28/01/2020

Welcome to Boardroom Brief. 

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.

Despite a disastrous bushfire season in the Eastern States, the 2020 calendar year kicked off on a positive financial note with optimism over the “Phase 1” trade deal between the US and China triggering a mini bull market which pushed the S&P ASX100 to a new record in January.  However, global trade negotiations, an easing Chinese economy, the uncertainty created by an impeachment trial that threatens to go “off script” for President Trump and tensions between the US and Iran, will continue to pose challenges to both policy makers and business in the Year of the Rat.

In this Edition, we consider the issue of a director’s personal interest in a re-election vote, the Takeovers Panel decision in the Smoke Alarms case, practical whistleblower challenges and ASIC’s consultation over section 444GA orders in DOCAs.

YOUR KEY BOARDROOM BRIEF

Director's personal interest in re-election vote
Most directors of public companies will be familiar with the operation of section 195 of the Corporations Act, which generally requires them to abstain from deliberations on matters in which they have a material personal interest.  In Anglo Australian Resources N.L. v Bloom Financial Advice Pty Ltd [2019] WASC 470 Justice Hill of the WA Supreme Court held that such matters include a decision to challenge a notice convening a meeting of shareholders to consider their removal.  Directors in similar situations should exclude themselves from the board meeting, or if possible, request that the uninterested directors pass a resolution allowing them to be present and vote in accordance with section 195(2).

Smoke Alarms! divestment orders
The Takeovers Panel has made a declaration of unacceptable circumstances and divestment orders in relation to the affairs of Smoke Alarms Holdings Ltd (SAH). The application concerned a convertible note issue agreement between SAH and Fast Future, which is controlled by Randal Deer. SAH sought shareholder approval under item 7 of section 611 of the Corporations Act for the issue of SAH shares to Fast Future, which the explanatory memorandum disclosed would result in Randall Deer's voting power in SAH increasing from 5.7% to either: (i) 40.33%, if all the convertible notes were subscribed for and converted; (ii) 71.61%, if all the options were exercised; or (iii) 80.04%, if all the interest was capitalised.  The Panel held Randall Deer was able to influence SAH’s consideration of the agreement and an independent expert should have opined on the control transaction.  The Panel ordered that: (i) Randall Deer must subscribe for the remaining tranche of convertible notes and convert all his convertible notes (thereby eliminating the accumulation of interest under the convertible notes and minimising his potential control position on later conversion) and (ii) other than in reliance on the creep exception, the options can only be exercised if new approval is sought with updated disclosure and an independent expert's report.  The Panel’s decision highlights the importance of Directors and senior management understanding the potential control and other implications of proposed capital raising transactions.

Is your whistleblower policy compliant?
Since 1 January 2020, public companies, large proprietary companies and corporate trustees of superannuation entities have been required to have a whistleblower policy (noting ASIC has granted relief for not-for-profits or charities with annual revenue of less than $1 million).  The policy must as a minimum meet the mandatory requirements of ASIC Regulatory Guide 270, which also includes other policy content guidance and good practice guidance on the implementation of an entity’s whistleblower program.  The new laws themselves apply more broadly than the policy requirement.  Directors of all companies subject to them should see a whistleblower policy and education on the company’s program as a critical tool for mitigating risk.  The cost of getting this wrong is severe – including maximum penalties of 2 years’ imprisonment for individuals and civil penalties of up to $525 for companies.  See our G+T article “The Top 5 Practical Whistleblower Challenges” for some tricky practical issues facing Australian companies on the new regime.  

DOCA share transfer consultation
Section 444GA of the Corporations Act permits a court to grant leave to allow a deed administrator to transfer shares as part of a deed of company arrangement (DOCA) where the transfer will not unfairly prejudice shareholders' interests.  The section has become a critical weapon in the armoury of insolvency advisers, enabling the efficient transfer of assets and operations where shareholders’ equity has become worthless, but relies on ASIC relief for efficacy in broadly-held structures where the takeovers provisions in Chapter 6 of the Corporations Act come into play.  ASIC’s Consultation Paper 326 proposes formalising its policy of providing relief from section 606 of the Corporations Act where a transfer under a DOCA results in a shareholder's voting power in the company increasing above 20%. Submissions can be made until 28 February 2020.

THE WEEK AHEAD

Coronavirus concerns.  The magnitude of financial and economic interdependencies in the modern world is again being demonstrated by the outbreak of coronavirus in China and several other countries including Australia, as transport, energy, tourism and education stocks being hit in markets across the globe. Directors of companies with direct or indirect exposure to physical movements in and out of China will need to pay particular attention to risk mitigation strategies in the coming weeks, with investors’ attention turning to the Chinese government’s ability to further contain the spread of the virus which so far has claimed over 80 lives.   

UK ends 46 years in the EU club.  Following three years of complicated, chaotic negotiations over the UK’s withdrawal and contortions in Parliament that split parties, ended political careers, and led to two general elections, the UK exits the EU at 11pm UK time on 31 January whether Big Ben bongs or not.  The focus will then turn to the UK and EU nailing down the details of their future partnership before the transition period is up at the end of 2020. 

ASX Listing Rule fees. See updated ASX Guidance Note 15A for the listing fees applicable this year.

No more Appendix 3Bs.  From 1 February, the four new smart forms (accessible via ASX Online) must be used and the existing Appendix 3B will cease to be available.

Expertise Area
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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.