tag:blogger.com,1999:blog-18475751971939830932024-03-17T04:52:10.881+10:00The Chairman's Red BlogMcCullough Robertson's companion piece to The Chairman's Red Book. It is written for chairmen and directors of listed and unlisted public companies, providing an overview of relevant laws and regulations applicable to their roles. Anonymoushttp://www.blogger.com/profile/00884217326731706209noreply@blogger.comBlogger74125tag:blogger.com,1999:blog-1847575197193983093.post-42639451418622761302017-11-01T12:30:00.000+10:002017-11-01T12:30:14.228+10:00New Zealand follows Australia in shutting the back door to foreign residential property investorsIn one of her first acts as Prime Minister of New Zealand, Jacinda Ardern has announced legislative amendments to classify residential housing as ‘sensitive’ and introduce a test for residency. The effect of these changes to the Overseas Investment Act will be that non-residents and non-citizens cannot purchase existing residential dwellings.<br />
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These changes may seem protectionist, but actually mirror Australia’s existing prohibition on foreign investment in established residential property.<br />
<br />
The overarching principle of the Australian policy, implemented by the Treasurer through the Foreign Investment Review Board (<b>FIRB</b>), is to ensure that any foreign investment in Australian residential real estate increases Australia’s housing stock. <br />
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Foreign investors (as that term is defined in the relevant legislation) generally need to apply for FIRB approval and pay the relevant application fee before purchasing new dwellings or vacant residential land for development. FIRB approval will generally be granted where the development genuinely increases the stock of Australian housing. <br />
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To ease the application process, developers can apply for exemption certificates for new developments so that one application by the developer can be made for multiple new dwellings in, say, a new apartment block, rather than multiple applications from each purchaser. <br />
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There is generally no limit on the number of new dwellings a foreign person can purchase, but an application to FIRB must be made for each purchase and FIRB may impose conditions on the transaction. <br />
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By contrast, non-residents are generally prohibited from purchasing established dwellings in Australia all together (although an exemption exists for temporary residents on the condition that the property is sold when they leave the country). It seems that the intent of the New Zealand amendments will replicate the Australian position – unless there is a genuine increase in the housing stock available, foreign buyers will be locked out of the market. <br />
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There is one important exception to the Australian policy – Kiwis are exempt and are able to purchase residential real estate in Australia. To maintain Trans-Tasman tranquillity, Ms Ardern has proposed a reciprocal exemption for Australians purchasing in New Zealand.<br />
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So there’s no need to rush out and buy that ski house before the new legislation takes effect!<br />
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<div style="text-align: right;">
<span style="font-size: x-small;"><a href="http://www.mccullough.com.au/people/f/View/5/">Duncan Bedford</a> and <a href="mailto:pobrien@mccullough.com.au">Patrick O'Brien</a></span></div>
Anonymoushttp://www.blogger.com/profile/00884217326731706209noreply@blogger.com0tag:blogger.com,1999:blog-1847575197193983093.post-82268099292820122042017-10-30T09:30:00.000+10:002017-10-30T15:11:47.482+10:00Sweeping reform to overhaul corporate whistleblower protection regime in AustraliaThe Federal Government has recently released an exposure draft of the <i><a href="https://consult.treasury.gov.au/market-and-competition-policy-division/whistleblowers-bill-2017/supporting_documents/Exposure%20Draft.pdf" target="_blank">Treasury Laws Amendment (Whistleblowers) Bill 2017</a></i> (<b>the Bill</b>).<br />
<br />
Australia’s existing whistleblower protection laws have been the subject of criticism due to their limited scope and complexity.<br />
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The purpose of the Bill is to address these criticisms and create an overarching and consistent whistleblower protection regime for the corporate and financial sectors. The regime proposed significantly broadens the scope of conduct covered and introduces key new protections for whistleblowers as well as corporate accountability measures.<br />
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The exposure draft has been released following extensive consultation and a parliamentary enquiry into whistleblower protections in the corporate, public and not-for-profit sectors.<br />
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<b>Key changes for whistleblowers</b></div>
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The key changes under the draft Bill include:</div>
<div>
<ul>
<li>expanding the scope of persons that qualify as ‘eligible whistleblowers’ under the regime, in particular to include former employees and officers</li>
<li>expanding the scope of persons to whom a disclosure may be made by a whistleblower that is covered under the regime</li>
<li>expanding the conduct covered so that whistleblowing for all forms of serious wrongdoing in a Commonwealth legal context are protected</li>
<li>removing the requirement for whistleblowers to make disclosure ‘in good faith’ and instead replacing this concept with an objective reasonableness test which requires the whistleblower to have ‘reasonable grounds’ to suspect misconduct</li>
<li>the introduction of mechanisms to allow for anonymous disclosure and further protection of the identity of whistleblowers and other victims in certain circumstances</li>
<li>expanding the compensation regime available for whistleblowers, and</li>
<li>protection from information disclosed by the whistleblower (provided it is covered under the regime) being admissible in evidence in criminal proceedings or proceedings for a penalty against the whistleblower, other than in proceedings concerning falsity of the information itself.</li>
</ul>
</div>
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<br /></div>
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<b>What do companies need to do?</b></div>
<div>
All companies regulated by the <i>Corporations Act 2001</i> (Cth) should be aware of the proposed changes. In addition, public companies and large proprietary companies will be required to:</div>
<div>
<ul>
<li>have a whistleblowing policy which contains information about protections available to whistleblowers and how the company will ensure fair treatment, and</li>
<li>make the policy available to its employees and other ‘eligible whistleblowers’.</li>
</ul>
</div>
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Failure to comply with this requirement will be an offence of strict liability. </div>
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</div>
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Companies should also review any current policies and ensure they meet the requirements.</div>
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<br /></div>
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<b>When is the new regime scheduled to commence?</b></div>
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The regime is scheduled to apply to any disclosure made by a whistleblower on or after 1 July 2018, including disclosures about events occurring before that date.</div>
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Public companies and large proprietary companies will need to have a compliant whistleblowing policy in place on and after 1 January 2019 (or, following that, no later than six months after a proprietary company first becomes a large proprietary company).</div>
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Submissions on the exposure draft close on 3 November 2017. For more information regarding submissions, <a href="https://consult.treasury.gov.au/market-and-competition-policy-division/whistleblowers-bill-2017/" target="_blank">click here</a>. </div>
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<div style="text-align: right;">
<span style="font-size: x-small;"><a href="http://www.mccullough.com.au/people/f/View/21/" target="_blank">Aaron Dahl</a></span></div>
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Anonymoushttp://www.blogger.com/profile/00884217326731706209noreply@blogger.com1tag:blogger.com,1999:blog-1847575197193983093.post-3179865005214316302017-10-03T13:30:00.000+10:002017-10-03T14:02:00.185+10:00So what is an initial coin offering?An initial coin offering (<b>ICO</b>) is a concept that has been getting increased airplay in recent times, with estimates that more than $1 billion has been raised globally via ICOs.<br />
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With some key decisions being made by regulators globally (including the US and China) – and with guidance from ASIC released last week – we thought it timely to provide an overview on the concept.<br />
<b><br /></b>
<b>So what is an ICO? </b><br />
ICOs generally operate as a blockchain-based funding process, allowing investors to use cryptocurrency (such as bitcoin or ether) to purchase coins or tokens relating to a specific product or project via the internet for a set period of time.<br />
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The relevant coins or tokens are typically linked to the specific business model of the company running the ICO, providing the holder of the coin or token the right to use the company’s product or participate in the relevant project as a customer at a future date.<br />
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Rather than being viewed as an alternative to an initial public offering (<b>IPO</b>), ICOs are more akin to a crowd funding campaign, but noting that they are not the same.<br />
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<b>…and what do the regulators think?</b><br />
Initially, ICOs were considered to be outside the scope of fundraising regulations.<br />
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Earlier this year, however, the US Securities Exchange Commission made its position clear that certain coins and tokens can amount to a security and, therefore, be subject to the remit of the existing fundraising framework for US IPOs.<br />
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<a href="http://asic.gov.au/regulatory-resources/digital-transformation/initial-coin-offerings/" target="_blank">ASIC Information Sheet 225</a> released last week continues this theme, noting that it will ultimately depend on the circumstances and the rights attaching to the coin or token. ASIC’s guidance includes explanations of when an ICO:<br />
<ul>
<li>may amount to an offer of a security in a company – e.g. if the bundle of rights, such as voting rights or an entitlement to a future share of profits (dividend) attaches to the coin or token, potentially triggering the requirement for prospectus type disclosure </li>
<li>may constitute a managed investment scheme – e.g. if the value of the coin or token is linked to management of an arrangement, and</li>
<li>could become a financial market or crowd-sourced funding platform subject to regulation.</li>
</ul>
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Most recently, China made the decision to ban the funding method, with the People’s Bank of China declaring ICOs illegal, flagging specific concerns in respect of money laundering and economic disruption. This has included requirements for companies that have completed an ICO to refund funds raised.<br />
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<b>The potential risks of an ICO</b><br />
US regulation followed a particularly high profile example of an ICO undertaken by the ‘Decentralised Autonomous Organisation’ (<b>DAO</b>). The DAO had an objective to provide a new decentralised business model for organising various commercial enterprises. It operated using the ethereum blockchain, and had no conventional management structure or board of directors. It raised approximately $150 million in ether, but was unfortunately hacked within a relatively short time period following the raising (to a value of approximately $50 million).<br />
