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Chapter 4 - Disclosure of Information Filed Overseas
Introduction
4.1
The Company Law Review Act 1998 among
other things inserted s.323DA into the Corporations Law. The section provided
as follows:
Listed companies to disclose information filed overseas
323DA (1) [Timing of disclosure; relevant overseas
exchanges] A company that discloses information to, or as required by:
- the Securities
and Exchange Commission of the United States of America; or
- the New York Stock
Exchange; or
- a prescribed
securities exchange in a foreign country;
must disclose that information in English to the Exchange on the
next business day after doing so.
323DA (2) [Application of section] This section
applies only to a company that is:
- incorporated in
Australia; and
- included in an
official list of the Stock Exchange.
323DA (3) [Company’s constitution] This section
applies despite anything in the company’s constitution.
4.2
The Government indicated that it opposed the
amendment and referred the matter to the PJSC for inquiry.
Submissions
4.3
The PJSC received 31 submissions which addressed
this topic, of which 11 were in favour of the provision and 20 opposed to it.
4.4
Those against the provision included Allen Allen
and Hemsley; Arnold Bloch Leibler; the Association of Mining and Exploration
Companies; the Australian Institute of Company Directors; the Australian Law
Reform Commission; the Australian Stock Exchange Ltd; Mr R.I. Barrett;
Blakiston and Crabb; Ernst and Young; KPMG; the Law Institute of Victoria;
Solomon Garland Partners and others.
4.5
Those in favour of retaining the provision
included the Australian Society of Certified Practising Accountants; Mr John
Wilkin (Corrs Chamber Westgarth); the
Australian Shareholders Association; the
Institute of Chartered Accountants; the Investment and Financial Services
Association Ltd; the Securities Institute; Porter Western Limited and others.
Arguments against the provision
Duplication of provisions in the
Listing Rules of the ASX
4.6
The most common point made by the submissions
which opposed the provision was that the matter was largely addressed already
by the ASX Listing Rules. Mr R.I. Barrett submitted that it was odd that a
provision of the Corporations Law should regulate the information that an ASX
listed company must furnish to the ASX. The assumption in s.1001A is that the
content of disclosure requirements is the provence of the ASX Listing Rules,
with the Corporations Law supporting this role with enforcement and sanctions.
The continuous disclosure regime was established on the clear basis that ASX
listing rules are the appropriate medium for substantive disclosure
prescriptions. The ASX listing rules themselves include a note to Listing Rule
3.1 which advises that compliance with disclosure requirements involves
lodgement with ASX of market sensitive information which a company lodges with
an overseas stock exchange or other regulator which is available to the public.
4.7
Arnold Bloch Leibler submitted that listed
companies are subject to the continuous disclosure requirements under the ASX
listing rules. Any information which a reasonable person would expect to have a
material price sensitive effect must be disclosed irrespective of whether it is
disclosed to any other exchange.
4.8
KPMG submitted that the provision is superfluous
because the listing rules require continuous disclosure. Others submitted that
listed companies are for all practical purposes already obliged to disclose to
the ASX information given or required by foreign exchanges. These submissions
concluded that the provision was superfluous regarding material information.
Disclosure of confidential
information
4.9
A number of submissions advised that the
provision required disclosure of confidential information. Allen Allen and
Hemsley submitted that the provision is not qualified, so it appears that even
information given to a foreign exchange on a confidential basis must be
published, even if an exclusion applies under ASX disclosure rules. The Law
Institute of Victoria also submitted that there were concerns about the
relevance of confidential information.
4.10
Solomons submitted that the provision could
create unfair and unnecessary problems for Australian companies which are
listed both on the ASX and on relevant foreign exchanges. This would put those
Australian companies at a competitive disadvantage with overseas companies and
with other Australian companies without overseas listings. The difficulty is
that the provision requires disclosure to the ASX of confidential information
or information disclosed on the basis that it will not be released to the
market. This information should be withheld from the Australian market if it is
also withheld from the overseas market. The provision should be amended to
ensure that only in respect of public disclosures to overseas exchanges is
there also an obligation to disclose to the ASX in Australia.
Adverse effect on Australian
companies
4.11
A number of submissions suggested that the
provision may have an adverse effect on Australian companies and may be
misleading and confusing. The Australian Law Reform Commission submitted that
it was not convinced that an unqualified additional obligation of this kind
could be justified. Rather, Australian disclosure requirements should be equal
to world best standard, so that all significant matters disclosed to foreign
exchanges should have already been covered more effectively and quickly in the
first instance by the Australian disclosure regime.
4.12
Blakiston and Crabb submitted that the provision
was too prescriptive and contrary to the simplification thrust. It requires
duplication even though the information may have been released in a different
form in Australia. It may require different accounting standards and be
misleading and confusing. The AMEC also submitted that the effect could be
misleading and confusing. Arnold Bloch Leibler submitted that in the United
States, for instance, the form of reporting is different and the terminology
and the language sometimes different. The methods of calculation are also
different, with different accounting years and reporting periods. These may be
difficult to compare in a meaningful way with the form of reports that the ASX
require. In practical terms it may be difficult to reconcile the two lots of
information. There could be quite a significant overlay of costs and time. If
overseas exchanges require information which the ASX considers useful then the
ASX should change its reporting requirements to require this in Australia. In
the United States the form of reporting and the material is so completely
different that it may not be meaningful in Australia. There is also the
question of foreign exchange. Essentially the information may be the same but
reconciliation between the two is difficult.
