1. Recent Corporate Law and Corporate Governance Developments

1.1 Centre for Corporate Law website – research resources
1.2 2003 mergers and acquisitions study
1.3 National Australia Bank's response to foreign currency options trading losses
1.4 US Public Company Accounting Oversight Board approves standard for audits of internal control
1.5 APRA releases consultation paper on proposed “fit and proper” standards
1.6 IAASB calls on auditors to take greater action to consider fraud in an audit and to establish rigorous quality control processes
1.7 IBM announces significant changes in senior executive compensation policies
1.8 Kodak board of directors enhances corporate governance guidelines
1.9 Recent report on proxy voting at general meetings
1.10 IOSCO report on fees and expenses in managed investments

2. Recent ASIC Developments

2.1 ASIC grants temporary relief to additional law societies during period of consultation
2.2 ASIC relief to allow mixed money to be paid into insurance brokers' s981b trust accounts
2.3 ASIC policy statement: managed discretionary account services 2.4 FSR disclosure to be clear, concise and effective
2.4 FSR disclosure to be clear, concise and effective
2.5 New data matching program between ASIC and Insolvency and Trustee Service Australia (ITSA)

4. Recent Takeovers Panel Decisions

4.1 Mildura Co-operative Fruit Company Limited: Panel makes declaration of unacceptable circumstances and accepts undertakings
4.2 Panel publishes final guidance on funding arrangements
4.3 Correction of takeover documents – Panel publishes draft guidance note for public comment

5. Recent Corporate Law Decisions

5.1 Does section 440D of the Corporations Act apply to winding up proceedings?
5.2 Application for stay of criminal proceedings due to exposure to double jeopardy
5.3 Authority of director to enter into a contract on behalf of a company
5.4 Misleading advertising – can advertisers be responsible for misleading and deceptive content?
5.5 Appointment of provisional liquidator – whether court should refuse application to appoint provisional liquidator where receiver already appointed
5.6 Attendance of administrator at creditor’s meeting by video link conference
5.7 Proceeding against a company in administration – the scope of section 440D of the Corporations Act
5.8 Obtaining the Court's approval to enter into settlements
5.9 Ability of trustee to implement a scheme of arrangement and whether this would constitute fraud on the minority
5.10 Section 197(1) Corporations Act (director’s personal liability) applied despite full indemnity from trust assets available to corporate trustee

1.1 Centre for Corporate Law website – research resources

The Centre for Corporate Law and Securities Regulation at The University of Melbourne has a wealth of resources on its website dealing with corporate law, corporate governance and securities regulation.  These resources include links to:

·         Asian-Pacific corporate law and securities regulation sites (links are provided, on a country by country basis, to sites such as stock exchanges, securities commissions, corporate law legislation and corporate law judgments for each of these countries);
·         world securities commissions (links to approximately 60 securities commissions);
·         world stock exchanges (links to approximately 110 stock exchanges);
·         corporate governance (links to a range of organisations which are involved in corporate governance issues);
·         professional and interest bodies; and
·         financial news.

The Centre for Corporate Law website also provides free access to corporate law judgments of the High Court, Federal Court and the State Supreme Courts as well as decisions of the Takeovers Panel.

There are over 2,000 judgments on the website.  An advanced search engine allows convenient searching for key words in all judgments.  In addition, it is possible to search for judgments loaded onto the website within specified periods of time (eg in the last day, last week, last two weeks or last month).

Also on the website is a range of topical research papers dealing with matters such as the Financial Services Reform Act, compulsory acquisition of shares, the Takeovers Panel, dual listed companies, and directors' duties. The Centre for Corporate Law has recently published 4 new research reports dealing with:

- Reforming Not-For-Profit Regulation
- Managed Investments: An Industry Report
- Use of prospectuses by investors and professional advisers
- ASIC enforcement patterns

All of these research reports are on the Centre's website.

The address of the Centre for Corporate Law website is http://cclsr.law.unimelb.edu.au/

1.2 2003 mergers and acquisitions study

In March 2004, Ernst & Young released its annual analysis of merger and acquisition activity in Australia. The Mergers & Acquisitions Index (M&A Index) is a barometer of takeover activity among listed Australian industrial companies.

Some highlights of the findings for 2003 include:

·         The M&A Index increased by 12 per cent in 2003.
·         The recovery in the mergers and acquisitions (M&A) environment occurred mostly in the second half of the year along with a significant increase in initial public offering (IPO) activity.
·         In terms of the total value of acquisitions, a higher proportion was financed using cash. Competitive debt markets and low interest rates assisted in this regard.
·         The material sector has been a strong performer in M&A in 2003 on the back of construction and housing activity.
·         The strengthening Australian dollar does not appear to have greatly impacted the attractiveness of Australian assets with some significant listed company takeovers by offshore buyers in 2003.
·         The private equity market has been particularly active over the past year.

The M&A Index is a composite measure of the acquisition activity of all listed industrial companies with a market capitalisation above A$45 million.

The M&A Index numbers are primarily based on the:

·         total number of acquisitions;
·         total value of acquisitions; and
·         average Price to Asset Ratio (PAR) paid for acquisitions.

Summary of acquisition activity

*excludes media companies

On 12 March 2004, the National Australia Bank Chairman, Mr Graham Kraehe, and Chief Executive, Mr John Stewart, announced a four point action plan to fully address all of the issues associated with recent foreign currency options trading losses.

The action plan follows a review by PricewaterhouseCoopers over the last two months involving interviews with over 45 employees and third parties and research into several thousand e- mails, numerous reports and a database of 10,000 transactions. A copy of the PwC report is available on the NAB website.

The Board has also received advice from Deloitte about potential conflicts facing PwC as a result of past and current relationships in areas relevant to the review, and probity and governance advice from Blake Dawson Waldron.

Mr Kraehe said: "The Board is confident that a full and fair assessment of all issues has been undertaken and that appropriate remedial actions are being taken to address all of the issues raised in the PwC report and to prevent them from recurring."