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While many new technologies are to be welcomed, the DAO is an example on needing to proceed with caution, and also flags that cybersecurity is a major live issue.<br />
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More broadly, while coins and tokens may increase in value following an ICO, they are subject to extreme price volatility, which makes an ICO an inherently risky investment.<br />
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There is also the added complexity of anti-money laundering, privacy and data protection laws to consider.<br />
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Recovering funds that may be invested in such schemes (including fraudulent schemes) may also be problematic.<br />
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It is certainly a developing area and, with the above risks in mind, we recommend you seek further advice if you are seeking to undertake, or participate in, an ICO.<br />
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We will continue to watch this space.<br />
<div style="text-align: right;">
<span style="font-size: x-small;"><a href="http://www.mccullough.com.au/people/f/View/108/" target="_blank">Reece Walker</a> and <a href="http://www.mccullough.com.au/people/f/View/162/" target="_blank">Ben Wood</a></span></div>
Anonymoushttp://www.blogger.com/profile/00884217326731706209noreply@blogger.com13tag:blogger.com,1999:blog-1847575197193983093.post-34756577314761689132017-09-25T09:30:00.000+10:002017-09-25T09:30:19.349+10:00ASIC releases its guidance on equity crowd fundingOn Friday, ASIC released its regulatory guide on equity crowd-sourced funding (<b>CSF</b>) for public companies, ahead of the new laws coming in on 29 September 2017, to assist companies seeking to raise funds through equity CSF to understand and comply with their obligations when using the new regime.<br />
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This was accompanied by a new regulatory guide for intermediaries involved in the operation of equity CSF platforms, including the process for licensing of such intermediaries, who have a unique ‘gatekeeper’ obligation for operating platforms for equity CSF offers.<br />
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See the following links for full copies of the ASIC Regulatory Guides:<br />
<ul>
<li><a href="http://download.asic.gov.au/media/4491338/rg261-published-22-september-2017.pdf" target="_blank">Regulatory Guide 261 - Crowd-sourced funding: Guide for public companies</a></li>
<li><a href="http://download.asic.gov.au/media/4487926/rg262-published-21-september-2017.pdf" target="_blank">Regulatory Guide 262 - Crowd-sourced funding: Guide for intermediaries</a></li>
</ul>
<br />
The new guidance is an essential read for any person looking to embark on an equity CSF campaign, including the template CSF offer document to be used for such a process.<br />
<br />
Further information on crowd funding can be found on ASIC’s website <a href="http://asic.gov.au/regulatory-resources/financial-services/crowd-sourced-funding/" target="_blank">here</a>, including information on applications:<br />
<ul>
<li>to register new public companies or convert existing proprietary companies to public companies, to be eligible to raise funds using CSF and to access the corporate governance concessions, and</li>
<li>by intermediaries for an AFS licence with an authorisation to provide CSF services.</li>
</ul>
<br />For a reminder on the new laws coming in at the end of the month, see our recent blog on three <a href="http://mcrhandshake.blogspot.com.au/2017/09/threes-not-always-crowd-three-things.html" target="_blank">essential things to know on the new CSF regime</a>.<br />
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<div style="text-align: right;">
<span style="font-size: x-small;"><a href="http://www.mccullough.com.au/people/f/View/162/" target="_blank">Ben Wood</a> and <a href="http://www.mccullough.com.au/people/f/View/108/" target="_blank">Reece Walker</a></span></div>
Anonymoushttp://www.blogger.com/profile/00884217326731706209noreply@blogger.com0tag:blogger.com,1999:blog-1847575197193983093.post-59823263405932072892017-09-06T10:15:00.000+10:002017-09-06T10:15:00.182+10:00What attracts investors to IPOs? Critical insights for issuersOn 31 August, ASIC reported on its findings for how investors decide to invest in IPOs, with the release of <a href="http://asic.gov.au/regulatory-resources/find-a-document/reports/rep-540-investors-in-initial-public-offerings/" target="_blank">Report 540: Investors in Initial Public Offerings</a>. The report includes details on:<br />
<ul>
<li>ASIC’s own inquiries with institutional investors and other financial intermediaries about their approach to investing in IPOs, and</li>
<li>a qualitative research report commissioned by ASIC on the factors and information that retail investors rely on when investing in an IPO, followed by a behavioural analysis by ASIC on the research findings. </li>
</ul>
<a name='more'></a><br />The report has been in the pipeline for some time and complements a number of ASIC’s previous reports, on due diligence and marketing practices, relevant to the IPO market (see our previous blog posts: <a href="https://thechairmansredblog.blogspot.com.au/2016/09/asic-on-media-watch-for-ipo-publicity.html" target="_blank">ASIC on media watch for IPO publicity</a> and <a href="https://thechairmansredblog.blogspot.com.au/2016/07/ipo-due-diligence-under-spotlight.html" target="_blank">IPO due diligence under the spotlight</a>).<br /><div>
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IPOs are an important part of Australia’s capital markets and investors need to be able to make informed decisions about IPOs to ensure that capital is invested efficiently. Some key findings of the report are:</div>
<div>
<ul>
<li>prospectuses can be challenging documents for retail investors and so the investment overview is essential for assisting with their review, including a plain English explanation of the key financial data</li>
<li>while the prospectus is seen as a key source of information, many retail investors said the document was hard to read and could not be relied on to tell the whole truth about an IPO (given that it was perceived to be a marketing document)</li>
<li>retail investors valued information that they perceived to be independent and easy to understand, and that had been prepared by someone they perceived as having a high level of expertise</li>
<li>a number of retail investors said they wanted more information on the issuing company’s management (including its track record and what skills executives had to contribute)</li>
<li>risk disclosure needs to be specific to the issuing company, with retail investors indicating frustration with risks that appear to have been copied from another prospectus</li>
<li>financial media and commentary, including mainstream media and subscription services, were influential in both alerting retail investors to IPO opportunities and in guiding the decision making process, and</li>
<li>for institutional investors, the most highly valued inputs in assessing whether to invest are:</li>
<ul>
<li>the prospectus (including the pathfinder and the lodged prospectus), as it is the main source of regulated information for an IPO, for which directors and others involved in the offer have liability, and</li>
<li>access to the IPO issuer’s management and the institution’s own technical analysis of the offer.</li>
</ul>
</ul>
</div>
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<br />ASIC reports that, overall, there is scope for improvement in the effectiveness of prospectuses.</div>
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While ASIC considers that its regulation of IPOs and guidance on prospectuses is largely sound, the report explains how ASIC will use the findings from the project to enhance its regulation of IPOs and how companies, their advisers and other market participants can assist investors participating in IPOs. In particular, ASIC flagged the following areas of focus:</div>
<div>
<ul>
<li>company's engaging with stakeholders to encourage them to provide greater accessibility to management for investors (for example, making IPO roadshow sessions available online for retail investors after the prospectus is lodged)</li>
<li>increasing ASIC’s review of online investor forums and social media</li>
<li>ASIC continuing to undertake targeted surveillance to check whether prospectuses have been subject to rigorous due diligence procedures</li>
<li>ASIC closely reviewing historical financial information, particularly in large IPOs, to ensure it complies with the updated guidance in <a href="http://asic.gov.au/regulatory-resources/find-a-document/regulatory-guides/rg-228-prospectuses-effective-disclosure-for-retail-investors/" target="_blank">ASIC Regulatory Guide 228</a>, and</li>
<li>broadening ASIC’s regular monitoring of the financial media to include investment magazines, newsletters and online subscription services.</li>
</ul>
<br />Following the release of the report, ASIC has reaffirmed that it will continue to review a significant portion of prospectuses, given the importance to investors and to maintaining the reputation of Australia’s capital markets.</div>
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ASIC’s most recent report on the regulation of corporate finance (<a href="http://www.asic.gov.au/media/4425125/rep539-published-28-august-2017-1.pdf" target="_blank">Report 539 to June 2017</a>) highlighted that supplementary and replacement prospectus lodgements account for 43% of total lodgements. Issuers currently considering or undertaking an IPO should review Report 539 and the abovementioned Report 540 carefully. Undoubtedly, this will be a continued area of focus for ASIC and one to watch for updated guidance in due course.</div>
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<div style="text-align: right;">
<span style="font-size: x-small;"><a href="http://www.mccullough.com.au/people/f/View/108/" target="_blank">Reece Walker</a>, <a href="http://www.mccullough.com.au/people/f/View/162/" target="_blank">Ben Wood</a> and <a href="mailto:nbenton@mccullough.com.au" target="_blank">Naomi Benton</a></span></div>
Anonymoushttp://www.blogger.com/profile/00884217326731706209noreply@blogger.com0tag:blogger.com,1999:blog-1847575197193983093.post-73656437437014305242017-08-21T11:00:00.000+10:002017-08-21T11:00:06.582+10:00Shareholders turn the heat up on directors – suing over failure to disclose climate change riskOne of Australia’s leading banks is being sued in a landmark case which may set the benchmark for climate change risk management.<br />
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Following our recent blog on climate change risk management and the impact on directors’ duties (<a href="https://thechairmansredblog.blogspot.com.au/2017/03/the-heat-is-now-on-directors-when-it.html" target="_blank">read here</a>), a recent case filed in the Federal Court (<a href="https://envirojustice.org.au/sites/default/files/files/170807%20Concise%20Statement%20(as%20filed).pdf" target="_blank">here</a>) will explore a different angle, as the first of its kind to test the extent public companies are required to disclose climate change risks in their annual reports. The Australian Prudential Regulation Authority (<b>APRA</b>) has previously warned that climate change poses a material risk to the financial system and maintains its stance that companies can no longer ignore the risks of climate change just because there is some ‘controversy’ about the policy outlook. <br />
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Environmental Justice Australia has filed proceedings in the Federal Court on behalf of two shareholders of the Commonwealth Bank of Australia (<b>CBA</b>) against the bank, alleging that CBA failed to provide a true and fair view of its financial position in breach of section 297 of the Corporations Act by not disclosing the material or major risk posed by climate change in its annual report. <br />
