Monday, 21 August 2017

Shareholders turn the heat up on directors – suing over failure to disclose climate change risk

One of Australia’s leading banks is being sued in a landmark case which may set the benchmark for climate change risk management.

Following our recent blog on climate change risk management and the impact on directors’ duties (read here), a recent case filed in the Federal Court (here) will explore a different angle, as the first of its kind to test the extent public companies are required to disclose climate change risks in their annual reports.  The Australian Prudential Regulation Authority (APRA) has previously warned that climate change poses a material risk to the financial system and maintains its stance that companies can no longer ignore the risks of climate change just because there is some ‘controversy’ about the policy outlook.

Environmental Justice Australia has filed proceedings in the Federal Court on behalf of two shareholders of the Commonwealth Bank of Australia (CBA) against the bank, alleging that CBA failed to provide a true and fair view of its financial position in breach of section 297 of the Corporations Act by not disclosing the material or major risk posed by climate change in its annual report.                  

Not only are the shareholders asking the Federal Court to find that CBA breached section 297 of the Corporations Act, but it is also alleged that the director’s report within the annual report contravened section 299A of the Corporations Act by failing to disclose risks that investors reasonably require to make an informed assessment of the bank’s operations, financial position, business strategies and prospects.

While it was previously the case that climate change risks were a non-financial problem, APRA is explicit that this is no longer the case (read more here).  The outcome of this case should provide sought after clarification for shareholders, regulators and banks of how companies are required to disclose climate change-related risks and will provide a great indication of how the management and disclosure of climate change impacts will continue to develop in Australian corporate law.  McCullough Robertson will be watching this space with great interest.

Wednesday, 19 July 2017

Scammers hit ASIC customers

Small businesses are a ready target for scammers, with the latest scam targeting innocent companies trying to do the right thing.

‘ASIC’ email scam
ASIC announced today that scammers pretending to be from ASIC have been contacting Registry customers by email, requesting that they pay fees and provide personal information to renew their business or company name (click here to view an example of a scam email).  It has also been reported that these phishing emails may contain malware and links to invoices with false payment details.

ASIC has advised that emails are most likely to be a scam if they ask you to:
  • make a payment over the phone
  • make a payment to receive a refund, or
  • provide your credit card or bank details directly by email or phone. 
If you think you have received a scam email, ASIC has requested recipients to immediately forward the entire email to ReportASICEmailFraud@asic.gov.au or contact ASIC on 1300 300 630.  

Trade mark scam
Similar phishing emails are often sent to trade mark registrants asking them to provide personal information and pay fees associated with trade marks or domain names.  Further information is contained in our previous article on this scam (please click here to read).

Small business
The ACCC Scamwatch website contains useful information on common scams and steps you can take to protect your small business. 

For enquiries, please contact:


Thursday, 6 July 2017

ASIC announces results from review of 31 December 2016 financial reports

On 31 May 2017 we released a post regarding ASIC’s focus areas for surveillance on 30 June 2017 financial reports.

Following on from that theme, ASIC has now announced the results from its review of 31 December 2016 financial reports.  ASIC reviewed the financial reports of 90 listed and other public interest entities for the period.  The results reveal a continued focus on findings relating to impairment of non-financial assets and inappropriate accounting treatments.

Following the review, ASIC made enquiries of 23 entities on 28 matters seeking explanations of accounting treatments.

In addition to impairment of non-financial assets, ASIC also raised queries regarding consolidated accounting, amortisation of intangibles, revenue recognition, tax accounting, business combinations and other matters.

With respect to the key focus areas, impairment of non-financial assets and inappropriate accounting treatment, ASIC’s findings included discrepancies with respect to:

  • determining the carrying amount of cash generating units
  • the reasonableness of cash flows and assumptions
  • use of fair value
  • impairment indicators, and
  • disclosures.

A copy of ASIC’s media release can be found here.

Monday, 3 July 2017

Six million under - The dangers of accessorial liability

A recent Federal Court decision serves as a timely reminder of the repercussions of companies employing new executives and senior managers who bring with them confidential information obtained dishonestly from their former employer.

