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 latest review of financial reports, using register information to communicate with shareholders about company performance, regulation of class action funders, demerger relief, foreign investment regime proposals and the outlook for inflation.


ASIC review of 31 December financial reports.  On 31 July 2020, ASIC released the results from its review of the financial reports for the year ended 31 December 2019 of 90 listed entities and other public interest entities. Inquiries largely related to revenue recognition and impairment of non-financial assets. A copy of the report can be accessed here.  Directors should note ASIC’s heightened focus on the adequacy of financial disclosure given the adverse impact of the COVID-19 pandemic on many entities.  The release may therefore assist directors, accounts preparers and auditors navigate key areas of focus (for example in relation to asset values, provisions, solvency and going concern assessments). 

Communications with shareholders about a company's performance.  In Hongkong Xinhe International Investment Company Ltd v Bullseye Mining Ltd [2020] WASC 276, the Supreme Court of Western Australia held that communicating with shareholders regarding a company's performance is sufficiently connected to the holding of the interests recorded in a company's share register or the exercise of the rights attaching to them so as to allow shareholders to use information gained from the register to contact or send material to those persons.  HK Xinhe, which holds approximately 20% of Bullseye shares, had requested a copy of Bullseye's share register.  Section 177 of the Corporations Act generally prohibits a person from using information gained from the register to contact or send any material to a person (for example, for the purposes of advertising to or petitioning members).  One exception is where the information is "relevant to the holding of the interests recorded in the register or the exercise of the rights attaching to them".  HK Xinhe intended to use the information to send a letter to Bullseye's shareholders raising concerns about the performance of Bullseye and its directors and inviting recipients to discuss any concerns with HK Xinhe.  The court found that this purpose was connected to the holding of Bullseye shares as well as, potentially, with the exercise of rights attached to those shares.

Calls for increased regulation of class action funders pay off.  From 22 August 2020, changes to the Corporations Act will generally require litigation funders to hold an Australian Financial Services Licence (AFSL). This reform was introduced in an attempt to slow Australia’s booming class action industry and provide additional protections for firms and company directors amid a threefold increase in the number of class actions over a decade. Under the changes, litigation funders will also have to comply with Australia’s managed investment scheme rules.  Certain litigation funders (for example, in an insolvency context and litigation funding arrangements for actions involving a single plaintiff) will fall out of scope.  We are yet to see if this will ameliorate the related significant deterioration we have seen in the directors and officers insurance market.

Demerger relief.  See G+T article “The demerger rollover relief goal posts continue shifting (mostly for the better)” for an update on the ATO’s finalised taxation determination, released on 22 July 2020, which confirms the meaning of “restructuring” for the purpose of the tax demerger rules.  Some commentators are already calling for a legislative fix to overturn the ATO's narrowing views on transactions eligible for demerger relief.  Directors of companies undertaking or considering a demerger transaction should monitor legislative and ATO developments and be wary of a change in approach by the ATO on demerger issues.


Treasury consultation on new foreign investment regime closes on 31 August 2020.  The Treasurer announced last Friday the release of exposure draft legislation detailing its proposed changes to Australia’s foreign investment review framework (click here for the exposure draft Bill, exposure draft Regulation and Implementation Roadmap).

Record deflation – and more to come.  As expected, the June Quarter CPI figures, released last Wednesday, showed a drop of 1.9% quarter-on-quarter; being the largest since the Australian Bureau of Statistics started recording quarterly CPI data in 1948.  Victoria’s move to implement “Phase 4" lockdowns will almost certainly contribute further to deflationary forces as demand destruction takes hold in Australia’s second most populous state.  

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