Corporate Advisory Update - October 2022

16/10/2022

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.

Director Identification Numbers: 30 November 2022 deadline

The end of the transitional period to apply for a director identification number (DIN) is looming for directors (including foreign directors) appointed to companies, registered Australian bodies and registered foreign companies on or before 31 October 2021. Those directors have until 30 November 2022 to apply. ASIC is encouraging all directors to apply immediately to beat the rush.

The following guidance has been published to assist with applying for a DIN:

Note that foreign directors will need to use the paper application process which is a slower process as identity documents will need to be certified and if necessary, translated so extra time should be allowed.

By way of reminder:

new directors appointed between 1 November 2021 and 4 April 2022 had 28 days from their appointment to apply; and
new directors appointed on or after 5 April 2022 must have submitted a DIN application before their appointment (a person who is planning to become a director within 12 months can apply now).

For directors appointed under the CATSI Act:

directors appointed on or before 31 October 2022 have until 30 November 2023 to apply; and
new directors appointed on or after 1 November 2022 must submit a DIN application before their appointment.

ASIC consults on proposed relief in relation to the new employee share scheme regime

In response to requests from stakeholders, ASIC has released Consultation Paper 364 Modifications to the ESS regime proposing to provide relief in relation to the recently amended employee share scheme regime in the new Div 1A of Part 7.12 of the Corporations Act 2001 (Cth) which came into effect on 1 October 2022.

The relief seeks to remove some unintended technical issues that may make it hard for some entities to rely on the regime, in particular the fact that listed entities may find it difficult to make ESS offers if employees are unable to sell financial products that are in a class that is quoted.

Broadly, the relief proposes to:

expand the secondary sale exemption for financial products that are quoted on a financial market;
modify financial information reporting requirements for unlisted foreign companies;
permit unlisted companies to comply with valuation requirements when offering financial products that are not ordinary shares through the use of an independent expert report; and
enable salary sacrifice arrangements to comply with requirements for contribution plans.

Submissions are due by 31 October 2022 and ASIC plans to make any appropriate legislative instrument in relation to the new ESS regime before the end of this year. 

As such, ASIC intends to terminate the ability to make new offers under the existing relief under ASIC Class Orders 14/1000 and 14/1001 from 1 January 2023 (although offers made before this date may remain open for acceptances for 13 months). This does not prevent entities from relying on the new regime from 1 October 2022 if they choose to.

See ASIC media release and also our April 2022 Corporate Advisory Update.

Bill set to shake up Australian competition and consumer law enforcement: increases to maximum civil penalties and making unfair contract terms illegal

The Assistant Minister for Competition, Charities and Treasury, has introduced the much anticipated Treasury Laws Amendment (More Competition, Better Prices) Bill. In a sign that the Federal Government is serious about implementing change, the Bill has now progressed through the first and second reading stage.

A recent G+T Insight discusses the proposed changes to the unfair contract terms regime, the new maximum penalties and includes a reminder of what makes a contract term unfair.

Inquiry into corporate insolvency in Australia announced

On 28 September 2022, the Federal Government, through the Parliamentary Joint Committee on Corporations and Financial Services, commenced an inquiry into the effectiveness of Australia’s corporate insolvency laws in protecting and maximising value for the benefit of all interested parties and the economy.

The Committee has undertaken the inquiry with a view to understand the reality of what is happening in the corporate insolvency space at present and to consider potential areas of reform.

National Anti-Corruption Commission: implications for private sector

The National Anti-Corruption Commission Bill 2022 (Cth) proposes to establish the National Anti-Corruption Commission (NACC) and invest it with broad powers to investigate and conduct inquiries (whether following a public complaint, agency referral or on their own initiative). The NACC will be tasked with investigating corruption issues that the Commissioner is of the opinion could involve serious or systemic corrupt conduct.

The NACC will have broad and retrospective powers impacting not only Government but also those in the private sector who work with Government.

A recent G+T Insight examines the Bill and suggests some proactive steps to take ahead of the creation of the NACC.

Critical infrastructure assets – reporting obligations and consultation on draft risk management program rules

On 6 April 2022, the Minister for Home Affairs enacted the Security of Critical Infrastructure (Application) Rules (LIN 22/026) 2022 (Cth). These Application Rules “switch on” the Security of Critical Infrastructure Act 2018 (Cth) (SOCI Act) obligations to provide ownership and operational information about certain critical infrastructure assets to the Register of Critical Infrastructure Assets following a six month grace period. Entities that own or operate certain critical infrastructure assets were required to complete their reporting obligations by 8 October 2022.

