ob体育

Corporate Finance Update - Issue 12

Issue 12, March 2023

Sustainable finance

ob体育 takes first court action against greenwashing

ob体育 has launched its first court action against alleged greenwashing conduct, commencing civil penalty proceedings in the Federal Court against Mercer Superannuation (Australia) Limited (Mercer) for allegedly making misleading statements about the sustainable nature and characteristics of some of its superannuation investment options. ob体育 alleges that Mercer made statements on its website about seven 鈥楽ustainable Plus鈥� investment options offered by the Mercer Super Trust, of which Mercer is the trustee. These statements marketed the Sustainable Plus options as suitable for members who 鈥榓re deeply committed to sustainability鈥� because they excluded investments in companies involved in carbon intensive fossil fuels like thermal coal. Exclusions were also stated to apply to companies involved in alcohol production and gambling. However, ob体育 alleges members who took up the Sustainable Plus options had investments in companies involved in industries that were excluded in the website statements. For more information, see Media Release (23-043MR) ob体育 launches first Court proceedings alleging greenwashing (28 February 2023).

ob体育 also issued seven infringement notices for greenwashing misconduct over the period, including:

• three infringement notices to investment manager Vanguard Investments Australia Ltd in relation to ob体育鈥檚 concerns that the Product Disclosure Statements for the Vanguard International Shares Select Exclusions Index Funds overstated a tobacco-related investment exclusion. For more information, see Media Release (22-336MR) ob体育 issues infringement notices against investment manager for greenwashing (2鈥疍ecember 2022)
• an infringement notice to superannuation trustee Diversa Trustees Limited in relation to ob体育鈥檚 concerns that statements on the website for their product Cruelty Free Super (CFS) overstated the extent of the investment screening applied by CFS. For more information, see Media Release (22-379MR) ob体育 issues infringement notice against superannuation trustee for greenwashing (23 December 2022), and听
• three infringement notices to listed energy company Black Mountain Energy Limited in relation to ob体育鈥檚 concerns with sustainability-related statements made to ASX. For more information, see Media Release (23-001MR) ob体育 issues infringement notices to energy company for greenwashing (5 January 2023).

Action against greenwashing is one of ob体育鈥檚 2023 enforcement priorities. ob体育 is closely monitoring the market for misleading conduct and will take enforcement action where necessary. We remind listed issuers and their advisers to ensure that sustainability-related statements or plans have reasonable grounds and to consider the guidance set out in Information Sheet 271 How to avoid greenwashing when offering or promoting sustainability-related products.

Treasury鈥檚 consultation on mandatory climate reporting closes听

Treasury鈥檚 consultation on closed on 17 February 2023. The consultation sought feedback on key considerations for the design and implementation of standardised, internationally-aligned requirements for disclosure of climate-related financial risks and opportunities in Australia.

The Government will consider the views submitted in response to the consultation paper and set out a specific design proposal for further consultation in 2023. This next consultation paper will provide greater detail on the new reporting requirements and their implementation and sequencing.

ob体育 encourages listed companies to continue to participate in the consultation process to ensure the proposed standards are appropriate and workable for our market and economy and provide 鈥榙ecision-useful鈥� information for investors.

For more information about the consultation process and next steps please see on the Treasury website.

Consultation and commencement of proposed reforms to the Safeguard Mechanism

Consultation on the Government鈥檚 proposal to reform closed on 24 February 2023. Feedback was sought on the proposed approach for setting baselines for existing and new facilities including the rate of decline, arrangements for issuing and using 鈥楽afeguard Mechanism Credits鈥� and providing access to flexible compliance arrangements (such as access to credits, offsets, banking and borrowing arrangements, multi-year monitoring periods and a cost containment measure).

The proposed reforms have been designed to deliver emissions reductions that are consistent with Australia鈥檚 updated under the Paris Agreement and strengthen Australia鈥檚 competitiveness in a decarbonising global economy.

The Safeguard Mechanism reforms will commence on 1 July 2023. ob体育 encourages listed companies to start considering and preparing for how these proposed changes will affect them and reminds listed companies of their various disclosure obligations under the Corporations Act 2001 (Corporations Act).

