Treasury temporary amendment of continuous disclosure provisions

Following proposals from ACID and others, the Commonwealth Treasurer Josh Frydenberg has announced temporary amendments to the continuous disclosure obligations for ASX listed companies under the Corporations Act 2001 (Cth) (Corporations Act) in response to the uncertainty faced by listed companies due to the ongoing COVID-19 pandemic and economic fallout.

The amendments change the standard for when ASX listed companies must announce information to the market and consequently when they, and their directors, could be liable for failing to announce information. The new standards require information to be announced to the market if “the entity knows or is reckless or negligent with respect to whether the information would, if it were generally available, have a material effect on the price or value of … securities of the entity”. This is a change from the usual objective standard of “a reasonable person would … expect information to have a material effect on the price or value of … securities”. The amendments are effective from 26 April 2020, and set to run initially for six months.

The changes are being made in response to concerns that ASX companies may face increased class action litigation or regulatory action for failing to announce information regarding the performance of their business during and following the current COVID-19 pandemic and the related economic fallout. While we expect that this may provide ASX listed companies and their directors some breathing room by introducing higher thresholds around actual knowledge in connection with the “know” and “reckless” standards (which are linked to the Commonwealth’s Criminal Code). However companies and directors should remain alert to their disclosure obligations as “negligence” under Australian general law typically contains elements of an objective reasonable person which means the changes may not be as broad reaching as their initially appear.

ASX listed entities also should take note that their obligations on when and what to disclose under ASX Listing Rule 3.1 (which uses a similar “reasonable person” test to the unamended Corporations Act) remains unchanged, but should take comfort from ASX’s recent guidance around announcement expectations in respect to COVID-19.