In a matter of weeks, coronavirus (COVID-19) has upended the Australian economy. Australia’s borders have closed to non-citizens, large indoor gatherings are banned and increasing numbers of people are now forced to work from home. At the time of writing, the ASX 200 had declined in value by over 30% within the past month.
Amidst the economic fallout inflicted by COVID-19, ASX-listed companies’ fortunes are rapidly changing. As a director of a listed company, it is now more important than ever to remain mindful of your obligations to keep the ASX updated as soon as you become aware of information that may impact the share price of your company.
Disclosure Obligations – The ASX Listing Rules
In Australia, listed companies and their directors are bound by the ASX Listing Rules. The corporate disclosure requirements are set out in Chapters 3-5 of the Listing Rules:
- Chapter 3 – continuous disclosure;
- Chapter 4 – periodic disclosure; and
- Chapter 5 – additional requirements for mining, oil and gas companies.
This article will focus on continuous disclosure requirements, which are of the most immediate concern amidst the ongoing COVID-19 outbreak.
General Rule 3.1 – Immediate Notice of Material Information
Under Listing Rule 3.1, a company must immediately disclose to the ASX any information that might affect the company’s share price.
‘Immediately’ in this context does not mean instantaneously, but doing so as quickly as possible and without postponing the announcement to a later time.
Importantly in the context of COVID-19, ‘information’ is not necessarily a matter of fact, but can also be an opinion or intention.
It also does not need to be financial information, or even measurable in financial terms – as long as a reasonable person would expect it to have a material effect on the company’s share price.
This is an objective test, meaning that even if you honestly believe the information is not market sensitive, you will still be in breach if the ASX reaches a different conclusion.
Are There Any Exemptions to the Duty to Disclose?
Yes. Rule 3.1A sets out some types of market-sensitive information that are exempt from the duty to disclose. In order for such information to be exempt, it must meet three criteria:
1. The information must fit into one of the following categories:
- it would be against the law to disclose the information;
- it relates to an incomplete proposal or negotiation;
- it is a ‘supposition’ or is ‘insufficiently definite’ to warrant disclosure;
- the information is for internal management purposes; or
- the information is a trade secret.
2. The information must be confidential; and
3. A reasonable person would not expect the information to be disclosed.
What If I am Unsure if I Should Disclose Certain Information?
The ASX’s own Guidance Note on Rule 3.1 sets out a useful exercise to help you decide. Ask yourself:
- Would knowing this impact my choice to buy or sell shares in the company at its current price?
- Would I feel vulnerable to a claim of insider training if I were to buy or sell shares in the company at its current price, knowing the information was not disclosed?
The ASX itself will approach the question by looking at the actual effect the information had on the company’s share price once it was announced.
If the company’s share price changed by:
- 10% or more – they will consider it market sensitive.
- 5-10% – they may consider it market sensitive.
- 5% or less – they will not be considered market sensitive.
What Are Some Examples of COVID-19 Related Information That Listed Companies Have Disclosed?
If you would like to see examples of COVID-19 information that other companies have disclosed, you can check the ASX’s announcements page here. Some recent examples include:
- Carsales.com Ltd announced that it was withdrawing its outlook guidance of growth in revenue from its FY20 half-year results in response to the recent escalation of COVID-19, as it made it impossible to predict the impact on the buying and selling of cars on their platform in Australia.
- Wellington International Airport announced that Standard & Poors have placed their ratings on CreditWatch Negative due to the massive restriction in international and domestic air travel caused by the COVID-19 outbreak.
- Wesfarmers Ltd announced the introduction of measures to protect their retail staff from COVID-19, the impact of the virus on sales of particular product types (namely home office equipment and hygiene products), as well as increased operational costs due to the recent decline in the Australian dollar’s value.
- On a more positive note, Marley Spoon AG announced that the significant change to people’s eating habits caused by the COVID-19 outbreak has caused a huge increase in demand for their home-delivered meal kits, in response to which they will be hiring additional staff and upholding high levels of food safety.
What are the Consequences of Failing to Disclose?
If the ASX suspects that a listed company has breached their duty of continuous disclosure, they are required to refer them to ASIC with details of the breach. When deciding whether to refer to ASIC, the ASX will use the percentages test outlined above.
The ASX can also:
- direct you to provide specific information for them to release to the market;
- censure you for breaching the Listing Rules;
- suspend your company’s admission to the ASX until a matter has been dealt with; and/or
- terminate your company’s admission to the ASX.
As a director of a listed company, you are no doubt already considering the impact of the COVID-19 outbreak on your company. If you have not done so already, it may be prudent to release an announcement to the market outlining:
- measures you are taking to mitigate the virus’ impact on your company;
- any changes or updates to a previously released earnings guidance; or
- impacts the virus or its repercussions have had on supply or demand for your company’s goods and services.