Welcome to the latest update from Gilbert + Tobin's Corporate Advisory team.  

Legislation and proposed legislation

Bill to extend stamp duty exemptions for certain corporate transactions introduced

The Bill, if passed, will extend the stamp duty exemptions for both corporate consolidation and corporate reconstruction transactions.

The State Revenue Legislation Amendment Bill 2016 (NSW) (Bill) was introduced into the New South Wales Parliament on 22 March 2016.  The Bill amends, among other things, the exemption provisions relating to corporate consolidation and corporate reconstruction transactions in the Duties Act 1997 (NSW) such that:

  • The corporate consolidation transaction exemption provisions are extended so that stamp duty payable on an agreement for the sale or transfer of securities will be reduced if the Chief Commissioner is satisfied that any transfer to which the agreement applies is a corporate consolidation transaction.  In effect, this amendment will ensure that the corporate consolidation transaction exemption, presently limited to transfers of securities, will also be available for agreements to transfer recognising that there are occasions when an agreement is required in such a transaction; and
  • The corporate reconstruction transaction exemption provisions are extended to apply not only to trustees of unit trust schemes (acting as trustee), but also to a custodian of the trustee of a unit trust scheme which is a managed investment scheme (acting as custodian of the trustee of that scheme).  This amendment seeks to overcome the current position where multiple transfers are required for the corporate reconstruction transaction exemption to be available if a custodian of a trustee of a managed investment scheme is involved.  These multiple transfers can be a breach of the Corporations Act 2001(Cth)).

If the Bill is passed, these amendments are taken to have commenced on the day on which the Bill was first introduced into Parliament, being 22 March 2016.

The Bill is awaiting Second Reading Debate in the Legislative Assembly.

By Hanh Chau, Grace Ho, Adam Musgrave and Rianne Chen


New instrument on electronic and dual lodgement of financial reports

A new ASIC instrument remakes 3 previous class orders on the electronic and dual lodgement of financial reports as a single instrument

ASIC has released ASIC Corporations (Electronic Lodgment of Financial Reports) Instrument 2016/181(Instrument) which deals with electronic and dual lodgment of directors’ reports, financial reports and auditor’s reports.  The Instrument consolidates and replaces the following 3 class orders (which were due to expire in 2016 and 2017):

  • Class Order [CO 00/2451] Electronic lodgment of certain reports with the ASX: approval;
  • Class Order [CO 06/6] Dual lodgment relief for NSX-listed disclosing entities; and
  • Class Order [CO 98/104] Dual lodgment relief for ASX-listed entities.

The Instrument also extends the approval to lodge the reports electronically to include entities listed on SIM Venture Securities Exchange and Sydney Stock Exchange.

See ASIC media release dated 1 April 2016 for further details.

ASIC releases information sheet on forward looking statements for mining and resource companies

ASIC’s new Information Statement 214 aims to give mining and resource companies a better understanding of the existing rules that apply to forward-looking statements, including what constitutes “reasonable grounds”.

ASIC has released Information Sheet 214 (IS) which focuses on forward-looking statements for mining and resource companies.  The IS provides a consolidated overview of the various regulatory requirements that should be considered when making forward-looking statements and provides further guidance as to what ASIC considers constitutes “reasonable grounds”.

Quick re-cap

An aspirational statement is a statement about a company’s present intention and is one that has no predictive nature.  Aspirational statements do not have to be based on reasonable grounds.  A forward-looking statement that is about a future matter and is predictive in nature will be misleading unless it is based on reasonable grounds as at the date the statement is made.

The general test for whether prospective financial information (ie forward-looking statements) must be disclosed is whether the information is relevant and reliable.  Information that is speculative, or merely based on subjective opinion, will not be material to investors and their advisers (ASIC Regulatory Guide 170.11-19).

The key takeaways are:

  • the definition of a mineral resource (under the JORC Code) is not sufficiently rigorous to constitute reasonable grounds for forward-looking statements, unless it is based on a sufficient level of geological knowledge and confidence, and all JORC Code modifying factors are sufficiently progressed;
  • there is insufficient geological knowledge of an underlying mineral resource where the proportion of inferred mineral resources to indicated mineral resources is too high and does not comply with ASX Guidance Note 31; and
  • unless there are reasonable grounds for making statements about scoping studies or preliminary results, these should not be disclosed as they will be misleading (even if market sensitive).  However, you can for example, report that the results were positive and justify commitment to the next stage.

