Contents
On the pulse
ASIC action results in $1.25 million Court imposed penalty against AFSL 'licensee for hire' firm - see media release.
ASIC appeals Finder Wallet decision - see media release.
APRA releases letter on upcoming climate risk self-assessment survey - see letter .
APRA releases minor updates to the prudential framework for ADIs and insurers - see media release .
APRA publishes the December 2023 edition of the Quarterly Superannuation Product Statistics and Quarterly Superannuation Industry Publication - see media release .
APRA releases monthly authorised deposit-taking institution statistics for February 2024 - see statistics publication .
AUSTRAC: Register your interest for the upcoming 2024 RegTech Symposium - see website .
ACCC: HSBC pays penalties for alleged breaches of Consumer Data Right rules - see media release .
ACCC welcomes proposal for stronger merger laws - see media release .
Dominique Grubisa and DG Institute made misleading representations to students in wealth seminars - see media release .
AICD: New Chair effective 1 July 2024 - see media release .
AICD: Uncertainty weighing on Director Sentiment - see media release .
Renewable energy investors still wary of risk-return profile - see media release .
Treasury: Australian Merger Reform - see media release .
Attorney General: 300,000 fraud attempts blocked by Government's identity protection reforms - see media release .
Treasury: Financial services misconduct compensation scheme up and running - see media release .
Board Diversity Index 2024 released - see index .
Federal Court decision pierces the corporate veil for breach of director duties - see article .
G+T Insight - ASIC’s first greenwashing win in Federal Court - Ilona Millar and Jeremy Jose (5 April 2024).
G+T Insight - Government Announces Shake-up of Merger Control Regime - Simon Muys and Liana Witt (10 April 2024).
G+T Insight - The Rap Sheet: quarterly update on competition law enforcement and litigation - Simon Muys and Liana Witt (9 April 2024).
ASIC
ASIC action results in $1.25 million Court imposed penalty against AFSL 'licensee for hire' firm
Wholesale licensee Lanterne Fund Services Pty Ltd (Lanterne) has been ordered to pay a $1.25 million penalty by the Federal Court after it failed to comply with six of the general obligations of Australian financial services (AFS) licence holders.
In proceedings brought by ASIC, the Court found Lanterne breached its AFS licence obligations between March 2019 and October 2021 when it failed to:
have adequate risk management systems;
have adequate technological and human resources to provide the services covered by its AFS licence;
ensure that its representatives were adequately trained;
maintain the competence to provide financial services covered by its AFS licence;
take reasonable steps to ensure that its representatives complied with Australian financial services laws; and
do all things necessary to ensure that the financial services covered by the licence were provided efficiently, honestly and fairly.
Lanterne operated a 'licensee for hire' business model. It authorised over 60 corporate authorised representatives (CARs) and under them, 205 authorised representatives (ARs). The businesses of the CARs operating under Lanterne’s AFS licence included:
venture capital funds;
managed investment schemes;
agricultural advisory services;
wholesale funds management services;
corporate advisory services;
wholesale property funds;
energy trading funds;
digital asset funds; and
climate change advisory services.
In addition to a typical upfront fee of $5,000 per CAR, Lanterne charged each CAR up to $3,000 per month in ongoing monthly fees.
Lanterne authorised dozens of representatives to operate under its licence - who together had up to $1.685 billion in funds under management. Despite charging those representatives significant fees, Lanterne failed to maintain basic risk and compliance management systems. It maintained records using a paper filing system and, as the Court noted, had only one full-time employee, the CEO and sole director, Peter Cozens. These arrangements were woefully inadequate for a business of this scale and posed significant risk to investors. It is vital for the protection of consumers and investors that licensees take their compliance obligations seriously, and the penalties ordered in this matter highlight that importance.
Lanterne admitted that it:
did not have a formal or documented risk management system or any systems or processes in place to identify, assess or mitigate risks;
was reliant on CARs self-reporting any exceptions to compliance with their obligations and Lanterne had no formal or documented review or audit process to assess whether a representative complied with financial services laws;
conducted no discernible due diligence on the CAR and only limited background checks on the individuals involved with the CAR;
did not have enough appropriately qualified responsible managers with sufficient time to conduct their roles;
did not offer or provide training to its CARs or ARs, did not require evidence or information about training, and did not maintain any records of training;
had insufficient human resources to enable it to monitor and supervise its representatives;
did not have an adequate IT infrastructure, IT resources plan, security management plan, IT back-up protocol or disaster recovery plan and maintained its records using a paper filing system until September 2020.
