June 30, 2016

Mertons Corporate Snapshot June 2016


The Governance Institute has released new guidance to help clarify the capacity and functions of an executive management committee and promote effective decision-making within an organisation.

The executive management committee generally consists of the CEO and key executives of the organisation.

The Good Governance Guide – Executive management committees states “The executive management committee can be a key element in whole-of-organisation governance and, as such, should have similar disciplines and structure applied to its role and meetings as are applied to the board. Without such discipline and structure, there is a risk that the executive management committee will not be effective.”

Download the guide.

Contact Mertons for help in analysing your governance structures, processes and reporting.


Transitional reporting arrangements extended

ACNC regulations have been amended to extend transitional reporting provisions, which allow the ACNC to continue to accept certain reports lodged with other government agencies. The Australian Charities and Not-for-profits Commission (Consequential and Transitional) Regulation 2016 (Cth), registered 15 April 2016, extends the operation of the transitional provisions by prescribing 2015–16 and 2016-17 as additional financial years to which the transitional provisions apply. See the legislation here.

Cutting red tape could save charities millions

A new report commissioned by the ACNC and produced by Deloitte Access Economics has found that regulation of the charitable sector relating to fundraising, state taxation, and incorporated associations, is estimated to cost charities approximately $34.9 million annually.

The report, Cutting Red Tape: Options for alignment of regulatory obligations on the charity sector, shows charities could save millions by further harmonising and streamline government requirements in the areas of:

  • fundraising: Fundraising legislation differs significantly between jurisdictions, which increases the administrative costs a charity incurs. In addition, current regulatory arrangements treat fundraising as an activity isolated to one state or territory. In reality, online fundraising, such as through crowdsourcing websites, is not limited to state or even national boundaries.
  • state taxation: One of the main regulatory impediments to gaining state taxation concessions is in relation to the lack of a standard definition outlining the types of organisations who are eligible for concessions.
  • incorporated associations legislation: Under the current arrangements charitable incorporated associations are regulated by the state, territory, and commonwealth. As a charity, they must also comply with ACNC requirements. A number of these requirements are duplicative and lead to unnecessary administrative costs due to individual regimes for reporting, notification and application requirements.

The report also presents three options to reduce regulatory burden across these areas:

  • Option 1 – ACNC obligations fulfil state and territory regulatory requirements
  • Option 2 – Alignment of state, territory, and ACNC regulatory obligations
  • Option 3 – ACNC as a central regulatory body.

The report found that Option 3 would deliver the greatest opportunity for red tape reduction across all three areas of regulation. Option 3 has the potential to reduce the current regulatory burden costs placed on charities by approximately $29.4 million. Read the report here.

Contact Mertons if you are a not-for-profit organisation wanting to improve your governance practices and reporting protocols.


Limited AFS licensing regime: Transitional arrangements end 30 June 2016

From 1 July 2016, accountants must hold a limited Australian financial services (AFS) licence or be an authorised representative of a licence-holder or licensee in order to provide financial product advice on self-managed superannuation funds (SMSFs).

Last year, ASIC warned accountants that they needed to lodge their application for a limited AFS licence by 1 March 2016 or risk that their application would not be assessed and approved before the 30 June 2016 deadline. ASIC is now writing to those who have applied since 1 March 2016 advising them that they should prepare for the contingency that their applications may not be assessed and approved by ASIC by 30 June 2016.

In cases where ASIC has received an application but has not granted a licence by then, the applicant will not be able to provide SMSF-related financial advice and dealing services. They will not be able to give such advice until they are granted a licence or they become an authorised representative of a licensee.

After 30 June, any accountant found to be providing unlicensed advice risked regulatory action.

For more information, see:

ASIC launches new corporate governance resource

Commissioner John Price has said that ‘Good corporate governance is the foundation upon which investor trust and confidence in companies is built. It is only through good governance that fair, orderly, transparent and efficient markets can be achieved’.

