Australian Regulatory Compliance Review

Simplified superannuation advice guidelines

The Australian Securities and Investments Commission (ASIC) has released class order relief for superannuation fund trustees (and their authorised representatives) who provide personal advice to fund members about their existing super fund.

ASIC’s Regulatory Guide 200 and Class Order [CO 09/210] deal specifically with advice about a member’s existing interest in a super fund. CO 09/210 applies only to super fund trustees or their authorised representatives. The guidance and relief applies in certain circumstances, and does not cover more complex personal advice about super, including switching, or retirement planning advice.

The relief applies to all super funds (other than self-managed super funds), but to rely on the relief, super fund trustees will need an Australian financial services licence with a personal advice authorisation. Those super fund trustees who do not meet the requirements of the relief must comply with section 945A of the Corporations Act when providing personal advice.

ASIC consults on securities lending

ASIC has released a consultation paper on disclosure of substantial holdings arising from securities lending or prime broking.

The consultation paper, Securities lending and substantial holding disclosure, seeks to improve disclosure of substantial holdings in practice and makes it clear that securities lending transactions and prime broking arrangements need to be taken into account in calculating a substantial holding.

Submissions on the proposals contained in the Consultation Paper close on 7 August 2009.

ASIC identifies financial report focus areas

ASIC has highlighted a number of areas on which company Boards and those responsible for the preparation of financial reports should focus in the upcoming reporting period.

It has identified going concern (solvency), valuation of assets and off-balance sheet arrangements as issues for concern.

Director, managerial and executive termination benefits

The Government has introduced the Corporations Amendment (Improving Accountability on Termination Payments) Bill into Parliament.

It inserts new sections 200AA and 200AB in the Corporations Act and amends sections 200A-G and J relating to the payment of termination benefits to company directors and executives.

The Corporations Act currently allows for termination benefits up to seven times a director’s total annual remuneration package before shareholder approval is required. Additionally, only company directors’ termination benefits are subject to shareholder approval.

If passed, termination benefits for company directors and executives exceeding one year’s average base salary are subject to shareholder approval. In addition, the range of personnel whose termination benefits can be subject to shareholder approval is expanded from directors to also include senior executives or key management personnel. The Bill also clarifies the types of benefits that are subject to shareholder approval

The new rules will not apply retrospectively to existing contracts. The new arrangements will apply to contracts that are entered into and renewed or extended.

The new rules will also apply to existing contracts for which a variation of a condition is made. Minor changes to an existing contract would not be considered a variation of a condition. However, changes that effect an essential term, including any term relating to remuneration would be considered a variation of a condition.

New ASIC disclosure rules

ASIC has released new measures for market disclosure in capital raisings and unlisted disclosing entities.

Disclosure in capital raising by ASX-listed companies

The policies allow listed companies and managed investment schemes engaging in equity raisings increased scope to update the market through continuous disclosure obligations and a ‘cleansing notice’ instead of the currently required prospectus or PDS.

The rules for share purchase plans will be changed to allow:

• existing shareholders or unitholders to purchase further shares or units worth up to $15,000 through share purchase plans without a prospectus or PDS;
• listed managed investment schemes to make placements at a discount of more than ten per cent to the current unit price without member approval;
• more rights issues and placements using a cleansing notice instead of a prospectus or PDS, even if a listed entity has been suspended for more than the current five day maximum period;
• members to participate in accelerated rights issues and rights issue shortfall facilities even if they exceed the twenty per cent takeover threshold by doing so; and
• a person to underwrite a dividend reinvestment plan even if they exceed the twenty per cent takeover threshold by doing so.

Continuous disclosure by unlisted entities

ASIC has also announced measures to clarify how unlisted entities should provide continuous disclosure to investors. An unlisted disclosing entity includes unlisted companies and managed investment schemes with more than 100 members and unlisted debenture issuers.

The continuous disclosure laws apply to unlisted entities. Instead of lodging information with ASX, they must lodge with ASIC.

The guide (RG198) also contains good practice guidelines for website publication, including ensuring information is easy to locate on the site and posted as soon as practicable. Entities should make clear how they intend to comply with their continuous disclosure obligations.

Preparing for your AGM

It's that time of the year: finalise your end of financial year accounts and start thinking about Constitution changes and resolutions for your AGM.

And here's what happens if you get it wrong. This is a video (only 33 seconds) of Fortis's recent AGM in Belgium where shareholders showed their disapproval by throwing shoes at the Chair.

