Corporations Act « Australian Regulatory Compliance Review from Langes+ Lawyers

August 14, 2012

ASIC issues guidance on crowd funding

Fundraising by selling securities is generally regulated by the Corporations Act, depending on the nature and number of investors, the amount raised and what is being offered by the promoter.

ASIC has been monitoring increasing use of “crowd funding” for investment purposes to identify any arrangements, or aspects of those arrangements, that may be regulated by ASIC.

‘Crowd funding’ involves the use of the internet and social media to raise funds in support of a specific project or business idea. Project sponsors or pledgers typically receive some reward in return for their funds. In some cases, the reward expected may be of minor value and is merely incidental rather that the purposes of the contribution.

ASIC has issued guidance to promoters of ‘crowd funding’ to clarify arrangements which may be regulated by ASIC under the Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001.

ASIC has also highlighted some risks for operators of crowd funding websites and people considering participating in crowd funding projects.

ASIC’s view is that some types of crowd funding could involve offering or advertising a financial product, providing a financial service or fundraising through securities requiring a complying disclosure document.

Depending on the type of ‘reward’ offered by the project creator to those giving funding, crowd funding could involve a managed investment scheme under Chapter 5C of the Corporations Act, provision of a financial services requiring an Australian financial services (AFS) licence or a fundraising under Chapter 6D of the Corporations Act.

There are also advertising and publicity restrictions that apply to advertising and publicising an offer of financial products or securities, in certain circumstances.

Print This Post

Posted 14th August 2012 by David Jacobson in Corporations Act, Financial Services, Web/Tech

August 12, 2012

ASIC v Ingleby: AWB penalty

In Australian Securities & Investments Commission [ASIC] v Ingleby [2012] VSC 339 Judge Robson of the Supreme Court of Victoria made a declaration of contravention under s 1317E(1) of the Corporations Act in respect of one admitted contravention by former Australian Wheat Board Chief Financial Officer Paul Ingleby and banned him from managing a corporation until the end of 2012 and fined him $10,000 for his involvement in co-authorising payments by AWB in breach of the Oil For Food Program administered by the United Nations.

UPDATE 27 August: ASIC has announced its intention to appeal the penalty decision.

UPDATE 19 March 2013: The Victorian Court of Appeal has increased the penalties imposed against Mr Ingleby to a pecuniary penalty of $40,000 and disqualification for a period of 15 months.

Judge Robson applied the same principles he discussed in ASIC v Lindberg (discussed here).

Interestingly, in contrast to Lindberg’s penalty, he did not accept ASIC’s penalty recommendation under the circumstances: “I find that the agreed period of disqualification and pecuniary penalty broadly speaking are too severe and fall outside the permissible range that are appropriate in all the circumstances to Mr Ingleby’s contravention of the Act. ”

Judge Robson decided that “Mr Ingleby’s contravention was not one of dishonesty or lack of integrity, nor was it one of some degree of wilful blindness. Mr Ingleby says that his contravention must be seen in the context of the many duties he was required to perform in the structure of AWB. …

Mr Ingleby accepts that he failed to ‘join the dots’. It is not alleged, however, that he was actually told in a face-to-face meeting of the details of how inland transport fees were paid nor is it alleged that he had actual knowledge of what was going on or that he was directly advised by officers of AWB. The auditors did not raise these matters with Mr Ingleby. ..

Mr Ingleby accepts, however, that had he ‘joined the dots’ and with the benefit of hindsight, he would have appreciated that AWB was acting in breach of the OFFP and therefore in breach of UN resolutions. ”

Judge Robson took account of Ingleby’s contrition and that the proceedings commenced in 2007. He did not file a defence and co-operated fully.

ASIC is reviewing its position.

Print This Post

Posted 12th August 2012 by David Jacobson in Anti-money laundering, Compliance, Corporations Act

August 10, 2012

ASIC issues FOFA consultation papers

ASIC has released consultation papers containing proposed guidance for two aspects of the Future of Financial Advice (FOFA) reforms – Consultation Paper 182 Future of financial advice: Best interests duty and related obligations – Update to RG 175 (CP 182) and Consultation Paper 183 Giving information, general advice and scaled advice (CP 183)).

ASIC’s proposed guidance on the best interests duty covers the following areas:

acting in the best interests of the client
satisfying the ‘safe harbour’ for the best interests duty – including providing guidance on each element of the safe harbour providing appropriate personal advice; and
prioritising the interests of the client.

The proposed guidance is in the form of an update to Regulatory Guide 175 Licensing: Financial product advisers—conduct and disclosure (RG 175).

