In brief

PDF Download

New executive termination payments laws

In late 2009, the Corporations Amendment (Improving Accountability on Termination Payments) Act 2009 (Cth) was passed. That legislation has introduced amendments to the Corporations Act which:

• expand the range of company personnel whose employment termination benefits will now potentially require shareholder approval;
• reduce the threshold for shareholder approval of termination benefits for employment contracts that are entered, renewed, extended or have their conditions varied after the commencement of the legislation to an amount of 1 year’s average base salary; and
• restrict associates of the retiree from participating in the shareholder vote on the termination payment.

Employee share schemes tax legislation passed

The Tax Laws Amendment (2009 Budget Measures No. 2) Act 2009 (Cth) received assent on 14 December 2009 but the measures in the legislation take effect from 1 July 2009.   As foreshadowed in the 2009 Budget, the Act provides that the $1,000 upfront tax exemption available to employees participating in qualifying employee share schemes is now subject to a means test and will only be available to taxpayers with an adjusted taxable income of less than $180,000 (in line with the top marginal tax bracket). In addition, although the Act continues to enable employees to potentially defer paying tax on discounts on shares, rights and stapled securities acquired under an employee share scheme, this will only be the case if there is a ‘real risk’ the taxpayer might forfeit the share, right or stapled security acquired under the scheme. It is appropriate for companies and employees to review employee share scheme arrangements to ascertain how they may be affected by the legislation.

Reform of legislation imposing liability on directors and officers

As part of the ongoing process of reforming the many statutes imposing personal liability on directors and officers of companies, the Ministerial Council for Corporations (MINCO)published a set of principles relating to personal liability for corporate misconduct.   These principles have been developed with the intention of implementing a consistent approach to this issue across Australian law.

The next steps in the reform process are as follows:

• A legislative review is to be conducted by each jurisdiction to identify those existing offences for which directors’ liability, or removal of that liability, is appropriate in accordance with the MINCO principles.
• Laws are to be harmonised following cross-jurisdictional comparison in key policy areas. A consistent legislative approach is to be adopted to provisions imposing director and officer liability around key concepts and definitions.

ASIC seeks comment on information leaks

In December 2009, ASIC released a consultation paper and a draft regulatory guide (Guide)the issuing of which would implement “Best Practice Guidelines” for dealing with confidential information primarily in the context of capital raisings and mergers and acquisitions. 

The issue by ASIC of this consultation paper occurs in the context of ASIC taking on a greater role in market regulation and follows the suspicious increases in trading, noted by ASIC, immediately prior to a number of capital raisings and merger and acquisition transactions in 2009 which ASIC allege resulted from leaked confidential information.

The Guide suggests the implementation of a number of procedures and policies which aim to protect the confidentiality of sensitive material and identify those responsible in the case of breach.  These include requiring companies to keep lists of all persons (including persons working within a company’s external advisors) with access to that company’s confidential information for a particular transaction and the recommendation that in some circumstances confidentiality agreements should be entered into with each of these persons.  In cases where there is a leak or a suspicion of a leak, ASIC recommends that the company should consider conducting a formal investigation.

The consultation paper and the Guide also suggest that the carrying out of market soundings by investment banks may be an area where confidential information is being inappropriately or inadvertently disclosed and puts in place guidelines to govern the conduct of market soundings.  These guidelines recommend the use of formal scripts and require that entities that are sounded must agree, before any confidential information is disclosed, to keep that information confidential.

ASIC have indicated that the purpose of the Guide is to “encourage companies, their advisors and other service providers to implement and enforce best practice guidelines not just a minimum level of compliance with the law.” Given that the regulatory guide (if implemented) will not have legislative force it will be interesting to note the view taken by those affected on whether to implement these recommendations. 

The consultation paper states that the final regulatory guide is to be released in April.