This is a service specifically targeted at the needs of busy non-executive directors. We aim to give you a “heads up” on the things that matter for NEDs in the week ahead – all in two minutes or less.
In this Edition, we consider key learnings from the ASIC Commissioner’s article on managing climate risk, new anti-phoenixing restrictions on removing the last remaining director of a company and the NSW Supreme Court’s clarification of the director’s duty of good faith.
GOVERNANCE & REGULATION
ASIC Commissioner emphasises importance of managing climate risk. In prior editions of Boardroom Brief we have noted the evolution of climate change from an “ESG matter” to an intrinsic business risk. ASIC Commissioner Cathie Armour has recently written an article reinforcing ASIC’s position that disclosing and managing climate-related risk is a key director responsibility. As previously highlighted by ASIC, the Commissioner emphasises that climate-related risk is a systemic risk in the market which has the potential to significantly impact companies, investors and consumers. The article reiterates ASIC’s view that operating and financial reviews must include climate-risk discussions where it is a material risk which could affect the company’s financial performance. The Commissioner also sets out important guidance for directors on managing climate risk, urging them to continually assess existing and emerging risks that may be applicable to the company’s business (and ensuring board discussions on this matter are adequately minuted), to develop and maintain strong and effective corporate governance, to carefully consider the requirements relating to operating and financial review disclosures in annual reports under section 299(1)(a)(c) of the Corporations Act and to disclose any useful information to investors. See the article.
Anti-phoenixing restrictions on removing last recorded director take effect on 18 February 2021. Over the past few years ASIC has taken the fight to so-called “phoenixing” activity, where companies are placed in liquidation to avoid debts only to spring back to life in the form of a replacement company a short time later. The latest step in this effort, the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 will come into effect on 18 February 2021. Under this legislation, companies will no longer be able to cease the last remaining company director on record with ASIC except where either the last director is deceased, the company is being wound up or under external administration, or the director never consented to their appointment. Any ASIC lodgements for a change to company details to cease the last remaining director without replacing that appointment will be rejected by ASIC, unless one of those exceptions apply. To rely on one of the exceptions, directors should contact ASIC prior to resigning.
NSW Supreme Court clarifies interpretation of good faith obligations for directors under section 181. In the matter of IW4U Pty Ltd (in liq)  NSWSC 40 concerned a claim for compensation by the liquidators of a labour hire company against an accountant and tax agent for alleged accessorial liability with respect to breaches of director’s duties by the sole director of the company in transferring its business for nil consideration. The primary question considered by the Court was whether the sole director breached his director’s duty of good faith under section 181 by allowing the transfer for nil consideration. The Court held that the director breached his duty as he engaged deliberately in conduct knowing that it was not in the best interests of the company. In relation to this issue, the Court clarified important points of law. First, the standard imposed on directors for the purposes of section 181(1) is what “would be expected of a person in that position by reasonable persons with knowledge of the duties, power and authority of the position”. Second, in the context of insolvency, the standard under section 181(1) entails an obligation on directors to take into account the interests of creditors, such that a director will breach their duty of good faith if they incorporate a new entity for the purpose of continuing to trade the business of the company without the new entity acquiring the business in an arm’s length transaction for value.
OVER THE HORIZON
Reminder to submit first modern slavery statements. Entities that are required to prepare modern slavery statements and whose financial year ended 30 June 2020 must submit their first modern slavery statements by 31 March 2021 under the Modern Slavery Act 2018 (Cth).
Global market bounce-back after GameStop frenzy. In New York on Friday, all three major US benchmarks closed at record highs, a welcome bounce back after the hit taken by the GameStop frenzy – with the energy, financials and materials sectors being favourites. Whether similar results are reflected locally on the ASX will depend on progress on a few fronts over the coming week. First, a key determinant will be how investors respond to Victoria’s latest lockdown, and whether it is extended beyond Wednesday evening. Second, investors will be eagerly awaiting an influx of profit and earnings reports and results from ASX-listed companies in the interim financial 2021 reporting season – with 17 and 18 February set to be the busiest days to watch.