Corporate Governance « Australian Regulatory Compliance Review from Langes+ Lawyers

April 10, 2013

ADI disclosure of capital and remuneration

APRA has released for comment a consultation paper and draft amended prudential standard APS 330 relating to Basel Pillar 3 disclosures on the composition of capital and on remuneration by authorised deposit-taking institutions (ADIs) incorporated in Australia.

ADIs will be required to publish a reconciliation between their regulatory capital and financial statements. They will also need to disclose full details of the terms and conditions of each regulatory capital instrument and a summary of those instruments in a standard form. They are intended to be referenced or included in full in published financial statements and on an ADI’s website, unless APRA agrees otherwise.

In addition, APRA will be consulting on its proposed implementation of the Basel Committee’s requirements for ADIs to disclose qualitative and quantitative information about their remuneration practices and aggregate remuneration data for senior managers and material risk-takers. This is wider disclosure than that required under the Corporations Act.

APRA is proposing that it be open to a listed ADI to incorporate the APS 330 remuneration disclosure requirements into its Remuneration Report, provided that the disclosures made in relation to ‘key management personnel’ under the Corporations Act are clearly distinguished from the disclosures made under APS 330 for ‘senior managers’ and ‘material risk-takers’.

APRA is proposing that the requirements commence for the first reporting period on or after 30 June 2013.

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Posted 10th April 2013 by David Jacobson in Corporate Governance, Financial Services

March 11, 2013

Workplace Gender Equality Indicators

From 1 April 2013 businesses with 100 or more employees will be required by section 13 of the Workplace Gender Equality Act 2012 to lodge reports each year containing information relating to various gender equality indicators. Background

The Workplace Gender Equality (Matters in relation to Gender Equality Indicators) Instrument 2013 (No. 1) prescribes the matters to be reported with respect to each of 6 indicators for 2013 and then from 1 April 2014:

Gender Equality Indicator 1—gender composition of the workforce.
Gender Equality Indicator 2—gender composition of governing bodies of relevant employers
Gender Equality Indicator 3—equal remuneration between women and men
Gender Equality Indicator 4—availability and utility of employment terms, conditions and practices relating to flexible working arrangements for employees and to working arrangements supporting employees with family or caring responsibilities
Gender Equality Indicator 5—consultation with employees on issues concerning gender equality in the workplace
Gender Equality Indicator 6—sex-based harassment and discrimination

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Posted 11th March 2013 by David Jacobson in Corporate Governance, Workplace

Governance standards for charities

The Australian Charities and Not‑for‑profits Commission Amendment Regulation 2013 (No. 1) has been registered and will commence on 1 July 2013.

This regulation specifies governance standards which registered entities must comply with in order to become registered under the the Australian Charities and Not‑for‑profits Commission Act 2012 and to remain entitled to be registered under that Act.

The ACNC governance standards cover:
•The purposes and not-for-profit nature of charities
•Accountability to members
•Compliance with Australian laws
•The suitability of those who govern charities
•The duties of those who govern charities

Transitional arrangements until 1 July 2017 have been adopted, including for State-registered incorporated associations.

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Posted 11th March 2013 by David Jacobson in Charities, Corporate Governance

March 6, 2013

Capital and risk for ADI’s and insurers

APRA has released a package of final guidance material to all authorised deposit-taking institutions (ADIs), general insurers, Level 2 general insurance groups (L2 groups) and life companies relating to capital and risk.

CPG 110 contains prudential guidance on maintaining adequate capital and responding to severe levels of stress and trigger events.

CPG 110 emphasises that:

“Under the capital standards, the Board of a regulated institution has primary responsibility for the capital management of that institution. This obligation goes beyond the need to ensure compliance with regulatory capital requirements and requires the Board to ensure that each regulated institution holds capital resources commensurate with its risk profile….

The Board is responsible for the risk appetite of a regulated institution and for ensuring that the institution has an appropriate risk management framework. Risk appetite is a fundamental part of both risk management and capital management.”

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Posted 6th March 2013 by David Jacobson in Corporate Governance, Financial Services

February 5, 2013

Board planning: gender equality

From 1 April 2014 businesses with 100 or more employees will be required by section 13 of the Workplace Gender Equality Act 2012 to lodge reports each year containing information relating to various gender equality indicators.

The Act defines “gender equality indicators” as including the gender composition of governing bodies of relevant employers.

The “governing body of a relevant employer” means the board of directors, trustees, committee of management, council or other governing authority of the employer.

Boards of affected businesses, whether ASX listed or not, should adopt appropriate policies.

The ASX Diversity Resources is a helpful reference site.

