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21 March, 2018
The underlying aim of the Safe Harbour reforms is to create an environment that encourages informal workouts. However, as explained in the Explanatory Memorandum relating to the reforms, Safe Harbour does not affect the obligation of a company (or any of its officers) to comply with continuous disclosure. There is no special treatment for companies in financial distress.
We previously commented that it would be helpful to have the benefit of guidance from ASX on the interaction between the Safe Harbour reforms and the continuous disclosure regime for ASX listed entities.
On 9 March 2018, ASX updated its Guidance Note 8 Continuous Disclosure: Listing Rules 3.1 – 3.1B to provide guidance on whether or not the fact that a listed entity's directors are relying on the new Safe Harbour from insolvent trading liability is a matter that should be disclosed under these rules. ASX guidance on this point is helpful given that there has been considerable discussion about the proper approach to this issue.
The key point to note from the updated guidance note is that the fact that the directors of an entity are relying on the Safe Harbour from insolvent trading liability is not, in and of itself, something that ASX would generally require to be disclosed.
Importantly:
1 – ASX's position in relation to the disclosure obligations of entities in financial difficulty remains unchanged. In relation to concerns that the disclosure of information regarding an entity's financial position may have a negative impact on the entity, the guidance note provides: "The fact that information may have a materially negative impact on the price or value of an entity’s securities, or even inhibit its ability to continue as a going concern, does not mean that a reasonable person would not expect the information to be disclosed. Quite the contrary, in ASX’s view, this is information that a reasonable person would generally expect to be disclosed."
2 – On Safe Harbour, ASX has this to say: "The fact that an entity’s directors are relying on the insolvent trading safe harbour to develop a course of action that may lead to a better outcome for the entity than an insolvent administration, in and of itself, is not something that ASX would generally require an entity to disclose under Listing Rule 3.1. Most investors would expect directors of an entity in financial difficulty to be considering whether there is a better alternative for the entity and its stakeholders than an insolvent administration. The fact that they are doing so is not likely to require disclosure unless it ceases to be confidential or a definitive course of action has been determined."
As we anticipated, ASX has confirmed that the focus of the continuous disclosure regime is on the financial position of the entity. If the circumstances relating to an entity's financial distress are price sensitive, then appropriate disclosure should be made, but the mere fact that an entity's directors are relying on the insolvent trading Safe Harbour is, of itself, unlikely to require disclosure for so long as it remains confidential or until a definitive course of action has been determined. Decisions concerning continuous disclosure cannot be made in the abstract and must be made taking into account the information which is already available to the market and the particular facts and circumstances at the time.
For further information please contact:
Michael Sloan, Partner, Ashurst
michael.sloan@ashurst.com
