Continuous disclosure – the “fault” element in s674A and the Rex decision

Parliament’s intention in introducing s674A of the Corporations Act in 2021 as a civil penalty provision with a “fault” element for breach of continuous disclosure, and confining s674 to a criminal offence only,^[1] was to reduce the financial exposure of entities and their officers by requiring that the state of mind of the entity is taken into account. 

The effectiveness of s674A in achieving that intention had not been the subject of judicial consideration before the recent decision of Mr Justice Black in Regional Express Holdings^[2] (Rex) handed down on 30 June 2026. But disappointingly, the Rex decision offers little guidance on the effect of the “fault” element, and on one reading gives no content to it at all. 

The s674A criteria

To recap, liability under s674A depends on two primary criteria:

1. the entity “has information” that ASX Listing Rule 3.1 requires to be disclosed^[3] – an objective test; and
2. the entity knows, or is reckless or negligent with respect to whether, the information would, if it were generally available, have a material effect on the price or value of the company’s securities – thus requiring a degree of fault.

Section 674 has never had a fault element – liability depends only on whether the entity “has” the relevant information – but since it is now a criminal offence only, the standard of criminal responsibility in Chapter 2 of the Criminal Code applies, so liability also requires a mental element of intention, knowledge or recklessness.^[4]

The first criterion – a company “has information”:

It is now well established in continuous disclosure decisions on s674 pre s674A, particularly after a decision of the Full Federal Court handed down on 28 May 2026 in the long-running Crowley v Worley class action litigation,^[5] that the Listing Rules and therefore s674 (applied as a civil penalty provision) requires an entity to disclose information which it may not actually know, but which it should know. In particular:

• An entity “has information” if an officer of the entity is aware of it or ought reasonably to be aware of it (applying the definition of “aware” in Listing Rule 19.12).^[6]
• If the information in fact exists, reasonable information systems or management procedures ought to bring the information to the attention of an officer, and acting reasonably the officer ought to discern the significance of the information, then s674 and the Listing Rules deem the entity to have the information.
• Applying the above to a financial forecast (necessarily an opinion), if an officer knows or should know information that means the entity does not have reasonable grounds for its opinion, either at the time it published the forecast or at any subsequent time, it is required to disclose that, even if no officer actually forms that view.
• An entity can also be deemed to have information by the application of orthodox corporate law principles for the attribution of knowledge to a company. So for example, if the CFO who is involved in the budgeting process on which a forecast is based has grounds to believe the forecast is unreliable, that information is attributed to the entity, even if the CFO is the only one who has that information and has not communicated the information to the Board who is asked to approve the forecast.  It is sufficient to establish lack of reasonable grounds for a forecast if at least one officer knows of facts and circumstances which are inconsistent with the reasonableness of the forecast.^[7] 

The expansive deeming of the entity to have information that it should know, even if it does not know it, was relaxed (narrowly) by the Full Federal Court in Zonia v CBA,^[8] handed down on 6 May 2025. It was held that CBA was not deemed to have information about transactions that should have been reported under anti-money laundering legislation just because it could have obtained information about the transactions by interrogating a database and making calculations – in short, “could” does not necessarily mean “should”. But the Full Court made clear that this really only applied to CBA in the circumstances of that case^[9].

The above expansive deeming was said to be appropriate because otherwise, officers of an entity could avoid obtaining information about the entity’s business in order to avoid disclosure to the market.  But leaving aside that it would be a demonstrable breach of the duty of care and diligence in s180 to avoid obtaining information needed to manage the business, until officers know the information they will not know that they did not want to know it. The feared vice which the Full Court has addressed is unlikely and the logic is difficult to follow.

The second criterion – knowledge, recklessness or negligence 

Still, the above only applies to the criterion of when an entity “has information”. The additional “fault” criterion for liability under s674A also needs to be satisfied.  This criterion has, or should have, significant content, given it was introduced to reduce insurance and regulatory costs of entities and their officers in complying with continuous disclosure – as a result of its introduction they would not “face the same level of financial risk where they allegedly fail to comply with the continuous disclosure rules”^[10] (under s674 as it then stood).

There are at least two possible readings of s674A arising from the Full Court’s expansive deeming of when an entity “has information”.

The first possible reading is that if (a) the entity “has information” (under the Full Court’s expansive deeming) because an employee did not report facts to an officer which the employee should have done and/or no officer formed an opinion on those facts when the officer should have done, and (b) as a result, the entity did not consider whether the information would have a price or value effect, then the entity is reckless or negligent “with respect to whether” the information would have a material price or value effect. The employee’s failure to report the facts or the officer’s failure to form the opinion resulted in the entity failing to consider whether the information should be disclosed.

The Explanatory Memorandum for the Treasury Laws Amendment (2021 Measures No.1) Bill 2021 noted the purpose of Schedule 2 (which inserted s674A, among other things) was “to ensure that, in determining whether a listed disclosing entity contravenes its existing continuous disclosure obligations, its state of mind is taken into account”.^[11] It would not give effect to this intention to treat the state of mind of the entity as including what its state of mind should or would have been, but was not.

The second possible reading therefore is that s674A(2)(d) focuses on the state of mind of the entity in considering whether the information that the entity “has” will have a material share price or value effect if generally known. It is not just that the entity “has” the information, the question is: does the entity know, or is it reckless or negligent as to whether, that information will have that effect? On this reading, the entity would need to have actual knowledge of the information—it could not be enough that the Full Court would deem the entity to have the information, because an assessment of the materiality of information cannot be made without actual knowledge of the information. If the claimed information is an opinion, the entity could not have actual knowledge of that opinion if no officer has formed that opinion.