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Fundraising

DDO regulatory action

One of ob体育鈥檚 strategic priorities is ensuring compliance with the design and distribution obligations (DDO). ob体育 recently commenced civil penalty proceedings for alleged breaches of DDO against:

• Firstmac Limited, a distributor of interests in a registered managed investment scheme called Firstmac High Livez. ob体育 alleges that in marketing and distributing High Livez to term deposit holders, Firstmac failed to take reasonable steps to ensure that the product was distributed in accordance with the target market determination (TMD). For more information, see Media Release (22-361MR) ob体育 takes further civil penalty action for breaches of design and distribution obligations (16 December 2022), and
• American Express Australia Limited, an issuer of a credit product. This case concerns two credit cards issued by Amex that were co-branded with retailer David Jones. ob体育 alleges the target market determinations for these products were deficient. ob体育 also alleges that the issuer failed to cease issuing these products in circumstances where it knew or ought to have known that the determinations were no longer appropriate. For more information, see Media Release (22-338MR) ob体育 takes civil penalty action against American Express Australia in first court case alleging breaches of design and distribution obligations (6 December 2022).

We also continue to conduct targeted surveillances to check compliance by issuers and distributors. Under the DDO provisions, ob体育 can take urgent action to protect retail investors. To date, ob体育 has made 26 stop orders against issuers of investment products for a defective TMD and has also achieved a number of negotiated outcomes where the offer was not yet open. We will continue to prioritise regulatory action on products that pose the greatest risk of consumer harm.

We will shortly publish a report providing observations on how issuers of investment products are complying with DDO and 鈥楢reas for improvement鈥�.听

Changes for employee share schemes听

Employee share schemes (ESS) are now regulated by Part 7.12 of the Corporations Act (ESS provisions).

The ESS provisions are intended to replace two ob体育 instruments: Employee Incentive Schemes: Listed bodies and Employee Incentive Schemes: Unlisted bodies.

From 1 March 2023, entities are no longer able to make new offers under the class orders: see .

The ESS provisions reflect the Parliament鈥檚 preferred regime for employee share schemes. If entities wish to apply for individual relief, they must explain why they cannot comply with the ESS provisions. We recently refused an application because it only explained why the company could not comply with [CO 14/1000]. One exception is where an entity has undergone a restructure and needs relief so that it can deal with eligible products that were issued under [CO 14/1000].

ob体育 has given minor legislative relief to fix technical issues with the ESS provisions: see . We consulted on this relief in Consultation Paper 364 Modifications to the ESS regime and have published Report 759 Response to submissions on CP 364 Modifications to the ESS regime, which provides some guidance on stakeholder queries relating to the ESS provisions. We have also made a determination of foreign financial markets for the purposes of s1100K. These are the same as approved foreign markets under : see .

Fundraising activity from July to December 2022

Table 1: Public fundraising activity (July to December 2022)

July to December 2022听	Previous period (January to June 2022)听
289 original disclosure documents lodged, $3.54鈥痓illion sought听	245 original disclosure documents lodged, $7.23鈥痓illion sought听
40 IPOs, $0.54 billion sought (value by original disclosure document)听	56 IPOs, $0.79 billion sought (value by original disclosure document)听
Top 10 fundraisings completed raised $4.30 billion听 听	Top 10 fundraisings completed raised $7.56 billion听 听

The aggregate amount raised by the top 10 completed fundraising transactions ($4.3 billion) exceeded the total sought to be raised under the original disclosure documents lodged with ob体育 ($3.54 billion) because some issuers increased the amount sought to be raised using a replacement document.

The largest offers over the period included the Commonwealth Bank of Australia hybrid security offer (raising $1.77 billion), the Macquarie Group Limited hybrid security offer (raising $0.75 billion), the Insurance Australia Group Limited hybrid security offer (raising $0.5 billion) and the Bank of Queensland Limited hybrid security offer (raising $0.40 billion).鈥疶he remaining offers included offers of notes or shares by unlisted issuers, an IPO and an entitlement offer by a listed issuer.

Disclosure relief

Below is a summary of the outcomes of applications for relief from the requirements of Chapter 6D of the Corporations Act to provide prospectuses and other disclosure documents for the period from 1 July to 31 December 2022.

Table 2: Outcome of disclosure relief applications determined (1鈥疛uly 鈥� 31 December 2022)

Approved听	Refused听	Withdrawn听
38听	0听	7听
84%听	0%听	16%听

Note: The statistics reported are based on individual relief decisions, rather than a singular head of power under which several decisions may be made (a change in approach to our previous reporting).

