ASX updates its guidance on continuous disclosure

ASX recently released updates to several of its Guidance Notes, including ASX Guidance Note 8 Continuous Disclosure: Listing Rules 3.1 – 3.1B (ASX Guidance Note 8).

ASX Guidance Note 8 was published by ASX to assist listed entities to understand and comply with their continuous disclosure obligations under ASX Listing Rules 3.1, 3.1A and 3.1B.

ASX Listing Rule 3.1 requires an entity to immediately disclose information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity’s securities. ASX Listing Rule 3.1A contains a number of exceptions to ASX Listing Rule 3.1. ASX Listing Rule 3.1B requires an entity to give ASX information requested by ASX to correct or prevent a false market.

Updates to ASX Guidance Note 8

The updates to ASX Guidance Note 8 include:

• Additional guidance in section 4.15 on ASX’s disclosure expectations for material contracts;
• Removing a reference in section 4.20 to disclosing the impact of material contracts on revenue, costs or profits;
• Expanding the guidance in section 5.10 to address the new insolvent trading safe harbour for directors in s588GA of the Corporations Act 2001 (Cth) and what should be disclosed when an entity in financial difficulties requests a voluntary suspension to complete a transaction necessary for its survival; and
• Clarifying aspects of example D in Annexure A of ASX Guidance Note 8 (this example relates to a material mineral discovery).

Material contracts

In relation to ASX’s disclosure expectations for material contracts, ASX highlights a new passage in section 4.15 of ASX Guidance Note 8 which provides that, wherever possible, an announcement under ASX Listing Rule 3.1 should contain sufficient detail for investors or their professional advisers to understand its ramifications and to assess its impact on the price or value of the entity’s securities.

The new passage also provides that ASX would generally expect an announcement to include information about the name of the customer, the term of the contract, the nature of the products or services to be supplied, the significance of the contract to the entity, any material conditions to be satisfied before the contract is binding, and any other material information relevant to assessing the impact of the contract on the price or value of the entity’s securities.

Further, the new passage provides guidance on ensuring that ‘forward looking statements’ made in disclosing the significance of the contract to the entity are not misleading.

Incidents of inadequate/misleading disclosure

ASX has identified a number of recent incidents where listed entities’ disclosures about contractual arrangements with customers have fallen short of the required standards, such as:

• Announcing a contract with a major global customer without providing any details of the nature or substance of the contract or its significance to the entity (ie. seeking to benefit from the association with the customer without providing proper disclosure);
• Announcing what appears to be a material customer contract without disclosing that it is subject to a trial period or other conditions and therefore may not proceed;
• Disclosing revenue projections for customer contracts that do not have a proper basis or that do not state the material assumptions or qualifications underpinning them;
• Not disclosing when a previously announced material customer contract is terminated or does not proceed (ie. disclosing good news but not bad); and
• Misrepresenting customer contracts as being “material” or with other superlatives when plainly they are not (one of the more notable examples being a listed entity that disclosed a “material commercial agreement with a leading financial entity” under which it was to receive less than $1,000 in revenue).

Consequences of failure to comply with continuous disclosure obligations

ASX warns entities that if it detects these types of behaviour, it will not hesitate to:

• Suspend the entity;
• Query it;
• Require it to correct any inadequate or misleading disclosures; and
• Refer the entity to ASIC for consideration of regulatory action.

ASX further draws attention to the summary in Annexure B of ASX Guidance Note 8 of the significant criminal and civil consequences that can follow where a market announcement does not meet the requirements of ASX Listing Rule 3.1, or is misleading or deceptive.

This article was written by Andrew Shearwood, Partner, David Naoum, Special Counsel and Stephanie Patchell, Solicitor.