Welcome to the latest update from Gilbert + Tobin's Corporate Advisory team.  The update provides a summary of key recent legal developments, particularly relevant to in-house counsel.

In this issue, you will find:

  • Legislation and proposed legislation
    • Rethinking the Competition and Consumer Act: Exposure draft legislation lays groundwork for the most significant change in a generation
    • Government to facilitate use of employee share schemes
    • Unfair contracts regime extended to small businesses from 12 November 2016
    • Treasury consults on insolvency practice rules legislative instruments
    • Government to clamp down on abuse and manipulation of financial benchmarks
    • Bill to reduce corporate tax rate introduced into Parliament
    • A watchdog for registered organisations
    • Legislation to clarify the evidentiary status of certificates, instruments and registers
    • Australia’s proposals to develop international blockchain standards approved by ISO 
    • ASIC clarifies guidance on forward-looking statements for mining and resources companies
    • ASIC continues auditing relief for proprietary companies and reporting relief for wholly owned entities
    • ASIC releases new guidance on ‘robo-advice’ in Australia
  • ASIC
    • ASIC clarifies guidance on forward-looking statements for mining and resources companies
    • ASIC continues auditing relief for proprietary companies and reporting relief for wholly owned entities 
    • ASIC releases new guidance on ‘robo-advice’ in Australia 
  • Other G+T publications
    • Blockchain and Smart Contracts: Digital Utopia versus the Real World
    • 2017 Getting the Deal Through – Initial Public Offerings and Fintech 
  • Cases
    • Some insight into nature and content of a directors’ duty of care and diligence in section 180(1) of the Corporations Act:  Australian Securities and Investments Commission v Cassimatis (No 8)[2016] FCA 1023
    • Former Padbury Mining directors banned for 3 years:  ASIC, in the matter of Padbury Mining Limited v Padbury Mining Limited [2016] FCA 990
    • Are resolutions of a public company board with less than 3 directors valid?:  In the matter of Condor Blanco Mines Ltd [2016] NSWSC 1196

Legislation and proposed legislation

Rethinking the Competition and Consumer Act:  Exposure draft legislation lays groundwork for the most significant change in a generation

Exposure draft legislation has been released to amend the Competition and Consumer Act 2010 in line with the majority of the recommendations of the Harper Review.  The controversial proposed changes to section 46 (misuse of market power) will be implemented according to the “Full Harper” formulation.
For further details, see Rethinking the Competition and Consumer Act: Exposure draft legislation lays groundwork for the most significant change in a generation dated 12 September 2016 by Elizabeth Avery, Simon Muys and Matt Rubinstein.

Government to facilitate use of employee share schemes

The Government is taking steps to make it easier for employers to provide incentives to their employees through employee share schemes.

In 2015, the Government introduced tax concessions for employee share schemes issued by eligible start-up companies.  However, current disclosure requirements in the Corporations Act 2001 (Cth) (Act) can discourage those start-ups from implementing an employee share scheme because it may result in the release of commercially sensitive information.

As part of its National Innovation and Science Agenda, the Government has now released:

  • exposure draft legislation to amend the Act so that employee share scheme disclosure documents for certain start-up companies are not made publicly available when they are lodged with ASIC; and
  • consultation paper on potential changes that could be made to the disclosure regime in the Act that would make employee share schemes more user-friendly by giving employers more choices as to how they offer incentives to their employees and reducing the red tape associated with offers of incentives to employees.

Comments on the exposure draft legislation are due by 2 November 2016 and submissions for the consultation paper are due by 7 December 2016.

Unfair contracts regime extended to small businesses from 12 November 2016

Following a 12 month implementation period, the unfair contract term protections in the Australian Consumer Law and the Australian Securities and Investments Commission Act 2001 (Cth) will be extended to standard form contracts entered into or renewed on or after 12 November 2016 by small businesses. 
For further details, see G+T Client Update by Kirish Kulajarah and Tim Gole dated 23 October 2015 and also the Australian Competition & Consumer Commission website.

Treasury consults on insolvency practice rules legislative instruments

Following the introduction of the Insolvency Law Reform Act 2016 (Cth) earlier this year, Treasury has released for consultation a number of legislative instruments required to give it full effect.

The legislative instruments released by Treasury for consultation include:

  • the Insolvency Practice Rules (Corporations) 2016, which regulate the external administration of companies and the registration and discipline of external administrators (intended to commence 1 March 2017);
  • the Insolvency Practice Rules (Bankruptcy) 2016, which regulate the external administration of private individuals and the registration and discipline of bankruptcy trustees (intended to commence 1 March 2017); and
  • related regulations which, among other things, provide for the partial delay of corporate law and personal insolvency amendments under the Insolvency Law Reform Act 2016 (Cth) and the change of fees required due to the new Practice Rules.

In addition to providing a digestible overview of the insolvency law reform package, the explanatory material provides a useful visual summary of the legislative architecture.

Submissions are due by 4 November 2016

See also media release dated 12 October 2016.

Government to clamp down on abuse and manipulation of financial benchmarks

The Federal Government has announced that it intends to strengthen financial regulation to prevent the abuse and manipulation of the bank bill swap rate by banks.

ASIC is already pursuing 3 of the 4 major Australian banks over unconscionable conduct and market manipulation in setting the bank bill swap rate (which is a key financial benchmark that serves as the reference rate for the pricing of a range of financial products) from 2010 to 2012.

The Government’s announced reforms follow recommendations submitted to the Federal Government by the Council of Financial Regulators (CFR), which broadly cover the following:

  • administrators of significant (that is, systemically important) benchmarks be required to hold a new “benchmark administration” licence issued by ASIC unless granted an exemption;
  • ASIC be empowered to develop enforceable rules for the administrators of significant benchmarks and for entities that make submissions to such benchmarks (including the power to compel submissions to benchmarks in the case that other calculation mechanisms fail); and
  • the manipulation of any financial benchmark (significant or non-significant) or financial product used to determine a financial benchmark used in Australia be made a specific criminal and civil offence.

The Federal Government intends to implement these reforms over the next 18 months. 

See further the Government’s media release dated 4 October 2016 and the CFR recommendations.

Bill to reduce corporate tax rate introduced into Parliament

The Bill will progressively reduce the corporate tax rate to 25% by the 2026-27 income year.

The Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016 (Cth) will amend the Income Tax Rates Act 1986 (Cth) to reduce the corporate tax rate to 27.5% for the 2016-2017 income year for small business entities (being entities that carry on a business and have an aggregated turnover of less than A$10 million).

This lower corporate tax rate will the progressively be extended to all corporate tax entities by the 2023‑24 income year.

The corporate tax rate will then be cut to:

  • 27% for the 2024‑25 income year;
  • 26% for the 2025‑26 income year; and
  • 25% for the 2026‑27 income year and later income years.

See Treasury’s media release dated 1 September 2016.

For further details, see also Australian Federal Budget 2016/17 dated 4 May 2016 by Hanh Chau, Andrew Sharp, Adam Musgrave, Rianne Chen and Mack Wan.

A watchdog for registered organisations

The purpose of the Fair Work (Registered Organisations) Amendment Bill 2014 (Cth) is to improve the governance and financial transparency of registered organisations and provide an appropriately empowered and independent regulator that will ensure compliance with the Fair Work (Registered Organisations) Act 2009 and the Fair Work Act 2009 by registered organisations, branches of registered organisations and their officers. 

