Changes to ASIC funding

In response to the recommendations of the Financial System Inquiry, the Australian Federal Government began consulting with affected industries on the introduction and operation of an industry funding model for ASIC regulated entities in April 2016. The regime commenced on 1 July 2017.

The Government has now introduced new laws that change the way ASIC is funded. ASIC’s regulatory costs will be allocated across 48 industry subsectors based on the actual costs of ASIC’s regulation of each subsector in the previous financial year. This is known as the ASIC Industry Funding Model. New fees for service commenced in July 2018.

Industry Funding Model

Under the Industry Funding Model, entities regulated by ASIC have been categorised into 48 subsectors across all corporate entities subject to the Corporations Act. These subsectors include, among others, auditors, insolvency practitioners, credit licensees, Australian Financial Service licensees and other regulated entities and individuals.

The industry funding model will recover the actual amount spent during the previous financial year. Therefore the levies can only be calculated and issued in the following financial year. Some entities will pay a flat levy, with the cost of regulating a subsector shared equally among the entities operating in that subsector. Other entities will pay a graduated levy, with the entity’s size or level of business activity determining their share of costs.

The detailed methodology for how ASIC calculates levies for each industry sector is outlined in ASIC Report 535 ASIC cost recovery arrangements: 2017–18. January each year, regulated entities will receive an invoice via the ASIC Regulatory Portal. The first invoices will be issued in January 2019.

The cost of ASIC’s work in each subsector is forecast in ASIC’s annual Cost Recovery Implementation Statement (CRIS).  The CRIS is a document that ASIC will publish each year which will set out the expected expenditure on its regulatory activities.

Registration of entities in the ASIC Regulatory Portal

In July 2018, ASIC requested its regulated entities to provide industry funding contact details and submit their business activity metrics in the new ‘ASIC Regulatory Portal’, by 27 September 2018.

If your organisation received a letter from ASIC but is yet to provide the information requested, you should act immediately to avoid penalty. We can assist you in meeting your regulatory compliance requirements under the Industry Funding Model.

Please contact us to discuss your obligations or the new model more generally.

GrilloHiggins Lawyers are proud supporters of the My Room Charity which raises funds for the fight against childhood cancer. The firm recently attended the annual My Room Charity – Rock for a Cure 26th Glam Rock Ball & Charity Auction held at the Crown Casino on the 25th August 2018.

GrilloHiggins assisted My Room in the negotiation of an agreement with Metricon, Satterly Homes and the Footy Show in relation to a house and land package auctioned with the full proceeds raised to the My Room foundation. 

The ASX Corporate Governance Council is consulting on its proposed update to the “Corporate Governance Principles and Recommendations”. The closing date for submissions is 27 July 2018 with the new edition of the Principles and Recommendations expected to come into effect for a listed entity’s first full financial year commencing on or after 1 July 2019.
The Council explains that the proposed changes respond to emerging domestic and global corporate governance issues, including: social licence to operate; corruption; gender diversity at board level; and, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
The consultation draft retains the same eight core Principles but proposes significant changes to Principle 3 and nine new Recommendations. The consultation draft preserves the ‘if not, why not’ framework that requires a listed entity to identify where it has not followed a recommendation and outline its reasons for not doing so and what (if any) alternative governance practices it adopted instead.

What are the key proposed changes?

  1. Redraft of Principle 3: “Instil the desired culture”
    Principle 3 is the only Principle that has been significantly amended. The changes aim to address concerns relating to a listed entity’s culture, values and social licence to operate. The commentary relating to Principle 3 has also been revised.
    Supporting this Principle are three new Recommendations relating to: core values, whistleblowing policies and anti-bribery and corruption policies.
  2. Diversity
    To better achieve gender diversity outcomes, the Council proposes:

    • a measurable objective of at least 30% of directors of each gender for entities in the S&P/ASX 300;
    • to clarify that a listed entity’s measurable gender diversity objectives should aim at achieving gender diversity in the senior executive team, the board and the workforce generally;
    • requiring full disclosure of diversity policies (not just a summary); and
    • that a listed entity’s diversity policy should commit to “embrace diversity at all levels and in all its facets, including gender, marital or family status, sexual orientation, gender identity, age, physical abilities, ethnicity, religious beliefs, cultural background, socio-economic background, perspective and experience”.
  3. Use of Polls
    The Council proposes a new recommendation that listed entities use polls (rather than a show of hands) to determine the outcome of resolutions at security holder meetings.
    ASIC’s report on 2017 AGM season expressed concern that a relatively high number of ASX 200 companies still use a show of hands to decide resolutions.
  4. Consultancy services
    The consultation draft provides that a listed entity should only enter an agreement to be provided consultancy or similar services by a director or senior executive or by a related party of a director or senior executive:

