Written by Miriam Kleiner
ASX has updated Guidance Note 8 with the changes coming into effect on 5 June 2021. In summary, the changes provide for:
- a new section 7.9 regarding cancelling, deferring or reducing a dividend, distribution or interest payment;
- additional guidance in section 4.15 (Guidelines on the contents of announcements under Listing Rule 3.1) on naming counterparties to market sensitive contracts and a new footnote in section 4.15 explaining ASX's approach to situations where a listed entity fails to disclose the fact that a previously announced material customer contract has not proceeded or has been terminated;
- further explanatory material in section 4.15 and section 5.9 (Listing Rule 3.1A.3 – the reasonable person test) emphasising the fact that a listed entity cannot satisfy its obligation to disclose market sensitive information under Listing Rule 3.1 by disclosing information that is materially inaccurate, incomplete or misleading; and
- a new section 7.10 (Ramping announcements).
Section 7.9 - Cancelling, deferring or reducing a dividend, distribution or interest payment
The updated guidance provides that an announcement under Listing Rule 3.21(a)(iii) must include an explanation satisfactory to ASX of the entity's reasons for cancelling, deferring or reducing the dividend or distribution. ASX expects this explanation to be reasonably detailed and to justify in clear terms why the entity considers it necessary to cancel, defer or reduce the dividend or distribution after it has been announced to the market and the market has traded on the expectation of receiving the dividend or distribution. A simple statement along the lines of "the board thought it prudent to [cancel/defer/reduce] the [dividend/distribution] in the current economic climate" will not be sufficient. ASX may ask the entity to include in the explanation a discussion of any alternatives the entity's board considered to cancelling, deferring or reducing the dividend or distribution.
Section 4.15 (Guidelines on the contents of announcements under Listing Rule 3.1)
ASX has provided further guidance on naming counterparties to market sensitive contracts. In particular, ASX has stated that where there is little or no information regarding the counterparty in the public domain, an announcement about a market sensitive contract should include a description of the counterparty and a summary of the due diligence undertaken by the listed entity on the counterparty's financial and other capacity to perform their obligations in relation to the transaction. This change follows the decision in ASIC v Bigstar
ASX has also noted that one area that has proved to be problematic for some listed entities is failing to disclose when a previously announced material customer contract does not proceed or is terminated. Generally speaking, if information about the entry of a customer contract is sufficiently material to justify its disclosure, ASX's starting assumption will be that information about its failure to proceed or termination is also sufficiently material to justify its disclosure, unless the entity can make a clear and convincing argument to the contrary.
Section 5.9 - Listing Rule 3.1A.3 – the reasonable person test
ASX wishes to enforce that an announcement under Listing Rule 3.1 must be materially accurate, complete and not misleading. Listing Rule 3.1A.3 operates to ensure that a listed entity cannot rely on a particular piece of information falling within a carve-out to immediate disclosure under Listing Rule 3.1A.1 and satisfying the confidentiality requirements in Listing Rule 3.1A.2, to justify excluding that information from an announcement to the market under Listing Rule 3.1, if the failure to include that information would render the announcement materially inaccurate, incomplete or misleading. A reasonable person clearly would expect a listed entity, acting responsibly and in accordance with its statutory obligation not to mislead or deceive, to disclose any excluded information to ensure that an announcement is accurate, complete and not misleading.
7.10 Ramping announcements
ASX is concerned that listed entities are making market announcements with a view to "ramping up" the price of their securities. Whenever ASX detects what it suspects to be a ramping announcement, it will give careful consideration to suspending the entity's securities from trading and issuing a query letter to the entity asking the entity:
- if it marked the announcement as market sensitive when it was lodged on MAP, to identify what information in the announcement the entity considered was market sensitive and why;
- if it marked the announcement as not being market sensitive when it was lodged on MAP, to explain its purpose in lodging the announcement on MAP, given its evident view that the information was not market sensitive and therefore not required to be disclosed under Listing Rule 3.1; and
- if the announcement includes a revenue projection or other forward-looking statement, to identify the reasonable grounds on which that statement was made and any material assumptions or qualifications underpinning the statement.
If the announcement relates to a contract, ASX may ask the entity to provide a copy of the contract to ASX (not for release to the market) so that ASX can verify that the entity has complied with its disclosure obligations under the Listing Rules in relation to the contract. In an appropriate case, ASX may also require the entity to publish a corrective announcement confirming that the information in the ramping announcement was not material, or was incomplete or misleading, and that investors should not make investment decisions based on the announcement.