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01 May 2001
Doubt about the constitutional validity of certain aspects of corporate regulation arose following two High Court decisions. Re Wakim: Ex parte McNally (163 ALR 270, 1999) dealt with the Federal Court's jurisdiction to hear certain Corporations Law matters, and R v Hughes (18 ACLC 394, 2000) dealt with the power of federal authorities to enforce parts of the Corporations Law.
A case lodged by the High Court (GPS First Mortgage v Lynch) has the potential to challenge the Australian Securities and Investments Commission's (ASIC) power to incorporate companies under the current regime.
In August 2000 the states reached an agreement to refer power to the federal government to make laws regarding the existing Corporations Law and the proposed Financial Sector Reform Bill. The states were concerned about the potential for the federal government to misuse this power. Safeguards against such misuse are included both in the legislation and in the new Corporations Agreement (between the states and the Commonwealth).
The Financial Services Reform Bill proposes three reforms:
Consumers are expected to benefit from the reforms, which will create a consistent framework for their protection across the financial services industry.
Industry participants are expected to benefit as a result of the removal of regulatory barriers to the introduction of technological innovations (including electronic delivery of financial services and products) and reduced compliance costs.
A 15% ownership limitation is proposed to apply to markets and facilities that are of national importance, including the Australian Stock Exchange (ASX) and the Sydney Futures Exchange. A provision is included so that the government may impose a similar limitation on holding companies of Australian market licensees and clearing and settlement facilities that are of national significance.
Transitional arrangements will be contained in a separate bill to be introduced in the winter sittings of Parliament.
Submissions have been invited from industry participants on the potential tax consequences of moving to the new licensing regime.
ASIC recently issued interim guidelines for the inclusion of financial forecasts and projections in disclosure documents (ie, prospectuses registrable with ASIC). ASIC proposes to develop a final policy position after receiving a report by the Auditing and Assurances Standards Board and following industry consultation.
ASIC indicates that financial projections should be omitted from disclosure documents if any of the following circumstances apply:
ASIC adopted the Australian Audit Standards classification of prospective financial information as either forecasts or projections. A 'forecast' is based solely on assumptions as to future events that management expects to take place and actions management expects to take. A 'projection' is based partly or wholly on assumptions about future events or actions that are not necessarily expected by management to take place.
Where forecasts or projections are included in a disclosure document, ASIC expects material assumptions to be clearly stated and a distinction drawn between the assumptions that relate to events or management actions that are expected to take place, and those that are merely hypothetical.
The guidelines also set out ASIC's expectations regarding the enquiries undertaken by experts who review and report on prospective financial information contained in a disclosure document, and the additional information to be included where financial statements appear in a disclosure document.
If the guidelines are not met and that failure is material, ASIC will prevent distribution of the defective disclosure document.
The ASX would like to broaden its participation base by allowing foreign investors access to its market though foreign brokers with whom those investors may be familiar. It has proposed changes to its business rules under which it may accept foreign companies as participating organizations (ie, brokers who may transact business on the ASX).
A draft of the rule changes was released by the ASX for public comment. It is anticipated that the changes will be approved by ASIC by the end of April 2001 and will become effective shortly after.
Foreign companies that apply to become participating organizations are subject to some alternative and additional conditions compared to their Australian counterparts. They will have to provide explanatory information and legal opinions about the following:
Foreign companies (or a parent or a related entity) will also have to provide undertakings (at the application stage or later) to the ASX. This is so that the ASX can ask for any necessary explanations, information and access to information, act on such material and pass to it on to others.
Other proposed changes to the business rules will have the following effects:
For further information on this topic please contact Karen Fairbairn at Atanaskovic Hartnell by telephone (+612 9777 7000) or by fax (+612 9777 8777) or by e-mail (firstname.lastname@example.org).
The materials contained on this web site are for general information purposes only and are subject to the disclaimer
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
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