Corporate law developments

In brief

Welcome to the first edition of Nucleus, our monthly snapshot of regulatory updates and other developments in corporate law. We know you are busy, so our focus is on capturing key issues.

We'd love to hear from you. Please do let us know if you need more detail about an issue, or if there is something in particular you'd like to hear about, and feel free to call any of your Allens contacts.

What you need to know

ASIC: ASIC gets a new Chair

ASIC news in October was headlined by the appointment of James Shipton as the new Chair of ASIC from 1 February 2018, after John O'Sullivan withdrew from the race. Peter Kell, the current Deputy Chair, will serve as Acting Chair for the interim period when current Chair Greg Medcraft's term ends on 12 November 2017.

ASIC continues to focus on fintech and innovation regulation, the funds management sector and derivatives. October saw:

• ASIC continue its focus on cross-border cooperation on fintech and innovation regulation, with ASIC re-affirming its existing arrangements with New Zealand's Financial Markets Authority and entering into a new agreement with the Swiss Financial Markets Authority;
• the release of Consultation Paper 296 – Funds Management, which seeks consultation on six new and updated draft regulatory guides for the funds management industry in advance of the introduction of the Asia Region Funds Passport and corporate collective investment vehicle legislation. The draft regulatory guides cover establishing and registering a fund; constitutions; compliance and oversight; holding assets; ASIC's discretionary powers; and foreign passport funds;
• the release of ASIC Client Money Reporting Rules 2017, which will impose record-keeping, reconciliation and reporting obligations on certain AFS licensees holding derivative retail client money from 4 April 2018;
• the release of ASIC's Cost Recovery Implementation Statement, which sets out how ASIC's regulatory costs in 2017-18 will be allocated and levied on 48 subsectors of entities subject to the Corporations Act;
• the release of ASIC's 2017-18 Business Plans, which complement ASIC's 2017-21 Corporate Plan and set out ASIC's focus in exercising its stakeholder engagement, education, guidance, surveillance, enforcement and policy advice functions across a range of sectors; and
• the tabling of ASIC's 2016-17 Annual Report in Parliament.

ASX: Listing Rule amendments regarding reverse takeovers and voting exclusions to take effect 1 December

New amendments to the ASX Listing Rules in relation to reverse takeovers and voting exclusions will come into effect on 1 December 2017. The key changes are:

• shareholder approval will be required for reverse takeovers;
• voting exclusions will only apply to votes cast in favour (ie not to votes cast against a resolution); and
• an expanded definition of 'associate' will be introduced, to address gaps in coverage.

Notices of meeting dated prior to 1 December 2017 will continue to be subject to the voting exclusion rules currently in force.

For further details, see Response to Consultation on Reverse Takeovers and Exposure Draft Listing Rule Amendments.

Amendments to Guidance Notes 1 (Applying for Admission – ASX Listings), 4 (Foreign Entities Listing on ASX) and 12 (Significant Changes to Activities) will also come into effect on the same date.

FIRB: CBS/Ten deal cleared; Murray Goulburn scrutinised

Tradition dictates that media transactions are heavily scrutinised by FIRB, so executives at CBS Corporation would have been relieved to receive FIRB approval to acquire Ten Network Holdings in late October. Meanwhile, agribusiness, another sensitive sector, was back in the spotlight as FIRB was rumoured to be mulling over multiple bids for Murray Goulburn. Saputo, the Canadian dairy company, was ultimately announced as the successful bidder (with FIRB approval to follow).

ACCC: Substantial reform to competition merger clearance laws

October saw the Government pass a package of competition law reforms which significantly amend the existing formal merger clearance process. Helpfully, the amended process allows applicants to argue the merits of both legal tests for merger clearance in a single forum.

Under the revised process, the ACCC will consider both legal tests in assessing applications for formal merger clearance – that is, whether the merger would:

• not have the effect or likely effect of substantially lessening competition; or
• result or be likely to result in public benefits that outweigh the detriment

Parties will need to go through the formal ACCC clearance process before an appeal to the Competition Tribunal is possible, and the Tribunal will usually only consider evidence that was considered by the ACCC.

