|
Important notice: You may use this material for your own personal reference only. The material may not be used, copied or redistributed in any form or by any means without a LAWLEX enterprise wide subscription. Corporate Law Bulletin Bulletin No. 84, August 2004 Editor: Professor Ian Ramsay, Director, Centre for Corporate Law and Securities Regulation Published by LAWLEX on behalf of Centre for Corporate Law and Securities Regulation, Faculty of Law, the University of Melbourne with the support of the Australian Securities and Investments Commission, the Australian Stock Exchange and the leading law firms: Blake Dawson Waldron, Clayton Utz, Corrs Chambers Westgarth, Freehills, Mallesons Stephen Jaques, Phillips Fox. Use the arrows to navigate easily across the bulletin | |
|
Detailed Contents | |
|
1. Recent Corporate Law and Corporate Governance Developments 1.1
UK consultative paper on company security interests 2.1
ASIC proposes ongoing licensing relief for securitisation special purpose
vehicles 3. Recent Takeovers Panel Developments 3.1
Australian Leisure and Hospitality Group Ltd: Conclusion of panel proceedings
without making a declaration 4.1
Power of the court to grant relief from liability for anticipatory breach under
section 1318
| |
|
1.1 UK consultative paper on company security interests On 18 August 2004, the Law Commission for England and Wales published Consultation Paper No 176, Company Security Interests, together with draft legislation. The Consultation Paper is available from the Commission's website. In July 2002 the Commission published Consultation Paper No 164, Registration of Security Interests: Company Charges and Property other than Land, where the Commission set out provisional proposals for the introduction of an electronic 'notice-filing' scheme for security interests created by companies to replace the current company charge registration system. The responses the Commission received to that paper encouraged the Commission to continue its work on this area. Several consultees asked to see the scheme set out in legislative form, and the Commission has therefore been working on the production of draft regulations to enable the scheme to be assessed in detail. Consultative Paper 176 sets out the Commission’s provisional recommendations for a scheme of attachment, perfection and priority of security interests created by companies, including electronic notice-filing. The Commission makes provisional recommendations for extending that scheme beyond traditional securities to cover 'quasi-securities' such as sales of receivables and title-retention devices, as well as in relation to the scheme containing a 'statement' of the rights and remedies of the parties on default. There are special rules proposed for financial collateral. Although the scheme has initially been constructed for security interests created by companies, the Commission makes general recommendations concerning its extension to businesses of all types. However, the Consultative Report does not discuss or make any provisional recommendations with respect to extending the scheme to consumers, although the Commission hopes that its Final Report will address this issue.
1.2 Australian Government response to report on governance of statutory authorities (a) Summary of Australian Government response On 12 August 2004, the Minister for Finance and Administration, Senator Nick Minchin, released the Government’s response to the report on the review of corporate governance of statutory authorities and office holders. The review was carried out by Mr John Uhrig, in consultation with Ministers, statutory office holders, departments, and the wider community including business and consumer groups. Senator Minchin said the objective of the review was to identify issues surrounding existing governance arrangements and provide options for the Government to improve the performance of statutory authorities, their office holders and their accountability frameworks. The report recommends two templates designed to ensure good governance exists: one where governance can best be provided by ‘executive management’, and the other where it can best be provided by a ‘board’. Both templates detail measures for ensuring the boundaries of responsibilities are better understood and that the relationship between Australian Government authorities, Ministers and portfolio departments is clear. Senator Minchin stated that the Government has endorsed the governance principles and templates developed by Mr Uhrig and as a result Ministers will assess statutory authorities and other bodies within their portfolios against these principles. All portfolio bodies, of which there are around 170, including those which have regulatory functions, will be assessed by Ministers and any necessary improvements implemented. The Government will clarify its expectations of statutory authorities by issuing public Statements of Expectations and authorities will respond with Statements of Intent. These measures will give clients greater certainty in their dealings with agencies and greater confidence to raise issues of concern. Senator Minchin stated that the Government has decided not to establish an Inspector-General of Regulation (IGR) to investigate the systems and procedures used by regulatory authorities. (Recommendation 4) The assessment of all Australian Government agencies against the templates is expected to be completed by March 2006. (b) Details of Australian Government response The Government will implement the governance templates recommended in the report to assist in establishing effective governance arrangements for statutory authorities and achieving clarity in roles and responsibilities. As the templates are generic in nature they will also be applied to a wide range of public sector bodies. Ministers will assess the statutory authorities and similar bodies within their portfolios against the governance templates. Selection of the appropriate template, whether ‘executive management’ or ‘board’ will be based, as recommended in the report, on the degree to which each body