This is a service specifically targeted at the needs of busy non-executive directors. We aim to give you a “heads up” on the things that matter for NEDs in the week ahead – all in two minutes or less.
In this Edition, we consider recent trends in ASIC’s feedback on post-LIBOR preparations, ASX’s latest monthly activity report and further COVID-19 related developments.
A short week this week due to the Easter break.
YOUR KEY BOARDROOM BRIEF
ASIC’s feedback on post-LIBOR preparations. ASIC’s responses to the ‘Dear CEO’ letter from selected major Australian financial institutions, which details their preparation for the end of LIBOR, highlights the importance of planning for the transition and what issues should be front of mind for financial and corporate institutions. ASIC reminds 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. Directors, too, should ensure management has considered and if necessary modelled the financial impact of a transition away from LIBOR on their banking arrangements. See ASIC’s media release.
ASX releases Activity Report for March 2020. ASX’s Group Monthly Activity Report for March 2020 notes that total capital raised during the month was $4.2 billion, down 22% on the previous corresponding period (pcp). The average number of daily trades was 96% higher than the pcp and the average daily value traded on-market was $10.5 billion, 111% higher than the pcp. Average daily options volume was down 49% on the pcp, while the value of securities held in CHESS was 13% lower. The report captures the period in which COVID19-related volatility first gripped the market, with the S&P/ASX200 VIX index peaking at 53.10 on 18 March (it has since declined to around 32).
AICD highlights key COVID-19 related boardroom issues. A useful article by the Australian Institute for Company Directors (AICD) provides an overview of the COVID-19 related regulatory relief and reform introduced to date and the further actions it recommends to assist companies ensure financial sustainability. As Directors face an ever-expanding list of challenges, ranging from solvency concerns to employee relations to operational matters, the AICD suggests the primary focus should be on keeping the business afloat, looking after employees, and maintaining relationships with suppliers, customers and financiers. The AICD calls for a temporary safe harbour for directors and companies from securities class actions, clarifications for general meetings to remove the risk of legal action from third parties, a moratorium on regulatory change and consultations, a temporary pause on ASIC’s ‘why not litigate?’ enforcement approach and a clear and nationally consistent approach for supporting Directors of not-for-profits and charities navigate COVID-19 issues.
ASIC to provide additional time for unlisted entity financial reports. Owing to current remote work arrangements, travel restrictions and other COVID-19 impacts, the deadline for unlisted entities to lodge financial reports under Chapters 2M and 7 of the Corporations Act will be extended by one month for balance dates from 31 December 2019 to 31 March 2020. The extended deadlines will not apply for 31 December 2019 balance dates if the reporting deadline has already passed. Where possible, ASIC encourages lodgement within statutory timeframes to meet the information needs of shareholders, creditors and other users of their financial reports, or tomeet borrowing covenants or other obligations. For listed entities, ASIC will consider applications to extend the reporting deadline in appropriate circumstances. ASIC continues to assess the impact on financial reporting for balance dates after 31 March 2020, including how market conditions and COVID-19 developments are affecting financial reporting and AGM obligations for entities with 30 June 2020 balance dates. See ASIC’s media release.
Corporate and finance transactions – can you terminate or renegotiate terms? As the unpredictable and sudden economic effects of COVID-19 disrupt many deals and put the financial health of some corporations under stress, buyers, lenders and underwriters ought to consider whether they can terminate or renegotiate deals by seeking to rely on material adverse change (MAC) provisions in sale, underwriting and loan agreements or reopen price/term negotiations where the value of the target/issuer has been reduced due to COVID-19 impacts. See G+T’s article “COVID-19: Material adverse change and material adverse effect clauses” for some guidance to Directors involved in M&A, ECM and financing transactions on drafting and negotiating MAC clauses.
Expenditure relief consideration for WA mining companies. See G+T’s overview of existing statutory exemptions that a tenement holder may seek to rely on if they are unable to meet their expenditure requirements arising from the Government’s restrictions to combat the spread of COVID-19.
THE WEEK AHEAD
Signs of an exit path from lockdown? As the pandemic infection rate curve begins to flatten in Australia, health experts have indicated the Government is likely in the coming weeks to turn its mind to how we can restart the economy and dial back government spending and debt. Directors should brace for a staged relaxation of policies – although the hope will be those policies will balance a relatively low impact in terms of new infections and high impact in terms of reducing social and economic costs. The recent experience in Singapore, which has seen a sudden surge in infections, shows that this will likely be a slow and fragile path to normality.
US election. Amidst the chaos, many may have forgotten that we are only seven months from a US Presidential election. The Democratic nomination is all but determined, with Bernie Sanders endorsing rival Joe Biden in a live stream event last night. We expect to see key themes and campaign positions emerge this week, with an early focus on the Trump administration’s response to the COVID-19 outbreak.