Corporate Advisory Bulletin – 25 August 2014

August, 2014

In the media

Competition watchdog ACCC head Rod Simms denies claims an ‘effects test’ would be ‘economically dangerous’

Chairman of the ACCC, Rod Sims, has hit back at claims that a proposal to stop big businesses from excluding smaller players from the marketplace is ‘economically dangerous.’

The ACCC wants the Federal government to broaden the focus of the ‘misuse of market power’ provision by introducing an ‘effects test.’ This would mean that courts would look to the effect of businesses’ behaviour on their competitors, rather than looking to whether their objective was to eliminate competition.  Mr Sims says an effects test could benefit farmers competing with supermarkets that sell home-brand products, and would bolster oversight of big businesses dealing with smaller competitors. However, some economists say an effects test would encourage anti-competitive behaviour, whilst the former head of the ACCC, Graeme Samuel, has said it’s a bad move economically.

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South Yarra accountant jailed for operating illegal investment schemes

South Yarra accountant Mark Ronald Letten was sentenced in the Melbourne County Court to five years and eight months imprisonment on charges brought by ASIC. Mr Letten had pleaded  guilty to 27 charges under the Corporations Act 2001 including: operating 21 unregistered managed investment schemes, dishonestly using his position as a director to misuse more than $533,000 of investor funds, and carrying on a financial services business without an Australian financial services licence. Between 1998 and 2010, more than 1000 investors, the majority of whom were sourced through Mr Letten’s accountancy practice, placed more than $100 million in investment property schemes in Australia and New Zealand. Investors suffered losses of at least $67 million in the schemes. In sentencing, the judge found the non-registration of the schemes and absence of associated investor protections had contributed significantly to the loss.

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Revised guidance on managing voting exclusions on remuneration-related resolutions

ASIC has asked Chartered Secretaries Australia (CSA) to develop guidelines for compliance with the recently introduced Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Act 2011. The Act prohibits key management personnel (including directors and their ‘closely related parties’) from using the votes on their own shares to adopt remuneration reports, or from voting undirected proxies on remuneration resolutions. The Act gives a broad interpretation to ‘related parties’, which CSA chief executive Tim Sheehy asserts “can include not just a spouse but also an adult step child from a previous marriage or a sibling, whether estranged or otherwise”. Additionally, whilst a chairman is still able to exercise undirected proxies on remuneration-related resolutions with shareholder consent, this will not apply to remuneration report and spill resolutions.  Mr Sheehy also cautions that directors in particular need to be mindful of their obligations under these new rules as they could be personally criminally liable for any transgressions.

Mr Sheehy added that with ASIC committed to embark on a program of compliance reviews, companies would be well advised to establish sound processes to manage voting exclusions without delay.

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In practice and courts

Interim Report on the Statutory Review of the Personal Property Securities Act

The Attorney General has released the interim report on the statutory review of the Personal Property Securities Act 2009 (the Act). The interim report recommends that the Australian Financial Security Authority (AFSA), in consultation with small business representatives and their advisers develop a targeted short term multi-facetted education and awareness raising campaign. It also recommends that the proposals for change raised in submissions be developed into a series of consultation papers to be released for broader industry consultation.

NOTE: The interim report foreshadows the release of 10 technical consultation papers covering issues for further consideration and feedback by stakeholders.  A final report will be delivered to the Government on 30 January 2015

Commonwealth Government: Reviewing the role of regulators

Issuing Statements of Expectations to statutory authorities enables Ministers to provide greater clarity about government policies and objectives relevant to a statutory authority, including the policies and priorities it is expected to observe in conducting its operations. The following statutory authorities have released Statements of Intent, in response to the government’s most recent Statements of Expectations: Australian Accounting Standards Board , Australian Competition and Consumer Commission, Australian Energy Regulator, Australian Prudential Regulation Authority, Australian Securities and Investments Commission, Australian Taxation Office, Auditing and Assurance Standards Board; and the Tax Practitioners Board.

