This is a service specifically targeted at the needs of busy non-executive directors. 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 consider ASIC’s intervention in various capital raising offers and takeovers and schemes matters, monitoring of shareholder intention statements and disclaimers in specialist reports. We also consider the newly effected anti-phoenixing restrictions and developments in the interpretation of the Whistleblower laws.
GOVERNANCE & REGULATION
Withdrawal of offers after ASIC raises concerns. Directors and proposed directors of companies undertaking IPOs face unique risks that call for additional diligence. Following several reviews of fundraising practices, particularly at the smaller end of the market, ASIC has begun to focus its attention on several key aspects of capital raising documentation which it believes are of key importance to investors. ASIC’s Corporate Finance Update for March 2021 noted that two issuers withdrew capital raising offers after ASIC raised concerns. In the first offer, ASIC was concerned with a lack of information provided to investors about the issuer’s business model and prospects. The intention of the unlisted company was to acquire a property that could be developed into serviced apartments in Malaysia, but no assets were identified, there were no building plans and no construction approvals or contracts in place. In the second offer, ASIC was concerned that supplementary information was ‘materially adverse’ and that withdrawal rights should be offered. The new information noted that the costs of the offer had significantly increased and that directors had to significantly increase their personal participation in the offering to meet the minimum subscription, as they had not been otherwise able to raise the funds.
Shareholder intention statements. Directors should be mindful that ASIC continues to closely monitor so-called shareholder intention statements made in connection with schemes of arrangement and takeovers. ASIC recently raised concerns that an acquirer may have contravened section 606 of the Corporations Act by soliciting a shareholder intention statement with an increase in consideration offered under a proposed scheme of arrangement.. Particular care needs to be taken when dealing with shareholders who alone or in aggregate hold more than 20% of the voting power in the target company. While in our view, an appropriately-worded shareholder intention statement should not cause the acquirer to breach the 20% takeover threshold, all the surrounding circumstances need to be considered in determining whether the parties may have an “arrangement or understanding” that breaches threshold.
Disclaimers in specialist reports. ASIC has also reminded company directors that specialist reports written to accompany offers, meetings, or takeover or scheme documents (including solicitor reports, geologist reports and other expert reports) should be prepared for each specific purpose and should not contain disclaimers or limitations of liability that cut across that purpose (see examples of unacceptable disclaimers). ASIC takes the view that the recipients of those reports must have the ability to rely on their contents when making decisions.
ASIC intervention in schemes. ASIC opposed the scheme proposed by Getswift to re-domicile from Australia to Canada, appearing in Re Getswift Ltd (No. 2)  FCA 1733 on behalf of the Commonwealth and on its own behalf as contingent creditors. ASIC’s primary concern was that the proposed scheme would materially prejudice the interests of contingent creditors. During proceedings, the Court accepted undertakings by Getswift to allay ASIC’s concerns.
Whistleblower laws. In previous editions of Boardroom Brief, we have observed the potential of the new whistleblower laws to radically reshape the compliance environment in Australian companies. We are now beginning to see the emergence of a body of case law directed at the interpretation of these laws. Most recently, in Dunn v Broadspectrum (Australia) Pty Ltd  SAET 62, the South Australian Employment Tribunal clarified definition of protected whistleblower disclosure under Part 9.4AAA of the Corporations Act, rejecting a claim that a complaint made to a whistleblower hotline that a manager bullied members of his team should have been handled as a personal grievance, finding it met the definition of a protected whistleblower disclosure under the law. Judge Crawley held that the mere fact that disclosure is made via a whistleblower hotline is not, of itself, sufficient to invoke the whistleblower protections, but that the nature of the disclosure appeared to extend beyond a mere personal grievance and concerned misconduct, or an improper state of affairs or circumstances in relation to Broadspectrum.
Convertible note relief giving rise to control implications. ASIC recently refused to grant relief to treat an entitlement offer of convertible notes as if item 10 of section 611 applied. The relief would have permitted a holder of convertible notes acquired through (or after) the entitlement offer to convert those securities to potentially hold more than 20% of the issuing company, without disclosing their effective interest in the company until the notes were converted and without following any other acquisition method permitted by Chapter 6. One of the key factors in ASIC’s deliberations was that the notes would be quoted and therefore tradeable, so there was potentially a substantial block of voting power that would be difficult for market participants to “track” at any point in time.
Anti-phoenixing restrictions take effect. In prior editions of Boardroom Brief we have noted ASIC’s fight against “phoenixing” activity, where companies are placed in liquidation to avoid debts only to spring back to life in the form of a replacement company a short time later. ASIC’s Corporate Finance Update for March 2021 noted that the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 was passed by Parliament in February 2020 and introduced new offences and grants additional powers to ASIC and liquidators to help combat illegal phoenixing and avoid systematic fraud. For example, a director can no longer resign if they are the last remaining director on ASIC records. To enforce this, ASIC will reject lodgements submitted to cease the last appointed director without replacing that appointment, applying to form 484 (Change to company details) and form 370 (notification by officeholder of resignation or retirement).
OVER THE HORIZON
Will the ASX allow SPACs? An increasing number of Australian companies are being approached by US-based special purpose acquisition companies (SPACs), prompting the question of whether the ASX should consider allowing SPAC listings in Australia. Would-be Australian SPAC sponsors (including private equity firms) have held talks with ASX, as have a small group of hedge funds. The ASX’s current position is that it will “listen to the market and take a cautious approach” when it comes to changing or waiving anti-cash-box rules to facilitate SPAC transactions. Relaxation of those rules could create a boon for corporate finance practitioners, and further stimulate M&A activity in Australia, but is not without risk.