To provide support for companies and their officers seeking to understand their obligations and also improve their practices, ASIC has launched new and enhanced corporate governance content on its website.

The new corporate governance webpage conveniently includes all published corporate governance messages in the one location.

The new webpage is located at http://www.asic.gov.au/corporate-governance.


ASIC’s Innovation Hubhas been operating for just over a year and is continuing to assist financial technology (fintech) start-ups navigate the regulatory framework.

Innovation Hub activity involves a comprehensive program of engagement with industry initiatives, providing tailored guidance and a significant range of support measures.

ASIC has now released a consultation paper on proposed further measures to facilitate innovation in financial services, including a regulatory sandbox licensing exemption. The consultation paper seeks feedback on additional steps that ASIC may take to facilitate fintech innovation while maintaining protections to ensure investor and consumer trust and confidence.

ASIC has identified some barriers faced by new financial technology (fintech) businesses seeking to enter the financial services market. These barriers include speed to market and meeting the organisational competence requirements of a licensee. In seeking to address these barriers to innovation in financial services, ASIC is proposing to:

  • provide examples on how ASIC exercises its discretion under existing policy to assess the organisational competence of a licensee applicant;
  • modify ASIC’s policy on organisational competence of a licensee to allow some limited-in-scale, heavily automated businesses to rely, in part, on compliance sign-off from a professional third party to meet their competence requirements; and
  • implement a limited industry-wide licensing exemption to allow start-ups to test certain financial services for six months (the ‘regulatory sandbox’ exemption).

Important features of the proposals include

  • a six-month window for testing of certain financial services conducted without the need for a licence
  • restrictions on the types of services that can be provided in a testing capacity and the products those services can relate to (for example, advice and dealing in relation to liquid investments)
  • an ability for sophisticated investors to participate, along with a limited number of retail clients (e.g., up to 100 retail clients), as well as separate monetary exposure limits for those clients
  • consumer protections, such as membership of an external dispute resolution scheme and adequate compensation arrangements that should apply, and
    • modified conduct and disclosure obligations that will apply to the testing business.

ASIC is inviting members of the financial services and fintech industries, and consumers to make a submission on the consultation paper. The closing date for submissions is Friday 22 July 2016.

Read more about:

ASIC remakes instruments on financial reporting and record keeping by foreign licensees

Following public consultation, ASIC has continued the relief available to foreign companies which are Australian financial services licensees (foreign licensees) from certain financial reporting and record keeping obligations. ASIC has also continued relief available to foreign licensees which are authorised deposit-taking institutions (foreign Authorised Deposit-taking Institutions (ADIs)).

The relief applies is set out in the new legislative instrument, ASIC Corporations (Foreign Licensees and ADIs) Instrument 2016/186Read more.

ASIC remakes instruments on electronic and dual lodgement of financial reports

ASIC has released a revised legislative instrument dealing with dual lodgement and electronic lodgement of directors’ reports, financial reports and auditor’s reports (reports). The instrument, ASIC Corporations (Electronic Lodgement of Financial Reports) Instrument 2016/181, replaces three class orders due to sunset under the Legislation Act 2003 in 2016 and 2017.

The class orders replaced are:

  • Class Order [CO 00/2451] Electronic lodgement of certain reports with the ASX: approval
  • Class Order [CO 06/6] Dual lodgement relief for NSX-listed disclosing entities
  • Class Order [CO 98/104] Dual lodgement relief for ASX-listed entities.

ASIC has remade these class orders as a single instrument. Read more.


