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 prison sentence handed to a company director for dishonest conduct, an application received by the Takeovers Panel in relation to the affairs of Energy Resources of Australia Limited (ASX: ERA) (ERA), and the Panel’s reasons for its decision on an application in relation to the affairs of Metallica Minerals Limited (Metallica).
In Over the Horizon, we discuss the Federal Government’s release of further safety standards with respect to the use of artificial intelligence (AI) in governance, this time for all Australian organisations.
Legal
Supreme Court of New South Wales hands former director prison sentence for dishonest conduct
On 2 September 2024, the Australian Securities and Investments Commission announced that the Supreme Court of New South Wales had sentenced Mr Tony Iervasi to eleven years’ imprisonment for criminal charges relating to the operation of the Courtenay House ponzi scheme. Mr Iervasi is a former director of Courtenay House Pty Ltd and Courtenay House Capital Trading Group Pty Ltd, which had previously offered returns to investors on capital allegedly invested in foreign exchange and futures commodities when they were not licenced to do so. On 8 November 2022, Mr Iervasi pleaded guilty to four offences of engaging in dishonest conduct in relation to a financial product or service when he was the sole director and shareholder of Courtenay House Pty Ltd, which raised approximately $180m between 2010 and 2017 from around 585 investors, and to carrying on an unlicensed financial services business. While the sentence included a significant discount considering Mr Iervasi’s guilty plea, Justice Sweeney noted that Mr Iervasi was dishonest on an ‘egregious scale’, and took into account Mr Iervasi’s sustained deception, the large number of victims, the total amount of funds raised, and the total amount of funds used for his personal benefit. The case demonstrates that imprisonment remains an important weapon in the regulatory arsenal for the most series cases of corporate misconduct.
Takeovers Panel receives application in relation to the affairs of Energy Resources of Australia Limited
On 5 September 2024, the Panel announced that it has received an application from Zentree Investments Limited and Packer & Co Ltd, both shareholders in ERA, in relation to the affairs of ERA. The applicants allege that (among other things) a proposed $880 million capital raise announced by ERA on 29 August 2024 will result in Rio Tinto Limited (ASX: RIO) (Rio), which has voting power of 86.3% in ERA, increasing its voting power in ERA above the compulsory acquisition threshold of 90% in breach of Chapter 6 of the Corporations Act 2001 (Cth). Relevantly, ERA announced that it had received binding pre-commitments from Rio to subscribe for approximately $760 million of the proposed capital raise, and Rio provided an intention statement to ERA that it ‘intends to proceed with compulsory acquisition of all remaining ERA shares’ if the proposed capital raising results in it holding 90% or more of the shares in ERA. The applicants seek various interim and final orders to protect the rights and interests of minority shareholders in ERA. As discussed in a previous edition of Boardroom Brief , the Panel previously declined to conduct proceedings on an application by Zentree Investments Limited in relation to the affairs of ERA on the basis that the application was premature because, at the time of the application, the size, structure and terms of the proposed equity raise had not been finalised and announced by ERA. A sitting Panel has not been appointed at this stage and no decision has been made whether to conduct proceedings.
Takeovers Panel publishes reasons for declining to make a declaration of unacceptable circumstances in relation to the affairs of Metallica Minerals Limited
As discussed in a previous edition of Boardroom Brief , on 5 June 2024, the Panel announced it had declined to make a declaration of unacceptable circumstances in relation to the affairs of Metallica. The application concerned Metallica’s refusal to release Diatreme Resources Limited - the bidder in relation to a takeover offer for Metallica - from a standstill agreement and Metallica’s disclosure to its shareholders about the likelihood of a competing offer for Metallica. On 6 September 2024, the Panel published the reasons for its decision. The Panel considered that the publication of a second supplementary target’s statement dated 4 June 2024 and the execution of a second revised deed poll amending the relevant standstill agreement dated 4 June 2024 sufficiently addressed the Panel’s concerns about disclosure and standstill issues that could give rise to potential unacceptable circumstances. On this basis, the Panel considered that it was not against the public interest to decline to make a declaration of unacceptable circumstances. In its reasons, the Panel noted that ‘these proceedings are the first time substantive issues around a standstill agreement have come before the Panel since 2009 ’. Considering that standstills are voluntary arrangements between parties, the Panel emphasised caution against relying on Panel intervention to ‘rewrite the terms of a standstill after the fact’.
Over the horizon
Further developments in Federal Government’s AI policy
As discussed in a previous edition of Boardroom Brief , the Federal Government introduced its AI policy for non-corporate Commonwealth entities on 1 September 2024. This week has seen the Federal Government continue to pursue its AI strategy on the development and deployment of AI across corporate Australia, with 5 September 2024 marking the Federal Government’s release of the Voluntary AI Safety Standard (Standard). The Standard seeks to deliver regulatory clarity for all Australian organisations on how to safely and responsibly use and innovate with AI. The new Standard consists of ten voluntary guardrails applicable to all organisations throughout the AI supply chain, including the publication of accountability processes and implementing data governance measures to protect AI systems. According to the Minister for Industry and Science, the Hon Ed Husic, the Standard is designed to build trust in AI by providing protections ‘ if things go off the rails ’. Accompanying the Standard is a proposals paper for introducing mandatory guardrails for AI in high-risk settings, setting out the Federal Government’s proposed approach to defining high-risk AI and regulatory options to mandate certain guardrails. While the Standard usefully sets the scene for limiting the potential risks of AI integration at an organisational level, it provides little clarity on what ‘off the rails’ practically looks like. The Standard is evidence of the difficult demands on public and private institutions to minimise their exposure to the risks of AI alongside trying to capitalise on $45 billion to $115 billion in potential growth it offers, without truly understanding the intricacies of either. Public consultation on the proposed regulatory approach closes on 4 October 2024.