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Mergers and acquisitions

Relief granted to allow a bidder鈥檚 statement to quote from the target鈥檚 website

We granted relief from the 鈥榗onsent to quote鈥� requirement in section 636(3) of the Corporations Act in connection with an off-market takeover bid to allow a bidder to use information from the target鈥檚 website in its bidder鈥檚 statement. The information related to private treaty sales of securities in the target and shareholder announcements relating to the bid.听

Section 636(3) of the Corporations Act prohibits the inclusion in a bidder鈥檚 statement of a statement by a person without the person鈥檚 consent. ob体育 has granted class order relief under Takeover bids so that the bidder鈥檚 statement may include a statement by a person without the person鈥檚 consent if the statement was made in a document that has been lodged with either ob体育 or a prescribed market operator. provides similar relief for the use of trading data.听

The bidder was unable to take advantage of ob体育鈥檚 class order relief as the target was an unlisted public company. We granted individual relief due to the essentially factual nature of the target鈥檚 information, and because we were satisfied that the bidder鈥檚 statement fairly represented the information each time it was used.听

Relief from item 6 of section 633 to facilitate a variation of the terms under a takeover offer

We required a bidder to apply for individual relief to vary the terms of its off-market takeover bid before dispatching the bidder鈥檚 statement to target shareholders. Although the bidder purported to increase the consideration offered by way of a supplementary bidder鈥檚 statement and notice of variation, this did not technically comply with the process as set out in section 633 of the Corporations Act.听

Generally, it is not possible to vary the proposed terms of an offer before dispatch of the offer documents by way of a supplementary or replacement bidder鈥檚 statement without ob体育 relief. This is because the offer dispatched to target shareholders must be on the same terms as those set out in the bidder鈥檚 statement which is lodged with ob体育 under item 2 of section 633 of the Corporations Act. While Part 6.6 enables a bidder to vary the terms of an off-market takeover bid, no offers have in fact been made until offer documents have been dispatched to shareholders.听

Regulatory Guide 9 Takeover bids (RG 9) indicates that we may consider granting relief if:听

• the altered documents would have been accepted for lodgement听
• the target鈥檚 opportunity to make a pertinent response in its target鈥檚 statement is not prejudiced, and听
• the proposed variation is not contrary to the purposes of Chapter 6 set out in section鈥�602.听

See RG 9.573鈥揜G 9.575. We will normally consult with the target before granting this relief.听听

Termination and liability clauses in scheme implementation deeds

We recently observed a scheme of arrangement where the bidder became the subject of a non-binding takeover proposal conditional on the scheme not proceeding, leading to opposing interpretations of the negotiated liability and termination clauses in the scheme implementation deed (SID). The target and bidder sought a declaration from the Supreme Court of New South Wales as to their respective positions under the SID.听

The bidder considered that, despite no express termination right, the maximum liability for a breach of the SID, if it was in the best interests of the bidder鈥檚 shareholders to pursue an alternative transaction, was the reverse break fee under the SID, and that termination under the SID was the only remedy available to the target.听听

In summary, the court in Pendal Group Ltd, Re [2022] NSWSC 1575 held:听听

• the target may be able to obtain specific performance to enforce compliance with the bidder鈥檚 obligations under a SID in the event of a breach, in addition to liquidated damages听听
• the fiduciary-out did not relieve the bidder from all of its obligations while the SID remained on foot, and
• liquidated damages paid to the target may not compensate for the loss of opportunity for the target鈥檚 shareholders if the transaction does not proceed.听听听

We remind prospective bidders and targets to exercise caution when drafting transaction documents with negotiated liability and termination clauses to ensure they reflect the parties鈥� intentions, and their effect is properly disclosed to target shareholders and the market at the outset.听听

Timely disclosure of material information in de-SPAC transactions

We recently intervened to object to a court鈥檚 approval of a scheme of arrangement in VID777/2022 involving the acquisition of an Australian-listed company, Security Matters Limited, by a US-based special purpose acquisition company (SPAC). The scheme was the first de-SPAC transaction with an Australian-listed company.听

We were concerned that the target鈥檚 securityholders were not adequately informed before the vote within the principles of section 602 of the Corporations Act, where:听

• the actual redemption rate in the SPAC was unknown at the time the scheme booklet and independent expert鈥檚 report were dispatched to securityholders听
• after the redemption rate was known, the independent expert鈥檚 opinion was updated based on the actual redemption rate such that that the proposed scheme was 鈥榥ot fair, not reasonable and not in the best interests of scheme securityholders鈥�, and听
• the expert鈥檚 supplementary report disclosing this opinion was not released to securityholders until six days before the scheme meeting and five days before proxy votes were due.听

While the court ultimately approved the scheme, ob体育 will continue to monitor similar transactions closely. ob体育 considers that the redemption rate should be known and considered by the independent expert before the scheme booklet is dispatched. However, should the circumstances of the transaction change, members require at least 10 days to consider any new material information before voting, consistent with Regulatory Guide 60 Schemes of arrangement. This is particularly important in the context of novel or complex transactions, such as a de-SPAC scheme of arrangement.听

Disclosure considerations when a board critiques an independent expert鈥檚 report

In the de-SPAC transaction discussed above, we also raised concerns about a supplementary scheme booklet where the directors disagreed with the independent expert鈥檚 opinion. The board鈥檚 critique related to the basis for the expert鈥檚 opinion and suggested that additional value relating to certain factors had not been properly assessed.

