Insights

23/10/17

Boardroom Brief: Week commencing 23 October 2017

THE WEEK AHEAD

Inflation data. The key economic event next week will be the release of the September quarter Consumer Price Index. It has been interesting to watch Westpac break from the pack in expecting inflation to remain muted despite an improvement in business conditions. Westpac believes structural change is to blame for stubbornly low inflation, and that there is a significant risk that inflation falls short of the Reserve Bank of Australia’s current forecasts in 2018 and 2019. However, it believes financial stability risks preclude cutting rates and raising rates in such an environment seems equally unnecessary while effective macroprudential tools are available to deal with unwelcome developments in asset markets – specifically east coast housing. If correct, we could be looking at a stable rates environment all through 2018.

KEY BOARDROOM BRIEF

Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Bill 2017 (Cth) was introduced into the House of Representatives and received its second reading speech on 19 October 2017. According to the explanatory memorandum, the Bill proposes to amend the Banking Act 1959 No. 6 (Cth) to establish the Banking Executive Accountability Regime. The Government states it is taking action to build “an accountable, competitive and stable banking system”. The Bill would also make amendments to the Australian Prudential Regulation Authority Act 1998 No. 50 (Cth). See the Bill and Treasurer of Commonwealth of Australia, the Hon Scott Morrison’s media release. Directors and certain senior executives of Authorised Deposit-Taking Institutions will need to pay close attention to the new regime, which takes effect from 1 July 2018. The “BEAR Act”, as it will become known, will impact on reporting and accountability regimes for ADIs and have a direct impact on compensation structures for senior executives.

ASX releases Reverse Takeovers Proposals. ASX has released its Reverse Takeovers – Final Listing Rule Amendments. This document outlines the final Listing Rule Amendments to regulate reverse takeovers, along with additional amendments to the voting exclusions in listing rule 14.11 and minor amendments to listing rules 1.2 and 1.3 to clarify the accounts that an applicant for listing must provide to ASX with its listing application. These Listing Rule amendments are due to come into effect on 1 December 2017. The implementation of the final Listing Rule Amendments follows the release on 12 April 2017 of ASX’s Response to Consultation: Reverse Takeovers – Shareholder Approval Requirements – Exposure Draft Listing Rule Amendments as reported in edition 12 of Boardroom Brief. Under the proposed amendments, if a transaction falls into the proposed definition of “reverse takeover", it will no longer benefit from the exceptions 5 and 6 in Listing Rule 7.2. As such, bidders will be required to obtain shareholder approval for proposed issues of securities under, or to fund, a reverse takeover. See ASX’s website for further information.

Continuous disclosure obligations – directors take note.  ASX-listed company Adairs Limited (Adairs) has paid a penalty of $66,000 after ASIC issued an infringement notice alleging it had not complied with the continuous disclosure obligations. ASIC has found there are reasonable grounds to believe that Adairs was in breach of its continuous disclosure obligations between 23 September and 2 November 2016 by failing to inform the ASX that its forecast figures for the 2017 full financial year would be materially lower than the market consensus. ASIC Commissioner Cathie Armour’s commented: "It is fundamental to the integrity of the market that listed entities disclose market sensitive earnings surprises immediately." The Adairs example is a case in point for Directors as to the importance of complying with continuous disclosure obligations. ASIC seems to be pressing Boards harder to take a more conservative view on the release of earnings surprises.

Passive investment companies will not qualify for lower company tax rate. On 18 October 2017, the Government introduced the Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2017 The Tax Bill amends the Income Tax Rates Act 1986 (Cth) to provide that a company will not qualify for the lower company tax rate if: (i) more than 80 per cent of its assessable income is passive income (for example, interest, dividends or royalties); and (ii) the aggregated turnover of the corporate tax entity for the income year is less than the aggregated turnover threshold for that income year. The amendments apply from the 2017-18 income year. See the Bill and the Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer’s media release .

Changes to competition law. The balance of the most significant changes to Australia’s competition laws in over 40 years were passed by the Federal Parliament on 18 October 2017. The changes are a response to the recommendations of the Competition Policy Review in 2015 chaired by Professor Ian Harper (Harper Review). The Treasurer’s press release in relation to the passing of the laws states that they will come into effect in the coming weeks. For further information please see G+T client publication It’s time: Harper changes to competition law pass through Parliament.

THE WEEK AHEAD

Inflation data. The key economic event next week will be the release of the September quarter Consumer Price Index. It has been interesting to watch Westpac break from the pack in expecting inflation to remain muted despite an improvement in business conditions. Westpac believes structural change is to blame for stubbornly low inflation, and that there is a significant risk that inflation falls short of the Reserve Bank of Australia’s current forecasts in 2018 and 2019. However, it believes financial stability risks preclude cutting rates and raising rates in such an environment seems equally unnecessary while effective macroprudential tools are available to deal with unwelcome developments in asset markets – specifically east coast housing. If correct, we could be looking at a stable rates environment all through 2018.

 

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