    • if it has independent advice that:
      • the services being provided are outside the ordinary scope of his or her duties as a director or senior executive (as applicable);
      • the agreement is on arm’s length terms; and
      • the remuneration payable is reasonable; and
    • with full disclosure of the material terms to security holders.
  5. Carbon risk
    Pursuant to the recommendation by the Senate Economics References Committee, the Council proposes to, among other things, encourage entities that have a material exposure to climate change risk to consider implementing the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures.
  6. Language barriers for directors
    The consultation draft includes a new Recommendation that a listed entity with a director who is not fluent in the language, in which board or security holder meetings are held or key documents are written, should disclose how it will ensure the director understands and can contribute to the discussions at those meetings and can discharge his or her obligations in relation to those documents.

Alfonso Grillo – Partner

Adam Goldner – Senior Associate

Specialist corporate and commercial law firm, GrilloHiggins, has expanded its offering with the
addition of Adam Goldner.

Adam brings extensive expertise across the spectrum of corporate transactions, with a focus on
mergers and acquisitions, business structuring, regulatory and governance matters.

Adam has worked with a broad range of clients, include multi-nationals, professional service firms,
listed companies, aged care and retirement living operators, family-owned businesses and not-for-
profits. He has also spent time working at a leading commercial law firm in Tanzania.

In announcing the appointment, Alfonso Grillo, the firm’s joint-founding Partner, said “the
appointment increases the depth of the firm’s M&A and corporate advisory offering to public
companies and SMEs. We are delighted to have Adam join our enthusiastic and dedicated team. He
will be a great addition as we continue our journey of securing exceptional value for our clients”.

There are two ways shareholders can requisition a general meeting of members under the Corporations Act 2001 (Cth) (the Act) pursuant to s.249D and s.249F. Meetings that are requisitioned by shareholders pursuant to these provisions are most commonly for the appointment or removal of directors.

The following sets out a number of issues that should be taken into consideration when shareholders requisition a general meeting.

Meetings requisitioned pursuant to s.249D of the Act

 Shareholders who intend to requisition a general meeting pursuant to s.249D of the Corporations Act must ensure that the following steps are satisfied:

  1. ensure that members with at least 5% of the votes that may be cast at a general meeting sign the request;
  2. ensure that the request:
    1. is in writing;
    2. clearly states the resolution(s) to be proposed at the meeting;
    3. is signed by the members making the request. Separate copies of a document setting out a request may be used if the wording in each copy is identical; and
    4. is given to the Company.

Once a request is delivered to the company, the directors have an obligation to call the meeting within 21 days. The meeting must then be held within 2 months of the request being delivered to the Company.

A notice of meeting prepared under s. 249D is drafted by the company. It will include the resolutions and typically, a statement regarding those resolutions as drafted by the members requisitioning the meeting. The notice of meeting will be issued by order of the Board and can include a statement regarding each resolution and accompanying recommendations as sanctioned by the directors.

If directors fail to call the meeting within 21 days of the notice being delivered to the company, members with at least 50% of all of the votes that may be cast by those members who requisitioned the meeting may call and arrange to hold a general meeting. The meeting must not be held more than 3 months after the date that the requisition notice was delivered to the company and the company must pay the reasonable expenses the members incurred because the directors failed to call and hold the meeting.

Directors may be personally liable for the costs incurred by the company for their failure to call and hold the meeting unless they can demonstrate that they took all reasonable steps to cause the directors to comply with section 249D of the Act.  The directors who are liable are jointly and individually liable for the amount. If a director who is liable for the amount does not reimburse the company, the company must deduct the amount from any sum payable as fees to, or remuneration of, the director.

Shareholders calling and arranging the meeting pursuant to s.249F of the Act

If members do not want to direct a company to call a general meeting pursuant to s.249D of the Act, members with at least 5% of the votes that may be cast at a general meeting may call, and arrange to hold, a general meeting themselves pursuant to s.249F of the Act. By arranging the meeting themselves, shareholders retain the element of surprise in notifying the Board of the meeting and are also able to maintain control over the preparation of the notice of meeting and the location at which the meeting is to be held. However, in this instance the members calling the meeting must pay the expenses associated with calling and holding the meeting themselves. The meeting must still be called in the same way (so far as possible) in which meetings of the Company are called.