Our concerns were heightened because the board鈥檚 views were based on competing 鈥榚xpert鈥� opinions which did not accord with the approach to the assessment of fairness and reasonableness that is standard market practice in Australia as set out in Regulatory Guide鈥�111 Content of expert reports (RG 111). Neither of the competing 鈥榚xperts鈥� held an Australian financial services licence so their opinions and associated reports could not be provided to members. In our view, members did not have sufficient information to assess the basis of the board鈥檚 contrary opinion and the reasons behind it.

Where a board proposes to critique an expert鈥檚 material assumptions or highlight apparent factual inconsistencies in the report, we will closely consider the disclosure. A board must disclose a reasonable basis for its opinion and ensure that members are properly informed before voting.

Boards should generally avoid giving an opinion on what the expert should have concluded regarding the value of target securities (whether by substituting and valuing changes in key assumptions, correcting perceived valuation errors, or otherwise) or including their own valuation that does not meet the equivalent disclosure and independence standards of RG鈥�111 and Regulatory Guide 112 Independence of experts: see Report 589 ob体育 regulation of corporate finance: January to June 2018.

Extending creep relief following involuntary dilution

ob体育 may give relief to preserve a substantial holder鈥檚 ability to make acquisitions under the 3% creep exception (creep) if the substantial holder:

• has had its voting power diluted to below 19% during the six months immediately before an acquisition, and
• did not have the opportunity to participate in the diluting issue of securities on terms no less favourable than those available to other holders.

See Regulatory Guide 6 Takeovers: Exceptions to the general prohibition (RG 6) at RG 6.60鈥揜G 6.61.

We will not give relief to allow a substantial holder to rely on the 3% creep exception if the holder鈥檚 voting power was diluted more than six months before the proposed acquisition. The six-month period is designed to minimise uncertainty for the market in understanding when a substantial holder might be able to rely on creep and to ensure that creeping acquisitions take place as far as possible in an efficient, competitive and informed market: paragraph 602(a). The six-month period mirrors the rolling reference period in item 9 of section鈥�611 and provides a reasonable opportunity for the substantial holder to consider and act on the consequences of the involuntary dilution: see RG 6.63.

We received an application for relief from a company (who required additional time to obtain regulatory approvals for an acquisition) to permit reliance on the creep exception within:

• 12 months after its involuntary dilution, or
• six months after obtaining the regulatory approvals.

We were not minded to give this relief because it was uncertain if or when the company would obtain the necessary regulatory approvals and we considered relief would mean greater uncertainty for the market in understanding when the company may be able to rely on the 3% creep acquisition.

Merger and acquisition activity from July to December 2022

Table 3: Merger and acquisition activity (July to December 2022)

July to December 2022听	Previous period (January to June 2022)听
34 independent control transactions comprising:听听 13 takeover bids听 21 schemes听	36 independent control transactions comprising:听听 14 takeover bids听 22 schemes听
Total estimated value: $8.48 billion听听	Total estimated value: $29.95 billion听

The average value of merger and acquisition transactions in this period was much lower across bids and schemes ($249 million in this period, compared to $936 million in the previous period).

There weren鈥檛 as many billion-dollar megadeals (only two deals in this period, compared with five deals in the previous period). The previous period also had one deal of $8.87 billion, which is more than the total estimated value for the current period.

Merger and acquisition relief

Below is a summary of the outcomes of applications for relief from the requirements of Chapter 6 of the Corporations Act for the period from 1 July to 31 December 2022.

Table 4: Outcome of merger and acquisition relief applications determined in the period 1 July 鈥� 31 December 2022

Approved听	Refused听	Withdrawn听
53听	0听	23听
70%听	0%听	30%听

Note: The statistics reported are based on individual relief decisions, rather than a singular head of power under which several decisions may be made (as demonstrated in our previous reporting).

