25/05/2020

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 new regulation of litigation funders, the latest ASX300 board diversity index, “significant global entity” tax law changes, the Takeovers Panel’s reasons for the Accelerate decision, and COVID-19 accounting guidance on solvency and going concern assessments.

YOUR KEY BOARDROOM BRIEF

Regulation of litigation funders.  From 22 August 2020, litigation funders will be required to hold an AFSL from ASIC and comply with the managed investment scheme regime.  The removal of the current exemptions held by litigation funders will oblige such funders to act honestly, efficiently and fairly, maintain an appropriate level of competence to provide financial services, and have adequate organisational resources to provide the financial services covered by the licence.  These changes complement the inquiry being undertaken by the Parliamentary Joint Committee on Corporations and Financial Services into litigation funding and the regulation of the class action industry, which is due to report by 7 December 2020.  See Treasurer’s media release.

ASX300 Board diversity update. Watermark Search International, an Australian executive search firm, in partnership with the Governance Institute of Australia, released its latest 2020 ASX300 Board Diversity Index, which surveyed 296 ASX-listed companies and covered five key issues; being gender diversity, cultural diversity, skills diversity, age diversity and tenure.  The index highlights good progress in gender diversity but identifies ethic and cultural diversity as lagging; with board and senior executive composition not reflective of the society we live in or the international markets in which they operate.  You can access a copy of the index here.

Accelerate – Takeovers Panel publishes reasons for declaration of unacceptable circumstances.  The decision relates to the acquisition by Accelerate Resources Limited (Accelerate) of a kaolin project in consideration for Accelerate shares.  The Panel found that Accelerate had increased its voting power in its own shares from below 20% to above 20% by entering into voting deeds with various vendors in  contravention of s 606 of the Corporations Act (with none of the s 611 exceptions applying) and delayed disclosure of its relevant interest in the shares the subject of those deeds in contravention of s 671B.  This compromised the integrity of the market and meant Accelerate’s shareholders were unaware of the voting block that existed as a result of the voting deeds and had insufficient time to consider the implications of that voting block before two general meetings of Accelerate (including its annual general meeting).  Although the Panel dismissed allegations against Accelerate of frustrating action, it clarified that while Guidance Note 12: Frustrating Action does not apply to a section 249D meeting to consider changes to a company's board, a placement made prior to such a meeting may have an effect on control and impact voting at the meeting in an unacceptable way.  You can access the Panel’s reasons here.  The decision is a reminder that a company may breach the takeovers provisions by acquiring a relevant interest in more than 20% of its own shares.

Legislation extending the "significant global entity" definition passes both Houses.  Directors of multinational groups (including local subsidiaries) should note both Houses have passed amendments to taxation legislation extending the definition of a “significant global entity” (SGE) in order to widen the application of multinational tax avoidance rules.  The changes will take effect on the first 1 January, 1 April, 1 July or 1 October to occur after the day it receives royal assent.  At present, an SGE only encompasses groups headed by listed companies and private companies.  An SGE will now include members of large multinational groups headed by proprietary companies, trusts, partnerships and investment entities.  An SGE will be an entity that has annual global income of A$1 billion or more, or one that is a member of a group of entities that are consolidated for accounting purposes as a single group and the global parent entity of the group has annual global income of A$1 billion or more. 

AASB and AUASB releases report on solvency and going concern assessments.  The joint report issued by the Australian Government Accounting Standards Board (AASB) and Australian Government Auditing and Assurance Standards Board (AUASB) provides an overview of the impact of COVID-19 on solvency and going concern assessments including director's duties when making such assessments and the appropriate disclosures in a company’s financial statements.

THE WEEK AHEAD

COVID pathways.  The brief political truce that prevailed during the peak of the COVID-19 crisis in Australia has officially ended, with the Government and opposition trading blows over the country’s economic response and State premiers sparring over the pace of easing of restrictions.  We expect competition between states to drive acceleration of normalisation moves over the coming weeks, although health officials continue to warn of the risk of a “second wave” of infections coming into the annual flu season.  Last week’s “bonus” of a $60 billion accounting error by Treasury may lead to a broadening of JobKeeper entitlements, and directors should remain alert to changes in this area.

Revised CHESS replacement implementation timeline.  The ASX will consult next month on revised timing.  In the meantime, ASX has released its response to consultation feedback on Tranche 1 measures.

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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.