Australian Regulatory Compliance Review

Shareholder actions

The High Court, by a 6-1 majority, in Sons of Gwalia Ltd v Margaretic; ING Investment Management LLC v Margaretic [2007] HCA 1 has dismissed the appeals from the decision of the Full Court of the Federal Court of Australia in Sons of Gwalia Limited (Subject to Deed of Company Arrangement) v Margaretic [2006] FCAFC 17 which affirmed that an on-market purchaser (as opposed to a subscribing shareholder) of shares can in a winding up prove for damages against the company for the misrepresentation which induced the purchase and so have claims in damages or for compensation for contraventions of s 52 of the Trade Practices Act 1974 (Cth), s 1041H of the Corporations Act 2001 (Cth) or s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth).

The High Court held that the right of a shareholder to prove for damages against the company for the misrepresentation was not governed by s 563A of the Act which postpones all members' rights on a winding up until all creditors have been paid.

AML update

The Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill is scheduled for introduction and passage in the next sittings of Commonwealth Parliament (from 5 February to 29 March).

The Bill will amend the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 "in order to maintain the integrity of the legislation and to satisfy Australia’s international obligations to upgrade anti-money laundering and counter-terrorism financing measures".

Meet the regulators

Every new law (especially if it involves collection of information or supervision of business) requires an administrator: either a government-funded regulator or a government department.

Here's a list of some regulators with a link to the laws they administer:

• ASIC;
• ACCC;
• ATO;
• APRA;
• AUSTRAC;
• OFPC;
• HREOC;
• ACMA;
• Commonwealth Government departments

Who can access your member register?: unsolicited offers to shareholders and David Tweed

Companies are sensitive to requests for access to their list of shareholders.

Under section 173 of the Corporations Act 2001, companies are required to provide a copy of their register of members within seven days to a person requesting access to the register and paying the required fee.

What prevents persons obtaining a copy of the shareholder register and writing direct to shareholders to buy their shares in situations where the takeover rules do not apply ?

Corporations Act Part 7.9 Division 5A was introduced in 2003 to deal with unsolicited off-market offers, short of a takeover offer (section 1019D).

In summary, a person who makes an unsolicited offer to buy shares off market for a certain price must provide:

* a written statement setting out the market value of those shares on the day the offer is made; and
* a minimum of one month in which to accept the offer. (Section 1019I)

Although it is not illegal to make an unsolicited offer to buy someone’s shares, it is against the law to mislead or deceive retail shareholders into accepting an offer.

Division 5A was introduced to regulate the activities of share traders such as David Tweed and his associated companies including Direct Share Purchasing Corporation and National Exchange Pty Ltd. Tweed typically offers to buy shares from small shareholders at an underprice or by annual instalments over periods of up to 15 years.

National Exchange was the subject of the first litigation in relation to Division 5A (see ASIC v National Exchange Pty Ltd  in which the Full Federal Court refused to overturn the original decision that the offer was not misleading or deceptive, or unconscionable.)

ASIC has intervened or issued warnings in respect of Tweed's advances in respect of Clime Capital, OneSteel, Aevum and ColesMyer.

In November 2006 ASIC permanently banned David Tweed from providing financial services.

Mr Tweed was banned after ASIC found that he had failed to comply with a financial services law and believes he will not comply with a financial services law in future. The breach of financial services laws over a period of time, which led to the banning order against Mr Tweed, related to the way in which Mr Tweed and National Exchange made a number of unsolicited offers to purchase shares in OneSteel and Aevum.

However the banning of Mr Tweed from the financial services industry will not prohibit him from making unsolicited offers to investors. Making an unsolicited offer to purchase shares on one’s own behalf does not require an AFS licence. 

WorkChoices seminar

If you're in Sydney and want a plain-speaking half-day seminar on the implications of WorkChoices for the financial services industry, Langes  are holding a seminar on Friday 9 February. Call Levina Chim on (02) 8234 4777.

The seminar covers Workplace Agreements, record-keeping obligations and unfair dismissals.

How to successfully execute a merger

A merger of 2 or more businesses must be successfully executed in order to achieve the forecast benefits. And when the businesses are in a highly regulated industry such as financial services, there are more obstacles.

