LIC Governance Spotlight: Report 539: ASIC regulation of corporate finance & DINs

10 Oct 2017

In this update we examine the introduction of Director Identification Numbers and review key corporate governance items discussed in Report 539: ASIC regulation of corporate finance (January to June 2017) as they apply to the Listed Investment Company (LIC) space.



On 28 August 2017, ASIC published its seventh report on the regulation of corporate finance issues in Australia (Report 539: ASIC regulation of corporate finance: January to June 2017)

Relevant to LICs, the report provides an insight into ASIC’s regulatory approach in the corporate finance sector. Report 539 provides statistical data, highlights key focus areas, and includes relevant guidance about ASIC’s regulation of:

  • fundraising transactions
  • mergers and acquisitions
  • corporate governance issues
  • related party transactions
  • financial reporting

This update will focus on some aspects of corporate governance discussed in Report 539.

ADSs and the problem of using discretionary proxies

A number of LICs have interests in Australian entities that use American Depositary Shares (ADS) to raise funds in the United States. A common term of depositary agreements allows for a discretionary proxy to be provided to the company, and thus to a person designated by the company, in the absence of any specific voting instructions provided to the depositary by ADS holders. Corporate governance issues arise when a company representative uses such discretionary proxy votes in a situation where a resolution has not received the required majority of votes from shareholders.

In Report 539, ASIC specifically cites the recent election by Novogen Limited (ASX: NRT) to rely on its discretionary proxy votes to pass a resolution on the adoption of its Remuneration Report. Following enquiries made by ASIC, NRT has announced that it will no longer rely on the discretionary proxy provisions in the depositary agreement.

ASIC’s position is that entities should not rely on discretionary proxies deemed to be given under standard provision of the depositary agreement, and that “in the interests of good corporate governance [the companies] must reflect the will of shareholders in meetings”.

Disclosure of Climate Risk

Section 299 of the Corporations Act 2001 (Cth) requires listed entities to include information about their business strategies and prospects for future financial years in their financial reports, including obligations that the entity might have under any applicable environmental legislation. This is mirrored in Recommendation 7.4 of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (3rd Edition, 2014), which states a listed entity should disclose whether it has any material exposure to economic, environmental and social sustainability risks and, if it does, how it manages or intends to manage those risks.

In its Regulatory Guide 247 (Effective disclosure in an operating and financial review) of March 2013, ASIC suggested that an OFR “should include a discussion of environmental and other sustainability risks where those risks could affect the entity’s achievement or its financial performance or outcomes disclosed”. ASIC reiterates this view in Report 539, and adds: “Companies and their boards should proactively consider reporting on climate risk as part of their annual reports, particularly within their operating and financial review.”



In 2015, the Productivity Commission’s Business Set-up, Transfer and Closure inquiry report recommended the introduction of a Director Identity Number (DIN) to help prevent illegal phoenix activity. Phoenix activity – creating a new company out of the failure or liquidation of an existing, similar company – is not illegal in itself, but can be used to quarantine assets and avoid liabilities to unsecured creditors including employees and tax authorities.

The inquiry report estimated that illegal phoenix activity costs the economy between $1.8 billion and $3.2 billion per year and noted that, as a participant during the Commission’s consultations expressed it, ‘it is easier to become a company director than it is to rent a movie’. Participants in the inquiry were broadly in favour of the proposal.

In May 2017, Labor’s employment spokesman Brendan O’Connor pushed for Director Identification Numbers to be adopted, noting that it is “easier to become a director in Australia than [to] open a bank account”.

The Hon. Kelly O’Dwyer MP, Minister for Revenue and Financial Services, announced on 12 September 2017 that the Government’s comprehensive package of reforms would include the introduction of a DIN.

What does this mean for LICs?

ASIC is still considering the application of the DIN. However, we can draw some inferences from the points and recommendations made in the PC Inquiry Report:

  • The requirement should have a low compliance burden and pose relatively little inconvenience to most business operators.
  • Implementing a DIN would involve a one-time online registration at the time of a prospective director’s first directorship. This would include providing identity proof, using a system such as the standard 100-point identification check required for opening a bank account. Prospective directors would also be provided with brief materials on directors’ legal responsibilities, and would have to verify that they have read these materials.
  • Directors of existing companies would be required to obtain a DIN, and these would be provided to ASIC as a change to company details at the company’s annual review date. ASIC would be empowered to ask a company director to provide their DIN on request.

This update is prepared by the Company Secretarial Team at Boardroom Pty Limited. The update is designed to provide general information and is not designed to replace legal or tax advice or a detailed review of the subject matter nor is it intended to cover all circumstances.

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Tom Bloomfield

General Manager, Growth & Partnerships
+61 2 9290 9617