In handing down the penalty, Justice McEvoy said the contraventions were serious and systemic:
‘Lanterne’s conduct fell well short of the reasonable standard of performance of an AFSL holder, which the public is entitled to expect. It failed to demonstrate competence in performing its obligations as an AFSL holder and competence in complying with its applicable statutory obligations.’
See judgement and ASIC media release .
ASIC appeals Finder Wallet decision
ASIC has appealed the Federal Court’s decision to dismiss ASIC’s proceedings against Finder Wallet Pty Ltd for allegedly providing unlicensed financial services, breaching product disclosure requirements and failing to comply with design and distribution obligations in relation to its crypto-asset related product ‘Finder Earn’.
ASIC had alleged that the Finder Earn product was a debenture. The Federal Court disagreed and dismissed ASIC’s proceedings on 14 March 2024.
ASIC has appealed this decision because it is concerned that the Finder Earn product was offered without the appropriate licence or authorisation and therefore without the benefit of important consumer protections.
The appeal will be heard by the Full Federal Court on a date to be determined.
See ASIC media release and Notice of Appeal .
ASIC key actions and proceedings:
ASIC brings first action against a director for failing to have a director identification number - ASIC has commenced the first prosecution action against a director for allegedly failing to comply with the obligation to have a director identification number. See ASIC media release .
Federal Court finds Auto & General Insurance Company did not include an unfair contract term in insurance contracts - The Federal Court has found that a term requiring policy holders to notify Auto & General Insurance Company Limited (Auto & General) of any changes to their home and contents is not unfair under the ASIC Act. Gilbert + Tobin acted for Auto & General. See ASIC media release .
Federal Court dismisses application to prevent ASIC investigation - The Federal Court has dismissed an application by Provide Nominees Pty Ltd (Provide Capital) to prevent ASIC’s further investigation of the entity. See ASIC media release .
Former Sydney financial adviser charged with dishonest conduct - Sydney-based former financial adviser David Valvo appeared before the Downing Centre Local Court on 2 April 2024 charged with 12 counts of dishonest conduct in the course of carrying on a financial services business, Your Financial Freedom Pty Ltd. See ASIC media release .
ASIC cancels licence of Menon & Associates Pty Ltd - ASIC has cancelled the Australian financial services (AFS) licence of Menon & Associates Pty Ltd (489130). The licence was cancelled on the basis that Menon & Associates Pty Ltd is no longer carrying on a financial services business. See ASIC media release .
Court finds Sunshine Loans charged customers prohibited fees - The Federal Court has found that, between July 2016 and November 2020, small amount lender, Sunshine Loans entered into over 670,000 contracts which included an amendment or rescheduling fee that is not permitted by the National Credit Code. See ASIC media release .
ASIC obtains Federal Court orders appointing receivers over digital currency assets of blockchain mining companies - ASIC has commenced civil proceedings against blockchain mining companies NGS Crypto Pty Ltd, NGS Digital Pty Ltd and NGS Group Ltd and the sole directors of those respective companies, Brett Mendham, Ryan Brown and Mark Ten Caten. See ASIC media release .
Federal Court winds up retail OTC derivative issuer Prospero Markets Pty Ltd - The Federal Court has ordered that Prospero Markets Pty Ltd (Prospero) be wound up on just and equitable grounds and that liquidators be appointed following an application by ASIC. ASIC applied for these orders because it holds a broad range of concerns regarding the management of Prospero’s business, including in relation to compliance with its AFS licence conditions and obligations as an OTC derivatives issuer under the Corporations Act. See ASIC media release .
James Mawhinney arrested and charged following ASIC criminal investigation - Following an ASIC investigation, James Mawhinney, of Port Melbourne, Victoria, has been arrested and charged with four counts of engaging in dishonest conduct while carrying on a financial services business. See ASIC media release .
APRA
APRA releases letter on upcoming climate risk self-assessment survey
APRA has released a cross-industry letter to advise on the scope, purpose and timing of its 2024 voluntary climate risk self-assessment survey of APRA-regulated entities. This survey follows on from APRA’s 2022 climate risk self-assessment survey and insights publication.
