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 discuss ASIC’s crackdown on companies breaching reporting obligations, AUSTRAC’s commitment to fighting money laundering, terrorism financing and other serious crime, and a former CEO and CFO’s breaches of director and officer duties. We also discuss the recent Federal Court decision in Sheehy v Nuix Pty Ltd.

In Over the Horizon, we look at the calls by peak environmental bodies for emission reduction ambitions to be “ratcheted up” in their responses to consultation on Safeguard Mechanism reforms.

GOVERNANCE & REGULATION 

Fifteen companies prosecuted for failing to lodge financial reports and hold annual general meetings.  On Monday, 20 February 2023, the Australian Securities and Investments Commission (ASIC) announced that it prosecuted fifteen companies between 1 July 2022 and 31 December 2022 for breaching their obligations under the Corporations Act 2001 (Cth) (Corporations Act) by failing to lodge financial reports with the regulator and/or failing to hold annual general meetings.  Eleven of these companies were convicted and fined, resulting in ASIC obtaining over $115,000 in financial penalties.  Two companies were placed on good behaviour bonds, and a further two companies pleaded guilty, but charges were dismissed.  ASIC reminded companies that compliance with the annual general meeting and reporting requirements set out in the Corporation Act provides shareholders, creditors and the public with important information which enables them to make informed decisions concerning the reporting companies.  See ASIC media release.

AUSTRAC strengthens partnership with United Kingdom in fight against financial crime.  The Australian Transaction Reports and Analysis Centre (AUSTRAC) is the Australian government financial intelligence agency responsible for monitoring financial transactions to identify money laundering, organised crime, tax evasion, welfare fraud and terrorism financing.  This week, AUSTRAC signed two Memorandums of Understanding (MOU) with British regulators, the Financial Conduct Authority (FCA) and His Majesty’s Revenue and Customs (HMRC), signalling Australia’s ongoing commitment to fight money laundering, terrorism financing and other serious crime.  The MOUs will enable the agencies to enhance engagement on regulatory issues, including exchanging regulatory information, and improving shared understanding of emerging trends and risks, and the compliance of businesses that operate in both the UK and Australia.  See AUSTRAC media release.

ASIC sues former CEO and CFO over alleged disclosure failures and breaches of director and officer duties.  On 27 February 2023, ASIC commenced civil proceedings in the Federal Court against Noumi Limited (former Freedom Foods Group Limited) (Freedom Foods) and its former CEO and CFO for alleged continuous disclosure failures, breaches of director and officer duties, and false or misleading conduct.  ASIC alleges that Freedom Foods failed to disclose material information about the value of inventories and its sales revenue, gross profit and profit after tax in various financial reports.  ASIC further alleges that the former CEO and CFO breached their duties as a director and officer by allowing these failures to occur, and that the former CEO gave false or misleading information to directors, auditors, shareholders and the ASX by representing that the full year and half year reports were accurate.  ASIC Deputy Chair Sarah Court commented that, “[w]hen directors and officers fail in their obligations, as we allege in this case, they not only cause harm to investors by denying them the information they are entitled to, they also erode confidence in Australia’s financial markets.”  ASIC is seeking declarations of contravention, pecuniary penalties, disqualification orders and costs.  See ASIC media release. 

LEGAL

Federal Court rules in favour of Nuix Pty Ltd (Nuix) in relation to five year, $182m dispute with former CEO.  The long-standing court battle originated with former CEO Mr Sheehy claiming that Nuix failed to pay him bonuses and commissions that he had earned, and that the company had breached its obligations to provide him with notice of termination and to pay him accrued annual leave and long service leave entitlements upon termination.  Following his departure from the company in 2017, Mr Sheehy claimed 453,273 options should have emerged as 22.7 million shares following a stock split.  Justice Halley declared that Sheehy faced ”two insurmountable hurdles”, in his case alleging his former employer breached the 2008 options agreement and owed him 22.7 million shares.  In agreeing with the 2020 NSW Supreme Court decision, Justice Halley held that Sheehy had rights to only 453,273 shares and that the options under the 2008 agreement were only exercisable on the sale of the ‘whole’ of the business of Nuix, not during the company’s $1 billion IPO in 2020.  Consequently, there was no breach of agreement as there was no sale of the business.  Additionally, the Court agreed with Nuix’s assertions that Mr Sheehy could have only exercised his options if there was a sale of business before 2010.  Following the findings by the Federal Court, shares in Nuix rebounded 40%. See the decision in Sheehy v Nuix Pty Ltd [2023] FCA 56.  Gilbert + Tobin acted for the successful respondent.

OVER THE HORIZON

Peak environmental bodies call for emission reduction ambitions to be “ratcheted up”.  On 24 February 2023, the consultation period in relation to the Federal Government’s Safeguard Mechanism Reforms Position Paper (Position Paper) closed.  The Position Paper and accompanying exposure draft legislative rules set out detailed design elements of the proposed changes to the Safeguard Mechanism (see G+T Knowledge article).  The Carbon Market Institute, the nation’s top carbon market group, stated in its submission that the emission reductions proposed in the Positions Paper “must represent a floor, not a ceiling, on what the industrial sector can deliver”.  Further, it recommended that “the Government ‘ratchet up’ decline rates from 2030” and “develop a 2035 [Nationally Determined Contribution target under the Paris Agreement] (due in 2025) that represents a significant uplift in ambition” in order to “steer the Australian economy onto a pathway towards achieving and surpassing the bipartisan net zero 2050 target”.  In its submission, the Climate Council of Australia also called for a blanket ban on new and significantly expanded coal, oil and gas facilities, arguing that “new investment in fossil fuels is inconsistent with limiting global warming”.  Further, it argued that Australia needs to put in place policies that address all carbon pollution, not just domestic Scope 1 emissions.  Prime Minister Anthony Albanese stated on 22 February 2023 that the proposed Safeguard Mechanism reforms will “empower business and industry with the certainty and confidence to invest in reducing their emissions” and that “meaningful action on climate change” is central to his government’s diplomatic strategy.  The Federal Government is working to finalise legislative amendments to implement Safeguard Mechanism reforms by April 2023, so that the reforms can commence on 1 July 2023.  See Carbon Markets Institute Submission and Climate Council of Australia Submission.