Welcome to the latest update from Gilbert + Tobin's Corporate Advisory team. The update provides a summary of key recent legal developments, particularly relevant to in-house counsel.
In this issue, you will find:
- The wisdom of crowd-sourced equity funding
- An update on legislating the Harper Review
- Government consults on insolvency reforms - director ‘safe harbour’ and stay on ipso facto clauses
- Client money reforms and changes to ensure privacy of certain start-up company employee share scheme documents receive Royal Assent
- ASIC industry funding model legislation introduced into Parliament
- Reforms to boost consumer confidence in the financial adviser industry
- Consultation on streamlining Australia’s foreign investment reforms
- Proposed tightening of the definition of a “PPS lease” to benefit short term hire and rental sector
The Corporations Amendment (Crowd-sourced Funding) Act 2017 (Cth) received Royal Assent on 28 March 2017.
For further details, see The wisdom of crowd-sourced equity funding by Deborah Johns and Peter Reeves dated 30 March 2017.
The Competition and Consumer Amendment (Misuse of Market Power) Bill 2017 has now passed the House of Representatives, and further consideration in the Senate has been adjourned until 9 May 2017 when the Senate next sits. The Bill was introduced into the House of Representatives in December 2016, but was amended in March to:
- change the commencement date to ensure that the new section 46 (dealing with misuse of market power) does not commence until, and unless, authorisation is available for conduct to which section 46 may apply; and
- as per the recommendations of the Senate Economics Legislation Committee, remove the proposed “mandatory factors” in section 46(2) from the Bill. These “mandatory factors” stipulated the considerations that had to be taken into account by courts in determining whether conduct has the purpose, effect, or likely effect, of substantially lessening competition in a market.
The Competition and Consumer Amendment (Competition Policy Review) Bill 2017 was also introduced into the House of Representatives on 30 March 2017. The Bill relates to the other recommendations of the Harper Panel in 2015, and contains a broad range of amendments to the Competition and Consumer Act in areas such as:
- price signalling and concerted practices;
- exclusionary provisions;
- secondary boycotts;
- third line forcing;
- resale price maintenance;
- authorisations, notifications and class exemptions;
- ACCC’s power to obtain information, documents and evidence; and
- access to services
It is anticipated at this stage that the amendments contained in the Bills will come into effect by July 2018.
For further background and details of the exposure draft legislation, see Rethinking the Competition and Consumer Act: Exposure draft legislation lays groundwork for the most significant change in a generation dated 12 September 2016 by Elizabeth Avery, Simon Muys and Matt Rubinstein.
As part of the National Innovation and Science Agenda, Treasury has released an Exposure Draft Treasury Laws Amendment (2017 Enterprise Incentives No.2) Bill 2017 which seeks to amend the Corporations Act 2001 (Corporations Act) to implement 2 key changes which are designed to promote a culture of entrepreneurship and innovation and help reduce the stigma associated with business failure.
Creation of a “safe harbour” form personal liability for company directors
- Section 588G of the Corporations Act currently imposes personal liability on a director of a company for debts incurred by the company if at the time the debt is incurred there are reasonable grounds to suspect that the company is insolvent. A breach of the insolvent trading provisions may also result in criminal penalties being imposed on a director.
- The Exposure Draft Bill creates a ‘safe harbour’ for directors undertaking a restructure and protects them from personal liability – but only in certain circumstances.
- Broadly speaking, in order to qualify for ‘safe harbour’ protection, directors must show that they have taken a course of action which, when objectively judged, is reasonably likely to lead to a better outcome for the company and its creditors (as compared to an administration, winding up, a scheme, deed of company arrangement or receivership). The Exposure Draft Bill includes a non-exhaustive list of factors which may qualify as appropriate steps, including obtaining expert advice and preparing a restructuring plan.
- According to Treasury, this change will drive cultural change amongst company directors by encouraging them to engage early with financial hardship, keep control of their company and take reasonable risks to facilitate the company’s recovery instead of placing the company prematurely into voluntary administration or liquidation.
Stay on ipso facto clauses during a formal restructure
- The Exposure Draft Bill also proposes to make certain ipso facto clauses unenforceable if a company has entered into a formal insolvency process.
- An ipso facto clause is a clause which gives a party to a contract the right to terminate, suspend or amend a contract on the basis of event triggers, such as the company entering into an external administration, and the ipso facto clauses targeted by the Exposure Draft Bill are those which apply, regardless of continued payment or performance of the contract.
- Importantly, the stay will not apply to certain financial products as set out in the Exposure Draft Bill and certain types of contracts and rights set out in Treasury’s explanatory document.
- According to Treasury, the aim of this reform is to prevent ipso facto clauses from reducing the scope for a successful restructure or preventing the sale of the business as a going concern.
Comments on the Exposure Draft Bill are due by 24 April 2017.
See also Treasury’s media release dated 28 March 2017.