The survey will improve both APRA’s and industry’s understanding of the approaches being taken by APRA-regulated entities to identify, assess and manage climate-related financial risks. In particular, the survey will gather insights on how APRA-regulated entities are currently managing these risks, using APRA’s Prudential Practice Guide CPG 229 Climate Change Financial Risks, published on 26 November 2021, as the benchmark. This year, the survey will also include additional questions on transition plans and nature risk.
See APRA letter.
APRA releases minor updates to the prudential framework for ADIs and insurers
APRA has released for consultation on a number of minor updates to the prudential framework for authorised deposit-taking institutions (ADIs) and general, life and private health insurers.
This consultation is part of the minor framework update process, intended to ensure technical and clarifying changes to the prudential framework can be made in a timely manner. The proposed amendments are primarily technical clarifications and are not a material change in policy settings.
Submissions are requested to be provided no later than 3 May 2024.
See APRA media release .
APRA publishes the December 2023 edition of the Quarterly Superannuation Product Statistics and Quarterly Superannuation Industry Publication
APRA has released the Quarterly Superannuation Industry Publication and the Quarterly Superannuation Product Statistics for December 2023.
The December edition of the Quarterly Superannuation Industry Publication includes, for the first time, industry investments by asset class using the enhanced classifications introduced under the Superannuation Data Transformation.
Copies of the publications are available on the APRA website at: Quarterly Superannuation Industry Publication and the Quarterly Superannuation Product Statistics .
APRA releases monthly authorised deposit-taking institution statistics for February 2024
APRA has published its monthly ADI statistics for February 2024.
See statistics publication .
AUSTRAC
Register your interest for the upcoming 2024 RegTech Symposium
RegTech Symposiums are an AUSTRAC initiative that provide high-level information and guidance to the Australian RegTech industry. These events assist the development of more effective technology solutions for anti-money laundering and counter terrorism financing (AML/CTF) compliance.
RegTech Symposiums are held in collaboration with the RegTech Association. They cover how RegTechs can support reporting entities to comply with their AML/CTF obligations.
The first RegTech Symposium was held last year on 1 November 2023 in Sydney, and was well received by attendees.
AUSTRAC and the RegTech Association will be co-hosting the next RegTech Symposium in Melbourne on Tuesday 7 May 2024.
Attendees will have the opportunity to hear from AUSTRAC and partner agencies, and gain insights into how RegTech’s and their technology solutions can support AUSTRAC reporting entities to comply with their AML/CTF obligations.
The event will focus on the same subjects as the Sydney symposium, transaction monitoring programs and quality reporting.
Sessions to be featured include:
transaction monitoring programs, quality reporting and the role of an administrator;
governance and assurance of transaction monitoring programs and reporting obligations; and
actionable financial intelligence and law enforcement agency outcomes.
You can register your interest to attend the May 2024 Melbourne symposium by completing the Expression of Interest Form . This does not guarantee your attendance; however, AUSTRAC will contact you in the coming weeks with further details. Please note registrations close on 18 April 2024.
For further information, visit the RegTechs page on AUSTRAC’s website or email AUSTRAC’s RechTech inbox .
Other bodies and regulators
ACCC: HSBC pays penalties for alleged breaches of Consumer Data Right rules
HSBC Bank Australia Limited (HSBC) has paid penalties totalling $33,000 after the ACCC issued it with two infringement notices for alleged contraventions of the Consumer Data Right (CDR) rules.
The infringement notices related to alleged failures by HSBC to disclose complete mortgage interest rate details and accurate credit card balances in response to separate requests for this data made via the CDR.
The ACCC investigated allegations that, from at least 20 February 2023 to 25 April 2023, HSBC failed to accurately disclose its fixed rate home loan interest rates, requested via the CDR. Some of the product data HSBC disclosed for its fixed rate home loan products did not include the corresponding featured interest rates advertised on its website.
‘If accurate home loan rates are not provided, product data users, such as comparator sites and brokers, are unable to present accurate comparisons of home loan products to consumers. This has the potential to lead to consumers making decisions based on incorrect information about home loan interest rates on offer,’ ACCC Commissioner Peter Crone said.
The ACCC also investigated allegations that, from at least 9 January 2023 to 27 May 2023, HSBC failed to accurately disclose credit card account balance data after receiving consumer data requests.
See ACCC media release .
ACCC welcomes proposal for stronger merger laws
The ACCC welcomes the Government’s announcement that it will move to strengthen Australia’s merger laws, bringing Australia into line with most other developed economies. The proposed reforms follow submissions by the ACCC calling for a fit for purpose merger regime to better identify and prevent anti-competitive transactions.
