Happy New Year to you all and welcome to 2008.
Last November Australians voted to change their Federal Government after 11 years of Liberal Party rule. The new Labor Government, led by Prime Minister Kevin Rudd, has a policy agenda it is keen to implement as soon as possible.
This means new issues for clients and new legislation for lawyers. Australia Watch will report on these developments as they unfold in 2008
As its first official act, on 3 December 2007 the Rudd Government ratified the Kyoto Protocol, the international plan to reduce Greenhouse gas emissions. The previous Government had resisted calls to do so.
There is a new Minister for Climate Change and Water and a new Department of Climate Change that will sit within the Prime Minister and Cabinet portfolio.
Key commitments of the new Government are:
- a national emissions trading scheme by 2010;
- a 60 per cent reduction in Greenhouse Gas (GHG) emissions below 2000 levels by 2050;
- the introduction of a climate change trigger in the Environment Protection and Biodiversity Conservation Act 1999 (C’th) requiring new projects to be assessed for their climate change impact; and
- shorter term emissions caps to be set once the (Professor Ross) Garnaut Climate Change Review (the equivalent of the Stern Review on the Economics of Climate Change) reports in September 2008.
The new Government will retain the National Greenhouse and Energy Reporting Act 2007 (C’th) which came into effect on 29 September 2007. This Act requires corporations that exceed specified energy usage or GHG emission thresholds to be registered and to report annually to the Greenhouse and Energy Data Officer, GHG emissions, energy production and energy consumption from and by their facilities.
The Act will have effect from 1 July 2008. Regulations to underpin the Act are being prepared but will not be finalised for some time yet as the Government completes a consultation process about the design of the reporting system
In the previous Australia Watch Newsletter we reported on the decision of the High Court in Sons of Gwalia The Court ruled that in an insolvency administration, shareholders’ damages claims arising from their purchase or disposal of shares caused by misleading and deceptive conduct or a breach of the continuous disclosure laws (not being claims made by a shareholder in the capacity of a member of the company) ranked equally with creditor claims.
The previous Government almost immediately asked the Corporations and Markets Advisory Committee (CAMAC) to enquire into the decision and provide a report on what, if any thing, should be done in light of the decision.
CAMAC has released a Discussion Paper entitled “Shareholder Claims Against Insolvent Companies Implications of the Sons of Gwalia decision”. The CAMAC paper proposes three options:
- Leave the High Court decision as it stands.
- Change the law to restore it to the previously understood position, namely that all shareholder claims ranked behind creditor claims.
- Create a new category of aggrieved shareholder that will rank above member claim
Submissions to the Discussion Paper have closed. The consensus appears to be in favour of the second option.
Australia does not subscribe to the “fraud on the market” concept. The Discussion Paper called for submissions on whether, if the law is to be changed, the concept should be adopted. However, in the pending securities class action case of Dorajay Pty Ltd v Aristocrat Leisure Limited, the Federal Court will be called upon to accept the fraud on the market concept. This case will not be heard until later this year.
On 31 December 2007, major reforms to Australia’s insolvency laws commenced. These reforms are contained in the Corporations Amendment (Insolvency) Act 2007 (C’th).
Key features of the Act are:
- employee entitlements are given enhanced protection in the priority payments regime;
- insolvency practitioners are required to provide detailed information about their independence and remuneration;
- new mechanisms for the “pooling” of assets and claims of insolvent corporate groups;
- administrators are given greater flexibility in exercising their powers in a Voluntary Administration, concerning things such as the ability to borrow and the transfer of shares while meeting dates and various other procedures have been streamlined; and
- the Australian Securities and Investment Commission has been given greater powers to regulate insolvency practitioners.
The previous Government introduced a Bill to give effect to the United Nations International Commission on Trade Law (UNICTRAL) Model Law on Cross Border Insolvency. The Bill, called the
Cross Border Insolvency Bill 2007(C’th), lapsed when the election was called. It was designed to cover certain corporate and personal insolvencies with a view to establishing a uniform process for dealing with foreign insolvency proceedings. Expectations are that the Bill in the same or similar form will be introduced by the new Government although timing is uncertain
Cartel conduct
Late last year, the Australian Consumer and Competition Commission (ACCC) secured its most important victory against cartel conduct to date.