(a) Key points

Key points in the PwC report include:

·         the final loss arising from foreign currency options trading announced on 27 January is $360 million
·         the losses arising from the foreign currency options trading increased significantly between September 2003 and January 2004
·         four traders on the foreign currency options desk exploited loopholes and weaknesses in systems and processes to hide trading losses and protect bonuses
·         the trader's activities were contrary to the National's strategy of building customer-focused business
·         the foreign currency options trading losses were reported to management by several junior employees
·         no customers were directly or indirectly affected by the foreign currency options trading losses
·         in the Markets Division there was:

- inadequate management supervision,
- significant gaps in back office monitoring functions,
- escalation processes that did not work properly,
- weaknesses in control procedures,
- failure of risk management systems; and
- an absence of appropriate financial controls

·         there is not a suitable compliance culture within this area of the National and a tendency to suppress bad news rather than be open and transparent about problems; and
·         warning signals, both inside the National and from regulators and other market participants, were not properly acted upon.

(b) Board changes

Mr Kraehe said Directors had accepted the proposition in the PwC report that the Board is ultimately responsible for the culture and the reputation of the National, and any losses suffered by shareholders.

"The former Chairman, Mr Charles Allen, and former Chief Executive, Mr Frank Cicutto, resigned earlier this year because they felt that was in the best interests of the National and its shareholders," he said.

"However, the Board accepts that further action is required. I have already announced that we are seeking two additional Directors with banking experience, one from Australia and one from the United Kingdom. This process is well advanced.

"We have also made a separate announcement concerning changes in the Chairmanship of Board Committees and the appointment of a Senior Independent Director in accordance with international best practice in corporate governance."

(c) Management changes

Mr Stewart said that management changes were also appropriate.

"Primary responsibility for the unauthorised trading rests with four members of the foreign currency options desk and they have been summarily dismissed from the National," he said. "The four traders that have been dismissed are: Mr Luke Duffy, Mr David Bullen, Mr Gianni Gray and Mr Vince Ficarra. The Head of Foreign Exchange in the Markets Division, Mr Gary Dillon, who was the direct supervisor of the four traders, will also be dismissed."

Mr Stewart said the events surrounding the foreign currency options trading losses are being investigated by the Australian Prudential Regulation Authority (APRA), the Australian Companies & Securities Commission (ASIC) and the Australian Federal Police (AFP). Overseas authorities are also reviewing the events and the National's responses.

"These agencies will determine whether any civil or criminal actions will be taken against individuals as a result of the foreign currency options trading losses," he said.

"The National will continue to fully co-operate with the authorities in their investigations."

Mr Stewart said a number of other employees within the National would also be transferred or counselled as a result of the events surrounding the unauthorised foreign currency options trading.

Mr Stewart said the National had decided to review the employment of certain individuals: "Those who will be leaving the National include; the Executive General Manager of Corporate & Institutional Banking, Mr Ian Scholes, the Head of Markets Division, Mr Ron Erdos, and the Executive General Manager of Risk Management, Mr Chris Lewis. Experienced managers have been appointed to these positions on a short term basis until the National completes appropriate recruitment processes."

(d) Risk and control frameworks

Mr Stewart said the management team are continuing to implement remedial actions to close gaps and loopholes identified in the PwC report that were exploited by the traders or contributed to long standing breaches of policies and limits. "We will refine our risk management framework to get a more appropriate balance between management and policing functions," he said. "We have already reviewed value at risk limits and reduced our risk exposure."

"Weaknesses in control procedures identified by PwC have been or will be rectified without delay. This includes analysis of daily trading profits and accounts, reporting of all large and unusual transactions, investigation of all off-market rates on high risk transactions, critical review of revaluation rates sourced from third parties and a stronger back office function that properly checks all transactions."

"It is totally unacceptable that employees of the National breach policies and control limits. From now on, there will be a zero tolerance policy towards unauthorised limit breaches at the National."

Mr Stewart said the management team would also review responsibilities between business units to ensure that there would be clear reporting lines and accountabilities between Risk Management, Operations and Finance functions within the National.

"These and other specific issues identified in the PwC report will be addressed quickly and I will report to the Board regularly on our progress in tackling these long standing problems at the National."

(e) Culture

Mr Stewart said he was concerned about references in the PwC report to staff that adopt arrogant or aggressive attitudes towards others, or who abrogate responsibility and focus on suppressing bad news rather than engaging in full and frank dialogue.

"We will continue cultural change programs within the National such as Revitalisation and Making a Difference that promote positive and transparent behaviours," he said. "We will ensure that these programs are actively adopted in the Markets Division of the National."

"I am pleased that whistleblowers had uncovered the losses from foreign currency options trading and the National would continue to encourage and protect whistleblowers: "We need more brave people that are prepared to confront bad behaviours," he said.

Mr Stewart said the management team would also review its recruitment processes, the annual appraisal processes and incentive structures to avoid inappropriate behaviours in future at the National.

Download the full report or visit the NAB website for further information.

1.4 US Public Company Accounting Oversight Board approves standard for audits of internal control

On 9 March 2004 the United States Public Company Accounting Oversight Board (PCAOB) approved an auditing standard for audits of internal control over financial reporting and proposed amendments to the Board’s existing interim auditing standards to conform them to the new standard.

The auditing standard, "An Audit of Internal Control over Financial Reporting Performed in Conjunction with an Audit of Financial Statements," addresses both the work that is required to audit internal control over financial reporting and the relationship of that audit to the audit of the financial statements.

Section 404(a) of the US Sarbanes-Oxley Act of 2002, and the Securities and Exchange Commission's related implementing rules, requires the management of a public company to assess the effectiveness of the company's internal control over financial reporting. Section 404(b) of the Act, as well as Section 103, directed the PCAOB to establish professional standards governing the independent auditor's attestation, and reporting, on management's assessment of the effectiveness of internal control.

The text of the auditing standard and related appendices can be found on the Board's website under Rulemaking.

The auditing standard on internal control will be submitted to the Securities and Exchange Commission for approval, as required by the Sarbanes-Oxley Act.

Sarbanes-Oxley requires both reports of management about an issuer’s internal controls and an attestation to those reports by the issuer’s independent auditor. The PCAOB standard concerns the latter requirement. Key issues in the PCAOB standard include:

(a) Attestation means audit

The standard casts the attestation as an “audit” of internal control over financial reporting, to be integrated with the financial statement audit. It significantly limits the degree to which the auditor can rely on the work of others (management, internal audit) in performing this work – the auditor’s own work must provide the “principal evidence” for the internal control audit opinion. However, the standard does not adopt a specific quantitative threshold and permits the auditor to make qualitative judgments in assessing whether its audit has met this standard.

