Welcome to the November 2014 update from Gilbert + Tobin’s Corporate Advisory team.

Legislation and proposed legislation

  • Corporations Legislation Amendment (Deregulatory and Other Measures) Bill 2014 introduced into Parliament – but no dividend reform
  • Proposed mandatory foreign government payment reporting for Australian extractive companies

Corporations Legislation Amendment (Deregulatory and Other Measures) Bill 2014 introduced into Parliament – but no dividend reform

The Corporations Legislation Amendment (Deregulatory and Other Measures) Bill 2014 has been introduced into Parliament and largely reflects the form of the Exposure Draft (including removing the obligation to hold a general meeting at the request of 100 members).  Disappointingly however, the reforms to clarify the dividend payment test in section 245T of the Corporations Act 2001 (Cth) have been omitted from the Bill, and are subject to further consideration following stakeholder feedback.   We will monitor the progress of the Bill and any developments in relation to the dividend payment test.

On 22 October 2014, the Corporations Legislation Amendment (Deregulatory and Other Measures) Bill 2014 (Bill) was introduced into Parliament.  For our commentary on the Exposure Draft of the Bill, see the May 2014 G+T Client Update.

To a large extent, the Bill follows the form of the Exposure Draft and proposes to amend the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth) by:

  • removing the obligation to hold a general meeting at the request of 100 members  under section 249D (so that only a member or members with 5% of the votes that may be cast at the general meeting will have such a right);
  • replacing the requirement to disclose in a remuneration report  the value of options granted to key management personnel with a requirement to disclose the number of lapsed options and the year in which they were granted – the requirement in the Exposure Draft for a remuneration report to include a general description of the company’s remuneration governance framework is not included in the Bill;
  • clarifying the circumstances in which a financial year may be less than 12 months;
  • relieving certain disclosing entities from the obligation to prepare a remuneration report and exempting certain companies limited by guarantee from the obligation to appoint an auditor;
  • empowering the President of the Takeovers Panel to give directions about the composition of the Panel while overseas and allowing members of the Panel to participate in proceedings while overseas; and
  • transferring the remuneration-setting responsibilities of the Financial Reporting Council, Australian Accounting Standards Board and the Auditing and Assurance Standards Board to the Remuneration Tribunal.

Disappointingly, the reforms to clarify the dividend payment test in section 245T of the Corporations Act 2001 (Cth) (by essentially replacing the 3 limb balance sheet test with a pure solvency test – see the May 2014 G+T Client Update for more details) which were included in the Exposure Draft have been omitted from the Bill.  Treasury has advised that the omission is due to stakeholder feedback that the changes in the form set out in the Exposure Draft would not reduce the compliance burden for business and required further consideration.

Proposed mandatory foreign government payment reporting for Australian extractive companies

The Corporations Amendment (Publish What you Pay) Bill 2014 seeks to improve transparency and accountability of Australian extractive companies (and bring Australia into line with other jurisdictions) by introducing mandatory reporting of payments to foreign government entities in excess of $100,000.  We will continue to monitor the progress of this Bill.

On 28 October 2014, the Corporations Amendment (Publish What You Pay) Bill 2014 (Bill) was introduced into Parliament.  The Bill seeks to improve transparency and accountability of Australian-based extractive companies and deter corruption by requiring payments to be made public.

Under the Bill:

  • Australian-based public and large proprietary extractive companies and their subsidiaries (including oil, gas, mining and native forest logging) will be required to submit a financial report detailing all ‘reportable payments’ over $100,000 made to foreign government entities, on a country-by-country and project-by-project basis;
  • ‘reportable payments’ will include standard financial payments (such as royalties, dividends, bonuses, licence fees and production entitlements) as well as ‘infrastructure improvements’, ‘social payments’ and ‘security services’; and
  • such reports will be published by ASIC to ensure public accessibility and accountability.

Misleading reporting will be dealt with under the rules that currently exist in relation to financial statements.

According to the Explanatory Memorandum, the Bill intends to align Australia’s legislative response to extractive industry transparency with the rest of the world, including the US, the UK and Canada.


ASIC facilitates employee incentive schemes with new class orders

Following a lengthy consultation period, ASIC has released new class order relief for both listed and unlisted companies and a new Regulatory Guide 49 in relation to employee incentive schemes.  The new relief and guidance recognises that the structure of employee incentive schemes has changed over the years and addresses some of the confusion around the application of previous relief.  In particular, the new relief and guidance extends the categories of persons to whom offers under an employee incentive scheme can be made and broadens the range of financial products that can be offered.  In addition, the ASIC notification requirements are simplified and transitional relief is provided for those schemes already relying on the previous relief.

For further details, see the G+T Client Alert issued on 11 November 2014.

ASIC publishes its 2014-15 Strategic Outlook

ASIC’s 2014-15 Strategic Outlook highlights the key challenges ASIC sees to the market it regulates and how it will respond using its surveillance and enforcement tools.  Specifically, ASIC has identified risks around balancing a free market-based system and consumer protection, digital disruption, structural changes in Australia’s financial system, innovation-driven complexity and globalisation.

