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| The Corporate Law Economic Reform Program (CLERP) |
| The Corporate Law Economic Reform Program Act 1999, gives legislative force to the main elements of the Government’s Corporate Law Economic Reform Program (CLERP) Bill, which received Royal Assent on 24 November 1999. Whilst a number of provisions came into force on 1 January 2000, the major provisions did not become law until 13 March 2000. |
Accounting Standards |
Among those CLERP provisions which came into force in January 2000 is a revised Part 12 of the Australian Securities and Investments Act. The new Part 12 establishes a Financial Reporting Council (FRC) responsible for providing broad strategic direction to the Australian Accounting Standards Board (AASB) in setting accounting standards. |
The following major CLERP amendments commenced on 13 March 2000. |
Director's Duties and Corporate Governance |
- Amendment of Chapter 2D of the Corporations Law to Include a Business Judgment Rule
Directors, who make honest, informed and rational business judgments will escape personal liability.
- Clarification of the Director's Duty of Care and Diligence
Dishonest or reckless acts of directors are defined as criminal offences.
- Insertion of Part 2F.1A: Statutory Derivative Action
Permits a third party to commence proceedings on a company’s behalf if the company cannot or refuses to act on its own behalf.
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| Fundraising |
Fundraising provisions in Divisions 2, 3,6 and 7 of Pt 7.12 of the Corporations Law are substituted with Chapter 6D. |
As a result, prospectus disclosure requirements are less rigid and the nature of the information to be supplied is determined by the needs of the investor. Fundraising using a profile statement is now permitted in certain industries. The new provisions also allow for disclosure documents to be supplied electronically. |
Section 708 reduces the disclosure obligations for “sophisticated investors”, who are not required to disclose an offer of a body's securities to investors if: |
1. The minimum amount payable for the securities on their acceptance of the offer is at least $500,000; or |
2. The amount payable for the securities on their acceptance of the offer and the amounts they previously paid for those of the body's securities held in the same class add up to at least $500,000; or |
3. They can produce a certificate from a qualified accountant issued no more than six months before the offer is made, stating:
a) that he/she owns net assets of at least $2.5 million, or
b) have earned a gross income of at least $250,000.00 per annum in each of the previous two years. |
Section 708(9A) provides also that the dealer must be satisfied on reasonable grounds that the investor has previous investment experience and understands the merits and risks of the offer. |
The new fundraising provisions will apply to the Federal Government and its entities and require them to compete with private sector bodies. |
Takeover Provisions |
CLERP legislation has introduced a new compulsory acquisition scheme. |
- New Chapter 6A
Permits holders of 90% of a class of securities to compulsorily acquire the remainder of the securities in that class.
- Section 665D
Requires a holder of 85 percent of a class of shares to provide written notification to the company that it has become such a holder within 14 days of becoming aware of this information. The company is then required to advise its members of the 85 percent shareholding and inform them that the 85 percent shareholder may be able to acquire all the shares in that class, should it become a 90 percent shareholder.
If an investor with a 90 percent shareholding in a particular class of shares seeks to compulsorily acquire the remaining shares in that class, it must give notice to existing holders and obtain an expert valuation of the relevant shares from a nominee of ASIC.
Listed managed investment schemes will be subject to the takeover provisions of the Corporations Law.
As a result of the CLERP Act, any ASIC decision will now be reviewable by the Corporations and Securities Panel. The Panel or another public authority will have the exclusive right to apply to the Court to prevent or effect a takeover bid. Further, the Panel may refer questions of law to the Court for a decision and for orders to be made where a Panel order has been contravened.
In line with the new CLERP provisions, changes to the Corporations Regulations and ASIC Regulations also took effect on 13 March 2000.
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