The new laws are set to come into force on 1 January 2026, subject to the passage of legislation through Parliament.
Both ACCC Chair Gina Cass-Gottlieb and the Treasurer endorse the move to strengthen Australia’s merger laws, citing it will benefit Australian consumers and businesses of all sizes, as well as the wider economy. Stronger merger laws are crucial to ensure that anti-competitive mergers do not proceed. Weakened competition fosters higher prices, less choice and less innovation.
Currently, Australia's merger regime does not require merger parties to notify the ACCC of proposed acquisitions or to wait for ACCC clearance before proceeding. The proposed reforms will (among other things) introduce a mandatory notification requirement for merger deals above certain thresholds and a prohibition on merger transactions proceeding without receiving a determination from the ACCC or Tribunal.
The ACCC also welcomes the Treasurer’s announcement that merger laws will be updated to better deal with serial acquisitions, where a number of smaller transactions occur over time that result in serious harms to competition.
See ACCC media release .
The AICD has announced experienced director Naomi Edwards FAICD as its new Chair effective 1 July 2024.
The Australian Institute of Company Directors (AICD) has announced experienced director Naomi Edwards FAICD as its new Chair effective 1 July 2024.
Ms Edwards previously served on the AICD’s Board from 2018 to 2022 and will succeed current Chair John Atkin FAICD following a planned Chair succession process that has been underway since last year and noted at the AICD’s 2023 Annual General Meeting.
See AICD media release .
AICD: Uncertainty weighing on Director Sentiment
The latest Director Sentiment Index (DSI) released by the AICD indicates a high level of uncertainty both on the economic front and on governance issues.
Despite a slight increase in the DSI, which is up 0.5 from -19.7 in the last survey to -19.2 in the first half of 2024, the index has remained in negative territory for the fourth consecutive survey.
The perception of business conditions nationally, and across all states and sectors has continued to decline, as has the level of optimism about the current state of the economy. Notwithstanding, directors see the prospects for the coming twelve months as somewhat brighter and the perceived risk of Australia going into recession has eased.
The top four economic challenges facing Australian businesses have remained unchanged but cost of living (40%) has now surpassed labour shortages (35%) as the number one concern, followed by productivity growth (33%) and inflation and interest rates (28%).
Housing affordability and supply continues to be the most pressing issue for the Government to address in the short term, followed by productivity growth and taxation reform. Climate change is again the top priority for the longer term.
Tight monetary policy is factoring strongly in director sentiment, with:
41% stating that the RBA’s current interest rate settings are impacting negatively on their businesses;
78% stating that any further interest rate rises would negatively impact the economy; and
68% stating that they thought a cut in interest rates would have a positive effect.
See AICD media release .
Legislation and proposed legislation
Treasury: Australian Merger Reform
On the 10th of April, the Government released its proposed reforms for merger control in Australia. Exposure draft legislation is expected later this year with the new merger control process proposed to apply from 1 January 2026.
Public consultation feedback from 20 November 2023 to 19 January 2024 informed the design of merger reform.
Key aspects of the Government’s merger reforms are:
Mandatory notification regime and prohibition on mergers above a threshold cannot proceed without approval: As expected and perhaps the least surprising or controversial legal development, the reforms convert Australia’s merger process from a voluntary regime to a mandatory and suspensory process. Merger parties will be prevented from completing a transaction unless they have notified the ACCC and the deal has been cleared. To address ACCC concerns regarding creeping acquisitions, all mergers within the previous three years by the acquirer or the target will be aggregated for the purposes of assessing whether a merger meets the notification thresholds.
Decision maker and timeframes: The ACCC will be the first instance, administrative decision maker. If the ACCC does not raise competition concerns or does not make a decision within 30 working days, the merger will be permitted to proceed, with the option of a ‘fast-track’ determination if no concerns are identified after 15 working days. Where competition concerns are raised, the ACCC will undertake an in-depth “Phase II” assessment to be completed within a 4-and-a-half-month period.
Clearance as an administrative decision and removal of the Federal Court: Critically, Treasury intends for the process to have a greater focus on economic analysis and consideration of market structure, with less emphasis on evidentiary issues. A merger may proceed unless the ACCC “reasonably believes” it would have the effect or likely effect of substantially lessening competition. Parties will no longer have any ability to challenge the merits of an ACCC decision before the Federal Court. Instead, parties will be entitled to apply for limited merits review before the Competition Tribunal. This will restrict parties to a review that is substantially “on the papers” limited to the material that had been put before the ACCC.
