Continuous disclosure and engaging with the media
Regional Express Holdings Limited (REX), Australia’s largest independent regional airline, has paid a penalty of $66,000 after being hit with a ‘speeding ticket’ by ASIC, which alleged REX had failed to comply with its continuous disclosure obligations.
On 18 May 2021, the Australian Securities and Investments Commission (ASIC) announced that Regional Express Holdings Limited (REX) had paid a penalty of $66,000 after it was hit with a ‘speeding ticket’ alleging that it had failed to comply with its continuous disclosure obligations.
The conduct in question
The penalty comes after ASIC found that there were reasonable grounds to believe that REX was in breach of its continuous disclosure obligations in May 2020 as a result of statements made in the Australian Financial Review (AFR).
During the course of an interview with the AFR, REX’s deputy chairman revealed information about the company’s plans to expand its operations domestically. ASIC also noted that, prior to scheduling interview, REX had taken steps to consider what could be discussed with the AFR about the proposal to commence domestic operations in addition to its regional services.
Upon the publication of the article on 12 May 2020, ASX contacted REX about the information that had been disclosed, after which the company was placed into a trading halt. Later that same day, REX made an announcement to ASX stating that it was considering the feasibility of an expansion of its services, and had ‘been approached by several parties interested in providing the equity needed for REX to start domestic operations in Australia’.
In addition to the financial penalty, ASIC has also restricted REX from issuing a reduced-content prospectus and relying on other disclosure exemptions that facilitate ‘low doc’ capital raises until 14 December 2021. While itself not being a financial penalty, this has the potential to significantly restrict REX’s ability to raise capital (in a practical sense) in the short-term.
Legal requirements
Under both the Corporations Act 2001 (Cth) (Corporations Act) and ASX Listing Rules, ‘disclosing entities’ are required to immediately disclose material information to the market (unless an exception applies). More specifically, disclosing entities must immediately release information that:
- is not generally available; and
- a reasonable person would expect to have a material effect on the price or value of the securities of the entity,
unless an exception applies.
| In the context of the REX situation, ASIC has reminded disclosing entities that material information must be immediately disclosed where it loses confidentiality, such as when a journalist includes it in content that is released to the public. Due to REX’s compliance with the infringement notice, there is no admission of guilt or liability in relation to any Corporations Act contravention. |
Key takeaways and reminders
The action taken by ASIC in issuing REX with an infringement notice, and restricting its ability to rely on disclosure document exemptions, reinforces the need for disclosing entities to be conscious of their continuous disclosure obligations under both the Corporations Act and ASX Listing Rules when making any public statements. In particular:
- Those participating in media interviews or press conferences (or simply having a discussion with a journalist) should be particularly mindful of the information that they provide to ensure that they do not inadvertently disclose price sensitive information.
- Sticking to the script can be challenging when faced with poignant questions that are designed to elicit a departure from pre-agreed responses. How should this situation be handled? If a question can only be answered by disclosing price sensitive information that is not in the market, the question must be declined or taken on notice (which enables information to be released through ASX before providing a response to the question).
- The ‘media’ is no longer comprised of print, television and radio journalists – there is a constant proliferation of new and varied media channels and this makes life even more challenging. There will be times when information is shared without the understanding or expectation that it will make its way to a broad audience, let alone how quickly this can occur (particularly with the aid of rapid fire tweets and re-tweets!).
- ASX clearly states that simply because information is released through outlets other than the ASX and becomes ‘generally available’ (eg widespread media coverage of the information) does not excuse a listed entity from disclosing that information to the ASX (even if the Corporations Act requirement for continuous disclosure may itself not have been contravened). So, always ensure the information is released through the company announcements platform.
- Have regard to some of the pertinent recommendations contained in ASIC Regulatory Guide 62 Better disclosure for investors:
- Ensure the senior officer (eg company secretary) responsible for disclosures is aware of information disclosures in advance – especially in respect of information that is to be presented at private briefings (or interviews with journalists).
- Develop and ensure there is broad internal awareness of the procedures for responding to market rumours, leaks and inadvertent disclosures. It is also recommended that even where leaked information is not considered to be price sensitive, it should still be posted on the entity’s website so that all investors have equal access to the information.
- Make use of current technology to give investors better access to information – and post all price sensitive information on the listed entity’s website as soon as it is disclosed to the market (importantly, this technology doesn’t mean you can avoid the ASX company announcements platform).
Hall & Wilcox acts for numerous disclosing entities, and can provide guidance on complying with continuous disclosure obligations alongside broader corporate governance and regulatory matters.