INSIGHT

COVID-19 and continuous disclosure: how you get ready

By Vijay Cugati, Charles Ashton
ASIC Capital Markets Corporate Governance COVID-19 Financial Services Risk & Compliance

Tools for understanding and assessing the impact 5 min read

The impact of Coronavirus (COVID-19) has been felt across the globe since it was first reported in Hubei province in December 2019.

Since 1 December 2019 there have been 596 ASX announcements referencing Coronavirus or COVID-19 by 326 different ASX-listed entities.1 We expect that a significant number of the remaining 1,800-odd entities on the ASX official list will be impacted by the virus to some degree.

As the challenges brought by COVID-19 become more apparent, we see the need for listed entities to have tools to discharge their continuous disclosure obligations under ASX listing rules.

Key issues in the context of COVID-19

Subject to certain exceptions, ASX Listing Rule 3.1 requires listed entities to notify the ASX immediately of any information concerning it of which it is, or becomes, aware and which a reasonable person would expect to have a material effect on the price or value of its securities.2

In the context of COVID-19, it is important to note that 'information' for these purposes extends beyond matters of fact. ASX Guidance Note 8 makes clear that information includes matters of opinion and intention, and is not limited to financial information or information that is quantifiable in financial terms. The information may be generated or sourced from outside of the entity. As such, information concerning the impact of COVID-19 on employees, customers, suppliers, consumers and other third parties is likely to be information concerning an entity for continuous disclosure purposes.

...care must be taken to ensure an announcement is not misleading. In these circumstances we expect it will be necessary to qualify any disclosure to make clear that there remains uncertainty and is subject to change.

Given the dynamic nature of the COVID-19 outbreak and the constant flow of new information, we expect listed entities will focus on whether information concerns matters of supposition or is insufficiently definite to warrant disclosure and, therefore, subject to an exception to Listing Rule 3.1. Guidance Note 8 makes clear that this exception will be available if a reasonable person would not expect the information to be disclosed to the market because the information is so vague, embryonic or imprecise, or the veracity of the information is open to doubt, or the likelihood of the matter occurring or its impact if it does occur, is so uncertain.

However, even if an entity is not in a position to disclose the financial impact of information it knows to be market sensitive, ASX's guidance provides that the entity should announce whatever information is in its possession immediately, and signal it will make a further announcement when it has had the opportunity to assess the financial impact of the information. We appreciate this can put entities into a very difficult position because the market will react most negatively to news without an assessment, often overreacting.

Equally, care must be taken to ensure an announcement is not misleading. In these circumstances we expect it will be necessary to qualify any disclosure to make clear that there remains uncertainty and is subject to change.

Practical disclosure scenarios related to COVID-19

There are a number of foreseeable circumstances in which COVID-19 or matters relating to COVID-19 may give rise to market sensitive information concerning a listed entity. While this is not an exhaustive list, we have set out of number of such scenarios that should be considered as part of the proper and ongoing assessment as to the need for disclosure:

  • Employees - An entity's workforce is directly impacted as a result of COVID-19 infections from an outbreak at one or more business premises. There are also potential secondary disclosure issues that may arise as a result of any WH&S liability issues in connection with an outbreak.
  • Material contracts and financing arrangements - A counterparty exercises force majeure rights, or termination rights are triggered as a result of market disruption or material adverse change clauses. More generally, entities should review key contacts and financing arrangements to confirm whether such provisions exist, and prepare to mitigate against potential terminations (see also the cross-practice guide from our colleagues at Linklaters which highlights these and other key issues that may affect business operations in the current environment).
  • Decrease in demand for products or services - COVID-19 may cause a short-term reduction in supply of, or demand for, an entity's products or services. The closure of offshore manufacturing facilities (eg in China or Italy) are likely to impact supply chains. Similar issues may arise if shipping or airfreight routes are suspended or vessels or crew are quarantined. Consumer-facing businesses may see a decline in customer interactions as mobility is restricted.
  • Increase in demand for products and services - Short-term consumer behaviour (eg stockpiling) may drive a short-term increase in retail spending. Similarly, healthcare and ancillary products and services may see a spike in demand.
  • Government intervention - Governments may exercise emergency powers that impose restrictions on individuals and businesses. In certain sectors (eg healthcare and pharmaceuticals) governments may also impose additional obligations on an entity's operations and employees.
  • Earnings guidance - Any guidance provided in a pre-COVID-19 environment will need to be reassessed through the lens of current business and consumer sentiment and closely monitored as the full impact of the virus becomes known.
  • Capital raisings - Key risk disclosures will need to articulate the likely impact of COVID-19 matters on the issuer.

A timely reminder for the conduct of investor or analyst briefings

Finally, care must also be taken in discussing or responding to questions concerning COVID-19 at any investor or analyst briefings to ensure compliance with continuous disclosure obligations. Some of the practical recommendations provided by ASIC to listed entities include:

  • being vigilant about what information is disclosed at analyst and investor briefings;
  • refraining from trying to manage or correct market expectations through selective briefings;
  • ensuring as broad as possible access to analyst and investor briefings;
  • providing advance notice and dial-in details of group briefings to the market;
  • making immediately available full transcripts or recordings of briefings or roadshows, eg by posting webcasts, podcasts and/or transcripts on ASX and/or archiving these on the entity’s website for public access after the event; and
  • ensuring their continuous disclosure policies are well understood within the entity and are consistently followed.

If you have any questions in relation to your continuous disclosure obligations, please contact one of our experts below. 

Footnotes

  1. Morningstar Data Analysis (data retrieved 9 March 2020).

  2. Immediate disclosure of market sensitive information is not required if the information is confidential and ASX has not formed the view that the information has ceased to be confidential, a reasonable person would not expect the information to be disclosed and one or more of the following five situations applies: (1) it would be a breach of a law to disclose the information; (2) the information concerns an incomplete proposal or negotiation; (3) the information comprises matters of supposition or is insufficiently definite to warrant disclosure; (4) the information is generated for the internal management purposes of the company; or (5) the information is a trade secret. However, the obligation to give ASX information to correct or prevent a false market (eg market speculation about the potential impact of COVID-19 related issues on a listed entity) will apply even if the above conditions are satisfied.