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.
Recent developments in sustainability disclosure and climate law
There is no doubt that 2023 has been a significant year for climate law and policy reform, both in Australia and overseas. Our recent insight '2023 a Key Year for Safeguard Reform & Sustainability Disclosure' dated 3 October 2023 recaps on key developments (including the introduction of long-awaited changes to the Emissions Reduction Safeguard Mechanism, and the ongoing development of global and domestic climate, sustainability and nature-related risk disclosure standards), and what they mean for Australian businesses as we approach the end of the year.
Other key developments since the G+T Insight include:
- on 23 October 2023, the AASB released exposure draft ED SR1 Australian Sustainability Reporting Standards – Disclosure of Climate-related Financial Information (ED SR1) for public consultation until 1 March 2024. ED SR1 aligns closely with the International Sustainability Standard Board’s sustainability standards, and will support the Federal Government’s proposed framework for mandatory climate-related financial disclosures, which is expected to phase in from 1 July 2024. The AASB has outlined specific matters for comment in ED SR1 in addition to seeking views on whether the proposals result in climate-related information that is useful to users and “in the best interests of the Australian economy” ;
- on 2 November 2023, Commonwealth Treasury released Australia’s Sustainable Finance Strategy for public consultation until 1 December 2023. The strategy is intended to support Australia’s pathway to net zero emissions by 2050 by introducing a comprehensive framework for reducing barriers to sustainable investment. The policy priorities outlined in the strategy are structured around three key pillars, being: (1) improving transparency on climate and sustainability; (2) financial system capabilities; and (3) Australian Government leadership and engagement. Importantly, the consultation paper notes that Australia’s strategy should be aligned with global frameworks and take a “high ambition” approach, so as to minimise the compliance burden for Australian firms seeking to participate in global capital flows”; and
- on 2 November 2023, a ground-breaking new legal opinion was published that finds that company directors who fail to consider nature-related risks could be found liable for breaching their duty of care and diligence under the Corporations Act 2001 (Cth). The opinion, authored by Sebastian Hartford-Davis and Zoe Bush, follows the launch of the Task Force for Nature-related Financial Disclosures (TNFD) final risk management and disclosure recommendations in September. The TNFD recommendations are intended for use by a range of stakeholders including companies looking to integrate nature-related risk assessment into their corporate strategy, governance and decision-making processes; and investors and financial institutions to support more informed capital allocation decisions. See 'Nature-related disclosures: what next for Australian companies?' for more information.
Another recent G+T Insight also examines activity for Australian climate litigation during October 2023, including the following:
- a decision of the Federal Court provided clarity on the role of climate change impacts in decision-making under certain provisions of the Environment Protection and Biodiversity Conservation Act 1999, but prompted increasing calls for urgent EPBC Act reform;
- a court approved settlement between the Commonwealth and sovereign bond holder Kathleen O’Donnell, which required the Federal Government to publish a statement on the systemic risk that climate change presents for Australia's economy and fiscal circumstances; and
- the rejection by the High Court of Victoria’s electric vehicle tax which has critical implications for state electric vehicle policies (and state tax policies more broadly).
Superior courts harmonise approach to schemes of arrangement
The evidentiary requirements relating to schemes of arrangement have been the topic of various recent superior court decisions.
The Federal Court of Australia, and the Supreme Courts of New South Wales, Western Australia and Victoria have now implemented the Practice Note – Harmonisation in schemes of arrangement as developed by the Committee for the Harmonisation of Rules of the Council of Chief Justices of Australia and New Zealand.
The implementation was achieved through the following practice notes (Practice Notes):
- the Federal Court’s Schemes of Arrangement Practice Note (GPN-SOA);
- the NSW Supreme Court’s amended Supreme Court Practice Note SC EQ 4 – Corporations List;
- the WA Supreme Court’s amended Consolidated Practice Directions; and
- the Victorian Supreme Court’s Practice Note SC CC 9 Schemes of Arrangement.
At a high level, the Practice Notes crystallise and unify the Courts’ approach to evidentiary requirements in scheme meetings. However, nothing in the Practice Notes “is intended to limit the obligation on a scheme proponent to lead evidence to discharge its responsibility to make full and fair disclosure to the Court of matters which may be material”.
The latest FAR developments
Following the passing of the long-awaited Financial Accountability Regime (FAR) in September (see our previous insight 'FAR-out - it’s finally here: Financial Accountability Regime passed'), APRA and ASIC have published an information package for the transition from the Banking Executive Accountability Regime to FAR.