has been delegated full power to act. As noted in the report, in applying the templates, consideration will be given to any unique factors that may require an adaptation of the relevant template. The Government’s response to the specific recommendations of the report is as follows: Recommendation 1: The Government should clarify expectations of statutory authorities by Ministers issuing Statements of Expectations to statutory authorities; by statutory authorities responding with Statements of Intent for approval by Ministers; and by Ministers making public Statements of Expectations and Intent. Statements of Expectations would need to take into account the nature of the independence of each statutory authority and may not be necessary where the existing governance framework provides for a comparable arrangement (for example, as is the case in respect of government business enterprises). Government Response: Endorsed. Recommendation 2: The role of portfolio departments as the principal source of advice to Ministers, should be reinforced by requiring statutory authorities and office holders to provide relevant information to portfolio secretaries in parallel to that information being provided by statutory authorities and office holders to Ministers. Government Response: Endorsed. Recommendation 3: Governance boards should be utilised in statutory authorities only where they can be given the full power to act. Government Response: Endorsed. Recommendation 4: The Government should establish an Inspector-General of Regulation to investigate, where necessary, the systems and procedures used by regulatory authorities in administering regulation. Government Response: Not endorsed. All portfolio bodies, including those having regulatory functions, are to be assessed against the governance templates and any necessary improvements implemented. In addition, there will be greater clarity about the values and standards all bodies aim to uphold in their relationships with clients as a result of public Statements of Expectation and Statements of Intent (Recommendations 1 and 7). These measures should afford clients greater certainty in their dealings with all bodies and greater confidence to raise any issues of concern. There are existing alternatives for clients to raise issues of concern, including through the relevant Minister and other independent oversight bodies. Recommendation 5: The Government should allocate a function to a centrally located group to advise on the application of appropriate governance and legislative structures when establishing or reviewing statutory authorities. Government response : Endorsed. Recommendation 6: Financial frameworks generally be applied based on the governance characteristics of a statutory authority, that is:
Government response: Endorsed. Recommendation 7: Statements of Expectations and Intent should include those values central to the success of the authority, including those relating to its relationships with outsiders. Government response: Endorsed. The report is available at: http://www.finance.gov.au/governancestructures
1.3 Sarbanes- Oakley compliance cost estimates increase 62% since January 2004 Complying with section 404 of the United States Sarbanes-Oxley Act will cost public companies an average 62 percent more than previously anticipated, according to a survey released on 11 August 2004 by Financial Executives International (FEI), the professional organization serving Chief Financial Officers (CFOs) and other senior financial executives. The increase in Section 404 compliance costs stems from a 109 percent rise in internal costs, a 42 percent jump in external costs and a 40 percent increase in the fees charged by external auditors. In July 2004, FEI surveyed 224 public companies with average revenues of US$2.5 billion to gauge Section 404 compliance cost estimates. Results showed the total cost of compliance is now estimated at US$3.14 million, or 62% more than the US$1.93 million estimate identified in FEI’s January 2004 survey. The companies surveyed expect to pay their auditors US$823,200 in fees for attestation of their internal controls, in addition to the annual audit fees. This compares to the US$590,100 companies expected auditors would charge for attestation in January 2004. As part of management’s attestation process, the survey showed that companies are documenting internal controls for 92% of total revenue. The estimates on the cost of complying with Section 404, in terms of hours and dollars, have steadily risen over the last six months. Looking to the employee hours needed to be Section 404 compliant, public companies expect to spend an average of 25,667 internal hours (vs. 12,265 estimated in January) and 5,037 external hours (vs. 3,059). Companies also expect to spend an additional US$1,037,100 on software and IT consulting. Section 404 of Sarbanes-Oxley requires each company’s annual report to contain:
The study is available on the FEI website.
1.4 Accounting profession reviews Professional Statement on Independence In light of the successful passage of CLERP 9 legislation, on 11 August 2004 Australia’s two leading professional accounting bodies, the Institute of Chartered Accountants in Australia (ICAA) and CPA Australia, issued an exposure draft on ‘Professional Independence’ to their members to maintain the robustness of the standard and ensure the practical implementation of CLERP 9. The revised Professional Statement provides accountants with clear guidelines on how to identify, assess and manage risk to professional independence, specifically in the provision of assurance services. It also addresses where members are obliged to reject and cease engagement with clients. The new information will complement the professional statement’s pre-existing content on best practice and key recommendations outlined in the Ramsay report such as mandatory rotation, waiting periods before a retired auditor of a client can become a director of the client, and the ban on providing certain non-audit services. The exposure draft is available on the CPA website and the ICAA website.