Reforms to strengthen ASIC for the future

The reforms follow the ASIC Capability Review commissioned in July last year and will equip ASIC with stronger powers, enhance its surveillance capabilities and enable it to build its technological capacity to identify and assess risks and misconduct.

The Government has announced an ASIC reform package which includes:

  • a response to the 5 recommendations to the Government in the ASIC Capability Review (commissioned in July 2015) which focus on governance, recruitment, annual performance discussions with the Minister and most importantly, removing ASIC from the Public Service Act 1999;
  • major additional funding (including $61.1 million to enhance ASIC’s data analytics and surveillance capabilities and modernise its data management systems, $57 million to enable increased surveillance and enforcement by ASIC on an ongoing basis in the areas of financial advice, responsible lending, life insurance and breach reporting and $9.2 million to be available to ASIC and Treasury to accelerate implementation of certain measures recommended by the Financial System Inquiry);
  • the introduction of an industry funding or ‘user-pays’ model for ASIC to commence from the second half of 2017 (to ensure that the costs of regulation are borne by those entities that have created the need for it, rather than the Australian public);
  • asking ASIC to work with the Financial Ombudsman Service (FOS) on an immediate review of FOS’s small business jurisdiction under its Terms of Reference and providing additional funding for the Superannuation Complaints Tribunal to help deal with legacy complaints and improve internal processes;
  • the establishment of a panel of eminent persons to review the role, powers and governance of all of the financial system’s external dispute resolution and complaints schemes and assess the merits of better integrating these schemes to improve the handling of consumer complaints (with such panel to report back to the Government by the end of 2016); and
  • recommending to the Governor-General an 18-month extension of the term of ASIC’s Chairman, Mr Greg Medcraft to oversee the implementation of the reforms, and the appointment of an additional ASIC Commissioner who will have experience in the prosecution of crimes in the financial services industry.

See Treasurer's media release dated 20 April 2016 for further details.

ASIC has welcomed the reform package (see ASIC media release dated 20 April 2016) and has also released an implementation plan which details its commitment to continuing learning and improvement and the action it is taking to develop its capabilities in the following 6 high level priority areas raised by the recommendations in the ASIC Capability Review:

  • external governance and performance reporting
  • internal governance;
  • commission, workplace planning and culture;
  • strategic communication and stakeholder management;
  • organisation structure and regulatory toolkit; and
  • data management.

By Hiroshi Narushima, Jessica van Rooy and Sally Randall


Winding up a mismanaged company on just and equitable grounds - Australian Securities and Investments Commission, in the matter of Sino Australia Oil and Gas Limited (prov liq apptd) v Sino Australia Oil and Gas Limited (prov liq apptd) [2016] FCA 201

This case provides some useful insight into the circumstances in which a solvent, but mismanaged, company will be wound up on just and equitable grounds pursuant to section 461(1)(k) of the Corporations Act 2001.

Following an investigation in connection with an initial public offering in 2013, ASIC sought an order that Sino Australia Oil and Gas Limited (Sino) (the Australian holding company of a Chinese operating company providing specialised oil and gas drilling services) be wound up on just and equitable grounds pursuant to section 461(1)(k) of the Corporations Act 2001 (Cth) (Act).

Davies J in the Federal Court of Australia reviewed the relevant case law and observed that a strong case must be made in order for a solvent company to be wound up on the just and equitable ground, noting that such a case may be made in circumstances where:

  • there has been mismanagement, misconduct or a lack of confidence in the conduct and management of a company;
  • there have been multiple contraventions of the Act (including, but not limited to, breaches of directors’ duties and inadequacy of accounts or record keeping);
  • there is a need to ensure investor protection; or
  • the company has not carried out its business candidly and in a straightforward manner with the public.

