Temporary changes to Australia's continuous disclosure requirements

What you need to know

• The Treasurer has by the Corporations (Coronavirus Economic Response) Determination (No. 2) 2020 issued on 25 May 2020 temporarily amended the continuous disclosure requirements under the Corporations Act with a view to enabling companies and their directors to more confidently provide guidance to the market during the Coronavirus crisis, and making it harder for class actions to be brought against companies and officers during the Coronavirus crisis on the basis of forecasts that are found to be inaccurate. 
• The effect of the Determination is to modify the operation of the civil penalty provisions in sections 674 and 675 of the Corporations Act by requiring disclosure of non-public information only where "the entity knows or is reckless or negligent with respect to whether [the] information would, if it were generally available, have material effect on the price or value of [securities] of the entity".   
• However, directors should be aware that the changes in the Determination do not provide a safe harbour for conduct that would otherwise be a breach of the Act, and may not mitigate the risk of class actions being brought against entities.  
• Entities must still ensure that their announcements released to the market are not misleading or deceptive in any way.  An action could still be brought where guidance in an announcement is misleading or deceptive, whether or not the entity knows or is reckless or negligent with respect to whether information in the announcement would have a material effect on the price or value of securities of the entity.  It remains the case that if an entity makes a representation with respect to any future matter and the entity does not have reasonable grounds for making the representation, the representation is taken to be misleading.  Directors must still comply with their duties to act with due care and diligence.  The Determination does not modify these obligations. It seems the end result is that it hasn’t really lifted the bar at all in terms of potential to breach section 674.
• This Determination will cease to apply at the end of 6 months after the day on which it was made.

What you need to do

• Companies and directors must still be confident that any statement made to the market is not misleading or deceptive.  For any forward looking statement there must be reasonable grounds for it. 

The Determination

• The Treasurer has used his power under s 1362A of the Corporations Act 2001 (Cth) (the Act) to modify the continuous disclosure provisions of the Act. 
• The Corporations (Coronavirus Economic Response) Determination (No. 2) 2020 (Determination) modifies sections 674, 675 and 677 of the Act.  
• The Treasurer's stated purpose of the Determination is to temporarily modify the Act so that companies and officers’ will only be liable if there has been “knowledge, recklessness or negligence” with respect to updates on price sensitive information to the market. This was with a view to enabling companies and their directors to more confidently provide guidance to the market during the Coronavirus crisis.  
• The relevant media release also stated that the modification will make it harder to bring class actions against companies and officers for allegedly falling foul of their continuous disclosure obligations during the Coronavirus crisis if their forecasts are found to be inaccurate, while allowing the market to continue to stay informed and function effectively.

What do the changes do? 

• Previously, ASX listed companies were required to immediately tell the market about information that is not generally available and is information that a reasonable person would expect to have a material effect on the price of its securities (s 674).  Section 675 of the Act extends this obligation to other disclosing entities. 
• The Determination modifies these provisions so that listed entities must now immediately tell the market if the information is not generally available and the company knows or is reckless or negligent with respect to whether that information would have a material effect on the price of its securities. 
• The effect of the Determination is to modify the operation of the civil penalty provisions in ss 674 and 675 of the Act by requiring disclosure of non-public information only where "the entity knows or is reckless or negligent with respect to whether [the] information would, if it were generally available, have material effect on the price or value of [securities] of the entity". 
• Under the temporary test, an entity knows or is reckless or negligent with respect to whether information would have a material effect on the price or value of the entity's securities if the entity knows or is reckless or negligent with respect to whether the information would, or would be likely to, influence persons who commonly invest in securities in deciding whether to acquire or dispose of securities.
• Knowledge and recklessness are given the same meaning as in the Criminal Code. That is, a person:
  
  • has knowledge of circumstances or a result if he or she is aware that it exists or will exist in the ordinary course of events (section 5.3 Criminal Code); and 
  • is reckless with respect to a circumstance if he or she is aware of a substantial risk that the circumstance exists or will exist, and having regard to the circumstances known to him or her, it unjustifiable to take the risk (section 5.4(1) Criminal Code). 

The question of whether taking a risk is unjustifiable is one of fact (section 5.4(3) Criminal Code).