1.5 IOSCO issues consultation report on outsourcing for the securities industry On 4 August 2004, the International Organization of Securities Commissions Standing Committee 3 on Market Intermediaries (IOSCO SC3) published for public consultation a Consultation Report on Principles on Outsourcing of Financial Services for Market Intermediaries. The Consultation Report is now posted on the IOSCO website. The public is invited to submit comments on this Consultation Report by 20 September 2004. The Consultation Report sets out a set of principles that are designed to assist regulated entities in determining the steps they should take when considering outsourcing activities. The Consultation Report also contains some broad principles to assist securities regulators in addressing outsourcing in their regular risk reviews of firms. Some members of IOSCO's Standing Committee on Market Intermediaries will be surveying industry participants in their respective jurisdictions for information regarding current outsourcing practices. The Consultation Report will be revised and finalized after consideration of all comments received from the public and all information gathered through the surveys conducted by IOSCO members. The form of the survey also is available on the IOSCO website. The Joint Forum also released on 4 August 2004 a report for public consultation entitled Outsourcing in Financial Services. The Joint Forum report was prepared in coordination with the IOSCO Consultation Report. It examines the growth in outsourcing in the financial sector and the trends that have accompanied this growth. It also spells out the potential risks that outsourcing activities can pose to financial sector firms, while recognising the substantial benefits that outsourcing can provide. The Joint Forum's principles are high level and aimed collectively at the banking, insurance and securities sectors. They are designed to provide a minimum benchmark against which all financial institutions can gauge their approach to outsourcing. The Joint Forum report is available on the websites of IOSCO, the Bank for International Settlements, and the IAIS. The Joint Forum and the IOSCO Technical Committee will continue working together on their respective reports during the comment process by sharing comments received and information collected and by consulting with each other in order to achieve an appropriate level of consistency across their reports. In addition, the IOSCO Technical Committee is in the process of consulting with the emerging market regulators about the Consultation Report through the IOSCO Emerging Market Committee's Working Group on Financial Intermediaries. After the consultation process, the IOSCO Technical Committee's Standing Committee on Market Intermediaries will submit a final report on Principles on Outsourcing of Financial Services for Market Intermediaries to the IOSCO Technical Committee for approval.
1.6 Australian Bankers Association releases fact sheets on banking industry On 3 August 2004, the Australian Bankers’ Association (ABA) released five fact sheets to assist in public policy discussions on the banking industry. According to the ABA, the facts sheets demonstrate that Australia’s banks fulfil an important role for their customers, employees and society as a whole. The information provided shows that the Australian banking system is strong and stable, affordable, and provides convenient services that can be accessed even from home. The main findings of the fact sheets are:
The five fact sheets are available from the ABA website.
1.7 New York Stock Exchange proposes amendments to director independence definition for purposes of corporate governance rules On 3 August 2004, the New York Stock Exchange (NYSE) filed with the United States Securities and Exchange Commisson (SEC) proposed amendments to the NYSE’s corporate governance rules set out in Section 303A of the NYSE Listed Company Manual. The NYSE has requested that the SEC approve the filing on an expedited basis. The amendments will not be effective until approved by the SEC. (a) Purpose of the amendments On 4 November 2003, the SEC approved Section 303A of the Listed Company Manual. Section 303A sets out the Exchange’s corporate governance requirements applicable to listed companies. Since the date that Section 303A was approved, the Exchange staff has received numerous phone calls and email requests for clarification and interpretations of these standards. Many of the questions and interpretive requests focused on similar issues or specific language that was causing confusion. Most have related to Section 303A.02(b), which establishes five bright line tests that directors must satisfy in order to be eligible to be deemed independent for purposes of board and committee membership. On 29 January 2004, the Exchange posted a series of Frequently Asked Questions (“FAQs”) relating to Section 303A on the Exchange's website. The Exchange subsequently updated these FAQs on 13 February 2004, to provide further clarification and additional interpretations. Based on the FAQs and the NYSE’s experiences in working with listed companies and their legal counsels on issues and questions related to Section 303A, the Exchange has noted several issues which need clarification or, in one case, change. The following outlines the amendments proposed to be made to Section 303A. (b) Section 303A.02 – Independence definition The Exchange proposes to amend Section 303A.02(a) to clarify that companies are required to identify which of their directors have been deemed independent. The Exchange has been of the opinion that the existing language