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Not only are the shareholders asking the Federal Court to find that CBA breached section 297 of the Corporations Act, but it is also alleged that the director’s report within the annual report contravened section 299A of the Corporations Act by failing to disclose risks that investors reasonably require to make an informed assessment of the bank’s operations, financial position, business strategies and prospects.<br />
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While it was previously the case that climate change risks were a non-financial problem, APRA is explicit that this is no longer the case (<a href="https://www.theguardian.com/science/2017/feb/17/apra-says-companies-must-factor-climate-risks-into-business-outlook" target="_blank">read more here</a>). The outcome of this case should provide sought after clarification for shareholders, regulators and banks of how companies are required to disclose climate change-related risks and will provide a great indication of how the management and disclosure of climate change impacts will continue to develop in Australian corporate law. McCullough Robertson will be watching this space with great interest. <br />
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<div style="text-align: right;">
<span style="font-size: x-small;"><a href="http://www.mccullough.com.au/people/f/View/108/" target="_blank">Reece Walker</a>, <a href="http://www.mccullough.com.au/people/f/View/162/" target="_blank">Ben Wood</a> and <a href="mailto:amott@mccullough.com.au" target="_blank">Anna Mott</a></span></div>
Anonymoushttp://www.blogger.com/profile/00884217326731706209noreply@blogger.com0tag:blogger.com,1999:blog-1847575197193983093.post-35929053730079618352017-07-19T14:29:00.001+10:002017-07-19T14:29:54.042+10:00Scammers hit ASIC customersSmall businesses are a ready target for scammers, with the latest scam targeting innocent companies trying to do the right thing.<br />
<br />
<b>‘ASIC’ email scam</b><br />
ASIC announced today that scammers pretending to be from ASIC have been contacting Registry customers by email, requesting that they pay fees and provide personal information to renew their business or company name (<a href="http://download.asic.gov.au/media/4387712/scam_email_20170719.png" target="_blank">click here</a> to view an example of a scam email). It has also been reported that these phishing emails may contain malware and links to invoices with false payment details.<br />
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<br /></div>
<div>
<div>
ASIC has advised that emails are most likely to be a scam if they ask you to: </div>
<div>
<ul>
<li>make a payment over the phone</li>
<li>make a payment to receive a refund, or</li>
<li>provide your credit card or bank details directly by email or phone. </li>
</ul>
</div>
<div>
If you think you have received a scam email, ASIC has requested recipients to immediately forward the entire email to <a href="mailto:ReportASICEmailFraud@asic.gov.au">ReportASICEmailFraud@asic.gov.au</a> or contact ASIC on 1300 300 630. </div>
<div>
<br /></div>
<b>Trade mark scam</b><br />
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Similar phishing emails are often sent to trade mark registrants asking them to provide personal information and pay fees associated with trade marks or domain names. Further information is contained in our previous article on this scam (please <a href="http://www.mccullough.com.au/publications/f/View/248409/" target="_blank">click here</a> to read).</div>
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<br /></div>
<b>Small business</b><br />
<div>
The ACCC Scamwatch <a href="https://www.scamwatch.gov.au/get-help/protect-your-small-business#common-scams-targeting-small-business" target="_blank">website </a>contains useful information on common scams and steps you can take to protect your small business. </div>
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<div>
For enquiries, please contact:</div>
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<br /></div>
<div style="text-align: right;">
<span style="font-size: x-small;"><a href="http://www.mccullough.com.au/people/f/View/108/" target="_blank">Reece Walker</a>, <a href="http://www.mccullough.com.au/people/f/View/11/" target="_blank">Belinda Breakspear</a> and <a href="http://www.mccullough.com.au/people/f/View/162/" target="_blank">Ben Wood</a></span></div>
</div>
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Anonymoushttp://www.blogger.com/profile/00884217326731706209noreply@blogger.com0tag:blogger.com,1999:blog-1847575197193983093.post-60933135602294929022017-07-06T09:30:00.000+10:002017-07-06T11:45:20.723+10:00ASIC announces results from review of 31 December 2016 financial reportsOn 31 May 2017 we released a post regarding <a href="https://thechairmansredblog.blogspot.com.au/2017/05/asic-announces-compliance-focus-areas.html" target="_blank">ASIC’s focus areas for surveillance on 30 June 2017 financial reports</a>.<br />
<br />
Following on from that theme, ASIC has now announced the results from its review of 31 December 2016 financial reports. ASIC reviewed the financial reports of 90 listed and other public interest entities for the period. The results reveal a continued focus on findings relating to impairment of non-financial assets and inappropriate accounting treatments.<br />
<br />
Following the review, ASIC made enquiries of 23 entities on 28 matters seeking explanations of accounting treatments.<br />
<br />
In addition to impairment of non-financial assets, ASIC also raised queries regarding consolidated accounting, amortisation of intangibles, revenue recognition, tax accounting, business combinations and other matters.<br />
<br />
With respect to the key focus areas, impairment of non-financial assets and inappropriate accounting treatment, ASIC’s findings included discrepancies with respect to:<br />
<br />
<ul>
<li>determining the carrying amount of cash generating units</li>
<li>the reasonableness of cash flows and assumptions</li>
<li>use of fair value</li>
<li>impairment indicators, and</li>
<li>disclosures.</li>
</ul>
<br />
A copy of ASIC’s media release can be found <a href="http://asic.gov.au/about-asic/media-centre/find-a-media-release/2017-releases/17-219mr-asic-review-of-31-december-2016-financial-reports/" target="_blank">here</a>.<br />
<br />
<div style="text-align: right;">
<span style="font-size: x-small;"><a href="http://www.mccullough.com.au/people/f/View/21/" target="_blank">Aaron Dahl</a></span></div>
Anonymoushttp://www.blogger.com/profile/00884217326731706209noreply@blogger.com0tag:blogger.com,1999:blog-1847575197193983093.post-88243799584282881732017-07-03T16:52:00.001+10:002017-07-03T16:52:46.881+10:00Six million under - The dangers of accessorial liabilityA recent Federal Court decision serves as a timely reminder of the repercussions of companies employing new executives and senior managers who bring with them confidential information obtained dishonestly from their former employer.<br />
<br />
On 12 May 2017, the Full Court of the Federal Court of Australia handed down its decision in <a href="http://www.austlii.edu.au/au/cases/cth/FCAFC/2017/74.html" target="_blank"><i>Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Limited</i> [2017] FCAFC 74</a>, finding that the Ancient Order of Foresters in Victoria Friendly Society Limited (<b>Foresters</b>) should account for profits generated by their funeral bonds business which was developed and managed by two former employees of rival Lifeplan Australia Friendly Society Ltd (<b>Lifeplan</b>).<br />
<br />
Mr Woff and Mr Corby were both employed by Lifeplan in senior roles and prepared a Business Concept Plan (<b>BCP</b>) for the CEO of Foresters for the development of Foresters’ comparatively small funeral bonds business. Over the course of a number of months, Mr Woff and Mr Corby solicited the clients of Lifeplan on behalf of Foresters and developed and refined the BCP utilising the information of Lifeplan, including highly confidential rates of return and bonuses paid in the marketplace. Mr Woff and Mr Corby then resigned from their positions and jumped ship to Foresters.<br />
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The matter, which was heard on appeal, centred on whether the board of Foresters had merely observed or knowingly taken advantage of the business opportunity which arose due to a breach by Mr Woff and Mr Corby of their duties to their former employer.<br />
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The Court found that there was a causal relationship between the breach of duties and the profit generated, that Foresters had knowingly acted upon the information and done so because of the unique opportunity it presented, and that they were complicit in the steps taken in preparation for the employees jumping ship to pursue the opportunity with Foresters.<br />
<br />
As a result, the court held Foresters would not have made the profits without Mr Corby and Mr Woff taking advantage of their previous positions and without the confidential information taken from Lifeplan. The Court ordered Foresters to account for the capital profit during the period covered by the BCP (less 6 months) which was assessed to be $6.2 million.<br />
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This decision serves as a timely reminder for company directors and officers of the ramifications of accessory liability in equity and under section 79 of the <i>Corporations Act 2001</i> (Cth) when dealing with confidential information knowingly and dishonestly obtained from an employee’s former employer.<br />
<br />
<div style="text-align: right;">
<span style="font-size: x-small;"><a href="http://www.mccullough.com.au/people/f/View/21/" target="_blank">Aaron Dahl</a> and <a href="mailto:jharrison@mccullough.com.au" target="_blank">Jeremy Harrison</a></span></div>
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Anonymoushttp://www.blogger.com/profile/00884217326731706209noreply@blogger.com0tag:blogger.com,1999:blog-1847575197193983093.post-4109883683162264192017-06-19T11:21:00.000+10:002017-06-19T11:21:28.008+10:00ASIC industry funding model passes SenateFollowing on from our post last year (<a href="http://thechairmansredblog.blogspot.com.au/2016/11/asics-industry-funding-model-long-and.html" target="_blank">ASIC’s industry funding model – the long and the short of it</a>) on ASIC’s industry funding model, the <i>ASIC Supervisory Cost Recovery Levy Bill 2017</i> passed through the Senate on 15 June 2017.<br />
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Under the industry funding model, those entities regulated by ASIC will now bear its costs as opposed to ordinary taxpayers. Further, ASIC expects that good conduct in the market will reduce supervisory expenses, thereby providing an incentive for regulatory compliance.<br />
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The passage of this legislation through the Senate provides not only certainty in terms of ongoing resource allocation for ASIC but also greater transparency through the publication of ASIC’s expenditure and subsequent accountability for its performance and regulatory priorities.<br />
<br />
The regulatory framework for the operation of the funding model will be released ahead of it taking effect on 1 July 2017.<br />
<br />
<div style="text-align: right;">
<span style="font-size: x-small;"><a href="http://www.mccullough.com.au/people/f/View/162/" target="_blank">Ben Wood</a> and <a href="mailto:jharrison@mccullough.com.au" target="_blank">Jeremy Harrison</a></span></div>
Anonymoushttp://www.blogger.com/profile/00884217326731706209noreply@blogger.com0tag:blogger.com,1999:blog-1847575197193983093.post-72241704635413765972017-05-31T16:57:00.001+10:002017-05-31T16:57:53.616+10:00ASIC announces compliance focus areas for 30 June 2017 financial reportsASIC today announced its focus areas for surveillance on 30 June 2017 financial reports. The release highlights the matters that ASIC considers key areas for reporting entities to address and focus on in preparing financial reports for the 30 June 2017 financial year.<br />
<br />
ASIC has again highlighted asset values and accounting policy choices as key matters. In particular, the use of unrealistic assumptions in testing asset values and the application of inappropriate approaches to revenue recognition.<br />
<br />
The key focus areas announced by ASIC in the release are:<br />
<ul>
<li>impairment testing and asset values</li>
<li>revenue recognition</li>
<li>expense deferral</li>
<li>off-balance sheet arrangements</li>
<li>tax accounting, and</li>
<li>disclosures regarding:</li>
