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 take a look at the Commonwealth Government’s proposed amendments relating to FIRB requirements as well as the recent disallowance of the proposed Proxy Advice Regulations by the Senate.  Further, we consider the increased risk of shareholder class actions against directors, which comes as a result of a recent High Court decision.  

In our Over the Horizon, we consider ASIC’s 2022 key areas of focus, including crypto and ESG.   

GOVERNANCE & REGULATION

Treasury releases discussion paper on further foreign investment reform.  Last week, the Commonwealth government released the 2022 Foreign Investment Reforms Exposure Draft Regulations, Explanatory Statement and Discussion Paper which include proposed amendments to the Foreign Acquisitions and Takeovers Regulation 2015 (Cth).  The amendments include (1) exempting foreign persons from FIRB approval requirements where an acquisition is made for less than a 10% passive interest in an unlisted Australian land entity (currently, 5%); (2)  specifying that “rights issue” for FIRB purposes has the same meaning as set out in the Corporations Act 2001 (Cth); and (3) inserting an exemption from FIRB approval requirements for an acquisition of interests in securities where there are reasonable grounds to believe that the person’s interest in the entity will not increase as a result of the acquisition.  Submissions in relation to the proposed amendments close this Friday.  See the Treasury’s release.  The proposed changes address some inconvenient technical “glitches” in the legislation and are expected to receive industry support. 

Proxy Advice Regulations disallowed.  In our previous edition of Boardroom Brief, we summarised the proposed reforms relating to proxy advice which formed the basis of the Treasury Laws Amendment (Greater Transparency of Proxy Advice) Regulations 2021 (Cth) (Regulations) which would align the local regulation of proxy advisors with the UK and US.  Those proposed reforms imposed various requirements on proxy advisors in circulating their research, voting recommendations and reports to the relevant company, amongst other things.  The Senate recently passed a resolution disallowing the Proxy Advice Regulations, meaning that the status quo in the proxy advisor area will remain for the time being.  The defeat of Treasurer Josh Frydenberg’s reforms, while potentially embarrassing for the Government, was widely anticipated, which will be of cold comfort to Directors who have been on the wrong side of proxy adviser activism in the past.

LEGAL

High Court decision exposes directors to increased risk of shareholder class actions.  Section 596A of the Corporations Act 2001 (Cth) has typically been used by liquidators and administrators to examine persons about a company’s “examinable affairs”, allowing them to gather information to assist in the winding up of a company and determine whether litigation can be commenced for the benefit of creditors.  However, in Walton v ACN 004 410 833 (formerly Arrium Limited) (in liquidation) [2022] HCA 3, the High Court of Australia took a much broader view of the provision, finding that “eligible persons” may examine an officer (such as a director) of a company for the purposes of pursing private litigation in connection with a company in external administration, irrespective of whether such examination benefits creditors or the company itself.  The decision may also expand the scope of the requirement for officers to produce documents under section 597(9) of the Corporations Act.  The High Court decision is significant as it opens directors up to an increased risk of class actions by its shareholders in the context of external administration, even where the liquidators or administrators do not intend to pursue claims against those directors.  

OVER THE HORIZON 

“Woke” ASIC reveals 2022 focus on cyber-resilience, ESG and crypto.  In last week’s edition of Boardroom Brief, we considered the increased risk of deepfakes in compromising a company’s cyber-security.  In the ASIC Chair’s opening statement at the Parliamentary Joint Committee on Corporations and Financial Services, ASIC has confirmed that alongside cyber-resilience, ESG and crypto are “the three areas of focus that will remain of the highest order this year”.  In relation to crypto, Directors must be alert to ongoing disclosure requirements surrounding crypto assets which, by design, are subject to continual change.  In particular, Directors should ensure that any promotional communications regarding crypto assets do not contain information which is likely to mislead or deceive.  Directors must also ensure they do not engage in misleading or deceptive conduct regarding the environmental characteristics of its company, projects or product, which has come to be known as “greenwashing” (as discussed in further detail in G+T’s article, Greenwashing: Clean Energy’s Dirty Laundry), whilst still balancing the increased pressure to make climate change commitments.  See ASIC’s Crypto-Assets Guidance Paper.