(b) Auditors will assess audit committees

The standard requires that the auditor assess the effectiveness of the audit committee’s oversight of external financial reporting and internal control over financial reporting. The standard provides that it is an issuer’s board of directors that is responsible for evaluating the performance and effectiveness of the audit committee, and clarifies that the auditor is not responsible for performing a separate and distinct evaluation of the audit committee. The standard notes that it is management, not the audit committee, that is responsible for maintaining effective internal controls.

1.5 APRA releases consultation paper on proposed “fit and proper” standards

On 2 March 2004, the Australian Prudential Regulation Authority (APRA) released, for public consultation, proposed “fit and proper” prudential standards for authorised deposit taking institutions, general insurance and life insurance institutions.

Under the proposed requirements:

·         APRA-regulated institutions will need to develop their own fit and proper policies that include assessment of the fitness and propriety of individuals to act in positions of responsibility;
·         these policies must, at a minimum, address the fit and proper requirements that APRA expects responsible persons to meet, which are set out in the proposed prudential standards; and
·         APRA will only become involved in an assessment when it has specific concerns about an individual.

APRA’s Chairman, Dr John Laker, said the proposals are the first step in the introduction of harmonised governance requirements for these industries.

“The proposals are designed to reflect community expectations about persons who fill positions of responsibility in these industries and will set minimum benchmarks for people in, or wishing to enter, these industries at director, senior management or advisory level,” he said.

APRA plans further governance initiatives in the form of harmonised prudential standards. Proposals relating to general insurance were put forward in APRA’s discussion paper on ‘Prudential Supervision of General Insurance: Stage II Reforms’, which was released in November 2003. APRA expects to provide further information on governance standards around mid 2004 after it considers responses to the general insurance reforms.

Comments on the consultation paper and the prudential standards are invited by 28 May 2004. A copy of the consultation paper and draft prudential standards are available on the APRA website at http://www.apra.gov.au/Policy/Draft-Prudential-Standards-Fit-and-Proper.cfm.

A “fit and proper” regime for the superannuation industry is being dealt with separately through the Superannuation Safety Amendment Bill, currently before the Parliament.

1.6 IAASB calls on auditors to take greater action to consider fraud in an audit and to establish rigorous quality control processes

On 1 March 2004, the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC) released a revised International Standard on Auditing (ISA) requiring auditors to be more proactive in considering the risk of fraud in an audit of financial statements and has issued new quality control standards addressed at both audit firms and engagement teams.

(a) Fraud and the auditor’s responsibility

The new ISA, “The Auditor’s Responsibility to Consider Fraud in the Audit of Financial Statements,” builds on the new audit risk standards issued last year and requires the auditor to focus on areas where there is a risk of material misstatement due to fraud, including management fraud. The revised standard emphasizes the need for the auditor to maintain an attitude of professional scepticism throughout the audit, notwithstanding the auditor’s past experience about the honesty and integrity of management and those charged with governance.

The standard, effective for audits of financial statements for financial periods beginning on or after 15 December 2004, requires the engagement team to discuss how the financial statements may be susceptible to material misstatement due to fraud and what audit procedures would be more effective for their detection. The standard also requires the auditor to design and perform audit procedures to respond to the identified risks of material misstatement due to fraud, including procedures to address the risk of management override of controls.

(b) Quality control guidance for audit and assurance engagements

In its ongoing efforts to encourage high quality performance by the world’s accountants, the IAASB also recently approved two new standards on quality control. The first, International Standard on Quality Control 1, establishes a firm’s responsibilities to set up and maintain a system of quality control for all audits and assurance engagements. In addition to setting out guidance on client acceptance and retention criteria that firms should consider, the standard requires that an engagement quality control review must be performed for audits of listed entities and such other engagements as a firm determines.

The review, which must be completed before the audit report can be released, includes consideration of:

·         Significant risks identified during the engagement and the responses to those risks;
·         The significance and disposition of corrected and uncorrected misstatements identified during the audit;
·         Whether appropriate consultation has taken place on difficult or contentious matters and the conclusions arising from those consultations.

The second quality control standard, ISA 220, Quality Control for Audits of Historical Financial Information, establishes standards for the specific responsibilities of firm personnel for an individual audit engagement and is premised on the requirements of the firm-wide quality control standards set out in ISQC1.

To provide firms sufficient time to design and implement the systems required under ISQC1, both of these standards are effective 15 June 2005.

1.7 IBM announces significant changes in senior executive compensation policies

On 24 February 2004, IBM announced a series of changes to further align the equity-based compensation of its senior executives with the interests of shareholders. The changes were approved by the Compensation Committee of the IBM board of directors.

One change will ensure that the company's senior executives benefit from outright, annual grants of stock options only after shareholders realize at least 10 percent growth in their investments.

In addition, IBM senior executives will be able to acquire market-priced stock options only if they first invest their own money.

The new policies, which apply to Chairman and Chief Executive Officer Samuel J Palmisano and the top 300 IBM executives worldwide, will begin in 2004.

IBM said it believes it is the first major company, inside or outside the information technology industry, to set such requirements for equity-based executive compensation.

Details of the changes are as follows:

·         Premium-priced stock options: Effective immediately, IBM will only make outright, annual grants of stock options to senior executives with a strike price (the fixed price at which shares may be purchased in the future) that is 10 percent higher than the market price on the day the options are issued.

As a result, IBM executives will not realize any value from these so-called "out of the money" options until IBM's share price increases more than 10 percent from the date the options are issued and the options are vested.

·         "Buy first" market-priced options: The only way IBM senior executives will be able to acquire stock options at market prices is if they first purchase IBM shares of a corresponding value at the market price with their own money. This program will begin in 2005.

For example, in order for a senior executive to acquire market-priced stock options with a target value of $18,000, the executive must first invest a portion of his or her annual cash bonus to purchase $9,000 of IBM stock. The executive then must retain ownership of all of the purchased shares for at least three years in order not to forfeit the entire option grant.

While IBM senior executives already have minimum company stock ownership requirements, this unique, "buy first" policy further encourages executive ownership of the company while ensuring they experience the same ups and downs of ownership as shareholders.

Senior executive compensation at IBM is based on company, business unit and individual performance. Equity in the company, such as stock options, is generally granted annually to most executives as part of their compensation and as a retention tool. Options are also granted annually to high-performing employees as a retention tool; that program will not be affected by these changes.

Option recipients must wait four years before earning the right to exercise 100 percent of an option grant. Options expire after 10 years.