As a result of the ACCC’s immunity policy, the ACCC was given information about cartel conduct in the corrugated fibreboard packaging industry engaged in by two of the industry’s largest players.
In an agreed “settlement”, the ACCC secured a penalty of $36 million against Visy Industries Holdings Pty Limited and $1.5 million and $500,000 respectively against two of its senior executives..
The 2003 Dawson Review of the Trade Practices Act had recommended the introduction of criminal penalties for serious cartel conduct. The previous Government had promised to introduce these penalties but failed to do so.
The new Government committed to introduce the criminal penalties and has now acted on that commitment by introducing an exposure draft of the Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008 for public comment.
The Bill proposes two new criminal offences for cartel conduct that would see conviction resulting in a maximum penalty for an individual of five years’ imprisonment and a $220,000 fine and for a corporation, a fine that is the greater of $10 million or three times the value of the benefit from the cartel, or where the value cannot be determined, 10 per cent of annual turnover.
The Bill also creates parallel new civil cartel offences which, if proved, will result in maximum pecuniary penalties of $500,000 for an individual and for corporations, the same penalty as for criminal conduct.
The ACCC is to be given expanded search and seizure and information gathering powers. The ACCC will be responsible for investigating suspected cartel conduct while the Commonwealth Director of Public Prosecutions will prosecute offenders. The two agencies will enter into a Memorandum of Understanding on their respective roles and responsibilities.
The proposed new criminal offences are predicated on “dishonesty”. The Government is seeking submissions on whether there should be a distinction between the criminal and civil prohibitions.
The Government is also seeking submissions on whether telephone interception warrants should be available for the proposed new criminal offences and whether a five year imprisonment term is appropriate.
The exercise of market power by “large corporations” is always a difficult and controversial topic and no less so in Australia particularly where small to medium business is concerned.
As a result of various court decisions and political imperatives, the previous Government amended the misuse of market power provision in the Trade Practices Act 1974 C’th (section 46) by adding what is known as the Birdsville amendment (the Senator who proposed the amendment allegedly conceived it while at the Birdsville public hotel).
The amendment is targeted at predatory pricing.
The new section 46(1AA) provides:
A corporation that has a substantial share of a market must not supply, or offer to supply, goods or services for a sustained period at a price that is less than the relevant cost to the corporation of supplying such goods or services, for the purpose of:
- eliminating or substantially damaging a competitor of the corporation, or of a body corporate that is related to the corporation in that or any other market;
- preventing the entry of a person into that or any other market; or
- deterring or preventing a person from engaging in competitive conduct in that or any other market.
Section 46 (1AA) differs from the existing prohibition by removing the requirement that the corporation have “substantial market power” and engaged in conduct that took advantage of that power.
Section 46 (1AA) also introduces new concepts of substantial share of a market, sustained period and relevant cost, none of which is defined and does not require a causal link between having a substantial share of a market and the proscribed conduct.
There are many and varied examples of corporations using prices to promote competition (and ultimately increased revenues), for example, loss leadering, clearance sales, loyalty programs and matching competitors’ prices.
It will no doubt fall to the courts to sort out what is and is not acceptable under the new law.
The Australian Stock Exchange (ASX) has issued a public consultation paper inviting feedback on whether the ASX Listing Rules should be amended to allow quotation of non-voting shares. The ASX has not yet formed a view on whether it will proceed with the proposal.
The ASX has put forward the following amendment to LR 6.9 to promote discussion:
- the company’s constitution does not preclude the issue of non-voting ordinary securities;
- the company is seeking admission to the official list and has clearly set out in its IPO documentation the terms and conditions attaching to non-voting shares or the company is currently listed on ASX and has obtained shareholder approval by ordinary resolution to issue non-voting shares, such approval to expire after 12 months if non-voting securities are not issued by the company;
- the rights of the holders of non-voting ordinary securities are substantially the same as the rights of holders of voting securities, except for the voting power per security;
- non-voting ordinary securities receive a dividend equal to or greater than ordinary voting shareholders;
- non-voting shareholders receive equal voting rights in the following circumstances:
(i) proposal to wind up the company;
(ii) proposal to buy-back or reduce voting ordinary capital.”
