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 KPMG’s reports on the market’s adoption of the 4th edition of the ASX Corporate Governance Principles and Recommendations and the Foreign Investment Review Board’s consultation on the development of a new digital regulatory platform.  We also consider the Takeovers Panel’s decision to decline to conduct proceedings into the affairs of Moreton, and the Panel’s variation of orders made in relation to the affairs of Molopo.  We also consider the High Court’s decision in relation to a non-party’s standing to seek declaratory relief as to the interpretation of a term of a contract.

In Risk Radar, we consider speculation about an easing of China’s restrictions on coal imports from Australia and the potential impact on ASX listed entities.

GOVERNANCE & REGULATION 

KPMG releases three research reports in relation to the adoption of the ASX Corporate Governance Council’s Principles and Recommendations (4th edition) (Principles and Recommendations).  The Principles and Recommendations were issued by the ASX in February 2019 and took effect in January 2020.  The first disclosures of ASX listed entities under the new Principles and Recommendations occurred during the 2021 calendar year and the KPMG reports analyse the disclosures against the Principles and Recommendations.  The three reports cover: (1) the overall market response to the Principles and Recommendations, (2) diversity disclosures, and (3) environmental and social exposure disclosures.  KPMG identify the purpose of the reports as being to assist listed entities with understanding how their peers in the market have responded to the Principles and Recommendations and provide an insight on market practice with respect to disclosure in the current market.  The reports concluded that a high level adoption of the Principles and Recommendations was observed, but that there is still a long way to go.  In particular, the reports identify what good practice initiatives had been demonstrated by entities, and where gaps in disclosure lay, acting as a benchmark against which listed entities can consider their own disclosure efforts.  See KPMG reports.

Foreign Investment Review Board consults on digital transformation program.  In support of the 1 January 2021 reforms to the foreign investment review framework, the Foreign Investment Review Board has been working on developing new technologies in partnership with Deloitte Australia to implement a new digital program.  The aim is to develop a program which will streamline the Board’s administration of, and improve processing and compliance activities of, the foreign investment framework.  The Board is continuing consultations on its digital transformation program and seeking feedback from investors and agents while the prototype remains in development to ensure that the resulting system is efficient and accessible.  There have already been two sessions, and a third will be held on 2 August 2022.  See consultation information. 

LEGAL

Takeovers Panel declines to conduct proceedings into the affairs of Moreton.  In last week’s edition, we considered an application of the Board of Moreton Resources Limited (in Liquidation) (Receivers Appointed) (Subject to Deed of Company Arrangement) (Moreton).  The Board sought several orders, including that the appointment of receivers be set aside.  The Panel concluded that the application did not set out in a clear way what the relevant circumstances were, why they were unacceptable or why the orders sought were needed, and therefore did not consider there to be sufficient material to suggest to the Panel that it had jurisdiction or that any unacceptable circumstances had arisen.  The Panel therefore declined to conduct proceedings.  See reasons for decision. 

Takeovers Panel varies the orders in Molopo Energy Limited 03, 04 & 05R.  On an application from Aurora Funds Management Ltd (Aurora), the Panel has varied the orders made in Molopo Energy Limited 03R, 04R & 05R, one of which vested Molopo Energy Limited (Molopo) shares held by Aurora and Keybridge Capital Limited (Keybridge) in ASIC for sale.  Aurora sought a variation of the orders either to obtain back its Molopo shares or to stay the sale of the shares pending the outcome of the Canadian court proceedings to which Molopo is currently party to.  Aurora suggested it should obtain back its shares either on the basis that it could have acquired them under the creep provisions during the time since the orders were originally made or using the creep provisions on a going forward basis.  The Panel did not consider there were circumstances which would warrant Aurora obtaining back its shares, but did however vary the orders to stay the sale of the shares until the Canadian proceedings were resolved and any appeal rights have lapsed, or until Molopo provides shareholders notice to convene a meeting to pass a resolution to voluntarily wind up the company.  The Panel considered the Canadian proceedings to be exceptional circumstances which would result in Aurora and Keybridge being unfairly prejudiced if the sale was allowed to proceed without the proceedings having been resolved.  See media release.

High Court held non-parties may have standing to seek declaratory relief where they have a real interest in the relief.  The High Court held by a 5:2 majority in Hobart International Airport Pty Ltd v Clarence City Council [2022] HCA 5 that a non-party to a contract has standing to seek a declaration as to a term of the contract.  The case concerned a lease contract between the Clarence City Council and the private operators of Hobart International Airport.  The airport sits on Commonwealth land, which is not subject to tax, which is leased to the private operators.  The lease agreement contained a clause providing that the private operators pay an amount notionally equivalent to council rates to the Commonwealth, however a dispute arose between the operators and the local Council as to how the taxable land area should be calculated.  The Council sought a declaration regarding the interpretation of the clause and the calculation method.  At first instance, the case was dismissed for lack of standing, however the decision was overturned by the Full Federal Court and the High Court was then asked to determine whether jurisdiction had been established, given the Council was not a party to the contract.  The High Court held that where declaratory relief is sought, there is no need to prove a cause of action. Rather, the litigant must have a ‘real interest’ in the relief, which was satisfied in the circumstances of the Council.  However, the High Court warned that the principle was only to be enlivened in exceptional circumstances.  

RISK RADAR

End of China’s unofficial Australian coal ban?  Last week, ASX-listed coal producers saw increases in their stock price amid rising speculation that China may lift the unofficial ban on Australian coal exports. While China never officially imposed a ban, restrictions were imposed in 2020 which left millions of tonnes of coal sitting off major Chinese ports.  There has been recent speculation that the restrictions may be lifted given the new communication channels being fostered between the two nations – which may lead to a recalibration of the two nations’ relationship – and the mounting cost of coal imported from other countries.  The biggest winners from the potential lifting of restrictions would be coal coking companies, and just reports of the possible easing of restrictions was enough to cause a sharp spike in the share prices of Australian coal producers.  It will be interesting to see whether speculation translates into more definitive indications about what the impact on the ASX listed coal producers and coal coking companies will be.