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ASX clarifies corporate governance obligations during the COVID-19 outbreak

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This article was written by Rhys Casey.

On 31 March 2020, the Australia Securities Exchange ("ASX") issued a compliance update on the obligations of listed entities during the COVID-19 outbreak.

As at 1 April 2020, 81 entities in the ASX100 have issued 239 announcements mentioning COVID-19, so the ASX's guidance is welcome and timely.

This alert focuses on what ASX says on continuous disclosure, financial reporting and AGMs.  Please see our article on the temporary capital raising relief measures also outlined in the update.

Key takeaways

  • Entities' continuous disclosure obligations do not require them to predict the unpredictable. ASX does not expect entities to make forward-looking announcements without a clear and reasonable basis, including in relation to previous guidance.
  • Entities should notify ASX immediately if they decide not to pay an anticipated dividend and, importantly, explain their legal basis for doing so.
  • ASX will assess requests to extend financial statement filing deadlines for entities with a 30 September, 31 December or 31 March balance date on a case-by-case basis.
  • ASX confirmed guidance from the Australian Securities and Investments Commission ("ASIC") and the Governance Institute of Australia ("Governance Institute") on holding AGMs during the COVID-19 outbreak.

Continuous disclosure obligations

ASX's update acknowledges the challenges posed by the rapidly evolving and highly uncertain nature of the COVID-19 situation.  ASX emphasised that entities are not required to predict the unpredictable in managing their continuous disclosure obligations.  ASX underscored the key carve-out in Listing Rule 3.1A which permits entities to withhold confidential information that comprises matters of supposition or is insufficiently definite to warrant disclosure.

Additionally, entities are not expected to make forward-looking announcements in the absence of a clear and reasonable basis for doing so.  However, ASX recommended entities should review published guidance in light of COVID-19 and to update or withdraw it where necessary.  Many entities have pre-empted this advice, with 33 ASX100 entities either withdrawing or suspending guidance since the beginning of the outbreak.

In assessing the impact of COVID-19 on previous guidance, entities should also consider the recent updates to ASX Guidance Note 8 which state that entities with stable or predictable earnings should consider applying a materiality threshold of 5% (or closer to 5% than 10%) in relation to variation from previous guidance.

ASX also issued a reminder that listed entities must notify ASX immediately if they decide not to pay a previously announced dividend or where a dividend was paid in the prior corresponding period.  Such an announcement should explain the legal basis for the cancellation, including confirmation that it is authorised by the entity's constitution (where relevant).  This latter point is new and reflects the complexities inherent in cancelling or deferring previously announced dividends, particularly if they have been declared.

Reporting relief

ASX will consider requests from entities with a 30 September, 31 December or 31 March balance date to extend the deadline for filing their financial statements on a case-by-case basis. A short extension may be granted where ASIC agrees, the entity's auditor confirms they will be unable to meet the deadline and the entity releases unaudited financial results.  ASIC has separately stated it is monitoring how market conditions and COVID-19 are affecting financial reporting obligations and it may issue separate guidance.

In future, ASX may be open to granting relief for entities with a 31 May or 30 June balance date. However, ASX is unlikely to permit extensions to deadlines for quarterly cash flow or activity reports, given these are generally not audited.

AGMs

ASX strongly endorsed guidance published by ASIC and the Governance Institute in relation to AGMs following the spread of COVID-19.

Our separate update in relation to AGMs is set out here

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