The Fair Work (Registered Organisations) Amendment Bill 2014 (Cth) proposes to amend the Fair Work (Registered Organisations) Act 2009 (Cth) (RO Act ) and the Fair Work Act 2009 (Cth).

Broadly, the Bill will:
establish an independent watchdog, the Registered Organisations Commission (Commission), to monitor and regulate registered organisations with enhanced investigation and information gathering powers, with the Commission to be headed by the Registered Organisations Commissioner who will assume the investigations, enforcement advice and assistance responsibilities of the General Manager of the Fair Work Commission in relation to registered organisations;

  • amend the requirements on officers’ disclosure of material personal interests (and related voting and decision making rights) and change grounds for disqualification and ineligibility for office;
  • strengthen existing financial accounting, disclosure and transparency obligations under the RO Act by putting certain rule obligations on the face of the RO Act and making them enforceable as civil remedy provisions; and
  • increase civil penalties and introduce criminal offences for serious breaches of officers’ duties as well as new offences in relation to the conduct of investigations under the RO Act.

The amendments that provide for the disclosure of material personal interests, increased accounting and disclosure obligations, criminal offences for serious breaches of officers’ duties and increased civil penalties broadly mirror those that apply to companies and their directors under the Corporations Act 2001(Cth) and have been adapted to align with the RO Act framework.

See the explanatory memorandum for further detail

Legislation to clarify the evidentiary status of certificates, instruments and registers

The Statute Update Act 2016 (Cth) amends a number of Commonwealth Acts to  make clear that certificates, instruments and registers are prima facie evidence of the matters in them.

Among other things, the Statute Update Act 2016 (Cth) (Act) amends a number of provisions in other Commonwealth Acts dealing with the evidentiary status of a certificate, instrument or register to make clear that they are prima facie evidence of the matters stated in them.  The other Acts that the Act amends include, among others:

  • A New Tax System (Australian Business Number) Act 1999 (Cth)
  • Competition and Consumer Act 2010 (Cth);
  • Customs Act 1901 (Cth);
  • Health Insurance Act 1973 (Cth);
  • Income Tax Assessment Act 1936 (Cth);
  • Insurance Act 1973 (Cth);
  • International Tax Agreements Act 1953 (Cth);
  • Migration Act 1958 (Cth); and
  • Trade Marks Act 1995 (Cth)

Australia’s proposals to develop international blockchain standards approved by ISO

Establishing international standards around blockchain will provide a basis for ensuring international interoperability.

The Treasurer has welcomed the decision by the International Organization for Standardization (ISO) to support Australia’s proposal to develop new international standards on blockchain, with Australia to lead the international committee.

Standards Australia submitted a proposal for new international standards on blockchain technology and electronic distributed ledger technologies in April this year. The proposal has been considered by the 161 member countries of ISO, and its approval will see the development of standards that support interoperability among systems, privacy, security and terminology. 

See Treasury media release dated 15 September 2016.

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ASIC clarifies guidance on forward-looking statements for mining and resources companies

ASIC’s Information Sheet 214, an initial draft of which was released in April 2016, was designed to provide clarity to stakeholders regarding the publication of forward looking statements by mining and resources companies.  Instead, it provoked widespread rancour and confusion, which ASIC has now sought to address in a revised version of the document, which was released on 12 October 2016.

For further detail, see ASIC issues revised Information Statement 214 by Sarah Turner and Garth Landers dated 13 October 2016.


ASIC continues auditing relief for proprietary companies and reporting relief for wholly owned entities

ASIC has continued existing auditing relief for proprietary companies and reporting relief for wholly owned entities without significant change (except in respect of APRA-regulated entities which are now excluded from the reporting relief for wholly-owned entities).  Importantly, ASIC has confirmed that to join a party to an existing deed of cross guarantee, a new deed will need to be executed or the existing deed varied to reflect ASIC’s revised Pro Forma 24.

Following public consultation (see Consultation Paper 267 Remaking ASIC class orders and guidance on audit and financial reporting (CP 267)), ASIC has remade 3 legislative instruments that affect financial reporting by companies without significant changes before they were due to expire on 1 October 2016.  The relief is now set out in the following new legislative instruments:

  • ASIC Corporations (Audit Relief) Instrument 2016/784 (replaces Class Order 98/1417 Audit relief for proprietary companies and applies for financial years ending on or after 1 January 2017).  The new Instrument continues to provide relief to large proprietary companies and certain small foreign-controlled proprietary companies from the need to appoint an auditor and have their financial report audited;
  • ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 (replaces Class Order 98/1418 Wholly-owned entities and applies for financial years ending on or after 1 January 2017).  The new Instrument continues to relieve wholly-owned companies from the need to prepare and have audited a financial report, provided they enter into a deed of cross-guarantee with their holding company and other wholly owned companies (except that the relief is no longer available to APRA-regulated entities); and
  • ASIC Corporations (Qualified Accountant) Instrument 2016/786 (replaces Class Order 01/1256 Qualified accountant).  The new Instrument continues to specify the classes of accountants who are qualified accountants for particular purposes under the Corporations Act 2001 (Cth), particularly for the purpose of giving sophisticated investor certificates.

ASIC has also released:

ASIC has also confirmed in REP 497 Responses to submission on CP 267 (see paragraphs 19 to 21) that a consequence of remaking Class Order [CO 98/1418] as an ASIC instrument is that in order to join a company to a deed of cross-guarantee executed before 29 September 2016, a new deed will need to be executed or the pre-existing deed varied to reflect the revised Pro Forma 24.

In addition, Class Orders [CO 98/106] Financial reports of superannuation funds, approved deposit funds and pooled superannuation trusts and [CO 99/1225] Financial reporting requirements for benefit fund friendly societies have been repealed on the basis that they are no longer necessary or useful. 


ASIC releases new guidance on ‘robo advice’ in Australia

In response to the rapid growth of digital financial product advice (also known as ‘robo-advice’) since 2014 by both start-up Australian financial services (AFS) licensees and existing AFS licensees, ASIC has now released guidance on its approach to the regulation of robo-advice in Australia.

‘Robo-advice’ involves the provision of computer-generated financial advice that is automated through the use of algorithms and other technology with minimal human involvement, and can comprise general or personal advice and range from advice that is narrow in scope to a comprehensive financial plan.  

Recognising the potential benefits to consumers of the growth and development of the market for robo-advice in Australia, ASIC has released Regulatory Guide 255 Providing digital financial product advice to retail clients (RG 255) which brings together some of the issues that persons providing robo-advice to retail clients need to consider when operating in Australia – from the licencing stage through to the actual provision of advice.

RG 255 does not introduce any new regulatory concepts (as the law is generally technology neutral) but it provides guidance on how ASIC will approach the regulation of robo-advice, as distinct from traditional (ie, non-digital) financial product advice.  RG 255 also includes guidance on some specific issues that are relevant for robo-advice, including:

  • how the organisational competence obligation applies to AFS licensees in the robo-advice context;
  • the ways in which AFS licensees should monitor and test the algorithms underpinning robo-advice; and
  • the minimum expectations for robo-advice providers to assist them in providing scaled advice (ie personal advice that is limited in scope) that is in the best interests of their clients.

