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 report released by the Australian Securities and Investments Commission (ASIC) highlighting potential deficiencies in governance frameworks for the use of artificial intelligence (AI), the Federal Court of Australia’s finding that a term in certain insurance policies issued by HCF Life Insurance Company Pty Ltd (HCF Life) was liable to mislead the public and the Takeovers Panel’s reasons for its decision on an application in relation to the affairs of Tissue Repair Ltd (ASX: TRP) (TRP). We also examine the proceedings commenced by the Australian Competition and Consumer Commission (ACCC) against Optus Mobile Pty Ltd (Optus) for allegedly engaging in unconscionable conduct and the disqualification of a director by ASIC for the maximum period of five years for a serious breach of directors’ duties.

In Over the Horizon, we discuss the release of a roadmap on upgrading market access to decision-useful nature-related data by the Taskforce on Nature-related Financial Disclosure (TNFD) and the increasing importance of this data to all organisations.

Regulation

ASIC report highlights governance frameworks lag adoption of AI

On 29 October 2024, ASIC published a report titled ‘Beware the gap: Governance arrangements in the face of AI innovation’ which reports on the regulator’s analysis of 624 AI use cases used or being developed by 23 Australian financial services licensees as at December 2023. ASIC found that there has been a rapid acceleration in the volume of AI use cases which, in some cases, has outpaced AI governance arrangements. The report notes that nearly half of the licensees analysed did not have governance policies in place that considered consumer fairness or bias and even fewer had policies governing the disclosure of AI use to consumers. Best practice comprises governance arrangements with clear objectives and principles for AI use, consideration of the skills, capabilities and technological infrastructure required to deliver on the organisation’s strategy for AI use, and oversight that involved cross-functional, executive-level committees with clear responsibility and decision-making authority over AI use and governance. Given that risk management arrangements are typically slow to change, directors should be cognisant that gaps between the use of AI and the implementation of appropriate governance frameworks may widen as the rate of AI adoption continues to increase.

ACCC commences proceedings against Optus Mobile Pty Ltd for alleged unconscionable conduct

On 31 October 2024, the ACCC announced it had commenced proceedings in the Federal Court of Australia against Optus. The ACCC alleges that Optus engaged in unconscionable conduct, in contravention of the Australian Consumer Law, in selling telecommunications goods and services to about 429 consumers. The ACCC noted the majority of the targeted consumers were vulnerable or disadvantaged (including those with limited financial and legal literacy and those from culturally and linguistically diverse backgrounds) who often did not want or need such goods or services. The ACCC alleges that Optus’ practices were incentivised by commission-based remuneration from sale staff, with Optus taking steps to protect its own financial interests by engaging debt collectors to pursue many of these consumers, despite knowing that they were subject to inappropriate or fraudulent sales conduct. ACCC Chair, Ms Gina Cass-Gottlieb, warned the ACCC “will take appropriate enforcement action against breaches of the Australian Consumer Law’ and that the ACCC pays ‘particular attention to conduct that disproportionately impacts consumers who are experiencing vulnerability or disadvantage”.

ASIC disqualifies director for serious failure to comply with directors’ duties

On 30 October 2024, ASIC announced that it had disqualified Mr Constandinos Ganatzos from managing corporations for five years due to his involvement in 21 companies that owed a combined total of $71,144,235 to unsecured creditors. ASIC found that Mr Ganatzos did not know or understand his duties as a director and had ‘completely failed’ to discharge those duties. In imposing the maximum disqualification possible, ASIC found that Mr Ganatzos had (among other things) failed to participate in the management of five companies (notwithstanding that he had agreed to act as director), failed to ensure the keeping of adequate financial records by three companies, failed to ensure the lodgement of business activity statements and tax returns for four companies, and had allowed a company to trade while insolvent.

Legal

Federal Court of Australia finds that a term in HCF Life policies was liable to mislead the public

On 28 October 2024, the Federal Court of Australia published the reasons for Jackman J’s decision that a ‘pre-existing condition’ term in certain insurance policies issued by HCF Life was liable to mislead the public. In effect, the relevant term suggested that HCF Life could deny coverage in relation to a pre-existing medical condition, even if the customer was not aware (and a reasonable person would not have been aware) of that condition, if a medical practitioner subsequently formed an opinion that signs or symptoms of the condition existed before the customer entered into the insurance contract. Justice Jackman noted that an ordinary and reasonable reader would be ignorant that this term is partially unenforceable given that HCF Life did not disclose this in the product disclosure statements for the relevant policies. ASIC has stated it will seek penalties against HCF Life.

Takeovers Panel publishes reasons for decision in relation to the affairs of Tissue Repair Ltd

On 28 October 2024, the Panel published the reasons for its decision to decline to conduct proceedings on an application by TRP in relation to its affairs. As discussed in a previous edition of Boardroom Brief, TRP’s application concerned alleged undisclosed associations between certain shareholders of TRP who were seeking to change the composition of TRP’s board and exert control or influence over the conduct of TRP’s affairs. The shareholders in question gave an undertaking to the Panel not to give notices under sections 249D and 203D of the Corporations Act 2001 (Cth) to TRP and to inform each other shareholder who signed those notices that it is free to exercise its voting rights in its absolute discretion on any resolution put to TRP shareholders. In light of those undertakings, the Panel concluded that there was no reasonable prospect that it would make a declaration of unacceptable circumstances.

Over the horizon

Nature-related financial disclosures – a proposed roadmap for meaningful market disclosure

On 26 October 2024, the TNFD published its ‘Roadmap for upgrading market access to decision-useful nature related data’ for consultation and feedback. The roadmap suggests that business resilience depends on the resilience of nature, or more specifically, the current and future cashflows of a business depend on the flow of nature’s (direct or indirect) inputs into the processes of the business and its value chain (ranging from soil nutrients critical to agricultural productivity, to the provision of water essential to manufacturing). The Roadmap is designed to ensure that downstream market users – including corporate decision makers and capital providers – have access to timely, comprehensive and decision-useful nature-related data to illuminate the dependencies and impacts of business and to ‘give them the confidence that it meets their internal decision making and external corporate reporting requirements’. The global push to factor nature-related risk into capital allocation decisions seems to be gathering momentum, with the emergence of new nature-related policy goals, such as the Global Biodiversity Framework. Submissions on the roadmap close on 17 January 2025.