The best interests duty obligations commence on 1 July 2013. Advice providers can choose to follow the requirements earlier. If they do so, they must register with ASIC.

ASIC’s proposed guidance on scaled advice will apply to all industry sectors, including super, financial planners, and banks and insurers, and includes practical guidance and examples about giving scaled personal advice, as well as practical examples about giving factual information and general advice to clients.

ASIC’s proposed guidance in this area indicates:

All advice is scaled to some extent – advice is either less complex or more complex along a continuous spectrum (i.e. there are not two categories of advice ‘scaled’ and ‘holistic’).
In general, the same rules, including the best interests duty, apply to all personal advice, regardless of the scope.
It is possible to provide less complex advice in a way that is consistent with the best interests duty and the law generally.

Print This Post

Posted 10th August 2012 by David Jacobson in Corporations Act, Financial Services, Future of Financial Advice Reforms

ASIC v Lindberg: AWB penalty

In Australian Securities & Investments Commission [ASIC] v Lindberg [2012] VSC 332 Judge Robson of the Supreme Court of Victoria made a declaration of contravention under s 1317E(1) of the Corporations Act in respect of each of four admitted contraventions by former Australian Wheat Board managing director Andrew Lindberg and banned him from managing a corporation until 14 September 2014 and fined him $100,000 for his delays in informing his board about AWB’s wheat trade with Iraq and the misuse by AWB of the Oil For Food Program administered by the United Nations.

Judge Robson concluded:

I am satisfied that Mr Lindberg has contravened s 180(1) of the Act as admitted by him. The contraventions are all akin to an admission of negligence by him in performing his duties as a director and officer of AWB. None of the contraventions involve deliberate wrongful acts, dishonesty or any moral turpitude. Nevertheless, Mr Lindberg failed to perform his duties as a reasonable director or officer would in his situation. I find that the breaches of the Act were serious. I have concluded that the period of disqualification and the pecuniary penalties agreed on fall within the ’permissible range’ although at the upper end of the range. I propose, in my discretion, to impose the disqualification and pecuniary penalties put forward by the parties: an aggregate pecuniary penalty of $100,000 and disqualification from managing a corporation until 14 September 2014.

Background

Print This Post

Posted 10th August 2012 by David Jacobson in Compliance, Corporations Act

July 25, 2012

Treasury consults on derivatives regulation

Treasury has released a draft of the Corporations Legislation Amendment (Derivatives Transactions) Bill 2012.

The legislation would amend the Corporations Act by introducing a framework to allow the Minister for Financial Services and Superannuation to decide that mandatory obligations should apply to certain classes of over-the-counter (OTC) derivatives, requiring those classes to be reported, centrally cleared, or traded on suitable trading platforms.

Regulations and rules would be made to specify the details of these obligations.

Print This Post

Posted 25th July 2012 by David Jacobson in Corporations Act, Financial Services

July 24, 2012

ASIC research report on funeral purchase products

ASIC has released Report 292 Paying for funerals: how consumers decide to meet the costs (REP292) surveying a range of funeral products consumers are buying to help pay for their funeral.

The research found that consumers are less likely to pick the best product for their circumstances or take value for money and long term costs into account.

The research reviews:

prepaid funeral plans – offered by funeral directors where consumers choose and pay a fixed price in advance for their funeral
funeral bonds – investment products that help consumers save for funeral expenses, with the funds withdrawn after death to pay for the funeral
funeral insurance – where consumers pay monthly or fortnightly premiums for a fixed amount of cover to be paid out after death.

ASIC has regulatory responsibility for the conduct and disclosure obligations of issuers of funeral insurance and funeral bonds, while the Australian Prudential Regulation Authority (APRA) has prudential responsibility for life insurance companies and friendly societies. Prepaid funeral plans are regulated separately by each state.

As part of its broader review of financial products and services advertising, ASIC is specifically monitoring funeral insurance marketing to ensure consumers are not faced with misleading or deceptive practices.

Print This Post

Posted 24th July 2012 by David Jacobson in Consumer Law, Corporations Act, Financial Services

More FOFA Regulations: Corporations Amendment Regulation 2012 (No. 4)

The Corporations Amendment Regulation 2012 (No. 4) have been registered.

