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 a Commonwealth Government consultation paper that proposes increased director liability for so-called wage theft, the expected release date for the ISSB’s sustainability reporting standards, and the ACSI’s latest report on modern slavery disclosures and reporting amongst ASX200 companies. We also look at the Federal Court’s confirmation of proposed reforms to streamline schemes of arrangement, and the Court’s approval of company directors’ power to change the venue of meetings called by shareholders.
In Risk Radar, we discuss the evolving risk posed by cybersecurity and scam activity, and the increasing need for a concerted regulatory effort to prevent, detect and respond to scams.
GOVERNANCE & REGULATION
Commonwealth Government seeks feedback on wage theft consultation paper that proposes increased director liability. On 13 April 2022, the Department of Employment and Workplace Relations (Department) released a consultation paper on reforming the criminalisation of wage underpayment and non-payment (Consultation Paper). Among other things, the Consultation Paper proposes holding officers of bodies corporate (including directors) personally liable where they are aware employees are being underpaid, and / or if they are reckless as to a substantial risk that underpayment will occur. The latter recklessness-based offence is “proposed to apply to employers who may not deliberately underpay their workers, but whose appreciation of the risk that an amount is incorrect is such that it is unjustifiable for them to proceed with paying that amount”. Additionally, the Consultation Paper indicates that the Department is open to extending the ancillary liability of directors, including so that directors “may be held liable for [a wage-related] offence by the body corporate unless they can demonstrate they exercised due diligence to prevent the offence”. Submissions close on 12 May 2023. See consultation paper.
ISSB global sustainability standards: release date for final versions and transitional relief. On 4 April 2023, the International Sustainability Standards Board (ISSB) announced that it will release its first two standards “towards the end of Q2 2023”. The ISSB standards will provide international benchmarks for investor-focussed sustainability reporting that can be incorporated into domestic regulatory frameworks. The ISSB also announced transitional relief for companies applying these standards. Specifically, companies will be permitted to defer “full reporting on sustainability-related risks and opportunities, beyond climate” until the second year of reporting using the ISSB standards. This is intended to enable companies to implement robust reporting and compliance systems that provide information in line with the ISSB standards’ requirements. See ISSB media release. Directors should note that the new standards represent one of the most significant changes to financial reporting in recent decades, and will require the development of substantial new internal capabilities within reporting entities.
ACSI releases analysis of company reporting of modern slavery risks. On 18 April 2023, the Australian Council of Superannuation Investors (ACSI) released a report titled “Compliance without ambition: Taking stock of ASX200 reporting under Australia’s Modern Slavery Act” (Report). The Report assesses the quality of ASX200 companies’ modern slavery statements under the Modern Slavery Act 2018 (Cth) (MSA). The results show that while most ASX200 companies have incrementally improved their disclosure of modern slavery risks, there are clear signs of stagnation. ACSI CEO, Louise Davidson, noted that “[t]his research tells us too few companies are developing the kind of robust responses required to address the reality of modern slavery”. A review of the MSA was finalised on 31 March 2023, with the Commonwealth Government’s response due shortly. See Report.
Federal Court affirms scheme of arrangement reforms proposed by Justice Jackman in Re Vita Group Limited. On 17 April 2023, Beach J confirmed at the second Federal Court hearing in Re OZ Minerals Limited VID47/2023 that the protocols for schemes of arrangement proposed by Jackman J in Re Vita Group Limited NSD252/2023 should be upheld (see previous edition of Boardroom Brief). Justice Beach made several observations in support of the reforms, reaffirming they would not replace the ex parte obligations imposed on the scheme company to bring important matters to the Court’s attention. Justice Beach also considered the potential benefits and drawbacks of a practice note for schemes of arrangement, noting that schemes are unique, and any such practice note would be limited to dealing with procedures and processes. See G+T Knowledge Article.
Federal Court upholds broad interpretation of company directors’ power to change the venue of a meeting called by shareholders. On 17 April 2023, the Federal Court upheld a broad interpretation of company directors’ power to change the mode of general meetings. Keybridge Capital Limited (Keybridge), in its capacity as shareholder of WAM Active Limited (WAM), called a general meeting and the directors of WAM subsequently changed the venue of that meeting from an in-person location to a wholly virtual meeting. Keybridge contested the validity of the change, whilst the directors of WAM claimed their power to effect such a change was supported under WAM’s constitution. Justice Button considered the wording of WAM’s constitution, confirming the directors’ ability to “change the venue” is not limited to a change of physical locations. The Court also considered the directors of WAM had not exercised their power for an improper purpose and did not operate to frustrate the right of Keybridge to call a meeting under section 249F of the Corporations Act 2001 (Cth) (Corporations Act). NEDs are reminded to consider the company constitution and the Corporations Act in making governance decisions to ensure compliance with both. See Keybridge Capital Limited v WAM Active Limited  FCA 339.
Corporate regulators call for action to combat growing scam activity. On 17 April 2023, the ACCC released Targeting scams: report on scams activity, which details the impact that scam activity had on Australians in 2022 (ACCC Report). The ACCC Report found that losses to scams are rapidly increasing, with total reported losses in 2022 of at least $3.1 billion – an 80% increase from 2021. The ACCC Report calls for greater coordination between government, law enforcement and the private sector to combat scams, as well as minimum standards to address current gaps between institutions, industries and regulators. The ACCC Report’s findings were supported by a subsequent ASIC report released on 20 April 2023 (Report 761, Scam prevention, detection and response by the four major banks) which recommended that all financial institutions improve their approaches to scam prevention, detection, and responses. In line with these recommendations, the Commonwealth Government is currently forming a National Anti-Scams Centre that will develop “tough new industry codes”, particularly in relation to the banking and telecommunication sectors. The ACCC Report also notes that stolen personal data is being used to scam customers of companies that have been subject to cyberattacks (like Medibank and Optus). This scam risk adds to the potential liability of such companies and reinforces the importance of maintaining stringent cyber risk management systems (see G+T Knowledge Article). NEDs should be cognisant of the growing risks and future regulatory changes in respect of cybersecurity and associated scam activity. See ACCC media release.