RG 255 follows consultation earlier this year (see Consultation Paper 254 Regulating digital financial product advice and Report 490 Response to submissions on CP 254 Regulating digital financial product advice).

See also ASIC media release dated 30 August 2016.

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ASX releases new guidance note on managing liquidity requirements

The new ASX Clear Operating Rules guidance note provides guidance on the minimum liquidity management arrangements a participant should have to meet its obligations under the ASX Clear Operating Rules.

ASX has released the ASX Clear Operating Rules Guidance Note 13 Managing Liquidity Requirements which covers four main points:

  • the requirement for participants to have a sufficient formal liquidity risk framework in place;
  • the requirement for participants to have an officer responsible for liquidity management;
  • the requirements for a board-approved annual liquidity plan which considers both “normal” and “stress” conditions and robust liquidity-related operational processes and management reporting; and
  • the different expectations of authorised deposit-taking institutions and their related bodies corporate.

The guidance note is a response to an ASX consultation with Clearing Participants in February 2016, and a draft Guidance Note that was circulated to Clearing Participants in July 2016.

ASX has indicated that it expects Clearing Participants to comply with the requirements of Guidance Note 13 from 28 February 2017.

See ASX’s media release dated 31 August 2016.

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Other G+T publications

Blockchain and Smart Contracts: Digital Utopia versus the Real World

Blockchain and smart contracts have set us on a collision path, posing challenges that we haven't had to deal with before. People with technology, commercial and legal expertise all need to work together in the blockchain environment - and their expectations can be quite different.

For further details, see Blockchain and Smart Contracts: Digital Utopia versus the Real World dated 2 September 2016 by Bernadette Jew and Peter Reeves

2017 Getting the Deal Through – Initial Public Offerings and Fintech

John Williamson-Noble and Tim Gordon have contributed the Australian Chapter of 2017 Getting the Deal Through – Initial Public Offerings and Peter Reeves has contributed the Australian Chapter of 2017 Getting the Deal Through– Fintech.

See Getting the Deal Through – Initial Public Offerings and Getting the Deal Through – Fintech

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Some insight into the nature and content of the directors’ duty of care and diligence in section 180(1) of the Corporations Act:  Australian Securities and Investments Commission v Cassimatis (No 8) [2016] FCA 1023

This case provides some valuable insights into the nature and content of the duty of a director under section 180(1) of the Corporations Act 2001 (Cth) and the circumstances in which a director maybe be liable for action (or inaction) which causes a breach by their companies of the Act.  

Since 1994, Storm Financial Limited (Storm) operated a system by which it recommended to clients, on an indiscriminate basis, that they invest substantial amounts in index funds using “double gearing” which involved taking out both a home loan and a margin loan to fund the purchase of units in index funds (Storm Model).  By late 2008 and early 2009, many of Storm’s clients were in negative equity positions and had sustained significant losses.

ASIC’s case related to a sample of investors who were allegedly over 50 years of age, were retired or approaching retirement, had little or limited income, few assets and little or no prospect of rebuilding their financial position in the event of financial loss (Relevant Investors). 

Edelman J in the Federal Court found that:

  • Storm had breached sections 945A(1)(b) and 945A(1)(c) of the Corporations Act 2001 (Cth) (Act) because it did not give consideration to, or conduct investigation of, the advice as was reasonable in the circumstances, which in turn led to the provision of financial advice which was not appropriate to the Relevant Investors having regard to their circumstances; and
  • Mr and Mrs Cassimatis each contravened section 180(1) of the Act by exercising their powers in a way which caused or permitted inappropriate advice to be given by Storm to the Relevant Investors by Storm in breach of sections 945A(1)(b) and 945A(1)(c). 

Edelman J described the test to be applied for breach of section 180(1) (as expressed in Vrisakis v Australian Securities and Investments Commission) as involving “consideration of all circumstances, including the foreseeable risk of harm to any of the interests of Storm and the magnitude of that harm, together with the potential benefits that could reasonably have been expected to accrue to the company from the conduct in question, and any burden of further alleviating action”.  Consideration of these matters is from the perspective of a reasonable person being a director of Storm, in the circumstances of Storm, having the responsibilities of Mr and Mrs Cassimatis.

Applying this test, Edelman J found that:

  • Mr and Mrs Cassimatis had an “extraordinary degree of control” over Storm (they were also its sole shareholders) and would reasonably have been aware that the Storm Model was applied to financially vulnerable clients which included the Relevant Investors;
  • a reasonable director, with the responsibilities of Mr and Mrs Cassimatis, and in Storm’s circumstances, would have realised that the application of the Storm Model to financially vulnerable investors was likely to involve inappropriate advice and would have taken some alleviating precautions to prevent the giving of that advice; and
  • Mr and Mrs Cassimatis should have been reasonably aware that the application of the Storm Model would be likely to (and did) cause contraventions by Storm of section 945A(1)(b) and 945A(1)(c) of the Act, and could (and did) have devastating consequences for many Relevant Investors and the discovery of the breaches would have threatened the continuation of Storm’s AFSL and Storm’s very existence.

In coming to his conclusions, Edelman J also made some useful and interesting observations on the nature and content of the duty under section 180(1), including:

  • on the question of whether the duty under section 180 is a public or a private duty, Mr and Mrs Cassimatis submitted that the duty is owed by them only to Storm whereas ASIC submitted that section 180 creates a public duty which exists independently of the private duty and is owed to the public at large, and not merely a public duty that attaches additional enforcement and sanctions to a private duty owed to a company.  While Edelman J did not consider it necessary in the circumstances to reach a concluded view, after considering past authority (which he noted had not explored the precise character of the section), the text of section  and other contextual and purposive considerations, he did not rule out the possibility that a contravention of section 180(1) might involve both a public and a private wrong;
  • in considering the test for breach of section 180(1), Edelman J observed that:
    • the foreseeable risk of harm to the company which calls to be considered in section 180(1) is not confined to financial harm and includes harm to all the interests of the company (including its reputation and it interests which relate to compliance with the law (such as potential loss of Storm’s Australian Financial Services Licence));
    • a director may not avoid liability merely because he or she proved that the balancing of risk against potential benefits for the purposes of section 180(1) showed that the likely financial cost of a penalty was exceeded by the likely profit from a serious contravention of the law; and
    • consideration of the foreseeable risk of harm together with the potential benefits that could reasonably have been expected to accrue must take place from the perspective of the company’s circumstances and the office and responsibilities of the director (which was particularly significant in this case because of the vast responsibilities assumed by Mr and Mrs Cassimatis and the strength of control they had over Storm);
  • Edelman J considered that ASIC had set itself a high bar to establish liability because it relied on an actual breach by Storm as a “stepping stone” for a finding of a breach by Mr and Mrs Cassimatis.  In fact, His Honour expressed serious doubts whether an actual breach by a company is a necessary requirement for a breach of section 180(1) by an officer, noting that if this was the case, a director could escape liability simply because, by some good fortune, no actual breach by the company occurred;
  • Edelman J held that as the duty under section 180(1) is not a duty of strict liability to ensure compliance by the company with its statutory obligations, section 180 cannot be used as a backdoor method for imposing accessorial civil liability on directors for contraventions by the company.  While contraventions, or risks of contraventions, by the company are circumstances to be taken into account, they are not the only circumstances, and are not conditions for liability.  The steps that a reasonable director must take to avoid a foreseeable risk of contravention will always depend on all of the company’s circumstances, and the assessment of whether a breach by a particular director has been committed will depend on the response of a reasonable person who is a director of the company in those circumstances with the same responsibilities of the director. 
  • Edelman J held that directors who are also the sole shareholders of a solvent company are not precluded from potentially breaching section 180(1) even if they intentionally act in contravention of the Act.  Rather, His Honour found that the business judgment rule does not give a director carte blanche to engage in any venture even if the venture is highly likely to (and does) contravene the law.  While it was conceded that shareholders acquiescence might affect the practical content of the duty, acquiescence does not eliminate or relieve the duty where there are other relevant interests of the company apart from the interests of the shareholders.