Other critical infrastructure assets, such as port, water, electricity, and gas assets, as well as assets privately declared by the Minister, have been subject to Register reporting obligations since the original SOCI Act was enacted in 2018, prior to the SLACI and SLACIP amendments.

The Minister has also released an exposure draft of the risk management program rules that will apply to entities who own or operate certain classes of critical infrastructure assets regulated under the SOCI Act. Consultation closes on Friday 18 November 2022.

Boards and other governing bodies should take note of this process, as they will ultimately need to report and sign off on their organisation’s risk management program.

Read the recent G+T Insights 'Critical infrastructure assets - your reporting obligations' and 'Draft risk management program rules under the SOCI Act now open for consultation'

Climate change legislation now in force

The Climate Change Act 2022 (Cth) and Climate Change (Consequential Amendments) Act 2022 (Cth) received Royal Assent on 13 September 2022 after clearing the Senate 37 votes to 30 with some minor amendments.

In summary, the Acts

impose national greenhouse gas emissions reduction targets, being a 43% reduction from 2005 levels by 2030 and net zero emissions by 2050;
require the Minister for Climate Change to deliver an annual statement to Parliament describing its progress toward meeting the new targets;
require the Climate Change Authority give the Minister advice in relation to the annual statement;
requires the Climate Change Authority to advise the Minister at least every five years in relation to the setting of emissions reduction targets to be included in new and adjusted Nationally Determined Contributions; and
provides for periodic reviews of the operation of the legislation.

See previous G+T Insight – Movement in Australia’s climate and energy policy for more details.

Safeguard mechanism reform: Government publishes draft Safeguard Mechanism Credits legislation

In August, the Department of Climate Change, Energy, the Environment and Water released a Consultation Paper outlining its proposed reforms to the Safeguard Mechanism, Australia’s primary instrument for controlling carbon emissions from large industrial emitters which make up approximately 28% of Australia’s direct emissions. A pillar of the proposed reforms was the introduction of tradeable ‘Safeguard Mechanism Credits’ (SMCs) to be issued to facilities covered by the Mechanism whose emissions fall below their designated ‘baseline’ emissions limit. See previous G+T Insight 'Safeguard Mechanism reform: consultation paper released for feedback'.

The Government has received approximately 240 submissions from a range of stakeholders across government, community groups and industry and is considering those as it now prepares amendments to the Safeguard Mechanism Rule. Meanwhile, the Department has released draft legislation which will enable the issuance by the Clean Energy Regulator, transfer and surrender of SMCs. Public consultation is open until 28 October 2022.

A recent G+T Insight covers key features of the draft legislation, and what we expect to see over coming months as the Government counts down to the Safeguard Mechanism reforms taking effect in mid-2023.

Modern slavery legislative reform: issues paper released for public consultation

On 22 August 2022, the Federal Government released for public consultation the Issues Paper for the statutory review of the Modern Slavery Act 2018 (Cth) (Review). Public feedback on the Issues Paper is due by 22 November 2022.

The Review commenced on 31 March 2022 and is being led by Professor John McMillan, a Professor at the Australian National University, supported by the Australian Border Force and the Attorney-General’s Department. The Issue Paper follows the Terms of Reference for the Review which was published by the Australian Border Force.

The Review will consider the operation of the Act and whether any additional measures are necessary or desirable to improve the operation of the Act or compliance with the Act. The Issues Paper details specific issues that will be considered during the Review, including whether:

the reporting periods, reporting deadlines and AU$100 million annual consolidated revenue threshold are appropriate;
the mandatory reporting criteria which are set out in section 16 of the Act are appropriate; and
it is desirable or necessary for an independent body, such as an Anti-Slavery Commissioner, to oversee the implementation and/or enforcement of the Act.

Treasury consultation on proposed reforms to financial product advice regulatory framework

On 23 September 2022, consultation on Treasury’s Consultation Paper – Proposals for Reform (Consultation Paper) closed. The Consultation Paper was the latest development in the Quality of Advice Review which is designed to assess how the financial services regulatory framework can be amended to better facilitate the ‘provision of high quality, accessible and affordable financial advice’.

The Quality of Advice Review is timely as the financial advice industry in Australia is currently in a state of significant flux with an increase in compliance costs, a decrease in the sources of traditional revenue generation, the rationalisation of financial adviser firms and the impacts of COVID-19 all contributing to a decrease in the number of financial advisers.