<ul>
<li>estimates and accounting policy judgements, and</li>
<li>the impact of new revenue, financial instrument lease and insurance accounting standards.</li>
</ul>
</ul>
<br />
A copy of ASIC’s media release can be found <a href="http://asic.gov.au/about-asic/media-centre/find-a-media-release/2017-releases/17-162mr-asic-calls-on-preparers-to-focus-on-the-quality-of-financial-report-information/" target="_blank">here</a>.<br />
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<div style="text-align: right;">
<a href="http://www.mccullough.com.au/people/f/View/21/" target="_blank"><span style="font-size: x-small;">Aaron Dahl</span></a></div>
Anonymoushttp://www.blogger.com/profile/00884217326731706209noreply@blogger.com0tag:blogger.com,1999:blog-1847575197193983093.post-20595386842201979672017-05-16T09:11:00.000+10:002017-05-16T09:11:15.576+10:00Crowd funding update - catering for the remaining 99%It was good to see the release of draft equity crowd-sourced funding (<b>CSF</b>) legislation for proprietary companies, as part of the 2017-18 Federal Budget package (on 11 May) – with the Government responding to a number of criticisms from various stakeholders (including Labor), following the finalisation of the CSF regime for public companies. These new laws will be welcome to many, with proprietary companies representing over 99% of companies in the Australian market.<br />
<br />
The new laws will remove the need for proprietary companies to transition to public companies. Instead, investors will be protected by additional obligations, which are currently proposed to include a requirement to have a minimum of two directors, complete financial reporting in accordance with accounting standards (including audit requirements where more than $1 million is raised), and restrictions on related party transactions. In return, the prospectus disclosure requirements for CSF offers will be relaxed and ‘CSF shareholders’ will not count towards the current shareholder limit (of 50 non-employee shareholders) which applies to proprietary companies.<br />
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For a copy of the exposure draft of the new laws click <a href="http://treasury.gov.au/~/media/Treasury/Consultations%20and%20Reviews/Consultations/2017/CSEF/Key%20Documents/PDF/CSEF_prop_Exposure_Draft.ashx" target="_blank">here</a>, together with the accompanying explanatory memorandum <a href="http://treasury.gov.au/~/media/Treasury/Consultations%20and%20Reviews/Consultations/2017/CSEF/Key%20Documents/PDF/CSF_Prop_EM.ashx" target="_blank">here</a>.<br />
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For further details on the existing and upcoming CSF laws for public companies (which will commence on 29 September 2017), see our earlier blog:<br />
<ul>
<li><a href="http://thechairmansredblog.blogspot.com/2017/03/equity-crowd-funding-finally-past-post.html" target="_blank">Equity crowd funding finally past the post - but is it a dodo? 23 March 2017</a></li>
</ul>
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You will need to move quickly to have your say on the new laws for proprietary companies – with submissions closing on Tuesday, 6 June 2017. However, the likely timing of the further changes remains to be seen and, with the recent laws for public companies having taken nearly 3 years to pass, may be met with some scepticism. It is one we will continue to watch closely.<br />
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<div style="text-align: right;">
<span style="font-size: x-small;"><a href="http://www.mccullough.com.au/people/f/View/108/" target="_blank">Reece Walker</a> and <a href="http://www.mccullough.com.au/people/f/View/162/" target="_blank">Ben Wood</a></span></div>
Anonymoushttp://www.blogger.com/profile/00884217326731706209noreply@blogger.com0tag:blogger.com,1999:blog-1847575197193983093.post-67406577657655949982017-04-26T15:28:00.001+10:002017-04-26T15:46:13.848+10:00Time is up for stakeholders to have their say on proposed insolvency law reformsFollowing the close of public submissions on Monday, it will be interesting to see stakeholder and industry responses to the proposed insolvency law reforms.<br />
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By way of refresher, in March this year, the Federal Government published draft legislation (<a href="http://www.treasury.gov.au/ConsultationsandReviews/Consultations/2017/NISA-Improving-corporate-insolvency-law" target="_blank">Treasury Laws Amendments (2017 Enterprise Incentives No.2) Bill 2017</a>) for consultation, seeking to amend the <i>Corporations Act 2001</i> (Cth) by introducing:<br />
<ul>
<li>a ‘safe harbour’ carve out to a director’s personal liability for insolvent trading, and</li>
<li>stay provisions affecting the enforceability of certain ‘ipso facto’ and other clauses during an administration or scheme of arrangement.<a name='more'></a></li>
</ul>
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The reforms were introduced as part of the National Innovation and Science Agenda. They aim to assist in the promotion of a culture of entrepreneurship and innovation in Australia (and reduce the stigma associated with business failure) to help drive business growth, local jobs and global success in Australia.<br />
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<b>Safe harbour defence</b><br />
Australia’s current insolvent trading regime means that directors can be personally liable for debts incurred while a company is insolvent. The introduction of the safe harbour carve out is designed to protect directors from such liability if they are attempting to restructure the company.<br />
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The reforms provide protection to directors if they start a course of action that is reasonably likely to lead to a better outcome for the company and its creditors as a whole than proceeding to immediate administration or liquidation, and the debt was incurred as part of the course of action. In determining whether the course of action is reasonably likely to lead to a better outcome for a company and its creditors, steps that may be considered include (but are not limited to) whether the directors are:<br />
<ul>
<li>taking appropriate steps to avoid misconduct by officers and employees that could adversely affect the company’s ability to pay its debts</li>
<li>obtaining appropriate advice</li>
<li>taking steps to ensure the company is keeping appropriate financial records</li>
<li>informing themselves of the company’s financial position, and</li>
<li>developing or implementing a restructuring plan to improve the company’s financial position.</li>
</ul>
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Subject to some statutory exclusions (for example, directors cannot rely on the defence in circumstances if the company is not meeting its obligations in relation to employee entitlements), once a director is successfully able to point to evidence to suggest there was a reasonable possibility that the course of action taken was reasonably likely to lead to a better outcome for the company and its creditors, the onus will then shift to the liquidator to prove the safe harbour defence does not apply.<br />
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A key aim is to drive cultural change amongst company directors, by encouraging them to engage early with financial hardship, keep control of their company and take reasonable risks to facilitate the company’s recovery.<br />
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<b>Ipso facto protection</b><br />
An ipso facto clause allows a party to terminate or modify a contract upon the occurrence of a specific event (e.g. the other party going into insolvency). <br />
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The reforms aim to impose:<br />
<ul>
<li>an automatic stay on ipso facto clauses triggered by administration or a scheme of arrangement, and</li>
<li>a potential broader range of rights (for example, termination for convenience rights) where a court is convinced such rights might be exercised solely because the company has entered administration or a scheme of arrangement.</li>
</ul>
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Subject to the broader discretion of the courts, the ipso facto amendments will not apply to another right to terminate under a contract, such as for non-payment. The Federal Government has also listed 16 types of contracts that it proposes to exclude from the ipso facto amendments (such as debt factoring agreements and securities underwriting agreements).<br />
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The ipso facto protections aim to prevent these types of clauses from reducing the scope for a successful restructure or preventing the sale of the business as a going concern.<br />
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Now that submissions have closed, it will be interesting to observe the market’s take on the current form of the new laws. Until the proposed reforms take effect, directors of companies in financial difficulty should continue to act early in order to maximize the chances of the company being able to successfully restructure its business and limit the risk of being liable for insolvent trading.<br />
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<div style="text-align: right;">
<span style="font-size: x-small;"><a href="http://www.mccullough.com.au/people/f/View/108/" target="_blank">Reece Walker</a>, <a href="http://www.mccullough.com.au/people/f/View/162/" target="_blank">Ben Wood</a> and <a href="mailto:nbenton@mccullough.com.au" target="_blank">Naomi Benton</a></span></div>
Anonymoushttp://www.blogger.com/profile/00884217326731706209noreply@blogger.com0tag:blogger.com,1999:blog-1847575197193983093.post-57391955163589838632017-04-04T14:45:00.001+10:002017-04-04T16:35:19.258+10:00A new understanding between ASIC and the Takeovers PanelA new memorandum of understanding (<b>MOU</b>) between the Takeovers Panel (<b>the Panel</b>) and ASIC was <a href="http://www.takeovers.gov.au/content/Resources/mou/mou.aspx" target="_blank">recently released</a>, replacing the previous MOU signed in August 2001.<br />
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While the new MOU continues to reinforce the separate, but complementary roles of the Panel and ASIC (to regulate takeovers and control transactions), a comparison against the previous MOU shows a change in tone and approach between the two bodies.<br />
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The description of ASIC’s role has shifted from an almost exclusive focus on contravention to a broader outcomes based approach, recognising the need for greater facilitation of transactions at the same time as maintaining investor protections, together with further guidance on ASIC’s approach in exercising its discretion under the <i>Corporations Act 2001</i> (Cth).<br />
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Shifting from a summary of the mechanics of interactions between ASIC and the Panel, the new MOU emphasises the need for both entities to ‘promote a clear and consistent regulatory framework for control transactions’. It primarily seeks to achieve this by increasing the number of liaison meetings from biannually to quarterly. In addition, information sharing and unsolicited assistance between ASIC and the Panel has been simplified to encourage the sharing of information that may assist ‘in the performance of their functions or the discharge of their duties’, moving beyond recognition that information <b><i>may</i></b> be shared to instead indicating that the entities <b><i>will</i></b> share information, with due regard to confidentiality, procedural fairness, and any applicable statutory limitations.<br />
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Time will tell whether this new MOU changes the roles played by each of ASIC and the Panel. The parameters of their interactions and necessary separation are clear. What this MOU does indicate is a more open dialogue with the goal of each body to develop policy that promotes the clear and consistent regulatory framework the market requires.<br />
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<div style="text-align: right;">
<span style="font-size: x-small;"><a href="http://www.mccullough.com.au/people/f/View/79/" target="_blank">Jim Peterson</a>, <a href="http://www.mccullough.com.au/people/f/View/162/" target="_blank">Ben Wood</a> and <a href="mailto:jharrison@mccullough.com.au" target="_blank">Jeremy Harrison</a></span></div>
