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Directors Briefing:Continuous Disclosure

Tuesday 22 October 2013

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Chatham House Rule

“When a meeting or part thereof, is held under Chatham House Rule, participants are free to use the information received, but

neither the identity nor the affiliation of the speaker(s) nor that of any other participant, may be revealed.”

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Corporate Disclosure – Directors’ DilemmaLis Boyce, DibbsBarker

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The basics – Listing Rules

Listing Rule 3.1 as soon as a listed entity becomes aware of any information

concerning it that a reasonable person would expect to have a material effect on the price or value of the entity's securities, the entity must disclose it to ASX.

Listing Rule 15.7 company cannot disclose information that is intended for

release to the market to anyone until they have first disclosed to ASX.

© DibbsBarker 2013

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The basics – Listing Rule Exceptions

Listing Rule 3.1A: excused from disclosure when: A reasonable person wouldn’t expect it; AND Information is confidential; AND At least one of these applies:

Disclosure would break the law; Incomplete proposal/negotiation; Matters of supposition/insufficiently definite; Information prepared for internal management purposes; or Trade secret.

BUT: a “cleansing notice” for a rights issue must include this, if necessary for an informed assessment

© DibbsBarker 2013

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The cost of getting it wrong

S674: failure to disclose in accordance with Listing Rules is an offence,

S675: unlisted disclosing entities must disclose to ASIC – failure to do so is an offence$34,000 or 5 years or both

Civil Penalty (up to $200,000 for individual/$1million for corporation)

includes persons “involved in failure”, unless they took reasonable steps to ensure the entity complied, and had reasonable grounds to believe it did

ASIC “infringement notice” ($33,000 - $100,000 depending on size, type, and track record)

…and class actions (e.g Centro: settled for $200m)© DibbsBarker 2013

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The Guidelines – ASX Guidance Note 8

“immediate” =“promptly and without delay” Monitor major newspapers, market price of

securities, comments on social media etc. to promptly respond to market rumours or loss of confidentiality

Consider expectations of the “reasonable person” (no “cherry picking” of information e.g., publishing positive but not negative results of clinical trials)

Use trading halts to signal to the market that market sensitive information will be released

Supplemented by industry specific codes – JORC, Life Sciences Reporting Code© DibbsBarker 2013

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The Cases: ASIC –v- Chemeq Ltd

1st contravention: announcing a planned facility, including budgetted cost, then failing to update the market on budget blowouts (while continuing to share “good news stories” 75% of maximum penalty due to absence of dishonesty

2nd contravention: announcement of new patent as “an important milestone”, when patent of technical value but did not change commercial position – trading volume and price increased so ASX queried. 35% of maximum penalty (which had increased since 1st

contravention) due to absence of dishonesty & prompt response to ASX [24 hours cost $350,000!]

© DibbsBarker 2013

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The Cases: James Hardie Industries NV v ASIC

“Roadshow slides” lodged with ASX included statements that potential future asbestos claims were “separated and fully funded” and “no future liability – no provision required”.

Court of Appeal rejected JHINV’s arguments that: readers should have read the slide with

those statements in light of other Company filings (with more conservative language about funding for asbestos liabilities); and

the statements were qualified by a standard disclaimer at the end of the slideshow

© DibbsBarker 2013

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The Cases: James Hardie Industries NV v ASIC

JHINV did not disclose the separation from its subsidiary JHIL (and its asbestos liabilities) until its annual report

NSW Ct of Appeal found information likely to have a positive material effect on the share price and therefore should have been disclosed at the time, not delayed

© DibbsBarker 2013

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The Cases: Forrest –v- ASIC

2004: Fortescue Metals announced binding “framework agreements” for infrastructure

2005: press speculation that agreements not binding

High Court found: Fortescue accurately conveyed the agreements’

contents and the parties’ genuine intention that those agreements be binding on them;

later attempts to negotiate a better position than the Framework Agreement did show that the original agreement was not intended to be binding;

Fortescue did not intend to convey an opinion as to how the courts might treat the agreements.

© DibbsBarker 2013

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Keeping up

Challenges of meeting continuous disclosure obligations in an era of information overload: David Jones’ response to unsolicited “bid”: able

to rely on “incomplete proposal” until market speculation forced further disclosure – what to say?

Neuren: biopharmaceutical company responded to blogging on results of clinical trial: trading halt then update

iSelect: criticised by ASA for not disclosing ASIC information request post-IPO

© DibbsBarker 2013

14© DibbsBarker

Directors Briefing:Continuous Disclosure

Tuesday 22 October 2013

Proudly Sponsored by: