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 a speech by the Chair of the Australian Securities and Investments Commission (ASIC), Mr Joe Longo, on the challenges of complying with directors’ duties, an article published by the Australian Institute of Company Directors (AICD) on new foreign bribery laws, a study released by the AICD on the expectations on directors of not-for-profit companies, and proceedings commenced by ASIC against a director for failing to obtain a director identification number. We also examine a decision by the Supreme Court of Western Australia and by the Federal Court of Australia in relation to continuous disclosure offences.
In Over the Horizon, we consider the reasons underpinning the funding drought present in the Australian artificial intelligence (AI) start-up market.
GOVERNANCE
ASIC Chair articulates challenges of being a director. On 21 March 2024, ASIC Chair Mr Joe Longo presented a speech at the AICD Australian Governance Summit on navigating the role of a director and the challenges of complying with directors’ duties in a rapidly developing and increasingly complex business environment. While Mr Longo recognised the increase in the demands on directors over time, he refuted any notion that complying with directors’ duties is no longer possible. He further encouraged directors to adopt an attitude of “curiosity” about their business, and to pose questions. See ASIC media release . No doubt ASIC’s views are of little comfort to directors struggling with an ever-increasing regulatory burden.
AICD releases article to assist directors in understanding new foreign bribery laws. On 18 March 2024, the AICD published an article providing guidance on the Crimes Legislation Amendment (Combatting Foreign Bribery) Bill 2023 which passed Federal Parliament on 29 February 2024. The Bill seeks to amend the Criminal Code Act 1995 (Cth) to introduce a new ‘failure to prevent bribery of a foreign official’ offence for companies and strengthen existing foreign bribery laws. Once the amendments come into effect, companies can be held strictly liable for failing to prevent foreign bribery for the profit or gain of the company by an associate, which will attract penalties of $31.3 million or higher. The only defence available will be if a company can show it had ‘adequate procedures’ in place to prevent the bribery offence. Boards are accordingly encouraged to critically review their company’s current approach to detecting and preventing foreign bribery. See AICD article .
AICD releases study revealing increased demands and expectations on directors of not-for-profits. On 21 March 2024, AICD published its Not-for-Profit Governance and Performance Study 2023-24 , which reports on the result of 1,391 responses to an online survey on governance in the not-for-profit (NFP) sector. The study, which was undertaken in collaboration with Piazza Research Pty Ltd, reveals that directors in the NFP sector have greater accountability than ever before, which is highlighted by recent royal commissions and reflected in increased time commitments. Further, while 21% of respondents identified their organisation had been the subject of a cyber-attack in the last 12 months, only 42% of respondents indicated that cybersecurity was on the board’s agenda at every meeting. See AICD media release .
ASIC commences first action against a director for failing to obtain a director identification number. On 25 March 2024, ASIC announced that it had commenced proceedings against a director for failing to comply with the requirement to have a director identification number. This is the first time that ASIC has taken legal action for a breach of this requirement. A non-publication order, valid until 16 April 2024, has been granted prohibiting the identification of the defendant. From 5 April 2022, all incoming directors must have a director identification number before being appointed. See ASIC media release .
LEGAL
Former company secretary of Continental Coal sentenced for continuous disclosure offences. On 19 March 2024, ASIC released a statement that McGrath J of the Supreme Court of Western Australia had sentenced Ms Jane Rosemary Flegg, the former company secretary of Continental Coal Limited, to (among other things) three years, six months imprisonment with a non-parole period of 21 months. Ms Flegg pleaded guilty to (among other offences) making available false or misleading information to the ASX in relation to Continental Coal’s affairs, where Continental Coal had failed to disclose its only income-generating asset had gone into administration and falsely stated that assets had been sold when they had not, contrary to the Corporations Act 2001 (Cth). Justice McGrath remarked that ‘the seriousness of this type of offending was the effect false and misleading information may have on the behaviour of respective investors and shareholders who erroneously believe they are making fully informed decisions’. See ASIC media release .
Federal Court orders Holista to pay $1.8 million penalty for breaching continuous disclosure obligations. On 19 March 2024, Derrington J of the Federal Court of Australia declared that Holista Colltech Limited (Holista) had breached its continuous disclosure obligations and engaged in misleading or deceptive conduct in relation to sales associated with NatShield, Holista’s sanitiser product. Justice Derrington also declared that that Holista’s Managing Director and Chief Executive Officer, Dr Rajendran Marnickavasagar, made available the false or misleading information to ASX and ordered him to pay $150,000 in penalties and disqualified him from managing a corporation for four years. Holista had (among other things) made an ASX announcement in 2020 stating that orders for a certain quantity of NatShield had been placed by a company, which was false. Justice Derrington found that Dr Marnickavasagar had failed to discharge his duties to Holista with the degree of care and diligence expected of a director in his position and in doing so had caused Holista to contravene its disclosure obligations. Her Honour stated ‘shareholders and investors - are the persons for whom the continuous disclosure regime exists. Holista’s conduct had significant consequences for its financial position, and so for its investors, after the corrective disclosure ’. See ASIC v Holista Colltech Ltd [2024] FCA 244 .
OVER THE HORIZON
Funding drought in the Australian AI market indicative of larger tech-related issues? With the launch of OpenAI’s ChatGPT, AI effectively went ‘mainstream’ in the corporate realm in 2023. However, there is evidence of a slowdown in investments in AI startups in the first quarter of 2024, with Australian funding plummeting in comparison to the global average. The Australian Financial Review reports that Australian AI startups are supposedly ‘shrinking, rather than growing’ with entrepreneurs indicating that ‘the capital raising process has become impossibly difficult ’, and some going so far as to suggest that ‘AI investment is currently in a bubble ’. See article . The funding drought for AI is also reflected in data published by the ASX indicating that 88 tech companies with a combined market value of $32.7 billion have departed the ASX in the last five years. It seems the ASX has a way to go before it is viewed as ‘a viable destination for the majority of high-growth Australian start-ups ’. While there are success stories such as Afterpay and Wisetech, there is a clear historical trend for promising Australian tech companies being opportunistically acquired or taken private. See .