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24/03/14

Corporate Advisory Update March 2014

Welcome to the March update from Gilbert + Tobin's Corporate Advisory team.

ASIC

ASIC facilitates online offers of securities

ASIC’s updated Regulatory Guide 107 Fundraising: Facilitating electronic offers of securities aims to ease compliance requirements to facilitate and encourage the making of offers of securities through the internet and other interactive media.  Offerors and distributors of electronic offers of securities should compare their current practices to ASIC’s good practice guide, to reduce the risk of regulatory attention.

Following public consultation since 2011, ASIC’s updates to Regulatory Guide 107 Fundraising: Facilitating electronic offers of securities (RG 107) released on 3 March 2014 aim to ensure that ASIC’s guidance reflects current market practice and advances in technology.  The updated guidance includes:

  • an explanation of ASIC's view on the way the internet and other electronic means can be used in making offers of securities; and
  • a 'good practice guide' to assist offerors, distributers, publishers and other parties involved in distributing offers.

ASIC has confirmed its view that the use of electronic disclosure documents is permitted under Chapter 6D of the Corporations Act 2001 (Cth) and so has revoked Class Order [CO 00/44] Electronic disclosure documents, electronic application forms and dealer personalised applications.

ASIC has also continued relief for offerors to issue or transfer securities in response to a personalised or Australian financial services licensee created application form (see new Class Order [CO 14/26] Personalised or Australian financial services licensee created application forms).

See ASIC’s media release dated 3 March 2014.

For past consultation, see also:

  • Consultation Paper 155 Prospectus disclosure: Improving disclosure for retail investors ( CP 155 ) released in April 2011;
  • Report 261 Response to submissions on CP 155 ( REP 261 ) released in November 2011;
  • Consultation Paper 211 Facilitating electronic offers of securities: Update to RG 107 ( CP 211 ) released in June 2013;
  • the non-confidential responses to CP 211 ; and
  • Report 385 Response to submissions on CP 211 ( REP 385 ) also released on 3 March 2014.

By Rachel Launders, Jane Hogan and Sally Randall


ASX

ASX consults on changes to its proposed governance-related Listing Rule amendments

The ASX is proposing to proceed with most of its governance-related amendments to the Listing Rules, with some important changes and additional non-governance related amendments following public consultation in August 2013.  Listed companies should familiarise themselves with the proposed amendments to the Listing Rules (including the changes proposed in ASX’s recent supplementary consultation paper (assuming they are implemented)) prior to the amendments coming into effect on 1 July this year.

Most of proposed amendments to the Listing Rules and Guidance Note 9 on which the ASX consulted in August 2013 were intended to complement and give effect to the reforms proposed by the ASX Corporate Governance Council in its separate consultation paper related to a third edition of its Corporate Governance Principles and Recommendations.

However, ASX also sought submissions on some other governance-related amendments.

Following consultation, ASX has issued a supplementary consultation paper Proposed Governance-Related Listing Rule Amendments.
ASX’s proposed changes to the amendments proposed in August 2013 include:

  • dropping the proposed new Listing Rule 3.19B (requiring the disclosure of each on-market purchase of securities made by the company on behalf of employees or directors or their related parties under an employee incentive scheme within 5 business days of the purchase) and replacing it with a new Listing Rule 4.10.22 (requiring a one-off annual disclosure in the annual report covering the whole of the reporting period).  If implemented, this change will only apply for financial years ended on or after 30 June 2015; and
  • rather than changing “associate” to “related party” in Listing Rules 10.14 and 10.16, including a reference to a new definition of “associate” in Listing Rule 19.12.  ASX is proposing to drop the proposal to deem a related party of a director or officer to be their associate and instead include a provision to the effect that a related party of a director or officer of the entity or of a child entity is taken to be an associate of the director or officer unless the contrary is established (together with a note that one way in which this may be established is for the relevant director or officer to give a statutory declaration to that effect).

ASX is also proposing some further non-governance related amendments in addition to those originally consulted upon in August 2013, including:

  • tidying up various references to “market price” and replacing them with a reference to “closing market price” or “volume weighted average market price”, as appropriate;
  • a new explanatory note to Listing Rule 7.2, Exception 2 to clarify that the exception only applies to the issue to an underwriter under an underwriting agreement of securities comprising the shortfall from a pro rata issue to holders of ordinary securities (and does not apply to any other issue of securities to the underwriter under an underwriting agreement);
  • a new explanatory note to Listing Rule 10.12, Exception 1 to clarify that the exception only applies to securities taken up as part of a pro rata issue (and does not apply to a person taking up all or part of the shortfall of a pro rata issue);
  • amending Listing Rule 10.17 to clarify the meaning of “directors’ fees” for the purpose of restrictions on the total aggregate fees payable to non-executive directors without shareholder approval; and
  • amending Listing Rule 14.2 to require a proxy form to give a security holder the ability to direct their proxy to abstain from voting on a resolution or to vote or abstain from voting on a resolution at the proxy’s discretion, and also to include a statement as to how the chair intends to vote undirected proxies.  In addition, it proposes removing the “chairman’s box” that currently appears in Listing Rule 14.2.3A and 14.2.3B (and which is often overlooked).

