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 APRA and ASIC’s joint consultation on the Financial Accountability Regime, the AICD’s review of its not-for-profit governance principles to consider the effect of developing ESG issues on not-for-profit organisations and ASIC’s request that ASX establish a stakeholder advisory group to support the CHESS replacement project.  We also examine the Takeovers Panel’s affirmation of the initial Panel’s decision not to make a declaration of unacceptable circumstances in relation to the affairs of A S P Aluminium Holdings Pty Ltd and the Panel’s decision to decline to conduct proceedings in relation to the affairs of Benjamin Hornigold Limited.

In Over the Horizon, we discuss a recent US court decision which highlights the difficulties that governments (including in Australia) are having with regulating crypto assets.

GOVERNANCE + REGULATION 

APRA and ASIC commence consultation on the Financial Accountability Regime.  On 20 July 2023, the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) released materials for consultation, to support the implementation of the Financial Accountability Regime (FAR).  Directors of APRA-regulated entities should note that the FAR will impose a more robust responsibility and accountability framework for such entities in the banking, insurance and superannuation sectors.  The FAR will replace the Banking Executive Accountability Regime and will be jointly administered by APRA and ASIC.  To support early engagement and enable timely implementation of the FAR, APRA and ASIC have released documents for consultation, including Financial Accountability Regime Act (Information for register) Regulator Rules 2023, ADI Key Functions descriptions, and Financial Accountability Regime (Consequential Amendments) Transitional Rules 2023.  APRA and ASIC are seeking industry feedback on these documents. The closing date for submissions is 17 August 2023.  See ASIC media release.  See also G+T Knowledge article.

AICD announces review of its Not-for-Profit Governance Principles.  On 17 July 2023, the Australian Institute of Company Directors (AICD) announced that it is undertaking a review of its Not-for-Profit Governance Principles (Principles).  The Principles provide a practical framework to help directors of not-for-profit (NFP) organisations to understand and achieve good governance.  The AICD will consult with various stakeholders, including senior NFP directors, industry bodies, and regulators.  The review will consider changes in regulatory obligations and community expectations that apply to NFP organisations and directors.  It will also consider “developments in Australian governance practices and emerging issues”, including in relation to ESG issues and cyber security.  The updated Principles are intended to be released in Q1 2024.  See AICD discussion paper and webpage.

ASX prepares to establish stakeholder advisory group to support CHESS replacement project.  On 14 July 2023, ASIC announced it has requested that the Australian Securities Exchange Ltd (ASX) establish a high-level industry advisory group to support ASX’s Clearing House Electronic Subregister System (CHESS) replacement project.  The group will advise on significant clearing and settlement issues relating to cash equities trading in Australian markets with a focus on CHESS replacement.  The proposed solution will be discussed at an industry roundtable on 2 August 2023 chaired by ASIC Chair Mr Joe Longo.  ASIC’s request follows longstanding industry concerns over the adequacy of ASX’s stakeholder governance and engagement and is “critical to the restoration of confidence in ASX’s decision-making and culture”.  See ASIC media release.

LEGAL

Takeovers Panel affirms initial decision not to make a declaration of unacceptable circumstances in relation to the affairs of ASP.  On 18 July 2023, the Takeovers Panel (Panel), acting as review Panel (Review Panel), affirmed the initial Panel’s decision to not make a declaration of unacceptable circumstances in relation to the affairs of A S P Aluminium Holdings Pty Ltd (ASP) in A S P Aluminium Holdings Pty Ltd [2023] ATP 8.  ASP is an unlisted company with less than 50 shareholders, including Villefranche Investments Pty Ltd as trustee of the Gates Family Trust (Villefranche).  Villefranche claimed that ASP contravened the 20% prohibition in Chapter 6 of the Corporations Act 2001 (Cth) (Corporations Act) by transferring ASP shares totalling 50.73% of ASP and attempting to reduce the number of its shareholders to below 50 to circumvent the 20% prohibition rule.  The Review Panel considered a review application by Villefranche which argued (among other things) that the initial Panel did not consider certain conduct and misconstrued the Panel’s jurisdiction to consider contested matters of law and fact.  However, the Review Panel dismissed Villefranche’s arguments and affirmed the decision not to make a declaration of unacceptable circumstances.  See A S P Aluminium Holdings Pty Ltd 02R [2023] ATP 9.

Takeovers Panel declines to conduct proceedings in relation to the affairs of Benjamin Hornigold Limited.  On 19 July 2023, the Panel declined to conduct proceedings on an application dated 7 July 2023 from Dawney & Co Ltd (Dawney) in relation to the affairs of Benjamin Hornigold Limited (BHD).  Dawney’s application alleged that three BHD directors (Directors) (and their respective related entities) were undisclosed associates and their accumulation of voting power was not disclosed, in contravention of sections 606 and 671B(1) of the Corporations Act (see previous edition of Boardroom Brief).  The Panel considered that Dawney did not provide sufficient evidence to justify the Panel making further enquiries into whether the Directors were associates resulting in contraventions of the Corporations Act.  The Panel also considered that the material Dawney provided in its application related to matters that occurred a while ago, concluding that there was no reasonable prospect it would make a declaration of unacceptable circumstances.  See Panel media release.

OVER THE HORIZON

US court decision highlights complexities of crypto regulation.  Internationally, both institutional and retail investors are warming to crypto assets a component of their investment portfolios.  Despite this, regulation remains piecemeal, complex and ambiguous.  On 13 July 2023, in response to long-running litigation involving Ripple Labs’ XRP token, a New York District Court held that crypto token sales constitute a security offering where they are sold directly to institutional investors, but not where they are sold on public exchanges to non-institutional investors.  Like Australia, the issue of securities in the US is highly regulated: issues of securities require detailed legal disclosures to investors and must be registered with the appropriate regulator.  Although the US decision may be overturned on appeal, it is emblematic of the difficulties that traditional institutions are having with crypto assets.  In Australia, the Commonwealth Government is formulating its own regulatory framework on crypto assets, with the Treasury publishing its Token Mapping Consultation Paper in February 2023 (Consultation Paper).  Although Australia’s securities laws are more adaptable to new and emerging technologies than comparable US laws, the Consultation Paper notes that there are many complexities regarding crypto assets that warrant legislative clarification.  It remains to be seen what the Government’s response to these complexities will be (and any flow on effects to the uptake of crypto), although it will undoubtedly take note of the controversial decision in the Ripple Labs case.  See the Ripple Labs decision and recent also media article.