Former Padbury Mining directors banned for 3 years: ASIC, in the matter of Padbury Mining Limited v Padbury Mining Limited [2016] FCA 990

Two former directors of Padbury Mining have been disqualified from managing corporations for a period of 3 years after the Federal Court found that they breached their duty of care and diligence to Padbury Mining under section 180(1) of the Corporations Act by approving the release of an announcement which caused Padbury Mining to contravene both section 1041H (because it was misleading or deceptive) and section 674 (because it did not contain all the information required under Padbury Mining’s continuous disclosure obligations).

Padbury Mining Limited (Padbury Mining) entered into a shareholders’ agreement pursuant to which Superkite Pty Ltd (Superkite) undertook, subject to a number of contractual pre-conditions, to provide $6 million to a subsidiary of Padbury Mining, as funding for the construction of deep water port and rail network at Oakajee, WA (Project).  Padbury Mining then made an announcement to the ASX that it had successfully secured $6 billion in funding for the Project.  Between the time of the announcement and a trading halt four hours later, Padbury Mining’s shares traded within a range of 3.2 cents and 5.2 cents per share (when the shares were trading at 2 cents before the announcement) and more than 200 million shares were traded.  The shareholders’ agreement was subsequently terminated and the funding was never provided.

The parties tendered an agreed statement of facts and a minute of consent orders which set out proposed orders (on which each party made submissions).  Siopsis J in the Federal Court of Australia found that:

  • Padbury Mining contravened section 1041H(1) of the Corporations Act 2001 (Cth) (Act) because the announcement was misleading and deceptive and likely to mislead or deceive in that the funding was dependent upon the satisfaction of conditions precedent (relating to the obtaining of bank guarantees) that Padbury Mining was not in a positon to satisfy at the time of the announcement;
  • Padbury Mining contravened its continuous disclosure obligations under section 674(2) of the Act by not notifying ASX in the announcement that there were conditions precedent to the funding and not identifying the party or parties responsible for providing the funding;
  • Mr Stokes (Padbury Mining’s managing director) and Mr Quinn (Padbury Mining’s chairman) both contravened section 674(2A) of the Act in that they were involved in Padbury Mining’s contravention of section 674(2); and
  • Mr Stokes and Mr Quinn both contravened section 180(1) of the Act in that they failed to discharge their duties to Padbury Mining with a degree of care and diligence that a reasonable person would exercise in the circumstances by authorising or otherwise approving the release of the announcement and thereby causing Padbury Mining to make the funding representation in contravention of section 1041H. 

In considering the breach of section 180(1) by Mr Stokes and Mr Quinn, Siopsis J noted that they had both admitted that:

  • when approving the announcement, they ought reasonably to have been aware that if Padbury Mining issued an announcement that was misleading or deceptive (or likely to mislead or deceive) or failed to disclose information required under section 674 of the Act, it would be harmful or potentially harmful to Padbury Mining in that it would contravene, or risk contravening, section 1041H or 674 and, if revealed, it would be harmful to its reputation and expose it to litigation and regulatory action;
  • it was necessary for the proper discharge of their duties to Padbury Mining to satisfy themselves that the announcement contained the information required by section 674(2) and did not contain statements that were misleading or deceptive or likely to mislead or deceive; and
  • when they authorised or otherwise approved the release of the announcement, they ought reasonable have been aware that, among other things, the shareholders agreement contained the guarantee conditions precedent, that Padbury Mining was not in a position to procure the guarantees, that Padbury Mining had not obtained any third party verification about the capacity of Superkite to meet its funding obligations and that it did not disclose the existence of the conditions precedent or the identity of the funding party.  

Siopsis J also ordered that both Mr Stokes and Mr Quinn:

  • be disqualified from managing a corporation for a period of 3 years – Whilst noting that this was not a case of dishonesty on the part of Mr Stokes and Mr Quinn, Siopsis J emphasised that they had both recognised that their conduct in approving the announcement, which was ‘of critical importance to the company’s future and the market perception thereof’ was ‘a serious departure from the standards expected of directors of a public company in a like situation’.  Save for the fact that both Mr Stokes and Mr Quinn had co-operated with ASIC at an early stage and in doing so, had recognised the seriousness of their conduct and exhibited contrition, Siopsis J would have found that a 5 year disqualification period was justified;
  • pay a pecuniary penalty of $25,000 – Siopsis J noted that while a pecuniary penalty should only be imposed if a disqualification order is an inadequate or inappropriate remedy, the seriousness of a contravention may warrant an additional pecuniary penalty even if only a modest amount; and
  • pay ASIC’s costs of the proceedings in the fixed sum of $200,000.


Are resolutions of a public company board with less than 3 directors valid?: In the matter of Condor Blanco Mines Ltd [2016] NSWSC 11201A(2)96

In this case, Barrett AJA found that the fact that a public company had less than the statutory minimum of 3 directors under section 201A(2) of the Corporations Act 2001 (Cth) did not affect the validity of a board resolution to appoint an administrator under section 436A(1) in circumstances where the constitution permitted a board with only 2 members to function.  As such, the case seems to suggest that provided that the constitution of a board complies with the company’s constitution, the fact that it has less than the statutory minimum number of directors will not affect the validity of resolutions passed by it which are otherwise valid.

At the time of the purported appointment of an administrator to Condor Blanco Mines Ltd (Condor) (a publicly listed company), Condor had only 2 directors in office.   

Barrett AJA in the Supreme Court of New South Wales found that the appointment of the administrator was invalid on the basis that one of the Condor directors (the former managing director) did not, on the facts, have the opinion that the company was insolvent or likely to become insolvent as set out in section 436A(1)(a) of the Corporations Act 2001 (Cth) (Act). 