Public sector entities have different legal structures depending on whether they are a statutory body, a commercialised government-owned enterprise, state-owned corporation, etc. The type of entity has implications for the type of governance framework that is implemented by each entity.  However, most public sector boards have in common the requirement to consider various accountabilities, as well as the complexities associated with potential collaboration or interaction with other government agencies, minister/s, and the common and statutory laws of fiduciary duties directors are subject to. The Governance Institute has published a guide containing seven new governance principles to assist directors of public sector boards:

  • Principle 1: Clarify and document the public sector entity’s relationship with the government.
  • Principle 2: Ensure that the board adds value to the community and other stakeholders.
  • Principle 3: Embed ethical behaviour and integrity and promote community wellbeing and trust.
  • Principle 4: Oversee effective stewardship of resources.
  • Principle 5: Protect the public interest through effective risk management.
  • Principle 6: Engage openly and honestly with stakeholders.
  • Principle 7: Make timely and balanced disclosure.

Read the guide here.

Contact Mertons for help in undertaking a governance review and the development of a solid governance framework.


Whistling While They Work 2 is a 3-year Australian Research Council Linkage Project (2016–2018), focused on identifying current and potential best practice in the organisational management of whistleblowing.

The research is led by Griffith University, the University of Sydney, the Australian National University and Victoria University of Wellington, and supported by 21 integrity, regulatory and professional organisations—including the Governance Institute, the Independent Broad-based Anti-corruption Commission (IBAC), the Commonwealth Ombudsman, and ASIC.

The aim of the project is to conduct systematic comparative research across multiple institutions with a specific focus on:

  • adequacy of organisational responses to whistleblowing, in addition to whistleblowing’s incidence and significance, and the experience of whistleblowers
  • organisational and managerial experience across the public, private and not-for-profit sectors, rather than treating this experience as separate or incomparable, and
  • building a more effective international understanding of whistleblowing by developing and applying common research methods in organisations across international boundaries (Australia and New Zealand) for the first time.

Any organisation with more than 10 employees, based or with significant operations in Australia or New Zealand, can participate in the project free of cost, and will receive the general findings, lessons and best practice models from the research. Most participating organisations will also have the option of receiving an individual report on their results, benchmarking their internal disclosure procedures and whistleblowing processes against other organisations in the study, and against best practice as currently known. For more information about the project and how to join, visit http://www.whistlingwhiletheywork.edu.au/  The survey is open until 30 June 2016.

ASIC provides information about office holders’ duties regarding whistleblowers here.

Organisations should consider whether they have a robust corporate governance framework that fosters reporting of corrupt and illegal conduct. Contact Mertons to arrange for a review of your corporate governance policies.


There are important differences in the way the board deals with a director apology vs a leave of absence. If a director needs to miss a particular board meeting, this requires an ‘apology’. As the director is expected to attend all meetings, their apology must be noted in the minutes of the meeting. The absence is later reported in the annual directors’ report.

If a director requires an extended period of leave, the director needs to apply for ‘leave of absence’ from the board. In this case, the director is not expected to attend board meetings while he/she is on leave. As such, this is not noted as an apology, but will be recorded as the director being on leave of absence. In the annual directors’ report, the director’s attendance is reported against those meetings when he/she was not under leave of absence.

If a director intends to take leave of absence, there are several issues the board needs to consider:

  • The company’s constitution – is prior board approval required? What are the implications of missing a number of meetings?
  • How long will the director in question be away? What is the likelihood that leave will be extended?
  • Eligibility for fees
  • Delegation and quorum implications (if any)
  • Will the director receive board papers and other communication while on leave? Legal implications.
  • Disclosures and reporting implications.

The Governance Institute has published a Good Governance Guide on the topic. Download the guide here.

Contact Mertons to arrange for a review of your company’s constitution to ensure it has clear guidelines and robust processes to manage and report on directors’ absences.

Technology neutrality in distributing company meeting notices and material.

Treasury has released a consultation paper about technology-neutral ways of distribution meeting notices and other materials to shareholders.

The law currently provides that all companies must give notice of upcoming meetings, including AGMs and other general meetings, to shareholders personally or by sending notice by post, unless the shareholder has elected to receive them electronically.

This requirement, harking back to a paper-based era, is technology-specific and has the effect of restricting digital services. The ‘opt-in’ approach results in companies incurring the significant economic and environmental costs of printing and posting notices to shareholders who have not actively chosen to receive an electronic copy of the notice.

