This is a service specifically targeted at the needs of busy non-executive directors (NEDs). We aim to give you a ‘heads-up’ on the things that matter for NEDs in the week ahead - all in two minutes or less.
In this edition, we discuss the Treasury’s review of artificial intelligence (AI) and the Australian Consumer Law, and court decisions in which Latitude Finance Australia (Latitude) and Harvey Norman Holdings Ltd (Harvey Norman) were found to have misled consumers in connection with a widespread advertising campaign, penalties were handed to the former Chief Financial Officer and Company Secretary of Noumi Limited (ASX: NOU) (Noumi), and officers of Firmtech Aluminium Pty Ltd (Firmtech) were found to have breached their statutory and fiduciary duties in circumstances where conflicts with their personal interests were not appropriately managed. We also discuss the Takeovers Panel’s decision on a review application in relation to the affairs of Energy Resources of Australia Ltd (ASX: ERA).
In this week’s Over the Horizon , we examine changes to the federal whistleblower statutory framework in light of the recent focus on ASIC’s lack of enforcement of whistleblower disclosures.
Regulation
Treasury consults on the effectiveness of the Australian Consumer Law to tackle AI
On 15 October 2024, the Federal Treasury published a discussion paper titled Review of AI and the Australian Consumer Law and opened consultation on whether the Australian Consumer Law remains suitable to: (1) protect consumers who use AI; and (2) support the safe and responsible use of AI by businesses. Responses will inform ongoing work to clarify and strengthen laws to address AI-related risks and harms. Submissions close on 12 November 2024.
Legal
Federal Court finds Harvey Norman and Latitude misled consumers in connection with widespread advertising campaign
On 18 October 2024, the Federal Court of Australia published the reasons for Yates J’s decision that Harvey Norman and Latitude engaged in misleading conduct and made false or misleading representations in connection with a widespread advertising campaign for a 60-month interest free and no deposit payment method. His Honour found that the relevant advertisements, which were published between January 2020 and August 2021, failed to adequately disclose that the payment method was only available to consumers with a continuing credit contract with Latitude that was linked to a specific credit card, which in turn required them to pay an establishment fee and ongoing monthly account service fees. The Australian Securities and Investments Commission (ASIC), who brought the Court proceedings, has indicated that it will seek pecuniary penalties against Latitude and Harvey Norman.
Former Chief Financial Officer and Company Secretary of Noumi ordered to pay $100,000 penalty and disqualified in connection with breach of continuous disclosure obligations
On 17 October 2024, the Federal Court of Australia ordered Mr Campbell Nicholas, former Chief Financial Officer and Company Secretary of Noumi, to pay a $100,000 penalty and disqualified him from managing corporations for a period of four years. As discussed in a previous edition of Boardroom Brief , on 5 August 2024, Jackman J found that Noumi had breached its continuous disclosure obligations by failing to disclose certain material financial information to the market. His Honour subsequently found that Mr Nicholas was knowingly concerned in these breaches and had given false or misleading information to Noumi’s directors and auditors, and thereby failed to exercise the degree of care and diligence that would be exercised by a reasonable person in his circumstances.
Supreme Court of New South Wales rules that Firmtech officers breached their duties in connection with failure to appropriately manage conflicts of interests
On 18 October 2024, the Supreme Court of New South Wales found that Mr Jiamin Zhang and Ms Xiaoyan (Yan) Xie breached their statutory and fiduciary duties as director and General Manager of Firmtech (respectively) by diverting various business opportunities from Firmtech to two other companies in which they had personal interests while they were responsible for operating Firmtech’s business. Justice Nixon found that the affairs of Firmtech were conducted in a manner which was contrary to the interests of the members as a whole, and which was oppressive to, unfairly prejudicial to, and unfairly discriminatory against Mr Zhaohui (Kevin) Xu, the second director and remaining 50% shareholder of Firmtech. His Honour also found that Mr Zhang and Ms Xie breached their duties by failing to disclose to Mr Xu that they were operating other companies in competition with Firmtech. This decision highlights the importance for company officers to properly disclose and manage conflicts (and potential conflicts) with their personal interests or with duties they may owe to others.
Takeovers Panel declines to make a declaration of unacceptable circumstances in relation to the affairs of Energy Resources of Australia
On 15 October 2024, the review Panel announced that it had affirmed the initial Panel’s decision to decline to make a declaration of unacceptable circumstances in relation to the affairs of ERA. As discussed in a previous edition of Boardroom Brief , the Panel previously received a review application from Zentree Investments Limited and Packer & Co Ltd (together, the Applicants) relating to the Panel’s decision concerning ERA’s proposed capital raise to fund ERA’s rehabilitation of a mine area up until 2027, which the Applicants submitted would result in a substantial shareholder, Rio Tinto Limited increasing its voting power above the compulsory acquisition threshold of 90%. The review Panel reached similar conclusions to the initial Panel and concluded, among other things, that: (1) the Independent Board Committee of ERA (IBC) had complied with the Panel’s guidance on rights issues in how it conducted the capital raising; (2) there was no evidence that the IBC had failed to undertake an appropriate process in relation to that capital raising; and (3) the IBC’s view that the capital raising was the only viable option available to ERA was reasonable in the circumstances. The reasons for the review Panel’s decisions have not yet been published. The decision is consistent with the recent trend of the Panel to show considerable deference to the commercial decisions of appropriately informed and advised Boards.
Over the horizon
Whistleblower legislation framework starts reacting to the noise
On 12 October 2024, the Taxation Administration Amendment (Extending Tax Whistleblower Protections) Regulations 2024 (Cth) (Regulations) came into effect, expanding the protections afforded to corporate whistleblowers. The Regulations extend, in effect, the disclosures within the existing tax whistleblower framework to include those concerning tax-related affairs of charities and those made to the Inspector-General of Taxation, allowing tax regulators to act on whistleblower disclosures more effectively. These Regulations are the latest development in the whistleblower space, and follow the recent report handed down by the Senate Economics References Committee on the operations of ASIC (Report) which, as discussed in a recent article by Gilbert + Tobin , called for ASIC to introduce a compensatory incentive scheme for whistleblowers. The Report and the Regulations all suggest the Australian Government will need to continue to focus on the whistleblower regime and its effect in the regulatory and public sectors. With the 5-year review of the Whistleblower provisions in the Corporations Act 2001 (Cth) approaching in 2025, the efficacy of the regime is likely to be in the spotlight, emphasising the need for Boards to undertake proactive health checks on their whistleblower compliance frameworks.