The 2012 Australian Census of Women in Leadership imdicated that Women hold 12.3% of directorships in the ASX 200 but only 9.2% in the ASX 500.

Before 1 April 2014, the Minister will, by legislative instrument, set minimum standards in relation to specified gender equality indicators (GEIs).

The Workplace Gender Equality Agency will develop industry-specific benchmarks against the GEIs to allow employers to compare their progress in gender equality with others in their industry.

From the 2014–15 reporting period, if a relevant employer submits a report that does not meet a minimum standard, and does not improve against it by the end of two further reporting periods, it may be non-compliant.

Background

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Posted 5th February 2013 by David Jacobson in Corporate Governance, Workplace

January 21, 2013

Director liability issues for 2013: taking reasonable steps to comply

From time to time clients ask us for a list of all the things for which directors can be liable.

When creating a list of all those things that can create liability for directors it’s important to firstly understand that corporate governance consists of improving the performance of the business in the best interests of shareholders as well as managing risks and monitoring compliance. The board’s role is not limited to compliance.

When looking at compliance issues you should distinguish between those things that a director does (or fails to do) personally as well as things that the company does (or fails to do) for which a director is liable.

The first category (liability for personal conduct) includes: don’t steal, don’t lie or cheat, don’t get a personal benefit by misusing confidential information, don’t fail to do your best for the company because you have a competing personal interest.

The second category (personal liability for corporate conduct) includes liability for insolvent trading, misleading statements to investors as well as breaches of environmental and hazardous goods legislation, workplace health and safety laws and consumer protection laws.

Some issues will be regular items on your agenda (eg director disclosures), some will be six-monthly or annual items (eg financial reports, executive remuneration, annual licence renewals) and others will be special matters depending on your activities (eg signing off on fundraising).

If you are prosecuted for a corporate breach, the key issue is whether you took “reasonable steps” to ensure that the company complied with the provision.

Under some laws you are presumed to have taken reasonable steps unless the prosecution proves otherwise. Under other laws you have the burden of proving you took reasonable steps. Background

What are reasonable steps?

The Corporations Act does not define reasonable steps. They vary with the circumstances.

In ASIC v Healey (Centro) Judge Middleton discussed the minimum steps a director needed to take before approving financial statements.

Unfortunately the director liability laws for state-based offences still vary between states.

Section 97 of the Miscellaneous Acts Amendment (Directors’ Liability) Act 2012 NSW defines “reasonable steps” as follows:

reasonable steps, in relation to the commission of an executive liability offence, includes, but is not limited to, such action (if any) of the following kinds as is reasonable in all the circumstances:
(a) action towards:
(i) assessing the corporation’s compliance with the provision creating the executive liability offence, and
(ii) ensuring that the corporation arranged regular professional assessments of its compliance with the provision,
(b) action towards ensuring that the corporation’s employees, agents and contractors are provided with information, training, instruction and supervision appropriate to them to enable them to comply with the provision creating the executive liability offence so far as the provision is relevant to them,
(c) action towards ensuring that:
(i) the plant, equipment and other resources, and
(ii) the structures, work systems and other processes, relevant to compliance with the provision creating the executive liability offence are appropriate in all the circumstances,
(d) action towards creating and maintaining a corporate culture that does not direct, encourage, tolerate or lead to non-compliance with the provision creating the executive
liability offence.

The proof required to show you took reasonable steps varies with the alleged offence.

The starting point is to carry out a risk assessment appropriate to your business.

But don’t forget to spend time growing the business.

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Posted 21st January 2013 by David Jacobson in Compliance, Corporate Governance, Corporations Act, Trade Practices, Workplace

January 15, 2013

Insurance for directors’ legal defence costs

In Steigrad v BFSL 2007 Ltd [2012] NZCA 604 the New Zealand Court of Appeal allowed appeals in two separate actions relating to insurance coverage of legal costs of directors of companies which became insolvent.

Both policies contained a single limit of liability covering both liability and defence costs claims. The issue was how a third party’s claim on a policy affects such policies, in particular in relation to the payment of defence costs after the claim has arisen and been notified.

Steigrad’s appeal related to the Bridgecorp group, previously discussed here.

In relation to Bridgecorp the NZ High Court decided that the Bridgecorp directors were prevented from having access to their company’s D & O policy to meet their defence costs because there were civil claims by investors relating to the collapse of Bridgecorp that were potentially in excess of the $20 million limit of the D&O policy. That decision has been reversed.

In the other action Chartis Insurance sought a declaration whether it could pay defence costs of former Feltex directors notwithstanding notice of a charge by Feltex investors on the prospectus liability policy. The Court of Appeal made that declaration.

