Article by Fadi Khoury and Daniel Jung
- Under the Corporations Act, unlisted disclosing entities (including many managed funds) are required to comply with their continuous disclosure obligations by lodging notices with the Australian Securities and Investments Commission (ASIC).
- ASIC has released a new policy under Regulatory Guide 198 (RG 198) giving unlisted disclosing entities (subject to certain requirements) the option of complying with their continuous disclosure obligations by publishing all material information on their websites, without having to lodge the relevant information with ASIC.
- Generally, the new policy is aimed at facilitating effective communication of material information to investors in a timely fashion, which ASIC considers is "especially important in times of market volatility and financial turmoil".
- Unlisted disclosing entities will need to notify existing and new investors (through normal investor communication channels) whether they intend to adopt the website disclosure approach under RG 198 or continue to lodge continuous disclosure notices with ASIC.
Continuous disclosure obligations under the Corporations Act
Section 675 of the Corporations Act 2001 (Corporations Act) sets out the continuous disclosure obligations that apply to "unlisted disclosing entities". An "unlisted disclosing entity" includes (among other things) an unlisted company with 100 or more members holding securities in the company as a result of an issue under a disclosure document (such as a prospectus) or an unlisted managed investment scheme in which 100 or more people hold interests as a result of an offer that required a Product Disclosure Statement (PDS).
Under the continuous disclosure provisions of the Corporations Act, an unlisted disclosing entity is required (subject to certain exemptions) to lodge with ASIC any information that:
- is not "generally available", and
- a reasonable person would expect to have a "material effect" on the price or value of the entity's securities.
Accordingly, prior to the release of the new ASIC policy in June 2009, an unlisted disclosing entity that made material information available on its website was still required to comply with the continuous disclosure requirements under the Corporations Act by lodging the relevant information with ASIC. The fact that the entity made the material information "generally available" (e.g. by publication on a website) when it became aware of the relevant information did not relieve the entity of the obligation to lodge the information with ASIC.
Use of an issuer's website for continuous disclosure
Pursuant to RG 198, ASIC recognises that the requirements for an unlisted disclosing entity to lodge material information with ASIC is "increasingly out of step with the widespread use of the internet as a key channel of communication between product issuers and investors" and that publication on a website may often be a more effective means of communicating with investors rather than lodgment with ASIC.
Accordingly, under RG 198, if an unlisted disclosing entity complies with ASIC's "good practice guidance" (please refer to the following section) for website disclosure of continuous disclosure information, ASIC will not insist that the entity also lodges the information with ASIC, which is tantamount to ASIC confirming it will not take any action for a breach of the lodgement requirement if the entity complies with the "good practice guidance" set out in RG 198.
There are a number of important conditions for an unlisted disclosing entity to take advantage of this alternative website disclosure approach. In particular, an unlisted disclosing entity must:
- be satisfied that most of its investors are likely to look for information of this kind on its website (e.g. if an entity routinely sends written information by post to most of its investors, the entity cannot take advantage of the website disclosure approach)
- notify existing and new investors that it makes disclosure available in this way
- disclose any material information on its website in a timely fashion in accordance with the "good practice guidance" in RG 198.
Relevantly, a prospectus or PDS issued by an unlisted disclosing entity that is dated after 30 September 2009 should describe how the entity will comply with its continuous disclosure obligations (i.e. whether the entity will continue to lodge continuous disclosure notices with ASIC or adopt the website disclosure approach under RG 198).
Good practice guidance
In RG 198, ASIC sets out its "good practice guidance" for website disclosure of material information by unlisted disclosing entities. In particular, ASIC notes that the guidance is intended to promote website disclosure that has the following features:
- all material information is included on the website
- investors are able to find material information easily and determine its significance for them
- any new material information is included on the website as soon as practical, and
- information is kept on the website for as long as it is relevant and appropriate records are kept.
Relevantly, ASIC provides the following practical guidance regarding website disclosure of material information to comply with the continuous disclosure obligations:
- material information should be located in a single place on the website and the home page should contain a prominent link to this location so that investors can easily access it
- the relevant section of the website should contain all material information, regardless of whether it has been disclosed in some other public document prepared by the entity (such as a continuous disclosure notice lodged with ASIC, a new prospectus or new PDS, a supplementary prospectus or supplementary PDS, or statutory reports and accounts lodged with ASIC)
- material information should not be "buried" in lengthy documents among information that is not material
- if there is a risk that an investor may have difficulty readily identifying material information, entities should consider separately highlighting that information to investors
- entities should also consider whether direct disclosure of the information to investors is appropriate (e.g. where an entity is aware that a significant number of investors might not have ready access to the internet), and
- entities are encouraged to consider giving their investors the option of receiving an email alert when material information is updated on the website.
An unlisted disclosing entity is required to publish material information on their website as soon as practicable after first becoming aware of the information.
In addition, an unlisted disclosing entity should clearly indicate on its website when it first published each item of material information and retain records of its website disclosures in accordance with its normal record keeping practices (e.g. in a hard copy or electronic form) to demonstrate its compliance with its legal obligations, ASIC's "good practice guidance" and its internal procedures and processes.
Examples of information to be disclosed
ASIC helpfully provides some examples in RG 198 of the type of "material information" that entities should consider disclosing on their website, including things such as a material change in the value of underlying assets held by an entity, a material change in previously released financial forecasts or expectations, information about any material change to the terms of the entity's debt funding, a change in control of the responsible entity (in the case of a registered scheme), details regarding suspension or limitation of withdrawal requests and any other disclosures against ASIC benchmarks (such as those set out in Regulatory Guide 45 Mortgage schemes – improving disclosure for retail investors and Regulatory Guide 46 Unlisted property schemes – improving disclosure for retail investors).
In light of the new ASIC policy under RG 198, it may be appropriate for unlisted disclosing entities, including responsible entities of unlisted registered schemes and fund managers, to review their compliance procedures and reconsider their approach to complying with their continuous disclosure obligations under the Corporations Act.
It is anticipated that most relevant entities may prefer to adopt the website disclosure approach, consistent with current practice, to notifying investors of material information.
However, in transitioning to this approach, entities will need to take care to ensure that they update their compliance documents and implement and adopt appropriate procedures to comply with ASIC's "good practice guidance" in relation to the website disclosure approach and to otherwise comply with all the requirements under RG 198. This is particularly important in light of the potential criminal and civil consequences which may result from a breach of the continuous disclosure obligations.
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.