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 discuss the cybersecurity reform which is expected in the wake of the Optus data breach, the Parliamentary Committee’s inquiry into corporate insolvency and ASIC’s Corporate Finance Update for September. We also note the ACCC’s intention to target greenwashing online and the Takeovers Panel decision to decline to commence proceedings in the Nimrod Resources matter. Finally, we consider the latest data coming out of ASX’s Monthly Activity Report for September.
In Over the Horizon, we remind Directors of the impending deadline to obtain a director ID and discuss the recent Pyror Report, which discusses the need to upskill and re-skill our existing workforce in relation to green hydrogen opportunities, in order to meet our net-zero commitments.
GOVERNANCE & REGULATION
Cybersecurity reform on the Christmas list following the Optus data breach. In the wake of Australia’s largest ever data breach, Attorney General Mark Dreyfus has foreshadowed new regulation by the end of the year. Concerned about the hoarding of data by businesses, the proposed reforms announced by the Attorney General promise to impose stiffer penalties on businesses who fail to correctly store data and protect consumers. It is likely the reforms will also impose restrictions upon businesses requesting or retaining information which is no longer required to carry out their business, as well as increasing the current $2.2m cap on penalties under the Privacy Act 1988 (Cth). The Optus data breach is a timely reminder for all market participants of the need for resilient cybersecurity and risk management frameworks. It follows the Federal Court decision this year in ASIC v RI Advice Group Pty Ltd (see G+T Knowledge article here) which held that businesses who fail to adequately manage their organisations’ risk management framework and cybersecurity could fall short of their regulatory obligations. ASIC and ASX expect directors to educate and equip themselves to drive their organisation’s cyber resilience culture. See also ASIC media release on preparing for cyber risks.
Parliamentary Committee launches inquiry into corporate insolvency in Australia. On 28 September 2022, the Parliamentary Joint Committee on Corporations and Financial Services (Committee) announced the commencement of an inquiry into whether Australia’s corporate insolvency laws effectively provide protection and maximise value to the Australian economy and the participants in it. The Committee noted that businesses have recently faced amplified pressures, including as a result of COVID-19 and broader domestic and international economic conditions such as inflation, increased material and input costs, and supply shortages. In this context, the Committee is interested in understanding whether Australia’s corporate insolvency and related practices are fit for purpose and effectively serve the economy. Submissions to the Committee are due by 30 November 2022. See Parliament of Australia media release.
ASIC releases Corporate Finance Update. On 29 September 2022, the Australian Securities and Investments Committee (ASIC) released its Corporate Finance Update newsletter (Update). The Update reports on the results of a view of prospectus forecasts for companies who sought an initial public offering on the ASX and were listed between 1 July 2018 and 30 June 2021. ASIC was concerned with the difficulties it observed in comparing prospectus pro-forma forecasts against year-end results’. ASIC stated that good practice requires an announcement to be made at the end of relevant forecasting periods comparing forecast and actual results. It also noted that, where a pro-forma (non-statutory) forecast is included in a prospectus, at the end of the forecast period the company should include a full income statement reconciliation comparing statutory and pro-forma results in any announcement it publishes. In the corporate governance field, ASIC has issued a reminder that it considers that continuous disclosure obligations are also important for unlisted disclosing entities, and that companies should provide disclosure to shareholders as soon as practicable where material corporate events arise. It considers that circumstances justifying relief from continuous disclosure requirements are ‘very rare’, and relief is generally provided only where it can be demonstrated that compliance would impose a significant detriment that outweighs any benefit. Directors of unlisted disclosing entities should take note. ASIC also noted that companies should avoid holding members’ meeting between 19 December 2022 and 13 January 2023 (inclusive) based on the requirement in section 249R of the Corporations Act 2001 (Cth) that ‘a meeting of a company’s members must be held at a reasonable time and place’. Companies should provide an opportunity for the maximum number of shareholders to participate in members’ meetings. See ASIC Update.