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Corporate governance

Changes for companies that have previously lodged 鈥榮pecial purpose鈥� financial statements

In March 2020, AASB 2020-2 removed the ability for certain for-profit entities to prepare special purpose financial statements (SPFS) for the financial years ending after 1 July 2021. This includes entities who prepare financial statements under the Corporations Act such as:

• large proprietary companies
• unlisted public companies other than small companies limited by guarantee听
• small proprietary companies controlled by a foreign company
• financial service licensees, and
• small proprietary companies with crowd-sourced funding.

These entities will need to prepare general purpose financial statements (GPFS) with expanded disclosure requirements when compared to SPFS. Of particular significance, some of these entities may now need to prepare consolidated financial statements for their ultimate Australian parent entity.

It is very unlikely that ob体育 will grant relief to allow a company not to apply these reporting changes. For further information see Media Release (22-128MR) ob体育 announces financial reporting changes for AFS licensees (3 June 2022).

Reminder to enter new deeds of cross guarantee on time

ob体育 made an in-principle decision to refuse to provide notice under section 7(3)(f) of (ob体育 Instrument 2016/785) that preparation and lodgement of financial statements was not required, to a group of companies that ceased to be wholly-owned companies of a holding company.

The companies were acquired by a new holding company but they did not enter into a new deed of cross guarantee until five months after ceasing to be wholly-owned entities of the previous holding company (instead of within one month as required by ob体育 Instrument 2016/785). In addition, the companies did not prepare and lodge financial reports and directors鈥� reports within two months of ceasing to be wholly-owned entities of the previous holding company.

We could not give notice under section 7(3)(f) because the time for entering into the new deed of cross guarantee or lodging the financial reports for the relevant financial year had already passed.

Companies should ensure they satisfy all the requirements and observe any time frames applicable under ob体育 Instrument 2016/785 to benefit from financial reporting relief under a deed of cross guarantee. We remind companies that ob体育 generally does not have the power to grant retrospective relief: see Regulatory Guide 51 Applications for relief. In circumstances where ob体育 cannot provide relief, it may be open to companies to apply to the court for orders under section 1322 of the Corporations Act.

Financial reporting requirements for companies that have raised funds using crowd-sourced equity funding

We remind companies that complete crowd-sourced funding (CSF) offers that they must comply with corporate governance and reporting obligations under the Corporations Act.

These obligations include preparing and lodging an annual financial report and directors鈥� report with ob体育 (and in some cases having that financial report audited), complying with the rules on related party transactions, and maintaining information about CSF offers and CSF shareholders on the share register.

In relation to financial reporting, companies that have raised funds under the CSF regime and have one or more CSF shareholders must comply with their financial reporting obligations contained in Part 2M.3 of the Corporations Act on an ongoing basis. This is to ensure shareholders have access to timely, accurate and complete financial information.

ob体育 will continue to monitor financial reporting compliance by CSF companies and will take further action if required.

For further information, companies with CSF shareholders should refer to Regulatory Guide 261 Crowd-sourced funding: Guide for companies and Crowd-sourced funding on the ob体育 website.

ob体育 releases Good practices for handling whistleblower disclosures report

On 2 March 2023, ob体育 released Report 758 Good practices for handling whistleblower disclosures, highlighting the good practices we observed during our review of whistleblower programs of seven firms in 2022.

The review was conducted as part of ob体育鈥檚 staged approach to overseeing firms鈥� compliance with the whistleblower protection regime under Part 9.4AAA of the Corporations Act. We looked into the firms鈥� arrangements for handling and using information from whistleblower disclosures, and the level of executive and board oversight of those arrangements. The review involved analysing internal documents about the firms鈥� programs, and interviews with officers and employees responsible for implementing or overseeing the firms鈥� whistleblower programs.

The report provides examples of good practices that ob体育 has observed in the review. It is designed to help all firms consider, review, and improve their arrangements for managing whistleblowing consistently with the Corporations Act.

We strongly encourage firms to consider how to scale and tailor these good practices to suit their operations.

ob体育 warns on cyber incident disclosure

Listed companies should review their continuous disclosure plans to ensure they comply with their continuous disclosure obligations in the event of a material cyber security incident.

Listed entities are required under the Corporations Act to disclose in a timely manner information that is not generally available, where a reasonable person would expect that knowledge of that information would have a material effect on the price or value of their securities.

The dynamic nature of both the extent and impact of a cyberattack means planning is critical. In some cases, it can be difficult in the early days of a response to determine the extent and materiality of a cyber incident. In circumstances where the nature and extent of a cyber incident are evolving, companies should:

• closely and quickly engage with their ASX adviser, and
• consider if more than one announcement is required when additional information becomes known.

It should be noted that entities are not precluded from voluntarily disclosing information, where they consider it in the interests of the market and their shareholders to do so.

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