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ASIC Report on the Regulation of Corporate Finance - Update

Rohan Harris, Rory Maguire

ASIC has published its latest report on corporate finance regulation in Australia, recently releasing Report 589 ASIC Regulation of Corporate Finance: January to June 2018 ("Report"). 

The Report provides the market with guidance around ASIC’s key focus areas in corporate finance for the period.  In particular, the Report provides statistical analysis and insight into ASIC’s regulation of fundraising, experts, mergers and acquisitions and corporate governance issues.  A copy of the Report can be accessed here.

The Report includes ASIC’s key observations on the topics of:

  • fundraising disclosure and conduct;
  • experts and their level of ‘independence’;
  • mergers and acquisitions, including insights into ‘truth in takeovers; and
  • corporate governance issues, including increased oversight following the banking Royal Commission.

These are discussed in more detail below.

1. Fundraising: Review of Fundraising Disclosure and Conduct 

As always, disclosure issues continue to be a key focus for ASIC in the fundraising space.

During the period between January to June 2018, ASIC received 229 original disclosure documents, raising over $6.7 billion.  Of the 229 fundraising offers, ASIC raised disclosure concerns on 19% of fundraising offers, extended the exposure period 27 times, issued 24 interim stop orders (representing a significant increase compared to the 10 interim stop orders made during the July to December 2017 period) and 2 final stop orders.

The top five most frequent disclosure concerns ASIC raised about prospectuses were:

  1. inadequate business model disclosure (raised 28 times);
  2. unclear or insufficient detail on use of funds (raised 20 times);
  3. misleading or deceptive disclosures and misleading or unclear statements (raised 18 times);
  4. inadequate or insufficiently prominent or not tailored risk disclosure (raised 15 times); and
  5. inadequate disclosure of capital structure or substantial holdings (raised 10 times).
2. Experts

The use of experts and the level of their ‘independence’ continue to be a focus of ASIC.  In particular, ASIC was concerned with experts relying or sub-contracting to other technical experts without ensuring that those persons were also adequately independent.

3. Mergers and Acquisitions 

During the period, ASIC reviewed takeover bids, schemes of arrangements and other control transactions, and actively participated in applications made to the Takeovers Panel. ASIC observed that there were:

  • 16 independent control transactions via takeover bid;
  • 13 independent control transaction via schemes of arrangements; and
  • 2 independent restructure transactions via schemes of arrangement.

Overall, the number of independent control transactions was comparatively lower than the July to December 2017 period (29, down from 35).  However, the total value of control transactions using a bid or scheme during the period was substantially higher than the previous period ($27.5 billion, up from $4.5 billion).

ASIC also provided insight into the ‘numerous’ interventions made over the last 6 months for ‘last and final’ or ‘truth in takeovers’ statements made by market participants.  This included raising concerns with unqualified intention statements (by companies and their executives), as well as a number of ‘non-uniform’ shareholder intention statements.  ASIC also flagged that it intends to undertake a review of its ‘truth in takeovers’ policy (set out in RG 25). First published in 2002, the policy will be reviewed in order to consider how it could be improved to provide greater certainty to the market about its application and enforceability – a welcomed development.

4. Corporate Governance 

ASIC’s main focus in respect of corporate governance has, expectedly, been focussed on the outcomes of the banking Royal Commission.

ASIC highlighted that, on 8 August 2017, the Government announced a funding package of $70.1 million to expand ASIC’s enforcement and supervisory work. This funding was provided in the context of the Royal Commission uncovering serious corporate governance failures within financial services entities. ASIC expressed concern that these failures were driven by ‘boilerplate’ disclosures of corporate governance policies that fail to assist investors’ understanding of a company’s governance practices.

We expect continued focus and action from ASIC in this area for the coming period.

5. Key takeaways 

In the Report, ASIC has emphasised its focus on:

  • ensuring the independence of technical experts;
  • monitoring and enforcing ‘truth in takeover’ statements; and
  • corporate governance, including the creation of a corporate governance taskforce.

In light of these, companies should ensure that their disclosure documents, shareholder communications and governance frameworks meet the standards required, and expected from ASIC. A failure to do so will, we predict, see ASIC intervention on the rise.

Please contact Rohan Harris or Rory Maguire from our Corporate & Commercial team if you would like to learn more about the Report, or if you would like any further information regarding corporate regulatory and governance matters.

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