Some of the key challenges ASIC sees in 2014-15 are outlined in its Strategic Outlook for 2014-15 and include:

  • the balance between a free market-based system and investor and financial consumer protection;
  • digital disruption in Australia’s financial services and markets;
  • structural change in Australia’s financial system through growth of market-based financing, which is largely driven by growth in superannuation;
  • financial innovation-driven complexity in products, markets and technology; and
  • the impact of globalisation on our financial markets.

In responding to these challenges, ASIC seeks to achieve its strategic priorities of:

  • promoting investor and financial consumer trust and confidence;
  • ensuring fair, orderly and transparent markets; and 
  • providing efficient and accessible registration.

ASIC has also indicated that next financial year, it plans to build on its Strategic Outlook initiative and publish a detailed Risk Outlook and Strategic Plan.

See the media release dated 20 October 2014.

ASIC consults on electronic disclosure

ASIC has released Consultation Paper 224 to seek submissions on a range of proposals that will facilitate financial services providers using electronic communications with consumers.  ASIC is also seeking to facilitate more innovative forms of disclosure, such as interactive product disclosure statements.  These proposals appear to offer benefits for both consumers and providers of financial services.  We will continue to monitor developments in this space.

ASIC has released a new Consultation Paper CP 224 Facilitating electronic financial services and disclosures aimed at enhancing investor engagement with disclosure.  ASIC is seeking feedback on proposals to make it easier for financial services businesses to deliver financial services disclosures to customers electronically while preserving choice for consumers and sees benefits for both the consumers and the financial services businesses in doing so.

The proposals also encourage the use of more innovative formats for Product Disclosure Statements, such as interactive Product Disclosure Statements.  ASIC proposes making a class order to remove any legislative barriers to such innovations.

ASIC is consulting on updates to Regulatory Guide RG 221 Facilitating online financial services disclosures to reflect these proposals and to remove uncertainty about the circumstances in which electronic communications can be used.

Submissions are due by 16 January 2015.


ASX facilitates back door listings

Recent changes to ASX Listing Rules Guidance Note 12 demonstrate a willingness by the ASX to relax technical compliance with the ASX Listing Rules for backdoor listings in certain circumstances. The new guidance, in particular the relaxing of the “20 cent rule” which has traditionally been an impediment, is welcome and should encourage and facilitate back door listings.

ASX has released an updated version of ASX Listing Rules Guidance Note 12 Significant Changes to Activities, which provides further guidance into ASX’s approach to back door listings. Changes to GN 12 include:

  • "20 cent rule" - ASX will consider a request not to apply the rule that the value of securities of an entity in connection with a back door listing must be at least 20 cents, in cases where:
    • the issue price or sale price is not less than 2 cents and is specifically approved by shareholders; and
    • ASX is satisfied that the entity’s proposed capital structure after the transaction will satisfy the ASX Listing Rules.

The new policy also recognises that where an entity is not proposing to undertake a capital raising as part of the broader transaction, the 20 cent rule has no application and ASX will address any concerns on a case-by-case basis.

ASX will similarly consider a request not to apply the 20 cent rule to options issued as part of, or in conjunction with a transaction, unless the number of options to be issued is disproportionate to the number of ordinary securities on issue.

  • minimum spread test – ASX has confirmed that where an entity is undertaking a material capital raising in conjunction with a re-compliance listing, ASX will normally use the issue price under the prospectus or PDS for that capital raising to determine whether a holder’s securities have a value of at least $2,000 for the purposes of the minimum spread test.  However ASX has reserved the right to use a different measure in other circumstances or if it is concerned that the price under the disclosure document does not fairly reflect their market value of its main class of securities;
  • pre-listing capital raisings and escrow – ASX recognises that a listed entity may need to issue securities to raise cash to cover the costs of getting a transaction to the stage of shareholder approval.  However, ASX warns that if an entity issues shares for cash shortly before or after a transaction (in particular in the context of a re-compliance listing), it will look closely at the transaction to determine whether the securities are in the nature of seed capital and should therefore be classified as restricted securities and be subject to escrow; and
  • contents of notice and re-listing documents – ASX provides further guidance on the contents of notices of meeting and prospectuses, PDSs or information memorandum in connection with a back-door listing, including a requirement that financial information be reviewed or audited.

See summary of the changes.

Australian Council of Superannuation Investors

ACSI releases report on CEO pay

The results of the 13th Annual ACSI Survey of Chief Executive Remuneration demonstrate how continued investor scrutiny and increased vigilance by company boards has substantial positive impacts for shareholders.  Specifically, there has been a fall in annual costs to ASX 100 companies for CEO termination payouts decreasing from $83 million in 2008 to just under $12 million in 2013.  Fears of increased executive pay levels following the 2009 reforms to the Corporations Act 2009 (Cth) (which limited the size of senior executive termination payments without shareholder approval) appear to have been unrealised.

