What is ASIC planning for 2020-21?
In recent weeks ASIC has released its Interim Corporate Plan 2020-21 (Interim Plan) and made several statements about its regulatory intentions for the year.
In summary, the key points are:
- ASIC will have a heavy emphasis on disclosure and consumer protection. Relevantly for directors and officers, ASIC intends to closely monitor and enforce continuous disclosure requirements and has clarified that recent temporary changes do not affect criminal liability for breaches, notwithstanding the introduction of requirements of knowledge, recklessness or negligence for civil liability;
- ASIC remains committed to its “Why not litigate?” approach, and will focus on the most egregious misconduct, conduct that harms vulnerable consumers, and behaviour that exploits the COVID-19 environment;
- ASIC has acknowledged that the decline in the number of registered liquidators may mean that the sector lacks the capacity to respond to a significant increase in insolvencies. This will come as no surprise to insolvency practitioners, as the Australian Restructuring Insolvency & Turnaround Association (ARITA) has been raising this issue for some time. ASIC plans to support registered liquidators through guidance, information and stakeholder engagement, and its aim to refine the assessment process for the Assetless Administration Fund will be appreciated by practitioners. However, it appears that relief from the ASIC user pays levy will not be forthcoming at this stage; and
- ASIC has reaffirmed its intention to reduce the regulatory burdens on businesses by providing relief in relation to capital raising, shareholder meetings, financial advice and financial reporting. This has been accompanied, in our experience, with a pragmatic and practical response to various issues.
ASIC Releases Interim Corporate Plan 2020-21
On 11 June 2020 ASIC released its Interim Corporate Plan for 2020-21. The Interim Plan has been prepared in response to the COVID-19 pandemic, the impact of the pandemic on consumer vulnerabilities and the resilience of companies and the financial system generally. Further details about longer term priorities are expected in ASIC’s corporate plan for 2020-24.
In the Interim Plan, ASIC has outlined its strategic priorities to ensure the Commission’s core mission of a fair, strong and efficient financial system for all Australians is maintained. The strategic priorities focus on:
- protecting consumers from harm at a time of heightened vulnerability;
- maintaining financial system resilience and stability;
- supporting Australian businesses to respond to the effects of the COVID-19 pandemic;
- continuing to identify, disrupt and take enforcement action against the most harmful conduct; and
- continuing to build ASIC’s organisational capacity in challenging times.
Overview of key actions
The Interim Plan sets out 12 pages of key actions addressing each of the strategic priorities. In light of COVID-19, and the potential adverse financial impacts on consumers, there is a heavy emphasis on disclosure and consumer protection. The regulator has made it a top priority to ensure investment product disclosure and advertising is “true to label”, and ASIC Deputy Chair Karen Chester expects that there is a “heightened imperative for responsible entities to ensure consumers are not mislead or misinformed”. ASIC will take swift and effective action against predatory lending after identifying a greater risk of exploitation by unscrupulous operators. The Commission is also focused on taking action against scams, particularly cyber-enabled ones as many of us move to online platforms during the pandemic.
ASIC is also moving to reduce the regulatory burden on companies during the pandemic by providing relief in areas of capital raisings (enabling certain ‘low doc’ offers), shareholder meetings (providing ‘no action’ position) and the lodgement of financial reports (extending reporting deadlines).
With a view of ensuring the Australian financial system is resilient and stable, ASIC intends to closely monitor and enforce adherence to continuous disclosure requirements, and monitor for false and misleading promotional statements and disclosures to ensure the market is accurately informed.
In recent weeks ASIC has also clarified that changes to continuous disclosure requirements do not affect criminal liability notwithstanding the recent introduction of temporary requirements of knowledge, recklessness or negligence for civil liability where there has been a failure to disclose price sensitive matters. The changes aim to limit shareholder class actions by effectively creating an extra hurdle for shareholder plaintiffs, through the need to prove fault on the part of a disclosing entity and its officers. The temporary amendments to the continuous disclosure requirements in the Corporations Act 2001 (Cth) were introduced with a view of enabling companies and their officers to more confidently provide guidance to the market during the COVID-19 crisis. ASIC has further noted that obligations on disclosure in the ASX listing rules remain the same in light of the temporary continuous disclosure amendments, and that, despite the relaxation in civil provisions, it continues to watch for any emerging risks, anomalies and will react accordingly.
In a continued effort to assist directors, preparers and auditors in meeting reporting and audit requirements, ASIC has published and will continue to update Frequently Asked Questions on financial reporting and audit implications of the COVID-19 pandemic. The FAQ’s includes information about key focus areas for financial reports for 30 June year ends, including asset values, liabilities, and going concern.
Corporate sector resilience and ASIC’s insolvency response
ASIC notes in the Interim Plan that COVID-19 has disrupted and impacted Australian businesses in significant ways. As a result, there is considerable variation in the capital positions of Australian corporations. Australian and state government relief, including the temporary insolvent trading moratoriums, is expected to help companies in the short term, but some may struggle to survive an extended shutdown period.
ASIC has stressed the importance of “supporting the efficient administration of companies in insolvency” in ensuring it meets its goal of “maintaining financial system resilience and stability”.
However, ASIC now acknowledges that the number of registered liquidators has declined over the years, and as a result, the sector may lack the capacity to respond to a significant increase in insolvencies. ASIC predicts this may be particularly evident with large and complex appointments, which is concerning as those appointments are generally high monetary value and impact a large number of parties.
As a result, the Interim Plan provides for a number of initiatives to support insolvency practitioners. ASIC plans to support registered liquidators through guidance, information and stakeholder engagement, with a particular focus on registered liquidator independence, remuneration and competency. No further detail is given, but these comments suggest greater scrutiny on practitioners rather than any particular assistance or the financial assistance advocated for by ARITA such as relief from the ASIC user pays levy.
In relation to corporate insolvency, ASIC’s priorities are to:
- monitor the impact of COVID-19 on the number of insolvencies, publish relevant statistics and contribute to policy responses. Up to date reporting is clearly important in monitoring the economic climate;
- co-ordinate an appropriate ASIC-wide response where large or strategically important entities are in external administration, which is obviously an important initiative as the collapse of entities of this nature typically affects a broad range of parties; and
- refine the assessment process for the Assetless Administration Fund. In circumstances where it is anticipated that there will be a large number of “zombie” companies that enter external administration as an empty shell, better access to funding of this nature is critical.
Despite the disruption of the COVID-19 pandemic, ASIC remains committed to the “Why not litigate?” approach, and will continue to seek court based outcomes. For more information on ASIC’s enforcement priorities, see our previous update.
ASIC remains particularly focused on enforcement activities against the most egregious misconduct, conduct that harms vulnerable consumers, and the Commission will target opportunistic behaviour that exploits the COVID-19 environment. ASIC will continue to address existing issues in the small business sector, specifically in relation to illegal phoenix activity as an ongoing concern.
Other ASIC comments
At the same time as the Interim Plan, ASIC has released an update on the timing of key outputs over the coming months. Mr Shipton, ASIC’s Chair has stated that the “revised timetable of ongoing work is an important step in assisting the transition of the business community and broader economy to a post pandemic world”. The pandemic has delayed some of the reforms flowing from the Royal Commission, including mortgage broker reforms. ASIC is of the view that this is not an abrogation of its regulatory work, but a recognition that some existing activities and new tasks must take precedence over work the Commission would otherwise be doing.
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