Anonymoushttp://www.blogger.com/profile/00884217326731706209noreply@blogger.com1tag:blogger.com,1999:blog-1847575197193983093.post-72925864076318351512017-03-23T11:48:00.003+10:002017-03-23T11:51:32.097+10:00Equity crowd funding finally past the post - but is it a dodo?It is good to see that the equity crowd funding laws have finally been cleared for Australia, with the Senate having passed the Bill on Monday. This was following finalisation of the debate on proposed cooling off rights for retail investors (which was ultimately extended from 48 hours to five days). The laws allow unlisted public companies with less than $25 million in assets and turnover to raise up to $5 million in funds in this way.<br />
<br />
As per our earlier blogs, a key potential chink in the armour of the new laws is its limited application to public companies and not proprietary (private) companies, which represent 99% of small businesses.<br />
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This has been recognised by various stakeholders, including Labor, with Opposition digital economy spokesman Ed Husic suggesting that amendments will be required in the near term and suggesting that “<i>any future changes will make today's new dodo of a system extinct within the year, as smaller business opt for a better alternative.</i>”<br />
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However, Mr Husic’s concerns of a soon to be superseded system may be misplaced. While Finance Minister Mathias Cormann has insisted that work is already underway to extend the laws to proprietary companies, it is difficult to be filled with confidence given the time it has taken for the passage of the Bill on Monday (following two years of industry consultations, and nearly three years since the initial recommendations by CAMAC and equivalent laws were passed in New Zealand). It is also unlikely to be an easy process, requiring changes to the very nature of what a proprietary company represents under current laws.<br />
<br />
In the meantime, the new laws are certainly an important first step to ensuring that Australia keeps up with its foreign counterparts when it comes to equity crowd funding. The new laws are expected to come into effect within the next six months.<br />
<br />
For a reminder on some of the key requirements, see our previous blogs:<br />
<ul>
<li><a href="http://thechairmansredblog.blogspot.com.au/2017/02/crowd-funding-given-nod-by-senate.html" target="_blank">Crowd funding given the nod by Senate committee</a> - 17 February 2017</li>
<li><a href="http://thechairmansredblog.blogspot.com.au/2016/11/equity-crowd-funding-back-on-agenda.html" target="_blank">Equity crowd funding back on the agenda</a> - 29 November 2016</li>
</ul>
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<div style="text-align: right;">
<a href="http://www.mccullough.com.au/people/f/View/108/" style="font-size: small;" target="_blank">Reece Walker</a><span style="font-size: x-small;"> and </span><a href="http://www.mccullough.com.au/people/f/View/162/" style="font-size: small;" target="_blank">Ben Wood</a></div>
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Anonymoushttp://www.blogger.com/profile/00884217326731706209noreply@blogger.com1tag:blogger.com,1999:blog-1847575197193983093.post-76482364991691576112017-03-15T09:51:00.001+10:002017-03-15T15:47:25.578+10:00The heat is now on Directors when it comes to climate changeIn a recent ASIC liaison meeting, a number of corporate governance items were flagged as being a current focus of ASIC. Of particular interest is the emerging focus on climate change risk management by directors and implications for directors’ duties.<br />
<br />
The opinion ‘<i>Climate change and directors’ duties</i>’ published by the Centre for Policy Development in October 2016 (download <a href="http://cpd.org.au/wp-content/uploads/2016/10/Legal-Opinion-on-Climate-Change-and-Directors-Duties.pdf">here</a>) promoted wide spread discussion about the implications of climate change risk for directors. It argues that Australian company directors who fail to consider such risks now could be found liable for breaching their duty of care and diligence under section 180 of the Corporations Act in the future. <br />
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A director will breach this duty when damage is caused to the company by reason of the breach, or where it was reasonably foreseeable that the conduct might harm the company’s interests. Harm is not limited to financial harm but includes harm to all interests of the company, including its reputation and compliance with the law. It is possible that a director who has failed to perceive, disclose or take steps in relation to a foreseeable climate-related risk, which can be demonstrated to have caused harm to a company, will amount to a breach of duty. Risks include physical risks such as severe weather events, and transition risks such as financial risks that might arise from a transition to a lower-carbon economy (such as investor preferences that could impact the valuation of a company’s assets).<br />
<br />
An expert panel was convened to discuss the role company directors need to play in response to climate-related risks to their business. It was noted that the spectre of litigation will likely force company directors to account for climate risk, irrespective of their personal beliefs. It was also noted that Australia’s corporate sector has particular vulnerability to climate risk, given the amount of Australian business activity with connections to natural resources. <br />
<br />
The Australian Prudential Regulation Authority (<b>APRA</b>) has also recently commented on the issue, declaring that it is ‘unsafe’ to ignore climate risks merely because the topic is controversial and that climate risk is something that has to be more actively considered. <br />
<b><br /></b>
<b>Implications for directors</b><br />
<ul>
<li>Directors should ensure they are adequately informed in relation to the scientific and economic issues, obtain and rely on information provided by experts where appropriate, and critically evaluate the impact of climate change risks and their company's strategic response. </li>
<li>Where they do perceive that climate change presents a risk to their business, directors should consider the adequacy of disclosing those risks within the companies reporting frameworks in determining what action, if any, is to be taken. The Task Force on Climate-Related Financial Disclosures has published best practice recommendations aimed at aligning the approach to disclosure in this area (download <a href="https://www.fsb-tcfd.org/wp-content/uploads/2016/12/TCFD-Recommendations-Report-A4-14-Dec-2016.pdf">here</a>).</li>
<li>Critically, it is conceivable that directors who fail to consider the impacts of climate change risk for their business now could risk being found liable for breaching their statutory duty of due care and diligence in the future.</li>
<li>Moving forward it is crucial that company directors consider whether they are turning their mind appropriately to ‘climate change risks’ in the exercise of their strategic and risk management roles. </li>
</ul>
<br />
Climate change and risk management strategies are likely to remain on the radar of the regulators and various stakeholders going forward, and should be afforded the same robust consideration as any other issue that may have a material impact on the financial performance and strategy of a company. It is certainly a developing area, which McCullough Robertson will continue to watch with interest.<br />
<br />
<div style="text-align: right;">
<span style="font-size: x-small;"><a href="http://www.mccullough.com.au/people/f/View/79/">Jim Peterson</a>, <a href="http://www.mccullough.com.au/people/f/View/162/">Ben Wood</a>, and <a href="mailto:amott@mccullough.com.au" target="_blank">Anna Mott</a></span></div>
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Anonymoushttp://www.blogger.com/profile/00884217326731706209noreply@blogger.com0tag:blogger.com,1999:blog-1847575197193983093.post-39537486815386696032017-03-01T13:53:00.001+10:002017-03-01T13:54:49.303+10:00Deeds of Cross Guarantee<h3>
New audit relief instrument requires deed changes for new companies</h3>
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<div class="DocSubHead">
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ASIC recently revised Class Order 98/1418, which provides for financial reporting relief to wholly-owned subsidiaries that have entered into a deed of cross guarantee. As part of the revision, ASIC have also released a new pro forma deed of cross guarantee to replace the previous pro forma.<br />
<br />
Existing deeds of cross guarantee (signed before the release of the new pro forma on 28 September 2016) do not necessarily need to be updated, however, ASIC has confirmed that, where parties wish to add a new entity to the group under the deed (so that it can obtain the audit relief), modification of the existing deed will be required by either:<br />
<ul>
<li>all parties executing a new deed in the form of the new ASIC pro forma, or</li>
<li>varying the existing deed to reflect the new ASIC pro forma.</li>
</ul>
<br />
McCullough Robertson have been liaising directly with ASIC on these requirements and can assist with new pro forma and variation requirements. For groups whose financial year ends on 30 June, the new deed will need to be in place and any new entities added to the new deed before that time.<br /><br />
<div style="text-align: right;">
<a href="http://www.mccullough.com.au/people/f/View/21/"><span style="font-size: x-small;">Aaron Dahl</span></a></div>
Anonymoushttp://www.blogger.com/profile/00884217326731706209noreply@blogger.com0tag:blogger.com,1999:blog-1847575197193983093.post-42130271005306446982017-02-17T09:26:00.003+10:002017-02-17T09:27:27.371+10:00Crowd funding given the nod by Senate committeeWe were pleased to see some progress on the crowd-sourced equity funding (<b>CSEF</b>) laws this week, with the most recent Bill passing the House of Representatives and a recommendation from the Senate committee that it be passed by the Upper House, subject to a review after two years.<br />
<br />
Unfortunately it remains a contentious Bill, with Labor continuing to push for changes to the laws and releasing a dissenting report. Labor does not pull any punches, describing the approach to the CSEF laws as having ‘limited scrutiny of a flawed bill in an effort to rush through legislation that is likely to be superseded by a revised framework’. Even if the Bill is finally passed, it will continue to be an area to watch for further changes.<br />
<br />
In particular, there are ongoing objections to the ‘public company’ requirement from an number of stakeholders and industry participants.<br />
<br />
For a refresher on the anticipated rules for CSEF see our prior blogs:<br />
<ul>
<li><a href="http://thechairmansredblog.blogspot.com.au/2016/11/equity-crowd-funding-back-on-agenda.html">Equity crowd funding back on the agenda</a>, and</li>
<li><a href="http://thechairmansredblog.blogspot.com.au/2015/08/crowd-funding-no-joy-for-start-ups.html">Crowd funding: no joy for start-ups?</a></li>
</ul>
<br />
<div style="text-align: right;">
<span style="font-size: xx-small;"><a href="http://www.mccullough.com.au/people/f/View/162/">Ben Wood</a> and <a href="http://www.mccullough.com.au/people/f/View/108/">Reece Walker</a></span></div>
Anonymoushttp://www.blogger.com/profile/00884217326731706209noreply@blogger.com0tag:blogger.com,1999:blog-1847575197193983093.post-80554691170029022782016-11-29T11:20:00.001+10:002016-11-29T16:07:32.232+10:00Equity crowd funding back on the agendaFollowing on from our post last year (<a href="http://thechairmansredblog.blogspot.com.au/2015/08/crowd-funding-no-joy-for-start-ups.html"><i>Crowd funding: no joy for start-ups?</i></a>) on crowd-sourced equity funding (<b>CSEF</b>), it is good to see that the <a href="https://www.legislation.gov.au/Details/C2016B00195"><i>Corporations Amendment (Crowd-sourced Funding) Bill 2016</i> (Cth)</a> (<b>2016 Bill</b>) was presented before the House of Representatives on Thursday, 24 November 2016 by Treasurer Scott Morrison. This is the second attempt by the Federal Government to introduce CSEF legislation after the <a href="https://www.legislation.gov.au/Details/C2015B00224"><i>Corporations Amendment (Crowd-sourced Funding) Bill 2015</i> (Cth)</a> (<b>2015 Bill</b>) lapsed following the double dissolution from the election earlier this year.<br />
