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 provide a status update on the proposed Corporate Collective Investment Vehicle legislation and the new director identification number regime, as well as areas of concern identified through the ACCC’s merger review. We also summarise the key takeaways of the Takeovers Panel’s reasons for decisions in relation to Virtus Health Limited’s affair. In Over the Horizon, we consider potential implications of the war in Ukraine.
GOVERNANCE & REGULATION
Bill on corporate collective investment vehicles receives assent. In a previous edition of Boardroom Brief, we summarised the Corporate Collective Investment Vehicle Framework and Other Measures Bill 2021 (Bill) - now the Corporate Collective Investment Vehicle Framework and Other Measures Act 2022. The Bill received royal assent on 22 February 2022, with provisions commencing between 22 February 2022 and 1 July 2022. The reforms effectively allow fund managers to offer an investment vehicle combining the familiar governance features of a corporation with flow-through tax treatment. See the Treasury’s media release. ASX continues its consultation on proposed changes to the Listing Rules to facilitate the listing of corporate collective investment vehicles, as discussed in a previous edition of Boardroom Brief.
New director identification number regime. A reminder that new directors appointed between 1 November 2021 and 4 April 2022 will need to apply for a director identification number (DIN) within 28 days of their appointment as a director. Directors appointed from 5 April 2022 will need to apply for a DIN before they are appointed. The Australian Business Registry Services have released helpful guidance in relation to the new DIN regime, which sets out how the regime applies to specific scenarios. For instance, the guidance clarifies that where a person was already a director of an Australian company before 31 October 2021 and has subsequently been, or will be, appointed as director of another Australian company, that person still has until 30 November 2022 to apply for a DIN.
ACCC identifies weaknesses in current merger review regime. Last Friday, the ACCC released a report summarising its findings in relation to its review of six mergers which occurred between 2017 and 2019. Those mergers were not opposed by the ACCC at the time. During its review, the ACCC made a few material observations: (1) the removal of a vigorous and effective competitor can have a significant impact on competition (even where the merger results in a relatively minor increase in market concentration), suggesting the importance of ACCC looking beyond market share and at other market conditions; (2) there is a need to be skeptical as to whether the benefit of competitive constraints on one segment will be carried over to others; (3) greater scrutiny is required of claims as to the likelihood of new entry and expansion (which are routinely over-estimated); and (4) there are several instances where information provided to ACCC was omitted or included in a distorted manner, highlighting weaknesses in the informal clearance regime, under which it is for the merger parties to determine what information is provided to the ACCC. It is likely that the areas of concern identified in this review (and similar reviews conducted by ACCC in the future) will establish particular areas of close scrutiny in ACCC’s consideration of upcoming mergers.
Takeovers Panel makes declaration of unacceptable circumstances in relation to the affairs of Virtus Health Limited. In a previous edition of Boardroom Brief, we considered BGH Capital Fund I’s (BGH) application to the Takeovers Panel in relation to exclusivity arrangements arising in relation to CapVest’s takeover bid for Virtus Health Limited (Virtus). Last week, the Takeovers Panel declared that aspects of the exclusivity arrangements, contained within a process deed entered into between CapVest and Virtus, had an anti-competitive effect and, as such, were unacceptable. The process deed provided for an exclusivity period for 40 business days after opening the data room, during which there were no shop, no talk and no due diligence restrictions on Virtus. The process deed included a fiduciary carve out (Fiduciary Out) to the no talk and no due diligence restrictions, but only for a period of 15 business days after opening the data room. The Takeovers Panel considered the Fiduciary Out was anti-competitive for the following reasons: (1) there was a gap of approximately one month where it did not apply and (2) the Fiduciary Out was limited by a notification obligation. The Panel commented that the effectiveness of the Fiduciary Out was therefore unclear. Further, the process deed included an obligation on the part of Virtus to provide to CapVest any non-public information about its business or affairs that it provided to any person in connection with a competing proposal, which the Panel determined was also anti-competitive. While ostensibly justified on the basis of preserving a competitive market for the control of Virtus, the decision arguably constrains the freedom of target company directors to trade off access to corporate information in an attempt to level the playing field between competing bidders. The Panel is yet to release its full reasons for its decision, which may shed further light on its reasoning. For now, see the Takeovers Panel’s media release.
OVER THE HORIZON
Europe at war. As the human toll mounts, markets are attempting to digest the financial and economic implications of a potentially prolonged ground war in Ukraine. Directors should be conscious of the potential disruptions to supply chains and inflationary impacts in both energy and soft commodity markets, in which Ukraine is a significant player. Less certain are the longer-term implications of the effective isolation of the Russian economy from global trade flows, including the uncertainty created by Russia’s removal from the SWIFT inter-bank settlement system. Directors may also need to take renewed advice on the extent of Russian sanctions, which are changing on a near daily basis. We also expect shareholder activism to increase, with a move for companies to divest Russian assets and interests in response to the Putin regime’s disregard for accepted principles of international relations and the rule of law.