Whilst it was not necessary for Barrett AJA to decide given his finding in relation to the solvency resolution, His Honor nonetheless considered the questions of whether the “board” referred to in section 436A(1) must be a board made up of at least the minimum number of directors required by section 201A(2) (being 3 directors for a public company) and whether section 201A(2)go further and prohibit action by a directorate of less than the statutory minimum.  Barrett AJA found that had it been necessary to decide, he would have found that the fact that Condor only had 2 directors did not affect the validity of a board resolution that was otherwise valid based on the following:

  • a company which is not in compliance with section 201A(2) contravenes the section and it is guilty of on offence punishable by fine or ASIC penalty notice;
  • whether or not a penalty is provided for, there is a question as to whether the statute intends to go further and prohibit conduct inconsistent with observance of the statutory requirement;
  • in considering the effects of statutory illegality on contracts, courts have emphasised that the relevant factor is public policy and the predominant consideration is whether, according to “the scope and purpose” of the statute, the legislative purpose will be fulfilled without regarding the contract as void and unenforceable;
  • the Act itself contemplates valid and effective action by a public company board with less than 3 directors – pursuant to the replaceable rules in section 201H and 248F, if the number of directors in office falls to one, the total number of directors is not enough to make up the quorum called for by section 248F (2 directors) and the sole director is empowered by section 201H(1) to appoint a director to make up the quorum.  In this way, the directorate of a public company governed by the replaceable rules is, by the Act itself, allowed to function even though it consists of fewer than 3 members;
  • based on the above, the scope and purpose of the Act are such that a public company without a constitution which has fewer than 3 members is capable of functioning.  The scope and purpose of the Act in relation to a company that does have a constitution cannot be different, and it is therefore necessary to consider the provisions of the Condor constitution that relate to capacity to function with a deficiency of directors; and
  • under the Condor constitution, the restriction on the ability of the directors to function is when the number falls below 2 (the number necessary to determine a quorum) and provided there are at least 2 directors, the restriction does not operate and those directors are able to exercise all the powers reposed in the directors as a body.  The fact that their number was less than the minimum required under section 201A(2) does not affect that conclusion.

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By Hiroshi NarushimaJessica van Rooy and Sally Randall

Corporate Advisory

Peter Reeves authored the Australia chapter of 2017 Getting the Deal Through's Fintech.


Corporate Advisory

ASIC’s Information Sheet 214 (IS214), an initial draft of which was released in April 2016, was designed to provide clarity to stakeholders regarding the publication of forward looking statements by mining and resources companies.  Instead, it provoked widespread rancour and confusion, which the regulator has now sought to address in a revised version of the document, which was released on 12 October 2016.

There are a number of aspects of the revised IS214 which will be welcome. In particular, ASIC has confirmed that:

  • Mineral resource estimates (not just ore reserve estimates) can support production targets and other forecast financial information, provided that sufficient exploration and evaluation work has been done.  Any forward looking statement based on mineral resources must disclose the extent to which the JORC modifying factors (which in broad terms are considerations used to convert resources to reserves, such as processing, metallurgical or economic factors) have been analysed and progressed; the greater the work done, the more likely it will be that reasonable grounds for the forward looking information will be found to exist.  ASIC also acknowledges different JORC modifying factors will require different levels of work.
  • Secured funding is not necessarily required in order to establish that reasonable grounds exist for a production target.  However, companies are required to disclose all assumptions underpinning the target, including as to scheduling of development and production and availability of finance as and when required, and those assumptions must have objectively reasonable grounds.
  • Companies should be clear about their financial capacity to achieve production targets and what additional funding (if any) is required.  In practice, we consider this would take the form of a clear statement of current financial capacity and the expected amount of finance required, with warnings as to a lack of certainty of funding, and the potential dilution impacts of any equity raising.

However, the revision could have gone further.  There are still questions about how the revised IS214 will operate in practice.  For instance:

  • ASIC gives examples of factors to be taken into account in assessing whether a reasonable basis exists for assuming a project can obtain finance as and when required, including the company’s relative market capitalisation, financial position, financing track record and support, relevant metrics and the state of relevant economies.  On any assessment of those factors, resources companies, including explorers, will appear somewhere on a spectrum of reasonableness, and what remains unclear is where on that spectrum ASIC will draw a line.
  • To the extent forward looking statements in a scoping study cannot be made, companies are still encouraged to disclose reliable and relevant technical information.  However, it is still less than clear when a company can safely determine that the undisclosed information is not price sensitive. 
  • IS214 is likely to encourage the practice of some companies guiding analysts to develop forward-earnings models based on published technical data.  Although this provides an alternative conduit to the market for technical information, we query whether this is consistent with ASIC’s broader aspirations around market fairness.
Corporate Advisory, Energy and Resources

On 28 September 2016, ASIC issued announcements affecting foreign financial services providers (FFSPs) that rely on “passport” class order relief from the requirement to hold an Australian financial services licence (AFSL) in order to provide financial services in Australia to wholesale clients.

The passport class orders provide relief to FFSPs from the requirement to hold an AFSL, provided such FFSPs satisfy the conditions of the relevant class order. Passport relief is obtained by lodging prescribed documentation with ASIC, and notifying ASIC of the occurrence of certain events. Currently, passport relief is available for entities regulated by the following foreign regulators:

  • Class Order [CO 03/1099] UK regulated financial service providers

  • Class Order [CO 03/1100] US SEC regulated financial service providers
  • Class Order [CO 03/1101] US Federal Reserve and OCC regulated financial service providers
  • Class Order [CO 03/1102] Singapore MAS regulated financial service providers
  • Class Order [CO 03/1103] Hong Kong SFC regulated financial service providers
  • Class Order [CO 04/829] US CFTC regulated financial services providers
  • Class Order [CO 04/1313] German BaFin regulated financial service providers

Additionally, we are aware of several FFSPs, that are unable to satisfy the conditions of the passport class orders, relying on individual tailored relief instruments that effectively adopt substantially all of the conditions of a passport class order.
Repeal and extension of passport relief
These class orders were due to expire (sunset) between 1 October 2016 and 1 April 2017. ASIC has now issued ASIC Corporations (Repeal and Transitional) Instrument 2016/396 (Transitional Instrument), which repeals the passport relief class orders and at the same time extends the operation of the relief for a 2 year period, to 1 October 2018.
What you need to do to continue relying on passport relief
The Transitional Instrument retains all the conditions in the existing class orders, and introduces a broader information gathering power for ASIC. ASIC can now require an FFSP relying on passport relief to provide a written statement with specified information about the financial services business operated by the FFSP in Australia.
ASIC has confirmed that FFSPs already relying on passport relief do not need to lodge any new documentation with ASIC in order to continue relying on passport relief during the 2 year transitional period.  
It is also still open to FFSPs wishing to enter the Australian wholesale market to rely on passport relief during the 2 year transitional period.
What will happen next?
During the 2 year transitional period, ASIC will review the framework for passport relief and consider:

  • in light of recent evidence of non-compliance by FFSPs, the extent to which the current relief settings allow ASIC to effectively monitor FFSPs and take regulatory action for non-compliance; and
  • the impact of increased regulatory focus on wholesale cross-border markets since the relief was originally granted.

Following the review period, ASIC intends to release a further consultation paper in January 2018 with its proposals to remake relief for FFSPs. 

We expect that new instruments facilitating passport relief will be created, likely with revised conditions to include enhanced powers for ASIC to supervise passported entities and take regulatory action following non-compliance. We do not expect foreign offerors of wholesale funds will be required to obtain their own AFSL or engage a locally licensed intermediary – in our view this would be inconsistent with ASIC’s stated regulatory objectives (including to recognise the opportunities that globalisation presents to allow capital to flow freely across world markets and increasing the volume of cross-border businesses).

Corporate Advisory, Funds

Lawyers in TMT practices are confronting some of the most challenging issues of our time, while navigating the fast-changing demands of clients in search of more value. Ben Abbott from Australasian Lawyer chats to Bernadette Jew in this feature.


On the back of mounting public and political pressure of the Australian financial services industry, Special Counsel Stephanie Wee and Lawyer Ghassan Kassisieh examine recent enforcement actions taking place in Australia.

