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 ASIC’s grant of temporary relief from certain disclosures in Product Disclosure Statements for litigation funding schemes, IOSCO’s vision for an International Sustainability Standards Board and a New South Wales Supreme Court case clarifying that COVID-19 will not result in frustration of a business purchase contract. We also take a look at the impacts of the recently announced 2021-22 Federal Budget.
GOVERNANCE & REGULATION
ASIC grants temporary relief from certain dollar disclosures for litigation funding schemes. Directors involved in class action litigation may be aware that from August 2020, litigation funding schemes generally need to hold an Australian financial services licence (AFSL) and now fall within the ambit of the managed investment scheme regime under the Corporations Act, which has given rise to some difficult issues around disclosure. ASIC has followed a similar practice of courts by providing relief to responsible entities of registered litigation funding schemes from the requirement to disclose certain sensitive information in dollar terms in Product Disclosure Statements. ASIC’s relief exempts dollar disclosure in relation to the funding budget, the legal costs budget, adverse costs insurance premiums and the scheme’s estimated funding, legal costs and claim proceeds. The relief is only available where this financial information has been separately disclosed to all known members of the scheme. This relief recognises the strategic sensitivity of public disclosure of this financial information in the context of litigation, noting it could provide a tactical advantage to opposing parties in class actions, meaning such disclosure may not be in the interests of scheme members. The temporary relief will operate for a period of 12 months from 28 April 2021, and its future implementation will be subject to public consultation to be conducted later in the year. See ASIC’s media release.
IOSCO sees strong support for its vision for an International Sustainability Standards Board under the IFRS Foundation. Following two roundtables on 26 April and 7 May 2021, the Sustainable Finance Taskforce of IOSCO emphasised the importance of continuing the pace and building on the existing momentum to deliver the urgent improvements needed on sustainability reporting. There was strong support for the key elements of IOSCO’s vision for an International Sustainability Standards Board under the IFRS Foundation. Across the two sessions, IOSCO gathered feedback from stakeholders on three main issues, namely: how to best give the ISSB a running start in the development of investor-oriented standards with an enterprise value lens, how to accelerate the implementation of ISSB standards, and how to deliver a building blocks approach. See IOSCO’s media release.
Court rules that COVID-19 does not result in frustration of abusiness purchase contract. In Dyco Hotels Pty Ltd v Laundy Hotels (Quarry) Pty Ltd  NSWSC 504, the NSW Supreme Court clarified that the outbreak of COVID-19 and the various restrictions imposed as a result, would not result in a business purchase contract being frustrated where a seller is unable to conduct business in the ordinary course. In this case, the purchaser of a hotel business claimed that the business purchase contract was frustrated following the outbreak of COVID-19 and the resulting restrictions imposed, in particular, allowing the seller to provide takeaway services only. The purchaser argued these restrictions modified the business’ operations and resulted in the seller failing to comply with a standard term in the contract requiring it to carry on business “in the usual and ordinary course” – arguing that this resulted in frustration of the contract. The NSW Supreme Court found that there was no fundamental commercial difference between the actual and contemplated performance of the contract which would make it unjust to hold parties to its terms. The Court also noted the requirement to conduct business in its ordinary course does not require a seller to conduct business in a manner contrary to law. This case serves as a reminder that for many contracts, COVID-19 and its implications will now be expected to be considered as part of “business as usual”, and that parties are practically constrained by the restrictions imposed.
OVER THE HORIZON
Federal Budget 2021-22 committed to securing Australia’s recovery from COVID-19. While last year’s budget was “unprecedented”, this year’s 2021-22 Federal Budget was in some ways more predictable in its aim to secure Australia’s COVID-19 recovery. Key themes from this year’s Federal Budget are driving down unemployment and increasing spending in the public and private sectors. The spending spree was more significant than most were expecting, pumping billions into the economy over the coming months, particularly to low and middle income earners and through business tax relief, which is expected to see a rise in consumer spending. The Federal Budget also provides additional spending in areas of previous fiscal neglect, such as the elderly, the socially disadvantaged and women’s safety, which round out the key focus areas. The prospect of structural reform will need to wait, it seems, until the Government sees sustained growth in employment and wages. See G+T’s Australian Federal Budget Analysis 2021-2022.