Section 203D of the Act

If members wish to convene a meeting for the purposes of removing a director or directors from the Board of a company, they must also comply with s.203D of the Act. Section 203D requires members to give notice to the Company at least 2 months before the meeting is to be held. Once the notice is delivered to the company, the company then has the ability to call and hold the meeting less than 2 months after the notice is given.

Once a notice is given to the company pursuant to s.203D of the Act, the company must give the director or directors concerned a copy of the notice as soon as practicable and must include the resolution in the notice of the next general meeting of the company. Merely delivering a notice to the company under s.203D does not oblige the company to call a special meeting. If members also wish to have a special meeting called, either s. 249D or s.249F of the Act must also be complied with.

The director or directors concerned have the right to submit written representations of no more than 1,000 words with a request that copies of the submission be circulated to members prior to the meeting at the company’s expense. The director or directors also have the right speak to the motion at the meeting.

If a director was appointed to represent the interests of a particular shareholder, the resolution to remove the director will not take effect until a replacement to represent the interests of that shareholder has been appointed.

 Compliance with the Act and a Company’s Constitution

When calling a general meeting of members, it is important to ensure that both the Act and the notice provisions of the company’s constitution are carefully reviewed and complied with. In Mortimer v Proto Resources & Investments Limited (2015) FCA 654, Proto Resources & Investments (ASX: PRW) was restrained from holding a general meeting called by shareholders on the basis that the notice of meeting was held to be invalid. Some of the defects in the notice of meeting noted by the Court were as follows:

  • the notice included proposed resolutions which were not matters within the power of a general meeting, so that those resolutions, if passed, would have been invalid. These resolutions included (among other things) resolutions seeking the appointment of individuals as chairman of the Board and chairman of the general meeting and the appointment of a company secretary. As the responsibility for passing these resolutions rests with the directors under PRW’s constitution, they were deemed invalid;
  • the procedure required by s 203D of the Act for providing procedural fairness to directors by giving them an entitlement to put their case when removal is proposed did not appear to have been followed;
  • the notice did not comply with the timing requirements in either s 203D or s 249HA of the Act, and gave less time than that stipulated by PRW’s constitution. The notice only provided shareholders with 21 days notice of the meeting and not the 28 days that was required by the Act and PRW’s constitution; and
  • the resolutions that related to the removal of the existing Board members called for the directors to be “dismissed”, rather than for their removal. Both the Act and PRW’s constitution make reference to directors being “removed”. As this terminology was not followed in the proposed resolutions, the resolutions were deemed to be invalid.

This example highlights the importance of ensuring that shareholders obtain professional advice to ensure that any notice of meeting complies with the requirements of both the Act and the relevant company’s constitution.

A recent finding of unacceptable circumstances by the Takeovers Panel also highlights the requirement for members of listed companies to ensure that all disclosures have been made about any associations that may exist between members. In September 2015, Resource Generation Limited received a notice from one of its substantial shareholders, Altius Investment Holdings (Pty) Limited requisitioning a general meeting to remove and replace the current directors. Resource Generation applied to the Takeovers Panel for a declaration of unacceptable circumstances on the basis that two substantial shareholders Noble Group Limited and Altius Investment Holdings (Pty) Limited had failed to disclose their association. It was established that Altius and Noble who are also joint venture partners, had previously met to discuss the composition of the Resource Generation Board and appropriate replacement candidates for the Board.

The Panel determined that since 25 August 2015, Noble and Altius were associated under s12(2)(b) of the Act for the purpose of controlling or influencing the composition of the board of Resource Generation or s12(2)(c) of the Act in relation to the affairs of Resource Generation, in respect of controlling or influencing the composition of Resource Generation’s board. As a result of the association, the voting power of each of Noble and Altius in Resource Generation’s shares aggregated to 24.38%.

The Panel considered that the failure of Noble and Altius to disclose their association resulted in RES shareholders being unaware ahead of the requisitioned meeting that Noble and Altius are associates. The Panel ordered that Noble and Altius each provide a notice of change of interest of substantial holder disclosing the existence and nature of their association and that they disclose their association in any communication Noble or Altius has with Resource Generation shareholders or the media in respect of the requisitioned meeting.