Comments on the consultation will inform the Quality of Advice Review in the preparation of its final report which is scheduled to be issued by 16 December 2022. A recent G+T Insight considers the proposed reforms.

Financial Accountability Regime and Compensation Scheme of Last Resort – Bills introduced

On 8 September 2022, the following package of Bills was introduced into Parliament (a form of the Bills was introduced in 2021 but lapsed when the general election was called):

Financial Accountability Regime

The Financial Accountability Regime Bill 2022 introduces a new Financial Accountability Regime (FAR) for the banking, insurance and superannuation industries and follows recommendations from the Hayne Royal Commission. The FAR (which will be jointly administered by ASIC and APRA) imposes four core sets of obligations dealing with accountability, key personnel obligations, deferred remuneration obligations and notification obligations.

The FAR will apply to the banking industry six months after commencement of the Bill and to any new entrants beyond that, from the time they become an ADI or a non-operating holding company. The FAR will apply to the insurance and superannuation industries 18 months after commencement of the Bill, and to any new entrants beyond that, from the time they become licensed.

Compensation Scheme of Last Resort

Together, Schedule 3 to the Financial Sector Reform Bill 2022, the Financial Services Compensation Scheme of Last Resort Levy (Collection) Bill 2022 and the Financial Services Compensation Scheme of Last Resort Levy (Collection) Bill 2022 establish the proposed Compensation Scheme of Last Resort (CSLR). The CSLR will provide compensation where a determination issued by the Australian Financial Complaints Authority (AFCA) remains unpaid and the determination relates to a financial product or service within the scope of the scheme. The Commonwealth will fund the establishment of the CSLR and its operation in the first year and a levy will be imposed on the financial services industry to fund it in future years. The establishment of the scheme and the supporting levy framework commences on the day after Royal Assent. The operator of the scheme can begin to make compensation payments under the scheme from 1 July 2023.

The Bills have been referred to the Senate Economics Legislation Committee with report due on 20 October 2022.

Re-assess your debt: Proposed changes to Australia’s thin capitalisation rules

As part of its commitment to ensure that multinational enterprises (MNEs) pay their fair share of tax in Australia, the Government announced a multinational tax integrity packag;in the lead up to the federal election earlier this year. A consultation paper was released by Treasury on 5 August 2022 which sought feedback on some of the measures contained in that package, namely, proposed changes to the thin capitalisation rules, a denial of deductions for royalties which are ultimately received by residents of tax havens, and enhanced tax transparency requirements.

A recent G+T Insight discusses what the proposed thin capitalisation changes are and what they practically mean for MNEs. The gist of the proposal is to replace the existing ‘safe harbour debt test’ (which is based on the value of a MNE’s Australian assets) with an ‘earnings-based’ test. We would expect sectors which typically may be highly leveraged, such as infrastructure, real estate, construction, and private equity, to be most immediately affected by the changes.

Greenwashing substantiation notice could be on the way

The ACCC is cracking down on ‘greenwashing’ by closely scrutinising environmental and sustainability claims made by businesses. Are you able to substantiate your sustainability claims?

A recent G+T Insight examines ‘substantiation notices’ which the ACCC has recently indicated may be a preferred investigative tool for 'green' claims and explain how you can best prepare and respond if you receive one.

In addition, on 4 October 2022, the ACCC launched two internet sweeps to identify misleading environmental and sustainability marketing claims and fake or misleading online business reviews over the coming weeks. See ACCC media release.

Changes to protect consumers following Optus data breach

In the wake of Australia’s largest ever data breach, the government has introduced amendments to the Telecommunications Regulations 2021 to allow Optus and other telcos to better co-ordinate with financial institutions, the Commonwealth and States and Territories to detect and mitigate the risks of cyber security incidents, frauds, scams and other malicious cyber activities.

The amendment in the Telecommunications Amendment (Disclosure of Information for the Purpose of Cyber Security) Regulations 2022 enable telcos to temporarily share approved government identifier information (such as drivers licence, Medicare and passport numbers of affected customers) with regulated financial services entities and government entities to enable them to take steps to:

prevent a cyber security incident, fraud, scam activity or identity theft; or
respond to a cyber security incident, fraud, scam activity or identity theft; or
respond to the consequences of a cyber security incident, fraud, scam activity or identity theft; or
address malicious cyber activity.

