Continuous disclosure obligations – some traps for REs
In this time of significant market upheaval, when maintaining investor confidence is critical, one of the most complex issues for responsible entities (REs) is determining what information needs to be disclosed and how disclosure should be made.
Since the outbreak of the COVID-19 virus, every news report and media release has had a direct tangible effect on market behaviour. Each piece of information is important and has the potential to cause massive disruption to global and domestic markets.
Here, Langton Clarke and Tom Chow explain some of the continuous disclosure obligation traps for REs and other disclosing entities in these unprecedented and challenging times.
What are the continuous disclosure obligations?
Under the Corporations Act (Act), a disclosing entity must disclose any information that is not generally available and would reasonably be expected to have a material effect on the price or value of securities in the entity.
In the funds management industry, this applies to listed funds and unlisted retail funds with 100 or more investors.
Disclosing entities have an obligation under the Act to provide ASIC with the relevant information. However, for some time ASIC has recognised that this approach is not efficient given the state of technology. ASIC has a published regulatory 'good practice' position where a disclosing entity can make the relevant information available to their investors using websites and direct disclosures as required.
ASIC says the disclosing entity's obligations will generally be satisfied if the entity follows best practice so will not need to provide notification to ASIC directly. Interestingly, ASIC has never issued class order relief formally exempting entities from the need to notify ASIC.
What information should be disclosed?
This is the difficult question for REs. The fast-paced nature of the COVID-19 pandemic means price-sensitive information is being delivered to decision makers faster than ever and the consequences for failing to disclosure or disclosing too soon are serious. ASIC has made enforcing continuous disclosure obligations a priority since the outbreak began.
The obligations are construed so broadly that a conservative RE would need to keep ASIC on speed dial. Fortunately, practical interpretations of the obligations provide some much-needed leniency.
Broadly speaking, a disclosure should be made if the information would, or would be likely to, impact on the decision of a person who commonly invests in fund units as to whether they will acquire or dispose of units.
In practice, whether information requires disclosure depends significantly on the context of the situation. The obligations extend beyond the disclosure of just facts, but they do not require the disclosure of information that is too vague, unsubstantiated or uncertain.
If a RE is not in a position to disclose the full impact of the information (for example, because it is too difficult to predict) they should disclose the available information rather than waiting for more certainty. However, the RE should take care to ensure the disclosure is not misleading or likely to be incorrect.
The challenge for REs is made more difficult as disclosures must be made to ASIC or investors as soon as practicable after the entity first becomes aware of the information. Disclosers must therefore balance several factors in deciding what to disclose and how it should be disclosed, and all within a very narrow time window.
Continuous disclosure obligations are a complex and uncertain challenge at the best of times; combined now with the outbreak of COVID-19 and the speed of information, they have become even more difficult for REs and other disclosing entities.
Our lawyers have a comprehensive understanding of what information should be disclosed and how through years of specialising in the funds management industry.
We can help with your queries by providing a quick response and practical guidance and clarity on your continuous disclosure obligations.
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