The information package is designed only for Authorised Deposit-Taking Institutions which will be subject to FAR on 15 March 2024. The regulators intend to publish further guidance specific to the insurance and superannuation sectors in the first quarter of 2024. FAR will commence for the insurance and superannuation sections on 15 March 2025. Our recent insight 'Long-awaited regulatory guidance for ADIs on the transition to FAR' outlines what you need to know from the new guidance.
A further G+T insight 'FAR Implications: FCA Fines and Bans Barclays CEO' also examines the decision notice by the UK Financial Conduct Authority on 12 October 2023 under which it proposes to impose a £1,812,800 penalty on James Staley (the former CEO of Barclays Bank) and ban him from the financial services industry.
In 2018, Mr Staley had been found to have breached the Conduct Rules under the UK Senior Managers and Certification Regime. This latest action by the FCA means that Mr Staley is the first individual found to have breached the Conduct Rules twice by the FCA, subject to his appeal.
This is an interesting international development that goes to show how breaches of the accountability obligations under FAR could be enforced by ASIC and the APRA.
Review of continuous disclosure changes
Following its announcement on 19 September 2023 that Dr Kevin Lewis, former chief compliance officer at the ASX, had been appointed to conduct an independent review of amendments to Australia’s continuous disclosure laws, Treasury has now issued a consultation paper to assist with the review (Consultation Paper).
The relevant amendments were introduced by the Treasury Laws Amendment (2021 Measures No 1) Act 2021 (Cth) (Amending Act) and made companies and their officers only liable for civil penalty proceedings in respect of continuous disclosure obligations where they have acted with “knowledge, recklessness or negligence”.
In his review, Dr Lewis will have regard to:
- whether the amendments introduced by the Amending Act are working in support of an efficient, effective, and well-informed market;
- the effect of the amendments on the quality and nature of disclosures made by listed companies;
- continuous disclosure regimes in overseas jurisdictions; and
- whether the amendments have given rise to any barriers that might prevent enforcement of, or compliance with, continuous disclosure obligations.
The Consultation Paper is open for submissions until 1 December 2023 and Dr Lewis is required to report to the Government by 14 February 2024.
Section 249E has been corrupted - The Crimes Amendment (Corrupt Benefits for Trustees) Act 2023 (NSW) has become law
The Crimes Amendment (Corrupt Benefits for Trustees) Act 2023 (NSW) (Crimes Amendment Act), which became law on 20 September 2023, was passed to, among other things, clarify that section 249E of the Crimes Act 1900 (NSW) was intended (and was always intended) to require an element of ‘corrupt intent’ on behalf of the parties involved in an outgoing trustee seeking or receiving a reward for agreeing to retire as trustee of a trust.
Previously, section 249E made it a crime for any person to offer or give a benefit to a trustee, and for any trustee to receive or solicit a benefit for anyone, without the consent of each person beneficially entitled to the trust property or the Supreme Court, as an inducement or reward for the appointment of any person as the new trustee of the trust. Despite the heading to section 249E, which referenced ‘Corrupt benefits for trustees’, the operative wording of the section made no reference to an element of ‘corruption’ or ‘corrupt intent’.
The lack of an element of corrupt intent in section 249E caused confusion and concern for incoming and outgoing trustees and their advisors and resulted in a string of cases in which trustees sought Supreme Court consent, including Application of MLC Investments Limited  NSWSC 154.
Introducing the element of corrupt intent to this section allows trustees, both retiring and incoming, to engage in good faith transactions without exposure to potential criminal charges and without the administrative and financial burden of first needing to obtain the consent of all beneficiaries or the Supreme Court.
Our recent insight 'Section 249E has been corrupted (this is a good thing)' discusses the reasons for the Crimes Amendment Act, examines what is meant by ‘corruptly’ in the new section 249E and explains the implications for trustees.
WA Supreme Court rules that email addresses form part of share register
On 26 October 2023, the Supreme Court of Western Australia published the decision of Howard J to make a declaration to the effect that, once a shareholder nominates an electronic address for the purpose of receiving shareholder communications, then the register of members must contain the nominated electronic address.
