In this edition of Gilbert + Tobin's Corporate Advisory Update, we focus on key legal developments over the last month which are particularly relevant to in-house counsel.

Senate Committee report gives green light to electronic execution and hybrid/virtual meetings reforms and red light to continuous disclosure reforms   

On 30 June 2021, the Senate Economic References Committee issued its report (Report) on the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021) (Bill) which was introduced into the Senate on 18 March 2021.

In short, the Report recommends that:

• the reforms in Schedule 1 of the Bill relating to electronic execution and hybrid and virtual meetings be passed with at least a 6 month sunset date while permanent provisions are passed (see our recent article - Virtual Meetings: The Senate Reports on the draft meetings Bill); and
• the reforms in Schedule 2 to Australia’s continuous disclosure regime in Schedule 2 not be passed (see our separate article - Continuous disclosure reforms rejected by Senate Committee).

Separately, on 25 June 2021, the Federal Government also released exposure draft legislation which proposes some amendments to the existing proposals in the Bill relating to hybrid and virtual meetings to give shareholders enhanced opportunities to both participate in and scrutinise company meetings. A further welcome change in the exposure draft is to allow a sole company director (where there isn’t a company secretary) to sign under section 127 of the Corporations Act. The exposure draft also proposes to make the reforms permanent. Consultation on the exposure draft closes on 16 July 2021 (see Treasurer’s media release and consultation page).

The soonest that the Bill can become law is if it is passed in the August/September sitting of Parliament.

The writing on the wall: the Takeovers Panel wraps up swaps 

Last Friday, the Takeovers Panel released the long awaited amendments to Guidance Note 20. We now have a launch date - the new Guidance Note comes into effect on 4 October 2021. Equity derivative positions will be required to be disclosed like substantial equity holdings, whether or not a control transaction is on foot:

• within two business days, if the long position of a person and their associates is over 5%, or moves 1% or more from its disclosed position, or falls below 5%, it must be disclosed, unless it has been put in place by a market maker to hedge another long position; or
• daily if the position is less than 5% but held by a bidder or their associates.

Disclosure to the company should be at least that information required for a substantial holding notice, although in any appropriate form, and include any caps, collars and hedging, as well as any short positions designed to offset the long position. The company is expected to release the disclosure to ASX.

The Panel also indicated a long position in excess of 20% is likely to be considered unacceptable, unless the taker has not attempted to influence the entity and would have had the benefit of a Chapter 6 exemption if the position was equity (e.g. a 3% creep). 

Practically speaking, the market is now on notice of what the Panel regards as unacceptable and we recommend taking this into account in considering your position(s) or proposed new positions.

See the Panel’s media release and our recent article - Takeovers Panel Revised Guidance Note 20: Equity Derivatives Effective Date.

Proposed plan for mandatory financial disclosure on climate risk in Australia 

Last week, three founding partners of the Investor Agenda (a common leadership agenda focused on accelerating investor action for a net-zero emissions economy) released a proposed plan for Australia to adopt a mandatory financial disclosure regime for climate change risks over the next four years, based on the recommendations of the International Task Force on Climate-related Financial Disclosures (Task Force).  See the Investor Group on Climate Change's media release.

The roadmap details the actions Australian regulators and the Federal Government can take to build on existing work and further ensure there is clear and consistent reporting from companies, investors, banks and insurers that will produce comprehensive disclosure and ensure financial markets can properly price and act on the physical and transitional risks of climate change. Broadly speaking, the authors of the plan are seeking to catalyse investor action on climate change issues and streamline global disclosure expectations. Under the plan, “if not, why not” style of reporting would become mandatory by 2024. 

As the world moves towards greater harmonisation of climate change-related disclosures, directors should consider whether the standards set out in this plan and the Task Force’s recommendations provide an appropriate template for their own company’s’ disclosure on the subject, to meet investor and other stakeholder's expectations of greater transparency. 

Thanks to Justin Mannolini, partner and Janelle Sputore, lawyer for this article.

The increasing role of ESG in Mergers & Acquisitions 

Consideration of environmental, social and governance (ESG) factors in investment and M&A decisions are more prominent than ever.  The Mergermarket ‘Global Dealmaker Series 2021 – Deal breakers and opportunity makers: The role of ESG in M&A’ (Report) outlines results and key themes identified from surveying various private equity, asset management, and corporate executives to better understand the extent to which ESG impacts M&A and investment decisions in the current market environment.  

The Report recognises that ESG is now a critical consideration and dealbreaker when approaching transactions, and for their organisations more broadly. The Report notes that 60% of respondents reported that they have walked away from at least one deal after uncovering problems related to an ESG issue. In the past few years, many ESG themes have grown in prominence (such as climate change, modern slavery and racial inequality and discrimination) and there is an increasing expectation on businesses to respond to these issues.  This is largely driven by reputation and brand management as dealmakers recognise the importance of ESG to key stakeholders (such as investors, consumers and employees).  Companies recognise that there may be damaging responses by these stakeholders if they act in a way that does not reflect prevailing social values. The Report found that ESG investment was already showing strong momentum before COVID-19, however, the pandemic has turbocharged the focus of ESG. This is only expected to further increase moving forward. 