In allowing the applications the Court of Appeal said:

“In our judgment Mr Steigrad’s appeal must succeed on two interrelated grounds:
(a) s 9 [the charge] does not by its terms apply to insurance monies payable in respect of defence costs, even where such cover is combined with third party liability cover and made subject to a single limit of liability; and

(b) s 9 has limited effect and is not intended to rewrite or interfere with contractual rights as to cover and reimbursement….

We conclude that the statutory charge does not prevent QBE from meeting its obligation under the policy to reimburse defence costs. The only reason that the contrary can be argued is that there is a single, aggregated limit of liability in the policy. In our view, that factor – the existence of a single, aggregated limit – cannot operate to deprive Mr Steigrad of the right to obtain reimbursement for his defence costs as that would render his defence costs cover, in practical terms, useless. That is not what s 9 was intended to achieve. … s 9 is simply a legal mechanism to divert to a third party funds that would otherwise be available to settle a contractual obligation to indemnify the insured for liability to that third party. The amount of the funds available in Mr Steigrad’s case will be determined once the other cover provided by the policy – defence costs cover – has been determined….

In the present case, the statutory charge created by s 9 has not crystallised – it remains contingent. It will not crystallise unless and until QBE becomes legally liable to meet any damages or compensation that Mr Steigrad must pay Bridgecorp, whether as a result of judicial decision, arbitration or settlement. That requires, first, that Mr Steigrad’s liability to Bridgecorp be established; and second, that QBE’s liability to Mr Steigrad under the policy be established. In the meantime, the amount, if any, of the insurer’s contingent liability is unknown. At present QBE’s only crystallised liability is to pay Mr Steigrad’s defence costs.”

Because of the similarity of the NZ legislation to that of some Australian states, Australian directors should keep these issues in mind when next reviewing their cover.

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Posted 15th January 2013 by David Jacobson in Business Planning, Corporate Governance, Insurance

Guide for board members of charities

The Australian Charities and Not-for-profits Commission (ACNC) has published a Guide for board members and others who manage charities.

The Guide covers registering with the ACNC, Commonwealth tax concessions, ongoing obligations and proposed minimum governance standards.

It also includes a “ready reckoner” of key ACNC dates.

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Posted 15th January 2013 by David Jacobson in Charities, Corporate Governance, Not-for-profit sector

November 27, 2012

Directors’ insurance update

In our July 2011 article one of the questions we recommended directors ask their insurers was “Are directors entitled to payment as legal defence costs are incurred (or in advance) or only as reimbursement?”

We also observed that as a policy usually has an overall aggregate limit of liability covering all the different types of cover, unless there are sub-limits a high claim in one area of the policy in one year may limit the amount available in other areas of the policy in that year.

In Steigrad v BFSL 2007 Limited [2011] NZHC 1037 (the Bridgecorp decision) the NZ High Court decided that the Bridgecorp directors were prevented from having access to their company’s D & O policy to meet their defence costs because there were civil claims by investors relating to the collapse of Bridgecorp that were potentially in excess of the $20 million limit of the D&O policy. The D&O policy aggregated cover for liability and defence costs.

The Bridgecorp receivers argued that the full amount of insurance should come to the receivers. By pooling the policy proceeds, rather than separating how much could be allocated to defence costs and how much to liability, secured creditors had priority.

The directors argued that a claim could not be made on the policy until it was quantified, which could only happen after any defence.

The appeal of that decision to the NZ Court of Appeal has been heard and judgment reserved.

The decision is relevant to all directors’ liability insurance providing coverage for civil compensation in which defence costs are within the aggregate limit.

The case has also highlighted the issue of whether when there are either multiple claims and/or multiple claimants, an insurer may be precluded from making compensation payments until all claims have been resolved.

While there have been no similar cases in Australia different insurers have responded in different ways.

Directors should review their policies in advance of renewal.

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Posted 27th November 2012 by David Jacobson in Corporate Governance, Corporations Act, Insurance

November 23, 2012

Director liability for company’s unpaid super guarantee charge

Under the Tax Laws Amendment (2012 Measures No. 2) Act 2012 directors are now personally liable for their company’s unpaid super guarantee charge.

Companies have until 28 November 2012 to ensure their super guarantee obligations are up to date for the June 2012 quarter or directors risk having to pay the super guarantee charge (SGC) personally.

If you hold a position of director in a company that has not paid the 9% super guarantee (superannuation contributions) for the June 2012 quarter and the company does not lodge the overdue SGC statement with the Australian Taxation Office (ATO) by 28 November 2012, the only way to avoid personal liability will be to pay the outstanding super guarantee charge (SGC).

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Posted 23rd November 2012 by admin in Corporate Governance, Superannuation, Tax