Centro Retail Australia has announced that it has reached an agreement to settle six proceedings, including a number of related shareholder class actions, brought against Centro Properties Group (formerly “CNP”, now “CNPR”) and Centro Retail Group (“CER”) relating to the misclassification of debt by which CNP’s current debt was understated and its non-current debt overstated.

In the largest settlement to date in any Australian class action a total settlement amount in respect of all proceedings of $200 million will be allocated between the 2 groups of claimants. The balance of the total settlement amount will be comprised of:
· $85 million from Centro Retail Australia:
· $67 million from PwC;
· $10 million from CNPR; and
· $38 million from available insurance proceeds.

The proceedings focussed on the disclosure of liabilities in the Centro Group’s audited accounts for FY07. These proceedings were commenced on behalf of shareholders who acquired securities in CNP and CER in 2007 and early 2008.

At the relevant time, PWC was the auditor for CNP and CER.

The settlement of the proceedings is subject to approval of the Federal Court on 19 June 2012.

Background

In Australian Securities and Investments Commission v Hellicar [2012] HCA 17 and appeals relating to 6 other non-executive directors of James Hardie Industries Ltd (“JHIL”) the High Court allowed ASIC’s appeals and held that each director breached his or her duties as a director of the company by approving the company’s release of a misleading announcement to the Australian Stock Exchange (“ASX”).

The media release stated that the company had fully funded its asbestos diseases liabilities, when in fact there was a funding shortfall of more than $1 billion.

Allowing ASIC’s appeal, the High Court held that inaccuracies in the February board minutes did not counter their probative value as a contemporaneous and formally adopted record of what was
done at the February meeting. The High Court decided that the Board did approve the announcement and that the announcement was misleading.

In respect of the issue that JHIL’s external lawyer was not called by ASIC to give evidence the High Court decided that there was no basis for inferring that Mr Robb may have given evidence favourable to the directors. ASIC not calling him caused no unfairness. If it had, it would be wrong to respond by discounting the cogency of other evidence led at the trial; the question would be whether there had been a miscarriage of justice requiring a new trial.

As to whether ASIC has a duty to act as a “model litigant” the Court stated: “For the purposes of deciding these matters, it is convenient to assume, without deciding, that ASIC is subject to some form of duty, even if a duty of imperfect obligation, that can be described as a duty to conduct litigation fairly.”

The matters were remitted to the Court of Appeal for further
consideration of remaining issues in the appeals to that Court about claims to be excused from liability, penalty and disqualification.

ASIC’s appeal with respect to the NSW Court of Appeal decision relating to Mr Shafron, the company secretary was also allowed.

In Shafron v Australian Securities and Investments Commission [2012] HCA 18 the High Court dismissed the appeal of Peter James Shafron, the company secretary and general counsel of James Hardie Industries Ltd (“JHIL”), against previous decisions that he contravened s 180(1) of the Corporations Act 2001 (Cth) by failing to discharge his duties as an officer of JHIL with the degree of care and diligence that a reasonable person in his position would have exercised.

Shafron contravened s 180(1) of the Act in two ways. First, he had failed to advise either the CEO or the board of JHIL that the company should disclose to the Australian Stock Exchange (“ASX”) certain information about a Deed of Covenant and Indemnity governing JHIL’s separation from two of its subsidiaries. Second, that Mr Shafron had failed to advise the board of JHIL that an actuarial study he had commissioned to predict asbestos-related liabilities suffered from critical limitations.

Mr Shafron did not dispute that s 180(1) applied to him in his capacity as company secretary. The issue before the High Court was whether s 180(1) applied to Mr Shafron for conduct he submitted was undertaken in his capacity as general counsel.

Mr Shafron submitted that the application of s 180(1) should be restricted to those functions he performed in his capacity as company secretary. Mr Shafron argued that the contraventions alleged against him concerned his responsibilities as general counsel, not his responsibilities as an “officer” of the company, and thus should not be subject to s 180(1).

The High Court rejected this argument. Mr Shafron’s responsibilities with JHIL as company secretary and general counsel were indivisible and must be viewed as a composite whole. The scope of responsibilities of a particular officer is to be determined by an examination of all the
tasks in fact performed for that company by that officer. The role of a particular company secretary cannot be deduced from an examination of the kinds of tasks that other company secretaries, whether at that company or in general, might perform.

The majority judgment said:

The proposition that some distinction could be drawn between the “capacities” in which certain tasks were undertaken by Mr Shafron assumed, wrongly, that the work he did “as company secretary” could not, and did not, overlap with the work that he did “as general counsel”…

A fundamental difficulty with Mr Shafron’s submission is that there was no evidence demonstrating or suggesting that Mr Shafron performed certain tasks in one “capacity” and other tasks in another. Mr Shafron did not give evidence at trial. What evidence there was about the role of a “company secretary and general counsel” of a listed public company did not support the distinction Mr Shafron’s submissions sought to draw. Yet, as has been stated, what responsibilities Mr Shafron had was a question of fact.

