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In this edition, we consider ASIC’s announcements relating to illegal “Phoenix” activity, its warning to companies engaging ‘finfluencers’ to promote financial products and the annual Sustainability Board Report for 2021. We also consider the ‘saga’ of the GetSwift litigation, as well as a report on global climate litigation trends. In Over the Horizon, we continue the previous edition’s conversation relating to the COP26 conference.

GOVERNANCE & REGULATION

ASIC satisfied with Phoenix Surveillance Campaign but sends clear message to directors. ASIC’s joint campaign with the ATO involved 21 direct engagements with directors of select companies to curb illegal “Phoenix” activity. The practice, whereby a new corporate entity is established to continue the business and avoid the debts and liabilities of an existing entity, is estimated to cause up $5 billion worth of damage to the economy each year. The explicit focus on directors’ roles in phoenix activity is a clear statement of intent from ASIC. However, ASIC announced 80% of all outstanding ATO returns were lodged after the engagements, which it took to evidence “a positive impact on directors' behaviour”. The approach and outcome is perhaps another example of ASIC’s more collaborative and consultative approach to regulation after abandoning its ‘why not litigate?’ approach, initially spurred by the Hayne Royal Commission recommendations. See ASIC’s media release.

ASIC flags reviews, warns companies of accessorial liability for engaging ‘finfluencers’. ASIC Commissioner, Cathie Armour indicated increased attention on financial influencers on social media (coined ‘finfluencers’) and the risks they pose to companies. Finfluencers are popular social media personalities that provide financial advice to their followers through social media accounts. Commissioner Armour noted companies who engage finfluencers to promote issued securities to retail investors risk accessorial liability for advice provided by unlicensed advisors and market misconduct through ‘pump and dump’ schemes. Companies were also advised to conduct due diligence on finfluencers to ensure there are no conflicts of interest. The Commissioner also noted ASIC is engaging with social media platform providers and undertaking a review of finfluencers to consider how existing financial services law applies to social media promotion. Directors should note that as social media becomes a more central corporate marketing and distribution channel, the requirement for appropriate governance and quality control procedures will increase. See Commissioner Armour’s article.

Sustainability Board Report warns of ESG tokenism. The Sustainability Board Report for 2021 on ESG preparedness has surveyed the boards of directors for the 100 largest publicly listed companies across the globe. The report has found that women are significantly more ESG conscious and concerned with sustainability issues than men and appear to be the key drivers of ESG discourse, suggesting recent trends towards greater gender diversity on boards will be supportive of the ESG trend. However, over 40% of companies surveyed are still rated as having a generally low ESG consciousness.

LEGAL

GetSwift ‘saga’ ends in 62 continuous disclosure contraventions. GetSwift Limited has been found guilty of 62 contraventions of the continuous disclosure laws in a Federal Court of Australia decision nearing 900 pages. At the heart of the decision was GetSwift’s approach to announcement of customer deals, several of which failed to disclose the fact they were fee free or for trial periods only. The company then failed to update the market when trial periods ceased and were not continued. Justice Lee described internal correspondence as pointing to a policy of making disclosures in line with commercial goals and PR plans and sometimes withholding certain information until an opportune moment from a publicity perspective. An important factor in the decision (and the findings implicating the directors personally) was the clear focus on goals, and a subsequent approach designed primarily to reach those goals, rather than the spirit of the continuous disclosure rules, which was to ensure the market was fully informed of all material information, whether or not positive to the company. Read the full decision or the (slightly shorter) AFR article.

Climate change litigation report notes increased plaintiff focus on private sector. The Network for Greening the Financial System (NGFS) has released a report detailing recent trends in climate change litigation around the world. The report, partly comprised of a survey of global members, found that 52% of respondents knew of confirmed cases of climate change litigation their jurisdiction, and 58% expected climate change litigation to increase going forward. The degree to which different legal systems allow for credible litigation to be commenced may play into these statistics, which are nonetheless a substantial indicator of the current state of climate litigation. Importantly, the report also acknowledges a shift in litigation ‘targets’ as plaintiffs begin to focus not only on governments and public bodies, but also the private sector. The report also notes an increase in litigation against companies for the purposes of gaining awareness or public pressure to achieve a certain goal. While these types of actions are rarely successful, they still pose a financial and reputational risk to companies. See the full NGFS report.

Takeovers Panel declines to make declaration of unacceptable circumstances in relation to the affairs of PM Capital Asian Opportunities Fund Limited. The application from PM Capital Global Opportunities Fund Limited (PGF), discussed in previous editions of Boardroom Brief, sought a declaration on the grounds that certain conditions of an off-market takeover bid from WAM Capital Limited (WAM) were inappropriate and there were disclosure deficiencies in WAM’s bidder’s statement. The Panel declined to make the declaration because WAM amended some conditions, others had been overtaken by subsequent events, and WAM had amended the disclosure in its bidder’s statement. The Panel considered that, while it maintained concerns in relation to WAM’s bid, it was not in the public interest to make a declaration of unacceptable circumstances. See the Panel’s media release, with its reasons for decision to follow in due course.

Takeovers Panel makes interim orders in relation to the affairs of Nex Metals Explorations Ltd. Following the Panel’s declaration of unacceptable circumstances discussed in a previous edition of Boardroom Brief, Metalicity Ltd made an application to prevent the despatch by Nex Metals of any information to shareholders regarding Metalicity’s off-market scrip bid dated 24 September 2021. Today, the Panel made those orders which remain effective until the earliest of either 2 months from today, the Panel ordering otherwise, or the proceedings being determined. See the Panel’s media release.

OVER THE HORIZON

COP26 ends in compromise but foreshadows increased burden for markets in leadership vacuum. The COP26 conference has ended with all nations finally agreeing to a ‘watered down’ Glasgow Pact well after the intended deadline. In the previous edition of Over the Horizon, we queried a potentially inconclusive outcome at COP26 and the disparate responsibilities assumed by governments and industry on the path to net zero by 2050. Indeed, the majority of the significant outcomes agreed upon in the final days of the conference were driven by industry. Government commitments to climate finance were lacking, and commitments to “phase coal out” were changed to “phasing coal down”. Despite such compromises, the commitment to limiting global warming to 1.5 degrees has been reaffirmed, and participant nations were called upon to revisit new 2030 emissions ambitions before the next conference, putting pressure on short-term results that may require drastic action. Australia’s “technology-driven” approach – preferring the carrot to the stick – effectively passes the baton to the private sector to drive progress towards a clean energy future, and market demands for action are likely to intensify as a result. Read the Glasgow Climate Pact Media Release, and G+T’s daily coverage of the COP26 conference on the Clean Energy and Decarbonisation hub.