The amendments to the Corporations Regulations:

exclude product fees from the definition of an ‘ongoing fee arrangement’;
delay the application date to 1 July 2013 for the ban on conflicted remuneration with respect to benefits that relate to group life risk insurance inside superannuation funds and all life risk insurance policies in default superannuation funds;
exclude benefits given for advice relating to interests in time-sharing schemes from the ban on conflicted remuneration;
provide further detail of the scope of the exemptions from the ban on conflicted remuneration for certain non-monetary (‘soft-dollar’) benefits and introduce record keeping requirements in relation to those benefits.

The timeshare exemption from the ban on conflicted remuneration for financial advice is in recognition of its lifestyle features rather than being an investment product. The exemption allows the industry to continue to remunerate its employees through sales-based commissions.

Print This Post

Posted 24th July 2012 by David Jacobson in Corporations Act, Future of Financial Advice Reforms

Litigation funding schemes are not managed investments

The Corporations Amendment Regulation 2012 (No. 6) has been registered, exempting litigation funding schemes from the definition of a managed investment scheme (MIS) under section 9 of the Corporations Act.

In order to clarify that these arrangements are also not financial products as defined in Chapter 7 of the Act, the Regulation also provides exemptions from the licensing, conduct and disclosure requirements in that Chapter. The Regulation also addresses potential conflicts between the interests of litigation funders and their clients in certain situations, for example when assessing proposed awards or settlements.

Print This Post

Posted 24th July 2012 by David Jacobson in Corporations Act, Financial Services

Corporations Amendment Regulation 2012 (No. 5): auditors’ annual transparency reports

Corporations Amendment Regulation 2012 (No. 5) has been registered giving more details of the requirements under the Corporations Legislation Amendment (Audit Enhancement) Act 2012 (the Audit Enhancement Act).

The Audit Enhancement Act inserts Part 2M.4A into the Corporations Act. Part 2M.4A provides that an auditor must publish an annual transparency report if, during a transparency reporting year, they conduct audits of 10 or more bodies of any of the following kinds: listed companies, listed registered schemes; authorised deposit‑taking institutions; and insurance companies.

The Regulation specifies that an annual transparency report must contain (where relevant):

information about the auditor’s legal structure and ownership;
where the auditor belongs to a network, information about the network and the legal and structural arrangements in the network;
information about the auditor’s governance structure;
information about the internal quality control system of the auditor;
details of when the last reviews of the auditor conducted by an authorised body took place;
the names of entities of audited;
information about the auditor’s independence practices;
the auditor’s continuing professional development policy;
financial information for the auditor regarding their audit and non‑audit revenue; and
information regarding the basis of remuneration of an auditor’s partners or directors.

Print This Post

Posted 24th July 2012 by David Jacobson in Corporations Act, Financial Services

July 13, 2012

Extending the time for holding an extraordinary general meeting

In Woolworths Limited v GetUp Limited [2012] FCA 726 the Federal Court granted Woolworths’ application to extend the time fixed under the Corporations Act for calling and holding an extraordinary general meeting requisitioned by GetUp and for issuing a members’ statement. It wished to extend the relevant times to coincide with the times for calling and holding its scheduled annual general meeting for 2012.

The purpose of the requested general meeting is to consider a resolution to alter Woolworths’ constitution by inserting a new clause requiring that, from 1 January 2016, the ownership or operation by Woolworths of electronic gaming machines be excluded from its objects and purposes.

The estimated cost to Woolworths of calling and holding the requested meeting independently of its scheduled annual general meeting would be approximately $550,000.

GetUp conceded that no specific prejudice will be caused to it, or those whom it represents, if the requested meeting was delayed by about three months. The Judge was satisfied that such delay was not likely to result in any substantial injustice being caused to any person.

In approving the application Judge Yates said:

“I am satisfied that the plaintiff has made out a case. Its case does not simply stand on the fact that convening and holding the requested meeting will cost it a substantial amount of money and put it to considerable inconvenience. The additional factor that the plaintiff brings to the table is that it can substantially avoid this cost and inconvenience by calling and holding a meeting within timeframes that are different to those provided by the Act but which, if implemented, would be sufficiently proximate to those timeframes so as to work no prejudice, let alone cause substantial injustice, to any person. …

I should deal with one further matter. GetUp advanced a submission that the holding of the requested meeting on the same day as the annual general meeting may result in some distraction from the intended task of the requested meeting, having regard to the considerable matters to be considered at the annual general meeting. … There is no material before me which would lead me to conclude that the business of the requested meeting cannot be attended to properly and with due consideration by those members who might choose to participate in it, if held on the same day as the annual general meeting. “

There was no attempt to invalidate the meeting requisition.

Print This Post

Posted 13th July 2012 by David Jacobson in Corporate Governance, Corporations Act