1.8 Kodak board of directors enhances corporate governance guidelines

On 17 February 2004, Eastman Kodak Company's Board of Directors voted unanimously to enhance the company's corporate governance guidelines. In addition, the board adopted strengthened board independence standards, implemented an enhanced director selection process and adopted a director code of conduct.

The board also approved new director qualification standards and implemented a process enabling shareholders to communicate directly with the board's Presiding Director, Richard S Braddock.

These latest enhancements will ensure that Kodak's practices and policies meet or exceed requirements of the Sarbanes-Oxley Act, the New York Stock Exchange's recently finalized corporate governance listing standards, and the Securities and Exchange Commission's new disclosure rules regarding nominating committee functions.

The guidelines are available on the Corporate Governance section of Kodak's website.

Additionally, Kodak announced it would begin expensing stock options starting January 1, 2005. Kodak made the decision in response to a Financial Accounting Standards Board announcement last October concerning stock option accounting, and a shareholder proposal requesting that Kodak expense stock options, which received a majority vote at last year's annual meeting.

1.9 Recent report on proxy voting at general meetings

The following conclusions and recommendations are drawn from the latest Corporate Governance International report on proxy voting at general meetings of the Australian Stock Exchange largest 200 companies in 2003.

The full report, which was issued in March 2004, is available for download at:

http://www.cgi.au.com/user1/1336/doc/Proxy%20Voting%20Report%202003.pdf

(a) Conclusions

CGI drew the following conclusions from the subject matter of the report:

1. The level of proxy voting in major ASX-listed companies has continued to increase, if unspectacularly and not to the levels in the major markets of UK (55%) and USA (80%).

Proxy instructions in 2003 in a sample of 161 widely held major ASX-listed companies represented on average 44% of total voting capital.

Comparable results (albeit with some difference in sample companies) were 2002 – 41%, 2000 – 35% and 1999 – 32%.

2. Research by Computershare estimates the level of ownership of ASX200 companies by Australian institutional investors at around 36%. Statistics provided by major Australian custodian JPMorgan indicate a substantial increase in 2003 in the level of proxy voting by its Australian institutional clients. That increase followed JPMorgan’s introduction of arrangements to encourage and facilitate proxy voting by its clients centred on convenient electronic proxy voting. CGI understands that another major Australian custodian is contemplating introducing similar arrangements.

There is, therefore, considerable scope to lift the Australian level of proxy voting well above the 44% figure.

3. The 161 companies in the 2003 sample held 171 meetings and submitted 880 resolutions in their 2003 notices of meeting for proxy (or other) vote. Except for a handful, including a few board challenges by “external” candidates, all of those resolutions were board sponsored.

Of those 880 resolutions, 4 companies withdrew a total of 6 board sponsored resolutions from shareholder vote prior to or at their meetings. 5 of those withdrawn resolutions related to remuneration of directors. 4 withdrawals were actually or presumably as a consequence of institutional proxy voting and/or lobbying.

All 874 of the remaining board sponsored resolutions were submitted to shareholder vote at the meetings and all were passed by the requisite majority of votes (simple majority or 75% majority, depending on the subject matter).

4. The top 5 “Against” proxy votes in the sample (all on board sponsored resolutions related to remuneration of directors submitted to shareholder vote at the meeting) ranged from 29% down to 12% of total voting capital. While those figures are up on the prior year, none was sufficient to defeat the resolution, all 5 of which, as indicated in 3 above, were passed by the requisite majority of votes.

5. CGI’s voting recommendations on those 880 resolutions were “Approve” 76% and “Against” 21%, almost half of the latter being on remuneration resolutions.

CGI is instructed by its institutional clients to apply the highest standards to its analyses of resolutions submitted to shareholder vote so that the client can take that advice into account as part of its own practical decision on how to vote.

Such a practical voting decision will validly take into account a number of other factors and in many cases that may validly result in a vote to support the Board sponsored resolution.

In CGI’s experience, however, there is always a hard core of Board sponsored resolutions each year, mainly relating to remuneration, which, in CGI’s view, do not merit shareholder support on any rational basis. Those certainly exceed the single digit number of withdrawn resolutions referred to in 3 above.

6. In CGI’s view, therefore, it is not merely a matter of getting the overall institutional proxy voting level up but also of improving the quality of the institutional practical voting decision in some cases.

(b) Recommendations

1. The institutional investor bodies, and especially ACSI and ASFA representing major Australian super funds and IFSA representing major Australian fund managers, should immediately appoint appropriately staffed and adequately resourced committees to review the contents of this report and the new Myners report and ICGN Statement on Institutional Shareholder Responsibilities.

2. In particular, ACSI, ASFA and IFSA should:

a. Consider endorsing, jointly if that can be agreed, the new Myners report, and especially the specific steps recommended for each of the participants in the proxy voting process, as equally applicable to the Australian system (on the basis that our system and its participants are essentially identical to those in the UK).

b. As part of that, agree and publish a target for introduction of electronic voting capabilities by the main 2004 Australian proxy season in October and November of this year.

3. Adoption by institutional shareholders of the best practices set out in the ICGN Statement on Institutional Shareholder Responsibilities will go a long way to lift not only the quantum of overall institutional proxy voting levels in ASX-listed companies but also the associated quality of institutional voting decision-making. ACSI, ASFA and IFSA should, therefore, simultaneously review the ICGN Statement with a view to issuing well prior to the main 2004 Australian proxy season in October and November of this year, again jointly if that can be agreed, a version tailored to Australian conditions.

4. As part of that, ACSI, ASFA and IFSA should specifically consider:

a. The entirety of institutional shareholders’ fiduciary responsibilities to their clients and beneficiaries – not just their responsibility to vote shares;

b. In particular, the conflict of interest provisions and associated safeguards canvassed in the ICGN Statement; and

c. The further issue of stock lending and other sophisticated arrangements relating to “vote renting” referred to in the CGI report.

5. Parliament and regulators (ASIC and ASX) should:

·         Keep a close watching brief on the progress of 1 to 4 above;
·         Promptly amend s251AA of the Corporations Act to close the loophole identified in the CGI report;
·         Police due compliance by ASX-listed companies with the reporting requirements of that section;
·         Take prompt and effective action to close the “regulatory gap” analysed in the CGI report;
·         Review whether large-scale professional proxy solicitation and “vote renting” in the Australian market of the type referred to in the CGI report should be subject to some form of regulatory oversight, if not control.

