to provide, for financial years commencing on or after 1 July 2023, a “consolidated entity statement” as part of their annual reporting obligations with information on each entity within its consolidated group as at the end of the financial year, including:

the name of each entity;
whether the entity was a body corporate, partnership or trust;
whether the entity was a trustee of a trust, partner in a partnership, or participant in a joint venture within the consolidated entity;
if the entity was a body corporate - where it was incorporated or formed;
if the entity was a body corporate with share capital, the public company’s percentage ownership of that entity; and
the tax residency of each entity.

The changes would align with international approaches to enhanced corporate tax transparency (e.g., in the UK) as well as the Government’s commitment to implement a publicly available beneficial ownership register.

Denying deductions for payments relating to intangible assets connected with low corporate tax jurisdictions – consultation closes on 28 April 2023

The exposure draft Bill is designed to deter large multinational entities from avoiding tax by structuring their arrangements so that:

income from exploiting intangible assets is derived in a jurisdiction where no or low corporate tax rates apply; while
tax deductions for payments attributable to intangible assets made to an associate are claimed in Australia.

The amendments operate in respect of payments made to an associate, as well as liabilities incurred from an associate, on or after 1 July 2023.

Public country-by-country reporting - consultation closes on 28 April 2023

The exposure draft Bill, if passed, will require certain large multinational enterprises to publicly disclose:

certain tax information on a country-by country basis;
other new tax and financial information including a statement on their approach to taxation.

The objective of the changes is to improve information flows to help investors and the public compare entity tax disclosure to better assess whether an entity’s economic presence in a jurisdiction aligns with the amount of tax they pay in that jurisdiction.