Continuous disclosure obligations and COVID-19

The COVID-19 environment has added complexity to a range of commercial and legal matters.  This includes a company’s continuous disclosure obligations.  Two key initiatives by the Federal Government and the Australian Securities Exchange (ASX) have given directors some additional protection in relation to their obligations under the continuous disclosure regime.

Corporations Act and continuous disclosure

First, on 26 May 2020 the Federal Treasurer issued the Corporations (Coronavirus Economic Response) Determination (No. 2) 2020 (Determination). The Determination provides company directors and management with protection from breaches of continuous disclosure obligations in the face of continuing economic uncertainty resulting from the COVID-19 pandemic.

The Corporations Act sets out the continuous disclosure rules that apply to all disclosing entities.  Chapter 3 of the ASX Listing Rules applies similar obligations for listed entities.  Sections 674(2) and 675(2) of the Corporations Act require listed and unlisted disclosing entities to immediately disclose information that:

  • is not generally available; and
  • a reasonable person would expect to have a material effect on the price or value of the securities of the entity.

The Determination temporarily amends the Corporations Act to include a standard of fault for continuous disclosure breaches.  The objective assessment applying to continuous disclosure obligations has been replaced by a new temporary test, commencing on 26 May 2020 and remaining in force for six months.  Specifically, the Determination raises the threshold so that information is only subject to a continuous disclosure obligation if:

the entity knows or is reckless or negligent with respect to whether that information would, if it were generally available, have a material effect on the price or value of the listed entity’s securities

This means that civil penalties should not be imposed if an entity takes reasonable steps in respect of whether the relevant information is ‘price sensitive’.  These reasonable steps effectively involves directors undertaking an appropriate level of due diligence.

ASX listing rules and continuous disclosure

On 31 March 2020, the ASX issued a compliance update on the obligations of listed entities during the COVID-19 outbreak.  The ASX guidance in relation to continuous disclosure emphasises that the continuous disclosure obligations of listed entities do not extend to “predicting the unpredictable”.

In addition to the Corporations Act obligations, the ASX imposes continuous disclosure obligations on listed companies by Listing Rule 3.1.  In summary, this rule states that a company must immediately disclose to ASX any information which a reasonable person would expect to have a material effect on the price or value of their securities.

Listing Rule 3.1A contains various carve-outs in respect of certain market-sensitive information that would otherwise require disclosure under Listing Rule 3.1.  One of the carve outs is that “the information comprises matters of supposition or is insufficiently definite to warrant disclosure”.

In the current environment, it may not be possible for companies to make an announcement given the level of uncertainty.  The recently published ASX guidance emphasises that if information comprises matters of supposition or is insufficiently definite to warrant disclosure, ASX does not expect disclosure of that information.  ASX also does not expect entities to make forward looking statements to the market unless they have a clear and reasonable basis for doing so.

Key takeaways

Both the Federal Government and ASX have recognised the challenges for listed companies in satisfying their disclosure obligations in light of the uncertainty created by the COVID-19 pandemic.  The measures recognise that many disclosure issues involve difficult judgements with often limited information.  Disclosing entities need to strike a balance between their obligation to disclose to the ASX all market sensitive information and ensuring that no announcements are misleading or deceptive as a result of the uncertainty.

If you have any queries or would like further information regarding this article, please contact:

Justin Hill
Principal
M: 0418 578 701
E: jhill@pageseager.com.au

Published: 24 June 2020

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