On this reading also, s674A(2)(d) would require that the fault is by the organ of the entity that is responsible for ASX disclosure – the “directing mind and will” as it relates to the responsibility for ASX disclosure decisions – typically the Board, or a Board sub-committee. 

The Rex decision

The Rex decision could have shed light on these questions, since it concerned a claim of liability under s674A rather than s674. 

In February 2023, Rex announced its half-year results and said: "Rex is optimistic that the Group will have positive operating profits for the full FY23 barring any further external shocks." Partly because of the way ASIC pleaded its case and because of ambiguity in the evidence as to the financial information available at the time, ASIC failed in its claim that this statement was misleading and deceptive on the ground that it did not have a reasonable basis. However, by 14 April 2023, information disclosed in an email from the CEO and Executive Chair Mr Lim to the NEDs, which included reference to deterioration in domestic sales, "critically low" cash, inability to identify the cause of poor results, combined with other financial information available to Rex at the time, was sufficient to deprive Rex of reasonable grounds for its optimism.^[12]

ASIC also took action against Mr Lim and the NEDs for breach of s180.  Mr Lim admitted contravening s180 both in respect of the making of the 28 February 2023 Announcement and his involvement in Rex's continuous disclosure breach. 

However, the claim against the NEDs failed. ASIC made its claim on the basis that the directors had actual knowledge that Rex no longer had reasonable grounds for its February statement. But it was held that whilst Mr Lim's 14 April 2023 email gave rise to the NEDs having "reason to be concerned," this did not rise to actual knowledge. The Court also found that other periodic reports that the NEDs received were complex documents from which a NED could not be found, to the requisite standard of proof, to have identified the effect of the adverse trends without more.

On the issue of whether the “fault” criterion in s674A was satisfied, this was scantly addressed. Justice Black referred^[13] to ASIC’s pleading that “Rex knew that, or alternatively was reckless or negligent with respect to whether, the 2023 Profit/Loss Information^[14] would, or would be likely to, influence persons who commonly invest in securities in deciding whether to acquire or dispose of shares in Rex” and said:^[15]

It seems to me that the finding that Rex was at least reckless as to the pleaded matters follows from the findings that I have reached above and the obvious significance of a lack of reasonable grounds for Rex’s optimism as to its positive operating profit to investors in Rex.

That was it.  Whilst Justice Black had described the financial information available with Rex at various points, he did not identify who within Rex saw the information and should have formed the view that disclosure was required. 

Whilst Rex was held to have breached continuous disclosure as at 14 April 2023, it was held that the matters disclosed in Mr Lim’s email of 14 April 2023 did not give the NEDs actual knowledge that Rex no longer had reasonable grounds for its 28 February 2023 optimism. 

That leaves Mr Lim, whose knowledge would certainly be attributed to Rex given his position as CEO. But since Mr Lim’s email did not give the NEDs actual knowledge of no longer having reasonable grounds, logically those matters would not have given Mr Lim actual knowledge either. However, Justice Black had previously said this:^[16]

The matters disclosed by Mr Lim’s email had plainly concerned Mr Lim and it is not apparent that further information was then known to Rex that would displace that concern. Importantly, the decline in Rex’s operating profit by this date was significant, and readily calculable by Rex’s executives who knew the applicable methodology that had been adopted in the 28 February 2023 Announcement. [our emphasis added]

So it seems Rex was deemed to have information that could have been ascertained by someone within Rex by making calculations, and that was sufficient to constitute information that Rex had, despite no evidence that anyone within Rex had actually ascertained the information.

As noted, Mr Lim admitted breach of s180 for his involvement in Rex’s breach of continuous disclosure after the 28 February 2023 announcement.  Since involvement requires knowing participation, it could perhaps be that Justice Black considered Mr Lim’s conduct in breach of s180 for failing to cause Rex to disclose was a reckless failure of Rex to disclose under s674A. But the uncertainty here is that Justice Black found Rex liable for breach of s674A on the basis of Rex’s recklessness before referring to Mr Lim’s admission, and did not directly link the two findings.

The above suggests the possibility that Justice Black considered that since a combination of information that was available and information that could have become available by someone making calculations showed that Rex no longer had a basis for its optimism, it necessarily followed that Rex was at least reckless in failing to determine whether the information would, if it were generally available, have a material effect on the price or value of the company’s securities; and it was not necessary to ascribe that recklessness to any particular officer of Rex with responsibility for making disclosure decisions.

Concluding comments

On one reading, the Rex decision leaves open the conclusion that the “fault” element does not add anything to the criterion that the entity “has” the information.  That is to say, if the information the entity “has” in totality (both actual and deemed) is required to be disclosed under Listing Rule 3.1, then it is necessarily at least reckless for the entity not to disclose it – the first possible reading of the effect of s674A discussed above.

Hopefully that is not the approach that will be adopted in future cases. It would defeat the purpose of the introduction of s674A if it is sufficient that the entity “has” the information – certainly at least if it only “has” the information because it is deemed to have it but does not actually know it.

The lack of clarity in the judgment may well have been a product of the fact that Rex ran dead (it had gone into administration and was not represented), Mr Lim admitted liability, and none of the NEDs gave evidence.

As things stand, however, it remains to be clearly determined whether the effect of s674A actually achieves Parliament’s intention of reducing the financial exposure of entities and their officers by taking into account the state of mind of the entity.