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 market integrity update, the AICD’s practice statement on directors ‘best interests’ duty’, the application by Firetail Resources Limited to the Takeovers Panel and the Supreme Court’s decision to declare Metalicity’s s249F notice of meeting invalid.
In Over the Horizon, we consider the Climate Change Bill 2022 (Cth) introduced into federal Parliament last week which, if passed, will reflect binding obligations on authorities.
GOVERNANCE & REGULATION
ASIC releases market integrity update. ASIC released an update covering enforcement action taken by ASIC against executives in relation to insider trading and financial licence breaches, a review of ‘pump and dump’ events (which we discussed in last week’s edition of Boardroom Brief), and IOSCO’s report on the operational resilience of trading venues and market intermediaries during the COVID-19 pandemic. The update also encourages intermediaries to review their operational risk management framework in light of remote working arrangements, which are no longer just a temporary response to the COVID-19 pandemic. ASIC posed numerous questions to market intermediaries by which they can consider their current frameworks, including how the organisation has enhanced their framework to mitigate remote working risks and ensure effective supervision over staff and third parties, and whether business continuity plans have been reviewed to ensure that they account for remote working arrangements including adequate training, supervision and risk mitigation. See update.
AICD publishes practice statement on directors’ ‘best interests’ duty. The Australian Institute of Company Directors (AICD) published a practice statement which provides guidance around the practical content of a director’s duty to act in good faith in the best interests of the corporation. The practice statement was prepared in response to the Hayne Royal Commission and draws upon a legal opinion prepared by leading barristers in early 2022 (which can be accessed here and which provides a useful reminder of the key legal principles). The practice statement highlights 3 key points: (1) directors have a significant amount of discretion to identify the best interests of the corporation; (2) while the interests of shareholders are a key consideration, directors should also consider a broader range of stakeholder interests to protect the reputation and sustainability of the corporation; and (3) as a guiding principle, directors should consider the long-term interests of the corporation. See the AICD’s practice statement.
Takeovers Panel receives application in relation to the affairs of Firetail Resources Limited. The Takeovers Panel has received an application from Firetail Resources Limited (Firetail) in relation to its own affairs. On 19 July 2022, Moray Holdings (Qld) Pty Ltd (Moray) lodged a notice representing that its substantial holding in Firetail had increased from 7.79% to 8.18% as a result of being a co-requisitioner with Japan & China Holdings Australia Pty Ltd (Japan & China Holdings). Three days later, Firetail announced that it had received notices under sections 203D and 249D of the Corporations Act 2001 (Cth) (Corporations Act) requisitioning a general meeting to consider resolutions to remove two directors, appoint a substitute director, and remove any other directors appointed between 18 July 2022 and the date of the meeting. Amongst other things, Firetail is seeking orders from the Panel to require the withdrawal of the notices, and the prevention of any further notices being submitted. Firetail submits that: (1) a group of shareholders, which includes Moray and Japan & China Holdings, are acting in concert to influence the composition of Firetail’s Board, (2) the identity of a substantial holder has not been correctly disclosed, and (3) there have been contraventions of section 606 and 671B of the Corporations Act. See media release. If the Panel commences proceedings, it is likely to consider the principles emerging from the DRA Global decision (see our edition of Boardroom Brief dated 16 May 2022) which also addressed the interaction between the takeovers provisions of the Corporation Act and Chapter 2D, which regulates the appointment and removal of directors by shareholders.
Supreme Court of Western Australia declares section 249F notice invalid. In yet another iteration of a battle that has been playing out in the Takeovers Panel, bidder Metalicity Limited (Metalicity) recently sought orders under section 249G of the Corporations Act from the Court to order a meeting of target Nex Metals Explorations Limited’s (Nex Metals) shareholders be called to consider resolutions to remove the existing directors of Nex Metals and replace them with directors nominated by Metalicity. The Court stated that there are two components to section 249G: (1) the applicant must show that it is ‘impracticable’ to call the meeting in any other way, and (2) the Court has discretion in determining whether or not a meeting be called. The Court considered the validity of two notices of meeting: a notice of meeting issued by Metalicity to Nex Metals’ shareholders pursuant to section 249F of the Act (s 249F Notice), and a second notice of meeting issued by Nex Metals to its shareholders (Second Notice). Justice Hill ultimately found the s 249F Notice to be invalid, and adjourned the meeting convened by the Second Notice for three weeks. As to the s 249F Notice, Justice Hill made three observations. First, that notice failed to provide the address of the company, which is mandated under section 250BA. Second, the notice stated that proxies should be lodged ‘in any event, no later than 9:00am on Tuesday, 26 April’, despite proxies being valid if received until 9:00am on 2 May 2022. Justice Hill considered that this misrepresented to shareholders that they had only a short time to exercise their right to vote. Third, the notice failed to provide the company’s facsimile number, which was a requirement of the company’s constitution. As to the Second Notice, Justice Hill considered that the shareholders had not been given at least 28 days’ notice of the meeting, in breach of section 249HA of the Corporations Act, but the defect could be cured by ordering an adjournment. The case demonstrates the Court will not always step in to remedy failures to strictly comply with notice requirements in the Corporations Act and company constitutions, emphasising the need for care particularly in contested situations. See Justice Hill’s decision.
OVER THE HORIZON
New climate change legislation introduced into Parliament. Last week, the Climate Change Bill 2022 (Cth) (Climate Change Bill) and Climate Change (Consequential Amendments) Bill (2022) (Cth) (Climate Change Amendment Bill) were introduced into Federal Parliament. If passed, the legislation will impose further climate-related obligations on the government, Minister for Climate Change and Energy and Climate Change Authority. The Climate Change Bill is designed to cement Australia’s commitment to reduce its greenhouse gas emissions by 43% below 2005 levels by 2030 and to achieve net zero emissions by 2050. It will also impose annual reporting requirements on the Minister to ensure that the public is fully informed in relation to Australia’s progress to meet the set targets. Advice will also be provided by the Climate Change Authority and tabled in Parliament at regular intervals. The Climate Change Bill also seeks to impose mandatory periodic reviews on the effectiveness of the legislation. If passed, the legislation will reflect a tangible commitment by Federal Parliament to take action in relation to climate change, albeit not fundamentally altering the regulatory regime for major emitters. See the Climate Change Bill. Despite its ‘incremental’ nature, we expect the introduction of the legislation to reignite debate regarding Australia’s commitment to the emissions reductions targets set out in the Paris Accord, potentially triggering conflict between Labor and the Greens in the Senate, offering a first view of the functionality of the new Parliament.