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Key changes in the 2016 Bill with respect to eligibility requirements include:<br />
<ul>
<li>increasing the gross assets test from $5 million to $25 million, and</li>
<li>increasing the annual turnover test from $5 million to $25 million. </li>
</ul>
<br />
Although these proposed amendments have expanded the number of companies who will be able to engage in CSEF, the regime is still limited to unlisted public companies.<br />
<br />
At this stage, proprietary limited companies, listed companies and investment companies will not be eligible to participate in CSEF. However, it is worth noting that a proprietary limited company will be able to choose to convert into a public company in order to access CSEF. <br />
<br />
Additional information in relation to the 2016 Bill is set out in the <a href="http://parlinfo.aph.gov.au/parlInfo/download/legislation/ems/r5766_ems_c3332e6c-db63-4bd9-9e75-c1e59e31266e/upload_pdf/605980.pdf;fileType=application%2Fpdf">Explanatory Memorandum</a>. <br />
<br />
The 2016 Bill is yet to be passed by the House of Representatives and if the Senate passes it by early next year, we would hope to see the 2016 Bill come into effect by 1 July 2017. We will continue to monitor progress and are happy to answer any questions readers of the blog may have on developments.<br />
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<div style="text-align: right;">
<span style="font-size: x-small;"><a href="http://www.mccullough.com.au/people/f/View/108/">Reece Walker</a>, <a href="http://www.mccullough.com.au/people/f/View/162/">Ben Wood</a> and <a href="mailto:rgosal@mccullough.com.au">Ravi Gosal</a></span></div>
Anonymoushttp://www.blogger.com/profile/00884217326731706209noreply@blogger.com0tag:blogger.com,1999:blog-1847575197193983093.post-41667823083787745322016-11-16T11:31:00.002+10:002016-11-16T11:32:09.874+10:00ASIC’s industry funding model – the long and the short of itLast week Treasury released a <a href="https://consult.treasury.gov.au/financial-system-division/asic-industry-funding">proposals paper</a> seeking feedback and comments on the revised model for the proposed industry funding of ASIC. The proposals paper sets out an updated version of the model first proposed by Treasury in late 2015. The updates are a result of extensive consultation with industry. <br />
<br />
Round table meetings are scheduled during the week commencing 28 November 2016 with the formal consultation period scheduled to end on 16 December 2016.<br />
<br />
Draft legislation is expected to be available in March 2017, with the model to commence in the second half of 2017. The first payable invoices are expected to be issued in January 2019 to recover ASIC’s 2017-18 costs.<br />
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<b>Why is the Government supporting the change?</b><br />
The primary aim of the model is to ensure that the costs of ASIC’s regulatory activities are borne by those who create the need for regulation and that those costs are borne proportionately with respect to the supervision required by industry participants. Accordingly, what an entity is charged will depend on the nature of the entity and the services it provides. <br />
<br />
A primary argument in favour of the change is that full recovery of the cost of ASIC’s regulatory activities from industry users will ensure that ASIC is accountable for all of its regulatory costs to each industry subsector. <br />
<br />
<b>The revised model </b><br />
Under the revised model approximately 88% of ASIC’s regulatory costs would be recovered through levies, with the remainder to be recovered through fees for service. <br />
<br />
The model divides the industry into six broad sectors which are broken down further into 46 subsectors. There is no discount for entities that operate across a range of subsectors on the basis that, because ASIC’s supervisory teams focus on specific activities rather than particular entities, there are no efficiencies in scope for ASIC in regulating more complex entities. <br />
<b><br /></b>
<b>Levies</b><br />
Levies will include a cost recovery levy component for regulatory activities which are consistent with the Government’s Charging Framework, and a statutory industry levy component for other activities.<br />
<br />
The proposed calculation of levies is designed with the intention that only the efficient costs of regulating each subsector are recovered in a transparent and accountable way:<br />
<blockquote class="tr_bq">
<ul>
<li><b>(step 1)</b> Levies are allocated to subsectors based on ASIC’s actual reported regulatory activities for the previous year (i.e. after the business activity has occurred and ASIC has finalised its regulatory costs). These figures are then divided and allocated to each entity participating in the particular subsector. </li>
<li><b>(step 2)</b> Individual entity levies are then allocated based on actual reported business activity metrics or, for some subsectors (where an appropriate metric is not available, or it was judged too burdensome to collect information on a particular business activity only for the purpose off calculating the levy), a flat levy will be charged. </li>
</ul>
</blockquote>
The total levy payable by an entity will depend on the number of subsector levies that the entity triggers. These are cumulative and there is no discount available to entities operating in multiple subsectors. <br />
<br />
<b>Fees for service</b><br />
ASIC’s regulatory activities that are user-initiated and transaction-based will be recovered by a fee that reflects ASIC’s average cost in providing the specific service to individual entities. These activities are licence and registration applications, cancellations, deregistrations, variations, document reviews and applications for relief. These activities account for approximately 12 per cent of its total annual budget for regulatory expenditure.<br />
<br />
To address the feedback received in 2015, the implementation of the revised fees for service proposal would be delayed to allow time to refine the model by gathering further data to support the sizing of these fees, for example through time recording.<br />
<br />
The existing fees in the <i>Corporation (Fees) Act 2001</i> (Cth) and regulations would continue to apply from commencement of an industry funding model in the second half of 2017 until the new fees for service schedule for industry funding is introduced. Consultation on the fees for service activities would commence at this time.<br />
<b><br /></b>
<b>Some key observations and comments</b><br />
On current estimates, the industry regulatory costs to be recovered for the 2017-18 year under the model total approximately $240 million. The ‘corporate’ sector will raise approximately $80.7 million of those funds. <br />
<br />
In response to the feedback received from the 2015 consultation process, levies under the revised model are lower than those initially proposed.<br />
<br />
<b>Public companies</b><br />
A minimum levy of $4,000 is proposed for publicly listed disclosing entities, to be capped at a maximum of $4,000 plus $0.33 per $10,000 of market capitalisation above $5 million. <br />
<br />
There are flat annual levies for other company types. <br />
<br />
<b>Investment management, superannuation and related services</b><br />
Responsible entities, superannuation trustees, wholesale trustees and investor directed portfolio service (<b>IDPS</b>) operators will bear the predominant burden for regulatory costs. The proposed levies for these entities are approximately:<br />
<blockquote class="tr_bq">
<ul>
<li>for responsible entities: $7,000 plus $24 for each $1 million under management greater than $10 million</li>
<li>for superannuation trustees: $18,000 plus $5 for each $1 million under management greater than $250 million, and</li>
<li>for IDPS operators: a flat levy of $47,000 for 2017-18.</li>
</ul>
</blockquote>
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<div style="text-align: right;">
<span style="font-size: x-small;"><a href="http://www.mccullough.com.au/people/f/View/79/">Jim Peterson</a>, <a href="http://www.mccullough.com.au/people/f/View/162/">Ben Wood</a> and <a href="mailto:jcolthurst@mccullough.com.au">Jessika Colthurst</a></span></div>
Anonymoushttp://www.blogger.com/profile/00884217326731706209noreply@blogger.com0tag:blogger.com,1999:blog-1847575197193983093.post-86317568929674680332016-11-03T13:18:00.001+10:002016-11-03T13:18:41.958+10:00ASX strikes a balance for earlier stage IPOsFollowing a lengthy consultation process, ASX yesterday released its <a href="http://www.asx.com.au/documents/investor-relations/asx-listing-admission-requirements-market-response-2-11-16.pdf">Response to Consultation</a> on updating its admission requirements and associated Guidance Notes for listing on the exchange.<br />
<br />
The proposed changes (which were originally published on 12 May 2016), received a strong level of interest from a range of stakeholders including investors, listed companies, brokers and corporate advisory groups, with over 56 written submissions being provided to ASX. This feedback, together with the feedback provided in a number of consultation meetings held by ASX, has shaped the final package of amendments. The final position appears to have struck a balance which may assist early stage technology and innovation entities looking to list on the exchange.<br />
<a name='more'></a><br />
In our earlier posts <a href="http://thechairmansredblog.blogspot.com.au/2016/05/asx-to-take-harder-line-on-early-stage.html">ASX to take a harder line on early stage IPOs</a> and <a href="http://thechairmansredblog.blogspot.com.au/2016/08/asx-continues-to-refine-proposed.html">ASX continues to refine proposed changes to admission requirements</a>, we highlighted some of the key changes proposed by ASX. <br />
<br />
ASX has revised its initial position in respect of the following amendments:<br />
<br />
<ul>
<li>increasing the net tangible assets threshold to at least $4 million (rather than $5 million as previously proposed) or market capitalisation of at least $15 million (rather than $20 million as previously proposed)</li>
<li>introducing a single tier spread test requiring at least 300 security holders, each holding at least $2,000 of securities. This represents a change from ASX’s two tiered proposal to require either 200 security holders if the entity has a free float of less than $50 million, or 100 security holders if the entity has a free float of $50 million of more, with each of these security holders holding a parcel of securities with a value of at least $5,000. The final position is simple to administer (and represents a reduction from current thresholds), and</li>
<li>introducing new audited account requirements for entities listing under the assets test, requiring the disclosure to the market of two (rather than three) full financial years of audited accounts for the entity seeking admission and any significant entity or business that it has acquired in the 12 months prior to applying for admission or that it proposed to acquire in connection with the listing. While still an additional hurdle, this should be more manageable, even for earlier stage companies.</li>
</ul>
<br />
As a reminder, other amendments to the rules (consistent with the initial proposals) are also being implemented. These include:<br />
<br />
<ul>
<li>increasing the consolidated profit requirement under the profits test for the 12 months prior to listing from $400,000 to $500,000</li>
<li>introducing a 20% minimum free float requirement (i.e. at least 20% of an entity’s securities must not be restricted securities, securities that are subject to voluntary escrow, or securities that are held by a related party), and</li>
<li>introducing the minimum working capital requirement of $1.5 million across all entities listing under the assets test (after allowing for the first full financial year’s budgeted administration costs, and the costs of acquiring any assets referred to in the entities’ disclosure document, to the extent that those costs will be met out of working capital).</li>
</ul>
<br />
ASX is already applying the 20% free float requirement. It has also advised that the policy changes set out in Guidance Note 12 in respect of backdoor listing transactions came into effect immediately following yesterday’s publication. <br />
