This is a service specifically targeted at the needs of busy non-executive directors. We aim to give you a “heads up” on the things that matter for NEDs in the week ahead – all in two minutes or less.
In this Edition, we consider temporary amendments to continuous disclosure laws, ASIC’s FAQs on COVID-19 implications for financial reporting and audit, gender diversity on ASX200 boards and forthcoming Takeovers Panel Guidance Note 20 changes.
A short week due to the Western Australia Day holiday in WA (Queens Birthday long weekend for most states next Monday).
YOUR KEY BOARDROOM BRIEF
Temporary amendments to continuous disclosure laws for companies and officers. The federal Treasurer has registered Corporations (Coronavirus Economic Response) Determination (No 2) 2020, which temporarily amends the continuous disclosure obligations that apply to listed and unlisted disclosing entities under sections 674 and 675 of the Corporations Act so that entities (and their directors and officers) will only be liable if there has been "knowledge, recklessness or negligence" with respect to updates on price sensitive information to the market. Ordinarily, entities are required to notify the market of certain information that:
- is not generally available; and
- a reasonable person would expect, if it were generally available, to have a material effect on the price or value of enhanced disclosure (ED) securities of the entity.
A failure to inform the market can leave the entity and its officers liable to civil penalties. The Determination modifies the second bullet point above so that an entity and its officers will only be required to notify the market of information if the entity knows or is reckless or negligent with respect to whether that information would, if it were generally available, have a material effect on the price or value of ED securities of the entity (ie replaces an objective test with a subjective test). The amendments apply for six months from 26 May 2020 to 25 November 2020. While the Determination was aimed at reducing the risk of opportunistic class action litigation, in our view Directors should exercise caution in relation to these changes, and should not modify the operation of their continuous disclosure policies, as it is questionable whether the Determination achieves its stated policy aims. See the update by G+T, Continuous Disclosure in the time of COVID-19 – do the temporary changes actually make a difference?.
ASIC releases COVID-19 financial reporting FAQs. ASIC’s FAQs are intended to assist companies with the financial and audit requirements under the Corporations Act. ASIC may update them in response to emerging issues and circumstances.
Gender diversity on ASX200 boards holds steady. The Australian Institute of Company Directors (AICD) reported last week that the ASX200 has maintained 30.7% women on boards, as at the end of April. The AICD noted that female directors only represent 34% of new appointments to the ASX200 this year. As the economy moves from a period of turbulence into one of recovery and rebuilding, the AICD encourages companies to reflect on the board skills required to drive innovation and growth.
Takeovers Panel confirms revised Guidance Note 20 changes. The Panel’s Statement responds to feedback on its proposed revisions to Guidance Note 20: Equity Derivatives and attaches a copy of the final revised Guidance Note 20. Most respondents were supportive of the Panel’s proposals; namely, to: (i) reflect the Panel's expectation that all long positions over 5% should be disclosed (irrespective of whether there is a control transaction); and (ii) provide guidance on the matters the Panel will take into account in considering what orders should be made if the Panel finds that non-disclosure of equity derivatives is unacceptable. The revised Guidance clarifies that acquisition of a long position that would contravene s 606 of the Corporations Act (ie, a long position over 20% of an entity's securities) if it were comprised entirely of a physical holding may also give rise to unacceptable circumstances and the factors that will be considered in determining whether unacceptable circumstances exist. Owing to the market disruption caused by COVID-19, the current edition of Guidance Note 20 will continue to apply until the Panel gives market participants three months' notice of when the final revised Guidance Note 20 will come into effect.
Australia’s AAA credit rating reaffirmed by Fitch. On 22 May 2020, Fitch has reaffirmed Australia’s AAA credit rating in an expression of confidence in the Morrison Government’s handling of the coronavirus crisis and Australia’s demonstrated record of economic management. The report confirms Australia as one of only 10 countries with a AAA credit rating from all three major ratings agencies. The Treasury notes that the Government’s measures are temporary, targeted and proportionate to the challenges posed by COVID-19. See Treasury’s media release.
THE WEEK AHEAD
ASIC to revise its strategic priorities. ASIC Chair James Shipton’s speech last week to the Financial Services Institute of Australasia (FINSIA) webinar indicated that in the coming weeks ASIC will announce its revised strategic priorities for the next few months. Mr Shipton noted ASIC’s deferrals of less time-critical reviews and initiatives and staff redeployment to areas of immediate concern (eg, to handle no-action relief for company meetings, including in relation to AGMs).
COVID-19 and hard border closures. Most states plan to implement a “third phase” of easing restrictions on movement and gatherings by next week, however hard border closures remain in low-infection states, and this situation is likely to continue for some time, albeit we expect increasing pressure at a Federal level for further easing over the coming weeks. Several High Court challenges to the measures are now under way based on the interpretation of section 92 of the Constitution, and these may be heard as early as late June. There is ample precedent for the validity of State laws imposing restrictions on freedom of movement based on public health and safety concerns, so the main issue for the High Court will be the proportionality of those restrictions relative to the potential harm.