The proceedings were brought by AVZ Minerals Ltd (ASX: AVZ) (AVZ), which sought a declaration that it had compiled with its obligation under the Corporations Act 2001 (Cth) to permit inspection of its register of members. Fat Tail Holdings Pty Ltd (Fat Tail), the defendant in these proceedings, had nominated three people to be elected as directors of AVZ at its annual general meeting, and sought to inspect AVZ’s register of members in order to communicate with other shareholders in AVZ. AVZ provided Fat Tail with a “soft copy” of the register of members that did not contain email addresses, despite approximately 28% of members electing email as their preferred means of communication.
Justice Howard made the declaration sought, as well as an order requiring AVZ to provide Fat Tail with a copy of AVZ’s register of members including any email addresses and other electronic addresses.
Thanks to Justin Mannolini, Cassandra Lee and Adam Sibum for this insight.
Australian Government response to Privacy Act review
After years of extensive public consultation, the Privacy Act Review Report (Report) was released in February 2023 including 116 proposals for reform. On 28 September 2023, the Federal Government delivered its long-awaited response to the Report (Response).
Whilst the total reform agenda is significant and was always expected to be in tranches, the announcement was hoped to offer industry and individuals clarity on how the Federal Government plans to reform the Privacy Act.
However, the Response as delivered offers a fairly modest (if not, timid) schedule of agreed reforms and defers most matters to further consultation, signalling that the Review may be an even more protracted process than first envisioned following the Report.
Our recent insight 'Federal Government offers modest response to Privacy Act Review' explores the Federal Government’s response, what it means for the pace of reform, and what’s next for the Privacy Act.
White collar crime in Australia
G+T’s Disputes + Investigations Team have recently published the following Australian Chapters of Chambers and Partners White-Collar Crime 2023 Guide:
- Law and Practice - which provides guidance on corporate and personal liability, damages and compensation, plea agreements, corporate fraud, bribery, influence peddling, insider dealing, tax fraud, competition law, cybercrimes, protection of company secrets, money laundering, self disclosure, whistle blower protection and assessment of penalties; and
- Trends and Developments - which looks at recent and proposed legislative reforms and recent regulatory and enforcement action by ASIC, the ACCC and AUSTRAC.
See recent G+T Insights 'Guide to White-Collar Crime in Australia' and 'Trends and Developments in White-Collar Crime in Australia'.
“Artificial pretence”: Navigating AI disclosure risk in fundraising documents
Having already identified so-called “greenwashing” as a significant risk to the integrity of capital markets, global regulators, including our own ASIC, have begun to turn their minds to the proliferation of Artificial Intelligence (AI)-related claims in fundraising and similar documents.
In an era driven by technological innovation, AI has become a focal point in the financial and wider industries. With the proliferation of AI-based products and services, many companies are considering raising capital from retail investors through prospectuses or offer documents. However, in its September 2023 Corporate Finance Update, ASIC has issued crucial guidance on AI disclosures, emphasising the need for clarity and accuracy.
Our recent insight '“Artificial pretence”: Navigating AI disclosure risk in fundraising documents' briefly summarises ASIC's statements and provide practical recommendations for companies to mitigate regulatory risks when issuing fundraising documents.
Treasury proposes crypto licensing framework
On 16 October 2023, Treasury released a highly anticipated consultation paper for industry comment on proposals to regulate digital asset intermediaries under the existing financial services licensing framework.
This consultation paper follows Treasury’s token mapping exercise earlier this year and its crypto asset secondary service provider consultation in 2022. The overarching theme is to require digital asset intermediaries to hold an Australian financial services licence and comply with enhanced requirements regarding conduct and standard contracts.
Our recent insight 'Treasury proposes crypto licensing framework' explores the implications of these proposals for the industry and provide valuable insights into what actions crypto businesses should be taking to prepare.
New Bill to expand RBA’s powers over payment systems
On 11 October 2023, Treasury released a draft bill and explanatory memorandum for industry comment on proposals to update the Payment Systems (Regulation) Act 1998 (Cth). These proposals come amidst calls to ensure Australia’s payments regulatory framework remains fit for purpose and addresses emerging payment risks. As expected, the draft bill proposes to expand the PSRA’s coverage across key definitional areas and introduce new ministerial powers. Submissions closed on 18 October 2023.
Our recent insight 'New bill to expand RBA’s powers over payment systems' explores what the proposals mean for emerging payment systems and participants.
Treasury consults on unfair trading practices in Australia
On 31 August 2023, Treasury released its Consultation Regulation Impact Statement on proposed reforms to regulate unfair trading practices in Australia.