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Cases

Goater v Commonwealth Bank of Australia [2014] NSWCA 265

The Commonwealth Bank of Australia (the Bank) was mortgagee of two properties held by Mr. and Mrs. Goater (the Goaters). The Goaters had entered into a Financial Ombudsman Service Agreement (FOSA) for repayment of their business loan. Under the FOSA the Goaters had to make minimum monthly repayments to the Bank and meet all payments for rates due to the local Council. The Council informed the Bank that the Goaters were behind in payment of water rates. The Bank applied for default judgment and a writ of possession, to enable them to exercise their power of sale. The Bank was successful, and default judgment was entered. The Goaters sought an appeal to set aside the default judgement. In the interim, they sought an injunction to prevent the Bank’s power of sale. Ward JA dismissed the Goaters application for an injunction, as they could not establish that there was an imminent threat of power of sale which would render their appeal nugatory. Further, per Inglis, the Goaters could not pay the mortgage debt to the court, which is required for determination of these kinds of proceedings. The Goaters did not satisfy any of the exceptions to Inglis, in particular they could not prove that the value of the properties would remain adequate security for Bank (as they would likely be sold at a loss). Ward JA also rejected the argument that the Bank was prohibited from engaging in legal action (and a power of sale) against the Goaters, as the FOSA agreement restrained them from legal action whilst the FOSA was adhered to. The FOSA did not prevent the Bank from taking this action, as the Goaters had breached the agreement by becoming judgment creditors of the Council.

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ESPERANCE CATTLE COMPANY PTY LTD -v- GRANITE HILL PTY LTD [2014] WASC 279

Esperance Cattle Company Pty Ltd (Esperance) and Granite Hill Pty Ltd (Granite Hill) both claimed to be entitled to possession of a rural property called Young River Station. Granite Hill had farmed the land and made a profit. Esperance claimed to be entitled to possession by virtue of a lease granted by Navarac Pty Ltd (Navarac), which was the registered proprietor of the land comprising Young River Station. Granite Hill claimed to be entitled to possession by virtue of a sublease granted by Mammoth Investments Pty Ltd (Mammoth). Mammoth was the lessee of Young River Station pursuant to a lease granted by Navarac at the time Granite Hill asserted that Mammoth executed a sublease in its favour. Allan Caretti purported to be a director of Mammoth and signed the sub lease with Granite Hill on behalf of Mammoth. Two directors of Mammoth claimed that Mammoth shareholders had removed Mr Caretti from his directorship, and that the sub lease was invalid.  Mr Caretti’s was unsuccessful in arguing that the shareholder’s resolution removing him from his directorship was invalid. The court held that Granite Hill was entitled to rely on their assumption that Mr Caretti was a director and had authority to grant them the sub lease. However, in citing ASIC v Hallmark Gold NL the court held that this entitlement did not extend to conferring a proprietary right on Granite Hill that would be good against third parties, such as Esperance. Esperance was entitled to an order for possession and damages against Granite Hill for trespass. However they were not entitled to an account of profits against Granite Hill for money earned from farming the land.

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Contact Mills Oakley 

warren-scott

Warren Scott | Partner
T: +61 3 9605 0984
E: wscott@millsoakley.com.au

daniel-livingston

Daniel Livingston | Partner 
T: +61 3 9605 0965
E: dlivingston@millsoakley.com.au

stuart-gibson

Stuart Gibson | Partner
T: +61 3 9605 0092
E: sgibson@millsoakley.com.au

warwick-painter

Warwick Painter | Partner
T: +61 2 8289 5808
E: wpainter@millsoakley.com.au

gavin-douglas

Gavin Douglas | Partner
T: +61 2 8289 5855
E: gdouglas@millsoakley.com.au

simon-champion

Simon Champion | Partner
T: +61 2 8289 7926
E: schampion@millsoakley.com.au

tim-cox

Tim Cox | Partner
T: +61 2 3228 0442
E: tcox@millsoakley.com.au

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