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 consider penalties ordered against Mercedes-Benz, the proposed reform to Australia’s thin market capitalisation rules, as well as ASIC’s warning to brokers offering high-risk products to retail investors. We consider the Takeover Panel’s rationale in declining to conduct proceedings in Firetail and the NSW Court of Appeal’s decision relating to knowledge in assistance of a breach of fiduciary duties owed to a company.

In Over the Horizon, we consider the opposing market outlooks and the upcoming address from RBA Governor Philip Lowe.


Mercedes-Benz fined $12.5 million for failing to comply with Takata recall communication plan.  The Federal Court has ordered car maker Mercedes-Benz to pay $12.5 million in penalties for failing to use attention-grabbing, high-impact language when communicating with consumers about the compulsory recall of defective Takata airbags, the world’s largest automotive recall affecting about 100 million vehicles globally.  The order was made in proceedings instituted by the Australian Competition and Consumer Commission (ACCC) on 4 August 2021.  Mercedes-Benz admitted that it had breached the Australian Consumer Law by failing to comply with the mandatory Takata recall notice by failing to implement a communication and engagement plan for contacting consumers, and failing to use appropriately urgent terms to maximise replacement rates.  Mercedes-Benz has provided a court enforceable undertaking to conduct a product-safety compliance program about product safety obligations.  See ACCC media release.

Proposed changes to Australia’s thin capitalisation rules and the impact on multinational enterprises (MNEs).  In the lead up to the Federal election, the Albanese Labor government announced a MNE tax integrity package, which replaced the existing ‘safe harbour debt’ test. It is expected that highly leveraged sectors, such as infrastructure, real estate, construction and private equity will be the most at-risk under the proposed changes.  Australia’s thin capitalisation rules limit deductions for interest to the extent that debt exceeds the ‘maximum allowable debt’, which apply to Australian entities which are foreign-controlled and or which control foreign entities.  The most common method to work out an entity’s maximum allowable debt allows for gearing up to a debt-to-equity ratio of 1.5:1. The Federal government is proposing to replace this calculation with a cap on interest deductions for an income year up to 30% of EBITDA. For more on this and the expected impact on MNEs, see media release. Directors of members of multi-national groups in the leveraged sectors noted above will need to consider the implications of these changes for their companies.

ASIC issues warning to brokers considering high-risk offers to retail investors.  Is it time for brokers to be prepared to reap what they sow?  ASIC Commissioner Danielle Press thinks so, stating ‘‘Australian financial services (AFS) licensees may be liable for substantial civil penalties if they do not do all things necessary to ensure the financial services covered by their licence are provided efficiently, honestly and fairly’. Since the onset of the COVID-19 pandemic, ASIC has observed an increase in the number of brokers offering securities trading. In an attempt to broaden their revenue base, some brokers are offering retail investors high-risk products which may be unfair, inappropriate or result in poor outcomes for retail investors.  The warning that ASIC will intervene or take action where ASIC observes unfair or inappropriate offers of securities lending arrangements for retail investors is directed at brokers attempting to offer products such as securities lending, crypto-asset trading and offers of ‘zero’ or ‘low-cost’ brokerage, in cases where the true cost is masked. See media release


Takeovers panel releases reasons for decision to decline to conduct proceedings in relation to Firetail Resources Limited.  In a previous edition of Boardroom Brief, we discussed the Takeovers Panel’s decision to decline to conduct proceedings in relation to an application made by Firetail Resources Limited (Firetail) in relation to its own affairs.  The application was concerned with notices under sections 203D and 249D of the Corporations Act  requiring Firetail to convene a general meeting to consider resolutions to remove two directors and appoint another director.  Firetail submitted that the Corporations Act had been breached because a group of shareholders were acting together to influence the composition of the board, the identity of a substantial shareholder had not been disclosed, and the group of shareholders had not disclosed their aggregate voting power.  The Panel was asked to draw various inferences about the association between shareholders, but it did not consider that sufficient probative material was provided to justify making further enquiries. The Panel did state that it was concerned with the lack of transparency in responses to Firetail’s tracing notices, particularly with respect to an unidentified substantial beneficial owner of shares.  The Panel noted that Firetail or ASIC could consider a further application to the Panel in relation to tracing notices if the identity of these holders remained unknown after enquiries are exhausted.  See media release.

NSW Court of Appeal highlights accessorial liability knowledge thresholds.  The NSW Court of Appeal has recently considered two decisions which showcase the requisite level of knowledge required to establish accessorial liability for knowing assistance of a breach of fiduciary duties owed to a company.  Bluemine Pty Ltd (in liq) v AKA (Civil) Pty Ltd; Earth Civil Australia Pty Ltd (in liq) v AKA (Civil) Pty Ltd; Diamondwish Pty Ltd (in liq) v Ivana Cassaniti; Rackforce Pty Ltd (in liq) v Ivana Cassaniti; RCG CBD Pty Limited (in liq) v Borg Family Pty Ltd [2022] NSWCA 160 involved accessorial liability claims in the context of two company directors causing certain of the appellant companies to enter into a range of improper transactions with the aim of obtaining improper tax benefits.  Claims against three individuals were dismissed on the basis that the individuals did not possess the requisite level of knowledge, but claims against two companies were successful on the basis that the directors’ knowledge should be attributed to them under the 'corporate attribution' rule.  Cassaniti v Ball as liquidator of RCG CBD Pty Limited (in liq); Khalil v Ball as liquidator of Diamondwish Pty Ltd (in liq) [2022] NSWCA 161 involved (among other things) a successful appeal by a company director against a finding of accessorial liability on the basis that the primary judge had failed to make an express finding of actual knowledge, as required by the relevant High Court test.  The decisions demonstrate that knowledge of circumstances that would merely put an honest and reasonable person on enquiry will fall below the relevant threshold, but knowledge of circumstances that would indicate the facts of the breach to an honest and reasonable person will not.  The decisions further indicate the challenge in accessorial liability claims in establishing what a director 'ought to have known about'.


Is the worst behind us or yet to come? A tumultuous tail of the 2020’s. With the war in Ukraine, stress on the global supply of energy, fertilizer and food, natural disasters and Federal Reserve hawkishness, where do we sit between doom and gloom?  It was clear in Jerome Powell’s recent Jackson Hole address that the battle to tame global inflation is on in earnest. Acknowledging that near term policy settings are likely to cause more pain for households and businesses, the Federal Reserve Chairman remains confident that that the Federal Reserve can bring inflation under control. Reserve Bank Governor Philip Lowe is likely to echo this approach in his speech on Thursday, 8 September 2022. Jeremy Grantham, veteran investor and historian of stock markets, believes we are approaching the end of a “superbubble”, but with that will come a vicious market downturn. Meanwhile, Viktor Shvets, Macquarie strategist, expects the next several years to be less intense and with that, a redirection of commodities. Only time will tell.

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