In How to host a merger, Ingrid Jackson summarises the steps the Commonwealth Bank of Australia and Colonial Limited took in their merger in 2000 and what has happened since then. She succinctly identifies the regulatory issues as well as the importance of communication with shareholders, employees and customers.

via Corporate Engagement

Privacy Commissioner comments on Access Card draft Bill

The Privacy Commissioner has suggested in a submission to the Office of the Access Card that a number of amendments be made to the Exposure Draft of the Human Services (Enhanced Service Delivery) Bill 2007, including:

• The guiding policy setting for the register should be to collect the minimum amount of personal information and this should be reflected in the legislation.
• While the Draft states that it is not an object of the Bill that access cards be used as a 'national identity card', it is suggested that community trust be further enhanced by recasting this provision and including a statement that the objects of the Bill include to prohibit the access card being used as a national identity card.
• The legislation should state that the access card number (and related identifiers) do not become unique identifiers for each individual, which could be used, shared or adopted by Australian Government agencies, State and Territory agencies, or the private sector.
• The legislation should prescribe, in detail, a statutory process for assessing and approving any future uses of the access card and associated systems (such as the register).

Arranging loans in Western Australia

The Finance Brokers Control Act (WA) regulates the arranging or negotiating of loans in that State. Persons who carry on that business in WA must be licensed by the Department of Consumer and Employment Protection (DOCEP), even if those loans are not regulated by the Consumer Credit Code.

Recent amendments permit non-WA residents to obtain a licence and permit the licensing of finance broker businesses whose owners (directors or partners) are not qualified provided a qualified person controls the finance broking operations.

Workplace Relations Act: harsh, unjust or unreasonable termination

In Carter v Village Cinemas Australia Pty Ltd [2007] AIRCFB 35, the Full Bench of the Australian Industrial Relations Commission published its first decision on whether the termination of an employee’s employment was for genuine operational reasons.

Section 643(8) of the Workplace Relations Act prohibits an employee who has been terminated from applying for relief if the employee’s employment was terminated for genuine operational reasons or for reasons that include genuine operational reasons.

Operational reasons are defined in s.643(9) as follows:

“(9) For the purposes of subsection (8), operational reasons are reasons of an economic, technological, structural or similar nature relating to the employer’s undertaking, establishment, service or business, or to a part of the employer’s undertaking, establishment, service or business.”

Mr Carter was employed by Village, since 10 December 1986. His employment was terminated after 19 and a half years of service. He was a well-performing manager and there was no issue as to his capability or his standards of performance. He managed the Doncaster cinema for Village and on 15 June 2006, Village received a notice to vacate its Doncaster complex, and as a result of that, Village decided to close the complex effective 1 August 2006. On 25 July 2006, Mr Carter was informed that his employment would be terminated.

Consequent upon the termination of his employment, Mr Carter brought proceedings under s.643 of the Act claiming that the termination of his employment was harsh, unjust and unreasonable.

Village argued that the application was outside the jurisdiction of the Commission because the employee’s employment was terminated for genuine operational reasons, or for reasons that include genuine operational reasons.

Village's arguments were rejected at first instance but succeeded on appeal.

The Full Bench accepted Village's argument that the reason for the termination of Mr Carter’s employment was the closure of the cinema. Thus, there was a genuine operational reason for the termination of Mr Carter’s employment. This fell squarely within the definition of “operational reasons” in s.643(9) of the Act.

The Full Bench rejected the argument that it should consider other options available to the employer such as redeployment. It said:

We agree ... that the operational reason relied upon by the employer need only be a ground or cause for the termination of the employment of an employee. It need not be something that demands or brings about an obligation to terminate the employment of a particular employee. The termination of employment of the particular employee does not have to be an unavoidable consequence of the operational reason for the limitation in s.643(8) to operate. Consequently, whether the employer could have done something other than terminating the employee’s employment will generally be irrelevant in deciding whether the termination was for genuine operational reasons, or reasons that include genuine operational reasons.

Taxpayer privacy

Minister for Revenue and Assistant Treasurer, Peter Dutton MP, has announced details of changes to the taxation law arising out of the Government’s Review of Taxation Secrecy and Disclosure Provisions.

Tax secrecy and disclosure provisions from 22 different tax acts will be standardised into a new framework within a single piece of legislation.

The standardised secrecy framework will maintain existing disclosures, and the Australian Taxation Office (ATO) will also now be able to release taxpayer information in limited circumstances where the public interest benefits exceed the impact on taxpayer privacy.  

“New disclosures will include  allowing the ATO to disclose more information to law enforcement agencies.”

“For example, an important part of tackling organised crime or tracking supporters of terrorist organisations may require releasing information on the specific tax matters of individuals,” Mr Dutton said.

The ATO will also be able to provide additional information to the Australian Securities and Investments Commission in support of its role in corporate and insolvency regulation.

The new secrecy and disclosure legislation is expected to be introduced into Parliament in 2007.