As the title “general counsel and company secretary” given to Mr Shafron indicates, he was qualified as a lawyer – he was admitted to practise law both in Australia and in California. An important element in Mr Shafron’s responsibilities was his giving advice about and, where appropriate, taking steps necessary to ensure compliance with all relevant legal requirements, including those that applied to JHIL as a listed public company. The primary judge and the Court of Appeal described this aspect of Mr Shafron’s responsibilities as a duty to protect the company “from legal risk”. No doubt that included ensuring that purely administrative functions were performed like transmitting necessary material to the ASX and maintaining appropriate records of the board. But Mr Shafron’s responsibilities did not end at that point. His responsibilities were wider than administrative, and extended to the provision of necessary advice.

All of the tasks Mr Shafron performed were undertaken in fulfilment of his responsibilities as general counsel and company secretary. More particularly, because of his qualifications and the position in which he was employed, his responsibilities as general counsel and company secretary extended to proffering advice about how duties of disclosure should be met. And when he procured advice of others and put that advice before the board for its use, his responsibilities could, and in this case did, extend to identifying the limits of the advice that the third party gave.”

Shafron had previously been disqualified from managing corporations for 7 years and ordered to pay a pecuniary penalty of $50,000 .

Mr Shafron’s matter will be remitted to the Court of Appeal in relation to the issue of penalty.

The Government has announced further changes to the regulation of executive remuneration including changes in response to CAMAC’s 2011 report on executive remuneration.

Draft legislation to enact these reforms is expected to be released for public consultation in the latter half of 2012.

The Government will amend the Corporations Act 2001 to require listed companies to disclose to shareholders through the remuneration report the steps they have taken to clawback bonuses and other remuneration where a material misstatement has occurred in relation to the company’s financial statements.

If the company has not clawed back any remuneration, the board will be required to provide a detailed explanation to their shareholders. If shareholders are unhappy with the company’s actions, they would be able to use their powers under the two-strikes rule to vote down the remuneration report and potentially spill the board.

Other proposed reforms to the executive remuneration framework include:

• relieving certain unlisted entities from the obligation to prepare a remuneration report; and
• inserting disclosure requirements relating to related party transactions into the Corporations Regulations, as these disclosure requirements will be removed from the accounting standards from 1 July 2013.

The Government has agreed to the following CAMAC suggestions:

• section 300A CA will require companies to set out in their remuneration report a general description of their remuneration governance framework;
• the remuneration report will disclose any options that have lapsed in the current financial year and indicate the year(s) in which they were granted. There should be no obligation to include a value for the lapsed options.
• The obligation in section 300A(1)(e)(vi) to disclose the percentage of the value of remuneration that consists of options will be repealed as it can be deduced from information already required by Corporations Regulation 2M.3.03.
• section 300A(1)(e)(vii) will be amended to require the disclosure of all payments (including entitlement payments, severance payments and post‑severance payments) for key management personnel upon their retirement from the company, regardless of whether those payments were provided under a contract of employment.
• a requirement that the remuneration report disclose, for each key management personnel, crystallised past pay, present pay and future pay. The Government also intends to consult on the need for disclosure of dividends on unvested shares paid to key management personnel.

The Government has requested the Corporations and Markets Advisory Committee (CAMAC) to look at how the AGM may operate into the future and how it might better deliver opportunities for shareholder engagement.

The terms of reference are:

• The future of the AGM in Australia, including how documents and meeting forms should change to meet the needs of shareholders in the future
• The risks and opportunities presented by advancements in technology, in the context of maintaining the ongoing relevance and efficacy of the AGM; and
• The challenges posed to the structure of the AGM by globalisation, including potential increases in international share-ownership and dual-listing.

ASIC has released Information Sheet 144 Annual general meetings: Voting on the remuneration report resolution on the new provisions on remuneration report resolutions for listed companies and the circumstances in which ASIC may provide relief to chairpersons at annual general meetings (AGM) in respect of undirected proxies on remuneration report resolutions.

Under the new rules introduced by the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Act 2011, section 250R(4) prohibits the chairperson from voting undirected proxies on the remuneration report resolutions. However the government has clearly indicated its intention that the chairperson should be able to vote undirected proxies in certain circumstances, including on remuneration report resolutions.

During 2011, the government proposes to amend the provisions to make it clear that chairpersons are permitted to vote undirected proxies on remuneration report resolutions. Until the rules are amended to give effect to the government’s intention, ASIC’s information sheet provides options for companies to consider when complying with the current rules. UPDATE: see Media Release from Parliamentary Secretary to Treasurer

These options include:

• making no change to the company’s usual proxy form and ensuring that the chairperson will not vote any undirected proxies on the remuneration report resolution;
• changing the company’s proxy form so there are more directed proxies, which can be counted in the vote on the remuneration report;
• suggesting shareholders consider nominating a proxy other than a member of the company’s key management personnel for the purposes of the remuneration report resolution; and,
• applying to ASIC for relief in relation to a specific resolution.

Companies that wish to apply for relief must make an application to ASIC and include information as set out in the information sheet. Companies seeking relief will need to do so before dispatching documents to shareholders. Under the law, ASIC can only grant relief if it is satisfied that relief will not cause unfair prejudice to the interests of any member of the company.