Thanks to Justin Mannolini, partner and Janelle Sputore, lawyer for this article.

New ASIC guidance shorts activist short selling 

On 1 June 2021, ASIC published Information Sheet 225 Activist short selling campaigns in Australia which considers the practice and outlines ASIC's expectations to promote market integrity during these campaigns (see also ASIC’s media release). 

Activist short selling involves a person taking a short position in a financial product and then publicly disseminating information (directly or through an agent) that might negatively impact the price of the product (‘short reports’). A short report may, for example, call into question or directly criticise an entity’s finances, management, public disclosures or future prospects. 

ASIC recognises the potential benefit of activist short selling, noting that where activist short reports contain accurate and meaningful new information, they can have a positive impact on price formation and market integrity. However ASIC also notes that activist short sellers can also unduly distort the price of a target’s securities e.g.: by making false or misleading statements, providing an incomplete view of the facts, drawing conclusions unsupported by adequate evidence or using overly emotive or inflammatory language to distort the facts.

Information Sheet 225 outlines suggested best practices for activist short sellers and authors of short reports, including (1) releasing short reports outside of Australian trading hours and not immediately before market open; (2) ensuring short reports are based on reliable information (with any recommendations or opinions formed on a reasonable basis); (3) fact checking with the target entity: (4) avoiding overly emotive and imprecise language; (5) disclosing conflicts of interest; and (6) avoiding selective distribution of short reports.

Information Sheet 225 also provides guidance for market participants and target entities, stating that market participants should monitor for short selling activity and report suspicious activity, and target entities should maximise business transparency and comprehensively respond to claims contained in short reports.  
If activist short selling campaigns fail to meet these best practice guidelines, ASIC may engage with ASX and other market operators (including on the timing of trading halts), examine trading activity during the campaign, engage directly with the activist short seller if their identity is known, engage with the target entity to assess the veracity of claims in short reports and where necessary, take action for any breaches of the law.  

Silence might be golden but not if it amounts to misleading and deceptive conduct

In a recent case in the NSW Supreme Court, a former company director of the Dick Smith group was held personally liable for a truly eye-watering sum of $43 million for misleading and deceptive representations he made to Dick Smith’s lenders in connection with its debt financing arrangements. This decision provides a sharp reminder that company directors, officers and advisers of corporate borrowers must take the upmost care in their communications with lenders.

In a recent G+T article, Banking + Finance partner Stuart Cormack considers the circumstances of the case and the potentially broad application of Australia’s misleading and deceptive conduct laws in the context of facility agreements, loan arrangements, and debt negotiations, including before conclusive and binding documents are even entered into.

See our article: Silence might be golden but not if it amounts to misleading and deceptive conduct

The New Sex Discrimination Bill: Reforming Australia’s Workplaces

In March 2020, Australia’s sex discrimination Commissioner, Kate Jenkins, tabled the Respect@Work report to the Government (Report) outlining the multifaceted response required for Australia to tackle sexual harassment and sex discrimination in the workplace.

The Sex Discrimination and Fair Work (Respect at Work) Amendment Bill 2021 was introduced in June 2021 and broadly reflects the Government’s response to the Report, implementing some (but not all) of the Report’s recommendations. The Bill proposes several amendments to the Fair Work Act 2009 (Cth), Sex Discrimination Act 1984 (Cth), and Australian Human Rights Commission Act 1986 (Cth). A recent G+T article provides an overview of the Bill’s proposed changes.

See our article: The New Sex Discrimination Bill: Reforming Australia’s Workplaces

Consumer guarantees apply to more ‘consumers’ from 1 July 2021

The 12 month period for businesses to update their compliance programs to enable more consumers to rely on the consumer guarantee protections in the Australian Consumer Law is up. As of 1 July 2021, the definition of “consumer” was expanded when the monetary threshold for the value of supplies caught increased from $40,000 to $100,000. 

See our article: Consumer guarantees to apply to more “consumers”

What’s the problem with merger cases?

Recently the ACCC released a joint statement with the UK Competition and Markets Authority and Germany’s Bundeskartellamt reaffirming the importance of effective merger control.  The statement warns agencies, courts and tribunals to remain vigilant against anti-competitive mergers – even where faced with uncertainty about the future, strong advocacy from the merging firms and their advisers, and a fractured or hesitant response from suppliers, customers or competitors.

At the launch of the statement, ACCC Chair Rod Sims suggested that these challenges may be heightened in Australia, given the role and the recent approach of the courts in our system.  He foreshadowed that the ACCC would suggest some changes to the merger review framework around the middle of 2021 – an important step in a process that has been underway for some years now.

A recent G+T article examines the recent history of merger control in Australia (including the few cases that have come before the Courts) and the current complexities in the merger test, and considers the changes the ACCC may propose and the impact they might have.

See our article: What’s the problem with merger cases?