In this edition of Gilbert + Tobin's Corporate Advisory Update, we focus on key legal developments over the last month which are particularly relevant to in-house counsel.
The ACCC’s recommended merger reforms: a deeper dive
The ACCC’s recommended reforms have several significant implications for merging parties:
- Regulatory conditions precedent will be required, on introduction of mandatory and suspensory ACCC notification: Above certain thresholds or on call-in, a merger would be required to be notified and could not be completed until ACCC approval is received. At the same time, a mandatory, suspensory regime could potentially offer a more certain and efficient review process, if regime parameters are set appropriately.
- Higher process and evidentiary burden on merging parties: The proposed upfront information requirements and a reverse onus of proof could make the clearance process significantly more burdensome on merging parties. A longer lead time prior to ACCC notification will be required to prepare the filing.
- Restrictions on the review avenues and process available will make challenges to the ACCC’s decisions more onerous: Under the proposed regime, if the ACCC does not approve a proposed transaction, the parties may appeal to the Australian Competition Tribunal. Recently disclosed ACCC comments suggest this would be a merits review, with a narrower appeal right to the Full Federal Court on judicial review grounds only. Alternatively, parties will continue to be able to apply to the Federal Court for a declaration that the proposed transaction is not unlawful. Merging parties will in all cases bear the onus of proving that the transaction is unlikely to substantially lessen competition before they are able to complete it. Whether the proposed review processes will serve as a sufficient check on ACCC decision-making will depend on the detail of the review rights.
In a speech to the National Press Club on 12 April 2023, ACCC Chair Gina Cass-Gottlieb affirmed her support for significant reforms to Australia’s current merger control regime under the Competition and Consumer Act 2010 (Cth) (CCA), observing and concluding that “changes are needed” to Australia’s current merger control regime. Any revamp to Australia’s merger control laws must be implemented through legislative change. There is evidence of strong support by the Australian Government.
A recent G+T Insight, The ACCC’s recommended merger reforms: A deeper dive, provides an in-depth review of what is known about the ACCC’s proposed reforms so far, analysing what the proposals might look like and the potential implications for businesses.
The latest on greenwashing and ESG
ACCC draft greenwashing guidance for businesses
On 14 July 2023, the ACCC issued its draft guidance for businesses making environmental and sustainability claims. The guidance outlines eight “good practice” principles for businesses in helping them comply with their obligations under the Australian Consumer Law:
- make accurate and truthful claims;
- have evidence to back up your claims;
- don’t leave out or hide important information;
- explain any condition or qualification on your clams;
- avoid broad and unqualified claims;
- use clear and easy-to-understand language;
- visual elements should not give the wrong impression; and
- be direct and open about your sustainability transition.
A recent G+T Insight, ACCC issues its draft greenwashing guidance for businesses, summarises the principles and highlight key takeaways for businesses seeking to make claims in relation to their environmental impact. Submissions with feedback on the draft guidance are due to the ACCC by 15 September 2023.
ASIC greenwashing action against Active Super
On 11 August 2023, ASIC announced it has commenced civil penalty proceedings against LGSS Pty Limited (Active Super) alleging Active Super made misrepresentations that it is an “ethical and responsible superannuation fund”, despite having investments in some of the very industries it claimed to restrict, such as coal mining, oil tar sands, tobacco and gambling. Active Super also claimed it had added Russia to its list of excluded countries, making representations from May 2022 that it would halt investments into Russian companies despite Active Super having holdings in Russian securities as at June 2023.
ASIC alleges that Active Super exposed its members to investments it claimed to restrict or eliminate and is seeking declarations, pecuniary penalties, adverse publicity orders and injunctive relief. See ASIC media release.
ASIC greenwashing action against Vanguard Investments Australia
On 25 July 2023, ASIC announced it has lodged civil proceedings in the Federal Court of Australia against Vanguard Investments Australia, alleging Vanguard engaged in misleading conduct relating to claims about environmental, social and governance (ESG) screening applied to investments in a Vanguard fund. ASIC alleges that Vanguard misled the public in representing that all securities in this fund were screened against certain ESG criteria. ASIC claims that ESG research was not conducted over a significant portion of issuers of bonds, exposing investor funds to investments which had ties to fossil fuels.