Client money reforms and changes to ensure privacy of certain start-up company employee share scheme documents receive Royal Assent
The Treasury Laws Amendment (2016 Measures No.1) Act 2017 (Cth), which amends the Corporations Act 2001 (Cth) to:
- introduce client money reforms which provide greater protection for retail client money and property held by financial services licensees in relation to over-the-counter derivative products by providing that financial services licensees may only use derivative retail client money and property to meet obligations incurred by the licensee in connection with dealings in the derivative where the entry into the derivative was or will be cleared through an authorised clearing and settlement facility and the licensee incurred the obligation under the operating rules of the facility; and
- ensure that employee share scheme disclosure documents for certain start-up companies (with an aggregated turnover not exceeding $50 million in the pre-lodgement year) are not made publicly available when they are lodged with ASIC,
was assented to on 4 April 2017.
See also media release by the Minister for Revenue and Financial Services dated 27 March 2017.
Following consultation earlier this year, the following Bills to implement an industry funding model to recover the regulatory costs of ASIC have been introduced into Parliament:
- ASIC Supervisory Cost Recovery Levy Bill 2017;
- ASIC Supervisory Cost Recovery Levy (Collection) Bill 2017; and
- ASIC Supervisory Cost Recovery Levy (Consequential Amendments) Bill 2017
- entities that are regulated by ASIC will be required to provide a return to ASIC that includes information that will be used to calculate the levy that will recover ASIC’s regulatory costs for a financial year. The levy will then be payable in the following financial year, once ASIC has issued the leviable entity with a notice setting out its liability for the levy;
- the objectives of the model are that the total levy paid by all leviable entities should not exceed ASIC’s total regulatory costs for a particular financial year, and also that the total amount of levy payable by all leviable entities in a particular class, sector or sub-sector should not exceed ASIC’s regulatory costs for that class, sector or sub-sector;
- details of how the levy will be calculated to be set out in separate regulations, and will be based on certain measures of business activity that will be proxies for ASIC’s regulatory costs for particular entities;
- ASIC will be required to publish information used to calculate the levy in an annual legislative instrument;
- where an entity has failed to provide a return to ASIC, it will be subject to a strict liability criminal offence, and it may also have a default assessment made against it where it has failed to provide a return, or the information provided in the return is false or misleading; and
- leviable entities that do not pay a levy when it is due and payable will be subject to a late payment penalty, and where entities have failed to pay a levy, late payment penalty or shortfall penalty for a 12 month period, ASIC may take certain administrative actions, including suspension or cancellation of licences or registration.
If the Bills are passed, the new model is to commence on 1 July 2017.
The Corporations Amendment (Professional Standards of Financial Advisers) Act 2017 (Cth) implements a new professional standards regime to raise the education, training and ethical standards of financial advisers who provide personal advice to retail clients on relevant financial products (ie products other than basic banking products, general insurance products or consumer credit insurance).
The reforms include:
- new education and training standards (including a requirement to hold a degree; pass an exam and undertake a professional year of work and training);
- an obligation on AFSL holders to ensure that its relevant providers comply with the new education and training standards and are covered by a compliance scheme;
- the establishment of a new Code of Ethics;
- establishment of an independent standards body to administer the reforms; and
- restrictions on the use of the titles “financial adviser” and “financial planner” such that they can only be used by a person who is authorised to provide personal advice to retail clients on relevant financial products.
The new professional standards will commence on 1 January 2019 with transitional arrangements applying to existing advisers.
The Government has released a consultation paper which sought views on a suite of proposed changes to Australia’s foreign investment regime to address the following:
- residential land – it has been identified that some of the residential land settings may incentivise non-compliance and may have distortionary effects;
- non-vacant commercial land – it is inconsistent with the 2015 reforms to still have some lower sensitivity investments subject to the framework;
- low sensitivity business investment – the broad net cast by the framework results in some relatively low value and low sensitivity business investments being captured. In particular, since many private equity funds are treated as foreign government investors due to upstream passive investment by sovereign wealth funds and public sector pension funds, the foreign investment rules capture virtually all transactions by those funds, and their investees, regardless of value; and
- commercial fees – the fees framework is difficult to apply and burdensome to administer.
The paper also provided an opportunity for stakeholders to present examples on how technical issues in the legislation could be addressed and any further ideas for reform.
Submissions were due by 29 March 2017. Gilbert + Tobin has lodged a submission, and has also provided comments in relation to a submission by the Australian Private Equity and Venture Capital Association Limited, mainly in relation to the foreign government investor issue described above.
The Personal Property Securities Amendment (PPS Leases) Bill 2017 (Cth) (Bill) was introduced to the Federal Parliament on 1 March 2017 and seeks to address some of the concerns that were highlighted in the final report on the statutory review of the PPSA.
Specifically, the Bill seeks to amend section 13 of the Personal Property Securities Act 2009 (Cth) (PPS Act) to:
- extend the minimum duration of PPS leases from more than one year to more than 2 years; and
- provide that leases of an indefinite term will not be deemed to be PPS leases unless and until they run for a period of more than 2 years.
According to the explanatory memorandum, if the amendments are passed, very few hire and rental industry related transactions would be caught by the amended provision due to the increased minimum duration, and the amended section 13 would continue to appropriately capture longer term high value hire and rental industry leases.