This is a service specifically targeted at the needs of busy non-executive directors (NEDs). 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 Attorney-General’s announcements in relation to reforming Australia’s anti-money laundering and counter-terrorism financing regime and the $775,000 penalty imposed by the Markets Disciplinary Panel on J.P. Morgan Securities Australia Limited (J.P. Morgan) following an investigation by the Australian Securities and Investments Commission (ASIC) in relation to suspicious client orders. We also examine the Takeovers Panel’s (Panel) decision to decline to conduct proceedings in relation to the affairs of Pact Group Holdings Ltd (ASX: PGH) (Pact Group). We also consider a conviction against two directors for failure to comply with director identification number requirements, and a guilty plea from a director in relation to forgery. 

In Over the Horizon, we examine the debate between investor and regulatory players in relation to the potential overhaul of the ‘sophisticated investor’ test and what this could mean for the intergenerational wealth of Australians. 

REGULATION 

Attorney-General releases second series of consultation papers to reform Australia’s anti-money laundering and counter-terrorism financing regime. On 6 May 2024, the Attorney-General, the Hon Mark Dreyfus KC, announced the Federal Government’s plans to invest $166.4 million in this month’s Budget to reform Australia’s anti-money laundering and counter-terrorism financing regime. See Attorney-General media release. That announcement itself highlights the Attorney-General’s announcement of 2 May 2024 in relation to the publication of the Federal Government’s detailed reform proposals outlined in its second stage consultation papers. See Attorney-General media release. The main aspect of the reforms would involve broadening the regime to regulate what are known as ‘tranche two’ entities: accountants, lawyers, trust and company service providers, real estate professionals and dealers in precious stones and metals. Submissions close 13 June 2024. See Attorney-General consultation papers. 

Markets Disciplinary Panel fines J.P. Morgan $775,000 for failing to prevent suspicious client orders to be placed on the ASX 24. On 9 May 2024, the Markets Disciplinary Panel imposed a $775,000 fine on J.P. Morgan following an ASIC investigation, for ‘carelessly’ permitting 36 suspicious client orders to be placed on the futures market, ASX 24, when J.P. Morgan should have suspected those orders were submitted with the intention of creating a false or misleading appearance with respect to the market for, or the price of, Eastern Australia Wheat Futures January 2023 (WMF3) contracts. As ASIC Deputy Chair Ms Sarah Court notes, this decision is a reminder that market participants cannot solely rely on automated trade monitoring systems to detect potential misconduct and must take immediate action once alerted to misconduct by ASIC. See ASIC media release. 

LEGAL 

Takeovers Panel declines to conduct proceedings in relation to the affairs of Pact Group. On 9 May 2024, the Panel announced that it had declined to conduct proceedings on application by certain Pact Group shareholders concerning the affairs of Pact Group. As discussed in a previous edition of Boardroom Brief, the application concerned an off-market takeover bid by Kin Group’s (Kin) wholly owned subsidiary Bennamon Industries Pty Ltd (Bennamon) for Pact Group’s shares. The applicants had submitted that Bennamon’s ninth supplementary bidder’s statement and a Kin email sent to select Pact Group shareholders contained misleading and deceptive statements in relation to delisting from the ASX that coerced shareholders into accepting Bennamon’s offer. Whilst the Panel expressed concern with the bidder’s conduct, it did not conduct proceedings as it had accepted undertakings from Kin on 2 April 2024. This included lodging an application with ASIC for relief in relation to withdrawal rights, sending a supplementary bidder’s statement containing further relevant disclosure in relation to Bennamon’s intention to delist Pact and sending a notice offering withdrawal rights to Pact shareholders who accepted the bid. See Pact Group Holdings Ltd [2024] ATP 4. 

Perth Magistrates Court fined two directors for failing to comply with director identification requirements. On 9 May 2024, ASIC announced that the Perth Magistrates Court had convicted and fined two Western Australian directors $5,000 each (plus costs) for failing to have a director identification number (DIN), in contravention of section 1272C(2) of the Corporations Act 2001 (Cth). Directors are reminded that from 5 April 2022, intending new directors must apply for a DIN before being appointed. The maximum penalty for contravening section 1272C(2) is 60 penalty units, being a fine of $18,780. See ASIC media release. 

Director pleads guilty to document forgery. On 10 May 2024, ASIC announced that a director of Metal Alpha Pty Ltd, Mr Brett Paul Trevillian, has pleaded guilty to forging four portfolio performance verification reports in relation to two investment products offered by AlphaThorn Pty Ltd (AlphaThorn) in connection with an intent to obtain a financial advantage. ASIC noted that AlphaThorn intended to provide those products to potential investors, which falsely claimed a history of investment returns by AlphaThorn. The matter is being prosecuted by the Commonwealth Director of Public Prosecutions following a referral from ASIC. The maximum sentence is 10 years imprisonment under section 253 of the Crimes Act 1900 (NSW). See ASIC media release. 

OVER THE HORIZON 

The sophisticated investor test – overhaul or opposition? Raising capital in Australia generally requires companies to comply with certain disclosure requirements in the Corporations Act 2001 (Cth), to ensure that investors are adequately made aware of the risks of participating in an offer of securities. An important exception to these disclosure requirements is the ‘sophisticated investor’ test – which allows those individuals with net assets of at least $2.5 million or gross income of at least $250,000 for two years to participate in offers without a disclosure document. These thresholds have remained virtually unchanged since 2001, but changing economic demographics of the Australian economy, inflation, and the Treasury’s inquiry into the managed investment scheme framework announced back in October 2022, has called their appropriateness into question. Treasury has therefore floated a potential increase in the sophisticated investor thresholds to circa $4.5 million or gross income of $450,000 respectively. It is thought that number of Australians who qualify as sophisticated investors has grown from just 1.9% of the population in 2002 to over 16% in 2021. Regulatory players including ASIC and other consumer advocates consider that an increase in the sophisticated investor thresholds could ensure that the more complex investments such as private equity, venture capital, specific bond issues, unlisted real estate and mezzanine finance are only available for those who are more likely to understand the reality and riskiness of an investment in those kinds of complex financial products. However, the proposal has been met with backlash by investor advocates who point to potential negative impacts on ‘angel’ investment from sophisticated investors. This could ultimately ‘push the next Canva offshore’, which could be disastrous for the future of Australian investment and onshore development. See article and article. Treasury is expected to provide its advice to the Assistant Treasurer, Mr Stephen Jones, in the very near future.