The amendments ASX proposed in August 2013 in relation to corporate governance statements and an Appendix 4G (which is intended to be a key as to where a listed entity’s various corporate governance disclosures can be found) remain unchanged.  ASX has indicated that it will release the proposed Appendix 4G later this month.  It is proposed that compliance with these amendments will only be mandatory in respect of financial years ending on or after 30 June 2015.

Comments on the above amendments are due by 28 March 2014 and all of the amendments are proposed to come into effect on 1 July 2014.

See also modified proposed amendments to the ASX Listing Rules and a mark-up of the changes from those originally proposed in August 2013.

By Rachel Launders, Jane Hogan and Sally Randall


Cases

It takes more than a “polite enquiry” by email to form an offer to contract:  Mark Anthony Productions (NSW) Pty Ltd v The University of Sydney Union [2014] NSWSC 120 

An email by an existing licensee to the licensor asking whether it would be ‘stretching the friendship” to ask for a new licence for a further term was held to be no more than a “polite enquiry” as to the licensor’s intention.  It was not sufficient to constitute an offer to contract for a further licence capable of acceptance by the licensor.  If a contracting party intends to convey an offer to contract for a further term, it should ensure that such offer is expressed clearly in its correspondence with the counterparty.

Mr Anthony, through his company, operated a photography business from a room of the Holme Building at the University of Sydney. Since 1991, Mr Anthony had executed 3 written 5 year licence agreements with the University of Sydney Union (USU). The then current licence agreement provided that if Mr Anthony continued to occupy the premises beyond expiry on 31 March 2012, he would do so under a monthly licence terminable on 1 month’s notice.

Six months prior to the expiry of the then current licence agreement, Mr Anthony emailed the managing agents asking “would it be stretching the friendship to ask for a 5+5 with a further option to renew, at the end of the time period?”  The managing agents replied by email that “USU are happy to offer you a new licence but are unable to offer a term past 2017”.  There was no further written communication until shortly after the expiry of the then current licence when Mr Anthony followed up about the new licence. USU eventually responded that it could not commit to a new licence (as the Holme Building was undergoing a space and design review) and the managing agents advised Mr Anthony that he would remain on a month to month basis for the time being.  On 4 September 2013, Mr Anthony was given 1 month’s notice purportedly terminating his licence.

In considering whether a legally binding agreement for a new licence had arisen, Stevenson J in the Supreme Court of New South Wales found that:

  • Mr Anthony’s email was no more than a polite enquiry as to USU’s attitude and accordingly, the managing agents’ email reply was not an acceptance by USU of any offer that might have been implicit in Mr Anthony’s email;
  • the managing agents’ email reply was no more than an “invitation to treat” and could not be characterised as an offer by USU (either for a 5 year term or a 5+5 year term) particularly given that it did not nominate a term or fee for any future licence.  In fact the parties had been discussing the possibility of re-locating Mr Anthony and as such, Stevenson J rejected the argument that the fee would be the same as the then current licence as ‘mere speculation’; and
  • no agreement arose from the conduct of the parties after the email exchange, with Mr Anthony continuing to request a new licence without asserting that USU had already made an offer which he had accepted.

Stevenson J also found that Mr Anthony failed to establish estoppel by representation based on the managing agent’s email response.  The lack of mention of a term or fee meant that the alleged representation was not clear or unequivocal and Mr Anthony’s continued attempts to negotiate for a new licence meant he could not establish reliance on the alleged representation.  However, Stevenson J did find that subsequent discussions between the parties about potential relocation of Mr Anthony, the month to month arrangement being for the time being and an assertion that USU would not consider a CPI increase for “this year only”, evidenced that the parties conducted their relationship on the basis of an assumed fact that, pending USU’s consideration of the proposed use and development of the Holme Building, Mr Anthony’s occupation would not be disturbed without reasonable notice.  His Honour found that 1 month notice, without any indication or warning, was unreasonable, oppressive and unconscionable.

See the case.


