Hello and welcome to the BRR Legal Brief where we bring you the latest legal issues affecting Australian business.  I’m Kate Ritchie and today we’re looking at continuous disclosure obligations, following the volatility that we saw in David Jones stock after it announced a potential takeover bid and its withdrawal on Monday.  Joining me to discuss the case and of course the considerations for companies when it comes to continuous disclosure is Robert Tobias who’s a Consultant at DLA Piper.

Hi Kate.

Hi thank you for joining me in the studio.

Not a problem.

Well Robert before we look at continuous disclosure obligations, can you give us a brief overview of what we saw happen with David Jones over the last week?

Well from my understanding in lateish May a bid was made to DJs which was a private bid by some discussions with them no doubt, and that was followed up with a further bid on Thursday I believe, where they put a price and various conditions.  At that point one wouldn’t of expected David Jones to make any announcement because it was clearly from what we know now quite incomplete.  But it also seems that a blogger on some time on Thursday and perhaps overnight on Thursday night their time, started to leak this information and once it became public David Jones were then forced to do something and they either had to make an announcement or call a trading halt, but with the information they had they seemed well advised to me and made an announcement, although that announcement was very heavily qualified.

Well just talking about the announcement that they made, but more generally when we look at continuous disclosure, what are the obligations for businesses when they make an announcement?

Well under the Listing Rules, and that’s backed up with the Corporations Act, which makes the Listing Rules effectively law, so any breach of the Listing Rules is an offence under the Corporations Act, you have to immediately, and that word causes a great deal of problems for boards, if a reasonable person thinks that they’ve got information or becomes aware of information that can have a material effect on the value of the shares in the particular company, they have to announce it to the stock market.  There are some exceptions and those exceptions require that the information be confidential unless ASIC chooses to say otherwise, a reasonable person would not expect it to be disclosed and I think for our purposes it’s got to be an incomplete proposal or something that under negotiation.

Okay well I’d like to focus on that issue that last issue of an incomplete proposal.  When you’re looking at say the credibility of a bid and deciding whether to make an announcement how does the credibility weigh into the decision process?

Well I think before if you were selling anything and to some extent directors of companies sitting there deciding about what they’re going to recommend to their shareholders about selling, you want to know that you have a bidder that is actually going to be able to make the bid and deliver, and delivery at the end of the day means deliver the money.  So being satisfied that you’ve got a credible bidder is very important.

And just moving on to companies that maybe fall foul of these obligations, what penalties could they be looking at from ASIC?

Well ASIC has two courses of action, one which is now being discussed around legal circles anyway, they have their so called “speeding ticket”; so for breaches of continuous disclosure they can issue a, what we’re calling a “speeding ticket” and companies can be penalised up to $100,000 for each breach, and there haven’t been that many there’s been about 16/17 in the last five to six years, but some quite high profile companies like CBA, Promina, Rio Tinto, more recently Leightons, so there’s that although it best be remembered when people pay for “speeding tickets” they’re not admitting an offence, but it is a way that ASIC has of dealing with it relatively quickly and easily.  But the other course of action for ASIC to take is that it’s simply a breach of the disclosure requirements and can prosecute and for which there is fines and potentially goal terms.

And just finally Robert, this seems to be a fairly complex area for companies looking to decide whether they should disclose something, what advice would you give to companies maybe in a similar situation, and more generally when it comes to these obligations?

Look I think continuous disclosure today occupies an enormous amount of directors’ time because it’s terribly important, it’s fundamental to the operation of our markets, they’ve just got to be very aware of issues arising within their company, most of the larger companies will have processes in place to pick up issues that arise where they can be filtered through and assessments made as to their importance and their materiality to the business.  But they’ve got to get it right, and they’ve got to get their disclosure right and they’ve got to get their timely disclosure right.

Well lots of considerations for business.  Robert thank you so much for joining me in the studio.

My pleasure.

And listeners of course thank you for joining us, we’ll see you next week for our Legal Brief.