ASIC Deputy Chair Sarah Court stated that ASIC “consider[s] the screening … was far more limited than that being promised to investors, and we consider this constitutes another example of greenwashing”. ASIC is seeking declarations and pecuniary penalties from the Court. See ASIC media release.
Other international developments
In related international developments:
- On 27 July 2023, the International Sustainability Standards Board (ISSB), established by the International Financial Reporting Standards Foundation (IFRS Foundation), published its proposed Sustainability Disclosure Taxonomy for public comment. The proposed Taxonomy reflects disclosure requirements arising from IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures issued in June (Disclosure Standards) (see July 2023 Corporate Advisory Update). The ISSB stated that the reason for development of the Proposed Taxonomy is to reflect the ISSB’s intention to facilitate the digital reporting of sustainability-related financial information. Comments are due by 26 September 2023. See also IFRS Foundation media release.
- On 25 July 2023, the International Organisation of Securities Commissions (IOSCO) announced its endorsement of the Disclosure Standards following a comprehensive review (see previous G+T Insight: ISSB launches global sustainability and climate disclosure standards). IOSCO has determined that the Disclosure Standards are appropriate to serve as a global framework for capital markets to develop the use of sustainability-related financial information in both capital raising and trading and for the purpose of assisting global financial markets to accurately assess sustainability risks and opportunities. IOSCO now calls on its 130 member jurisdictions to consider how they can incorporate the Disclosure Standards into their respective regulatory frameworks. See media release.
- The Taskforce on Nature-related Financial Disclosures (TNFD) has announced that its recommendations on nature-related risk management and disclosure will be launched on 18 September 2023. The TNFD is a global initiative which aims to develop risk management and disclosure frameworks to help corporate entities to assess, manage and report their impacts on nature. The TNFD has released several iterations of its beta framework as a means of engaging the private sector in consultation and co-design. The beta framework provides specific guidance based on the industry (currently agriculture and food, mining and metals, and energy and financial institutions) and biome (including rivers and streams and tropical forests) in which an entity operates. See TNFD draft framework and TNFD launch announcement.
Thanks to Justin Mannolini and Cassandra Lee for their contribution to this insight.
ASIC and APRA consult on FAR | Intensifying the spotlight on bank directors and senior executives
On 20 July 2023, the Australian Prudential Regulation Authority (APRA) and the Australian Securities Investment Commission (ASIC) released materials for consultation to support the implementation of the Financial Accountability Regime (FAR) (see the joint media release here on APRA’s website and here on ASIC’s website).
The consultation materials propose new disclosure rules which will likely intensify the spotlight on directors and senior executives in the banking industry (referred to as accountable persons under FAR). They comprise the following documents:
- Financial Accountability Regime Act (Information for register) Regulator Rules 2023 (regulator rules) – these rules prescribe information that will be included in a register of accountable persons under FAR that could be disclosed publicly;
- ADI Key Functions descriptions – this document describes the key functions that authorised deposit taking institutions (ADIs) will typically consider when developing their accountability statements and which must be included in the register of accountable persons; and
- Financial Accountability Regime (Consequential Amendments) Transitional Rules 2023 – these rules prescribe the information that ADIs will be required to provide to APRA and ASIC within 30 days of the commencement of FAR.
Whilst certain aspects of the proposed regulator rules are relevant only to ADIs, ASIC and APRA have also invited insurance and superannuation entities to consider them. The regulators have signalled that they will consult on similar rules which are tailored for the insurance and superannuation industries in due course. Submissions closed on 17 August 2023.
The Financial Accountability Regime Bill 2023 and the Financial Accountability Regime (Consequential Amendments) Bill 2023 were not passed in the last Senate sitting. The next sitting will be from 4 to 14 September 2023. Once the Bills are passed, FAR will apply to ADIs six months after the bill receives Royal Assent (as early as March 2024), and to insurance and superannuation entities 18 months following Royal Assent (approximately March 2025).
Takeovers Panel publishes revised guidance on deal protection and insider participation in control transactions
On 8 August 2023, the Takeovers Panel (Panel) published a revised Guidance Note 7 (GN 7) in relation to deal protection and a revised Guidance Note 19 (GN 19) in relation to insider participation in control transactions.
