Continuous disclosure is topical. Sometimes it takes on a very real and immediate dimension.
- Falling under regulatory suspicion
- What are the issues?
- How about privilege?
- Conducting an independent investigation
- The sharp end to become sharper?
Falling under regulatory suspicion
The sharp end of continuous disclosure is when you receive a notice from ASIC requiring production of documents as part of preliminary enquiries or an investigation by ASIC into your continuous disclosure practices. The notice may give you a few days, or perhaps a week, to produce a volume of documentation which can vary between quite a lot (at best) and an impossible amount.
The notice will refer to a suspicion of a breach of the Corporations Act but this reference will be very broad and not very informative.
More and more companies are receiving this type of notice. You might have received a query from the ASIC a month ago, or indeed several months ago, and you may have thought that the matter had disappeared from the radar screen, but you may be wrong.
There are quite a few issues to think about when such a notice arrives, and little time for reflection, particularly considering that company business has to continue, financial results need to be collated and announced, and other emerging issues and transactions need to be attended to and announced on a timely basis. Unfortunately an ASIC Notice to Produce is a statutory notice which requires compliance notwithstanding the fact that a business still needs to be run.
What are the issues?
This article provides an overview of what you need to think about when you receive a notice from ASIC. Of course, there is no substitute for expert advice at the time.
First carefully consider the scope of the notice and whether the notice is so broad that many irrelevant documents would be caught and it would take an inordinate amount of time to identify, gather and produce the documents. It may be possible, by agreement with ASIC, to narrow the scope of the notice to those types of documents which are relevant to the investigation.
If it is practically not possible to produce the documents within the stipulated timeframe it may be possible to agree with ASIC to extend the timeframe to enable compliance with the notice. It may also be possible to agree with ASIC to deliver information in stages.
The documents which will need to be produced to ASIC will usually include both hard copy paper files and electronic files, including e-mails. You may need to take action to recover e-mails which have been 'deleted' but which in fact are still able to be retrieved from back-ups.
Information covered by the notice must not be destroyed on purpose or accidentally, so what about the company's 'document retention policy'? Should it be suspended? How to do this - by an email to all staff? If all staff are to be told then should the company make its own announcement to the market (on a timely basis) disclosing the fact of the investigation or 'preliminary enquiries'?
How about privilege?
Will any documents otherwise required to be produced by the company to ASIC be privileged and not be required to be produced to ASIC? Maybe. The notice will state that the company is not excused from producing documents on the grounds that they may contain information which is subject to legal professional privilege - although ASIC 'will not take any unnecessary steps to destroy any claims of legal professional privilege'. However, following the recent High Court decision in The Daniels Corporation International Pty Ltd v ACCC the right of ASIC to obtain documents which are the subject of legal professional privilege must now be questionable.
What about privilege against self-incrimination? Does that apply? No - it is no excuse for a person to refuse to produce documents on the basis that the information may incriminate that person.
Conducting an independent investigation
Should the company undertake its own investigation, interviewing executives and others to establish what happened and when? If this is done, will such additional created information be exempt from a further ASIC notice? The answer to the second question is 'No'.
At the same time that ASIC issues a notice for production of documents it may also invite the company to provide a voluntary explanation of the circumstances surrounding the suspected contravention of the Corporations Act. A letter explaining the events in question provides the company with an opportunity to provide ASIC with background and context which would not otherwise be apparent from the documents produced. Even if ASIC does not request any explanation, such a letter can provide an opportunity to put the company's perspective before ASIC and may short circuit what may otherwise be a lengthy investigation.
ASIC's investigation of a suspected breach of continuous disclosure may extend to a review of a company's continuous disclosure policies and how the company complies with its obligations in practice. Does the company have a continuous disclosure policy? How is price sensitive information identified within the company and communicated to the market? Does it work in practice?
The sharp end to become sharper?
The sharp end of continuous disclosure may become even sharper following ASIC's review of the documents produced. ASIC may require executives and others to be examined under oath to assist ASIC in its investigations.
Finally, following completion of its investigations, ASIC may decide to commence a prosecution or civil proceeding against the company and/or individuals involved in the alleged contravention of the Corporations Act.
