24/03/2020

ASX Guidance Note 8 Continuous Disclosure: Listing Rules 3.1 – 3.1B (GN8) has been amended to make it consistent with the Listing Rules update of 19 December 2019, as well as to reflect recent changes in case law. Notably, one update to earnings guidance changes seems to be a little over-enthusiastic:  

  • In TPT Patrol Pty Ltd as trustee for Amies Superannuation Fund v Myer Holdings Limited [2019] FCA 1747 (Myer case), the Court held that public statements by Myer were deemed to be earnings guidance as contemplated by GN8. The Court went on to hold that, in this set of circumstances, the relevant threshold for materiality in relation to updates of earnings guidance should be a change of 5% or more. This was due largely to the change in earnings guidance amounting to an “over-all trend” for Myer of declining net profit after tax (NPAT) figures over several years, set against the variable nature of Myer’s earnings. The Court’s words were that the (our emphasis) “confirmation of that trend of profit declines would have been material to the market in the circumstances Myer found itself in FY15”.
  • In response, the ASX has amended their guidance on market sensitive earnings “surprises” in section 7.3 of GN8 to recommend that all entities in the S&P/ASX300 should use 5% as the threshold in assessing materiality. This seems an unfortunate interpretation of the Myer case reasoning in relation to materiality thresholds applicable to earnings guidance changes; the line of reasoning was contextual and fact-specific. The Myer case doesn’t seem, in our view, to support the full extent of the ASX’s changes.

In another addition from the Myer case, the ASX has clarified their guidance on “de facto” earnings in section 7.2 of GN8. At Myer’s financial results presentation, its CEO made a statement that he expected their 2015 NPAT to be higher than their 2014 NPAT. The ASX now refers to this kind of statement as an example of “de facto” earnings guidance.

Other material changes in relevant sections of GN8 are set out below, alongside discussion of the changes where applicable.

4.2 – When is information market sensitive?

The ASX has provided further clarification on whether information has “influenced” a decision for the purposes of GN8, following recent Federal Court decisions. s677 of the Corporations Act 2001 (Cth) sets out the information materiality test, which turns on whether that information “would, or would be likely to, influence persons who commonly invest in securities in deciding whether to acquire or dispose of” the relevant securities. In the context of that test, GN8 clarifies that:

  • the meaning of ‘influences’ refers to information that ‘moves or impels’ persons commonly investing in securities to acquire or dispose of securities. Material information subject to the disclosure obligation would or would be likely to have this influence, with the probability of doing so weighed against its effect on the entity’s affairs.
  • “persons commonly investing in securities” is considered a broad class of investors who make decisions/assessments to buy and hold securities for a period of time. This does not include day traders.

4.15 – Guidance on the contents of announcements (counterparties)

An announcement about the signing of a market sensitive contract for an acquisition/disposal should enable investors or professional advisers to assess standing and creditworthiness. These announcements usually include the name of the counterparty, or customer to the contract. GN8 now clarifies that:

  • the name of the counterparties must include parents/associated entities where the direct counterparty is a subsidiary;
  • contractual confidentiality obligations are not grounds to avoid disclosure of counterparty names;
  • counterparties to market sensitive contracts who have strong and legitimate reasons for not wanting to be named in market announcements may avoid being named (the ASX quotes examples of such entities as government agencies, or entities in the defence, or security industries);
  • the ASX may instead accept a description of the counterparty with sufficient detail to enable the market to assess their standing and creditworthiness. Parties should consult the ASX on whether their proposed description is acceptable before making any market announcement to avoid the potential of trading halts or suspensions.

8.8 – ASX enforcement powers

GN8 has been updated to summarise the enforcement powers granted in the December 2019 update to the Listing Rules, listing the measures that the ASX may impose to address a breach of Listing Rule 3.1 or 3.1B.

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