In this edition of Gilbert + Tobin's Corporate Advisory Update, we focus on key legal developments over the last month which are particularly relevant to in-house counsel.
Further extension of COVID-19 relief in relation to electronic execution and virtual meetings
The Federal government has introduced the Treasury Laws Amendment (2021 Measures No. 1) Bill to extend and expand upon the operation of the temporary COVID-19 relief in relation to electronic execution and virtual meetings to 15 September 2021. The Bill also proposes permanent changes to the continuous disclosure regime to introduce a fault element for breach (see separate item in this Update).
If the Bill is passed, it will:
- amend section 127 of the Corporations Act to permit electronic and split execution of documents (including deeds) and allow the fixing of a company seal to be witnessed electronically; and
- insert new provisions in to the Corporations Act to allow companies to hold virtual meetings (including shareholder meetings, board meetings and meetings of members of a registered scheme) and distribute meeting related materials electronically.
After 15 September 2021, member meetings will need to be conducted consistent with pre-COVID-19 laws which require an in-person meeting. However, the Treasurer has flagged a 12 month opt-in pilot for companies wishing to hold hybrid annual general meetings to “enable a proper assessment of the shareholder benefits of virtual meetings.”
The Treasurer has also indicated that the Government will finalise permanent changes to allow electronic execution and sending of meeting-related materials electronically prior to the expiry of the temporary arrangements on 15 September 2021.
The Bill has been referred to the Senate Economics Legislation Committee for report by 12 March 2021.
Government proposes permanent changes to the continuous disclosure regime
The Federal government has announced that it proposes to make permanent changes to Australia’s continuous disclosure laws with the Treasury Laws Amendment (2021 Measures No. 1) Bill (Bill).
The proposal to make these temporary changes permanent comes in response to the Parliamentary Joint Committee on Corporations and Financial Services’ report into Litigation Funding and Regulation of the Class Action Industry, which reported in December 2020.
The report suggested that a mental element should be incorporated into the continuous disclosure obligations in order to mitigate against opportunistic class action litigation in respect of failures to disclose material information in a timely manner. Such a change would bring Australia’s continuous disclosure laws into line with the United States and United Kingdom, and was intended to balance the benefit of continuous disclosure obligations with the cost imposed on entities and officers by securities class actions.
ASIC Commissioner emphasises importance of managing climate change risk
ASIC Commissioner Cathie Armour has recently written an article (Managing climate risk for directors) reinforcing ASIC’s position that disclosing and managing climate-related risk is a key director responsibility.
As previously highlighted by ASIC, the Commissioner emphasises that climate-related risk is a systemic risk in the market which has the potential to significantly impact companies, investors and consumers. The article reiterates ASIC’s view that operating and financial reviews must include climate-risk discussions where it is a material risk which could affect the company’s financial performance.
The Commissioner also sets out important guidance for directors on managing climate risk, urging them to continually assess existing and emerging risks that may be applicable to the company’s business (and ensuring board discussions on this matter are adequately minuted), to develop and maintain strong and effective corporate governance, to carefully consider the requirements relating to operating and financial review disclosures in annual reports under section 299(1)(a)(c) of the Corporations Act and to disclose any useful information to investors.
CGI Glass releases updated proxy voting guidelines
CGI Glass Lewis has released its 2021 Proxy Voting Policy Guidelines for Australia containing two key revisions when compared with the 2019/2020 guidelines.
First, from a board diversity perspective, CGI Glass Lewis recommends shareholders vote against board members of ASX300 companies with six directors but less than two female directors, or with five directors but less than one female director. However, CGI Glass Lewis recognises there may be reasonable exceptions to this guideline where companies demonstrate high female representation in their senior management team or where companies demonstrate a credible plan to improve board diversity.
Second, CGI Glass Lewis recommends shareholders vote against the audit and/or risk committee Chair where the committee does not include an audit and financial reporting expert (such as a chartered accountant or retired CFO). However, where such a person does not sit on the committee, CGI Glass Lewis will also consider the appropriateness of the collective experience of the committee before voting.
Modern slavery statements due 31 March 2021
Entities that are required to prepare modern slavery statements and whose financial year ended 30 June 2020 must submit their first modern slavery statements by 31 March 2021 under the Modern Slavery Act 2018 (Cth).
See our previous Insight - Preparing Your Modern Slavery Statement with COVID-19 in Mind
The ACCC’s Ad Tech Inquiry Interim Report: What you need to know
On 28 January 2021, the ACCC released its interim report for the Digital Advertising Services Inquiry. The interim report does not make any draft recommendations, but it does make clear that the ACCC is concerned about Google’s high market shares in each of the four markets analysed across the advertising technology services supply chain, and seeks feedback on a number of proposals aimed at addressing concerns about:
- low levels of competition in the supply of ad tech services;
- conflicts of interest and self-preferencing; and
- opacity in the supply chain.
The Interim Report also touches on an ongoing debate in the digital economy: to what extent are the policy goals of protecting competition between digital service providers and protecting consumer privacy in conflict?
Choosing the right cyber security standard
In a digital world, cyber security is a priority for all industry sectors. Organisations and their service providers are looking to standards as a means of mitigating risks and ensuring they are meeting best practice. However, the approach to developing and adopting standards has to date been piecemeal and inconsistent both within industry sectors and across the economy, making it difficult for organisations to know which standards to adopt. When compared with other industry standards like those in the construction sector, cyber security standards are still in a state of relative infancy (see our previous article 'Australia’s Cyber Security Strategy 2020: What you need to know'.
A taskforce established by the NSW Government set about tackling this issue and recently handed down its recommendations.
Read more - Choosing the right cyber security standard
Corporate Investigations 2021: A practical cross-border insight into corporate investigations
G+T Partners, Richard Harris and Elizabeth Avery have authored the fifth edition of the International Comparative Legal Guides 'Corporate Investigations 2021' cross-border guide. This publication explores the decision to conduct an internal investigation, self-disclosure to enforcement authorities, cooperation with law enforcement authorities, the investigation process, confidentiality and attorney-client privileges, data collection and data privacy issues, witness interviews, and investigation reports.
NSW Supreme Court clarifies interpretation of good faith obligations for directors under section 181 of the Corporations Act
In the matter of IW4U Pty Ltd (in liq)  NSWSC 40 concerned a claim for compensation by the liquidators of a labour hire company against an accountant and tax agent for alleged accessorial liability with respect to breaches of director’s duties by the sole director of the company in transferring its business for nil consideration. The primary question considered by the Court was whether the sole director breached his director’s duty of good faith under section 181 by allowing the transfer for nil consideration.
The Court held that the director breached his duty as he engaged deliberately in conduct knowing that it was not in the best interests of the company. In relation to this issue, the Court clarified important points of law:
- first, the standard imposed on directors for the purposes of section 181(1) is what “would be expected of a person in that position by reasonable persons with knowledge of the duties, power and authority of the position”; and
- second, in the context of insolvency, the standard under section 181(1) entails an obligation on directors to take into account the interests of creditors, such that a director will breach their duty of good faith if they incorporate a new entity for the purpose of continuing to trade the business of the company without the new entity acquiring the business in an arm’s length transaction for value.