Search for:

In brief

The recent changes to continuous disclosure  obligations under the Corporations Act  have been welcomed by listed companies and their boards but don’t go as far as their stated purpose in the press release accompanying the legislative instrument implementing the changes, so companies will still need to be very careful in providing guidance or making other disclosures to the market.

Key takeaways

The changes provide some helpful protections for companies and boards from civil actions if they make a judgement call not to disclose information, unless they knew the information was materially price sensitive or were reckless or negligent in not disclosing it.  However, if a decision is made to disclose, then obligations remain to ensure the information is accurate and that there is a reasonable basis for guidance or other forward looking information.


In more detail

What is the purpose of the changes

In the press release, the purpose of the changes was stated to be to enable companies and boards to more confidently provide guidance to the market in the difficult COVID environment of uncertainty where it is particularly difficult to provide reliable forward-looking guidance to the market, which exposes companies to the threat of opportunistic class actions.

The changes provide some protection to companies and the directors from potential civil claims for breach of continuous disclosure obligations for failing to disclose materially price sensitive information. These changes coupled with some new further protections from class actions involving litigation funders, do provide some comfort for companies and their boards.

However, the legislative changes do not go as far as contemplated by the press release in relation to protection from actions in respect of the accuracy of disclosures  made to the market.

What do the changes cover

The changes focus on when information is materially price sensitive so as to have to be disclosed. They change the standard from an objective measure to a more subjective analysis so that whereas previously information could comprise materially price sensitive information if a reasonable person would expect the information to have a material effect on the price or value  of securities, now directors can make a more subjective judgement about this unless they know or are reckless or negligent as to whether the information is materially price sensitive.

This seems to really only provide protection in relation to decisions not to disclose information. For instance, in the Myer case if the board decided not to disclose information because it considered the information was not materially price sensitive, then these changes would cover them unless they knew or were reckless or negligent in forming that view. This reinforces some recent ASX guidance which acknowledges that companies are not required to predict the unpredictable.  This will be helpful to boards in considering whether information needs to be disclosed in the current environment of significant uncertainty.

Ironically, rather than encouraging disclosure, the changes may lead to boards taking a more conservative approach and deciding not to make disclosures.

What is not covered by the changes

Despite the stated purpose in the press release of encouraging disclosure, the legislative changes really don’t provide protection in relation to guidance or other disclosure provided to the market. If a company does provide guidance or make disclosures to the market, then those disclosures will still be subject to potential liability if they are misleading or deceptive or, in the case of guidance or other forward-looking statements, if there isn’t a reasonable basis for making the relevant statements.

This leaves companies and directors exposed to claims if the guidance or information provided to the market is inaccurate. Further, as is becoming common in securities class action cases, a claimant may also allege that a failure to disclose material information was itself misleading or deceptive conduct. The changes also leave open the question of  whether there is a defacto obligation for companies to correct analysts’ forecasts which can vary widely in the current climate of uncertainty.

What about compliance with ASX listing rules

At this stage, the continuous disclosure obligations under ASX listing rule 3.1 to immediately disclose materially price sensitive information remain unchanged, and it is not clear if ASX similarly will take a more lenient approach in enforcing compliance with that listing rule. Unless such changes are made, the possibility remains that companies may be pinged by ASX for not making timely disclosures, including by way of suspension from trading.

Author

Frank Castiglia is a partner in Baker McKenzie's Sydney office, and as one of Australia's leading capital markets lawyers, Frank has advised on some of the largest transactions in recent times.

Author

Kate Jefferson joined Baker McKenzie’s Sydney office in 2005 and worked in the Firm’s New York office in 2007 and 2008. Kate also undertook a four month secondment to at a global investment bank. Kate previously worked for Herbert Smith Freehills from 2001 to 2005 and as a management consultant to the London Stock Exchange from 2000 to 2001.

Author

Antony Rumboll is a partner in the Sydney office of Baker McKenzie and is head of the Australian Equity Capital Markets group. Antony advises on capital markets and public M&A transactions and has a distinguished 20 year legal career in both private practice and as an in-house lawyer. Antony was a senior member of the in-house legal function at a global financial services firm for 10 years, where he advised on transactional matters across the full breadth of its market leading Australasian investment banking business. He draws on this significant experience to provide a unique insight to clients across a wide range of corporate finance transactions and other matters.