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In this Edition, we consider ASIC’s corporate finance update for June 2021 and its focus areas for upcoming financial reports, as well as litigation in the realms of climate change and continuous disclosure obligations. Our newly implemented “Risk Radar” section contemplates how companies can address the increasing risk posed by cyber security breaches.

GOVERNANCE & REGULATION

ASIC releases its corporate finance update for June 2021. ASIC’s Corporate Finance Update covers the topics of fundraising, buy-backs, individual voluntary escrow relief, mergers and acquisitions, experts and mining, and corporate governance. In light of the complexities surrounding financial disclosure in prospectuses, the update answers frequently asked questions concerning the presentation and compilation of financial information in prospectuses. It also considers special purpose acquisition companies and notes that before these types of listings could occur in Australia, rule changes would be needed. In relation to buy-backs, ASIC has reminded companies and market participants that on-market buy-backs must truly be ‘on-market’ and carried out ‘in the ordinary course of trading’, which a recent Markets Disciplinary Panel matter considered to mean trading in strict order of price-time priority, with indifference as to the identity of counterparties and with no pre-agreements or selection of counterparties. The update also provide guidance on individual voluntary escrow relief, noting that applicants seeking individual relief will generally no longer need to apply for a corresponding modification to the substantial holding provisions and may also include certain permitted transfers of escrowed securities under the escrow arrangement. Of particular interest to Directors, ASIC has also reminded companies that in March 2021 it updated Information Sheet 245 which explains factors boards should consider when overseeing and making executive variable pay decisions.

ASIC highlights focus areas for 30 June financial reports under COVID-19 conditions. ASIC has highlighted key focus areas for upcoming financial reports under COVID-19 conditions by companies with a 30 June year end. ASIC’s update on this topic summarises ASIC’s expectations with respect to financial reporting as released over the past year. In particular, ASIC reminds that disclosing key assumptions, risks, the drivers of results, management strategies and future prospects will all be important for investors and other users of financial reports. ASIC also notes that useful and meaningful disclosure about business impacts and potential uncertainties will continue to be vital, as such uncertainties may lead to a wider range of valid judgments on asset values and other estimates. Entities preparing financial reports are urged to take account of all factors affecting asset values, provisions and assessments of solvency and going concern – these factors include the usual suspects such as financing and general economic factors, however they now also include the impact of the availability, distribution and take up of COVID-19 vaccines on the business. See ASIC’s media release and the accompanying attachment.

LEGAL

Minister of Environment must take reasonable care to protect children from climate change harms. In last week’s edition of Boardroom Brief we reported on the District Court of the Hague’s recent decision in which it was declared Shell must reduce its CO2 emissions by 45% by 2030. On home soil, a landmark Federal Court decision on a similar theme was handed down by the Federal Court just one day later. In Sister Marie Brigid Arthur v Minister for the Environment [2021] FCA 560, the Federal Court found that the Commonwealth Minister for the Environment has a duty of care to protect Australian children from climate change harms when exercising powers under the Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act). The decision (subject to the outcome of any appeal) is likely to have implications for the approval process for carbon intensive projects under the EPBC Act, with the Minister’s newly found duty to prevent climate change-related harm to children to be balanced with the statutory framework for decision-making under the EPBC Act.

ASIC commences civil proceedings against company and former CEO for alleged continuous disclosure breaches. ASIC has commenced Federal Court proceedings against an ASX-listed entity and its former CEO for alleged breaches of the Corporations Act and ASIC Act. ASIC’s proceedings involve an alleged failure by the entity to immediately disclose to the market a material change in its prior earnings guidance. This entity had represented that it expected its US shipbuilding business would be profitable in FY2016, but, according to ASIC, subsequently became aware that it would likely generate a significant loss. ASIC asserts that there was an approximate 1-month gap between the entity becoming aware of that loss, and disclosing that fact to the market. See ASIC’s media release. Earnings guidance remains a particularly fraught area for Directors of listed companies, notwithstanding COVID-19-related changes to continuous disclosure laws which have recently been made permanent. Directors need to ensure that internal continuous disclosure policies incorporate procedures that will be effective in bringing potential deviations from “live” earnings guidance to the attention of the Board (or continuous disclosure committee, if formed). Particular care is required as pandemic effects emerge, and companies begin to contemplate renewing or updating earnings guidance which may previously have been withdrawn.

RISK RADAR

The ever-present threat of a cyber attack. In case climate change policy and COVID-19 aren’t keeping Directors on their toes enough, they must also remain vigilant to the ubiquitous threat of cyber-attacks - a threat that has been amplified by the COVID-19 work-from-home environment. Given recent developments in the cyber sphere and news reports of companies encountering cyber attacks, it is now likely that cyber risk will be considered a reasonably foreseeable risk – and one with potentially devastating (and costly) consequences for companies and their Directors. To assist Directors in assessing and addressing this risk, the Australian Institute of Company Directors has released a suite of tools which include the practical applications of cyber-risk awareness and recent legislative developments. The first resource discusses managing a data breach, the second discusses national security compliance, and the third considers the consumer data right framework.