strongly implied that obligation, but believes it is appropriate to make the language explicit to remove any ambiguity. The Exchange proposes to amend Section 303A.02(b)(i) to add a definition of the term “executive officer.” The Exchange also proposes to make minor cleanup changes throughout Section 303A to provide consistency when utilizing this term. The Exchange is also amending the commentary to Sections 303A.02(b)(i) and (ii) to clarify that service as an interim executive officer (and not just an interim Chairman or CEO, as currently provided) will not trigger the look-back provisions in those sections. The Exchange proposes to amend Section 303A.02(b) to reformulate the wording of the bright line independence tests to more accurately reflect how the applicable look-back periods should be applied. The Exchange also believes the reformulated language is considerably easier to read and understand. One of the most significant language difficulties presented was in Section 303A.02(b)(ii), which precludes independence where a director or family member receives more than $100,000 in direct compensation. The wording suggested that under certain circumstances the look-back period might be as long as four years. The revised formulation will make clear that the period should not be read to be longer than 36 months. The Exchange is proposing a change to the substance of Section 303A.02(b)(iii), which precludes independence where a director or family member is employed by or affiliated with a present or former internal or external auditor. A number of companies are finding directors precluded from independence because of past personal or family member affiliation with an auditing firm, even though the person involved never worked on the listed company account. The Exchange notes that the Nasdaq Stock Market and the American Stock Exchange standards are more narrow than the current NYSE standard. For example, the Nasdaq and Amex standards implicate only former partners or employees of the audit firm who worked on the company’s audit. Accordingly, the Exchange proposes to revise its standard so that it will cover any director or immediate family member who is a current partner of the audit firm, any director who is a current employee of the audit firm, any immediate family member who is a current employee of the audit firm participating in the firm’s audit, assurance or tax compliance (but not tax planning) practice, and any former partner or employee of the audit firm who personally worked on the listed company’s audit during the past three years. Finally, to avoid what many believed to be the overbroad definition of “immediate family member” in connection with this standard, the definition of that term for purposes only of Section 303A.02(b)(iii), will be revised to parallel the description of family member utilized by the SEC in Exchange Act Rule 10A-3(e)(8). As a result of the proposed change to Section 303A.02(b)(iii), there is a category of person that would not have been impacted by existing Section 303A.02(b)(iii) that will be precluded from independence under the revised standard, namely, a director with a family member who is a current partner of the audit firm. Under the existing standard, such a family member did not impact the director’s independence if the family member did not act in “a professional capacity” at the audit firm. Under the revised standard, any family member who is a current partner of the audit firm will preclude the director from being considered independent. To avoid suddenly changing the status of a current director, the Exchange will give companies until their first annual meeting after 1 January 2005 to replace a director who was independent under The Exchange’s existing rule but not under the revised rule. (c) Section 303A.05 – Requirements for compensation committees The Exchange proposes to revise Section 303A.05(b)to clarify that the non-CEO compensation on which the compensation committee should focus is that of the executive officers. The Exchange also proposes to make clear that the board has the ability to delegate its authority to approve non-CEO executive officer compensation to the compensation committee. (d) Section 303A.07 – Duties of the audit committee The Exchange proposes to revise Section 303A.07(c)(iii)(B) to clarify that the audit committee must meet to review and discuss the company’s financial statements and must review the company’s specific Management’s Discussion and Analysis disclosures. (e) Sections 303A.09 and 10 The Exchange proposes to amend these sections to specify that the disclosure must be in the annual proxy statement (or, if the company does not file a proxy statement, then in the Form 10-K), in order to be consistent with the other disclosure requirements of Section 303A. (f) Section 303A.11 The Exchange proposes to amend Section 303A.11 to clarify that foreign private issuers are required to provide disclosure of the significant differences between the Section 303A requirements and the actual corporate governance practices of the foreign private issuer, as opposed to the general corporate governance practices of the foreign private issuer’s home country. (g) Section 303A.12 The Exchange proposes to amend the language of Section 303A.12 to clarify that any qualifications to the annual CEO certification must be specified and disclosed. The Exchange also proposes to add Section 303A.12(c) to specifically require that companies submit Annual and Interim Written Affirmations to the NYSE. This clarifies the Exchange’s intention to carry forward the written affirmation requirement currently found in Section 303.