Transparency: Treasury has indicated that the ACCC will be required to publish reasons for its decisions, together with any findings of fact. The ACCC does not look likely to be required to disclose the underlying evidence or data on which its decisions were based, or to expose this material to challenge. In that sense, the process appears to provide incrementally more transparency than the current informal clearance process, but significantly less than currently exists before the Federal Court or in the Competition Tribunal.
Merger notification thresholds: The thresholds are still to be developed but will involve both monetary values (e.g. revenue and turnover) as well as market share measures. The thresholds will be set with an objective that the ACCC will continue to assess approximately 300 mergers each year, consistent with the current process.
Role of market power and other structural factors in the competition test and merger factors: The competition test would be expanded to expressly include consideration of “market position”, that is, economic and financial power of a business, and whether a merger is likely to strengthen or entrench a position of substantial market power. This is consistent with a general move under the reforms towards emphasis on market structure in the analysis of mergers. The merger factors would also be expanded to include a number of structural considerations.
For more information, see G+T Insight - Government Announces Shake-up of Merger Control Regime , Treasury report , and Treasurer’s media release .
Attorney General: 300,000 fraud attempts blocked by Government's identity protection reforms
New identity protection measures introduced by the Government in the wake of the Optus data breach have blocked over 300,000 fraudulent attempts to use stolen identity credentials. The sensitive personal details of 10 million current and former Optus customers were compromised in the September 2022 data breach, including crucial identity documents such as passports and driving licences.
The Optus data breach exposed the fact that after a decade lacking digital reform, Australia’s laws and protections were inadequate for the digital age. The Government passed new laws to increase the maximum penalties for serious or repeated privacy breaches and establishing the Identity Verification Service Credential Protection Register.
The Register protects those whose personal details have been stolen from suffering further harm by preventing their compromised credentials being used as forms of identity. The legitimate owners of the documents can continue to use them for their primary purpose, such as being able to travel with their Australian passport.
The Government’s response to the landmark review of the Privacy Act commits to progressing reforms to give individuals greater control over their privacy and make entities more accountable for handling information appropriately and keeping it secure. These reforms complement other critical reforms being progressed by the Government, including Digital ID, the 2023-2030 Australian Cyber Security Strategy, the National Strategy for Identity Resilience, and Supporting Responsible AI in Australia.
See Attorney General’s media release .
Treasury: Financial services misconduct compensation scheme up and running
The Compensation Scheme of Last Resort (CSLR) is now beginning to process claims for compensation payments from eligible consumers. The Government says it will strengthen the financial system and provide victims of financial services misconduct with access to redress and compensation.
The CSLR provides compensation of up to $150,000 to eligible consumers who have an unpaid determination from the Australian Financial Complaints Authority relating to the provision of personal financial advice, credit intermediation, securities dealing and credit provision.
The CSLR was first proposed by the 2017 Ramsay Review, supported by the Banking Royal Commission, but was not delivered by the former Coalition government. The government is delivering on its commitment to establish the CSLR, finalising one of the last outstanding recommendations of the Royal Commission.
See media release from the Assistant Treasurer and Minister for Financial Services.
Board Diversity Index 2024 released
A On 5 April 2024, Watermark Search International and the Governance Institute of Australia released their 2024 Board Diversity Index . The national report, now in its tenth year, examined the 300 organisations making up the ASX300 against the criteria of:
gender;
cultural background;
skills and experience;
age; and
tenure and independence.
In 2024, for the second year, the report also analysed the following types of diversity:
First Nations;
LGBTQ+;
Disability; and
socioeconomic background.
At a high level, the report found that while great strides have been made on gender since 2015, with an 89% increase in the number of board positions held by women, there has been very little progress in other areas, such as cultural background and representation of LGBTQ+ or people with disability. Other headline insights from the report include:
36% of board positions are now occupied by women (up from 35% in 2023) and more than two-thirds (69%) of ASX300 boards now have 30% or more women.
The average age of a director in 2024 is 61 years (up from 60 years for the previous seven years) and there has been a decline in the number of directors under 50 years of age since 2021 (for men, 6% down from 9% and for women, 11% down from 17%).