Disclosure of information not
material or relevant to the Australian market
4.13
A number of submissions suggested that the
provision required disclosure of information which may not be material in
Australia. Allen Allen and Hemsley submitted that disclosure obligations should
be based on non-discriminatory rules relevant to the Australian market. The
present position is discriminatory because disclosure must be made even if
information is not material or relevant to the Australian market and there is
not otherwise any Australian requirement to disclose. There is no purpose in
requiring certain companies but not others to disclose information which is not
otherwise required to be disclosed to the ASX, simply because they are listed
on a foreign exchange. Disclosure should be left to the ASX listing rules to be
applied in a consistent and non-discretionary manner.
4.14
Arnold Bloch Leibler submitted that the
provision appeared to require the disclosure of information which was not
material, which would increase costs without leading to a more informed market.
KPMG submitted that the provision could result in the filing of unnecessary
information because, unlike ASX Listing Rules, it requires lodgement of all
information disclosed to a foreign exchange, rather than only information which
is likely to have an effect on prices or values.
Arguments in favour of retaining the provision
Globalisation and harmonisation
4.15
A number of submissions suggested that the
provision would have positive benefits for globalisation and harmonisation of
international standards. The AAANZ submitted that the provision was consistent
with harmonisation of accounting standards, which is widely supported by the
commercial community. The CPA/ICA/CICS (W.A.) submitted that the provision
recognises not only harmonisation of accounting standards for disclosure in
financial statements, but also reporting for other non-financial information
disclosures in other documents and listing rules across jurisdictions. The
listing rules are not sufficient here because compliance resides with the
company. It is not relevant that the information may be required in less detail
or voluntarily reported in Australia.
4.16
The Securities Institute submitted that the
provision was an essential element of continuous disclosure and global best
practice. It recognises the global trend to standard documentation in all
markets and the internationalisation of this business. Corrs submitted that
uniformity of disclosure was a good thing and that the law should move towards
this. IOSCO, the international association of stock exchanges, had been working
for 10 years for the same rules for prospectuses in different countries. The
ASA submitted that the provision encouraged global harmonisation of disclosure
standards.
Benefits for investors
4.17
A number of submissions suggested that the
provision would benefit shareholders and investors. The IFSA submitted that for
reasons of equity Australian investors should not be in a worse position than
overseas investors. There have been instances where Australian companies have
declined to supply to the Australian market information which is disclosed to
overseas markets. Mr Sandy Easterbrook submitted that Australian shareholders
would like the more extensive disclosure that the United States regime insists
that US shareholders in the same company get. Some shareholders should not have
better disclosure than others. The CPA/ICA/CICS (W.A.) submitted that it was
appropriate for Australian shareholders to receive the same information in
respect of a company as those overseas. Mr Nick Renton submitted that the
provision is a formal mechanism for information by the front door rather than
the back door. It is not an answer to say that all the information is on the
Internet. The Securities Institute submitted that the provision will ensure
that Australian shareholders are as well informed as their counterparts
overseas.
Minimal effect on Australian
companies
4.18
A number of submissions suggest that the
provision would have minimal effect on Australian companies. Professor Hancock
(AAANZ) submitted that the provision was not misleading and contrary to
simplification, because markets are fairly efficient and fairly well informed.
However, unnecessary paper work was certainly a concern. Other submissions
suggested that costs of the provision would not be onerous. Mr Sandy
Easterbrook submitted that there would be no real extra cost, because it was
only necessary to send an extra fax or email copy. The ASA and Mr Nick Renton
submitted separately that additional cost would be minimal, because the
information is already with foreign exchanges. The IFSA submitted that costs of
the provision would have already been incurred and will decrease with
electronic distribution of information.
4.19
Several submissions suggested that Australian
companies could adapt to the different disclosure requirements of Australia
and, for instance, the United States. The IFSA submitted that the mere fact
that the information was not in a familiar form was not a reason to deny
access. Mr Sandy Easterbrook submitted that the better companies would produce
a reconciliation for the different types of disclosure. The ASA and the AAANZ
submitted separately that a number of companies already include reconciliations
in their annual reports.
Conclusions
4.20
The PJSC concluded that the provision was
superfluous and included a number of potentially undesirable consequences. The
Listing Rules of the ASX already require the disclosure of any information
which would have a material effect on the price or value of company securities.
Any additional information disclosed to foreign exchanges would not be price
sensitive and would not be material to the Australian market. Therefore there
seems little reason for the provision.
4.21
The PJSC considered that conceptually it is
preferable for the ASX Listing Rules to provide for disclosure requirements of
listed companies, with the Corporations Law providing for enforcement of these,
as intended by s.1001A. It is not appropriate for the Corporations Law to
provide this kind of detailed prescription for listed companies.
4.22
The PJSC accepted that there were possible
difficulties with the release of confidential information and that the large
amount of non-material information disclosed to, for instance, United States
exchanges, would need to be reconciled with Australian accounting principles to
be meaningful, at some cost to the individual company.
4.23
The PJSC concluded that the strongest argument
in favour of retaining the provision was that it would encourage globalisation
and harmonisation of disclosure standards. The PJSC strongly supports these
objectives and in no way wishes to reduce their importance. However, the PJSC
considers that in this case the best way to advance these desirable features
for listed companies is not through the Corporations Law. Rather, the ASX and
the various accountancy bodies should move to adopt world best practice for
disclosure standards.
4.24
The PJSC does not accept that shareholders will
be disadvantaged by removal of the provision, because, as noted above, the only
additional information which the provision requires to be disclosed is
non-material.
Recommendation
4.25
The PJSC recommends that s.323DA of the
Corporations Law be deleted.
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