6. Trustees of superannuation or investment funds and other fiduciaries who rely on professional investment managers should, for their own and their beneficiaries’ protection, take a close interest in, and should push for implementation of, all of these recommendations. They should also press their custodians to introduce, if they have not already done so, arrangements to encourage and facilitate proxy voting by institutional investors centred on convenient electronic proxy voting.

1.10 IOSCO report on fees and expenses in managed investments

In February 2004 the Technical Committee of the International Organization of Securities Commissions (IOSCO) published a report titled "Elements of International Regulatory Standards on Fees and Expenses of Investment Funds".

The report is aimed at identifying common international best practices standards in the area of fees and expenses in investment funds through the identification of what regulators should seek to achieve when dealing with some of the issues raised by fees and expenses.

These best practices will evolve over time as regulators may take into account those stated in the report by adapting their approach.

These best practice standards deal with issues that were identified at this stage as key issues and where regulatory best practices were agreed upon, namely those raised by:

·         disclosure of fees and expenses to the investor;
·         conditions of remuneration of the fund operator;
·         performance fees;
·         transaction costs;
·         hard and soft commissions on transactions;
·         fees associated with funds that invest in other funds (including funds of funds);
·         fee differentiation in multiclass funds; and
·         fees and changes in fund's operating conditions.

The report is available on the IOSCO website.

2.1 ASIC grants temporary relief to additional law societies during period of consultation

On 22 March 2004 the Australian Securities and Investments Commission (ASIC) published two new Class Orders [CO 04/0265] & [CO 04/0266] which amend the following class orders:

·         Class Order [CO 03/1094] Law societies – professional indemnity scheme and fidelity funds; and
·         Class Order [CO 03/1095] Law societies – statutory deposit accounts and public purpose funds.

The original class orders were published on 11 March 2004, the end of the transition period for the Financial Services Reform Act.

The recent amendments operate so that the temporary relief granted under the earlier two class orders applies to additional law societies (or their associated entities). These are the Queensland Law Society, the Law Society of the Australian Capital Territory and the Law Society of Tasmania.

The amendments by [CO 04/0265] also permit LawCover Pty Limited, an associated entity of the Law Society of New South Wales, to obtain the relief granted under [CO 03/1094].

'ASIC has previously granted temporary relief to the law societies of New South Wales, South Australia, Western Australia and the Northern Territory (or their associated entities), until 1 July 2005, in respect of the operation of their professional indemnity schemes, fidelity funds, statutory deposit accounts and public purpose funds', ASIC Director Financial Services Regulation, Legal and Technical Operations, Ms Pamela McAlister said.

'This relief was granted pending the outcome of the Review of Discretionary Mutual Funds and Direct Offshore Foreign Insurers (see Media Release 82 of 2003 of the Federal Treasurer), and to permit ongoing consultation by the Federal Government and ASIC. The law societies of other states and territories have since applied for similar relief and it has been granted on the same basis', Ms McAlister said.

Further details about the conditions of relief are available from ASIC Information Release 03-43: ASIC provides temporary relief during period of consultation.

Copies of the Class Orders can be obtained from ASIC's Infoline by calling 1300 300 630 or from the ASIC website at www.asic.gov.au/co

2.2 ASIC relief to allow mixed money to be paid into insurance brokers' s981b trust accounts

On 16 March 2004, the Australian Securities and Investments Commission (ASIC) issued a class order which provides limited relief to insurance brokers regarding their ability to pay money into a trust account under section 981B of the Corporations Act 2001 (the Act).

The class order [CO 04/189] allows other money, paid in a single sum together with client monies, to be paid into a trust account established and maintained under section 981B of the Act by a financial services licensee who is an insurance broker.

Section 981B generally permits only client monies (which are connected with a financial service provided to, or a financial product held by, the client) to be paid into a section 981B account. It does not allow non-client monies, such as remuneration payable to the broker, or monies not connected with a financial service or the client's financial product, to be paid into these accounts.

The class order relief modifies paragraph 981B(1)(b) to allow payment into an insurance broker's section 981B account of mixed payments (ie a single payment of client monies and non-client monies). The relief, however, requires the licensee to pay out of the account any non-client money within five business days.

The relief is only available to insurance brokers.

Insurance broker, as defined in the class order, means the holder of an Australian financial services license who is authorised under the licence to provide a financial service relating to contracts of insurance and who, in providing that service, predominantly acts on behalf of intending insureds.

ASIC has provided this limited relief to reduce the commercial inconvenience to insurance brokers and their clients of requiring separate payments of client money and broker remuneration, while essentially maintaining the protections over client money afforded by the trust account regime.

Copies of the Class order are available from the ASIC website.

2.3 ASIC policy statement: managed discretionary account services

On 15 March 2004, the Australian Securities and Investments Commission (ASIC) released Policy Statement 179 on the regulation of managed discretionary account services (MDA services).

ASIC's policy approach (in summary form) to the regulation of MDA services was issued on 6 January 2004 in Information Release 04–01, 'ASIC policy approach to the regulation of managed discretionary accounts'.

As outlined in January, the policy statement details ASIC's exemption for operators of MDA services (MDA operators) from the managed investments provisions in Chapter 5C of the Corporations Act 2001 (the Act) and the product disclosure provisions in Part 7.9 of the Act. To have the benefit of this relief, MDA operators must comply with the licensing and conduct provisions in Parts 7.6 and 7.7 of the Act and some additional conduct requirements designed to promote consumer protection.

'Our policy approach aims to tailor the regulatory regime for operators of MDA services without minimising the protections available to retail clients who use them', Director of Financial Services Regulation, Legal and Technical Operations, Ms Pamela McAlister, said.

'MDA services are often promoted to retail clients on the basis that they contain an investment program or strategy which is suitable for the individual client. As a result, ASIC believes that MDA services can be effectively regulated through a supplemented application of the licensing and conduct requirements, including those relating to personal advice.

'These tailored requirements replace the need for MDA operators to comply with the managed investment and financial product disclosure requirements of the Corporations Act. In addition, ASIC has allowed for transitional arrangements to enable MDA operators time to meet the requirements in our policy', Ms McAlister said.

Copies of PS 179, Information Release 04–01 and related class orders are available from the ASIC website.

2.4 FSR disclosure to be clear, concise and effective

On 10 March 2004, the Australian Securities and Investments Commission (ASIC) confirmed that it expects key disclosure documents produced by financial services providers to be clear, concise and effective.

