GENERAL CORPORATE  Improvements to Takeover Panel procedures (commenced on 26 July 2013) 

ASIC provides submissions to Senate inquiry into ASIC’s performance as a regulator 

  • On 2 August 2013, ASIC lodged initial submissions to the Senate Economics References Committee inquiry, the inquiry referred to the Senate on 20 June 2013 to investigate the performance of ASIC in response to ASIC’s handling of the case of Commonwealth Financial Planning Limited, a wholly-owned subsidiary of the Commonwealth Bank of Australia (see submissions here: Senate inquiry into the performance of ASIC: Initial submission by ASIC; terms of reference for the inquiry here).

LISTED COMPANIES/ASX  Update on JORC Code/Listing Rules changes 

  • ASX has released a Q&A with James Rowe from ASX to discuss the information push to prepare for changes to the JORC Code/Listing Rule reporting requirements for oil and gas companies which will be effective from 1 December 2013 (See details of the amended rules and draft guidance notes here). ASX notes that they have produced Guidance Notes 31 and 32 to assist entities understand how we interpret the new rules and that ASX and JORC are preparing a series of FAQ responses to address issues raised during the road shows. They will be available on the ASX and JORC websites shortly.
    • Q&A with James Rowe here;
    • view presentations from the ASX/JORC mineral reserves and resources reporting and JORC Code 2012 national road show: JORC presentationASX presentationASIC presentation, or access a podcast of the presentations here; and
    • view presentations from the ASX/RISC oil and gas reserves and resources reporting national road show (a webcast will be available early August 2013): ASX presentationand RISC presentation.

ASX Bookbuild 

  • ASX BookBuild® is a new capital-raising tool that will allow listed companies, or companies seeking to list, to price and allocate new securities using ASX infrastructure. It is designed to provide companies more choice and flexibility when issuing new securities. More information is available at www.asx.com.au/bookbuild. Our Perth office held a lunchtime briefing on 1 August 2013 on this topic (See Squire Sanders event details here).

Speech by John Price, Commissioner at ASIC, at the Australasian Investor Relations Association, Sydney on 13 July 2013 

  • John Price addresses the continuous disclosure obligations of ASX-listed companies, the handling of confidential information and the associated risks of leaks (including investor briefings) and what ASIC has been doing in this space (read the full speech here).

ASX diversity guidelines are working according to KPMG report analysing compliance by 600 ASX-listed companies with the ASX Corporate Governance Principles 

Q&A with ASX’s Kevin Lewis on the new ASX Guidance Note 8 on continuous disclosure 

  • ASX’s Kevin Lewis says the ASX Guidance Note 8 on continuous disclosure issued in May 2013 has provided listed entities with clearer, more detailed information to help them understand their obligations (see Q&A with Kevin Lewis here; see the updated ASX GN 8 here).

CORPORATE GOVERNANCE  ASIC to update prospectus guidance 

Former Gunns chairman pleads guilty to insider trading 

  • Mr Gay, who was a director of Gunns Limited from 1980 to 2010 and was chairman of Gunns Limited from 2002 to 2010, was charged in December 2011 (refer: 11-296AD). On December 2 and 4, 2009, while in possession of inside information relating to the financial performance of Gunns, Mr Gay sold more than 3.4 million Gunns shares. This trading was prior to the release of Gunns’ half year results on 22 February 2010. Following this release, the Gunns share price fell substantially (see ASIC MR 13-204MR).
  • Since 2009, ASIC has prosecuted 28 insider trading actions. Of those, 19 have been successfully prosecuted (16 matters finalised and 3 guilty pleas await sentencing). Four individuals are awaiting trial and are contesting their charges. Five matters have been unsuccessful.

Directors personally liable for company’s tax liabilities 

  • Directors can be personally liable for their company’s unpaid PAYG Withholding amounts. From 30 June 2012, the director penalty regime has been extended to include unpaid super guarantee charge. The changes also ensure that directors cannot discharge their director penalties by placing their company into administration or liquidation when pay as you go withholding (PAYG withholding) or super guarantee charge liabilities were not reported within three months of the due date. In some instances, directors and their associates can be liable to PAYG withholding non-compliance tax where the company has failed to pay amounts withheld to the Commissioner (see ATO guide here).

EQUITY CAPITAL MARKETS  Modernising the timetable for rights issues 

  • In May 2013, ASX released an exposure draft, Modernising the Timetable for Rights Issues: Draft ASX Listing Rules detailing proposed changes to reduce the standard timetable for rights issues in the Listing Rules. ASX intends to provide substantial notice to the market ahead of the implementation date, expected next year. Submissions on the exposure draft are due by 17 June 2013 (see ASX Response to Market and Exposure Draft dated May 2013).

