Corporate Finance Update - Issue 13

Issue 13, June 2023

Sustainable finance

ASIC issues further infringement notice for greenwashing

We have issued our twelfth infringement notice for alleged greenwashing conduct to Future Super Investment Services Pty Ltd (Future Super), the promoter of the Future Super Fund (Fund).

We were concerned that a Facebook post by Future Super may have been false or misleading by overstating the positive environmental impact of the Fund. The Facebook post included the statement, ‘Naysayers don’t join together and move nearly $400 million out of fossil fuels.’ At the time of the Facebook post, Future Super had approximately $400 million in total funds under management and had no basis to represent that the entirety of those funds had been invested in fossil fuels before being invested in the Fund. 

The Facebook post was published on 29 May 2019 and remained on the Fund’s Facebook page until October 2022. Future Super paid the $13,320 infringement notice on 27 April 2023. For more information, see Media Release (23-110MR) ASIC issues infringement notice to superannuation fund promoter for greenwashing (2 May 2023).

ASIC publishes Report 763 ASIC’s recent greenwashing interventions

On 10 May 2023, we published Report 763 ASIC’s recent greenwashing interventions  (REP 763) outlining the regulatory interventions we made between 1 July 2022 and 31 March 2023 in relation to greenwashing concerns. The purpose of the report is to provide transparency to the market on the nature of the matters where we have intervened. REP 763 details our surveillance activities and provides examples of our regulatory interventions with reference to the following themes:

• net zero statements and targets that did not appear to have a reasonable basis or were factually incorrect
• terms such as ‘carbon neutral’, ‘clean’ or ‘green’ that were used to describe operations, projects or products in circumstances where there appeared to be no reasonable basis
• financial products or managed funds were not ‘true to label’—that is, the names of the products or funds included sustainability-related terms that were inconsistent with the funds’ investments or the investment process described
• the scope or application of investment screens or exclusions was vague or overstated or applied in a way that was inconsistent with the description used.

We encourage issuers and advisers to consider this report when preparing disclosures, in addition to the principles set out in Information Sheet 271 How to avoid greenwashing when offering or promoting sustainability-related products. For more information and to download REP 763, see Media Release (23-121MR) Update on ASIC’s recent greenwashing actions (10 May 2023).

Treasury commences second round of consultation on mandatory climate reporting

On 27 June 2023, Treasury released a second consultation paper on climate-related financial disclosure. The paper builds upon responses received from Treasury’s earlier consultation which closed in February this year and seeks views on proposed positions for the detailed implementation and sequencing of standardised, internationally-aligned requirements for disclosing climate-related financial risks and opportunities in Australia. We encourage impacted stakeholders to participate in the consultation process to ensure the proposed standards are appropriate and workable for our market and economy and will provide ‘decision-useful’ information for investors.

Feedback is open for 25 days and can be provided to climatereportingconsultation@treasury.gov.au until 21 July 2023.

For more information on the consultation paper see Climate-related financial disclosure: Second consultation.

On 26 June 2023, the International and Sustainability Standards Board (ISSB) issued its inaugural sustainability-related standards—IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures.

For more information on the standards see IFRS S1 and IFRS S2.

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Fundraising

Debenture trustee policy requirements updated and first approvals granted

We have updated our policy requirements for assessing applicants seeking to act as debenture trustees under section 283GB of the Corporations Act 2001 (Corporations Act) (Ch 2L Trustees), including approval to act in any circumstances (subject to conditions) (General Approval).

Notably, under the updated position, Ch 2L Trustees are generally required to:

• hold a minimum of $5 million of professional indemnity insurance cover (PII) and $5 million of net tangible assets;
• decline appointments where there is a relationship between the Ch 2L Trustee and borrower likely to create a conflict of interest;
• make inquiries at least every 12 months to identify whether a conflict of interest has arisen; and
• notify ASIC if they fail to comply with the above requirements, are appointed (or cease to be) trustee of a trust, receive certain types of complaints or receive claims against their PII.

We continue to require, as a condition of approval, that Ch 2L Trustees hold an Australian financial services (AFS) licence and execute a deed poll in ASIC’s favour (which confirms the Ch 2L Trustee can adhere with the points above).

We may grant General Approval under section 283GB(1)(a) so that only a single approval is required and, to date, have provided two General Approvals.