'Some industry participants have told us that their lawyers are advising them to produce Statements of Advice (SOAs) running to 80 or 90 pages in order to comply with the requirements of financial services regulation. This is not what we would expect to see under the law, and it is not helpful to consumers. ASIC sees disclosure under the new law as a consumer-centric regime, focussing on the consumer's information needs', ASIC Executive Director of Financial Services Regulation, Mr Ian Johnston said.

ASIC has already issued guidance about disclosure documents such as Financial Services Guides, Statements of Advice and Product Disclosure Statements (See Policy Statement 168 Disclosure: Product Disclosure Statements (and other disclosure obligations) and Policy Statement 175 Licensing: Financial product advisers – conduct and disclosure).

'In ASIC's view, the law is clear about what needs to be contained in such documents. However, if product issuers and advisors believe they need to produce overly complex documents in order to comply with the law, ASIC is prepared to consult with them and issue further guidance', Mr Johnston said.

Responding to some media comment about when an advisor might have to provide a SOA to clients, Mr Johnston said, 'It is not the case that a SOA needs to be provided every time an advisor talks to a client. Often those discussions will be about the existing investment strategy for the client with no further advice being given, for which the existing SOA my well suffice', he said.

ASIC also confirmed that a SOA need not always take the same form. In many circumstances, it will be acceptable to update advice in a shorter document, referring back to the original, more comprehensive SOA.

ASIC understands that many financial service providers will take a conservative course and produce documents which are 'boiler-plate'. ASIC has asked the Financial Planning Association to provide it with examples of SOAs it considers overly long and complex.

'However, we are also aware of examples which are in a shorter form and which correctly balance the disclosure of all information the client needs, with the requirements for the information to be presented in a clear, concise and effective manner', Mr Johnston said.

2.5 New data matching program between ASIC and Insolvency and Trustee Service Australia (ITSA)

A data-matching program commenced on 2 March 2004 with the cooperation of the Insolvency and Trustee Service Australia (ITSA).

The program will match data from the ITSA National Personal Insolvency Index (NPII) with data from ASIC's public database to identify persons automatically disqualified from managing corporations by operation of s206B(3) and (4) of the Corporations Act 2001. The results of the program will be used by ASIC to investigate possible breaches of the law.

The program protocol developed in consultation with the Office of the Federal Privacy Commissioner provides more information about this new program.

Both ASIC and ITSA adhere to the Privacy Commissioner's Guidelines on Data-Matching in Commonwealth Administration that includes standards for data-matching to protect the privacy of individuals.

(a) FSR Transition

ASX advises that, according to the records maintained by ASX and ASIC, all ASX Participating Organisations and RIOTs and all ASX Futures Participants obtained Australian Financial Services Licences ahead of the 11 March 2004 ASIC deadline for transitioning to the new regime.

(i) New rules take effect

As foreshadowed, new ASX Market Rules, ACH Clearing Rules and ASTC Settlement Rules along with their associated procedures came into effect on 11 March 2004. The rules are available at both ASX Online and the ASX website.

(ii) Terminology in new rules

Certain existing agreements contain terminology that has either been replaced or removed under the relevant new operating rules. However ASX has advised that these agreements do not require novation or re-execution as the existing agreements provide for amendment from time to time.

(iii) Derivatives Client Agreements under the ASX Market Rules and ACH Clearing Rules

With respect to Client Agreements under the ASX Market Rules and the ACH Clearing Rules, the ASX Group has issued blanket “no action” relief in certain circumstances. These circumstances are set out in Participant Circular 116/04 dated 15 March 2004.

(iv) AFS Licence terminology

The changes to the rules also have implications for AFS licensees. ASX has been liaising with ASIC in relation to the implications for Participants of terminology on AFS Licences which refers to old rules and ASX Group entities. ASIC has advised that until such time as variations are made to the licence conditions of existing AFS licensees affected by the changes, ASIC will take the position that:

“1. licensees who currently operate lawfully under the old ASX, ASXF and OCH structures and who have the benefit of the condition in [PF 209.10] may continue to operate under the new ASX structure as if the definition of "market participant" for the purposes of [PF 209.10] includes:

a) a market participant as defined in the operating rules of the ASX (other than a market participant which is only a principal trader as defined in the operating rules of the ASX) who is required to comply with the ASX's operating rules, taking into account any waiver by ASX; and
b) a participant as defined in the operating rules of ACH who is required to comply with ACH's operating rules, taking into account any waiver by ACH; and

2. licensees who currently have a "Registered Independent Options Trader" authorisation may continue to carry on business as if references in the AFS licence to "Registered Independent Options Trader" or "RIOT" are references to "Principal Trader as defined in the ASX operating rules".”

(v) Capital requirements and commencement of the new market rules and clearing rules

Some key points regarding implications of the new rules regarding capital requirements are summarised in the attachment to Participant Circular 105/04 dated 9 March 2004. The Circular contains an Appendix which sets out which rules apply to which participants and an attachment which contains a detailed analysis of the capital requirements under the new regime.

(b) Listing rule amendments

(i) ASX Listing Rule Amendments - Capital Raising Mechanisms

Progress of ASX's proposed Listing Rule amendments dealing with capital raising mechanisms, which were exposed for public comment in October 2003 and proposed to take effect on 31 March is set out below.

(ii) Proposed increase of 15% limit under Listing Rule 7.1

The submissions received in response to ASX's proposed Listing Rule amendments expressed wide support for the proposal to increase the limit for issues of securities that may be made without shareholder approval under listing rule 7.1 (the Limit) from 15% to 20%.

However, some respondents expressed concern that certain investors may be disadvantaged by the proposed increase, in the absence of provisions limiting the price discount of securities issued under the Limit.

Taking into account concerns expressed by these stakeholders and after liaising with ASIC, ASX has decided to further consider possible alternatives in relation to increasing the Limit. ASX may therefore issue a further discussion document seeking the views of stakeholders in relation to the proposal and any alternatives, with a view to introducing rule amendments in this regard at the earliest opportunity.

As a result, any changes to the limit on placing capacity in listing rule 7.1 will not take effect on 31 March.

(iii) Proposed amendments to take effect as from 31 March

ASX intends to proceed with the following amendments, which will come into effect on 31 March 2004. 