Currently, only certain types of conduct are prohibited under the Australian Consumer Law, such as misleading or deceptive conduct, unconscionable conduct, bait advertising, referral selling and pyramid schemes (among others). The outcome of the consultation may be new reforms that seek to cover a broader range of conduct that currently does not reach the legal thresholds of the existing prohibitions.
Treasury has provided four policy options for consideration, which would apply economy-wide, and is seeking submissions and responses from interested stakeholders by 29 November 2023.
Our recent insight 'Treasury consults on unfair trading practices in Australia' considers examples of potentially unfair trading practices and each of Treasury’s policy options.
Thin capitalisation – the final round?
The proposed changes to the thin capitalisation rules in Treasury Laws Amendment (Making Multinationals Pay Their Fair Share - Integrity and Transparency) Bill 2023 were introduced into Parliament almost 4 months ago on 22 June 2023 and were intended to take effect from 1 July 2023. Notwithstanding the extensive consultation process preceding the introduction of the Bill, the enactment of the Bill was delayed as it was referred to the Senate Economics Legislation Committee upon its introduction into Parliament. The committee issued its report on 22 September 2023 with a recommendation the Bill be passed subject to technical amendments. Details of the proposed technical amendments were finally released for consultation in exposure draft legislation issued on 18 October 2023 and consultation closed on 30 October 2023.
Although the changes proposed by the exposure draft are framed as ‘technical amendments’, they address several of the issues raised in previous submissions and, in some cases, represent significant (and positive) changes to the Bill as drafted. Our recent article 'Thin capitalisation – the final round?' summarises the key changes contained in the exposure draft legislation.
Act to modernise business communications finally passed
On 14 September 2023, the Treasury Laws Amendment (Modernising Business Communications and Other Measures) Act 2023 (Cth) (MBC Act) received Royal Assent.
Australian companies that are subject to the Corporations Act 2001 (Cth) are now able to:
- sign all documents under the Act, including deeds], either electronically or physically. This is a further expansion to the electronic signing provisions that were inserted into the Corporations Act in early 2022, which covered (for the most part) documents signed in accordance with sections 126 or 127 of the Corporations Act only;
- call and hold meetings of directors using any technology and remove the current requirement for the directors to consent to the technology being used;
- send any documents that are required or permitted to be sent under Chapters 1, 2A to 2M, 5 to 5D, 6 to 6C, 8A, 8B or 9 or Schedule 2 to the Corporations Act (other than those which are required or permitted to be sent by or to ASIC, the Registrar or the Takeovers Panel) in hard copy or electronic form (or in hard copy with notes for how to access the materials electronically); and
- avoid the requirement to send those documents to a member where that member’s contact details are not known or are out of date provided the company has conducted reasonable diligence.
Disability Royal Commission: Recommendations relevant to corporates
After 4.5 years, the Royal Commission into Violence, Abuse, Neglect and Exploitation of People with Disability provided its report to Australian Governments, and the report was tabled in Parliament on 29 September 2023. The Royal Commission has made 222 recommendations, mostly directed at Australian Governments.
Many of the recommendations, if accepted and then implemented by the Commonwealth and States and Territories, could impact the private sector, as employers and service providers or more particularly for those who provide disability supports and services.
Our recent insight 'Disability Royal Commission: Recommendations relevant to corporates' summarises the key recommendations relevant to each of these focussed on funding, employment, service levels, NDIS regulation and construction.
ASIC consults on guidance relating to the duty on directors to prevent insolvent trading
On 14 September 2023, ASIC published Consultation Paper 372 Guidance on insolvent trading safe harbour provisions: Update to RG 217. The consultation paper seeks feedback on ASIC’s proposed amendments to Regulatory Guide 217, which provides guidance relating to the duty on directors to prevent insolvent trading. ASIC proposes to:
- provide guidance for directors about key principles they should consider in carrying out this duty;
- update existing guidance to include information about when a holding company might be liable for debts incurred by a subsidiary company when the subsidiary continues to trade while insolvent; and
- provide information and guidance about the operation of safe harbour provisions, and factors that the regulator will consider when assessing whether these provisions are applicable to a director.
This consultation comes after an independent review of the safe harbour provisions in the Corporations Act 2001 (Cth) in March 2022 identified a lack of awareness and understanding by directors of their duty to prevent insolvent trading.
Consultation closed on 26 October 2023. See ASIC media release.
Thanks to Justin Mannolini, Cassandra Lee and Adam Sibum for this Insight.