Australia: Continuous disclosure for public companies affected by the carbon tax

Corporate Advisory Alert: 10 Apr 2012
Last Updated: 11 April 2012

By Michele Muscillo, Partner; Sharon Robson; Ben Ricketts

With the introduction of the carbon tax now less than three months away, directors and officers of ASX-listed companies need to consider the impact the carbon tax may have on the company's share price, and ensure that they continue to meet their disclosure obligations under the Corporations Act 2001 and the ASX's Listing Rules.

Here, partner Michele Muscillo, associate Sharon Robson and solicitor Ben Ricketts explain why meeting continuous disclosure obligations is important for listed companies affected by the carbon tax.

Key points

  • Companies listed on the ASX need to comply with continuous disclosure obligations under the Corporations Act 2001 and the ASX's Listing Rules including, subject to certain exceptions, disclosing information immediately to the ASX if a reasonable person (or a person who commonly trades in securities) would expect the information to have a material effect on the price or value of the entity's securities.
  • ASX-listed companies need to think about whether a reasonable person would consider that the carbon tax - which will apply from 1 July 2012 - would have a material effect on the company's share price or value, and if it does, whether an exception to the release of the relevant information applies.
  • Companies should also consider how the carbon tax may affect information that has previously been released to the ASX, and whether further disclosure to the ASX should be made.

Continuous disclosure obligations

A listed company with information that is not generally available to the public must immediately disclose that information to the ASX if a reasonable person would consider that information may have a material effect on the price or value of the shares in the company - that is, unless an exception to disclosure applies (using the Material Effect Test).

Exceptions to disclosure

A company is not obligated to disclose information to the ASX if it can be shown that:

  • a reasonable person would not expect the information to be disclosed; and
  • the information is confidential (and the ASX has not formed the view that the information has ceased to be confidential); and
  • either:
    • it would be a breach of a law to disclose the information; or
    • the information concerns an incomplete proposal or negotiation; or
    • the information comprises matters of supposition or is insufficiently definite to warrant disclosure; or
    • the information is generated for internal management purposes of the entity; or
    • the information is a trade secret.

When do companies need to disclose?

Companies need to ensure they adequately consider the consequential effects of the carbon tax on profits or business plans, and whether this information should be disclosed.

If the effect is 'material' having regard to the Material Effect Test, then it must be disclosed unless an exception applies.

If a company considers the information would be required to be disclosed because it is 'material' but does not make an announcement because of an exception, they need to keep in mind that disclosure can only be withheld on this basis for so long as the requirements for the exception can be made out. In practice, that point may be difficult to determine. It's important to note, however, that as soon as any one of the three exceptions ceases to apply, the company must immediately disclose the information.

Therefore, while companies may seek to rely on a carve out to disclosure for so long as information is 'incomplete' or 'indefinite' (for instance, for the time that they are determining to a reasonable degree of certainty what the final impact of the carbon tax will be on the company), they need to continually assess and evaluate the need to disclose as that information becomes more certain and more definite.

The ASX has provided some general guidance that may help companies determine whether the effect of the carbon tax is 'material' having regard to the Material Effect Test. ASX guidance indicates that a company should make a disclosure where it considers that there is likely to be a variation of in excess of 10-15 percent compared to a previously released financial forecast or expectation. Even if an entity has never previously disclosed financial forecasts or expectations, ASX considers that disclosure is required if the company considers that there will be a 10-15 percent variation to the financial results of the company for the previous corresponding period.

In simple terms, this means that if the effect of the carbon tax is likely to result in a 10-15 percent reduction in earnings or profit (compared to the last financial year, for instance), then disclosure to ASX needs to be made immediately.

Consequences for failing to disclose

If an exception to disclosure does not apply and the entity fails to immediately disclose information that would reasonably be expected to have a material effect on the price or share value, the company has committed an offence. Under the Corporations Act 2001, a range of sanctions and penalties may be imposed, including:

  • up to $1 million for a corporation; and
  • for an individual, up to $200,000 and/or disqualification from managing a company.

Does my company need to disclose?

Whether and at what point your company needs to disclose certain information, and whether an exception to disclosure applies, will depend on your circumstances. For more information and advice on your disclosure obligations in relation to the carbon tax, please contact HopgoodGanim's Corporate Advisory team or Climate Change team.

© HopgoodGanim Lawyers

Award-winning law firm HopgoodGanim offers commercially-focused advice, coupled with reliable and responsive service, to clients throughout Australia and across international borders.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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