The revisions to GN 7 and GN 19 come after a period of consultation in December 2022 on proposed amendments to the Panel’s Guidance Notes and the Panel’s response is contained in Public Consultation Response Statements for GN 7 and GN 19.
Play it safe: Time to brush up on compliance as the ACCC releases 2023-24 product safety priorities
Product safety laws often don’t get the same level of attention as other parts of the Australian Consumer Law. Yet the risks of non-compliance are enormous. Non-compliance can lead to death, serious injury and property damage. For the businesses involved, non-compliance can mean serious reputational damage and substantial civil (and in some circumstances criminal) penalties.
Failure to comply with a product ban, recall or mandatory safety standard can result in civil or criminal fines the greater of:
- $50 million;
- if the Court can determine the “reasonably attributable” benefit obtained – 3x that value; or
- if the Court cannot determine the benefit – 30% of the corporation’s adjusted turnover during the breach period.
The ACCC has been ramping up its product safety market surveillance and enforcement capabilities, having established its stand-alone Product Safety division in 2021. Most recently, in June this year, the ACCC released its product safety priorities for the new financial year. This presents businesses with a good opportunity to brush up on their product safety obligations and ensure that they are not caught flat footed if faced with a product safety issue.
A recent G+T Insight, Play it safe: Time to brush up on compliance as the ACCC releases 2023-24 product safety priorities, highlights the ACCC’s priorities for the year ahead and provides a refresher on the key product safety obligations businesses should be across.
Parliamentary Joint Committee recommends the most comprehensive review into Australian insolvency law in 35 years
On 12 July 2023, the Parliamentary Joint Committee on Corporations and Financial Services released a Report on corporate insolvency in Australia (Report) that concluded that the corporate insolvency system “is overly complex, difficult to access, and creates unnecessary cost and confusion for both debtors and creditors”.
The Report made 28 recommendations including that recommends the Commonwealth Government “commission a comprehensive and independent review of Australia’s insolvency law, encompassing both corporate and personal insolvency”. Such a review (as recommended in the Report) would be the most sweeping review of Australia’s insolvency system since the 1988 ALRC Report 45.
Industry associations have welcomed the call for a comprehensive review, underscoring a widespread belief that the current system is not fit for purpose.
A recent G+T Insight, Final report on inquiry into corporate insolvency in Australia – Highlights and what’s next outlines the key recommendations which include:
- all the recommendations of the Review of the Insolvent Trading Safe Harbour be implemented, which would simplify and clarify the safe harbour provisions in the Corporations Act 2001 (Cth) (Act);
- new laws are needed to clarify the treatment of assets held in trusts during insolvency, which often cause disputes which increase liquidation costs; and
- consideration as to the competing interests of employees and liquidators over circulating assets under section 561 of the Act is needed as part of the review.
G+T’s analysis of developments in the Restructuring + Insolvency space in FY 22/23
Having been granted a reprieve during the COVID era, the restructuring + insolvency industry is now in the spotlight. The ATO, as Australia’s largest creditor, has commenced its debt recovery action with vigour and the weaker economic outlook (including high inflation and slowing consumer spending) is leading to a significant rise in insolvency appointments and distressed sales across all sectors, including in the construction industry.
With this background, G+T’s Restructuring + Insolvency team have published their inaugural edition of R+I In Brief, where they explore industry and judicial insights relating to the restructuring and turnaround space and provide valuable insights to prepare you for what 2024 may have in store.
You can download the 2023 edition of R+I Brief here. It is divided into three parts:
- Setting the scene - Part 1 explores recent restructuring and insolvency developments in Australia in FY22/23, including the Federal Government’s current inquiry into the effectiveness of Australia’s corporate insolvency laws and recent significant transactions in the Australian restructuring and insolvency market;
- Industry insights - Part 2 provides key sector insights, including challenges gripping the Australian construction industry, the latest movements of the Australian Taxation Office, the need to rethink the use of ‘whitelists’ in debt documentation and the emergence of cryptocurrency in the insolvency arena.
