Corporate Advisory Bulletin – 5 November 2014

November, 2014

In the media

Shareholder primacy a myth: Governance Institute

The notion that company boards have a legal obligation to act in the sole interest of their shareholders is a myth, according to a new discussion paper by the Governance Institute of Australia. The paper focuses on section 181(1) of the Corporations Act 2001, which states that a director must work “in good faith in the best interests of the corporation,” and “for a proper purpose.”

The Governance Institute has highlighted that while case law has placed primacy on shareholders’ interests, the legislation does not mandate that directors and other officers discharge their duties in the best interests of shareholders.  The discussion paper highlights various areas in which shareholder interests conflict with the broader stakeholder interests, and proposes a number of amendments to the Corporations Act including either permitting or compelling directors “to have regard to the interests of stakeholders other than shareholders in corporate decision making.”

Proposed franchising powers set to boost code compliance

The game is set to change for operators engaging in serious breaches of the Franchising Code of Conduct with proposed enforcement powers increasing the stakes on 1 January 2015.  Based on the exposure draft of the new Code released in April 2014, the ACCC will be able to issue infringement notices of up to $8,500 and seek penalties up to $51,000 in the Federal Court for contraventions of the Code.

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In practice and courts

Significant Investor Visa programme (SIV): Industry Innovation and Competitiveness Agenda

The Government will reform the programme to encourage more high net worth individuals to make Australia home and to leverage and better direct additional foreign investment, while maintaining safeguards to ensure the migration programme is not misused. Changes will include: introducing a Premium Investor Visa (PIV), offering a more expeditious, 12 month pathway to permanent residency than the SIV, for those meeting a $15 million threshold.

ASIC’s Strategic Outlook 2014-2015

ASIC today published its Strategic Outlook for 2014-15. A new initiative, the Strategic Outlook sets out the key risks ASIC sees to the markets it regulates, and how ASIC will respond – prioritising its tools of surveillance and enforcement. This document brings analysis of underlying trends together with the key risks to investors, financial consumers, and the sectors and participants it regulates for 2014-15.
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Cases

Leica Geosystems Pty Ltd v Koudstaal (No 3) [2014] FCA 1129

Koudstaal, a software engineer and former employee of Leica Geosystems Pty Ltd (“Geosystems”), was ordered to pay Geosystems damages for illegally taking its copyrighted confidential information. Koudstaal was found to have copied 380,000 Geosystems files to an external hard drive prior to resigning.  The information was accessed by Koudstaal while employed by Geosystems’ competitor.

The Court found that this conduct was a breach of:

The Court also held that Geosystems’ confidential information was used to gain an advantage for Koudstaal and his new employer.  The Court recognised a need to deter similar infringements and ordered Koudstaal to pay $50,000 in damages as well as legal costs to Geosystems.

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 Melbourne City Investments Pty Ltd v WorleyParsons Limited (No 2) [2014] VSC 523

This was an application by class action brought by Melbourne City Investments Pty Ltd (“MCI”) against WorleyParsons Limited (“WP”) for a breach of continuous disclosure obligations.

MCI purchased a small parcel of shares in WP in November 2012.  In August 2013 WP published forecasts of increased earnings for the 2014 financial year.  In November 2013 WP revised those forecasts, reflecting lower earnings and incurring substantial restructuring costs.

MCI commenced proceedings against WP arguing that it was aware of those restructuring costs in August 2013 but did not disclose this to the market at the time and had therefore acted in breach of:

MCI sought a direction that WP and its directors comply with ASC Listing Rule 3.1, and a declaration that WP had contravened ASX Listing Rule 301.

The Court dismissed the application on the basis that MCI was unable to articulate a cause of action that had reasonable prospects of success and had no real interest in the litigation. While Ferguson J accepted both of MCI’s arguments that there was a public interest in WP observing the ASX Listing Rules and that MCI had standing to bring the proceeding as an aggrieved shareholder, her Honour nevertheless refused to grant the declaratory relief as MCI was not affected by any alleged failure to disclose nor any misleading and deceptive conduct given the events in question had occurred after MCI had purchased its shares. Ferguson J also noted that a court would not grant declaratory relief to MCI for the sole purpose of satisfying the public interest or as a deterrent for other publicly listed companies.  Her Honour also held that MCI had no real interest in the litigation because it had purchased the shares before the conduct

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Contact Us

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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