On 12 May 2017, the Full Court of the Federal Court of Australia handed down its decision in Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Limited [2017] FCAFC 74, finding that the Ancient Order of Foresters in Victoria Friendly Society Limited (Foresters) should account for profits generated by their funeral bonds business which was developed and managed by two former employees of rival Lifeplan Australia Friendly Society Ltd (Lifeplan).

Mr Woff and Mr Corby were both employed by Lifeplan in senior roles and prepared a Business Concept Plan (BCP) for the CEO of Foresters for the development of Foresters’ comparatively small funeral bonds business.  Over the course of a number of months, Mr Woff and Mr Corby solicited the clients of Lifeplan on behalf of Foresters and developed and refined the BCP utilising the information of Lifeplan, including highly confidential rates of return and bonuses paid in the marketplace.  Mr Woff and Mr Corby then resigned from their positions and jumped ship to Foresters.

Monday, 19 June 2017

ASIC industry funding model passes Senate

Following on from our post last year (ASIC’s industry funding model – the long and the short of it) on ASIC’s industry funding model, the ASIC Supervisory Cost Recovery Levy Bill 2017 passed through the Senate on 15 June 2017.

Under the industry funding model, those entities regulated by ASIC will now bear its costs as opposed to ordinary taxpayers.  Further, ASIC expects that good conduct in the market will reduce supervisory expenses, thereby providing an incentive for regulatory compliance.

The passage of this legislation through the Senate provides not only certainty in terms of ongoing resource allocation for ASIC but also greater transparency through the publication of ASIC’s expenditure and subsequent accountability for its performance and regulatory priorities.

The regulatory framework for the operation of the funding model will be released ahead of it taking effect on 1 July 2017.

Wednesday, 31 May 2017

ASIC announces compliance focus areas for 30 June 2017 financial reports

ASIC today announced its focus areas for surveillance on 30 June 2017 financial reports.  The release highlights the matters that ASIC considers key areas for reporting entities to address and focus on in preparing financial reports for the 30 June 2017 financial year.

ASIC has again highlighted asset values and accounting policy choices as key matters.  In particular, the use of unrealistic assumptions in testing asset values and the application of inappropriate approaches to revenue recognition.

The key focus areas announced by ASIC in the release are:
  • impairment testing and asset values
  • revenue recognition
  • expense deferral
  • off-balance sheet arrangements
  • tax accounting, and
  • disclosures regarding:
    • estimates and accounting policy judgements, and
    • the impact of new revenue, financial instrument lease and insurance accounting standards.

A copy of ASIC’s media release can be found here.

Tuesday, 16 May 2017

Crowd funding update - catering for the remaining 99%

It was good to see the release of draft equity crowd-sourced funding (CSF) legislation for proprietary companies, as part of the 2017-18 Federal Budget package (on 11 May) – with the Government responding to a number of criticisms from various stakeholders (including Labor), following the finalisation of the CSF regime for public companies.  These new laws will be welcome to many, with proprietary companies representing over 99% of companies in the Australian market.

The new laws will remove the need for proprietary companies to transition to public companies.  Instead, investors will be protected by additional obligations, which are currently proposed to include a requirement to have a minimum of two directors, complete financial reporting in accordance with accounting standards (including audit requirements where more than $1 million is raised), and restrictions on related party transactions.  In return, the prospectus disclosure requirements for CSF offers will be relaxed and ‘CSF shareholders’ will not count towards the current shareholder limit (of 50 non-employee shareholders) which applies to proprietary companies.

For a copy of the exposure draft of the new laws click here, together with the accompanying explanatory memorandum here.

For further details on the existing and upcoming CSF laws for public companies (which will commence on 29 September 2017), see our earlier blog:

You will need to move quickly to have your say on the new laws for proprietary companies – with submissions closing on Tuesday, 6 June 2017.  However, the likely timing of the further changes remains to be seen and, with the recent laws for public companies having taken nearly 3 years to pass, may be met with some scepticism.  It is one we will continue to watch closely.