Quarterly update on M&A, ECM and private equity activity. See G+T’s Expert Adviser: Quarterly Update 11 February 2019 for an overview of Q4 activity across these markets, recent deals, interesting deal mechanic developments and corporate finance transaction tips for advisers and other market news.

Global Financial Innovation Network launches. On 1 February 2019, ASIC announced the launch of the Global Financial Innovation Network (GFIN) - comprising 28 international organisations - which creates a framework for co-operation and a more efficient way for innovative firms to navigate between countries as they look to scale new ideas. Specifically, the GFIN will perform three key functions: (i) act as a network of regulators to collaborate and share experience of innovation in respective markets, including emerging technologies and business models; (ii) provide a forum for joint policy work and discussions; and (iii) provide firms with an environment in which to trial cross-border solutions. GFIN has invited innovative fintech firms to participate in a pilot to test innovative financial products, services or business models across more than one jurisdiction. Firms wishing to participate have until 28 February 2019 to apply. See ASIC’s media release

Federal Court declines to approve Boart Longyear’s scheme of arrangement. The Court refused to approve the scheme of arrangement - the purpose of which was to re-domicile the target company to Canada - because it was not approved by a 50% majority of shareholders present and voting (ie, it failed the ‘headcount test’ under the Corporations Act).  It did not matter that more than 75% of votes cast at the scheme meeting approved it. The Court considered that its ability to exercise its discretion to dispense with the headcount majority requirement was not limited to cases where the headcount vote has been unfairly influenced. The Court considered whether a communication by one shareholder to others prior to the scheme meeting impacted the integrity of the vote and indicated that it would not exercise its discretion to approve the scheme unless the company conducted a further poll of members with corrective disclosure and the scheme satisfied both statutory majorities.

Flinders Mines - Takeovers Panel makes declaration of unacceptable circumstances. There was an important development for directors of moribund or illiquid companies last week, with the Takeovers Panel making a declaration of unacceptable circumstances in relation to Flinders Mines’ proposal to delist from ASX (subject to shareholder approval) by ordinary resolution, and undertake an on-market buy-back and unmarketable parcels sale process (to be funded by a loan facility from a subsidiary of Flinders Mines' largest shareholder (TIO) and repaid through a proposed non-renounceable pro-rata rights issue after the buy-back). The Panel considered that the proposal would likely coerce Flinders Mines' shareholders (other than TIO) to sell their shares without a reasonable time to consider the on-market buy-back and with insufficient information to assess its merits. The Panel has since confirmed it has accepted undertakings, in lieu of making orders, from Flinders Mines and TIO, which include the company seeking formal ASX approval for a revised process to delist, scrapping the proposed rights issue and replacing with a TIO loan funding the buy-back, and the imposition of share voting restrictions on TIO for an 18-month period after the buy-back. The Panel’s decision highlights the importance of Directors and senior management understanding the potential control and other implications of proposed transactions and the surrounding circumstances that may impact that analysis in order to mitigate the risk of Panel intervention.

Government and regulators take steps to restore public confidence. Directors should note that since the release of the final report of the Financial Services Royal Commission earlier this month, there has been a steady flow of developments and announcements highlighting steps by Parliament and regulators to restore confidence in the financial system. Of note:

  • ASIC initiated a consultation on updating responsible lending guidance. Submissions can be made until 20 May 2019. See ASIC’s media release.
  • The Senate passed a bill which enabling ASIC to pursue much harsher civil penalties and criminal sanctions against for contraventions of the Corporations Act - clearly a significant step in bolstering ASIC’s enforcement capabilities, with ASIC warning banks, directors, executives and others in its media release of the notable changes to apply.
  • ASIC issued two releases concerning insider trading sentences - one involving a former mining executive of Golden Fields Resources (sentenced to 9 months’ imprisonment) and the other involving a former Sydney Deutsche Bank FX options and futures trader. 
  • The Government confirmed its first APRA capability review will start next month. The Government’s expert panel will, among other things, assess on a forward-looking basis the regulator’s ability to respond to an environment of growing complexity and emerging risks for regulated sectors. The panel will report to Government by 30 June 2019.  See Treasurer of the Commonwealth, the Hon Josh Frydenberg’s media release


Big 4 accounting firms on notice? Late last week the Joint Committee on Corporations and Financial Services published an ASIC oversight report expressing ongoing concerns over audit quality, putting the Big 4 accounting firms (who account for over 90% of audits of ASX200 companies) on notice of the potential for further inquiries in this area. This has been an area of close attention for ASIC in recent years, and it will be interesting - particularly in light of recent heightened scrutiny on the financial sector - to see whether calls by the Committee for a “deeper dive” into issues of audit quality and independence will gain further traction.