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Focus: Corporate Governance – November 2001

In brief: The ASX has issued a suite of new listing rules and amendments that companies need to consider. As Partner Cameron Price(view CV) and Solicitor Gadi Bloch report, action is needed before 1 January 2002.

Amendments to ASX Listing Rules

Australian listed companies may need to update their continuous disclosure policies and will need to examine their responsibilities in a range of other areas following the latest amendments to the Australian Stock Exchange Listing Rules, effective on 30 September 2001.

Several of the changes require organisations to provide information to the ASX by the start of 2002, on matters such as directors' interests and holdings in the company and the appointment of an internal officer responsible for ASX communications.

Companies should take action now to ensure that they comply with the new requirements. We outline some of the most important amendments:

Continuous disclosure: Listing Rule 3.1

This listing rule imposes a continuous disclosure obligation upon listed companies. A company must immediately notify ASX once it becomes aware of any information concerning the company that a reasonable person would expect to have a material effect on the price or value of its securities.

While the listing rule itself has not been amended as part of the suite of amendments, ASX has reissued Guidance Note 8, which indicates how ASX considers the rule should be applied. The reissued guidance note, which now incorporates the Australian Securities and Investments Commission's 'Better Disclosure To Investors' guidance principles, is not a definitive statement of a listed company's continuous disclosure obligations, but the changes (as summarised below) demonstrate that ASX proposes to place additional emphasis on the following matters:

(a) Market speculation

The ASX suggests that Listing Rule 3.1 may, in certain circumstances, require a company to respond to media comments or market speculation. When the comment or speculation becomes reasonably specific, or when the market moves in a way that appears to be referable to the comment or speculation, ASX may require the company to make a statement to ensure that the market remains properly informed.

(b) Analysts' briefings

Price sensitive information must be publicly released through ASX before being disclosed to analysts or others outside the company. Accordingly, a company must ensure that only public information is given when briefing analysts. If the company inadvertently provides material information to an analyst that is not yet public, the company must immediately release the information to ASX.

(c) Changes to forecast revenue or profits

The new guidance note suggests that a company must make immediate disclosure to the market if it becomes aware that actual revenues and profits for a financial period will differ in a material way from one or more of the following:

  • the financial results for the previous corresponding period;
  • forecast projections contained in any prospectus;
  • projections and indications previously provided to the market in relation to the financial period; and
  • consensus estimates made by analysts.

The company must provide details as to the extent of the variation, although it is able to indicate results within an anticipated range where a final figure is not yet available. If unable to assess the extent of the variation, in some circumstances the company should consider requesting a trading halt or suspension until it can make an accurate assessment.

(d) Relationship between continuous disclosure and 'periodic' disclosure

Periodic disclosure obligations run parallel, and are in addition, to the continuous disclosure obligations under Listing Rule 3.1. Accordingly, if information of the kind referred to above emerges during the preparation of a periodic reporting document, the company must consider releasing the information immediately, in advance of the finalisation and release of the periodic reporting document.

(e) Providing better access to information

Relevant information must be disclosed via ASX. However, in the interests of achieving the broadest practical dissemination of the information, ASX recommends that, after providing an announcement to ASX, a listed company places the announcement on the company's website. The information should only be placed on the website after the company has received acknowledgement from ASX that the announcement has been released.

ASX Communications Officer: Listing Rules 12.6 and 3.16.4

Under the new Listing Rule 12.6, a listed company must appoint an individual to be responsible for communications with ASX. Listing Rule 3.16.4 requires the company to immediately notify ASX of an initial appointment or change of the person responsible for communication with ASX and their contact details.

The communications officer should be involved with the running of the company and have a high degree of familiarity with all of its operations, or alternatively, have ready access to senior management who have responsibility for day to day management of the company.

The appointment is for administrative convenience and to promote better management of the relationship between ASX and the company. It does not abrogate the company's responsibility for disclosure.

Disclosure of directors' securities transactions: Listing Rules 3.19A and 3.19B

A requirement has been introduced in Listing Rule 3.19A (effective from 1 January 2002) for a company to disclose information in relation to directors' interests and holdings in securities of the company. The obligation to notify ASX arises upon:

  • the commencement of the rule on 1 January 2002;
  • the appointment of a director;
  • a change in a director's relevant interests or interests in contracts; and
  • the director ceasing to hold office;

and must be satisfied within five business days of the relevant event. The notification takes the form of an Appendix 3X, 3Y or 3Z, as appropriate.

Although the rule does not require the company to notify ASX of information which it does not have, Listing Rule 3.19B imposes an obligation upon the company to enter into and enforce such arrangements with each director as are necessary to ensure that the director discloses to the company all the information required to enable it to satisfy its obligation under rule 3.19A. In order to assist companies, the ASX has issued a pro forma letter agreement between a company and a director.