<br />
The remainder of the Listing Rule and Guidance Note changes are due to come into effect on 19 December 2016. Applications for listing received prior to 19 December will be assessed against the current admission requirements.<br />
<br />
Further details on the Listing Rule and associated Guidance Note changes are available <a href="http://www.asx.com.au/regulation/public-consultations.htm">here</a> and relevant members of the McCullough Robertson team welcome any queries from readers considering the changes.<br />
<br />
<div style="text-align: right;">
<span style="font-size: x-small;"><a href="http://www.mccullough.com.au/people/f/View/108/">Reece Walker</a>, <a href="http://www.mccullough.com.au/people/f/View/162/">Ben Wood</a> and <a href="mailto:nbenton@mccullough.com.au">Naomi Benton</a></span></div>
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Anonymoushttp://www.blogger.com/profile/00884217326731706209noreply@blogger.com0tag:blogger.com,1999:blog-1847575197193983093.post-49256193151109834852016-10-12T09:14:00.001+10:002016-10-12T09:21:42.680+10:00Trading inside the lines – the importance of a clear and effective trading policyThere has been a string of high profile insider trading cases in the media recently. In the last year alone, sentences of imprisonment have been imposed on Oliver Curtis (two years), Lucas Kamay, former NAB banker (seven years and three months), and former executive of Chinese miner Hanlong, Steven Xiao (eight years and three months).<br />
<a name='more'></a><br />
<b>What is insider trading</b><br />
The insider trading provisions of the <i>Corporations Act 2001</i> (Cth) impose an obligation upon a person who may possess ‘inside information’ not to act or participate, either by themselves, or through another person, in the market for certain traded financial products such as shares. It is important to be aware that ‘dealing’, ‘tipping’ or ‘procuring’ can each contravene the insider trading laws.<br />
<br />
‘Inside information’ is any information that is not generally available and if it was generally available then a reasonable person would expect it to have a material effect on the price of the traded financial products. Information could be considered to have a material effect on the price or value of particular financial products if the information would influence persons who commonly acquire the financial products in deciding whether or not to acquire or dispose of the financial products.<br />
<br />
<b>Harsher penalties for insider trading</b><br />
While insider trading and other market misconduct provisions may attract both civil and criminal liability, ASIC elected to pursue criminal charges in each of the three cases noted above. This demonstrates that ASIC regards insider trading as being sufficiently serious to warrant harsher penalties. In sentencing Oliver Curtis, Justice McCallum gave reasons for her decisions, stating that insider trading is not a victimless crime and that:<br />
<blockquote class="tr_bq">
“<i>White-collar crime is a field in which, perhaps more than any other, offending is often a choice freely made by well-educated people from privileged backgrounds, prompted by greed rather than the more pernicious influences of poverty, mental illness or addiction that grip other communities. The threat of being sent to gaol, provided it is perceived as a real threat and not one judges will hesitate to enforce, is likely to operate as a powerful deterrent to men and women of business.” <span style="font-size: x-small;">[1]</span></i> </blockquote>
Recent decisions have also demonstrated that ASIC will not shy away from pursuing charges of conspiracy against all offenders who are associated with the inside trader.<br />
<br />
Legislative amendments also reflect this position, with the maximum penalty for insider trading being lifted in 2010 from five to 10 years’ imprisonment and from $220,000 to either $490,000 or three times the value of the benefits obtained from the conduct.<br />
<br />
In light of this trend toward harsher penalties, it is imperative that public companies, particularly listed public companies, take steps to ensure their directors, officers and employees understand and comply with their obligations by implementing clear and effective trading policies.<br />
<br />
<b>Trading policy</b><br />
It is an ASX Listing Rule requirement that listed entities have a policy on trading in their own securities by the entity’s key management personnel (<b>KMP</b>). While each trading policy should be tailored to suit the requirements of the particular entity, to comply with the minimum requirements of the Listing Rules, every policy must cover:<br />
<ul>
<li>the entity’s ‘closed periods’ when trading is prohibited</li>
<li>the restrictions on trading that apply to the entity’s KMP</li>
<li>any trading that is excluded from the entity’s trading policy, and</li>
<li>any exceptional circumstances in which the entity’s KMP may be permitted to trade during a ‘prohibited period’ with prior written clearance, and the procedures for obtaining such clearance.</li>
</ul>
<br />
While entities are free to include any other matters that suit its individual circumstances in its trading policy, it is good governance, and important to reduce the risk of insider trading, to adopt a trading policy that also addresses the following matters:<br />
<ul>
<li>ASX recommends including a detailed explanation of the prohibition on insider trading under the Corporations Act. This may include an accessible and non-legalistic description and examples of insider trading, the sanctions that might apply and the significant legal consequences for directors, executives and employees if they breach these obligations.</li>
<li>To maximise the effectiveness of closed periods in reducing the risk of insider trading, ASX recommends requiring ‘trading windows’ rather than ‘black-out periods’ in an entity’s trading policy, as they lead to shorter periods during which KMP may trade. Further, it is recommended that black-out periods occur following the close of books until at least one trading day after the interim and full year results are released, to allow the market to process the results. </li>
<li>ASX also strongly suggests entities reserve the right in their trading policies to impose ad hoc trading restrictions on KMP where it thinks necessary. </li>
<li>While the Listing Rules only require the trading policy to cover KMP, it is good governance to consider extending the application of the policy to govern trading by a wider group of employees, such as staff who work closely with KMP, have access to KMP’s emails or documents or who work in the finance area. </li>
<li>Entities should also consider extending the trading policy to cover close family members of a KMP such as the KMP’s spouse, children and family company or trust. </li>
<li>ASX recommends drafting an outline of the training and education that must be provided to employees and directors regarding insider trading and the entity’s trading policy generally. The policy should specify who is responsible for providing the training and education, the processes for certifying it has taken place, and a confirmation that ASX, ASIC and governance advisers are interested in whether companies comply with their policies or not. </li>
<li>The style of the trading policy should ensure its terms are clear and understandable to those to whom it applies. For example, entities may consider including a summary of the key issues, a glossary of terms, clear headings or Q&A-style format, and contact details in the event that any queries arise. </li>
</ul>
<b></b><br />
<div>
<b>Conclusion</b><br />
The Oliver Curtis decision serves as a timely reminder of the serious consequences that may arise from contraventions of the insider trading provisions. Such cases are not just limited to financial services companies. It is now more important than ever that public companies, particularly listed public companies, take steps to ensure their directors, officers and employees understand and comply with their obligations by implementing clear and effective trading policies. Consideration should also be given to making such policies part of an employee induction process, with training updates on a regular basis.</div>
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<span style="font-size: x-small;">[1] R v Curtis (No 3) [2016] NSWSC 866 at [51]</span><br />
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<div style="text-align: right;">
<span style="font-size: x-small;"><a href="http://www.mccullough.com.au/people/f/View/108/">Reece Walker</a>, <a href="http://www.mccullough.com.au/people/f/View/190/">Christian Baldock</a> and <a href="mailto:ehumble@mccullough.com.au">Eliza Humble</a></span></div>
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Anonymoushttp://www.blogger.com/profile/00884217326731706209noreply@blogger.com0tag:blogger.com,1999:blog-1847575197193983093.post-46713254006675402242016-10-04T14:56:00.000+10:002016-10-11T16:51:35.763+10:00Mixed reception for potential R&D tax incentive changesLast week, the Federal Government released a report of its review of the R&D tax incentive (<a href="https://www.business.gov.au/assistance/research-and-development-tax-incentive/review-of-the-randd-tax-incentive">https://www.business.gov.au/assistance/research-and-development-tax-incentive/review-of-the-randd-tax-incentive</a>). The review was commissioned as part of the Government’s National Innovation and Science Agenda and was informed by submissions and consultations with leaders of business and research.<br />
<a name='more'></a><br />
The review was conducted by Chairman of Innovation Australia, Mr Bill Ferris AC, Chief Scientist, Dr Alan Finkel AO, and Secretary to the Treasury, Mr John Fraser. The review panel was tasked with reviewing the current $3 billion programme to identify opportunities to improve its effectiveness and integrity, including considering how its focus could be sharpened to encourage additional R&D in Australia.<br />
<br />
Overall, the review found that the current R&D tax incentive program falls short of meeting its stated objectives of additionality and spillovers (e.g. the programme seeks to encourage additional R&D (additionality) that benefits others (spillovers)). The panel made the following six recommendations for improvement:<br />
<ol>
<li><strong>More guidance on the definition of ‘R&D’</strong> – Retain the current definition of eligible activities and expenses under the law, but develop new guidance, including plain English summaries, case studies and public rulings, to give greater clarity to the scope of eligible activities and expenses.</li>
<li><strong>20% extra non-refundable tax offset for public research organisations</strong> - Introduce a collaboration premium of up to 20% for the non-refundable tax offset to provide additional support for the collaborative element of R&D expenditures undertaken with publicly-funded research organisations. The premium would also apply to the cost of employing new Science, Technology, Engineering and Mathematics (STEM) PhD or equivalent graduates in their first three years of employment. If an R&D tax threshold was introduced (see recommendation 4 below), companies falling below the threshold should still be able to access both elements of the collaboration premium.</li>
<li><strong>$2 million cap on refundable R&D tax offsets</strong> - Introduce a cap in the order of $2 million on the annual cash refund payable under the R&D tax incentive, with remaining offsets to be treated as a non-refundable tax offset carried forward for use against future taxable income.</li>
<li><strong>R&D expenditure threshold for non-refundable offset</strong> – Introduce an intensity threshold in the order of one to two per cent for recipients of the non-refundable component of the R&D tax incentive, such that only R&D expenditure in excess of the threshold attracts a benefit.</li>
<li><strong>Increase the maximum R&D expenditure threshold</strong> - If an R&D intensity threshold is introduced, increase the expenditure threshold to $200 million so that large R&D-intensive companies retain an incentive to increase R&D in Australia (this is double the present threshold).</li>