To facilitate innovation and reduce costs for companies while maintaining an appropriate level of shareholder engagement, the Government proposes a technology neutral mode of distributing meeting notices and materials. It is intended that data can be provided in more usable forms in a timelier manner, through lower costs communication channels, and presented in a flexible manner that meets user preferences. The proposals paper seeks to be as technology-neutral as possible, setting out different options available to companies and their shareholders for the distribution of meeting materials. The key elements of the proposal are:

  • Default for distributing meeting notices

A company will be able to meet the requirement to notify members of a meeting (and to make available meeting materials) by using one or more of the following methods:

  • any universally or near-universally accepted channel as a default method (method A)
  • an alternative method of communication with the consent of the shareholders (method B)
  • an alternative method of communication provided it is effective unless a member nominates to receive the notice by a universally or near universally accepted channel, or via a method that the member has previously consented to (method C).
  • Notification
    • Notice of a meeting must be given individually to every member.

The paper also seeks feedback on transitional arrangements, including the possibility—as in method C—of notifying its shareholders of meeting materials by issuing an ASX announcement and a media release, in conjunction with posting the relevant materials to the company’s website.

Download the consultation paper hereClosing date for submissions: Friday, 17 June 2016.

Insolvency changes afoot

In April this year, as part of the National Innovation and Science Agenda, the Australian Government released a proposal paper on further measures to improve Australia’s bankruptcy and insolvency laws. The paper – Improving bankruptcy and insolvency laws – outlined changes to the default bankruptcy period, introducing a safe harbour for directors, and changing the operation of ‘ipso facto’ clauses.

The paper presented three key measures to improve bankruptcy and insolvency laws:

1. reducing the current default bankruptcy period from three years to one year

2. introducing a ‘safe harbour’ for directors from personal liability for insolvent trading if they appoint a restructuring adviser to develop a turnaround plan for the company, and

3. making ‘ipso facto’ clauses, which have the purpose of allowing contracts to be terminated solely due to an insolvency event, unenforceable if a company is undertaking a restructure.

Read the proposal paper.

Submissions closed at the end of May and no indication has been given as to when the final report is expected. However, it is clear that more changes to insolvency rules can be expected.

Other changes to insolvency rules were introduced in the Insolvency Law Reform Bill 2015, which received royal assent on 29 February 2016. The Bill introduced changes aimed at removing unnecessary costs, increasing the efficiency of insolvency administrators, and improving the powers available to the corporate regulator to regulate the corporate insolvency market. The Insolvency Law Reform Act is expected to commence on or before 1 March 2017. Read more about the Bill here.

ASX News


The ASX strongly encourages listed entities to avail themselves of two new reports by KPMG and consider their recommendations for improving corporate governance disclosures.

The two reports were commissioned by the ASX Education & Research Program and look into the adoption by ASX listed entities of the recommendations in the third edition of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (the Governance Principles).

The reports provide valuable insights into how ASX listed entities are meeting their “if not why not” reporting obligations under the third edition of the Recommendations and enable listed entities to benchmark their governance disclosures against their peers. They also identify areas where corporate governance disclosures can be improved. This should be especially helpful as entities prepare their corporate governance disclosures for their FY16 annual reports.

One of the reports deals with diversity disclosure, while the other deals with the other nine new or modified non-diversity recommendations in the third edition of the Governance Principles.


The diversity found that there had been an increase in the number of entities establishing diversity policies since the previous report on this issue. It also found that while there had been a noticeable improvement in the number of listed entities disclosing measurable objectives, few entities set or disclosed transparent quantitative objectives such as ’30 percent of director seats to be held by women by 2018′. Most measurable objectives focused on implementing diversity programs or initiatives such as ‘undertaking a pay equity review’, ‘implementing programs in unconscious bias’ or ‘undertaking an all-employee satisfaction survey’.