ASIC assesses Ch 2L Trustee applicants against character, solvency, capacity, competence, compliance systems and independence requirements similar to the AFS licensing regime (see Regulatory Guide 1 AFS Licensing Kit: Part 1 – Applying for and varying an AFS licence, Regulatory Guide 2 AFS Licensing Kit: Part 2 – Preparing your AFS licence or variation application, Regulatory Guide 104 AFS licensing: Meeting the general obligations, and Regulatory Guide 105 AFS licensing: Organisational competence).

ASIC’s updated position was finalised after a targeted consultation process with relevant industry stakeholders. The changes are designed to increase competition between debenture trustees, and to harmonise the minimum financial resource requirements with those of other AFS providers.

We encourage prospective Ch 2L Trustee applicants to contact us early to address any questions relating to the assessment criteria and supporting documents required.

Auditors’ benchmark reports for issuers of unlisted notes

ASIC’s policy for disclosure to retail investors in relation to offers of unlisted notes is set out in Regulatory Guide 69 Debentures and notes: Improving disclosures for retail investors (RG 69). RG 69.119 outlines our expectation that issuers engage their auditors to prepare a separate report relating to compliance with the eight benchmarks prescribed in Section C of RG 69.

We have recently observed that not all issuers of unlisted notes are engaging their auditor to prepare separate benchmark reports.

With the end of financial year approaching, we remind issuers of unlisted notes that it is best practice to engage their auditors to prepare separate benchmark reports. Pro forma 223 Auditor’s benchmark report (PF 223) sets out the information that the auditor’s report should contain.

We consider that auditor benchmark reports provide important information to issuers on whether their internal controls are adequately designed and are operating effectively. This provides certainty to investors when investing in the unlisted notes and helps them understand whether these investments are suitable for them.

Observations from surveillances of mining companies completing initial public offerings

We conduct surveillances to review market disclosure practices of companies. Recently, we assessed the practices of selected companies in the mining exploration sector that had completed initial public offerings. We consider that the following observations from these surveillances are generally applicable (irrespective of industry):

• Companies should review the release of information through their marketing and investor relations channels with a similar level of care and diligence to that exercised with regulated disclosure documents. The information they disclose in marketing and investor relations channels should not materially differ to what they disclose in regulated disclosure documents. We will take action where information released through alternative channels is materially misleading.
• Companies should release price-sensitive information to the market promptly and without delay. Where market announcements are being drafted over extended periods of time this could indicate that either the company is not complying with its continuous disclosure obligations or the announcement does not contain price-sensitive information.
• Companies materially changing their business or asset strategies shortly after listing should ensure they adopt robust governance procedures that enable directors to determine whether such actions are in the interests of the company. For example, this should include thorough assessment of the merits of any such actions based on detailed inquiries and planning. Boards should not solely rely on the advice of corporate advisers or follow a course of action proposed by shareholders without conducting robust due diligence.

We will continue to conduct surveillances and will take regulatory action where appropriate.

ASIC publishes Report 762 Design and distribution obligations: Investment products

Report 762 Design and distribution obligations: Investment products (REP 762) outlines findings from ASIC’s risk-based review of how investment product issuers are complying with the design and distribution obligations (DDO). The types of investment products we looked at included interests in managed investment schemes, shares issued by investment companies, preference shares and debentures.

The review found that a significant number of issuers made deficient target market determinations (TMDs) with poorly defined target markets and inadequate distribution conditions. Often these deficiencies were due to the issuer using a TMD template without adequate customisation.

In addition to looking at TMDs, we also reviewed the product governance arrangements for several issuers of managed investment schemes. This included compliance with the reasonable steps and review obligations. The use of investor questionnaires was a very common strategy for compliance with the reasonable steps obligation. Many of these questionnaires were inappropriate. We also note that further measures are likely to be required to meet the reasonable steps obligation (i.e. a questionnaire on its own may be inadequate).

REP 762 was published on 3 May 2023. The report sets out details from our 26 stop order actions at that time and practical observations for how issuers of investment products can improve their compliance with DDO. For more information see Media Release (23-115MR) ASIC calls on investment product issuers to ‘lift their game’ on design and distribution obligations (3 May 2023).

First individual instrument under new employee share schemes provisions

On 10 May 2023, we made the first individual instrument granting relief in relation to the employee share schemes (ESS) provisions. The instrument permits a newly incorporated holding company to provide financial information prepared by the operational company together with pro-forma financial information for the holding company: ASIC Corporations (CG Holdco Pty Ltd Employee Share Scheme Disclosure) Instrument 2023/354.

