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 the RBA cash rate target reduction, the AICD’s study on NFP organisations, the Takeovers Panel’s consideration of an application seeking a departure from best and final statements and the Treasury’s consultation on consumer credit reforms. We also look ahead to the impact of the outcome of the US election on global markets.
YOUR KEY BOARDROOM BRIEF
RBA announces reduction in cash rate target to 0.1 per cent. Last week, RBA announced a package of reforms to support job creation and the recovery of the Australian economy from COVID-19. The package includes a reduction in the cash rate target to a record low of 0.1 per cent, a reduction in the target for the yield on the 3-year Australian Government bond to approximately 0.1 per cent, a reduction in the interest rate on Exchange Settlement balances to zero, and the purchase of $100 billion worth of government bonds of maturities of around 5 to 10 years over the coming six months. This package is expected to help the nation recover economically by lowering financing costs for borrowers, contributing to a lower exchange rate and supporting balance sheets. See RBA’s media release.
AICD study reveals targeted funding critical for the survival of NFPs. The AICD’s annual not-for-profit governance and performance study has revealed that the future of many NFP organisations were already under threat prior to the challenges posed by COVID-19. This was unsurprisingly compounded by the impacts of COVID-19. Despite this, directors were overwhelmingly proud of their NFP organisations' responses to COVID-19, with 90% agreeing or strongly agreeing that their organisation had responded well to COVID-19. The AICD noted that boards were focused on the survival of their organisation, which led to a considerable reduction in merger activity – with only 3% of directors reporting they were currently undertaking a merger (down from 5% last year). As we have seen in recent commentary on mergers over the past year, this trend is consistent with the overall national and global reduction in merger activity. See the AICD’s media release.
Takeovers Panel to consider applications seeking a departure from best and final statements in a takeover bid. The Takeovers Panel has now received five applications (the first since withdrawn and the second dismissed without proceedings) in relation to the affairs of Cardinal Resources Limited (Cardinal) with respect to competing takeover bids for shares in Cardinal by its two largest shareholders, Nord Gold S.E. (Nord Gold) and Shandong Gold Mining (HongKong) Co Limited (Shandong). Directors should note that the remaining three applications will again put to the test ASIC’s “Truth in Takeovers” policy, as both Nord Gold and Shandong have expressed their matching $1.00 bids as “best and final” in the absence of a higher competing offer. The most recent application has been made by Shandong which, amongst other things, seeks final orders that it be released from its best and final statement with respect to its takeover bid. The “Truth in takeovers” policy, embodied in ASIC Policy Guide 25 Takeovers: False and Misleading Statements, generally prevents bidders from departing from such statements, but with the battle for Cardinal effectively deadlocked, with neither bidder in control, the Panel may well be inclined to seek out a commercial solution. See the Panel’s media release for details of the most recent Cardinal application.
Treasury consults on consumer credit reforms. The Government is seeking to reduce the cost and time it takes consumers and businesses to access credit, which will be critical in the current economic landscape. The Government announced a suite of changes to the Consumer Credit regime in September to address this aim. The key aspect of the reform amends the existing responsible lending obligations by replacing what has become a “one-size-fits-all” approach to lending with a risk-based regime that allows lenders the flexibility to make decisions based on the characteristics of the borrower and the type of credit sought. Subject to the passing of legislation, the reforms will take place on 1 March 2020. Treasury is currently seeking feedback from stakeholders on the proposed reforms until 20 November 2020. See the Treasury’s consultation page.
ON THE HORIZON
US Election. After several days of uncertainty the US Presidential Election has been called in favour of Joe Biden who will become the 46th President of the United States: unless, of course, the result is overturned by court action initiated by President Trump. Legal commentators suggest that this is unlikely, with the grounds cited in litigation filed to date not sufficiently broad to alter the result. Markets are so far cheering what is expected to be a more predictable White House coupled with a deadlocked Congress with the House of Representatives controlled by the Democrats and the Senate controlled by the Republicans (with a slim majority), meaning the more adventurous aspects of the Democrats’ tax reform agenda are unlikely to be enacted.