·         A new exception from listing rule 7.1 for securities to be issued under a security purchase plan (SPP) that does not require a prospectus or Product Disclosure Statement, pursuant to ASIC relief. The exception will not extend to issues to an underwriter of an SPP, and will be limited to issues of not more than 30% of ordinary issued capital, at a price that is not less than 80% of the average market price.
·         Reductions to the timetables for both renounceable and non-renounceable pro rata issues of 42%, from a total of 40 business days to a standard total of 23 business days.
·         A new exception from the rule for securities issued with investor approval under the takeover provisions of the Corporations Act.
·         Certain technical amendments, including those relating to convertible securities.

(iv) Other proposed amendments deferred for further consideration

·         Proposed provisions to give investors the ability to confer a general mandate on an entity to issue securities with an unlimited discretion for a period of up to 13 months. ASX will undertake further analysis in this regard.
·         The proposal to include an issue to the underwriter of a dividend or distribution reinvestment plan in listing rule 7.2 exception 7.

ASX will advise listed companies about the revised proposal by way of further update, as soon as possible.

ASX has also determined not to proceed with rule amendments to listing rule 7.7 to remove the special New Zealand directive.

(v) Technical Listing Rule amendments - Financial Services Reform Act - ASX Market Rules, ASTC Settlement Rules & ACH Clearing Rules

Technical listing rule amendments consequential to the introduction of the ASX Market Rules, ASTC Settlement Rules and ACH Clearing Rules (the Rules) took effect from 11 March 2003. The amendments reflect changes in cross-references, nomenclature and definitions, as those changes are introduced in the Rules. The Listing Rules available on the ASX website and ASX Online have been updated to include these changes, and they will be incorporated in hard copies of the Listing Rules containing the amendments in relation to capital raising mechanisms, effective 31 March 2004. Listed entities and subscribers to the Listing Rules will receive these updates shortly.

4.1 Mildura Co-operative Fruit Company Limited: Panel makes declaration of unacceptable circumstances and accepts undertakings

On 8 March 2004, the Panel announced that it had made declarations of unacceptable circumstances in the Mildura Co-operative Fruit Company Limited proceedings. The Panel has concluded the proceedings as a result of the applications made by Mildura Investment Company Pty Ltd (MIC) and the application made by Mildura Co-operative Fruit Company Limited (MCFC) following acceptance by the Panel of undertakings to the Panel provided by MIC and MCFC.

(a) Background

The Panel received two applications from MIC (the MIC Applications) pursuant to sections 657A, 657E and 657D of the Corporations Act 2001 (Cth) (the Act) in relation to MIC’s takeover bid for all of the ordinary shares in MCFC (the Bid). In MIC’s first application dated 27 January 2004 (the First Application), MIC applied to the Panel for a declaration of unacceptable circumstances and interim and final orders. In MIC’s second application dated 28 January 2004 (the Second Application), MIC applied to the Panel for a declaration of unacceptable circumstances and final orders.

On 30 January 2004, the Panel received an application by MCFC (the MCFC Application) under sections 657A and 657D of the Act for a declaration of unacceptable circumstances and final orders in relation to the Bid.

On 2 February 2004, the Panel decided to conduct proceedings (the Proceedings) in relation to the issues raised in the MIC Applications and MCFC Application.

It should be noted that the Panel also received an application by MIC on 11 February 2004 under section 657A for a declaration of unacceptable circumstances and final orders. This application was withdrawn before the Panel commenced proceedings in relation to it.

(i) MIC applications

MCFC has sent a copy of its target’s statement (the Target’s Statement) to each holder of ordinary shares and each holder of preference shares in MCFC.

The Target’s Statement refers separately to the existence of provisions in MCFC’s constitution which provide for limits (the Takeover Restrictions) on the number of ordinary shares which one person may hold or vote, which the directors of MCFC have a discretion to vary.

On 23 January 2004, MIC wrote to MCFC alleging that the Target’s Statement failed to meet the disclosure requirements under the Act, contained statements that were misleading or deceptive and that various statements contravened section 638(5) of the Act. On 27 January, MCFC wrote to MIC responding to the allegations raised by MIC.

Also on 23 January 2004, MIC wrote to MCFC asking MCFC to confirm that it did not receive any advice (whether written or oral, formal or informal) from any qualified person (such as KPMG) as to the value of MCFC’s ordinary shares or as to the adequacy, reasonableness or fairness of the Bid.

On 25 January, MCFC wrote to MIC stating that it had not received any opinion from any qualified person as to the value of MCFC’s ordinary shares or to the adequacy, reasonableness or fairness of the Bid. However, in their response, MCFC stated that its directors had engaged in preliminary discussions with KPMG concerning the value of MCFC shares (the KPMG Advice).

The Target’s Statement assessed the adequacy of the consideration offered by MIC under the Bid by reference to (among other things) a comparison between the bid price and the net asset backing of MCFC according to MCFC’s most recent financial statements; and comparisons between the price/earnings ratio and dividend multiple derived from the bid price and price/earnings ratios and dividend multiples for companies included in a stock exchange index (the S&P/ASX Small Ordinaries Index) (the Bid Price Comparisons).

The First Application concerned the use in the Target’s Statement of statements by Mr Armour and his solicitors and statements based on statements made by them in contravention of section 638(5) of the Act. Details of the First Application are contained in the Panel’s Media Release TP 04/07.

The main issues in the Second Application concerned whether MCFC should disclose details of the KPMG Advice in its Target’s Statement; whether or not the Target’s Statement should have been dispatched to preference shareholders; whether the Target’s Statement was misleading by statements and omissions regarding the Takeover Restrictions; whether the Bid Price Comparison was misleading; and whether statements in the Target’s Statement about Mr Armour and MIC’s expertise in running MCFC’s business were misleading.

(ii) MCFC application

MIC published newspaper advertisements, and Mr Armour made statements to the media, stating that, should MIC obtain control of MCFC under the Bid, it would cause MCFC to review the prices MCFC pays to suppliers for produce (Grower Payments) with a view to ensuring that Grower Prices are at least at market level and endeavouring to ensure that, wherever possible, Grower Prices are above the rate that would otherwise be set by the market. MIC made no specific statement about intentions in relation to Grower Payments in the Bidder’s Statement.

In the MCFC Application, MCFC alleged that Mr Armour’s statements regarding Grower Payments did not explain what the review would entail or how the increased rates would be achieved.

(b) The Panel’s decision

(i) Section 638(5) – consent

The Panel has accepted an undertaking from MCFC that, among other things, it will send to each shareholder a supplementary target’s statement (the Supplementary Target’s Statement) which prominently at the beginning of the document states that by including Mr Armour’s statements in the Target’s Statement without his consent, MCFC failed to comply with subsection 638(5) of the Act.