Access to Share Registers and the Regulation of Unsolicited Off Market Offers

The Minister for Superannuation and Corporate Law has released for public consultation an options paper: Access to Share Registers and the Regulation of Unsolicited Off Market Offers.

The paper puts forward a range of options to address the continuing practice by some entities of making undervalued, unsolicited off market share offers to shareholders of publicly listed companies especially where the offer involves instalment payments.

The paper also proposes reform options to significantly change the rules around access to share registers.

The reform options for addressing issues on share register access include:

• implementing a proper purpose test for access to a register;
• replacing the current "marginal cost" fee arrangement with either a reasonable cost, full cost, market cost, negotiated cost, a prescribed fee based on the takeovers access prescribed fee, or a combination of these; and
• modernising the rules around the format of share registers.

The reform options for boosting consumer protection of listed company shareholders include:

• introducing a cooling off period of between 1-3 months for the accepting shareholder to withdraw from the contract or acceptance document before it becomes binding;
• including a warning statement in offer documents like the health warnings on cigarettes;
• put in place a pre-emptive right to be given to companies to intervene in sales of their shares that do not reflect the market value of the shares; and
• establish a "do not contact" register.

The Government is seeking submissions on the options paper by close of business 24 July 2009.

ASIC reviews the GFC

In Regulatory issues arising from the financial crisis for ASIC and for market participants, ASIC Chair Tony D'Aloisio argues that " a significant feature of the collapses which have been part of this wealth destruction, has been flawed business models. Flawed in the sense that they could not withstand the downturn. Too many businesses, and a very large proportion of the failures to date, were built on business models that could only prosper if asset prices continually rose and debt markets remained open and liquid."...

"should ASIC have prevented these business models or put an end to them earlier?
Now, the answer to this specific question, in the context of the Corporations Act and ASIC’s powers, is clearly ‘no’...responsibility for flawed business models lies with management and with their Boards. It’s part of the ‘free enterprise’ system."

ASIC lifts ban on covered short selling of financial securities

ASIC has lifted the ban on covered short selling of financial securities (as defined in AD08-65 ASIC lifts ban on covered short selling for non-financial securities) from 10am on 25 May 2009.

ASIC lifted the ban on covered short selling of non-financial securities on 19 November 2008 .

ASIC says it will not hesitate to reimpose the ban immediately (using its enhanced and clarified powers under the Corporations (Amendment) Short Selling Act 2008) and without consultation if it considers market conditions warrant such action.

The daily reporting by market participants to ASX of gross short sales will continue as will the publication to the market of aggregate short sales the day after trading.This disclosure regime will operate until the commencement of the Government's permanent disclosure measures.

Employee share schemes

The Treasurer's announcement on 12 May 2009 of 2 changes to employee share scheme tax concessions has created a lot of publicity suggesting a winding-down of these schemes.

The changes (which will apply to shares and options acquired after 7.30pm on 12 May 2009, but not shares or options already held by employees) are:

• all discounts on shares and options provided under an employee share scheme will be assessed in the income year in which they are acquired. That is, employees acquiring shares or options under qualifying employee share schemes will no longer be able to elect to defer taxation on their discount to a later time. There was no announced change to the current 3 year holding lock on these shares.
• The $1,000 upfront tax exemption will be limited to those employees with a taxable income of less than $60,000 after adjustment for fringe benefits, salary sacrifice and negative gearing losses.

There was also no announced change to the relief that is currently provided from certain of the licensing and hawking restrictions of the Corporations Act for employee share schemes for both listed and unlisted companies. This relief has been given subject to the condition that employee share schemes must be accompanied by a disclosure document such as an Offer Information Statement or a prospectus.

UPDATE 24 May:

The Government has announced a consultation process on the Budget measure that deals with the taxation arrangements surrounding employee share schemes. It will release a policy options paper in the next fortnight on the most efficient way of protecting the tax base and cutting down on potential avoidance while maintaining the current support for employee share ownership schemes particularly for low and middle income workers.

The policy options paper will canvass options that include:

• the reporting requirements which should be applied to address tax avoidance concerns, such as the application of withholding arrangements or enhanced Tax File Number (TFN) reporting.
• the level of the income threshold for accessing the $1,000 tax exemption for upfront taxation, which would ensure the continued availability of employee share schemes for low and middle income employees;
• whether there are circumstances under which it may be appropriate to provide for the deferral of taxation, the period of deferral and what those limited circumstances would be (such as when there is a real risk of forfeiture); and
• whether the tax law provisions which determine the market value of discounted and deferred shares or rights result in undervaluation.

More information about employee share schemes