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 acceptance of a court-enforceable undertaking by the Australian Securities and Investments Commission (ASIC) from PKF Melbourne Corporate Pty Ltd (PKF) in which PKF admitted to various contraventions in connection with independent expert report engagements. We also examine the decision of the Takeovers Panel (Panel) to decline to conduct proceedings on a review application in relation to the affairs of Energy Resources of Australia Limited (ASX: ERA) (ERA), and a finding by the Federal Court of Australia in relation to conduct by iSignthis Ltd (iSignthis) (ASX:ISX) (currently known as Southern Cross Payments Ltd (ASX: SP1)) and its managing director and chief executive officer (CEO). 

In Over the Horizon, we examine the Australian Government’s announcement in relation to Australia’s Sustainable Finance Roadmap (Roadmap).

Regulation

PKF admits to contraventions in connection with independent expert report engagements. 

On 20 June 2024, ASIC announced that it had accepted a court-enforceable undertaking from PKF in which PKF admitted that it contravened its obligations as an Australian Financial Services licensee under the Corporations Act 2001 (Cth) (Corporations Act) in connection with three independent expert report engagements. This announcement followed an investigation by ASIC between June 2023 to March 2024 in which ASIC found that PKF failed to: (a) document internal policies and procedures demonstrating regulatory compliance; (b) implement internal policies on valuation methodology; (c) document how it reviewed the reports of technical specialists or assessed their competence; (d) implement adequate procedures for managing conflicts of interest; and (e) implement review processes to assess compliance with changes in legal or regulatory requirements or professional practice. PKF has undertaken that it ceases providing independent expert reports until an independent expert has reviewed its policies and procedures and PKF has implemented recommendations of this review. See ASIC media release. From a board’s perspective, it is important to note ASIC’s concern to ensure the integrity of the independent expert process, which it considers a linchpin of the disclosure requirements for a range of significant corporate finance transactions.

Legal

Takeovers Panel declines to conduct proceedings in relation to the affairs of ERA 

On 19 June 2024, the Panel announced it had declined to conduct proceedings in relation to the affairs of ERA. As discussed in a previous edition of Boardroom Brief, Zentree Investments Limited (Zentree) brought an application following the announcement of a potential capital raising by ERA. Zentree alleged that Rio Tinto Limited (Rio) had employed an unacceptable long-term strategy in which Rio, which has a voting power of 86.3% in ERA, would achieve 100% ownership without having to pay a premium for control to minority shareholders. The Panel considered the application premature in that the key circumstance underlying the application – ERA’s potential capital raising – had not yet commenced and therefore there was no certainty that unacceptable circumstances would arise. The Panel concluded there was no reasonable prospect that it would make a declaration of unacceptable circumstances and therefore declined to conduct proceedings. See Takeovers Panel media release.

Federal Court finds iSignthis Ltd breached its disclosure obligations and its former managing director and CEO breached his directors’ duties

On 21 June 2024, the Federal Court of Australia published McEvoy J’s reasons for his Honour’s decision that iSignthis had contravened the Corporations Act by failing to disclose certain financial information during 2018 to 2020. His Honour also found its former managing director and CEO, Mr Nickolas John Karantzis, had breached the Corporations Act by failing to ensure that information given to the ASX was not false or misleading and had also breached his directors’ duties. His Honour held that iSignthis had: (1) engaged in misleading and deceptive conduct; (2) failed to disclose the fact that although it had received $3 million in revenue, it had also incurred $2.85 million in one-off costs; and (3) failed to disclose to VISA’s reasons for terminating its relationship with iSignthis. In relation to Mr Karantzis’ conduct, his Honour found that Mr Karantzis failed to: (1) exercise his powers and discharge his duties with reasonable care and diligence; (2) was involved with iSignthis’ breaches of its disclosure obligations; and (3) failed to take reasonable steps to ensure information given to ASX about the termination by VISA was not false or misleading. ASIC is seeking pecuniary penalties and disqualification orders. See ASIC v iSignthis Limited [2024] FCA 669 and ASIC media release. The case is a salient reminder of directors’ potential exposure in the event of a failure to comply with continuous disclosure obligations in the Listing Rules.

Over the horizon

Australian Government releases its Sustainable Finance Roadmap to assist investors to transition to a net zero economy

On 19 June 2024, the Federal Treasurer, Dr Jim Chalmers, announced the Australian Government’s Roadmap which aims to help investors, companies and the public embrace Australia’s transition to a net zero economy. This news follows the passing of the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Cth) (as discussed in a previous edition of Boardroom Brief). See Treasury media release and Roadmap. The Roadmap outlines how the Australian Government, regulators and industry will team up to implement sustainable finance initiatives in a structured way, and details a timeline and plan to: (1) implement Australia’s mandatory corporate climate disclosure; (2) finalise the Australian Sustainable Finance Taxonomy so that sustainable activities are prioritised; (3) establish product labelling for trustworthy sustainable finance investments; and (4) create disclosure guidelines for businesses on net zero transition plans. The Roadmap also addresses greenwashing, creating a better understanding of climate risk and opportunities, and improving access to climate data. This initiative has received support from organisations including the Financial Services Council (FSC) and Investor Group on Climate Change (IGCC) welcoming the Roadmap for “help[ing] to address regulatory uncertainty … by providing common understanding about sustainability-related terms and labels” and “help[ing] investors, regulators, and stakeholders form a comprehensive understanding of the economy’s climate risks and opportunities”. See FSC media release and IGCC media release. With the opposition proposing an alternative agenda to address climate change through the widespread deployment of nuclear generation capacity, the stage is now set for energy security, and the challenges of transitioning to a net zero economy, to be a central issue in the next federal election.