Section 205G of the Corporations Act imposes a similar disclosure obligation upon directors of listed companies. ASIC proposes to issue an exemption from section 205G, which will be conditional upon all of the information that would have been required to be disclosed under that section being provided to ASX by the company.

It is important to note that under Listing Rule 3.19A, a company must provide initial notice to ASX regarding directors' interests within five business days after 1 January 2002. This is the case even where those interests have previously been disclosed by the directors according to section 205G or in its Annual Report.

Annual report - securities trading policy: Listing Rule 4.10.3

This rule requires a listed company to include in its annual report a statement of the main corporate governance practices that it had in place during the reporting period. ASX's indicative list of corporate governance matters to be addressed for the purposes of this rule (as set out in the re-issued Guidance Note 9) has been amended to include a company's policy on the trading of its securities by directors and employees, including any policy in relation to trading windows.

ASX Online: Guidance Note 20

The ASX Online facility allows a company to lodge electronically copies of company announcements (including disclosure notices under Listing Rule 3.19A). The company must satisfy certain technical requirements and enter into an agreement with ASX.

Issues of securities to related parties: Listing Rule 10.11

This rule formerly applied only in respect of issues of securities by a company to a 'related party' (most commonly, a director or their associate). It has now been extended to additionally prohibit agreements to issue securities to such a party. Further exceptions to the rule have been introduced in Listing Rule 10.12 in respect of:

  • an issue under an agreement to issue securities, where the company complied with the listing rules when it entered into the agreement (which effectively means the agreement was approved by shareholders in accordance with listing rule 10.11) (Exception 9); and
  • an agreement to issue securities that is conditional upon shareholders approving the issue before the issue is made (Exception 10).

Accordingly, in future, a listed company must not enter into an agreement to issue securities to a related party unless the agreement is conditional upon shareholder approval or falls within one of the other exceptions contained in Listing Rule 10.12. The amendments will not affect any existing agreement, although a company will need to obtain shareholder approval to any issue of securities to be made under such an agreement if the issue would not otherwise fall within one of the exceptions.

Issues of securities to related parties under an employee incentive scheme: Listing Rules 10.14, 10.15 and 10.15A

Listing Rule 10.14 requires shareholder approval for issues of securities to certain related parties under an employee incentive scheme. This requirement is distinct from the general requirement for shareholder approval for issues of securities to related parties in Listing Rule 10.11. If approval to an issue of securities is obtained under Listing Rule 10.14, the issue falls within an exception to Listing Rule 10.11 (Listing Rule 10.12, Exception 4).

Formerly, shareholder approval operated only for a period of 12 months. ASX has introduced Listing Rule 10.15A, which permits a company to issue securities to related parties under an employee incentive scheme up to three years after the date of the approval. The notice of meeting to approve the acquisition of securities must include (in addition to the matters currently stipulated in Listing Rule 10.15) a statement which provides that:

  • details of any securities issued under the employee incentive scheme, and a statement that approval for the issue of securities was obtained, will be published in each annual report of the company relating to a period in which securities have been issued; and
  • any additional related parties who become entitled to participate in the employee incentive scheme after approval of the resolution has been obtained, and who were not named in the resolution, will not participate until shareholder approval is obtained at a general meeting.

A note to Listing Rule 10.14 has also been inserted to state the ASX's current view that an employee incentive scheme can exist where only a single person is to participate in the scheme. Accordingly, approval for an issue of securities to a related party under such a single person scheme is now required under that listing rule, rather than Listing Rule 10.11.

Undirected proxies: Listing Rule 14.2.3

Listing Rule 14.2 requires a listed company to include a proxy form in a notice of meeting of the company's security holders. Listing Rule 14.2.3 has been introduced to provide that where a notice of meeting is required to include a 'voting exclusion statement' (see Listing Rule 14.11), and undirected proxies may be given to the Chairman of the meeting, the proxy form must set out a statement of the Chairman's voting intentions and a statement to the effect that the Chairman may exercise undirected proxies, even if he or she has an interest in the outcome of a resolution to be considered at the meeting. In the event that the Chairman is unavailable, the alternative Chairman is not required to vote in accordance with the stated intentions of the Chairman. This amendment will apply in respect of meetings occurring on or after 1 January 2002.

Action list for companies to comply with ASX Listing Rule amendments
Action Date by which action must be taken
Notify ASX of appointment of ASX Communications Officer ASAP
Enter into arrangements with directors pursuant to Listing Rule 3.19B ASAP, but in any event before 1 January 2002
Notify ASX of each director's interests in your company's securities as at 1 January 2002 8 January 2002
Consider current continuous disclosure policies and practices in light of the reissued Guidance Note 8 ASAP
Consider entering into an agreement with ASX to facilitate electronic lodgment of company announcements (optional) N/A

This document contains summary information only and does not canvass each of the recent Listing Rule amendments. The application of the Listing Rules to particular companies or circumstances may vary.

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