The proposed regulations have been carefully designed with strong privacy and security safeguards to ensure that only limited information can be made available for certain purposes including:

information received can only be used for the purposes specified above;
requirements for robust information security requirements and protocols for any transfer and storage of data; and
a requirement for information received to be destroyed once it is no longer required.

See the Treasurer’s media release.

In addition, Attorney General Mark Dreyfus has foreshadowed new regulation by the end of the year.

Concerned about the hoarding of data by businesses, the proposed reforms promise to impose stiffer penalties on businesses who fail to correctly store data and protect consumers. It is likely the reforms will also impose restrictions upon businesses requesting or retaining information which is no longer required to carry out their business, as well as increasing the current $2.22m cap on penalties under the Privacy Act 1988 (Cth).

The Optus data breach is a timely reminder for all market participants of the need for resilient cybersecurity and risk management frameworks. It follows the Federal Court decision this year in ASIC v RI Advice Group Pty Ltd (see G+T Insight here) which held that businesses who fail to adequately manage their organisations’ risk management framework and cybersecurity could fall short of their regulatory obligations. ASIC and ASX expect directors to educate and equip themselves to drive their organisation’s cyber resilience culture. See also ASIC media release on preparing for cyber risks.

Many thanks to Justin Mannolini and Cassandra Lee for their contribution to this insight.

See also previous G+T Insights: What next to combat ransomware following the Optus data breach?

Privacy Law Reform Series

In December 2019, the Attorney-General announced that the Australian Government would conduct a review of the Privacy Act 1988 (Cth). The Review aimed to investigate the effectiveness of Australia’s current data protection regime to ensure it “empower[s] consumers, protect[s] their data and best serve[s] the Australian economy”. Since then, the Attorney-General has published an Issues Paper in October 2020 and a Discussion Paper in October 2021 and conducted several rounds of public consultations.

A series from G+T’s Technology + IP team will guide you through the key issues that have been raised by the Review. See below for the first 3 issues in the series:

Privacy Law Reform Series: Definition of “Personal Information”

Privacy Law Reform Series: Right of Erasure

Privacy Law Reform Series: Are global cross-border rules a key part of the Privacy Act’s reform?

NSW Court of Appeal highlights accessorial knowledge thresholds

The NSW Court of Appeal has recently considered two decisions which showcase the requisite level of knowledge required to establish accessorial liability for knowing assistance of a breach of fiduciary duties owed to a company.

Bluemine Pty Ltd (in liq) v AKA (Civil) Pty Ltd; Earth Civil Australia Pty Ltd (in liq) v AKA (Civil) Pty Ltd; Diamondwish Pty Ltd (in liq) v Ivana Cassaniti; Rackforce Pty Ltd (in liq) v Ivana Cassaniti; RCG CBD Pty Limited (in liq) v Borg Family Pty Ltd [2022] NSWCA 160 involved accessorial liability claims in the context of two company directors causing certain of the appellant companies to enter into a range of improper transactions with the aim of obtaining improper tax benefits. Claims against three individuals were dismissed on the basis that the individuals did not possess the requisite level of knowledge, but claims against two companies were successful on the basis that the directors’ knowledge should be attributed to them under the 'corporate attribution' rule.

Cassaniti v Ball as liquidator of RCG CBD Pty Limited (in liq); Khalil v Ball as liquidator of Diamondwish Pty Ltd (in liq) [2022] NSWCA 161 involved (among other things) a successful appeal by a company director against a finding of accessorial liability on the basis that the primary judge had failed to make an express finding of actual knowledge, as required by the relevant High Court test.

The decisions demonstrate that knowledge of circumstances that would merely put an honest and reasonable person on enquiry will fall below the relevant threshold, but knowledge of circumstances that would indicate the facts of the breach to an honest and reasonable person will not. The decisions further indicate the challenge in accessorial liability claims in establishing what a director 'ought to have known about'.

Many thanks to Justin Mannolini and Cassandra Lee for this insight.

High Court refines defamation law concerning hyperlinks

Two key points have come out of the recent decisions of the High Court in Google LLC v Defteros [2022] HCA 27 and Fairfax Media Publications Pty Ltd v Voller; Nationwide News Pty Limited v Voller; Australian News Channel Pty Ltd v Voller [2021] HCA 27:

The publication of a link to a third party webpage may not give rise to liability in defamation for the content of that webpage; and
Making available defamatory posts on social media pages could constitute publication for the purposes of defamation law.

A recent G+T Insight considers the High Court’s findings in both decisions.