Recent cases have considered whether an ASX-listed entity must make a market disclosure to the ASX if it receives a confidential compulsory investigation notice from a regulator, like a notice under section 155 of the Competition and Consumer Act 2010 (Cth) (CCA). A section 155 notice requires the entity to disclose information or documents to the ACCC concerning alleged breaches of the CCA.
For example, the recent decision in Zonia Holdings Pty Ltd v Commonwealth Bank of Australia (No 5) [2024] FCA 477, which related to non-compliance with AML/CTF laws, indicates that market disclosure to the ASX in relation to the receipt of a compulsory regulatory notice may not always be required.
However, whether or not disclosure is required is very much dependent on the precise circumstances, and specialist legal advice should always be obtained.
Some breaches of the CCA can be a criminal and there are also very significant civil penalties for civil contraventions of the CCA, including the greater of:
People who suffer loss or damage as a result of a breach of the CCA can also recover the amount of that loss or damage, including through class action proceedings.
A section 155 Notice and the investigation to be undertaken by the ACCC in connection with the section 155 Notice are both considered by the ACCC to be confidential.
However, given the serious repercussions for breaches of the CCA above, the question arises: does the receipt of a section 155 Notice alleging breaches of the CCA by an ASX-listed entity require the entity to make market disclosure to the ASX in order to comply with its continuous disclosure obligations, despite the ACCC requirement for confidentiality?
Under the ASX listing rules and sections 674 and 674A of the Corporations Act 2001 (Cth), ASX-listed entities have obligations to make immediate disclosure to the market of “material information”, subject to certain exceptions.
Materiality in this context is determined by whether a reasonable person would expect the information to have a material effect on the price or value of the entity’s securities. Information will have a material effect if it would influence an investor in deciding to buy or sell the securities in question.
There are exceptions under which material information can be withheld from the market. Most relevantly for present purposes is information that is insufficiently definite to warrant disclosure, provided it is confidential and a reasonable person would not expect it to be disclosed.
The receipt of a section 155 Notice, of itself, would be unlikely to trigger a disclosure obligation to ASX.
This is because the section 155 Notice is an investigative tool through which the ACCC investigates conduct that may contravene the CCA.
From an investment viewpoint, the mere receipt of a section 155 Notice would be unlikely to influence an investment decision by a rational investor and an investor would need to know much more than the allegations contained in and the receipt of a section 155 Notice to make an informed investment decision.
Indeed in most cases, the listed entity receiving a section 155 Notice will not, at the time of receipt of the section 155 Notice, have enough information about whether the allegations contained in the section 155 Notice have any merit to make an informative market disclosure, that is not misleading, and is realistically useful to investors.
This can be contrasted with the commencement of enforcement proceedings under the CCA which will usually need to be disclosed, assuming that the potential financial and reputational effects of the proceedings would cross the materiality threshold. This will often be the case, having regard to the nature of the allegations and the potential penalty.
That said, depending on the size of the entity and the likely size of the penalty, even an apparently substantial penalty might not be material considering its one-off financial impact. For example, the $700 million penalty for AML breaches ultimately paid by Commonwealth Bank of Australia in the Zonia case was arguably almost immaterial – it was a one-off and less than 10 per cent of the bank’s earnings for the relevant year.
Reputational damage, however, could be meaningful to investors regardless of the size of the penalty and investors might regard the circumstances as leading to a loss of confidence in management, even if financially immaterial.
A decision about making disclosure concerning receipt of a section 155 Notice, when combined with the circumstances giving rise to the section 155 Notice, will never be a simple exercise. This also applies to notices issued by ASIC and AUSTRAC.
There will be tension between the need to inform investors about the receipt of a section 155 Notice and the need to provide information which is realistically useful. A premature disclosure may be uninformative or actually misleading.
The real issue will almost always not be the fact of the notice but rather the circumstances underlying the giving of the notice – that is, whether there has been conduct that could give rise to a liability for a material pecuniary penalty or class action damages, that is known by the listed entity at the time of receipt of the section 155 Notice or shortly thereafter – and management of the listed entity needs to act as quickly as possible to make an assessment of this exposure.
Under the current law, civil penalty liability and civil claims liability for continuous disclosure breaches require proof of intention, recklessness, or negligence – with respect to whether the information should have been disclosed. Moreover, personal accessorial liability for officers of an ASX-listed entity requires knowledge that the information was material (noting there is also a due diligence defence for accessorial liability for civil penalties and civil claims).
In light of the above, ASX-listed entities and their officers should, as soon as possible, take all reasonable steps to consider the section 155 Notice and the circumstances known to the entity that give rise to the allegations contained to the section 155 Notice, in order to be in a position to defend against an allegation of intentional, reckless or negligent non-disclosure or accessorial liability on the part of directors and officers.
One of those reasonable steps would be seeking expert legal advice on the continuing disclosure provisions, taking into account what the entity knows at the time of receipt of the section 155 Notice, and considering what immediate steps it should take to investigate the allegations contained in the section 155 Notice.
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