A number of entities continued to report more aspirational objectives such as ‘achieving a culture of inclusion’, which would be difficult to measure.

On actual diversity measures, the report found that the ASX 501+ category showed a 3 percentage points decrease in the proportion of women on boards. Further, it found that of all the entities that disclosed the proportion of women at board level, 77% did not have any women on their board.

While the majority of companies also recognise that diversity goes beyond gender, few entities have developed or disclosed measureable objectives for improving diversity in non-gender areas, such as age and ethnicity.

In order to improve diversity disclosure, KPMG recommends that entities should set out:

  • clear, numerical or quantifiable objectives
  • the timeframes for achieving those objectives
  • the initiatives that will be implemented to turn these objectives into results, and
  • the progress achieved in meeting these objectives in the reporting period.

Adoption of other new or modified recommendations

The second KPMG report investigated the adoption of the other nine new or modified non-diversity recommendations in the third edition of the Governance Principles. The report found a high level of acceptance of these Principles. However, it also highlighted a number of areas where disclosure practices could be improved, especially in relation to recommendation 2.2 (board skills matrix) and 7.4 (sustainability risks).

KPMG found that a number of listed entities sought to address recommendation 2.2 by simply referring to their directors’ bios in their annual report, leaving it to readers to determine from the limited information there what mix of skills and diversity the board currently has or is looking to achieve in its membership. That plainly does not meet the spirit or intent of recommendation 2.2.

Likewise, KPMG found that a number of listed entities sought to address recommendation 7.4 by simply cross-referring to the risk disclosures in their operating and financial review (OFR) but the risk disclosures in the OFR often did not specifically cover sustainability risks. Again, that plainly does not meet the spirit or intent of recommendation 7.4.

More generally, there appeared to be significant differences in the interpretation of what constitutes a material sustainability risk. Across various sectors, KPMG found that some entities in the sector identified potential material sustainability risks while other entities in the same sector opined that they did not have any exposure to material sustainability risks, despite presumably having similar risk profiles.

ASX will be looking for an improvement in the disclosures under recommendation 2.2 and 7.4 in the FY16 annual reports of its listed entities.

Download the reports here.

Proposed changes to requirements for admission to the ASX Official List

On 12 May 2016, ASX released a consultation paper (Updating ASX’s admission requirements for listed entities) setting out proposed changes to its requirements for admission to the ASX official list. The changes are designed to maintain and strengthen the reputation of ASX as a market of quality and integrity.

The key proposals include:

  • increasing the financial thresholds for listing – in particular lifting the “assets test” thresholds from net tangible assets of $3 million or a market capitalisation of $10 million to an NTA of $5 million or a market cap of $20 million;
  • introducing a 20% minimum free float requirement and changing the spread test to better demonstrate a sufficient level of investor interest in the entity and its securities to justify listing;
  • making the minimum $1.5 million working capital requirements consistent across all entities admitted under the assets test; and
  • introducing a requirement for entities admitted under the assets test to provide audited accounts for the last three full financial years, unless ASX agrees otherwise.

These changes mean that companies wanting to list will need to comply with more demanding tests.

Further information, the consultation paper and attachments  are available on the ASX public consultations webpage. Written submissions by Friday 24 June 2016.

Key Corporate Governance Disclosures and Appendix 4G

Under Listing Rule 4.7, listed entities must give to the ASX Market Announcements Office:

  • a completed Appendix 4G at the same time as the entity gives its annual report to ASX Market Announcements Office (an editable Word version of the Appendix 4G may be downloaded from ASX Compliance downloads web page); and
  • a copy of its corporate governance statement current as at the effective date specified in that statement for the purposes of Listing Rule 4.10.3, if the entity’s corporate governance statement is not included in its annual report,

Appendix 4G is a key to where a listed entity has made its various governance disclosures. It is not the entity’s corporate governance statement, as some entities have assumed.