ASIC intervention in entitlement offer that sought to rely on the rights issue/underwriting exceptions to s606 of the Corporations Act: Laneway Resources 

  • As part of ASIC’s invigorated focus on takeovers policy and market integrity, it recently intervened in the matter of Laneway Resources Limited TP13/21, where an entitlement offer was made to eligible shareholders to raise approximately $22m. The company had sought to rely on the so called “rights issue” and “underwriting” exceptions to the prohibition against the acquisition of interests in more than 20% of voting shares in a company. Under the offer, which was being underwritten by entities related to the company’s Chairman, the Chairman and his related entities could have potentially controlled up to 86.45% of the company’s voting shares. ASIC raised concerns that that proposal “was an abuse of the rights issue and underwriting exceptions under the law”. After the company did not address ASIC’s concerns, ASIC then applied to the Takeovers Panel for a declaration of unacceptable circumstances and orders requiring the company to obtain shareholder approval if it was to proceed with the offer and underwriting arrangements. The offer was subsequently withdrawn so no declaration was made, but the Takeovers Panel commented that the entitlement offer would have given rise to unacceptable circumstances.

FOREIGN INVESTMENT  FIRB announcement on the treatment of foreign passive investments in public (real estate) unit trusts 

  • The exemption for passive investments by foreign persons in Australian public (real estate) trusts that are Australian urban land trusts is no longer operational. Whilst FIRB clarifies its position on the exemption, no action will be taken when a foreign person does not notify and seek prior approval in relation to an acquisition of a passive interest in a real estate investment trust or property trust, by acquiring an interest in units that results in a holding with associates in specified circumstances. (See media release from the FIRB Secretariat, 1 August 2013)

PUBLIC M&A  ASIC intervention in a scheme of arrangement to effect the acquisition by Keybridge Capital Limited of PR Finance where ASIC refused to provide a “no objection letter” 

  • As part of the scheme of arrangement process, the company proposing the scheme must apply to the courts for approval of the scheme. One factor the court will take into account is whether ASIC has provided a “no objection letter”. In this case, ASIC did not provide this letter and the court therefore declined to approve the scheme. ASIC’s concern was that the company’s audited accounts had not been lodged ahead of the shareholder meeting to approve the scheme as promised in the scheme booklet and that therefore the shareholders did not have all the information they needed to decide the future of the company. ASIC appeared as amicus curiae or ‘friend of the court' in the PR Finance court hearing. This case indicates that ASIC will closely review the scheme documentation and subsequent conduct of a company the subject of the scheme before providing its “no objection letter” (see ASIC MR-165MR and PR Finance Group Limited, in the matter of PR Finance Group Limited (No 2) [2013] FCA 633).

PRIVATE M&A  New case law – drag along rights in shareholders agreements (William McCausland v Surfing Hardware International Holdings Pty Ltd [2013] NSWSC 902) 

  • Three key issues considered in this judgment in respect of the Shareholders Agreement are: whether an existing shareholder can be a ‘bona fide buyer’ of the ‘Share Capital’ under the drag-along provision in the Shareholders Agreement; whether such existing shareholder will be in breach of the Shareholders Agreement if they purchase shares under the drag-along provision; and how damages are assessed and measured when a shareholder has sold their shares under a drag-along provision.

TAX DEVELOPMENTS  Cut in company tax rate? 

  • The Liberal Party has announced its intention to cut the corporate tax rate by 1.5% to 28.5% from 1 July 2015 (See policy document here).
  • However, the Liberals have indicated there may be a levy of 1.5% to be applied to all companies with taxable income over $5m to pay for its maternity leave policy (details expected to be announced shortly).

Denial of interest deductions for offshore acquisitions 

  • The government has announced it will repeal section 25-90 from 1 July 2014. This will mean that interest deductions will no longer be available on money borrowed in Australia to fund offshore acquisitions. The issue is subject to consultation, and has caused a huge outcry from corporates and tax professionals. Many companies would need to restructure existing offshore structures and borrowing arrangements if the change is implemented (see proposals paper here).

Changes to thin capitalisation ratios 

  • The government has also announced that the thin capitalisation “safe harbour” ratios will change from 3:1 (debt to equity) to 2:1 from 1 July 2014. This equates to a change from 75% debt/total assets to 60. Companies who are either foreign controlled, or have offshore investments may need to change their capital structure in order to comply with these new lower limits.