- Judicial highlights - Part 3 delves into significant judicial developments in insolvency law including the role of the Court in validating an administrator’s appointment, the powers and duties of the last director left standing and a recent decision of the UK Supreme Court establishing the ‘creditors’ interest duty’ which is likely to influence Australian courts going forward.
APRA releases final version of the new cross-industry Prudential Standard CPS 230 Operational Risk Management
On 17 July 2023, APRA released the final version of a new cross-industry Prudential Standard CPS 230 Operational Risk Management (CPS 230) which sets out minimum standards for all APRA-regulated entities for managing operational risk, including updated requirements for business continuity and service provider management.
CPS 230 will come into effect from 1 July 2025. However, there will be a transition period for APRA-regulated entities that have a pre-existing contractual arrangement with a service provider which gives them until the earlier of 1 July 2026 and the next renewal date of the contract to ensure the contract is compliant with CPS 230.
APRA expects regulated entities to prepare for the new requirements in 2023-2024. In particular, APRA expects that senior management to identify their critical operations and material service providers by mid-2024 and be well positioned to set tolerance levels by the end of 2024. APRA has flagged that supervisors will engage with entities during the implementation period to assess progress.
APRA also released a draft Prudential Practice Guide CPG 230 Operational Risk Management to assist regulated entities in complying with CPS 230. APRA is consulting on this draft until 13 October 2023.
- how it differs from the draft version that APRA released for consultation on 28 July 2022;
- how the obligations in CPS 230 differ from existing standards; and
- how APRA-regulated entities can start preparing for the implementation of CPS 230.
Record breaking ACL penalties for unconscionable conduct
On 28 July 2023, the Federal Court of Australia ordered record-breaking penalties totalling $438 million against Phoenix Institute of Australia Pty Ltd (Phoenix) and Community Training Initiatives Pty Ltd (CTI) (both subject to Deeds of Company Arrangement) for engaging in unconscionable conduct and making misleading representations (ACCC v Phoenix Institute of Australia Pty Ltd (Subject to Deed of Company Arrangement) (No 3)  FCA 859).
Phoenix was a registered training organisation (RTO) approved to offer Vocational Education Training (VET) FEE-HELP loans. CTI was the marketing arm for various RTOs owned by Phoenix’s parent company Australian Careers Network Limited, including Phoenix. In August 2021, in a scathing liability judgment, the Federal Court found that Phoenix and CTI had engaged in unconscionable conduct in contravention of section 21 of the ACL in connection with the supply of VET courses to consumers.
A recent G+T Insight, Record breaking ACL penalties for unconscionable conduct, looks at the recent penalties decisions, including:
- the key reasons for the record-breaking penalty, including the Court’s findings that the most appropriate factors to determine the appropriateness of the penalty in this case were the gross benefits received by Phoenix (in the form of substantial payments from the Commonwealth) and the losses incurred by enrolled students;
- the impact of the liquidation of the companies, the lack of cooperation and the redress paid to enrolled students by the Commonwealth on the Court’s determination of the appropriateness of the penalties;
- that the overarching objective of the penalties ordered was to achieve general deterrence given specific deterrence was not possible as the penalties are unlikely to ever be paid due to the companies being in liquidation; and
- the potential implications of this case for the quantum of penalties in the future, particularly now that the maximum penalties for Australian Consumer Law (ACL) contraventions are at least almost fiftyfold the previous maximum penalties that applied to the conduct in this case.
ACCC Consumer Law Cases: 2023 Wrap Up
It has been yet another busy first half of the year in the courts on the consumer law front in Australia. G+Ts inaugural quarterly update, ACCC Consumer Law Cases: 2023 Wrap-Up highlights some of the key cases that have been decided and new cases to keep on your radar. In particular:
- recent decisions in the ACCC’s cases against Mazda and Captain Cook College shed light on what is required to meet the high bar for proving unconscionable conduct;
- the penalty decision in the ACCC’s case against Booktopia signals the high price companies risk paying for misleading customers about their statutory rights; and
- the ACCC’s current actions against Secure Parking and Meg’s Flowers demonstrate the ACCC’s continued willingness to take businesses to court over manipulative or deceptive online advertising practices concerning the place of origin, nature and characteristics of the products or services they offer.