Under section 1100ZK of the Corporations Act, we can only grant individual relief using a notifiable instrument that requires registration on the Federal Register of Legislation. Notifiable instruments take longer to prepare and you need to apply a couple of months before relief is required.

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Mergers and acquisitions

Prescribed occurrences and on-market purchases during a takeover bid

Bidders who seek to rely on exceptions to the takeovers threshold to acquire target securities on-market during the bid period are reminded to exercise caution when drafting the conditions to their bid. During the bid period, bidders are permitted to rely on certain exceptions to acquire securities in the target through on-market purchases. These exceptions are only available if the bid is unconditional or is only subject to conditions relating to circumstances set out in section 652C of the Corporations Act, known as ‘prescribed occurrences’.

We have recently observed takeover bids that contain conditions that are close to, but not the same as, the prescribed occurrences. In a recent takeover bid, we observed that a condition included circumstances affecting the target and any entities it controls. The prescribed occurrences would have only included the target and its subsidiaries.

Where the conditions to a takeover bid contain small but potentially material differences to the prescribed occurrences, bidders may not be able to rely on the relevant exceptions to acquire target securities on-market. We remind bidders who seek to rely on those exceptions to ensure that the conditions to their bid mirror the prescribed occurrences.

Federal Court’s proposed reforms to schemes of arrangement

The Federal Court of Australia has recently proposed reforms to streamline the practices and procedures adopted when seeking the Court’s approval for schemes of arrangement. The proposed reforms were outlined at a case management hearing in Re Vita Group Limited [2023] FCA 400.

We understand that the Court has consulted with the legal profession and ASIC and will consider whether to finalise the proposed reforms.

In the meantime, we will continue to monitor this area and work with the Court and the profession as the reforms are finalised. Where scheme proponents adopt the streamlined processes, we expect them to bring any material issues to our attention. We may also ask scheme proponents to confirm whether any material issues have arisen or for additional information where we have concerns, particularly in relation to matters that would previously have been addressed in affidavit evidence provided to the Court.  

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Corporate governance

Check your cyber pulse

A cyber attack can disrupt your organisation’s operations and result in financial, legal and reputational harm. With cyber attacks becoming more frequent and complex, does your organisation have the cyber resilience to protect against and recover from an attack?

To see how your cyber capability measures up to your peers, we invite you to complete the ASIC Cyber Pulse Survey. 

The voluntary, multiple-choice survey is suitable for ASIC-regulated entities of all sizes and sectors and is designed to help your organisation assess its ability to: 

• govern and manage organisation-wide cyber risks
• identify and protect information assets that support critical business services
• detect, respond to and recover from cyber security incidents.

You can opt in to receive an individual report which at the close of the survey period will provide insights into how you assess your organisation’s current cyber resilience capability compared to your industry peers.

ASIC will also publish a report with key findings from the survey, which will provide sectoral insights, areas for action and the better practices identified.

All information collected will be anonymised before being supplied to ASIC and is not for the purpose of regulatory or enforcement action. 

The survey can be accessed by logging into the ASIC Regulatory Portal. Please act quickly to complete the survey and receive your individual report.

For more information about the survey, visit asic.gov.au/cyberpulse.

Lodgement of related party notices of meetings

We remind companies that for related party notice of meeting lodgements, the proposed notice, explanatory statement, any expert reports and proxy form must be lodged in the final form (not draft) and signed in accordance with section 351 of the Corporations Act.

We also remind companies to ensure notice of meeting documents satisfy requirements set out in Chapter 2E of the Corporations Act and Regulatory Guide 76 Related party transactions.

Meeting materials must provide sufficient information to enable members to decide if the financial benefit to be given to a related party is in the best interests of the company. We expect companies and their directors to consider, and disclose:

• the details of the value of the financial benefit, including any principal assumptions behind the valuation
• the nature of the financial benefit, reasons for giving the benefit and the basis on which it is given. This includes addressing why or how the benefit was chosen and an explanation of the substantive effect of the transaction
• the terms of the financial benefit and, if relevant, the consequence or cost to the company and its members if the terms are not met
• each director’s recommendation, particularly the director’s view whether the value of the financial benefit is reasonable, and why. If there are other options, the director’s reasons for why the related party transaction is the preferred option is also relevant.

We encourage early lodgements through the portal to ensure timely consideration of the meeting materials.

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