14/09/2020

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 the AICD and Governance Institute’s new report, the Senate Select Committee on Financial Technology and Regulatory Technology’s recommendations, the extension of temporary COVID-19 insolvency relief for directors of operating companies and changes to FIRB thresholds relating to certain commercial leases. We also consider indigenous and community relations as an emerging AGM issue following executive changes at Rio Tinto.

YOUR KEY BOARDROOM BRIEF

AICD and Governance Institute launch new report.  The AICD and Governance Institute’s Governance through a crisis: Learning from COVID-19 report looks into the impact of COVID-19 on board practices and insights from senior directors, survey responses and roundtable feedback into the governance challenges in the current climate.  Unsurprisingly, the research has revealed that COVID-19 has had a profound impact on how boards operate and what they focus on.  The insights explored include: how boards have successfully adapted to virtual meetings (including AGMs), the need for agile decision-making in a crisis, the importance of contingency planning and how technology can elevate stakeholder voices.  The report includes recommendations for directors and company secretaries, and practical tips for working effectively in the virtual environment and through a crisis.  See also the report here

Senate committee supports meetings moving online.  Also on virtual meetings, the Senate Select Committee on Financial Technology and Regulatory Technology has published an interim report making 32 recommendations, including (notably) recommending that the Corporations Act 2001 (Cth) should be amended to permit companies to choose the best format for holding meetings, including AGMs, which may include the use of technology to host virtual or hybrid meetings.  The Senate Select Committee also recommended that the Act be amended to allow companies to communicate with shareholders electronically by default (but retaining the right to opt-in to paper communications).  Such amendments would see the permanent inclusion of some of the liberties which companies have been given with respect to holding meetings and dispatching communications to shareholders during COVID-19.  See also the Senate committee’s report here

Temporary COVID-19 insolvency relief extended.  The Treasurer has announced that company directors’ relief from insolvent trading will be extended to 31 December 2020.  This relief means that directors (of operating but not holding companies) will not be personally liable for insolvent trading for a period of six months, in relation to debts incurred in the ordinary course of business.  However, as noted in our earlier boardroom briefs, directors should note that this measure does not relieve directors of their duty to act in the best interests of their company, or, if their company is insolvent or approaching insolvency, to take account of the interests of creditors, and to at all times act with due care and attention.  With this extension in mind, directors should consider whether their companies are solvent and likely to continue to be solvent over a period of one, three and six months.  See also the Treasurer’s release here

FIRB thresholds restored for renewals and variations of certain commercial leases. FIRB updated its COVID-19 temporary measures guidance note on 4 September 2020 with the effect of restoring monetary thresholders for renewals and material variations of leasehold interests in land where the lease is in relation to non-sensitive, commercial and developed land, and the same acquirer held a substantially similar leasehold interest immediately before 10:30pm on 29 March 2020.  This winds back some of the changes announced by the Treasurer in March, which temporarily reduced the monetary thresholds for FIRB review to $0.  While this addresses some of the – arguably – unintended consequences of the across-the-board reduction in monetary thresholds, other FIRB monetary changes made as a result of COVID-19 remain unchanged.  Importantly, the $0 monetary threshold continues to apply to entry into a lease for a likely term of five or more years, all other foreign acquisitions of interests in Australian land and foreign acquisitions in corporations reviewable under the Foreign Acquisitions and Takeovers Act 1975 (Cth) and the Foreign Acquisitions and Takeovers Regulations 2015 (Cth).  See also FIRB’s guidance note here.

EMERGING ISSUES

Race relations in the Boardroom. In previous editions of Boardroom Brief we suggested that the Black Lives Matter movement was likely, in time, to find voice in shareholder activism, possibly displacing climate change as the focus of ESG activism during the forthcoming AGM season.  Last week we saw Rio Tinto’s chief executive, Jean-Sebastien Jacques, and two other senior executives step down following Rio Tinto’s actions at Juukan Gorge earlier this year, and the ensuing shareholder revolt.  We see directors and executives being held to account for their companies’ shortcomings in relation not just to shareholder returns, but also broader stakeholder relations. This is a particularly fertile ground for dissent in the resources sector, given the industry frequently operates in areas where indigenous and local community interests can conflict with mining.  Heading into the AGM season, Directors should expect questioning on this issue and a push from shareholders for tangible outcomes and metrics in the area of race and community relations, by which performance can be measured.

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Our COVID-19 hub collates important articles and legal advice on various aspects of COVID-19 on how it may impact your business.