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 several ASIC announcements, including its disqualification of directors involved in failed companies and the issuance of two infringement notices: one to a superannuation fund promoter for alleged greenwashing, and another attributable to a contravention of market integrity rules.  We also look at the application to the Takeovers Panel in relation to the affairs of A S P Aluminium Holdings Pty Ltd and review a Federal Court judgment which clarifies the position on proposed reforms to schemes of arrangement.

In Risk Radar, we examine how the risk of greenwashing is making some companies cautious of adopting ambitious emission reduction targets.

GOVERNANCE & REGULATION

ASIC disqualifies directors over involvement in failed companies.  On 2 May 2023, the Australian Securities and Investments Commission (ASIC) announced that it has disqualified three unrelated directors for involvement in failing companies.  ASIC found that the directors failed to fulfil their duties in various different ways, such as failing to ensure adequate recording of company financial transactions, failing to be an active participant in company management, and failing to pay company debts and taxes.  The directors were disqualified for between one and three years.  See ASIC media releases regarding the NSW director, Victorian director, and Queensland director.

ASIC issues infringement notice to superannuation fund promoter for alleged greenwashing.  On 2 May 2023, ASIC announced it has issued an infringement notice to Future Super Investment Services Pty Ltd (Future Super) for alleged greenwashing.  Future Super is the promoter of the Future Super Fund (Fund), and ASIC was concerned that a historical Facebook post stating “Naysayers don’t join together and move nearly $400 million out of fossil fuels” may have been false or misleading by overstating the Fund’s positive environmental impact.  Future Super had approximately $400 million in total funds under management at the time of the Facebook post (which was later deleted in October 2022) and so had no basis to represent that the entirety of those funds had been invested in fossil fuels prior to being invested in the Fund.  Directors should be mindful that misleading or false statements made in relation to their companies’ environmental impact may be impugned, including statements made on a social media platform.  See ASIC media release.

ASIC issues infringement notice for contravention of market integrity rules.  On 3 May 2023, ASIC announced Ord Minnett Limited Ltd (Ord Minnett) has paid a penalty of $888,000 to comply with an infringement notice given by the Markets Disciplinary Panel (MDP).  The MDP ruled that Ord Minnett had breached several market integrity rules through a share buy-back conducted on behalf of AWN Holdings Ltd (AWN) which did not comply with ASX crossing rules, as the crossings were pre-arranged and not done with indifference as to the identity of the buyer and seller.  This prohibited conduct accounted for $777,000 of the overall penalty, whilst the remaining $111,000 was attributed to Ord Minnett’s subsequent purchase of AWN shares under the buy-back at prices above the maximum limit allowable for a buy-back under the ASX Listing Rules.  Although the MDP considered this breach was a genuine, inadvertent error, it noted Ord Minnett did not have adequate internal controls to detect this contravention and once alerted to the contravention, did not take any remedial steps in response.  See ASIC media release.  See also MDP Infringement Notice. 

LEGAL

Takeovers Panel receives application from Villefranche in relation to the affairs of ASP.  Villefranche Investments Pty Limited, trustee of the Gates Family Trust (Villefranche) has made an application to the Panel regarding A S P Aluminium Holdings Pty Ltd (ASP).  ASP is an unlisted company with less than 50 shareholders, including Villefranche.  Villefranche claims that ASP has contravened the 20% prohibition in Chapter 6 of the Corporations Act 2001 (Cth) (Takeover Provisions) by transferring ASP shares totalling 50.73% of ASP and attempting to reduce the number of its shareholders to below 50 to circumvent the Takeover Provisions.  No decision has been made whether to conduct proceedings.  See Takeovers Panel media release.

Federal Court clarifies reform proposals to streamline schemes of arrangement.  On 1 May 2023, the Federal Court published its decision in Re Vita Group Ltd [2023] FCA 400 (Re Vita), shedding further light on Jackman J’s reform proposals for schemes of arrangement put forward in the preceding case management hearing (see previous edition of Boardroom Brief).  In Re Vita, Jackman J clarified the legal basis for the proposed reforms, drawing on the overarching obligation on the Court to facilitate the just resolution of disputes as quickly, inexpensively and efficiently as possible under section 37M of the Federal Court of Australia Act 1976 (Cth).  Justice Jackman held that the evidence adduced by Vita Group Limited (Vita) was sufficient, echoing His Honour’s earlier warning to scheme proponents that additional evidence may be required in certain circumstances and would be assessed on case-by-case basis.  See Re Vita Group Ltd [2023] FCA 400.

RISK RADAR

Risk of greenwashing preventing companies from committing to ambitious emission reduction targets.  Rio Tinto (Rio) recently doubled down on its decision not to set “Scope 3” emissions targets as part of its climate change policy.  “Scope 3” emissions refer to indirect emissions that are generated by the upstream and downstream activities in a company’s value chain.  At Rio’s annual meeting of Australian shareholders, Rio’s Chair, Mr Dominic Barton, stated that the company did not want to set emissions targets that could lead to greenwashing claims – on the basis that Scope 3 emissions are outside the company’s control.  Mr Barton’s comments echo the sentiments of Woodside, which also refused to set Scope 3 emissions targets over similar concerns.  Woodside’s position has been the subject of significant shareholder criticism.  In contrast, many of Rio’s and Woodside’s direct competitors (such as BHP, Glencore, Shell, and BP) have all set Scope 3 emissions targets.  This differing strategy highlights the delicate balancing act involved when setting emissions reduction targets.  If a company’s targets are too low, they may be at risk of being perceived as inadequate, but if they are too ambitious, companies run the risk of greenwashing claims (if the target is not achieved).  Failure to report on these targets at all may be considered “greenhushing”.  Directors are reminded of the need to adopt robust board processes in light of this balancing act, to minimise the prospects of greenwashing claims whilst also meeting broader shareholder and stakeholder expectations in relation to sustainability and climate action.  See The Australian article and AFR article.