Australian boards are still very much dominated by white people of Anglo-Celtic and European ethnicity, with a higher representation of Anglo-Celtics (91.2%) in 2024 than in 2017 (90.5%).
There has been a substantial increase in the percentage of board directors with accounting, banking or financial experience (40%). This increase may reflect a more conservative approach by companies when choosing directors during a challenging economic time.
Four directors openly identify as LGBTQ+ in publicly available reports, although research by the Australian LGBTQ+ Board & Executive Inclusion (ALBEI) shows there are as many as 20 LGBTQ+ directors in 2024, doubling ALBEI's figures from last year.
In other areas of diversity and inclusion, most boards still remain unrepresentative of the general population, in particular:
First Nations directors have not grown in number (still four in 2024), although an extra board position is now occupied by a First Nations director, bringing the total to seven, up from six in 2023; and
directors from culturally diverse backgrounds occupy the same number of board seats at 183 (9%) as in 2023.
See the 2024 Board Diversity Index here .
Corporate cases
Federal Court decision pierces the corporate veil for breach of director duties
The recent case of Australian Securities and Investments Commission v Holista Colltech Ltd [2024] FCA 244 is a good example of the willingness of regulators such as ASIC to use personal liability of directors as a powerful tool in their deterrence efforts.
The Federal Court pierced the corporate veil by holding both the company and its director personally liable for making misleading representations and participating in conduct which led to breaches of the company’s continuous disclosure obligations under the Corporations Act 2001 (Cth) (Corporations Act).
Holista Colltech Limited (Holista) is a Western Australian biotech company and distributer of a sanitiser spray product called ‘NatShield’.
On 9 April 2020, Holista announced to the ASX that it had received a $3.8 million order of 415,000 bottles of NatShield placed by Health Therapies LLC (Health Therapies) which was to be delivered over the next two months. At the time of the announcement, no such order had been placed.
On 9 July 2020, Holista further announced to the ASX that the targeted sales revenue of $3.8 million from Health Therapies, as stated in the 9 April 2020 ASX announcement, had been scaled back and/or delayed by the purchasing parties. Holista said it now only expected a revenue of $500,000 for the sale of NatShield globally, with approximately a third of those sales coming from Health Therapies.
Separately, NatShield utilises an active ingredient called ‘Path-Away’ which is a proprietary formula owned or otherwise held by Global Infection Control Consultants LLC (GICC). There were discussions between Holista and GICC concerning Holista’s Path-Away distribution rights, product development and other ancillary matters. This resulted in a draft Binding Collaboration Term Sheet (Term Sheet) being prepared. Two letters dated 17 and 20 April 2020 were provided to the ASX in which Holista represented that the Term Sheet had been executed between Holista and GICC at a certain time when in fact the Term Sheet had not been executed by GICC at that particular date.
On 4 August 2021, ASIC commenced proceedings against Holista and its Managing Director and Chief Executive Officer, Dr Rajendran Marnickavasagar, seeking declaratory relief and pecuniary penalties.
Justice Sarah Derrington of the Federal Court found in favour of ASIC and ordered Holista to pay a penalty of $1.8 million. The Court held Holista breached its continuous disclosure obligations under the Corporations Act by failing to notify the ASX that it had not placed orders for, nor was it likely to receive orders for 415,000 bottles of NatShield totalling $3.8 million in revenue from Health Therapies for delivery between April and June 2020. Further, Holista had engaged in misleading conduct by representing such a statement in its 9 April 2020 ASX announcement.
The Court also held that Dr Marnickavasagar was personally liable for a breach of section 180 of the Corporations Act (i.e., the care and diligence civil obligation) by failing to discharge his duties to Holista with the requisite degree of care and diligence expected of a director in his position. The actions of Dr Marnickavasagar’s considered by the Court as contravening section 180 include making, or authorising or permitting Holista to make or give:
the 9 April 2020 ASX announcement, which included misleading representations regarding the NatShield sales; and
the information in the letters dated 17 and 20 April 2020 to the ASX, being false and misleading in relation to when the Term Sheet was executed.
Dr Marnickavasagar breached his director duties by failing to take all necessary steps to ensure that any announcement or other document he approved for submission to the ASX was not misleading and failing to withdraw or correct existing announcements or documents made to the ASX so that they were not misleading.