Litigation and Dispute Resolution

Eli Fisher, co-editor of Communications Law Bulletin, sits down with partner Peter Leonard to discuss recent developments in privacy and data protection law.

Data, Content and Privacy

Welcome to the latest edition of the WA Energy + Resources Update.

Africa holds salutary lessons for Australian Governments and Corporates

By Phil Edmands

As delegates at the Africa Down Under Conference in Perth discuss how to successfully invest in Africa, many themes resonate more broadly. Africa’s emergence as tomorrow’s giant rather than yesterday’s supplicant also underlines why Australia must get its own house in order if it is to be a beneficiary.
Like most things in life, success is in large measure about relationships. Australian companies investing in Africa need stabilised investment frameworks, but without strong supporting relationships no project will be fully secure, realise its true potential, or perform in the most cost effective manner.
Building those strong relationships is partly a function of attitude. Having a healthy respect for African governments as sovereigns, and for communities as vital, is a good starting point. Africa as a continent is not poor – it has abundant resources. Its people are poor. But that does not make them any different to or less than anyone else. They want the things we have, and as they gain them so Africa’s power will grow.
Good relationships also rely on good communication, and in our social media age you need to publicly prosecute your case and get your story out. Otherwise others may well fill the void with mistruths that destroy the trust at the core of good relationships.
Australian and Western Australian Governments are implementing many initiatives to improve the competitiveness, administration and governance of mining in Africa – by working directly with African Governments and through the Australian Government’s policy of “economic diplomacy”.
These initiatives are not only laudable, but economically rational - both for Africa and for Australia. The pie will grow for both of them.
But there is a catch. As Africa develops, its sovereign and operating risk will diminish, and its infrastructure will improve. Australia has to this point enjoyed a distinct advantage in these areas. But the playing field will be much more level going forward.
Africa has been strongly impacted by the end of the commodities “super-cycle”. KPMG estimates that whilst FDI inflows to the continent increased 22% between 2010 and 2014 they plunged 31% in 2015. But the longer term trend is for Africa to mature as a destination for investment.
As it does, it will be more of a huge future market than a competitor for Australia. Resource sector growth will help propel development of that market. But already two thirds of Africa’s growth comes from increased domestic demand, and the World Bank estimates that addressing Africa’s infrastructure deficit will require investment of more than US$90 billion per annum.
By facilitating African resource growth Australia facilitates the success of Australian companies investing in it and facilitates growth of a massive broader market for Australian goods and services.But to be part of this win-win, Australia needs to remain competitive.
As stability and certainty increase in Africa, so risk premiums will reduce. Africa has abundant resources. The Africa Development Bank suggests that Africa has about 30% of the world’s known reserves of minerals, with upside because of comparably low levels of exploration.
Australia received a disproportionate share of investment during the last boom. The Grattan Institute estimates that in the 8 years to 2013 A$480 billion was invested in Australian mining projects – more than any other country in the world. But Africa is going to increasingly attract its share of international investment – according to the Export-Import Bank of China cumulative Chinese investment alone in Africa will amount to at least US$1 trillion over the next decade.

While other jurisdictions remained unstable and carried greater sovereign risk, Australia enjoyed a competitive buffer. It has been a very stable commodity producer, benefiting from strong rule of law, and has been able to price those benefits through a relatively high fiscal take. That shield will however dissipate as Africa’s stability and governance improve.
Current indications are that Australia’s competitiveness will go backwards. There is great opposition  to allowing corporate tax rates to move down and so be less out of step with international  comparators, and there is a suggested increase (for two companies) in per tonne rent for iron ore from 25 cents to $5 – a measure that is the very definition of sovereign risk.
Yes currently there are significant funds in the world system looking for a home with any sort of reasonable return, which with the stickiness of incumbent investment, and the sheer cost of bringing on supply in emerging markets when commodity prices are low, mean that changes may not have an immediate effect on investment in Australia.
But longer term, moves that damage Australia’s sovereign risk profile – one of its great competitive advantages – and put it out of step with the tax settings of other countries, will degrade Australia’s performance and reduce its living standards. The irony of this is that it need not be so. Australia can both improve its competitiveness and benefit from the strengthening economies of the commodity producers of Africa.

Put it on the JV tab: Increased scope for Operator to pursue plans and charge costs back to the JV 

Santos (BOL) Pty Ltd v Apache Northwest Pty Ltd [2016] WASC 225

By Emily Tsokos and Marshall McKenna

On 27 July 2016 Chaney J handed down his decision in the case of Santos (BOL) Pty Ltd v Apache Northwest Pty Ltd1.  This case is the latest decision in a series of disputes between Apache and Santos in respect of their various petroleum joint venture arrangements in Western Australia2.  Outside this stream of disputes, there is very little existing Australian case law on petroleum joint operating agreements, as it is unusual for petroleum joint venturers (especially in production) to pursue litigation.


This decision concerns approval for works and costs incurred by Apache Northwest Pty Ltd (Apache Northwest) and its parent entity, Apache Energy Ltd (together the Apache Group) in undertaking a gas compression project pursuant to the John Brookes joint operating agreement in respect of petroleum production licence WA-29-L, under which Santos (BOL) Pty Ltd (Santos) was also a participant (JOA). Chaney J accepted Apache Northwest’s arguments as to the interpretation of the JOA, the key points of which were:

  • even though a gas compression project may ordinarily be categorised as a development project, it was capable of being the subject of a production programme and budget under the JOA and therefore could be approved under that provision;
  • the Apache Group had undertaken the gas compression project on its own account – the project was not “Joint Operations” under the JOA as it did not fall within the scope of section 161(1) of theOffshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) (and was not undertaken on a sole risk basis) and therefore initial Operating Committee approval was not required; and
  • even though the Apache Group had initially incurred the costs on its own account and then Apache Northwest charged it back to the joint venture, the JOA did not preclude past expenditure from inclusion in a production work programme and budget.

Chaney J also placed emphasis on the fact that when Santos and Apache Northwest approved the initial development programme and budget, inherent in that approval was a decision to undertake liability to contribute their percentage interest in future costs (subject to the approval of the Operating Committee) of future programmes and budgets within the regime for that approval.


Joint venture participants in both mining and oil and gas joint ventures should be wary of:

  • being bound by unquantified “possibilities” in development decisions that are not adequately costed or outlined in the initial development plan whereby it is important to scrutinise initial development plans and request clarification on any items that may be referred to as possibilities, but not necessarily quantified; and
  • operators undertaking (or procuring a related party to undertake) works and incurring costs outside the operation of a joint operating agreement which are then capable of being charged back to the joint venture if there is a perceived “benefit” to the joint venture, even if such works and costs were not authorised.

Santos is appealing the decision.


1 [2016] WASC 225

2 In 2015 the decision of Santos Offshore Pty Ltd v Apache Oil Australia Pty Ltd [2015] WASC 242 related to validity of   pre-emptive rights notices under the Spar JOA.  Also in 2015 in Apache Oil Australia Pty Ltd v Santos Offshore Pty Ltd [2015] WASC 318, Santos successfully argued that Apache was in material breach of the joint operating agreement in question and obtained an order to remove Apache as operator for material breach

Native Title Compensation: An Answer?