The corporate governance statement is the statement required under Listing Rule 4.10.3 disclosing the extent to which the entity has followed the recommendations set out in the Corporate Governance Principles and Recommendations during the relevant reporting period. Where an entity has not followed a particular recommendation, its corporate governance statement must identify that fact, state the entity’s reasons for not following the recommendation and what (if any) alternative governance practices the entity has followed in lieu of that recommendation.

If an entity does not include its corporate governance statement in its annual report, it must provide to ASX both an Appendix 4G and a copy of its corporate governance statement. The Appendix 4G alone is not sufficient.

Dividend and distribution information

Listed entities declaring a dividend or distribution for the period ending 30 June 2016 are reminded that they must use ASX Online forms to announce the dividend or distribution and that if they wish to set a record date of 30 June 2016, they will need to announce the dividend or distribution by no later than 24 June 2016 (Day 0 in the Appendix 6A paragraph 1 timetable).

Find out what information to include in your announcements here.

Contact Mertons for assistance with all your ASX reporting obligations and governance disclosures.


The UK’s Prudential Regulation Authority (PRA) has released a supervisory statement relating to board responsibilities (Corporate governance and Board responsibilities – SS5/16). The statement covers “those aspects of governance to which the PRA attaches particular importance and to which the PRA may devote particular attention”, and applies generally to PRA-regulated firms, including, banks, insurers, designated investment firms, building societies, friendly societies and credit unions. The statement underscores the collective responsibilities shared by board members’, with the specific accountabilities of individual directors being additional and complementary to the collective responsibility shared by directors as members of the board. Key board responsibilities include:

  • setting of the corporate strategy
  • setting, articulating and maintaining a culture of risk awareness and ethical behaviour for the entire organisation to follow in pursuit of its business goals.
  • setting of a well-articulated and measurable statement of risk appetite (expressed in terms that can be readily understood by employees throughout the business), which is clearly owned by the board, integral to the strategy the board has signed off and actively used by them to monitor and control actual and prospective risks and to inform key business decisions.

Important issues to consider include:

  • Board composition. “A cornerstone of best practice is for the non-executives to be able to hold management to account effectively and to ensure that the executives are discharging their responsibilities properly. The board should include a sufficient number and quality of non-executives who are independent and who between them have sufficient breadth of understanding of the firm’s business to provide effective challenge to the executives.”
  • The respective roles of executive and non-executive directors.
  • Knowledge and experience of non-executive directors.
  • Board time and resources. “Non-executive directors should ensure they have sufficient time to fulfil their duties and boards should set clear expectations when recruiting new non-executives. Meetings should be organised to provide adequate time to deal with each of the matters to be covered.”
  • Management information and transparency. “…the board is responsible for the oversight of, but not for managing the business, which is the responsibility of the executives. But the PRA expects executive management to exercise judgement and actively to apprise their boards of key business developments, decisions and activities at an appropriate but early stage. Executives have a responsibility to ensure that their boards are able to exercise their role and are provided with the necessary information and support.”
  • Succession planning. Boards should ensure they have robust succession plans that recognise current and future business needs and requirements.
  • Remuneration. Boards must oversee the design and operation of the firm’s remuneration system ensuring the incentives are aligned with prudent risk taking.
  • Subsidiary boards and board committees.

Read the statement here.


Sources of information for this document:

Ashurst; Australian Charities and Not-for-profits Commission (ACNC); Australian Financial Security Authority; Australian Government; Australian Institute of Company Directors (AICD); Australian Securities and Investments Commission (ASIC); Australian Securities Exchange (ASX); ComLaw; Commonwealth Government; Governance Institute; Productivity Commission; UK Financial Reporting Council; UK Prudential Regulation Authority (PRA).

Disclaimer: The content in this Mertons Corporate Update is only intended to provide a summary and general overview on matters of interest. It is not intended to be comprehensive nor does it constitute legal advice. We attempt to ensure that the content is current but we do not guarantee its currency. You should seek legal or other professional advice before acting or relying on any of the content.