ACCC internet sweeps target 'greenwashing', fake online reviews. On 4 October 2022, the ACCC launched two internet sweeps to identify misleading environmental and sustainability marketing claims and fake or misleading online business reviews. The sweeps are being conducted as part of the ACCC’s compliance and enforcement priorities for 2022-23, with the view of identifying deceptive advertising and marketing practices by businesses or industries. The ACCC notes that at least 200 company websites will be reviewed for misleading environmental claims across a range of targeted sectors including energy, vehicles, household products and appliances, food and drink packaging, cosmetics, clothing and footwear. See ACCC media release.
Capital markets retreat signals increasingly volatile market. The ASX has released its Group Monthly Activity Report for September 2022, highlighting a significant retreat in capital markets activity from previous months. In September 2022, $4.97 billion was raised through secondary capital markets, which accounted for the majority of the $5.5 billion raised. This reflected a 49% reduction from the previous corresponding period. In correlation with the recoil seen in capital markets, the implied volatility index, the S&P/ASX 200 VIX increased by 42% from its previous corresponding year to 17.0. As at 10 October 2022, the index has further lifted and sits at 19.86, signalling further volatility.
Takeovers Panel declines to conduct proceedings following application by Romell Pty Ltd (Romell) in relation to Nimrod Resources Limited (Nimrod) entitlement offer. The application was made on 23 September 2022, in relation to Goldtower Construction Pty Ltd ATF GTC Trust (Goldtower) participation in Nimrod’s June 2022 entitlement offer. Goldtower, as a majority shareholder of Nimrod increased its interest from 33% to 43.87% through its participation. Romell alleged that Nimrod failed to appoint a section 615 nominee in respect of the foreign shareholders and that the exception under item 10 of s 611 did not apply. Accordingly, Goldtower had contravened the takeovers prohibition in s 606. In declining to conduct proceedings, the Panel determined that it was unclear whether the takeovers prohibition had been contravened. The Panel considered the lack of participation among the foreign shareholders in the USA, who held 0.04% of Nimrod shares and determined their participation would not have had a material impact on the effect of control of Nimrod. The Panel also stated the delay in application meant there was a limit on its ability to address the issues raised. In conclusion, the Panel determined there was no reasonable prospect that it would make a declaration of unacceptable circumstances. The decision emphasises that even a prima facie breach of the takeover provisions does not necessarily activate the Panel’s jurisdiction if the impact of the breach on control of a company is unlikely to be material.
OVER THE HORIZON
Director ID deadline looms. Directors are reminded of the looming deadline to acquire a director ID. In April 2022, ASIC announced that all directors of companies regulated and registered under the Corporations Act 2001 (Cth) who were appointed on or before 31 October 2021 have until 30 November 2022 to apply for their director ID. A director ID is a unique identifier that a director will apply for once and keep forever – which will help prevent the use of false or fraudulent director identities. See Australian Business Registry Services for further details.
Do we have the capabilities to meet our net zero commitments through harnessing hydrogen energy? A recent report by Kerrin Pyror from Swinburne University and Victoria Hydrogen Hub contends that Australia does not have the skilled workers, nor the training capacity to achieve the renewable hydrogen plans under Australia’s net zero commitments (Pyror Report). Critical to meeting the legislated 43% reduction in carbon emissions by 2050 is harnessing renewable hydrogen energy. The International Energy Agency expects green hydrogen to account for 60% of the world’s global emissions reduction requirements. Further, the Hon. Alannah MacTiernan MLC (Minister for Regional Development; Agriculture and Food; Hydrogen Industry) expects Western Australia alone to create 100GW of renewable energy by 2030 annually. The Pyror Report made a number of recommendations to ensure Australia remains engaged in the hydrogen economy, namely: (1) national ‘train-the-trainer’ program to be designed and implemented in collaboration with industry groups and hydrogen hubs; (2) national suite of micro-credentials to be made available to address immediate skills gaps; (3) a Hydrogen Skills Centre to be established to leverage research and grow skills and knowledge. See the Hydrogen Skills Roadmap here.