New Zealand follows Australia in shutting the back door to foreign residential property investors

In 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.
 
These changes may seem protectionist, but actually mirror Australia’s existing prohibition on foreign investment in established residential property.

The overarching principle of the Australian policy, implemented by the Treasurer through the Foreign Investment Review Board (FIRB), is to ensure that any foreign investment in Australian residential real estate increases Australia’s housing stock. 

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. 

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. 

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.   

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. 

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.

So there’s no need to rush out and buy that ski house before the new legislation takes effect!

Duncan Bedford and Patrick O'Brien

Sweeping reform to overhaul corporate whistleblower protection regime in Australia

The Federal Government has recently released an exposure draft of the Treasury Laws Amendment (Whistleblowers) Bill 2017 (the Bill).

Australia’s existing whistleblower protection laws have been the subject of criticism due to their limited scope and complexity.

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.

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.

Key changes for whistleblowers

The key changes under the draft Bill include:

• expanding the scope of persons that qualify as ‘eligible whistleblowers’ under the regime, in particular to include former employees and officers
• expanding the scope of persons to whom a disclosure may be made by a whistleblower that is covered under the regime
• expanding the conduct covered so that whistleblowing for all forms of serious wrongdoing in a Commonwealth legal context are protected
• 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
• the introduction of mechanisms to allow for anonymous disclosure and further protection of the identity of whistleblowers and other victims in certain circumstances
• expanding the compensation regime available for whistleblowers, and
• 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.

What do companies need to do?

All companies regulated by the Corporations Act 2001 (Cth) should be aware of the proposed changes.  In addition, public companies and large proprietary companies will be required to:

• have a whistleblowing policy which contains information about protections available to whistleblowers and how the company will ensure fair treatment, and
• make the policy available to its employees and other ‘eligible whistleblowers’.

Failure to comply with this requirement will be an offence of strict liability. 

Companies should also review any current policies and ensure they meet the requirements.

When is the new regime scheduled to commence?

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.

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).

Submissions on the exposure draft close on 3 November 2017.  For more information regarding submissions, click here.

Aaron Dahl

So what is an initial coin offering?

An initial coin offering (ICO) 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.

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.

So what is an ICO? 
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.

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.

Rather than being viewed as an alternative to an initial public offering (IPO), ICOs are more akin to a crowd funding campaign, but noting that they are not the same.

…and what do the regulators think?
Initially, ICOs were considered to be outside the scope of fundraising regulations.

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.

ASIC Information Sheet 225 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:

• 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 
• may constitute a managed investment scheme – e.g. if the value of the coin or token is linked to management of an arrangement, and
• could become a financial market or crowd-sourced funding platform subject to regulation.

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.

The potential risks of an ICO
US regulation followed a particularly high profile example of an ICO undertaken by the ‘Decentralised Autonomous Organisation’ (DAO).   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).

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.

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.

There is also the added complexity of anti-money laundering, privacy and data protection laws to consider.

Recovering funds that may be invested in such schemes (including fraudulent schemes) may also be problematic.

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.

We will continue to watch this space.

Reece Walker and Ben Wood

ASIC releases its guidance on equity crowd funding

On Friday, ASIC released its regulatory guide on equity crowd-sourced funding (CSF) 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.

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.

See the following links for full copies of the ASIC Regulatory Guides:

• Regulatory Guide 261 - Crowd-sourced funding: Guide for public companies
• Regulatory Guide 262 - Crowd-sourced funding: Guide for intermediaries

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.

Further information on crowd funding can be found on ASIC’s website here, including information on applications:

• 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
• by intermediaries for an AFS licence with an authorisation to provide CSF services.

For a reminder on the new laws coming in at the end of the month, see our recent blog on three essential things to know on the new CSF regime.

Ben Wood and Reece Walker

What attracts investors to IPOs? Critical insights for issuers

On 31 August, ASIC reported on its findings for how investors decide to invest in IPOs, with the release of Report 540: Investors in Initial Public Offerings.  The report includes details on:

• ASIC’s own inquiries with institutional investors and other financial intermediaries about their approach to investing in IPOs, and
• 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. 

Shareholders turn the heat up on directors – suing over failure to disclose climate change risk

One of Australia’s leading banks is being sued in a landmark case which may set the benchmark for climate change risk management.

Following our recent blog on climate change risk management and the impact on directors’ duties (read here), a recent case filed in the Federal Court (here) 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 (APRA) 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.

Environmental Justice Australia has filed proceedings in the Federal Court on behalf of two shareholders of the Commonwealth Bank of Australia (CBA) 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.                  

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.

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 (read more here).  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.

Reece Walker, Ben Wood and Anna Mott

Scammers hit ASIC customers

Small businesses are a ready target for scammers, with the latest scam targeting innocent companies trying to do the right thing.

‘ASIC’ email scam
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 (click here 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.

ASIC has advised that emails are most likely to be a scam if they ask you to:

• make a payment over the phone
• make a payment to receive a refund, or
• provide your credit card or bank details directly by email or phone. 

If you think you have received a scam email, ASIC has requested recipients to immediately forward the entire email to ReportASICEmailFraud@asic.gov.au or contact ASIC on 1300 300 630.  

Trade mark scam

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 click here to read).

Small business

The ACCC Scamwatch website contains useful information on common scams and steps you can take to protect your small business. 

For enquiries, please contact:

Reece Walker, Belinda Breakspear and Ben Wood