Under the current class orders, the monetary limit is $5,000. ASIC's approach over the past few months was that this limit may, by application, be increased to $15,000 by way of a variation or waiver to the current class orders. ASIC believes that the new monetary limit of $15,000 reflects CPI increases, the changing profile of retail investors and increased participation in the stock market.
We anticipate that following the Class Order, the ASX will amend the Listing Rules to reflect the new monetary threshold and as outlined in its submission to ASIC, impose a new requirement on issuers to offer SPPs to all members on the company register the business day before the SPP is announced.
A significant change from the current class orders is the requirement for a notice to be issued to members giving them information about their investment – these are commonly referred to as 'cleansing notices'.
Cleansing notices are not required under the current class orders. We suggest that until 1 September 2009, issuers may rely on either the current class orders or the Class Order in their decision to offer SPPs to raise capital (and with regard to raising up to $5,000 with no cleansing notice requirement, or raising up to $15,000 with a cleansing notice).
Given the current economic climate, the new monetary threshold is a positive and welcome step in facilitating increased capital raising. However, the introduction of the requirement to issue cleansing notices will introduce additional compliance costs and, for some entities, may prove to be as burdensome as complying with the prospectus requirements themselves.
We will keep you updated on any changes to the Listing Rules or other regulatory developments.
Piny Ly, Associate & Geoff Cairns, Partner
The Impact of Proposed Changes to Privacy Laws on Due Diligence
When buying or selling a business, the application of the National Privacy Principals (NPPs) contained in the Privacy Act 1988 (Cth) (Act) to due diligence and completion activities does not usually require serious consideration by vendors and purchasers.
In most cases, personal information disclosed by a vendor for the purpose of the sale of its business will be permitted under NPP 2.1. However, both vendors and purchasers should be aware that there are still restrictions on the handling of personal information during due diligence investigations and that the disclosure of personal information about the vendor’s customers, business associates, contractors, trading partners and sometimes employees can result in one, or both, parties falling foul of the NPPs.
Additionally, changes proposed to privacy laws by the Australian Law Reform Commission (ALRC) in its 11 August 2008 report on Australia’s privacy law regime, such as abolition of the “small business” and “employee information” exemptions, are likely to be implemented by the Federal government within the coming 12 months. This will increase the burden on all vendors and purchasers in complying with the Act.
Small businesses
Currently, the Act contains a small business exemption which applies to most businesses, non-profit bodies and unincorporated associations with an annual turnover of less than $3 million.
Vendors and purchasers who are small businesses do not need to comply with the Act when disclosing or collecting personal information during due diligence.
However, if the government adopts the ALRC’s proposals, small businesses previously exempt from the operation of the Act will become subject to the privacy laws.
Employee Information
Disclosure by vendor
Currently, the Act does not restrict disclosure of an employee’s personal information by an employer, if such disclosure is directly related to the employment relationship.
The pre-completion disclosure of employee information to a prospective purchaser by a vendor is not restricted by the Act if the disclosure is to enable the prospective purchaser to decide whether or not to employ an employee, as such disclosure is deemed to be directly related to the employment relationship.
If the government adopts the ALRC’s proposal to remove the employee information exemption from the Act, then employee information will need to be treated in the same manner as other personal information.
Collection by purchaser
A prospective purchaser does not benefit from the employee information exemption unless and until the purchaser actually employs the employee.
During due diligence only the vendor has an employment relationship with the employee under which it may disclose the employee’s personal information. The purchaser does not have this relationship, and must therefore comply with the NPPs if it collects personal information about the employee, such as by notifying the employee that the prospective purchaser is collecting the employee’s information.
A better approach for purchasers is simply to not collect employee personal information. Instead, the prospective purchaser should:
- inspect employee records without making copies or otherwise recording employee’s details, as this would not constitute “collection” under the Act; and
- where possible, request aggregated and de-identified information regarding employees from the vendor.