By Lauren Shave, Marshall McKenna and Arabella Tolé

On 24 August 2016, the Federal Court handed down the first compensation determination for the extinguishment of native title in Griffiths v Northern Territory of Australia (No 3) [2016] FCA 900 (Mansfield J) (Griffiths). Griffiths resulted in the claimants being awarded $3.3 million in compensation for the extinguishment of their native title, including $1.3 million for ‘solatium’ (i.e. hurt feelings evoked by extinguishment of native title). Gilbert + Tobin’s detailed summary of the decision can be found here.

The provisions of the Mining Act 1978 (WA) provide that the State will seek to pass on any native title compensation claims to mining companies. Similar provisions appear in State and Federal petroleum legislation and in a number of leases and other land tenure agreements with the Crown in right of various States and the Commonwealth.

In this update, we reflect on when compensation may be payable, how much compensation may be payable (in light of Griffiths) and by whom.

How is compensation calculated?

Compensation for the extinguishment of native title addresses both ‘economic loss’ and ‘solatium’. The compensation for ‘solatium’ is significant and, in Griffiths, was more than the value attributed to the ‘economic’ component. As solatium is dependent on the importance of the native title rights and interests impaired, it appears that assessment of solatium and assessment of economic loss are separate and unrelated exercises.

Compensation is payable by the relevant grantor (i.e. the Crown in right of the State, Territory or Commonwealth as applicable). To the extent that there are indemnities or other mechanisms to pass compensation obligations to tenure holders, there are likely to be difficulties in attributing compensation arising for solatium to any particular parcel of land, and provisions purporting to do so may not be effective.

In what circumstances is compensation payable?

Firstly, most impacts on native title are not going to be the subject of compensation. Native title compensation is applicable only to acts that impacted native title rights and interests where those acts occurred on or after 31 October 1975.  The significance of this date is that it is the date the Racial Discrimination Act 1975 came into effect.  Absent the Racial Discrimination Act and the statutory protection against discrimination it contains, it was within the legislative power of the States to acquire native title without compensation.  The vast majority of improved (and thus more valuable) land in Australia was alienated by the Crown prior to 1 January 1975.

Secondly, quite a lot of compensation has been paid under native title agreements that have been entered into already.  The circumstances giving rise to the highest exposure to compensation are likely to be where native title rights were affected by acts that were allowed after compulsory processes (for example, where the ‘right to negotiate’ or the ‘infrastructure’ process under s24MD(6B) resulted in a grant without an agreement being in force). This is partly due to the likelihood that solatium will be higher where there was resistance to a grant that was overridden through statutory processes.

There are no reliable statistics in relation to what proportion of future acts have been resolved on the basis of native title agreements.   Anecdotally, however, it would appear that more than half and probably in excess of three quarters of future acts (i.e. grants made after 1 January 1994) have been compensated by miners and other proponents already.  There are comparatively few agreements dealing with the period from 31 October 1975 to 1 January 1994 (the commencement of the Native Title Act 1993), and so the bulk of the ‘uncompensated’ acquisitions of native title rights are those that attach to grant of rights between 1975 and 1994.  It remains to be seen how many compensable acts occurred in that timeframe.

How much compensation is payable?

Griffiths sets out a guide for determining how much compensation may be payable. Mansfield J held that compensation for the extinguishment of native title comprises both economic loss and solatium (being the damages for the pain and suffering of loss of connection to country as a result of the extinguishment).
Economic loss

His Honour determined that the economic loss component is calculated by reference to the freehold value of the land. If a claimant group holds exclusive native title rights they are entitled to the full freehold value of the land. In the case of a claimant group that holds non-exclusive native title rights, Mansfield J determined that the appropriate amount for economic loss should be 80% of the land’s freehold value. His reasoning for selecting such a relatively high figure was that the existence of native title rights would significantly impair the use to which land could otherwise be put.  Since the applicants enjoyed non-exclusive native title rights, his Honour awarded $512,000 for economic loss, being 80% of the freehold land value.

Solatium (loss of connection to country)

The applicants in Griffiths were able to lead strong evidence of their traditional connection to the land and the effects of that loss of country and were awarded $1.3 million for solatium.  Where evidence of connection to land is weaker, or the importance of the land or the sites on it are less significant, the solatium component will be lower.

In regards to the calculation of the solatium component, his Honour acknowledged that the process required is complex but is essentially intuitive, and that it must reflect the loss or diminution of traditional attachment or connection to land arising from the extinguishment. Evidence about the relationship with country and the effects of acts on that relationship were said to be ‘paramount’. His Honour also held that the loss is to be assessed with respect to the entire native title claim area rather than by reference to loss caused in relation to specific blocks of land

Who is liable to pay compensation?

The States’ ‘recovery’ legislation seeks to flow through compensation payable in relation to the particular tenure held. Unfortunately (or fortunately for the tenure holder) the assessment of native tile compensation was not undertaken on a ‘lot by lot’ approach.  The assessment of compensation in Griffiths was undertaken on an ‘in globo’ approach (that is, with respect to the entire area).  Put another way, the basis of the proposed government ‘flow through’ approach is incompatible with the Court approach.

That is not to say that the Government will not seek to levy a recovery for any compensation to which it is liable.  However, it is more likely that the State will take the approach of recovering native title compensation though increased rents and fees applicable to relevant tenure.  This may therefore be reflected across industry rather than specifically against miners or other tenure holders whose interests have affected native title rights and interests, but who have not made a contribution to compensation. Griffiths simply provides a base level of compensation payable by the States for the extinguishment of native title.

ASIC focus areas for 2016 financial reports

By David Naoum


ASIC has released Media Release 16-174MR ASIC calls on directors to apply realism and clarity to financial reports, which outlines ASIC’s areas of focus for 30 June 2016 financial reports of listed entities and other entities of public interest with many stakeholders.

For 30 June 2016 financial reports, ASIC will focus on 3 key areas (discussed further below):

  • asset values;
  • accounting policy choices; and
  • material disclosures in accounts.

ASIC provides some commentary on the role of directors and notes that even though directors do not need to be accounting experts, they should seek explanations and professional advice supporting the accounting treatments chosen if needed and, where appropriate, challenge the accounting estimates and treatments applied in financial reports. Directors should particularly seek advice where a treatment does not reflect their understanding of the substance of an arrangement.

ASIC also proposes to review financial reports looking at risk-based criteria and also from a random selection.

Asset values

ASIC encourages preparers of financial reports and their auditors to carefully consider the need to impair goodwill, inventories and other assets. ASIC notes that it continues to find impairment calculations based on unrealistic cash flows and assumptions, as well as material mismatches between the cash flows used and the assets being tested for impairment. The recoverability of the carrying amounts of assets such as goodwill, other intangibles and property, plant and equipment continues to be an important area of focus for ASIC.

Focus should also be given to the pricing, valuation and accounting for inventories, including the net realisable value of inventories, possible technical or commercial obsolescence, and the substance of pricing and rebate arrangements.

ASIC notes that fair values attributed to financial assets should also be based on appropriate models, assumptions and inputs and that directors and auditors should focus on the valuation of financial instruments, particularly where values are not based on quoted prices or observable market data. This includes the valuation of financial instruments by financial institutions.

ASIC will also focus on assets of companies in the extractive industries or providing support services to extractive industries, as well as values of assets that may be affected by the risk of digital disruption.