In ordering the winding up of Sino under section 461(1)(k) of the Act on the basis that there had been substantial and serious misconduct and mismanagement of the affairs of Sino leading to a justifiable lack of confidence in its conduct and management, Davies J found that Sino had:

  • made misleading and deceptive statements in its replacement prospectus that it held 4 patents and had $3.1m in cash flow in contravention of section 728(1)(a);
  • made misleading and deceptive statements in its replacement prospectus in relation to the disclosure of material contracts in contravention of section 728(1)(a);
  • failed to disclose new circumstances that adversely affected forecasted net profits in its replacement prospectus in contravention of sub-section 728(1)(b)-(c) of the Act and also in contravention of its continuous disclosure obligations under 674(2) of the Act (by failing to disclose the profit downgrade to the market); and
  • made representations to its auditors in connection with the preparation of its audited financial statements that were false and misleading in contravention of section 1041H.

Davies J also noted the following as giving rise to serious concerns about the competency of the Sino management:

  • Sino’s major shareholder, chairman and managing director admitted that he had no knowledge or understanding of the Australian public company regulatory regime and totally relied on the 2 Australian directors.  Further, as he was unable to read or write English, he did not read the prospectus documents, despite signing them on behalf of Sino as chairman; and
  • Sino’s solicitors had provided advice in May 2015 that the Sino management was dysfunctional and suggesting that the Chinese executive management were “incompetent, wilfully disregarding governance obligations and/or are dishonest”, and that the non-executive Board was unable to change management behaviour because of distance and language.

Contingent claims and the ‘fair value’ of a company for compulsory acquisition purposes:  In the matter of Australian Water Holdings Pty Limited [2016] NSWCA 254.

This case illustrates that it may be appropriate to defer the resolution of disputes as to the ‘fair value’ of shares under section 667C of the Corporations Act 2001 (Cth) where there are potential contingent claims to be determined and which will have a direct bearing on the fair value. 

Certain minority shareholders of Australian Water Holdings Pty Limited (AWH) gave notice under section 664E of the Corporations Act 2001 (Cth) (Act) that they objected to compulsory acquisition notices given by BG&E Management Pty Limited (Notices).  There were also current proceedings in the Federal Court in relation to claims against AWH and its directors and others, and some of the Federal Court applicants had indicated that they proposed to amend their pleading to bring certain derivative proceedings on behalf of AWH against some of the respondents.

Brereton J in the New South Wales Supreme Court observed that the essential issue in relation to the Notices (which were accompanied by an independent expert report) was whether they had given a ‘fair value’ for the AWH shares for the purposes of section 667C of the Act, with a key component being whether the proposed derivative claims were relevant in assessing that fair value.

In transferring the compulsory acquisition proceedings to the Federal Court where the proposed derivative claims were to be held, Brereton J held that:

  • fair value for the purposes of section 667C is the ‘true or intrinsic’ value, as opposed to the market value;
  • it would be inconsistent with the policy behind section 667C to allow the majority shareholders to benefit, to the detriment of the minority, from a market that was uninformed, or an underlying asset that existed but was unknown at the valuation date;
  • the proposed derivative claims were assets of AWH (as causes of action that had accrued at the date of valuation) even though they may not have been identified, and attribution of a value to them was therefore an essential element of determining the fair value of the AWH shares as at the valuation date;
  • attributing value to a contingent asset (such as the proposed derivative claims) is usually a valuation of the contingency discounted (as the outcome is not known) for the risk of non-success or irrecoverability and for cost and delay in recovery.  However, in terms of the quantum and the prospects of success, it will involve considering (in less detail and less conclusively) the same facts and issues that arise in ultimately determining the claim.  There would therefore be a substantial overlap of evidence, argument and judgment between the compulsory acquisition proceedings and the proposed derivative claims if they were held in separate courts;
  • there was no reason why the Court could not have regard to events that took place after the date of valuation and, whilst emphasising that it will not always be appropriate to defer compulsory acquisition proceedings until contingent assets and liabilities have crystallised, in circumstances where the proposed derivative claims would be determined anyway, then ‘knowledge should be preferred to speculation’; an
  • the determination of the compulsory acquisition proceedings first might jeopardise the viability of the proposed derivative claims and adversely impact on the minority shareholders’ standing in relation to those claims.
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