Customers and contacts
Disclosure by vendor
Personal information about individuals who are customers, contractors or associates of the business may be disclosed by a vendor during due diligence and after completion only if:
- the purchaser is not planning significant changes to the nature of the business; and
- following completion the personal information will still be used only for the purpose for which it was originally collected.
Disclosure of such information in the course of due diligence is generally permitted because it is deemed by the Privacy Commissioner to relate to the primary purpose of collection.
Collection by purchaser
As with employee personal information, a prospective purchaser should (where possible) avoid “collecting” personal information about customers, contractors or associates of the business during due diligence.
Where collection of personal information is unavoidable, the purchaser must ensure the personal information is used only for the purposes of the purchaser making an informed assessment of the business. The prospective purchaser will be bound by the Act in relation to the personal information it collects. However, if the prospective purchaser does not proceed with the purchase and returns or destroys all the personal information collected, it will not be required to advise the relevant individuals about the matters outlined in NPP 1.3.
If the purchaser does proceed and the purchase is of a business and assets (i.e. not shares), it will be considered to have “collected” all personal information disclosed to it prior to or on completion. In such circumstances, the purchaser must take reasonable steps to inform individuals affected about the matters listed in NPP 1.3 as soon as is reasonably possible after completion.
Tips for compliance
Danielle Fraser, Associate & Peter Surgeon, Partner
Regulatory Guide 198 - Unlisted Disclosing Entities: Continuous Disclosure Obligations
On 18 June 2009, ASIC released Regulatory Guide 198 (RG 198) which clarifies how unlisted disclosing entities should comply with their continuous disclosure obligations to investors. Unlisted disclosing entities include managed investment schemes, unlisted debenture issuers and unlisted public companies, with more than 100 members.
The Corporations Act requires unlisted disclosing entities to lodge information with ASIC (rather than with the ASX). However, ASIC recognises that many entities just disclose this information on their website as this is often the most effective means to disclose new material information to their investors. RG 198 therefore allows an unlisted disclosing entity to publish material information on its website in accordance with the good practice guidelines in the guide, rather than lodging the information with ASIC. If unlisted entities do not follow this good practice guidance, they must lodge all material information with ASIC.
Requirements for continuous disclosure via an entity’s website
To take advantage of the guidelines, an unlisted disclosing entity must:
-
be satisfied that most of its investors are likely to look for information of this kind on its website (so if an entity regularly sends information by post to its investors, it cannot use this approach);
-
notify existing and new investors that it will make disclosure available in this way; and
-
disclose any material information on its website in a timely fashion in accordance with the good practice guidance in RG 198.
The unlisted entities must also ensure that:
- all "material information" is included in a single place on the website (i.e. the homepage should contain a link to this location so that investors can easily access it). Material information includes information that is contained in a public document prepared by the entity (e.g. a prospectus or a PDS) and a reasonable person would expect the information to have a material effect on the price or value of the entity’s securities;
- investors are able to find material information easily and determine its significance for them;
- any new material information is uploaded on the website as soon as practicable (unlisted entities may also give their investors the option of receiving an email alert when material information is updated); and
- information is kept on the website for as long as it is relevant and appropriate records are kept (the information could be kept in a hard copy or electronic form (e.g. on a CD-ROM).
ASIC expects unlisted entities to notify existing and new investors (via normal communication channels) whether they will follow the good practice guidelines or if they will simply lodge continuous disclosure notices with ASIC.
Examples of information to be disclosed
The disclosure obligations on unlisted disclosing entities are similar to those that apply to ASX listed entities. Generally, subject to certain exceptions, an unlisted disclosing entity must disclose any information that:
- is not generally available; and (b) a reasonable person would expect to have a material effect on the price or value of the entity’s securities.