The Court found that Dr Marnickavasagar’s actions allowed Holista to contravene its continuous disclosure obligations and make misleading representations to the ASX and consequently, exposed Holista to the risk of legal proceedings being initiated against it by ASIC.
For breaching his duties as director, Dr Marnickavasagar was ordered to pay $200,000 towards ASIC’s costs of the proceedings and was disqualified from managing a corporation for four years.
In general, directors are not personally liable for actions taken on behalf of a company they direct. However, in some circumstances the corporate veil may be lifted and directors can be held personally liable for a company’s actions. One situation in which this may occur is where there has been a breach of a director’s duties such as in this case, where ASIC has chosen to take enforcement action against not just the company but also the directors for breach of their duties.
The decision in this case highlights the importance of company directors knowing and understanding their duties under the Corporations Act, the legal obligations and situations which could give rise to personal liability and how to mitigate against such risks. In addition, ASIC Chair Mr Joe Longo highlighted in a recent speech, “Being a director isn’t meant to be easy ”, that it is important that directors act honestly, have a good understanding of all aspects of the company’s business and challenge management to ensure they receive appropriate advice.
“Duty to disclose” provisions not an unfair term:
Australian Securities and Investments Commission v Auto & General Insurance Company Limited [2024] FCA 272
In the recent judgment of Australian Securities and Investments Commission v Auto & General Insurance Company Limited [2024] FCA 272, Jackman J dismissed the proceedings, finding that the "duty to disclose" provisions across 1.378 million insurance contracts made by defendant, Auto & General, was not an unfair contract term pursuant to s12BG of the ASIC Act. Gilbert + Tobin successfully represented the defendant.
ASIC claimed that the notification clause beginning with the sub-heading ‘Tell us if anything changes while you’re insured with us ’ in the relevant contract of insurance was unfair within the meaning of ss 12BF(1)(a) and 12BG(1) of the ASIC Act.
Jackman J held that:
The clause did not create an imbalance of the parties’ rights. The duty to disclose changes was ‘simply a reflection of the nature of the contract ’ (at [76]).
The clause was reasonably necessary to protect the defendant's legitimate interests. An insurer has a legitimate interest in being able to ‘choose which risks it will insure against, and the information-gathering process ensures that the defendant is not covering risks it is unwilling to insure ’ (at [91]); and
The clause imposed a detriment on the insured under s12BG(1)(c), accepting ASIC’s submission that ‘any reliance on the clause by the defendant will necessarily involve the reduction of the consumer’s claim (in whole or in part), or the cancellation of the consumer’s policy, and each of those things is properly characterised as a detriment .’ (at [96]-[97]).
Jackman J also considered that the transparency of the clause (or lack of it), informs the assessment of unfairness. His Honour found that because the clause was reasonably necessary to protect the defendant's legitimate interests, the ‘lack of transparency in the term does not yield any different result .’ (at [109]).
G+T Articles
G+T Insight - ASIC’s first greenwashing win in Federal Court - discusses the Federal Court's finding that Vanguard Investments Australia Ltd made false or misleading representations about an ethically conscious fund, marking ASIC's first successful greenwashing action and emphasizing the importance of accurate environmental, social, and governance claims in financial products amidst a growing global regulatory focus on combatting greenwashing - Ilona Millar and Jeremy Jose (5 April 2024)
G+T Insight - Government Announces Shake-up of Merger Control Regime - discusses the Australian Government's announcement of proposed reforms to the merger control regime, aimed at making the process mandatory, faster, stronger, simpler, and more transparent, with the ACCC playing a central role in decision-making, set to apply from 1 January 2026 - Simon Muys and Liana Witt (10 April 2024)
G+T Insight - The Rap Sheet: quarterly update on competition law enforcement and litigation - the quarterly G+T update targeted at in-house legal and compliance teams covering ‘must know’ recent developments in competition litigation and enforcement - Elizabeth Every and Simon Muys (9 April 2024)
Calendar dates
19 April 2024 - Submission deadline for consultation on proposed key functions list and key functions descriptions for insurance and superannuation entities under FAR regime
28 June 2024 - Final report due in the Senate inquiry into greenwashing
30 June 2024 - The regulators expect ADIs and their authorised NOHCs to submit registration applications and make relevant notifications as promptly as possible under FAR regime, and by no later than 30 June 2024
30 June 2024 - Report due regarding the inquiry into ASIC’s capacity and capability to respond to reports of alleged misconduct