As Covid-19's impact on financial markets continues to be felt, it is imperative that listed companies are aware of how the ASX's continuous disclosure obligations will operate.
Throughout the last few weeks, the widespread impact of the Covid-19 pandemic has become increasingly clear- whether that be in health, business, or finance. As Covid-19's impact on financial markets continues to be felt, it is imperative that listed companies are aware of how the ASX's continuous disclosure obligations will operate.
This article outlines what obligations listed entities owe to the ASX regarding disclosing what impact Covid-19 is having on your company. With updated and developments on an hourly basis means it is increasingly challenging for listed entities to manage their Continuous Disclosure Obligations under 3.1 and 3.1B of the ASX Listing Rules.
WHAT ARE CONTINUOUS DISCLOSURE OBLIGATIONS?
The ASX has a set of Listing Rules which regulate or require various interactions between listed companies and the ASX. These rules aim to serve the interests of listed entities and investors by maintaining the reputation and integrity of the ASX. Listing Rule 3.1 requires listed entities to immediately notify the ASX of "any information concerning the company that a reasonable person would expect to have a material effect on the price or value of the entity's securities".1
Since the start of December, there have been at least 596 announcements referencing Coronavirus or Covid-19, made by at least 326 different ASX-listed entities.2
WHEN SHOULD I DISCLOSE?
It is vital to remember that what constitutes information that would have a 'material effect' on the value of a security will depend greatly on the individual circumstance, and entities should therefore consider whether disclosure is potentially harmful to their business whilst erring on the side of caution. Furthermore, 'information' includes matters of opinion and intention, and often extends beyond mere matters of fact or financially quantifiable information. For example, a disclosure may be required where information is circulating as a rumour, or any other kind of information regarding the impact of Covid-19 on suppliers, employees, third parties, or consumers.
Due to the rapidly evolving nature of the pandemic and constant flow of new government announcements and advice, listed entities will likely focus on whether the information is sufficiently definite to warrant disclosure, or is a matter of mere supposition. Exceptions to Listing Rule 3.1 are only available where a reasonable person would not expect the information to be disclosed as it is too vague or imprecise, incomplete proposal, trade secret or the authenticity of information is open to doubt, or because the likelihood of the eventuality the information relates to is low or its impact in that unlikely event is so uncertain.1 Furthermore, the quickly evolving situation means it is likely necessary to qualify any disclosure with the acknowledgement that information is subject to change due to the uncertainty of the situation or manage its disclosure more proactively through market announcements or trading halt.
Where the information is incomplete and its financial impact unknown, and therefore the entity is not in a position to disclose it, ASX recommends that the entity announce whatever information it has immediately and signal that a further announcement will be made when that financial impact has been assessed. This can be challenging because markets often react negatively or disproportionately to information without assessment, even when assessment is forthcoming. Efforts to ensure that announcements are not misleading should also be made.
Use of Trading Halt
This uncertainty may cause listed entities that are moderately or heavily impacted by the shutdown to manage their continuous disclosure obligations by proactively requesting a trading halt from the ASX. This may prove particularly helpful to companies that are experience difficulties in assessing how it may impact their business and what this means for investors as it allows more time to digest and give clear information to the market.
WHAT ARE THE REPERCUSSIONS IF I FAIL TO DISCLOSE?
Failure to disclose, or making a misleading disclosure, can have a wide range of possible consequences. Most notably, this failure may amount to a breach of s 674 of the Corporations Act. Breach of this section is punishable under the Corporations Act, with a possible declaration of civil penalty and a large pecuniary penalty dependent on the nature of the situation.
These repercussions can be significant, and thus where it is unclear if a disclosure is required, the ASX guidance supports a disclosure.
WHAT ARE SOME EXAMPLES OF COVID-19 RELATED IMPACTS THAT NEED DISCLOSURE?
Some common or probable examples of impacts that require a disclosure under the ASX Listing Rules could include:
- Issuing a warning that 2019-2020 full year earning forecasts may not be met;3
- Providing internal forecasting using models for disaster scenarios, like Qantas which produced an investor report that estimated the airline could survive for nearly a year in the event of a full shutdown in flying;
- Announcement of a decision to suspend dividends;
- General updates on the entities' cash position;
- Occupational Health and Safety issues relating to employees and any relevant measures;
- Announcing a trading halt due to the shutdown restrictions introduced by the Government;
- That due to the shutdown your business will temporarily be operating at a heavily reduced capacity (this may include if your business is now only operating online);
- A counter-party exercises force majeure rights or termination rights triggered as a result of the disruption caused by the virus. For more information of whether a force majeure clause affects your contracts, refer to our previous insight "Coronavirus: A Force Majeure to be Reckoned With"4
The above are just a few of the many instances that may require disclosure under Listing Rule 3.1. As emphasised above, the continuous disclosure obligations are highly situational, and encompass a wide variety of issues. Likewise, the drop in trade observed nationally will likely impact many listed entities to the degree where disclosure to the market is required in accordance with the Listing Rules. For queries regarding what information needs to be disclosed to the ASX or how making a misleading or unnecessary statement might impact your business from a legal perspective, please contact Hazelbrook Legal.
1ASX Listing Rules - Chapter 3 Continuous
2COVID-19 and continuous disclosure: how you get ready
3Coronavirus crisis cuts continuous disclosure down to size
4Coronavirus: A Force Majeure to be reckoned with?
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.