YOUR KEY BOARDROOM BRIEF

ASIC’s insights on regulatory and market developments in Australia. ASIC Commissioner Cathie Armour’s speech last Tuesday at the Australian Regulatory Summit 2019 discusses how markets are changing and companies are having to adapt, in particular, to new regulation, technology and innovation. Unsurprisingly, ASIC reiterates its enhanced supervisory activities, 2019-20 focus areas and the need for companies to conduct business professionally and fairly to drive cultural change within our markets. Directors should note ASIC’s reminder to Australian market participants — who place significant reliance on LIBOR —  that plans should be underway for a post-LIBOR world (including transitioning to alternative rates and putting in place robust fall-back provisions in contracts referencing LIBOR).

ASIC proposes restrictions on retail offers of ‘stub-equity’ in control transactions. ASIC’s consultation paper proposes a legislative instrument to the effect that: (i) offers of proprietary company scrip under a takeover bid or scheme of arrangement can no longer be made under the general exceptions for offers of securities under control transactions in section 708 of the Corporations Act; and (ii) stub-equity offers of public company scrip on terms that mandate the use of nominee or custody arrangements or entry into securityholder agreements cannot be used in a way that deprives investors of the protections they would otherwise have under the takeover and disclosing entity provisions. ‘Stub-equity’ typically consists of securities of interests in an unlisted bid or holding vehicle that provides offerees the option to retain continued economic exposure to the performance of the underlying business of an entity as an alternative to cash consideration that does not provide that same exposure. ASIC is concerned such structures run counter to the underlying policy of the provisions governing proprietary companies (ie, their shares are generally required to be closely held and they are subject to lower disclosure and governance requirements than public companies) and deny retail investors important protections. Submissions can be made until 17 July 2019.  See also ASIC’s media release.

Treasury consults on supervisory levies for 2019-20. The discussion paper, released last Tuesday, seeks views on the proposed financial institutions supervisory levies to apply for the 2019-20 financial year. The financial industry levies are set to recover the operational costs of certain Commonwealth agencies and departments including ASIC, APRA, the ATO and the ACCC. Submissions can be made until 14 June 2019.

Government comments on March Quarter national accounts. In the Treasurer’s media release, the March National Accounts were reported to show a 28th consecutive year of economic growth, with real GDP having grown by 0.4% over the quarter. This broad-based economic growth has been partially offset by a significant fall in mining investment as the last of the major LNG projects near completion. The economy continues to face international and domestic challenges – the RBA interest rate cut and income tax cuts announced in the Budget are predicted to provide a timely boost to household disposable income. The Government’s $100 billion infrastructure rollout and expansion of the instant asset write-off to businesses with a turnover of up to $50 million are also predicted to enhance economic activity. Of note to Directors, there appears to be limited appetite on the part of the returning government to adopt an adventurous reform programme in the current term. While this will concern those calling for productivity-boosting measures, including workplace, energy and taxation reform, it is likely that the regulatory landscape will remain relatively stable in the short term, potentially providing a favourable backdrop for deal making.

ASX releases Activity Report for May 2019. ASX’s Group Monthly Activity Report for May 2019 notes that total capital r­aised during the month was $5.1 billion, down 60% on the previous corresponding period (pcp). The average number of daily trades was 35% higher than the pcp and the average daily value traded on-market was $4.9 billion, 10% higher than the pcp. Average daily options volume was up 143% on the pcp, while the value of securities held in CHESS was 6% higher. 

THE WEEK AHEAD

Petroleum Resource Rent Tax (PRRT) consultation closes this Friday. Directors of oil and gas companies should note this week is the last opportunity to comment on the Government’s consultation paper (released in April) on gas transfer pricing arrangements. The consultation seeks to address the issues identified in economist Mike Callaghan’s PPRT review as well as views on how the rules will work for emerging developments in the industry.  See the Assistant Treasurer’s media release for more information.

ASIC report on market cleanliness expected this month. Market cleanliness is a measure of possible information leakage and likely insider trading before material price sensitive announcements. The report is expected to show overall cleanliness for the 2016 – 2019 review period was stable and remind Directors and senior management involved in M&A deals of the importance of robust security measures around deals.