<li><strong>Improve the administration of the R&D tax incentive</strong> - That the Government investigates options for improving the administration of the R&D tax incentive (e.g. adopting a single application process; developing a single programme database; reviewing the two-agency delivery model; and streamlining compliance review and findings processes) and additional resourcing that may be required to implement such enhancements. To improve transparency, the Government should also publish the names of companies claiming the R&D tax inventive and the amounts of R&D expenditure claimed.</li>
</ol>
<div>
Overall, the recommendations seek to respond to the fundamental objectives, and the long term sustainability, of the R&D tax inventive programme. Similarly, although Australia is often criticized for conducting too much ‘R’ and not enough ‘D’, it remains vital for research to remain a focus, and the recommendations appear to be aligned with this position.</div>
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</div>
<div>
However, the proposed changes have received a mixed reception from industry stakeholders since their release last week and there is an ongoing risk that the proposed changes could give rise to further investment uncertainty in Australia. In particular, concerns have been expressed amongst the biotech community that the changes will have a negative impact on local clinical trials, and may deter overseas companies from conducting clinical development in Australia, a jurisdiction which has long been recognised for the clinical trial incentives it currently offers. Specifically, the introduction of a $2 million cap on refundable tax offsets may mean that foreign companies are no longer able to justify establishing operations in Australia. The startup community has also responded with concerns that the recommendations are targeted to benefit larger multinational corporates, and more needs to be done to support early stage businesses in their research projects. </div>
<div>
</div>
<div>
The Government has asked for submissions by 28 October 2016, although it will not make a final call on the proposed recommendations until March 2017. In the meantime, companies operating within the space should assess the potential impact of the proposed changes may have on their business in order to be ready to comply with the revised programme following its implementation.</div>
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<div style="text-align: right;">
<span style="font-size: x-small;"><a href="http://www.mccullough.com.au/people/f/View/108/">Reece Walker</a>, <a href="http://www.mccullough.com.au/people/f/View/7/">Hayden Bentley</a>, <a href="http://www.mccullough.com.au/people/f/View/162/">Ben Wood</a> and <a href="mailto:nbenton@mccullough.com.au">Naomi Benton</a></span></div>
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Anonymoushttp://www.blogger.com/profile/00884217326731706209noreply@blogger.com0tag:blogger.com,1999:blog-1847575197193983093.post-36916473952316933042016-09-26T11:55:00.001+10:002016-09-26T11:55:06.152+10:00ASIC on media watch for IPO publicityFollowing on from ASIC’s report on due diligence practices for IPOs (see our earlier blog in July 2016, <a href="http://thechairmansredblog.blogspot.com.au/2016/07/ipo-due-diligence-under-spotlight.html">IPO due diligence under the spotlight</a>), ASIC has continued this work stream with its latest review in <a href="http://asic.gov.au/regulatory-resources/find-a-document/reports/rep-494-marketing-practices-in-initial-public-offerings-of-securities/">Report 494</a> focused on marketing practices for IPOs.<br />
<a name='more'></a><br />
The report includes commentary on new promotional methods for IPOs (such as the use of Twitter or LinkedIn) and recognition by ASIC of the need to refine its monitoring role with emerging social media marketing strategies. <br />
<br />
Some key findings include:<br />
<br />
<ul>
<li>while generally positive on current marketing processes, some oversight weaknesses were identified for both traditional and non-traditional forms of marketing – in particular, with the need to monitor and update information across promotional platforms on an ongoing basis</li>
<li>special care needs to be taken with the use of forecasts in communications to avoid misleading investors – as is also the case for the prospectus, this includes ensuring that underlying assumptions and qualifications for the forecasts are adequately identified and explained</li>
<li>for emerging market issuers, ASIC identified instances of the communications including material mistakes when translated (including as to the scope of ASIC’s role)</li>
<li>some issuers did not always have proper controls to ensure retail investors ultimately base their decision on the prospectus as the primary source of information – emphasising the need to include appropriate references and links to the prospectus in the marketing materials</li>
<li>instances where access to the ‘pathfinder’ prospectus on websites was potentially open to retail investors (and not restricted to sophisticated and professional investors only), and</li>
<li>a concern with the use of international crowd-sourced funding sites, where Australian investors may make an investment decision based on information included on the relevant site, rather than in the prospectus. This also highlights the prevailing confusion around crowd-sourced equity funding rules, which are yet to be effectively legislated in Australia (see our earlier blogs on crowd-sourced equity funding <a href="http://thechairmansredblog.blogspot.com.au/2015/08/crowd-funding-no-joy-for-start-ups.html">here</a> for further details).</li>
</ul>
<br />
Interestingly, ASIC found that so-called 'traditional' means of communication – such as telephone calls, emails and use of offer websites - remain a more important form of marketing to retail investors. The review found that the use of social media is not yet pervasive and is only used occasionally, more often by small to medium-sized issuers (which perhaps reflects the differing investor profile for such issuers).<br />
<br />
The report is a good reminder of key obligations when marketing an IPO, in particular under section 734 <i>Corporations Act 2001</i> (Cth), and includes ASIC's recommendations to improve marketing practices for IPOs in the future. For example, for telephone communications, ASIC noted best practice involves implementing standard telephone scripts, recording and routinely reviewing telephone calls, and maintaining detailed records of the telephone campaign. <br />
<br />
It is certainly a report to consider further for those that are about to embark on, or perhaps are already marketing, their IPO.<br />
<br />
<div style="text-align: right;">
<span style="font-size: x-small;"><a href="http://www.mccullough.com.au/people/f/View/108/">Reece Walker</a> and <a href="http://www.mccullough.com.au/people/f/View/162/">Ben Wood</a></span></div>
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Anonymoushttp://www.blogger.com/profile/00884217326731706209noreply@blogger.com0tag:blogger.com,1999:blog-1847575197193983093.post-50648611724484439942016-09-05T14:45:00.002+10:002016-09-05T14:48:28.244+10:00ASIC targets 2016 – are you in the spotlight? ASIC has recently given an indication of its targets for regulatory surveillance and action. In releasing its half year report on the regulation of corporate finance: January to June 2016 (<a href="http://asic.gov.au/regulatory-resources/find-a-document/reports/rep-489-asic-regulation-of-corporate-finance-january-to-june-2016/">Report 489</a>), ASIC commented on current trends in fundraising and mergers & acquisitions. Some practical insights from the report are summarised below.<br />
<a name='more'></a><b><br />Fundraising – tech IPOs under scrutiny</b><br />
<ul>
<li>ASIC reiterated its focus on due diligence for fundraising activities (in particular, for IPOs), with reference to its recent report (<a href="http://asic.gov.au/regulatory-resources/find-a-document/reports/rep-484-due-diligence-practices-in-initial-public-offerings/">Report 484</a>) - for further details see our earlier blog: <a href="http://thechairmansredblog.blogspot.com/2016/07/ipo-due-diligence-under-spotlight.html">IPO due diligence under the spotlight</a>, which provides an overview on Report 484.</li>
<li>ASIC has been consulting on proposed new guidance on financial information in prospectuses (in <a href="http://asic.gov.au/regulatory-resources/find-a-document/consultation-papers/cp-257-improving-disclosure-of-historical-financial-information-in-prospectuses/">Consultation Paper 257</a>), with a focus on the presentation of historical financial information. Proposed changes include a requirement for all ‘full form’ prospectuses to include audited historical financial statements for 2.5 or 3 years (depending on the timing of the prospectus and the company’s financial year or half year), regardless of the structure of past corporate activities, as well as clarifying the need to include cash flow statements.</li>
<li>ASIC is undertaking surveillance work on the marketing practices of brokers and issuers in connection with an IPO. This includes a focus on the rise of social media as an additional channel for such marketing activities. A report is expected from ASIC later this year.</li>
<li>Technology company listings are currently on ASIC’s radar, with a focus on the level of disclosure by such issuers - including details on the business plan, the revenue model, the scope of true competitors and, for start-up technology companies, prominent disclosure on having a limited operating history. This sits alongside ASX’s current consultation process for amendments to the admission requirements, which are likely to impact on early stage technology companies in particular (for further details see our earlier blogs <a href="http://thechairmansredblog.blogspot.com.au/2016/05/asx-to-take-harder-line-on-early-stage.html">ASX to take a harder line on early stage IPOs</a> and <a href="http://thechairmansredblog.blogspot.com.au/2016/08/asx-continues-to-refine-proposed.html">ASX continues to refine proposed changes to admission requirements</a>.</li>
</ul>
<b>Mergers & acquisitions – virtual variations a problem</b><br />
<ul>
<li>ASIC observed that there have been noticeably fewer regulated mergers and acquisitions during the period (by takeover bid or scheme of arrangement). Interestingly, ASIC data also shows that larger transactions are generally being completed by scheme of arrangement (rather than by takeover bid). </li>
<li>Monitoring ‘virtual variations’ to takeover bids – a practice of bidders announcing a bid will be formally increased if a certain level of acceptances is achieved. ASIC may take issue if the virtual variation does not track to its guidance (i.e. by not being included in a regulated document, such as a supplementary bidder’s statement), or if ASIC believes the variation is otherwise contrary to the ‘truth in takeovers’ principles.</li>
</ul>
<b>Rights issues – control transactions in the spotlight</b><br />
<ul>
<li>ASIC will also focus on any control effects arising through a rights issue and an issuer being able to demonstrate that reasonable steps have been taken to minimise the control effect of a fundraising. ASIC cited 6 examples it has focused on in the period, which resulted in adjustments to the underwriting arrangements and/or the shortfall facility under such offers.</li>
</ul>
<b>Corporate governance – polls required for AGMs?</b><br />
<ul>
<li>ASIC provides some pointers for the upcoming AGM season – including a suggestion that companies should call a poll on all resolutions (not just remuneration-related resolutions) at the AGM.</li>
<li>ASIC has also emphasised a continued focus on the long-term challenge of cyber resilience, with ASIC <a href="http://asic.gov.au/regulatory-resources/find-a-document/reports/rep-468-cyber-resilience-assessment-report-asx-group-and-chi-x-australia-pty-ltd/">Report 468</a>, which includes commentary on the resilience of ASX and Chi-X. The report also includes details on good practices and assurance processes for consideration by the broader financial services market. </li>
</ul>
McCullough Robertson will continue to monitor the above developments, together with other releases by ASIC, and welcomes any feedback or questions from readers of the blog.<br /><br />
<div style="text-align: right;">
<span style="font-size: x-small;"><a href="http://www.mccullough.com.au/people/f/View/108/">Reece Walker</a>, <a href="http://www.mccullough.com.au/people/f/View/162/">Ben Wood</a> and <a href="mailto:nbenton@mccullough.com.au">Naomi Benton</a></span></div>
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