Take care when drafting a body corporate representative appointment:  In the matter of Richardson & Wrench Holdings Pty Limited [2013] NSWSC 1990

The signing of a circular resolution by a body corporate representative in circumstances where the representative appointment was expressed to only extend to attendance and powers at meetings (and not resolutions to be passed without meetings) was held to be more than a mere procedural irregularity which the Court could cure under section 1322 of the Corporations Act 2001 (Cth).  When drafting a body corporate representative appointment, ensure that it accurately captures all of the powers that are intended to be given to the representative, so action by the body corporate representative is not subsequently found to be invalid.

M E Shelf No 16 Pty Ltd (ME Shelf) held 71% of the shares in Richardson & Wrench Holdings Pty Ltd (Richardson & Wrench).  Mr Kie Chie Wong, one of three directors of Richardson & Wrench, held the remaining 29% of shares.  The directors of ME Shelf appointed Mr Wong as body corporate representative pursuant to section 250D of the Corporations Act 2001 (Cth) (Act) to “attend all meetings at which [ME Shelf] is a shareholder of and to exercise all powers on behalf of [ME Shelf] as [ME Shelf] could have exercised at such meetings.

Mr Wong, on his own behalf, and purportedly as body corporate representative of ME Shelf, subsequently signed a circular resolution of members of Richardson & Wrench to amend the Richardson & Wrench constitution.  The purported amendment inserted a new Article 44A to provide that members’ resolutions “shall only be passed, carried and effected with the affirmative votes of at least 75% majority of votes of the members present and voting”.

Brereton J in the Supreme Court of New South Wales stated that it was instructive that sub-section 250D(4) (which provides that unless otherwise specified in the appointment, the representative may exercise all of the powers that the company could exercise at a meeting or in voting on a resolution) reflects the distinction between:

  • sub-section 250D(1)(a) (which refers to meetings of a company’s members); and
  • sub-section 250D(1)(c) (which refers to resolutions to be passed without meetings).

On this basis, Brereton J held that while an appointment may cover all of the powers set out in sub-section 250D(1), it may be an appointment for only some of those powers.  As the wording of the appointment in this case referred only to meetings at which ME Shelf is a shareholder, his Honour held that it did not extend to passing circular resolutions (as contemplated by sub-section 250D(1)(c)) and as such, Mr Wong was not authorised to sign the circular resolution as body corporate representative of ME Shelf.

In rejecting an argument that the defect was a procedural irregularity within the scope of the Court’s powers to be validated under section 1322 of the Act, Brereton J held that:

  • it is difficult to see how the absence of authority to cast a vote of a member, whose affirmative vote was essential to the passage of the resolution, can be seen as a procedural irregularity; and

  • the fact that the same result may have been achievable in general meeting does not mean that the circular resolution was not affected by an irregularity that was more than merely procedural.

Brereton J also observed that:

  • even if section 1322 had been enlivened, the irregularity would have caused substantial injustice that could not be remedied by any court order.  Mr Wong would have, through a new 75% majority requirement, entrenched his minority position and precluded the majority from control of the general meeting; and
  • the effect of a new 75% majority requirement would have been oppressive to, unfairly prejudicial to, or unfairly discriminatory against the majority pursuant to sub-sections 232(c) and (e) of the Act.

See the case.


Impecuniosity which arises after entry into a contract can prevent an order for specific performance: Evans & Anor v Robcorp Pty Ltd & Anor [2014] QSC 26

This case demonstrates the willingness of the Courts to deny a claim for specific performance of a contract where there have been changes in financial circumstances of a party that did not exist at the time that the party entered into the contract and which would have the effect of creating disproportionate hardship to that party if an order for specific performance was made.

John and Alison Evans contracted to sell property to Robcorp Pty Ltd as trustee for the Robcorp Trust (Robcorp), with Mr Scott as Robcorp’s guarantor.  Robcorp failed to complete the sale contract on time and the Evans brought an application for summary judgment under section 70 of the Property Law Act 1974 (Qld).  Robcorp resisted the application on grounds relating to its impecuniosity.

Lyons J in the Supreme Court of Queensland firstly held that the following evidence was sufficient to demonstrate that if the matter was being tried, Robcorp may be in a position to satisfy the Court about its impecuniosity:

  • funds that were expected from other development projects to enable Robcorp to complete the purchase had not become available;
  • Robcorp was “worth nothing at all”; and
  • no agreement arose from the conduct of the parties after the email exchange, with Mr Anthony continuing to request a new licence without asserting that USU had already made an offer which he had accepted.

In refusing summary judgment, Lyons J considered the authorities and preferred the view that when deciding whether the effect of an order for specific performance will be to cause disproportionate hardship so as to give rise to an injustice

  • courts of equity must take account of all of the circumstances known to exist at the time when an order for specific performance is made, as well as of circumstances likely to occur subsequently; and
  • there is no reason why a source of hardship should be ignored just because it did not exist at the time of entry into the contract.

See the case.

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