Accounting policy choices

Directors and auditors should consider how the choice of accounting policy can affect reported results. These include the treatment of off-balance sheet arrangements, revenue recognition, expensing of costs that should not be included in asset values, tax accounting, and inventory pricing and rebates.
Material disclosures

ASIC’s surveillance continues to focus on material disclosures of information useful to investors and others using financial reports, such as assumptions supporting accounting estimates, significant accounting policy choices, and the impact of new reporting requirements.

Working on your signature move...

By Julie Cavoli and Claire Boyd

"Electronic signature” is a term used to describe various methods of electronically replicating or replacing a paper signature in a document.

Affixing electronic signatures and relying on them has been a growing and evolving business practice, allowing individuals and companies to conduct business faster and more efficiently, and facilitating the conduct of business across borders.

Contract negotiations are now almost exclusively conducted via electronic means, and it is only fitting that electronic execution would also be developing at the same rate.

Although there is ordinarily nothing legally wrong with executing a contract by electronic signatures, such practice, must be conducted with care in certain situations.  When considering the use of electronic signatures, two useful questions are:

  • Is this a document I can execute electronically?
  • If I can, is this execution method reliable in the circumstances?

When not to use electronic signatures 

Statutory requirements have not evolved as fast as technology.  As a result, longstanding statutory requirements apply to these new circumstances and this has created certain situations where electronic signatures may not be used.  For example:

  • Deeds – Electronic signatures cannot be used to legally execute deeds, as under common law, deeds are made on paper or parchment, and this requirement has remained unchanged even after the introduction of the Electronic Transactions Act1.
  • Witnessed signatures for individuals – Nearly all Australian jurisdictions require the signature of an individual executing a deed to be attested in person by at least one witness who is not a party to the deed, and this requirement is unlikely to be satisfied if the signatory and the witness are not in the same place at the same time.  In general, electronic signatures should be avoided for any document that requires a witness for execution.
  • Section 127 and 129 of the Corporations Act2 –  Section 129 entitles a person to assume that a document has been duly executed by a company, if the document has been signed in accordance with section 127.  It isn’t clear if that protection will be available if a company executes a document electronically.
  • Signatures affixed by third parties – These days specific software and online services, through the use of identification and authentication barriers, allow signatories to affix electronic signatures and notify the user prior to a document being signed and after such document has been signed.  The New South Wales Supreme Court’s decision of Williams Group Australia Pty Ltd v Crocker(Williams v Crocker)3, although not binding on Western Australia Courts, is a substantial indication that the safeguards commonly offered by such programs or services may not be sufficient, particularly in proving an intention to be bound by the terms of a contract.

Better safe than sorry 

Two common issues that arise are proving the identity of the person affixing an electronic signature to a contract and whether that person had an intention to be bound by such contract.

The nature and the importance of the document, the reliability of the party signing, the authentication mechanism and protection features of the technology used to affix the electronic signature should all therefore be considered before accepting an electronic signature.

Generally, if electronic signatures are used as a common business practice in an organisation, the organisation must put in place a reliable execution method in order to prove the intent of the signatory and, have a specific execution system for more important documents. 

Included below is a non-exhaustive list of items to consider when using electronic signatures:

  • avoid a standardised method which does not take into consideration the type and importance of the document, the context or the identity of the signatory;
  • ensure careful management and oversight of systems and instances in which electronic signatures may be used;
  • obtain the other party’s consent to the use of electronic signatures;
  • obtain an acknowledgement from the signing party that it has executed the document;
  • send a copy of the executed document to the signatory of that document and request an acknowledgment of receipt;
  • exercise caution when choosing an electronic signature software or service provider; and
  • if any electronic signature software or service provider is used:

- set up web, phone identity and knowledge based authentication systems, for example using specific questions with a response only known by the signatory; and

- use unique or complex passwords, which are regularly updated.

Electronic signatures when cross-borders parties are involved

The United Nations Convention on the Use of Electronic Communications in International Contracts (New York, 2005), which only entered into force in 2013, and to which the Australian Government is currently considering accession, aims at assuring that contracts entered into and other communications conducted electronically are as valid as the traditional paper-equivalents. 

This is a reminder that the law applicable to a contract involving cross-borders parties should therefore also be considered when executing a contract, as a particular jurisdiction may still require handwritten and/or witnessed signatures before binding the parties.

In conclusion

Where the enforceability of a contract has come into question because of an electronic signature, the Australian Courts have made findings in these specific circumstances only and will look at the specific facts in order to establish whether the parties intended to be bound.

This causes uncertainty as to what the findings may be in any particular circumstance.

If you have any queries before you execute your next contract or before accepting another party’s electronically executed document, please do not hesitate to contact us.


1Electronic Transactions Act 1999 (Cth) and Electronic Transactions Act 2011 (WA).

2Corporations Act 2001 (Cth).

3 [2015] NSWSC 1907.

Are you fairly standard?

It's time to review your purchase orders and other standard form contracts.

By George Salter and Claire Boyd

From 12 November 2016, the unfair contract term protections in the Australian Consumer Law (ACL) and the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) will extend to small businesses, regardless of whether the small business is an acquirer (customer) or a supplier. This will result in a range of standard form contracts routinely used by companies in the energy and resources industry now falling under the unfair contract term protections regime of the ACL.

The Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 will protect businesses against unfair terms in standard form contracts provided that:

  • the contract is for the supply of goods, services or a sale or grant of an interest in land (including, potentially, mining tenements);
  • at the time the contract was entered into, the business seeking protection from the regime employed fewer than 20 persons (on a headcount basis and excluding any contractors or subcontractors); and
  • the “upfront price” payable under the contract is not more than $300,000 (or $1,000,000 if the duration of the contract is more than 12 months), noting that the “upfront price” is the consideration that is provided or is to be provided under the contract and does not include any consideration that is contingent on the occurrence or non-occurrence of a particular event (e.g. amounts payable in the event an option is exercised by one party, or in the event of a default etc).

The new provisions will apply to all small business contracts that are:

  • entered into on, or after, 12 November 2016;
  • renewed on, or after 12 November 2016, in which case the protections will apply to the entire contract as renewed; or
  • varied on or after 12 November 2016, in which case the protections will apply to the varied terms.

A term of a small business contract will be void if:

  • the term is unfair; and
  • the contract is a standard form contract.

A term in a small business contract will be unfair if all of the following tests are met:

  • the term would cause a significant imbalance in the parties’ rights and obligations under the standard form contract; and
  • the term is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term (there is a rebuttable presumption that the term is not reasonably necessary to protect those interests unless that party can prove otherwise); and
  • the term would cause detriment, whether financial or non-financial, to a party to the contract if the term was to be applied or relied on.

Terms that could potentially fall foul of these tests include terms that:

  • allow a business to vary the contract without the consent of the counterparty;
  • unfairly restrict a right to terminate the contract;
  • suspend or terminate the services as of right; and
  • impose unreasonable liability and indemnification obligations.

As the 12 November 2016 commencement date approaches, businesses should review their standard form contracts to ensure that they are in compliance with this new regime, noting that businesses that seek to include, apply or rely on unfair terms in small business contracts not only face reputation risks but also compensatory claims under the existing enforcement regimes in the ACL and the ASIC Act.

Energy and Resources