Nevertheless, the Panel decided to make a declaration of unacceptable circumstances, as MCFC breached subsection 638(5). That provision is an important part of the machinery of Chapter 6, it creates an offence of strict liability, and is basic to the incidence of civil and criminal liability for statements made in takeover documents. MCFC did not obtain the consent of Mr Armour to use his statements in the Target’s Statement, nor the form and context in which he was quoted. In addition, the Target’s Statement did not state that Mr Armour had consented to the use of the quotations, as the section requires.

The Panel considered that the obligation to provide all material information in subsection 638(1) does not prevail over the prohibition on using a person’s statement without their consent in subsection 638(5) because the specific prohibition in that subsection overrides the general obligation in subsection (1). The Panel noted that MCFC made no attempt to seek the consent of Mr Armour to the use of the quotations.

The Panel considered an appropriate course of action would have been for MCFC to consult with Piper Alderman to seek Mr Armour’s consent to include the relevant quotations in the Target’s Statement prior to releasing the Target’s Statement. If that consent was not forthcoming, MCFC could then have applied to ASIC for an exemption from subsection 638(5) on the basis that those statements were material to shareholders and would assist them in making an informed decision whether to accept MIC’s offer.

(ii) Preference shareholders

The Panel did not make a declaration on this issue. The Panel formed the view that the terms of the covering letter sent to preference shareholders with the Target’s Statement were such as to ensure that MCFC’s preference shareholders were not misled by having been sent the Target’s Statement into believing they could accept the bid for their preference shares. That letter also made it clear that it was highly unlikely that any of the preference shares would be converted into ordinary shares during the offer period.

These matters having been made clear, the Panel saw no harm in MCFC having provided copies of the Target’s Statement to its preference shareholders, whether or not it was required to do so.

(iii) Bid price comparisons

The Panel found that the use of the Bid Price Comparisons analysis was misleading on the basis that the Target’s Statement did not explain with sufficient clarity that the Bid Price Comparisons were only presented on the basis of an assumed proposal to acquire a controlling interest in MCFC and were not appropriate to the assessment of a bid for a minority interest in MCFC.

The Panel decided not to make a declaration of unacceptable circumstances following acceptance by the Panel of undertakings provided by MCFC that it would set out in the Supplementary Target’s Statement limitations to the use by offeree shareholders of the Bid Price Comparisons in responding to the Bid, in particular that they only related to the valuation of the company as a whole and not to a minority interest in it.

(iv) Takeover restrictions

The Panel found that the Target’s Statement did not disclose with sufficient clarity the MCFC’s directors’ views and intentions regarding the Takeover Restrictions and the effect of the Takeover Restrictions on the Bid Price Comparisons analysis.

The Panel decided not to make a declaration of unacceptable circumstances following acceptance by the Panel of undertakings provided by MCFC that it would, among other things, set out in the Supplementary Target’s Statement how the directors of MCFC would exercise their powers under the Takeover Restrictions in relation to the Bid, and whether the directors would restrain transfers and voting of shares for which acceptances of offers under the Bid are accepted under the Takeover Restrictions.

(v) MIC’s expertise in running MCFC

The Panel did not find the statements in the Target’s Statement regarding MIC’s expertise in running MCFC were misleading or deceptive, taken in context, or that they created an impression that MIC would run MCFC’s business, without necessary expertise.

(vi) KPMG advice

The Panel reviewed the KPMG Advice (which included a paper titled “Indicative Pricing Analysis” dated 15 January 2004), a letter from KPMG to MCFC, and a witness statement from KPMG that the result of the valuation exercise in their analysis supported the MCFC directors’ assessment of the bid price in the Target’s Statement.

On the basis of that information, the Panel was satisfied that KPMG’s analysis did not attract the principle in Ridley MI v Joe White Maltings (1996) 22 ACSR 319 that an expert valuation report in the hands of a target board may be material information which subsection 638(1) requires the board to disclose in the relevant target’s statement.

(vii) Grower payments

The Panel found that Mr Armour’s comments concerning MIC’s intentions about Grower Payments were misleading as they tended to induce a belief that if MIC obtained control of MCFC, it was probable that Grower Payments would increase for which there appeared to be no reasonable basis, and also had the potential to cause confusion among shareholders. However, the Panel decided not to make a declaration following acceptance by the Panel of undertakings provided by MIC that it would send shareholders a supplementary bidder’s statement (the Supplementary Bidder’s Statement) stating whether the review of Grower Payments would apply to dried fruits, citrus or other produce, stating whether MCFC has power to increase relevant Grower Payments unilaterally and setting out its grounds for believing that MCFC could sustainably make Grower Payments above the rate that would otherwise be set by the market (or that it has no grounds for such a belief).

However, the Panel decided to make a declaration of unacceptable circumstances because MIC did not formulate and disclose intentions regarding the Grower Payments in its bidder’s statements (the Bidder’s Statement) on the basis that this constituted a serious departure from the policy of paragraphs 602(a) and (b)(iii).

In making these decisions, the Panel considered the special nature of a co-operative and formed the view that the ongoing trading relationship between suppliers and the co-operative is generally a critical issue when supplier-members decide whether to accept a takeover bid for an agricultural or trading co-operative. In that context, details of the intentions of MIC in relation to Grower Payments were material to shareholders to enable them to make an informed and critical assessment of the offer.

In his reported comments, Mr Armour did not make sufficiently clear the distinction between increases to Grower Payments to dried fruit suppliers and citrus suppliers. Accordingly, they implied that MCFC had the unilateral power to control the Grower Payments in relation to dried fruits, as well as citrus.

Given MIC’s acknowledged lack of expertise regarding MCFC’s business, its stated concern to maintain the profit level of MCFC, its stated concern about MCFC’s existing profit level and the magnitude of the Grower Payments relative to MCFC’s profit, as disclosed by MCFC’s financial statements, the Panel was concerned that MIC’s and Mr Armour’s reported statements about Grower Payments appeared to lack a reasonable basis.

(c) Undertakings

As mentioned earlier, the Panel has accepted undertakings offered by both MIC and MCFC. The Panel has required MIC and MCFC to prepare supplementary statements and to provide them to the Panel for its review. The Panel invited comments from the parties on the supplementary statements.

The Panel has approved the supplementary statements for distribution, on