On 15 March 2018, ASX issued a revised Guidance Note 8 (Continuous Disclosure). This key update relates to guidance provided to ASX listed entities in relation to the disclosure of market sensitive contracts for an acquisition or disposal.
Guidance Note 8 has been updated to contain far more prescriptive guidance in relation to details that ASX generally expect will be disclosed in market sensitive contract announcements. The additional guidance follows recent examples of selective disclosure by ASX listed entities where commercially relevant details of contracts are omitted from announcements and adverse outcomes on renewals and termination have not been released.
Section 4.15 is now express in setting out that ASX announcements in relation to market sensitive contracts should include information about:
- the counterparty to the contract;
- a description of the assets or businesses proposed to be acquired or disposed of;
- the consideration for the acquisition or disposal; the expected date for completion of the acquisition or disposal;
- in the case of an acquisition, the intended source of funds to pay for the acquisition and, if that involves a capital raising, details of the capital raising, including the timetable and its effect on the total issued capital of the entity;
- in the case of a disposal, the intended use of funds (if any) received for the disposal;
- any material conditions that need to be satisfied before the contract becomes legally binding or proceeds to completion;
- any security holder approvals that may be required in relation to the transaction and the timetable for those approvals;
- any changes to the board or senior management proposed as a consequence of the transaction; and
- any other material information relevant to assessing the impact of the transaction on the price or value of the entity’s securities.
Similarly, depending on the circumstances, ASX would generally expect an announcement about the signing of a market sensitive contract with a customer to include information about:
- the name of the customer;
- the term of the contract;
- the nature of the products or services to be supplied to the customer;
- the significance of the contract to the entity;
- any material conditions that need to be satisfied before the customer becomes legally bound to proceed with the contract; and
- any other material information relevant to assessing the impact of the contract on the price or value of the entity’s securities.
ASX has expressed that it will not hesitate to suspend entities, issue queries and require correction of inadequate or misleading disclosures and refer entities to ASIC for enforcement action.
This clear message is presented in response to well publicised reports of ASX listed entities operating in a manner that is inconsistent with the principles of Listing Rule 3.1 and Guidance Note 8. Examples include:
- announcing a contract with a major global customer without providing any details of the nature or substance of the contract or its significance to the entity (ie seeking to benefit from the association with the customer without providing proper disclosure);
- announcing what appears to be a material customer contract without disclosing that it is subject to a trial period or other conditions and therefore may not proceed;
- disclosing revenue projections for customer contracts that do not have a proper basis or that do not state the material assumptions or qualifications underpinning them;
- not disclosing when a previously announced material customer contract is terminated or does not proceed (ie disclosing good news but not bad); and
- misrepresenting customer contracts as being material or with other superlatives when plainly they are not (one of the more notable examples being a listed entity that disclosed a material commercial agreement with a leading financial entity and under which it was to receive less than $1000 in revenue).