20 Aug 2010

Managing sensitive announcements - Continuous disclosure in uncertain times

Some of Australia's best known listed companies and their directors have recently suffered the wrath of their shareholders and the corporate regulator for failing to properly manage and disclose their sensitive announcements to the market. Andrew Hay discusses with BRR Media where companies are going wrong.

Transcript

Managing sensitive announcements - Continuous disclosure in uncertain times
David Bushby - BRR Media 
Andrew Hay - Partner Clayton Utz

David Bushby
Welcome to BRR Media.  Some of Australia's best known listed companies and their directors have recently suffered the wrath of their shareholders and the corporate regulator for failing to properly manage and disclose their sensitive announcements to the market. Although much of this has stemmed from the turbulence of the GFC, we've since seen a wave of class actions and prosecutions as a result.  Joining us to discuss is Andrew Hay, he's a Corporate Advisory Partner at Clayton Utz in Brisbane. Welcome Andrew.

Andrew Hay
Thank you David.

David Bushby
Andrew can I start with a question, "Where are companies going wrong"?

Andrew Hay
In this context David the companies are not fully understanding or complying with the continuous disclosure obligations and the ASX Continuous Disclosure Rules.  Sometimes this is just a matter of a timing issue, sometimes it's the actual context of the announcements and misjudging, if I can say that, the commercial and factual gravity of the some of the circumstances and some of the sensitive information.

David Bushby
And it's not just companies that are being prosecuted here, but directors themselves are being found personally liable

Andrew Hay
That's correct.  Usually the circumstances will be that the company is the first entity that is called to account for a particular breach or potential breach and the directors are later enjoined, particularly where there are class actions involved.  I could say that there are two recent cases where the company and therefore the directors were found not to be liable, one being the Jubilee Mines case and the other one being Fortescue Metals case.

David Bushby
Is it fair to say that this post-GFC era of prosecution seems to have provided some serious stress-testing of these laws?  Do we now have a clear understanding of what the regulator will prosecute and on the other hand how courts will apply the laws and the penalties?

Andrew Hay
I think the continuous disclosures rules are being used a lot more.  From an ASX point of view at least I think there is a better understanding of those laws and quite certainly as you say those laws have been stress-tested quite a bit during this GFC. 

On a class action front it's probably fair to say that those laws haven't been stress-tested quite yet, as no class action has actually gone through to the court stage and actually been tested through the judgment.  Most of those class actions, at least from a securities class action point of view, have not gone through to that final judgement, and have been settled in the majority.  But as you say yes from an ASX at least point of view, and particularly from the ASIC Infringement Notices point of view, those laws have been stress-tested quite significantly over this GFC period mainly because of the factual circumstances that companies have been confronted with

David Bushby
Do you see anything changing with the regulatory side of the ASX moving towards ASIC, do you see much change in how things will be enforced or what factors they will look at before taking action?

Andrew Hay
Not necessarily.  To a large extent - and this comes from the ASIC Infringement Notices and the penalties that flow from those - ASIC has been involved quite significantly from a disclosure point of view or continuous disclosure point of view already. The continuous disclosure regime that's in the ASIC Listing Rules has been backed up in provisions in the Corporations Act and ASIC has been the front line for enforcing those continuous disclosure rules, as they've stood in the Australian context anyway.

David Bushby
Just as a final question, what are the key tips you have for company directors to avoid potential liability?

Andrew Hay
I think all of this flows down to how they react and how they comply or how they deal with sensitive information within each of the company structures that they are involved in.  They need to really adopt, activate and comply with continuous disclosure policy, that is individual and unique to that company. 

They need to properly delineate the roles of senior management within the company and the roles of the Board and properly delineate how sensitive information is to be dealt with, firstly by senior management and then also the Board. 

There were about 10 broad principles or policies that were released by ASIC back in 2000 and those probably sum up, at least in broad terms where a company should be looking.  Just to look at some of those, companies should consider nominating its senior officer to oversee and co-ordinate their continuous disclosure program.  They should restrict the number of officers that are authorised to speak on behalf of a company.  They should probably monitor those disclosures and they should have certain procedures in place I think in relation to rumours, leaks and inadvertent disclosures which we are seeing more of, or more evidence of, in the market today.

David Bushby
Oh certainly some good insights there.  We'll leave it there for now.  Thank you again for your time today Andrew.

Andrew Hay
Thank you David.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.