Comment is invited by 7 March 2008. Any change to the one vote principle will not come into effect before the second half of 2008.
The ASX has also issued a public consultation paper inviting feedback on several proposed listing rules changes. Comment is invited by 15 February 2008.
Key proposals include:
- relaxed listing rules for Strategic Investment Vehicles with most assets in cash but a track record of successful investment and a focus on acquisition and active management of strategic assets;
- enabling small and medium enterprises (SMEs) with a market capitalisation of $100 million or less to make placements up to 25 per cent (rather than 15 per cent as at present) of issued capital with shareholder approval;
- amended listing eligibility requirements being at least 200 shareholders (instead of 400) each with at least $2,000 worth of shares and a net tangible asset (NTA) of at least $400 million (instead of $200 million) and removal of the 20 cents minimum for the issue or sale price of all securities (except options) at the time of the Initial Public Offer (IPO)
Constitutional Challenge
Although meant to be the ultimate decision- making body for takeover disputes, corporations involved in high profile contested takeovers have relatively recently started “appealing” decisions of the Takeovers Panel to the Courts.
The Takeovers Panel, being an administrative body, is prohibited under the Australian Constitution from exercising judicial power.
In Attorney General of the Commonwealth of Australia v Alinta Limited and Ors, the High Court of Australia was asked to decide whether section 657A (2) (b) Corporations Act 2001 (C’th) involved the Takeovers Panel exercising judicial power when in deciding whether to make a declaration of unacceptable circumstances, it could do so on the basis that it was satisfied there was or may be a contravention of relevant takeovers law.
On 13 December 2007, the High Court published a short decision to the effect that the section was not constitutionally invalid. The Court’s reasons are to follow.
The Takeovers Panel, having suspended receiving applications based on section 657A (2) (b), will now resume receiving applications on that basis.
The Takeovers Panel has issued revised Guidance Notes on:
- Matters Procedures (GN 8)
- Correction of Takeover Documents (GN 16)
- Rights Issues (GN 17)
- Insider Participation in Control Transactions (GN19)
The Takeovers Panel has also issued a discussion paper and draft Guidance Note on the disclosure and control implications of cash settled equity derivatives. This has been brought about by the market’s increasing use of equity derivatives in takeovers and the outcome of several cases that have come before the Takeovers Panel where equity derivatives were a feature.
It is not yet known when the Takeovers Panel will release the final version of the Guidance Note
The Anti-Money Laundering/ Counter-Terrorism Financing (AML/CTF) legislation started its substantive operation on 12 December 2007. It will be phased in over time.
The second tranche of entities to be covered by the legislation are:
- real estate agents in buying and selling of real estate;
- dealers in precious metals and stones engaged in transactions above a designated threshold;
- lawyers, notaries, other independent legal professionals and accountants when preparing for or carrying out certain transactions;
- trust and company service providers when they prepare for or carry out for a client the transactions listed in the Glossary to the Financial Action Task Force (FATF) Recommendations.
A draft of the legislation was released for public comment last year but it is not yet in effect.
The Australian Transaction Reports and Analysis Centre (AUSTRAC), the body responsible for administering the AML/CTF legislation, intends to release a series of Guidance Notes in January and February 2008 and has also released a draft AML/CTF Rules for public comment.
Guidance Notes recently released for public comment are:
- AML/CTF Compliance Officers;
- arrangements applicable to holders of an Australian Financial Services Licence; and
- on going customer due diligence.
Draft AML/CTF Rules recently released for public comment are:
- special circumstances for customer identification procedures;
- customer identification procedures for takeovers, schemes of arrangement, business disposals and business assignments; and
- same person and person to person electronic funds transfer instructions;
The volume of “paperwork” coming from AUSTRAC is ensuring that anti-money laundering law is posing a new compliance challenge for clients and their lawyers
