How to avoid breaching ASX Listing Rules

When it comes to listing on the ASX, even highly experienced directors sometimes make mistakes.

When it comes to listing on the ASX, even highly experienced directors sometimes make the mistake of not disclosing changes to their shareholdings or other interests via an Appendix 3Y.

“If a director fails to make a timely notification, they will not only breach the ASX Listing Rules, but can also breach mirror requirements in the Corporations Act,” says Will Heath, partner at King & Wood Mallesons.

Another error that crops up is failing to get disclosure right. While it is common knowledge among directors that their listed company has continuous and periodic disclosure obligations under the ASX Listing Rules, it is sometimes overlooked that those obligations are duplicated and augmented in the Corporations Act.

“If there’s a breach of disclosure-related obligations by a listed company, that can result in penalties being imposed not only on the company, but also on directors under the Corporations Act and general law,” says Heath. “The Australian Securities and Investments Commission (ASIC) and class action litigants are red hot on disclosure issues, so the consequences of making a mistake can be significant.”

Furthermore, the obligation to comply with continuous disclosure provisions is on the company, not the company’s board. Even if the board does not know certain information but a senior executive does, the company will be held responsible for knowing it. The focus is then on whether the information is market sensitive information or whether disclosure to the ASX is not required, as it falls within an exception.

Claims against directors

ASIC and class action litigants continue to bring disclosure-related claims to Australian courts and a number of those claims are made against directors, as well as the listed entity.

“You can’t get through a month without reading reports of directors being sued or found guilty of disclosure-related breaches,” says Heath, noting that the penalties can be extremely serious. 

In August this year, the Federal Court ordered iSignthis Ltd (iSignthis), now known as Southern Cross Payments Ltd, to pay a $10 million penalty for breaching disclosure laws. Its former managing director and CEO, Nickolas John Karantzis, was also disqualified from managing corporations for six years and penalised $1 million for breaching his director’s duties and failing to ensure information given to the ASX was not false or misleading.

iSignthis had been providing remote identity verification, transactional banking and payment processing services. It was found to be engaged in multiple contraventions of the law between 2018–20 and was delisted from the ASX in November 2022.

False and misleading information

When handing down the penalty, ASIC Deputy Chair Sarah Court said ASIC is committed to taking enforcement action to protect market integrity and to uphold appropriate standards of corporate governance.

“The court has found that iSignthis and Mr Karantzis demonstrated repeated disregard for the law through deliberate acts of non-disclosure and by providing false and misleading information to the ASX,” said Court. “This conduct resulted in significant periods of time where both the market and investors were misinformed.”

Over the years, Heath has seen directors make inadvertent, technical mistakes in their own disclosure of shareholdings and interests. But what’s really important is what happens next. As soon as a mistake is uncovered, appropriate corrective action must be taken, he says.

“If a director is able to explain promptly why a mistake was made and how it was inadvertent, it may be possible for the situation to be remedied with corrective disclosure and without penalties being imposed.”

Regulators take shareholding disclosure very seriously. In its Corporate Finance Update in July, ASIC reminded listed company directors that it considers the Listing Rule/Corporations Act director disclosure obligations for changes in shareholdings and interests to be an essential part of market integrity. Compliance must be treated as a top priority by directors of listed companies.

Adopt best practices to avoid mistakes 

Compliance with the Listing Rules should be seen as a way of winning the trust of investors and the market, as well as a legal imperative, says Heath. 

“Listed companies and directors we work with put in place best practice policies and processes to ensure disclosure is timely, accurate and complies with relevant ASX Listing Rules and the Corporations Act,” he adds. “They don’t treat their policies and processes as a ‘set and forget’. They regularly review them and consider whether improvements can be made.” 

IMPORTANT INFORMATION: This article is for informational purposes only and does not constitute legal advice. If you ever feel you might need guidance, you should consult with a qualified legal professional for advice tailored to your specific situation.