The timeframe for formal merger clearance is long, at 90 days from filing, and may be extended. For simple mergers, applicants may benefit from the existing informal merger clearance process. However, for complex mergers the strict timelines in the formal clearance process may provide greater deal certainty.

Takeovers Panel: Pre-bid frustrating actions clarified

The Panel published its reasons for declining to conduct proceedings on an application by Aurora Funds Management Limited as responsible entity of the Aurora Property Buy-Write Income Trust (Aurora) in relation to alleged frustrating action by RNY Property Trust while subject to an off-market takeover bid by Aurora. Consistent with Guidance Note 12 on Frustrating action, the decision reinforces that a frustrating action by a target is unlikely to give rise to unacceptable circumstances where the frustrating action is announced before the bid or potential bid.

Employment: Increased responsibility for franchisors under new laws

Franchisors will contravene the Fair Work Act 2009 if a franchisee contravenes certain provisions of the Act relating to minimum terms and conditions of employment, payments, sham contracting and record keeping, and the franchisor:

• exerts a significant degree of influence or control over the affairs of the franchisee. This is not limited to the franchisee's employment affairs;
• knew or could reasonably be expected to have known that the relevant contravention or a contravention of the same or similar character was likely to occur; and
• did not take reasonable steps to prevent a contravention of the same or similar character.

What constitutes 'reasonable steps' to prevent a contravention will depend on the franchisor's size, the sophistication of its franchisees and the types of people employed by the franchisees, including whether the employees are considered vulnerable, such as young people or migrant workers. At the recent National Franchise Convention, the Fair Work Ombudsman, Natalie James, confirmed that franchisors are expected to take steps to at least:

• set clear expectations that franchisees are expected to comply with the Fair Work Act;
• provide support to franchisees to comply with the Fair Work Act; and
• monitor franchisees' compliance with the Fair Work Act.

Other developments

M&A in the life insurance sector

Regulatory change and cost of capital continue to drive M&A in the life insurance sector. ANZ continues to consider options for its life insurance business, which was carved out from the sale of its broader wealth arm to IOOF. These developments follow the sale of CBA's life insurance business to Hong Kong-based AIA Group for $3.8 billion in September, and the sale of NAB and Macquarie's life insurance businesses in 2016.

ASIC seeks tougher penalties for misconduct

The ASIC Enforcement Taskforce's latest consultation paper pushes for a tougher penalty regime for corporate and financial sector misconduct, which has been the key focus of the Taskforce's Terms of Reference, and indeed of ASIC's reform agenda for some time. Submissions in response to the consultation paper are due by 17 November 2017. If enacted, the changes will greatly strengthen ASIC's enforcement toolkit, and go a long way towards addressing outgoing ASIC Chair Greg Medcraft's assertion that Australia is a 'paradise' for white-collar criminals with 'soft' penalties for corporate offences. See our Client Update for further detail.

Fundraising changes for start-ups

The Corporations Amendment (Crowd-sourced Funding) Act 2017 took effect on 29 September 2017 creating a regime for start-ups and small/medium sized companies to fundraise up to $5 million (in any 12 month period) from retail investors through a licensed and authorised intermediary. While currently only available for public companies, further legislation was passed in mid-September 2017 (commencing in 2018) to extend the regime to proprietary companies (who will be subject to additional governance and reporting obligations).

ASX reports an increase in listing enquiries

Although there has been limited activity in the IPO space in 2017, ASX has reported an increase in the number of enquiries it is receiving in relation to potential medical cannabis listings and Bitcoin and ICO listings. ASX has issued a reminder to interested parties noting that listed entities must have a structure and operations that are appropriate for a listed entity, and that these businesses raise significant legal, regulatory and public policy issues. Among other matters, applicants seeking to list these types of businesses will need to satisfy ASX that they will comply with all applicable local and foreign laws and that proper risk disclosures have been made. It will be interesting to see how this market develops. Will ICOs simply avoid ASX and will this give rise to the need for new regulation?