1.8 UK Office of Fair Trading report on auditors’ liablity On 2 August 2004, the United Kingdom Office of Fair Trading (OFT) published a report on auditors’ liability. It is stated in the report that the OFT has not found compelling arguments to support claims that a cap on auditors' liability would have pro-competitive effects on the audit market. It is likely that allowing audit caps would be competitively neutral overall. The OFT was asked to look at the case for capping auditors' liability by the UK Department of Trade and Industry on 30 June 2004. The report examined – but did not find compelling – claims that a cap would:
According to the OFT, some forms of cap design could distort competition, so it will be important to ensure that there are no anti-competitive effects if scope for caps is allowed. The report is available on the OFT website at http://www.oft.gov.uk/News/Press+releases/2004/118-04.htm
1.9 Financial Sector Advisory Council review of the outcomes of the financial system inquiry On 2 August 2004, the Commonwealth Treasurer, the Hon Peter Costello MP, released the Review of the Outcomes of the Financial System Inquiry 1997 by the Financial Sector Advisory Council (FSAC). The Government established FSAC as part of the financial sector reforms responding to the 1997 Financial System Inquiry. The Council is a non-statutory body that brings together a broad range of views from the financial sector. It reports directly to the Treasurer on policies that will maintain an efficient, competitive and dynamic financial sector, consistent with the objectives of fairness, financial stability and prudence, and promotes dialogue between the private sector and the Government in support of the development and growth of Australia’s financial sector. In its Charter, the Treasurer specifically tasked FSAC with conducting a detailed evaluation of the financial sector reforms flowing from the Financial System Inquiry (which were announced on 2 September 1997) five years after their commencement. FSAC has now completed the review as it is just over five years since those reforms began, including the establishment of the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission. The Council’s usual role is to provide confidential advice to the Treasurer and the Government on appropriate policies for the financial sector. However, given the very specific nature of FSAC’s commitment to review the Financial System Inquiry Reforms the Treasurer has decided to release it publicly. Overall, FSAC is confident that Australia’s financial system and its regulation are on a firm footing and compare favourably with the rest of the world. As such, the Council notes that the Australian economy, and its financial system, has proven resilient in the face of considerable world economic and political turmoil. FSAC sees globalisation, convergence and technological change to be three important forces that will continue to drive the evolution of the financial system and identifies the importance for policy development and regulatory structures to keep pace with these forces. FSAC finds that the Australian regulatory system is fundamentally well placed to meet these challenges. The Review also identifies certain areas where the Council considers that regulatory challenges remain and the Treasurer has stated that the government will take into account its views when considering future options. The Review can be found on the Financial Services page of the Treasury website at http://www.treasury.gov.au/contentitem.asp?NavId=&ContentID=860
1.10 Fees and charges disclosure in superannuation and other
managed investments
How fees and charges should be explained to consumers acquiring superannuation and managed investment products has been an ongoing challenge in financial services reform. This article reviews the latest steps in the evolution of fee and charge disclosure in product disclosure statements (PDS), dollar disclosure, ASIC fee disclosure models, and the boxed consumer warning. (a) Single fee amounts and dollar disclosure After months of wrangling over the right model, the Federal Government recently announced a package of fee disclosure initiatives, which included a Single Fee Comparison Table which is intended to give consumers a clear snapshot of the bottom line cost of the product over a single year. Contribution and management fees will be set out as percentage ranges and in dollars using a prescribed example. Management fees are proposed to be calculated using the total expense ratio recently published by the International Organisation of Securities Commissions. Underneath the table will be the establishment, withdrawal and termination fees, again in dollar terms with worked examples. Excluded, however, will be additional fees such as switching fees because these are considered optional services. Benefit and fee projections will not be required at all (but see below for boxed warnings). The table will work in conjunction with ASIC's fee model (see below). Although the thinking underlying the single fee amount is that a single amount will be clearer for consumers, commentators such as Professor Ian Ramsay have previously noted the potential for this to mislead, as a single figure may not really be meaningful in comparing two products with often very different fee and charge structures (particularly as establishment and exit fees are footnotes to the table). At the same time, the new Corporations Amendment Regulations (known as Batch 8) have been made, requiring dollar disclosure in PDSs (they also apply to Statements of Advice and periodic statements). They come into effect between 1 January and 1 July 2005. Instead of the "reasonably practicable" threshold for dollar disclosure, product issuers will now be required to make disclosures in dollar terms in PDSs unless ASIC makes a determination that for compelling reasons, dollar disclosure is, broadly speaking,:
(b) Boxed warnings come to PDSs In conjunction with the proposed introduction of the Single Fee Comparison Table, and instead of requiring benefit/fee projections, product issuers will be required to insert a boxed consumer advisory warning into their PDSs. The warning is intended to:
(c) ASIC's fee disclosure model On 16 June, ASIC released a revised version of its fee disclosure model. The big change is a single table which (like the Government's table above) is intended to provide consumers with information relating to all fees and charges at a glance. Important additional information must be included in the fees section of the PDS, including:
ASIC's table is to be used with other comparability and comprehension tools (such as its superannuation calculator), but the onus remains on the product issuer to get disclosure right; use of the fee model in itself doesn't mean you are complying with the law. The revised model is being road-tested with consumers, with a proposed transition period of one year, although ASIC suggests that it be included in any PDS currently being prepared for the first time or which is being replaced. The Investment and Financial Services Association has recently made a submission to Treasury in relation to a number of aspects associated with the package of fee disclosure initiatives outlined above and, as has been the experience to date, it will be necessary to maintain a watching brief on these initiatives as they evolve.