The Australian Council of Superannuation Investors (ACSI) has released its13th Annual ACSI Survey of Chief Executive Remuneration (Survey) for S&P/ASX 200 CEOs for the 2013 financial year, which demonstrates the benefit to shareholders of investor scrutiny and increased vigilance by company boards themselves.  Key findings from the Survey include:

  • a fall in the median termination payout to ASX100 CEOs from $3.5 million in 2008 to $1.19 million in 2013;
  • a fall in annual costs to ASX 100 companies from 13 CEO termination payouts in 2008 totalling more than $83 million to nine payments in 2013 totalling just under $12 million;
  • a fall in the median ASX 100 CEO’s fixed pay from $1.95 million in 2012 to $1.83 million in 2013 (with average pay remaining relatively flat since 2008);
  • a fall in the median and average cash bonuses for ASX 100 CEOs to the lowest levels recorded for a decade (although the proportion of CEOs receiving a bonus rose from 82% to 87%);
  • a fall in the median cash pay for ASX 100 CEOs by 12.4% to $2.53 million, its lowest level since 2006;
  • a rise in average cash pay for ASX 101-200 CEOs from $1.27 million to $1.35 million (although median cash pay declined reflecting the increased number receiving no bonus); and
  • a rise in total statutory pay (including the value of equity) for ASX 100 CEOs, with the average rising 2.9% to $4.84 million and the median rising 4.3% to $4.16 million.

ACSI has also commented that the fact that it has made materially fewer recommendations to vote against ASX 200 remuneration reports over the past year underlines the growing commitment of boards to ensure that the overriding purpose of pay structures and incentive schemes is to deliver value for long-term shareholders.


Responsible Entities may not have the powers they think they have:  Wellington Capital Limited v Australian Securities and Investments Commission [2014] HCA 43

The High Court of Australia has found that power to make ‘in specie’ distributions was not conferred by universal or plenary power clauses commonly seen in the Australian market.  The case serves as a reminder to Responsible Entities of managed investment schemes to ensure that the actions they take are authorised by the constitution of the scheme and particularly, as a warning that specific constitutional power may be needed to enable in specie distributions to be made.

For further details, see the G+T Client Alert issued on 7 November 2014.

Ensure actual or ostensible authority before relying on representations:   Agricultural & Rural Finance Pty Ltd v Atkinson (No 2) [2014] NSWSC 1397

The New South Wales Supreme Court held that despite the managing director of one company making certain decisions and supervising the staff of another, he had not been held out by the second company as having authority to make decisions concerning the consequences of late repayment by an investor under a loan agreement between the investor and the second company.  This case serves as a reminder of the importance of ensuring that a person has actual or ostensible authority to bind a company before relying on representations made by them.

This case involved managed investment schemes in connection with which Mr Wardle entered into:

  • a loan agreement with Agricultural and Rural Finance Pty Ltd (ARF) to finance his investment (Loan Agreement); and
  • an indemnity agreement with Oceania Agriculture Ltd (OAL) (who filed the prospectus for the scheme) (Indemnity Agreement) under which OAL agreed to indemnify the repayment obligations under the Loan Agreement, provided that the Indemnity Agreement would only become “effective and enforceable” if the repayments had previously been “punctually paid”

Mr Wardle planned to be overseas when one of the payments under the Loan Agreement fell due and had arranged for his accountant (Mr Giannuzzi) to fax directions to his finance provider to make payments.  Having been informed by his finance provider that the funds would take 24 hours to transfer, Mr Giannuzzi called Mr Lloyd (the managing director of OAL) who replied that it would be “ok”.

The schemes were subsequently terminated and ARF commenced proceedings against many of the investors (including Mr Wardle) seeking repayment of the loans.

In his defence, Mr Wardle pleaded that ARF was estopped (by conventional estoppel and estoppel by representation) from seeking repayment on the basis of Mr Gianuzzi’s conversation with Mr Lloyd.  However, Ball J in the Supreme Court of New South Wales rejected Mr Wardle’s estoppel defence for 3 reasons:

  • at most, Mr Lloyd’s reply could be understood to mean that he did not propose to take any action to accelerate repayment or impose penalty interest if the payment was a day late, rather than a statement about the effect of the Indemnity Agreement;
  • even assuming that Mr Lloyd’s representation had the meaning contended by Mr Wardle, Mr Lloyd had no actual or ostensible authority to make such a representation on behalf of ARF.  Mr Lloyd was the managing director of OAL and took an active role in the preparation of the scheme and investor documents and in marketing the project to investors.  In addition, OAL and ARF shared an office and together had 4 staff. Mr Lloyd supervised the staff who worked for ARF and initiated correspondence from ARF to investors reminding them of their repayment obligations.  However, the only evidence that Mr Lloyd had any authority to do anything on behalf of ARF was a board resolution authorising him to operate ARF’s account by telephone banking and the correspondence to investors was always signed by ARF’s financial controllers or one of its directors.  Furthermore,  ARF had not held out Mr Lloyd as having authority to make decisions concerning the Loan Agreement and nothing in the correspondence with Mr Wardle suggested Mr Lloyd was an appropriate contact person in relation to the Loan Agreement; and
  • Mr Wardle had not acted to his detriment based on anything Mr Lloyd said to Mr Giannuzzi and there was no suggestion that Mr Wardle was in a position to pay the sum earlier or that he delayed payment relying on what Mr Lloyd had said.
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