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 consider a recent AICD publications regarding the dynamics of an effective board, the new Bill to enhance tax integrity by multinationals and increase transparency, and ASIC’s latest Corporate Finance Update.  We also note the Takeovers Panel’s affirmation of its decision not to make a declaration of unacceptable circumstances in relation to the affairs of ASP Aluminium.

In Over the Horizon, we note the Commonwealth Government’s consultation paper seeking submissions on the proposed sequencing for the introduction of global climate-related disclosure frameworks.

GOVERNANCE + REGULATION 

Addressing dysfunctional dynamics in boards and normalising review processes.  A board’s internal dynamic plays a crucial role in its performance, with even the most skilled and experienced boards relying on a strong and healthy team structure for effective decision-making.  In a recent article published by the Australian Institute of Company Directors (AICD), Professor Geoffrey Kiel FAICD identifies some “red flags” which indicate a board’s dynamic is veering off track, including domination of board discussions by one or more directors, other directors being ignored or dismissed, directors being slow to trust the information that has been provided to them, or courtesies between directors are neglected.  Professor Kiel recognises that a balance must be struck between the overly dominant or powerful director and a director that is “too meek and mild”, noting that the “days of the very domineering CEO and chair are over”.  He also suggests that regular board reviews should become a standard process involving (1) review of the board collectively, and (2) individual director assessments.  Boards will be more familiar with the latter, but should not undermine methods for collective review, such as external evaluation with surveys, interviews and observations, or peer reviews and team profiling.  These structured reviews provide directors with an avenue to optimise performance or raise concerns about the board’s effectiveness.  See AICD article.

Parliament introduces new Bill focusing on multinational tax integrity.  On 22 June 2023, the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share – Integrity and Transparency) Bill 2023 (Bill) was introduced into Parliament.  The Bill contains measures that change Australia’s thin capitalisation rules and reduce the scope of interest deductions for certain taxpayers.  These changes form part of the Albanese Government’s multinational tax integrity package announced as part of its election campaign.  The Bill provides for a tax EBITDA, placing a cap on interest deductions for an income year up to 30% of EBITDA, and a new third party debt test to replace the current arm’s length debt test.  The Bill also introduces new transparency rules which require Australian public companies (listed and unlisted) to disclose information about subsidiaries in their annual financial reports for financial years on or after 1 July 2023.  Although the changes are set to occur on 1 July 2023, the Bill was not passed during the last sitting of Parliament and has been referred to the Senate Economics Legislation Committee, due to report on 31 August 2023.  See the Bill and G+T Knowledge Article.

ASIC releases its Corporate Finance Update for June.  On 29 June 2023, the Australian Securities and Investments Commission (ASIC) published its Corporate Finance Update for the month of June (Update). The Update focuses on ASIC’s key actions and recommendations in the areas of sustainable finance, fundraising, mergers and acquisitions (M&A) and corporate governance.  The Update notes ASIC’s greenwashing interventions (see previous edition of Boardroom Brief) and Treasury’s second round of consultation on mandatory climate reporting (see above).  The Update also refers to ASIC’s recent surveillance of mining companies completing initial public offerings, with a particular focus on ensuring that information disseminated through non-regulated channels (such as social media) is prepared with the same degree of care and diligence as regulated disclosures.  Under the M&A banner, the Update notes the Federal Court’s recent decision in Re Vita Group Limited [2023] FCA 400, proposing reforms to streamline the procedures in a scheme of arrangement (see previous edition of Boardroom Brief).  Finally, the Update refers to ASIC’s cyber resilience survey, encouraging ASIC-regulated entities to assess the robustness of their cyber capability and susceptibility to cyber risks (see previous edition of Boardroom Brief).  See ASIC Update.

LEGAL

Takeovers Panel affirms its decision not to make a declaration of unacceptable circumstances in relation to the affairs of ASP.  On 27 June 2023, the Takeovers Panel (Panel) affirmed its decision not to make a declaration of unacceptable circumstances in relation to the affairs of A S P Aluminum Holdings Pty (ASP).  The Panel received an application from Villefranche Investments Pty Ltd as trustee of the Gates Family Trust (Villefranche) to review the Panel’s initial decision in A S P Aluminum Holdings Pty Ltd [2023] ATP 8.  In the initial decision, Villefranche alleged that ASP contravened section 606(1) of the Corporations Act 2001 (Cth) (Corporations Act) by attempting to reduce the number of ASP shareholders below 50 so the takeover provisions in Chapter 6 of the Corporations Act would not apply.  The initial Panel was not satisfied that ASP or its controlling shareholders wanted ASP to cease to be subject to Chapter 6 for reasons that were unacceptable (see previous edition of Boardroom Brief).  The review Panel affirmed the decision of the initial Panel and declined to make a declaration of unacceptable circumstances, with reasons to be published in due course.  See Takeovers Panel decision. 

OVER THE HORIZON

Commonwealth Government seeks views on implementation of climate-related financial disclosure.  Directors should by now be broadly familiar with the proposed enhanced sustainability-related disclosure obligations imposed by the International Sustainability Standards Board’s (ISSB) two initial standards (see previous edition of Boardroom Brief).  The Commonwealth Government is now seeking to develop an appropriate regulatory framework for the implementation of these standards, balancing the benefits of enhanced disclosure against the potential compliance burden and liability risks which they may entail for companies and Directors.  On 27 June 2023, the Australian Treasury released its second consultation paper seeking submissions on the implementation and sequencing of standardised requirements for disclosing climate-related financial risks and opportunities (Consultation Paper).  In a joint media release, the Minister for Climate Change and Energy Hon Chris Bowen announced that the Consultation Paper is the “next step” in ensuring Australia’s large businesses and financial institutions provide greater transparency on how they are dealing with climate change and contributing to the net zero transformation.  Importantly, the Consultation Paper envisages a three-year transitional period, with “regulator only action” against directors and reporting entities in relation to forward looking statements and scope three emissions possible during this time.  That proposal is expected to go at least some of the way to easing fears regarding the potential for heightened class action or activist risks during the initial years of the standards: particularly given the extensive obligations to publish forward-looking information.  Minister Bowen stated that feedback on the Consultation Paper will assist in shaping legislative changes and ensure such changes are aligned with business, industry groups and the broader community.  See Consultation Paper.  See also joint media release.