1.11 UK companies making slow progress in complying with Combined Code One year on from the publication of the Revised Combined Code, which lays down company corporate governance recommendations, a survey by the Audit Committee Institute (ACI) sponsored by KPMG has found that many of the FTSE 100 are yet to implement some of its key recommendations. The survey was published on 26 July 2004 while many companies still have time - as the Code needs to be adopted for reporting years beginning on or after 1 November 2003 - some of them are likely to have to make some significant changes if they are to comply in full. The survey of the Corporate Governance statements issued by the UK’s top 100 listed companies in their annual reports (published up to the end of May 2004) found that only a slim majority of firms have disclosed that they have started to actively deal with the Code’s demands. Nearly a half either do not refer to the Code at all or say they will not be commenting on their compliance with the new code until the next reporting year. One of the chief areas under the spotlight is the composition of the Board. The Code recommends that the balance of the Board should be roughly half executive and half independent non-executive directors. However, over a quarter of the FTSE 100 (29%) still fall short of the provision and do not have a 50:50 ratio. This indicates that some Boards will have to make changes over the coming months if they are to report compliance in their next annual report. Of course, companies have the option of explaining any non-compliance from the Code where sound reasons for non-compliance exist. Another area that many companies will be keen to address is the role of the company chairman. If compliance with the Code is to be achieved, it is no longer acceptable for the chairman to sit on either the audit or the remuneration committee – but the ACI/KPMG survey found that the chairman still sits on the audit committee in 21 cases and the remuneration committee in 35 cases. The survey found that the top 100 listed companies have on average 12 board members with 9 board meetings per annum.
1.12 New guide advises investors on addressing financial risks and opportunities from global warming On 23 July 2004, an investor guide was published which outlines specific strategies for addressing the financial risks and investment opportunities posed by global warming. The guide identifies actions that pension plans, fund managers and companies can take to address climate risk, and also recommends that investors support government action to reduce investor and business uncertainty on global warming. The Investor Guide to Climate Risk was commissioned by Ceres, a coalition of investment funds and environmental groups, and written by the Investor Responsibility Research Centre, an investor advisory firm. The Guide is intended to help investors implement the recommendations of the Investor Call for Action on Climate Risk signed by investor leaders including public pension, labour pension fund, and foundation endowment trustees representing over US$800 billion in assets. According to the author of the Guide, emerging limits on global warming pollutants (carbon dioxide and other greenhouse gas emissions), both in US states and worldwide, are creating new pressures to reduce emissions and are opening new markets for cleaner technologies—creating both risks and opportunities for companies and their investors. The Guide identifies three core actions to address climate risk: assessing the risks, disclosing the risks, and investing in solutions, such as cleaner, more energy efficient technologies to achieve absolute reductions in greenhouse gas emissions. Ten key steps are aimed at three main groups: Plan Sponsors, for pension plans and endowments and their investment consultants; Fund Managers for “buy side” investment managers and “sell side” brokers and securities analysts; and Corporations for boards of directors, CEOs and top executives. The Guide is available at http://www.irrc.com/resources/Climate_Guide.pdf
1.13 Report on best practices and practical guidance for mutual fund directors In July 2004, the Mutual Fund Directors Forum published a report titled “Best Practices and Practical Guidance for Mutual Fund Directors” which consists of 32 recommendations which are under 5 major headings. These headings are:
The full report is available at http://66.216.74.187/PDFs/best_pra.pdf
| |
|
2.1
ASIC
proposes ongoing licensing relief for securitisation special purpose
vehicles To
ensure that there is adequate time for compliance with the AFS licensing
requirements or conditions of relief that may form part of ASIC's policy
following the consultation process, ASIC has extended the interim relief under
[CO 03/1098] from 30 September 2004 until 31 March 2005.