RG 198 gives further guidance on examples of the types of information required to be disclosed. The examples include:
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financial forecasts/ valuations/ ratings;
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debt funding;
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external administration and/or management changes;
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access to funds;
-
orporate actions (e.g. securities placements or share buy backs where not all investors have been notified); and
-
benchmark disclosures (e.g. any other disclosures against the ASIC benchmarks in RG 45 Mortgage schemes — improving disclosure for retail investors, RG 46 Unlisted property schemes — improving disclosure for retail investors or RG 69 Debentures — improving disclosure for retail investors.
A copy of RG 198 can be accessed via ASIC’s
website.
Piny Ly, Associate & Geoff Cairns, Partner
Golden Handshakes Lose Their Shine – Proposed Amendments to the Corporations Act
Following the federal government's announcement on 18 March 2009 that it would introduce new laws to curb the size of excessive executive 'golden handshakes', the Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009 (Bill), was released for public comment on 6 May 2009 and introduced into parliament on 24 June 2009.
The Corporations Act currently requires shareholder approval for termination payments to directors and some senior executives only if those payments are greater than seven times the person's average annual salary for the previous three years. Effectively this meant companies have not had to worry about shareholder approval of such payments because almost invariably the threshold was well above termination payments.
The Bill proposes to:
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impose a significantly lower threshold for shareholder approval of termination payments benefits i.e. termination benefits for company directors and 'executives' which exceed one year's average base salary will require shareholder approval;
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expand the range of 'executives' subject to these provisions to include those holding a "managerial or executive office". Also, senior executives, key management personnel, directors of non-listed companies and the five most highly remunerated officers (for listed companies and named in the remuneration report) will now be included;
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only apply prospectively to new contracts (i.e. existing contracts will not be affected);
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clarify and expand the definition of 'termination benefit' to include any kind of pension, the payment of super in excess of the statutory minimum, the accelerated or automatic vesting of options and payments in lieu of notice. These will now be subject to shareholder approval. A new regulation making power has also been introduced, to deem new forms of payment that seek to avoid the provisions, as termination benefits; and
-
increase the penalty provisions for breaches of these sections to $19,800 for individuals and $99,000 for companies, whilst retaining the option of six months' imprisonment.
The Productivity Commission's inquiry (headed by former ACCC chairman, Professor Alan Fels) into executive remuneration will also take the Bill into account as part of its investigations, with the final report expected to be submitted to the federal government by December.
What do the proposed changes mean?
All companies, executives, directors, key management personnel, remuneration committee members (for listed companies) and their advisers will be affected by the proposed changes.
Additionally, the changes mean increased compliance costs – which smaller companies in particular may derive little benefit from.
The changes raise a number of issues and likely consequences. Some of these include:
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executives may retire earlier than planned and prior to the introduction of these new laws;
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executives may simply negotiate higher base salaries and sign on payments in their employment contracts, with the effect of instead reducing shareholder control; and
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Executives may also be encouraged to significantly vary the terms of their existing employment contracts as the Bill does not contain any anti-avoidance provisions.
We will continue to keep you updated on these proposed legislative amendments and any other developments. If you have any questions in relation to these changes or other corporate governance issues, please contact a member of the M&A team.
The Bill and the explanatory memorandum to the Bill can be accessed via Treasury's
website.
Piny Ly, Associate & Peter Surgeon, Partner
News in Brief
NSW Stamp duty changes - land rich duty
New South Wales has announced changes to the land rich duty provisions of the Duties Act. The changes include the removal of the current threshold requiring landholdings to constitute 60% or more of the total value of the dutiable property of the entity. Accordingly, from 1 July 2009, land rich duty will apply to transfers of interests in companies and trusts where the entity holds land in NSW with a value of $2,000,000 or more. For more detail see the NSW OSR
website.
Geoff Cairns, Partner
New transfer of business rules under the Fair Work Act 2009 (Cth)
The
Fair Work Act will come into effect on 1 July 2009. The new Act includes significant new rules regarding transfers of business and the associated transfer of industrial instruments. Our previous alert sets out the main changes to the transmission of business rules which are contained in the Fair Work Act
. To view this alert
click here.
Crystal Png, Lawyer & John Reen, Partner
