In more detail
What is the purpose of the changes
In the press release, the purpose of the changes was stated to be to enable companies and boards to more confidently provide guidance to the market in the difficult COVID environment of uncertainty where it is particularly difficult to provide reliable forward-looking guidance to the market, which exposes companies to the threat of opportunistic class actions.
The changes provide some protection to companies and the directors from potential civil claims for breach of continuous disclosure obligations for failing to disclose materially price sensitive information. These changes coupled with some new further protections from class actions involving litigation funders, do provide some comfort for companies and their boards.
However, the legislative changes do not go as far as contemplated by the press release in relation to protection from actions in respect of the accuracy of disclosures made to the market.
What do the changes cover
The changes focus on when information is materially price sensitive so as to have to be disclosed. They change the standard from an objective measure to a more subjective analysis so that whereas previously information could comprise materially price sensitive information if a reasonable person would expect the information to have a material effect on the price or value of securities, now directors can make a more subjective judgement about this unless they know or are reckless or negligent as to whether the information is materially price sensitive.
This seems to really only provide protection in relation to decisions not to disclose information. For instance, in the Myer case if the board decided not to disclose information because it considered the information was not materially price sensitive, then these changes would cover them unless they knew or were reckless or negligent in forming that view. This reinforces some recent ASX guidance which acknowledges that companies are not required to predict the unpredictable. This will be helpful to boards in considering whether information needs to be disclosed in the current environment of significant uncertainty.
Ironically, rather than encouraging disclosure, the changes may lead to boards taking a more conservative approach and deciding not to make disclosures.
What is not covered by the changes
Despite the stated purpose in the press release of encouraging disclosure, the legislative changes really don’t provide protection in relation to guidance or other disclosure provided to the market. If a company does provide guidance or make disclosures to the market, then those disclosures will still be subject to potential liability if they are misleading or deceptive or, in the case of guidance or other forward-looking statements, if there isn’t a reasonable basis for making the relevant statements.
This leaves companies and directors exposed to claims if the guidance or information provided to the market is inaccurate. Further, as is becoming common in securities class action cases, a claimant may also allege that a failure to disclose material information was itself misleading or deceptive conduct. The changes also leave open the question of whether there is a defacto obligation for companies to correct analysts’ forecasts which can vary widely in the current climate of uncertainty.
What about compliance with ASX listing rules
At this stage, the continuous disclosure obligations under ASX listing rule 3.1 to immediately disclose materially price sensitive information remain unchanged, and it is not clear if ASX similarly will take a more lenient approach in enforcing compliance with that listing rule. Unless such changes are made, the possibility remains that companies may be pinged by ASX for not making timely disclosures, including by way of suspension from trading.