2.2 Removal of directors of public companies On 17 August 2004 the Australian Securities and Investments Commission (ASIC) clarified the effect of agreements for the removal of directors of public companies. The Corporations Act 2001 says that only the shareholders can remove a director of a public company and that attempts by directors to remove another director from office are void. This means that an agreement (or any other arrangement) that says that a director can be removed from office if the other directors decide is ineffective. Companies that have these arrangements in place and present them as if they are binding create a real risk that shareholders will believe that directors do have this power and will be misinformed. ASIC is concerned to ensure that shareholders are not misled in this way. ASIC recognises that companies and their boards want to be free to establish robust and effective measures for assessing the performance of individual directors, and of the board as a whole. Good governance often involves assessing the performance of individual directors and holding each director to account for their performance. Measures can include peer review mechanisms, where directors comment on and assess the contribution of other directors. But it must be the shareholders who ultimately decide whether a director is to remain in office. If a resolution to remove a director goes to a general meeting as a result of a performance review process, it is vital that shareholders be given all the details they need to make an informed decision. This includes giving the director who is the subject of the resolution a copy of the notice of meeting and the opportunity to put their case to shareholders. While this represents the law as it currently stands, ASIC encourages discussion about, and the development of, mechanisms for assessing the performance of directors. This is a valuable contribution to the necessary and ongoing review and improvement of corporate governance standards. ASIC urges companies to adopt the following two principles in designing such standards:
According to ASIC, these two principles can be achieved by setting out the arrangements in the company's constitution. This has the added advantage of allowing shareholders a vote on the arrangements themselves.
The Australian
Securities and Investments Commission (ASIC) announced on 10 August 2004 a
campaign to crack down on related party disclosure documents, to ensure that
shareholders receive sufficient information to make a decision about whether to
grant related party benefits. 'Our ongoing review
of related party documents has shown that companies are not providing sufficient
information to shareholders to enable them to make an informed decision on
related party transactions', said Mr Malcolm Rodgers, ASIC's Executive Director,
Policy and Markets Regulation. (a) Background Under the Corporations Act 2001 (the Act), for shareholders to be able to vote on a related party transaction, the company must provide shareholders with a notice of meeting and explanatory statement that sets out certain information. At least 14 days before the public company intends to send the related party documents to shareholders, the documents must be signed by a director or company secretary and lodged with ASIC. ASIC then has 14 days in which to review the related party documents. If ASIC considers that the documents do not provide adequate disclosure to shareholders, it can issue a comment letter that the company is required to distribute to shareholders, along with the related party documents. (b) Common defects Valuations: The most commonly occurring defect is that the financial benefit is not valued adequately, including where the financial benefit is equity related, such as the issue of shares, options or convertible notes, or where it involves the sale or purchase of an asset, such as a mining tenement or an existing business. An adequate valuation requires the basis of the valuation and the principal assumptions behind the valuation to be disclosed, and in some circumstances it may be necessary to provide a valuation by an independent expert. It
may be necessary where a company is purchasing an asset from a related party in
exchange for shares to include both a valuation of the asset and a valuation of
the shares. Where relevant, the valuation methodology should be consistent with
that required to be adopted in the financial reports of the
company.
2.4 ASIC consults on dollar disclosure (a)
Overview
Further detail on the policy proposal paper is set out below. ASIC expects licensees and product issuers to have plans for complying with the dollar disclosure obligations underway. The six month transition period exists for licensees and product issuers to make any necessary adjustments to their systems, processes and documents so that they can comply with the dollar disclosure obligations. Some
licensees and product issuers have suggested they will experience difficulties
in fully complying with the dollar disclosure obligations by 1 January 2005.
ASIC's policy proposal asks for information about the types of difficulties
industry participants are facing. ASIC will consider whether it is unreasonably
burdensome for them to fully comply by 1 January 2005. If so, it may consider
extending the compliance date for a short period provided industry participants
demonstrate they are taking steps to ensure they can comply with the dollar
disclosure obligations. The dollar disclosure regulations (Corporations Amendment Regulations 2004 (No 6)) were made on 24 June. The regulations commenced on gazettal and provide for a six-month transition period. More detail on the new disclosure regime, including when each part applies, is set out in Information Release IR 04-027: Next steps on dollar disclosure. ASIC
notes that the Government announced a single figure fee measure package on 16
June 2004 (see the Parliamentary Secretary to the Treasurer's Media Release Simple disclosure of superannuation fees and
charges). ASIC will take into account any implications this new
package of proposed regulations may have for the implementation of the dollar
disclosure obligations when developing its policy on the dollar disclosure
obligations. This will include considering the effect of the Government
mandating the use of ASIC's revised fee disclosure template (issued on 16 June
2004; see ASIC Media
Release 04-192: ASIC
releases revised fee disclosure model).
