Welcome to Edition 139 of 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.

In this Edition, we consider ASIC’s negative report card for Lead Managers in small cap IPOs, areas of focus for 2019 end of year financial reports, and a High Court decision which represents a major blow for litigation funders.


No Christmas cheer from ASIC for Lead Managers: ASIC Report 641 An inside look at mining and exploration initial public offers considered IPO practices and processes from inception through to on-market trading. The review considered a “representative sample” of 17 mining IPOs, representing approximately 23.6% of mining IPOs between 2016 and 2018 raising less than $20M. ASIC has warned that in the future it will take a more active interest in “the underlying business practices and processes supporting IPO transaction...including the conduct and governance practices of company directors and advisers”, in a clear indication that it does not regard disclosure alone as sufficient to ensure the integrity of this end of the market. Among other things, the report noted that:

  • Some lead managers give preference to a select subset of investors. Retail investors not associated with a lead manager or their networks had limited access to IPO investments.
  • As lead managers often initiate the IPO origination, some professional advisers target the sector in order to generate those immediate returns on an investment, gaining a disproportionate benefit through their early, direct involvement in the process.
  • Promotional materials such as investor presentations, explanatory material and email marketing methods are often subject to substandard compliance controls, and yet they can have a significant influence on investors’ perceptions and actions.
  • IPO transaction design and structure may lead to a distorted and unsustainable market demand in the securities’ short-term trading, at the expense of longer investment horizons more appropriate for the delivery of exploration programs.

A copy of the report is available here. We think ASIC’s approach will force advisers and Directors of small and micro-cap companies to take a more active role in oversight of governance and “fairness” aspects of the offering structure for small IPOs.  Of course, getting the balance right between governance and compliance, and the inherently risky nature of investments at this end of the market, is going to be a challenge – as will getting agreement on what is a “disproportionate” benefit for the intermediaries.

Financial reporting focuses for 31 December 2019: ASIC has announced its focus areas for the end of 2019 financial reports of listed entities and other entities of public interest. In particular, it calls out new requirements that can “materially affect assets, liabilities and profits”:

  • New accounting standards on lease accounting require the recognition of lease liabilities and a right-of-use asset for all leases
  • New accounting standard for insurers
  • Accounting standards on revenue recognition and financial instrument values are now in their second full year of application.

Directors should note that ASIC will be reviewing governance processes of selected companies, investigating the role of audit committees and directors in ensuring the quality of financial reporting and supporting audits. The full list of comprehensive detail on focus areas is available here.  We expect ASIC’s focus on the work of audit committees to continue in the new year, following its report earlier in 2019 on the monitoring and oversight of non-financial risks by Boards.  

Major blow for litigation funders: In the most significant class action decision from the High Court in over a decade (BMW Australia Ltd v Brewster; Westpac Banking Corporation v Lenthall), a majority of the High Court has today held that the Federal Court of Australia and the Supreme Court of New South Wales do not have the power to make common fund orders (CFO). A CFO is a court order which obliges all group members in a class action to pay their proportionate share of a litigation funder’s commission out of the proceeds of a judgment or settlement, whether or not the group members have entered into a funding agreement directly with the funder. The primary effect of this decision is that third-party litigation funders will no longer be able to claim a proportion of the total of any settlement or judgment amount in a class action as a return on the funds they invested. G+T’s detailed discussion on the case is available here.


US FOMC Reports: On Wednesday, the US Federal Open Market Committee (FOMC) will release its projection for inflation and economic growth over the next 2 years as well as its statement of monetary policy. Simultaneously, the US Federal Reserve will release its interest rate decision. A more dovish than expected statement could be taken as negative for the USD, while a more aggressive than expected statement could be taken as positive for the USD.

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