In limited cases, ASIC can make a determination that a particular fee, cost, benefit or interest need not be disclosed as an amount in dollars. If a determination is made, the item needs to be disclosed by way of a percentage or description instead. ASIC can only make a determination where, for compelling reasons, disclosure in dollars is:
(c) ASIC’s policy proposals ASIC’s
policy proposal paper summarises the dollar disclosure provisions. It considers
in some detail ASIC’s approach to the key concepts of 'amount in dollars' and
'worked dollar examples'. For more information, see the section of the paper
entitled 'What are the dollar disclosure provisions?' and Section A.
The paper also explains how ASIC will approach applications for a dollar disclosure determination where the applicant believes disclosure in dollars is not possible. ASIC’s
proposed approach to dollar disclosure determinations in cases where dollar
disclosure is 'unreasonably burdensome' or 'contrary to client interests' is set
out in Section C of the paper. ASIC does not propose any class determinations
under these powers. This section of the paper set out the factors that ASIC
proposes to take into account in assessing applications for a dollar disclosure
determination where the applicant believes disclosure in dollars is unreasonably
burdensome or contrary to client interests. Unreasonable burden and contrary to
client interests are high standards and ASIC does not expect to make many
determinations under these powers. (a) it
would be unreasonably burdensome for them to fully comply by 1 January 2005;
and ASIC
will announce its decision about any determination it is considering on
transition by the end of September.
2.5 Changes to remuneration disclosures by registered schemes The
Australian Securities and Investments Commission (ASIC) published on 9 August
2004 Class Order 04/0967, which provides short term relief from any requirement
for financial reports of registered schemes that are disclosing entities to
reveal remuneration paid directly or indirectly to directors and executives of
their responsible entities.
2.6 ASIC completes review of Australian managed fund practices: late trading and market timing Mr Jeffrey Lucy, Chairman of the Australian Securities and Investments Commission (ASIC), confirmed on 6 August 2004 the findings of ASIC's review of certain investment practices in the Australian managed funds industry. The review was undertaken by ASIC after US regulators found, in September 2003, that some US mutual funds had entered into a set of trading arrangements that appeared to benefit certain large investors at the expense of the other mutual fund investors. 'During the review, ASIC found no evidence of systemic or large-scale use of improper investment practices in the Australian managed funds industry. While a small number of minor issues were identified, the fund managers concerned have taken steps to rectify them and to implement enhanced monitoring and compliance procedures', Mr Lucy said. ASIC's primary objective was to establish whether the practices described as 'late trading' and 'market timing' that were discovered in the United States existed in the managed investments industry in Australia. 'Late trading' occurs when a fund accepts instructions to purchase or sell interests after the official cut-off time. When those instructions are based on information that is not generally available, 'late trading' investors are able to trade advantageously in the fund to the detriment of the other fund investors. Where a fund manager permits late trading to occur, this is likely to be a breach of the Corporations Act. ASIC compared its findings with relevant international regulators including the US Securities and Exchange Commission, the UK Financial Services Authority and the Ontario Securities Commission in Canada, and will continue to monitor international developments in managed funds practice as well as international developments in the regulation of managed funds. 'Although recently there have been a number of reforms suggested for the US mutual funds industry, it is important to note that many of these measures, such as disclosure of fees and buy/sell spreads, are already current practice in Australia', Mr Lucy said. The potential for 'market timing' to occur exists when the net asset value of a fund is not, or cannot be, accurately calculated at the time that the price for purchasing or selling interests in the fund is set. For example, when a 'market timer' purchases interests in the fund that are undervalued, they effectively exploit market inefficiencies to the detriment of the other fund investors whose value of their underlying assets in the fund is diluted. In conducting its review, ASIC contacted the majority of fund managers operating in Australia, regarding both practices in Australia and the possible impact of certain conduct in the US on Australian operations. In addition to writing to over 70 fund managers, ASIC also conducted a number of site visits. All of the companies involved in the review cooperated with ASIC's requests for information.
2.7 ASIC provides relief for agency banking
services |
